The EU has been at it today, and the G7 will follow, we're told. We can easily state what they think it means. Shippers of oil will not qualify for "western insurance and maritime services" if they are buying Russian oil at more than $60/bbl.
Well, some folks say the Russians can only get ~$50 for their oil on world markets anyway. But aside from that: since nobody running Russian oil at, say, $65 will feel obliged to, errr, tell this to the authorities - dear me no, guv'nor: $59.95 and not a cent more, look at my paperwork! - the most they'll suffer is presumably that the cargo will only be insured for that lesser amount. OK, so they'll screw Russia down another dollar for their pains, but no big deal. Or the Chinese will insure them. (Good luck making a contested claim on that policy, though.)
All this "capping wholesale prices" in liquid global markets is crazy. The EU is at it again with gas prices, though that's even less meaningful - they will only be "capped" by governments stumping up the difference between actual import prices and whatever cap they come up with. And the UK may end up getting subsidised EU electricity, as a delightful quirk of the rules, haha.
Incidentally, several EU nations are beginning to get fed up with Germany using the power grids of neighbouring countries to keep itself in imported electricity, and are limbering up to take steps to stop them. Most serious of all is public sentiment in Norway, which hitherto thought it would be great to sell even more of its cheap hydro power into Germany (and other countries, but mostly DE). Well, the hydro producers and the Norwegian grid (which coins transmission fees) still think that: and the taxman, too. But Norwegian consumers have noticed that the export of a load of electricity means the import of German power prices! And on this particular export, they aren't trussed up by EU rules. Watch this space.
ND
20 comments:
Maybe the Indians will insure them. Seems to me that shutting down a chunk of the international market for London insurers will harm us without making much difference to the Russians.
DJK - feature not bug?
Anon: Maybe so. The sanctions are being ordered by the US --- with the willing connivance of His Majesty's ministers and the EU (Stockholm syndrome anybody?). Certainly the US seems more than happy to cut German's exporters down to size so if they think they can screw the City of London (pretty much our last major exporter) then they probably regard that as all to the good.
Niall Ferguson says that in 1913 the UK had a current account surplus of 9% of GDP, and held foreign assets worth 150% of GDP. The Q1 2022 figure is a current account deficit of 8.3% of GDP. I can't find the data on foreign assets, but AEP in the Telegraph reported a figure recently, and I think it was about -150% of GDP, i.e. foreigners own much more UK assets than we own abroad.
When ministers talk about increasing GDP, i.e. economic activity, what they usually mean is building more houses, or importing people to sell each other lattes, or act as bicycle couriers for takeaway food. Creating something of value that can be exported seems low on the list of priorities.
There's been an assumption since the eighties that current account balance doesn't matter. But I can't help thinking that that will change and that one day soon we'll be told that actually, it matters rather a lot.
Actually Nick, the Chinese marine insurance market works well and contested claims are resolved much as they are in London.
Bloke in Callao, your comment made me wonder who was big in the marine hull insurance market, so I looked it up.
Flabbergasted to find that Lloyd's of London have fallen off a cliff since 2016/17 in that market, from top dog by a mile, to fifth behind Nordics, China, Singapore and Japan.
Hmmm, 2016/17, I wonder what happened that year... Though the affliction did not affect
the alternative IUA Member Companies in London club whose market share has stayed pretty stable, though smaller at seventh place.
Nifty charts at page 40 (& 39 for more detail just in 2021) of:
https://iumi.com/document/view/Global_Marine_Insurance_Report_2022__6328f5ebe1d71.pdf
Interesting document, that. I might ask (if I see them soon-ish) some Lloyds blokes I know about that - unfortunately, I'm fairly sure none of them are active in Marine.
At a wild guess, check the charts on pages 15, 19 & 20, 28 & 29, 50 and 57. OK, bit of a list, and it's a wild guess, but Lloyds insurers decided to get away from Hull due to their experience from around 2010/11 or so.
Fun fact - apparently SEK is highly correlated with US Tech equity. No idea about NOK or DKK.
Might by mainly just FX, though.
"There's been an assumption since the eighties that current account balance doesn't matter. But I can't help thinking that that will change and that one day soon we'll be told that actually, it matters rather a lot."
Yes I've been hammering the point to Tim Worstall at his blog and his view seems to be the (pretty mainstream one) that current account deficits don't matter any more, we can always sell stuff to foreigners to balance the books. Reams of stats about how many trillions of 'wealth' we create each year (mostly property based natch) and thus we can easily continue to sell it to the gullible foreigners for ever and a day in return for their oil/gas and goods.
To which my point is the same as yours, a big trade deficit is one of those things that don't matter for ages until suddenly they matter more than anything else. Just like LDIs didn't matter at all for a decade or more and then suddenly the sky was about to fall in because of them. Or the fact we didn't make PPE any more was quite a big deal out of the blue in March/April 2020.
My feeling is that one day something will break that cannot be solved by the BoE stepping in with its money printer (as everyone now expects will happen if the UK economy so much an breaks a metaphorical finger nail) because that just makes the problem worse. They were are REALLY f*cked.
'Then we' are REALLY f*cked.......
This is one of the things that people don't seem to understand re Russia/Ukraine.
"Muh gdp!"
But if one nation's GDP consists of selling houses, coffee and childcare to each other, and another's consists of actually producing things that people want to buy (even if the customer is your Armed Forces), which economy is "stronger"?
https://www.rusi.org/explore-our-research/publications/commentary/return-industrial-warfare
We found out how strong we were when Covid was released/escaped, when health chiefs waited like cargo-cultists for planes from China to arrive with the protective equipment we could no longer make ourselves.
Last time I was in an X-ray centre some 15 years back, the X-ray machines all said GEC and were all made in China.
Still, I'm looking forward to the non-nuclear phase of WW3, when Boris, Blair and their children all volunteer for the Bakhmut front. I'm sure Jonathan Freedland and the rest of the Guardian op-ed crowd will be joining them too. No way would they be heading for New Zealand.
"shutting down a chunk of the XYZ market for London will harm us without making much difference to the Russians."
The sanctions seem to have been of the shooting-ourselves-in-the-foot variety from the beginning.
Why didn't our Rolls Royce civil service have a more effective set of sanctions already planned for such an eventuality?
Or is it that sanctions are almost always a hopelessly stupid idea and sometimes downright vile?
https://www.youtube.com/watch?v=RM0uvgHKZe8
I find it hard to believe that they will seriously go ahead with cutting the whole of Europe off from Russian Oil with this "price cap" insanity.
Have they drawn up plans to ensure that delivery lorries can get the fuel necessary to keep supermarkets and other food shops supplied? And what are the plans to replace all the plastics and other outputs from when they permanently shut down Europe's chemical industries by depriving them of energy and feedstock?
I seem to recall that the big BASF plant in southern Germany consumes more oil than the whole of Switzerland. You can't just turn these plants off and on again. Nozzles and pipes cool, clog, and are permanently ruined. Once they are shut down, it is quite possibly permanent. Glass manufacturing is similar. And of course around 50% of the EU's aluminium and zinc manufacturing has already been closed down, along with a large number of steel plants.
We have a sanctions policy that deprives ourselves of essential raw materials which are converted into far more valuable manufactured products. These sanctions are an irritation for Russia but are crippling for European economic output. Europe simply can't replace the volume from long-standing cheap oil contracts with what is available on the spot markets no matter how much the price goes up. And don't forget that Saudi Arabia recent cut oil production. So the oil is just not there.
Are there any adults in the room? It doesn't appear so.
Oil can be replaced with hydro from reservoirs of fairies tears. Unicorn breath powered turbines. Smug powered panels capturing the rays of virtue signalling self-worshipers will provide all that is required.
https://www.theguardian.com/uk-news/2022/dec/04/striking-uk-workers-playing-into-putins-hands-says-zahawi
"If you can afford to pay your bills, Putin will have won"
Snow it is then.
Good.
The harder this winter is the better.
'Playing into Putin's hands.'
When it comes to waving the blue and yellow flag and the cold, hard reality there really is a difference. The Brits won't do a bit of hardship in support of Zelensky when it comes to it.
This is the true cost of Boris playing to the crowds and stoking up a football match type mood "Plucky Ukraine !" and making us the #1 Russian enemy. Union strops and a Starmer Govt in 2024 it is then.
Be fair E-K, it's not "union strops" when inflation is 10% plus and your pay rise is 3%. What's infuriating is that this inflation is entirely due to UK/EU state policy of boycotting Russian energy.
It's UK/EU using the "energy weapon", not Russia.
It was meant to bring the Russian economy to its knees, it's bringing EU/UK to their knees instead.
I'm trying to remember. When the US/NATO removed the entire Serbian electric grid in order to defend the breakaway Kosovo region from the forces of the legal administration, were the BBC and Guardian talking about war crimes? When some thousands of Iraqis were killed in the Blair/Bush invasion of Iraq, where were the tribunals - or indeed the tearful parents on our TV screens?
That was my point entirely, Anonymous.
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As well as causing the Strep A crisis in kids (lack of immunity, something I feared from lockdown) there is this comment by Peter Hitchens about what might be causing blood shortages:
A colleague, trying hard to give blood for the first time, was actually on the way to the blood bank when he received a text telling him his long-booked session was cancelled. This staff shortage is plainly a severe crisis. How demoralising and wasteful. Did the Covid panic persuade many people, especially women, that slogging to work for wages that barely paid for the childcare, wasn’t worth it? I think there has been a very deep change in our attitude to work.
How much is oil tracked?
Is there anything stopping Russia selling it another country and the 3rd country selling it back to the EU at a price higher that $60?
If this is possible then what's the point in all of this other than a massive virtue signal?
If it stays on the water, it's tracked permanently
If it goes into tankage or inland transport ... much more difficult
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