Russia ratchets up strikes on critical Ukrainian infrastructure

Faced with a series of battlefield setbacks – the loss of Kharkiv Oblast, mounting pressure in Kherson Oblast, and the high-profile attack on the Kerch Strait bridge – the Kremlin was desperate for a win, any win, as criticism of Russia’s tactical competence began to narrow in on the figure of President Putin.

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The majority of low- and middle-income economies dependent on the import of fossil fuel and food are equally apprehensive about the adverse impacts of climate change, migration from man-made and natural disasters, and recurrence of the pandemic.

Import dependent economies are faced with an impending crisis from the economic and financial downturn due to the high price of energy, raw materials, and essential commodities. Many predict high oil prices to persist over the longer-term horizon due to the complexities of the Ukraine war. A diplomatic solution to end the conflict appears to be elusive and far-fetched in the absence of any scope for reconciliation. A most likely scenario suggests protracted warfare against the Russian occupation, disrupting the supply of Ukrainian grains and Russian oil. In the nearer term, looming on the horizon are the threat of an Israeli attack on Iranian nuclear facilities and the Russo-Ukraine war spreading into neighboring Poland, Lithuania, and/or Moldova.

Analysts attribute the high price regime to a diverse set of factors. Low oil prices prevailed during early and middle of 2020, resulting from depressed demand and lower production levels during the pandemic. In April of 2020, oil prices plummeted to $16.34 per barrel as demand for energy dropped due to the disruption in economic and industrial activity in many of the European and Asian economies hard-hit by the pandemic. Low production of oil during the pandemic caused a supply shortage leading to a spike in the price of the commodity. A surge in demand occurred in May of 2020 through to August, with oil prices wavering a little bit lower or above the $40–47 range. In October the prices fell back to $40 and began to rise steadily, peaking at $68 per barrel in February of 2021. Oil prices remained high and climbed to $88.33 a barrel in October of 2021. Demand for energy began to rise in the latter part of 2021 as many countries lifted restrictions on travel and ended lockdowns as the pandemic waned and an economic recovery gathered momentum. Oil prices slumped back to $69 a barrel by the end of November 2021, and began to rise sharply upwards to a peak of $117 per barrel around the middle of June 2022. Prices reached their most recent peak of $122 on June 10, owing to geopolitical tensions from the Ukraine war and the resulting wide disparity in supply and demand.

Analysts from the Economy Forecast Agency (EFA) predict the price for the second half of the year at an average of $114 dollar per barrel. The average oil price for 2023 is expected to rise to $146 per barrel, ranging from a low of $124 dollars in February to a peak of $183.4 dollars per barrel in December. The forecast for the first half of 2024 is even higher at an average of $185.94 dollars a barrel, reaching $200 dollars in the second half of the year. In 2024, the lowest oil price is expected to prevail around $181.73 dollars a barrel in April, rising to a peak of $219.73 dollars per barrel in August. In 2025, the average price forecasted is at $193.31 per barrel, and in 2026 the expected average comes in at $191.43.

Under the high risk, low reward scenario climate change and geopolitical risks are equally dangerous to domestic and regional stability. The likelihood of inundation of coastal areas is highly probable, which risks creating a large number of internally displaced persons (IDP). Rehabilitation and relocation of the IDPs (climate refugees) poses an extra burden on governments having a hard time coping with higher prices of energy, raw materials, and essential commodities. Food security in particular is a critical issue for nations endowed with a large population. Agricultural inputs such as fertilizer and diesel are in short supply, and a downtrend is expected to prevail throughout the remainder of this year and most of 2023. Shortage in the supply of agricultural inputs will reduce overall agricultural output and subsequently inflate the demand for imported food grains and edibles.

Food security is worsening day by day with the war in Ukraine putting the populations of the low- and middle-income nations at risk. United Nations agencies such as the World Food Programme (WFP) have sounded the alarm about food supply shortages, warning governments of an imminent famine in those developing economies that are overly dependent on imported grains and edibles. Ukraine and Russia supply nearly 30 percent of the world’s wheat. Egypt, Turkey, Georgia, Armenia, Azerbaijan, Albania, Mongolia, Nicaragua, Benin, and the Congo (Brazzaville) are the major destinations for wheat from Ukraine and Russia. Major wheat producers in the world include the USA, India, Russia, Ukraine, China, Australia, Argentina, Canada, Turkey, and Pakistan. Top producers have curtailed the supply of wheat to international markets: India imposed a ban on the export of the grain to ensure food security in the wake of high prices caused by the Russo-Ukraine war; China, the largest producer of wheat accounting for 17.5 percent of the global production, retains its entire production for domestic consumption; Russian wheat has been curtailed due to US and EU sanctions; and wheat from Ukraine is stranded due to the blockade of the Black Sea by the Russian flotilla. Taken together, nearly 37 percent of the total global production of wheat produced in China, Russia, India and Ukraine is being kept off global markets.

United Nations and Turkey is engaged in the process of finding a solution to the export of wheat from Ukraine. The establishment of a safe corridor for extraction of the grains from Odessa by the Western alliance with the assistance from affiliates and partners – such as, Turkey and the littorals of the Black Sea – shed some optimism on food security in the midst of overwhelming odds. Safe corridor for the benefit of ‘food security’ is urgently required to guarantee the supply of food for the hungry populations of the world. Politically, the West is in line to garner support from the Global South in its rivalry with the anti-status quo powers (Iran, Russia, China, etc.).

The Economist Intelligence Unit (EIU), in its Global Outlook on Food Insecurity, estimates that the price of wheat will rise by 40 percent. An estimated 570 million people living in the Middle East, Asia, and Africa are vulnerable from the scarcity of the grain. According to the United Nations — Egypt, Turkey, and Bangladesh dependent upon the supply of wheat from Russia and Ukraine for up to 60 percent of their needs, and each may have to go through some belt-tightening until the conflict ends. Crisis-ridden countries such as Yemen, Syria, Ethiopia, and Afghanistan, all of which are dependent upon food aid, remain highly vulnerable to a severe humanitarian crisis.

Russia is the biggest supplier of chemical fertilizers worldwide. Constrained supply of chemical fertilizers is expected to impact upon agricultural productivity in the short term (2022–23/24). Ecuador and Uruguay in Latin America; Mexico in North America; Mongolia, Azerbaijan, and Kazakhstan in Central Asia; Finland, Moldova, Serbia, Estonia, Latvia, Albania, and Belarus in Europe; Togo, Benin, Nigeria, Niger, Burkina Faso, South Africa, and Senegal in Africa – all of these countries depend on the supply of fertilizers from Russia and Ukraine for more than 50 percent of their needs. USA, United Kingdom, Ireland, Germany, France in the Europe; Brazil, Peru, Paraguay in South America; Namibia, Zimbabwe, Democratic Republic of Congo (DRC) in Africa depend on the Russian and Ukrainian fertilizers for up to 25–50 percent of their needs.

Countervailing arguments in favor of shortening the duration of the Russo-Ukraine war rely on a negotiated settlement to the crisis. However, most observers are skeptical of any such possibilities due to the inflexible stand of Russian and Ukrainian leaders regarding any kind of compromise. The economic blowback facing European nations from sanctions on Russian oil and restrictions in Russian gas supply can be a persuasive argument for concluding the war. President Putin will not yield to the pressure on the Russian economy due to sanctions imposed by the US, EU, and alliance partners. Success of the Ukrainians in the battlefield may over time be able to put enough pressure on Moscow to come to the table — however, chances remain slim.

The views expressed in this article belong to the authors alone and do not necessarily reflect those of Geopoliticalmonitor.com

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In the depths of the COVID-19 pandemic, as the list of climate disasters grew and leaders were pitching a green take on infrastructure spending, it appeared for a moment that peak global oil demand might be arriving sooner than many had predicted. Subsequent events went far in dispelling any such notion however, namely a year-long rally in oil prices and severe energy disruptions in China and Europe, both of which were exacerbated by the volatility of renewables-based power generation. Will 2022 resemble the energy market of years past, or will the green revolution be arriving fashionably late?

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January 10 – Euro zone unemployment data.

January 10 – Australia retail sales for November.

January 11 – UK industrial production for November.

January 11 – UK trade balance for November.

January 11 – South Africa manufacturing for November.

January 11 – Brazil CPI for December.

January 11 – China PPI and CPI for December.

January 12 – Euro zone industrial production for November.

January 12 – India CPI for December.

January 12 – United States Core CPI for December. After an estimate-beating 6.8% result in November – the fastest pace of inflation since 1982 – all eyes will be on the December numbers. An upside surprise would add further fuel to the Fed’s hawkish turn, much to the detriment of equities and other asset classes. The US 10-year Treasury closed out 2021 with an abnormally rapid ascent of 30 basis points, and this could be the start of a trend for 2022.

January 12 – US crude oil inventories.

January 13 – US Core PPI for December.

January 13 – US initial jobless claims.

January 13 – China imports, exports, and trade balance.

January 14 – India inflation data for December.

January 14 – UK manufacturing for November.

January 14 – UK trade balance.

January 14 – France and Spain CPI for December.

January 14 – China housing prices for December. The datapoint will shed further light on the extent of rebalancing in China’s housing market, a sector that will be keen to put the upheavals of 2021 behind it. Recent developments suggest this won’t be easy, as debt woes previously centered on Evergrande have spread to other developers that were generally classified as fiscally sound (and even compliant with Beijing’s ‘red lines’); for example, Shimao Group.

World

COVID-19 fast facts

• The omnicron variant continues to spread like wildfire, with global COVID-19 cases up 70% week-on-week; deaths lagged behind, up 10% over the same period. Unsurprisingly, cases were up in every region of the world, with the Americas leading the way at 100%.
• China continues to battle multiple domestic outbreaks ahead of the scheduled start of the Winter Olympic Games in February. Following a two-week total lockdown as mandated by the ongoing ‘no covid’ strategy, the city of Xi’an saw cases drop recently; however, new clusters have cropped up in recent days, most alarmingly in the sprawling tech hub of Shenzhen and Tianjin, the latter of which included a few omicron cases detected for the first time.

Americas

Nato nixes ‘second-class member’ proposal

Nato Secretary-General Jens Stoltenberg has come out against two Russian proposals intended to defuse ongoing Ukraine tensions: a ban on Ukraine joining the alliance, and giving Russia a veto on Nato deployments in member states close to Russia. There’s no real surprise here, as both are diplomatic non-starters for the alliance. However, Stoltenberg’s phrasing may provide some insight into the state of the talks and Nato’s negotiating position, as he stressed that “we cannot end up in a situation where we have second-class Nato members, where Nato as an alliance is not allowed to protect them.” Perhaps herein lies the middle-ground of Russia’s negotiating position, whereby Moscow is seeking some kind of two-tier membership structure to blunt the alliance’s forays into its own backyard.

Europe

Kazakhstan in upheaval as CSTO peacekeepers sent in

The size and ferocity of Kazakh protests have shocked everyone involved, including the Kazakh authorities. The demonstrations began over a fuel price hike, subsequently evolving into a violent airing of grievances over the Nazarbayev era, and the unrest has persisted despite numerous (forced) resignations in the government. Local hospitals have reported dozens of protestor and police deaths, along with thousands of injuries, and some 2,500 CSTO ‘peacekeeper’ troops have now been flown in, primarily from Russia.

There’s no shortage of geopolitical subtext here. First and foremost, the protests are a blow to Russian President Vladimir Putin in more ways than one. They stand as a stark rebuttal of the ‘Nazarbayev model’ of how a strongman should retreat from public life (hand the reigns to a trusted ally and maintain a powerful behind-the-scenes role in government). It would seem that, inevitably, the former leader comes to represent all that ails society absent democratic channels of dissent. Moreover, if the recent arrest of Kazakhstan’s former intelligence chief is any indication, that trusted ally may not be so trustworthy after all, especially when they’re put under massive political pressure. Second, the optics of the CSTO deployment undeniably harken back to the Soviet era in a way that Putin did not intend, potentially frustrating plans elsewhere, notably in Ukraine. Third, depending on how this situation plays out in the short-term, Kazakhstan unrest could complicate ongoing negotiations with the United States over Ukraine (thus far the US has stayed the course).

Where the protests go from here is anyone’s guess, but if they refuse to die down they will persist as a diplomatic thorn in Moscow’s side and, potentially, a military one if the CSTO deployment is expanded in the future.

Eurozone inflation surprises on the upside in December

Euro zone inflation data perpetuated the theme of 2021 in December, reflecting a 5% increase in prices year-on-year – the highest level in the history of the single currency. The reading was yet another upside surprise, with Reuters having predicted a rate of 4.7%, which would have been a decline from November’s 4.9% rate.

ECB officials are now alarmed on two fronts: 1) inflation has yet to peak in the euro zone; and even worse 2) the December reading included a steep jump in food prices, from 1.9% in November to 4.6% in December.

The December surprise could well be consequential. For one, the inflation peak now gets pushed back into 2022, extending the period of time where the ECB is running above its 2% target (it has already hiked its 2022 forecast from 1.7% to 3.2%). Two, rising food prices ups the ante in political terms, adding to mounting pressure for the central bank to shorten its horizon for rate normalization. Though the ECB has thus far remained firm in its commitment to a dovish normalization schedule, we’ve seen how quickly the monetary (and political) winds can change in the United States over the final months of 2021.

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A hefty slate of diplomatic talks is now scheduled for January: one track between Russian leaders and NATO, and another with the Organization for Security and Cooperation in Europe (OSCE). At issue will be the ongoing Russian military build-up on Ukraine’s eastern borders, as well as a list of security guarantees recently circulated by the Kremlin. Whether the build-up turns out to be an act of diplomatic brinkmanship or an actual prelude to Russian invasion, two things are clear: 1) the post-Cold War geopolitical environment of Eastern Europe is transitioning toward something entirely new; and 2) the fate of Ukraine will figure prominently in how this transition continues to unfold.

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There can be no doubt that China is in the midst of economic and ideological flux. Gone is the deferential ‘peaceful rise’ of old, replaced with the more assertive policies expected of an increasingly global military power. Gone too is the supply side-focused and debt-fuelled model of economic growth – at least in theory – with Party officials now promising ‘common prosperity’ as a byword for a more equitable growth model based on domestic consumption and wealth redistribution. Yet numerous challenges loom in 2022 ,which together may slow or even reverse this supposed transition: global trade slowdowns, the omicron variant, the Winter Olympics, a reeling property sector, electricity production shortfalls, and an ever-growing debt balloon. Will Beijing succeed in staying the course?

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The theme of 2021 – that of a global economy recovering from COVID-19, albeit at different paces – was upended toward the end of the year with the sudden advent of the omicron variant. And while hints of the variant’s potential mildness continue to emerge, a return to some degree of lockdown measures is all but assured now, at least for the first few months of 2022. These lockdowns couldn’t come at a worse time for cash-strapped governments, particularly those in the developing world, which are prevailing over ever-growing debt piles as the horizon for normalization gets pushed back further and further with each new variant of concern. Should omicron or any subsequent variant not prove sufficiently mild, then there’s a risk that 2022 could bring a debt crisis to the developing world or elsewhere.

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December 20 – Brazil Focus Market Readout (inflation and central bank rate expectations for the year ahead).

December 21 – Germany consumer confidence.

December 21 – United Kingdom core retail sales for November.

December 21 – Italy producer price index (PPI) for November.

December 21 – Canada core retail sales for October.

December 21 – Canada housing price index for November.

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December 13 – Japan industrial production for October.

December 14 – India WPI inflation for November.

December 14 – Virtual summit between NATO leaders and Russia.

December 14 – UK employment for October.

The post Global Forecast (12-13-2021) appeared first on Geopolitical Monitor.

December 6 – UK construction PMI for November.

December 6 – Germany IHS construction PMI for November.

December 6 – Japan household spending for October.

December 6 – Australia central bank interest rate decision. The RBA is expected to hold the line here on interest rates despite surging housing prices and inflation.

December 7 – Germany industrial production for October.

December 7 – Germany ZEW economic sentiment for December.

December 7 – Euro zone GDP for Q3.

December 7 – US and Canada trade balance for October.

December 7 – Canada Ivey PMI for November.

December 7 – China imports, exports, and trade balance for November.

December 7 – Japan GDP for Q3.

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