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During the ruble crisis of 2014/15 Russia announced in the wake of U.S. and European sanctions over reunifying with Crimea that it would begin building a domestic electronic financial transfer system, an alternative to SWIFT.

That system, System for Transfer of Financial Messages (SPFS), is not only now functioning in Russia, according to a report from RT it now handles the financial transfer data for more than half of Russia’s institutions.

According to Anatoly Aksakov, head of the Russian parliamentary committee on financial markets:

The number of users of our internal financial messages’ transfer system is now greater than that of those using SWIFT. We’re already holding talks with China, Iran and Turkey, along with several other countries, on linking our system with their systems,” Aksakov said.

“They need to be properly integrated with each other in order to avoid any problems with using the countries’ internal financial messaging systems.”

This is a follow up to last month’s boast by the Russians that their system was seeing a lot of international interest. How much of this is boast and how much of it is reality remains to be seen, but the important point here is that the minute the U.S. weaponized SWIFT for use in its foreign policy, something like this was bound to occur.

China has its own internal system. And other countries are building theirs as well.

The SWIFT Cost

A common theme on this blog is that control is an illusion. Power is ephemeral. The best way to exercise your power is to have it but never use it. Because once you do use it you define for your enemies the costs of their lack of compliance to your edicts.

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Iran’s Top Oil Customers Resist U.S. Calls For Zero Imports

November 2, 2018

Iran’s Top Oil Customers Resist U.S. Calls For Zero Imports

Just a few days before U.S. sanctions on Iranian oil exports return on November 5, the keywords about how much of Iran’s oil will come off the market are ‘lack of clarity’.

On the one hand, it’s unclear how much Iranian oil will really be removed from the market, considering that Iran has already started to switch off transponders on board of some of its cargoes, although ship-tracking data on the tankers that can be tracked shows that Iranian oil exports are falling, but not as steeply as the market and analysts were expecting just a month or two ago.

On the other hand, it’s unclear whether the United States would grant any waivers, with U.S. Administration officials giving mixed signals.

Yet, one thing is clear, and here analysts were right—Iran’s top two single largest oil customers, China and India, will continue to import Iranian crude. Although China and India’s Iranian oil intake in recent months has fluctuated, and although some of their companies most exposed to the U.S. financial system have drastically reduced or outright stopped imports from Iran (like India’s Reliance Industries), the countries saw their imports in the first three weeks of October increase or hold steady around the volumes from recent months.

According to S&P Global Platts trade flow data, Iran’s oil shipments to China between October 1 and 21 averaged 800,000 bpd, up from around 600,000 bpd average for September. Last year, average Chinese imports of Iranian oil were 602,500 bpd, Platts has estimated.

About half of China’s crude oil and condensate imports from Iran in October, around 400,000 bpd, were bound for a storage hub in Dalian in northeastern China, according to Platts sources and shipping data. The National Iranian Oil Company (NIOC) has reportedly leased some storage capacity at Dalian.

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U.S. And OPEC Flood Oil Market Ahead Of Midterms

November 2, 2018

U.S. And OPEC Flood Oil Market Ahead Of Midterms

OPEC and the U.S. are together adding enormous volumes of new supply, which together have softened the oil market.

In October, OPEC hiked oil production to the highest level since 2016, back before the oil production cuts went into effect, according to a recent Reuters survey. The higher output, led by Saudi Arabia and the UAE, come just as Iranian oil is going offline. Also, Libya saw a sharp rebound in production, although the country is not part of the OPEC+ production cuts.

The 15 countries in OPEC produced an average 33.31 million barrels per day in October, the highest since December 2016. That was also up 390,000 bpd from September. “Oil producers appear to be successfully offsetting the supply outages from Iran and Venezuela,” said Carsten Fritsch of Commerzbank.

Russia, which is not part of OPEC but part of the OPEC+ coalition, continues to produce at post-Soviet record highs.

Iran lost 100,000 bpd in October, due to buyers cutting back as U.S. sanctions near, but the losses were more modest than many analysts had expected. In fact, despite the hardline rhetoric from Washington, the U.S. is poised to grant waivers to several countries that are unable to cut their imports of Iranian oil to zero.

That was largely predictable. Top importers of Iranian oil, including India, China and Turkey, could not slash their purchases to zero without incurring a significant economic cost. The U.S. pressed these countries, but ultimately had to back down. “We want to achieve maximum pressure but we don’t want to harm friends and allies either,” U.S. national security adviser John Bolton said on Wednesday. He recognized that some “may not be able to go all the way, all the way to zero immediately.” The admission is notable since Bolton is widely known as one of the most extreme hardliners when it comes to Iran.

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US Approves Waivers On Iranian Oil Imports As Supply Panic Fades

November 2, 2018

US Approves Waivers On Iranian Oil Imports As Supply Panic Fades

With oil prices already extending the drop from their highs as the trader “panic attack” identified by celebrated energy analyst Art Berman abates, and approaching a bear market from recent highs, a Friday morning report from Bloomberg will likely ensure that prices continue to move lower.

According to an anonymous “senior administration official”, the US will soon approve waivers for eight countries, including Japan, India and South Korea, that will allow them to continue buying Iranian crude oil even after sanctions are reimposed on Monday. China is also believed to be in talks to secure a waiver, while the other four countries weren’t identified. The waivers are part of a bargain for continued import cuts, which the administration hopes will lead to lower oil prices. Secretary of State Mike Pompeo is expected to announce the exemptions on Friday.

Speculation that waivers could be forthcoming had been brewing for some time, and has been one of the factors driving oil prices lower in recent weeks. Pompeo has acknowledged that waivers were being considered for countries who insist that they depend on Iranian supplies,while adding that “it is our expectation that the purchases of Iranian crude oil will go to zero from every country or sanctions will be imposed.” Assuming the US does follow through with the waivers, it’s expected that they would be temporary, and the US would expect that the recipients would continue to wean themselves off Iranian crude. The administration will also reportedly ask that these countries reduce their trade in non-energy goods.

It’s believed that Turkey, another major importer of Iranian crude, may be one of the four working on an exemption, according to Turkish Energy Minister Fatih Donmez told reporters in Ankara on Friday.

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Trump: There’s Enough Oil To Offset Iran Loss

November 1, 2018

Trump: There’s Enough Oil To Offset Iran Loss

President Donald Trump has determined there was enough crude oil and oil products supply globally to offset any loss of supply from Iran after U.S. sanctions enter into force next week.

In a memorandum, Trump said “there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions.”

The memorandum also mentioned there was enough spare production capacity globally to allow for any necessary production increase. Amid growing worry about the global economy, however, the necessity for any production increases in oil has been questioned by analysts and Saudi Arabia’s Energy Minister, Khalid al-Falih, although Falih also separately said the Kingdom will continue to boost production this month.

Earlier this week, Reuters reported that the world’s top three producers—Russia, the United States, and Saudi Arabia—pumped 33 million bpd combined in September. A month later, Russia’s production alone hit another post-Soviet record of 11.41 million bpd.

These figures are in line with the sentiment expressed by President Trump and expectations by some observers that the effect of the sanctions’ entry into effect on prices will be moderate. This is what the Congressional Research Service’s top Iran expert Kenneth Katzman said, commenting on Trump’s memorandum, as quoted by the Washington Examiner.

Recent reports that Iran’s oil exports ahead of the sanctions were higher than earlier estimated also provided fuel for expectations of a moderate price effect, as did the news that Washington has granted India a waiver from the sanctions, obviously satisfied with the nation’s efforts to reduce its imports from Iran.

Sanctions against Iran will enter into effect on November 5 at midnight, a day before the mid-term elections in the United States. Keeping a lid on oil prices ahead of the vote has been a priority for the Trump administration.

US Blames Iran For Impoverishing Civilians While Prepping Further Sanctions

November 1, 2018

US Blames Iran For Impoverishing Civilians While Prepping Further Sanctions

The United States government is preparing to implement an additional level of sanctions against Iran for its refusal to meet a dozen demands that are so absurdly unreasonable that they have been called a regime change policy in all but name. The sanctions which have already been implemented have already badly hurt the Iranian economy, the sting of which is being felt first and foremost by Iran’s poor and sickly.

In an article titled “Iran’s poor to bear brunt of Trump’s oil sanctions“, Financial Times documents how poor Iranians are already strained to the breaking point from the cutbacks they’ve had to make in food and groceries. An article titled “In Iran, US sanctions are being felt, with harsher measures to come” by the Christian Science Monitor details difficulties Iranian charities are having getting medicine to sick children, including chemotherapy treatment, having already run out of four life-saving drugs. In an article titled “US fails to shield humanitarian trade with Iran as sanctions loom“, Al Monitor details the way humanitarian aid, while ostensibly exempt from the sanctions, has been severely impacted by their economic aspect because humanitarian aid costs money. The Wall Street Journal further explains the effects of America’s economic warfare on ordinary Iranian civilians in an article titled “Iran Moves to Shelter Millions as U.S. Sanctions Bite“.

This is before the US implements a new level of attacks upon Iran’s oil industry, a primary economic lifeline, which is scheduled to begin on November fifth. If Iran can’t find a way to get around these crushing sanctions in a significant way, many civilians already stretched far too thin will be pushed past the breaking point.

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Sanctions and the Hypocrisy of Washington and London

October 31, 2018

Sanctions and the Hypocrisy of Washington and London

On March 4 this year a British spy and former Russian citizen, Sergei Skripal, was poisoned in the town of Salisbury, England. He recovered, as did his daughter who had also been affected, and is now in deep security with a new face and name and an increase to his already generous British salary. The toxin involved was a nerve agent usually referred to as Novichok. The British government immediately blamed the Russian government for the incident and ten days after it took place the BBC reported that the British prime minister had expelled 23 Russian diplomats which she described as “actions to dismantle the Russian espionage network in the UK.”

It is notable that it took only ten days for the British government to decide to take action against Russia, in spite of there being no proof whatever that the Russian government was involved in the toxin-induced collapse of Skripal. And London didn’t only expel diplomats, it cancelled all high-level bilateral contacts with Russia and froze “Russian state assets where there is evidence that they may be used to threaten the life or property of UK nationals or residents.”

Then Washington joined in, expelling 60 diplomats, and Reuters reported that “US sanctions against Russia tied to a nerve agent attack in Britain” would add “to the array of economic penalties it has imposed on Moscow in recent years.”

The definition of “sanction” is generally accepted as being “an economic or military coercive measure adopted usually by several nations in concert for forcing a nation violating international law to desist or yield to adjudication” (Merriam Webster), or in the same vein, but with slightly different emphasis, “measures taken by a state to coerce another to conform to an international agreement or norms of conduct” (Oxford).

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Iran’s Worst Nightmare Is Coming True

October 30, 2018

Iran’s Worst Nightmare Is Coming True

In what must seem like a nightmare scenario for Iran, not only is another U.S. president leveling sanctions against its economy, and particularly that economy’s lifeblood, its oil sector, but the current U.S. president has admittedly made it his mission to drive Tehran to its knees over what he sees as non-compliance over the 2015 nuclear accord between western powers and Tehran.

As recently as the start of this month, the oil markets narrative was that perhaps President Donald Trump had pushed a bit too hard by reimposing sanctions against Iran. Oil markets, for their part, were jittery while both global oil benchmark Brent and U.S. Benchmark West Texas Intermediate (WTI) futures hit four-year highs largely on supply concerns. Some predicted that $100 per barrel oil by the end of the year was imminent, while Tehran maintained a defiant tone, stating that neither Saudi Arabia nor OPEC would be able to pump enough oil to compensate for the loss of Iranian barrels, estimated between 500,000 bpd and 1 million bpd.

Now, what a different just a few weeks can make. Oil prices are now trending downward, falling for a third consecutive week as global stock markets tumbled and oil markets focused on a weaker demand outlook for crude going forward. Brent crude fell 2.7 percent last week and is down 10.5 percent from its October 3 high of $86.74. WTI ended the week down some 2.2 percent and has now dropped around 12 percent from its recent high of on October 3. Moreover, in a sign of things to come, hedge-fund and money managers are trimming their bets that crude oil prices will rise.

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Why Oil Prices Could Still Go Lower

October 29, 2018

Why Oil Prices Could Still Go Lower

Crude markets had a panic attack in August and September that sent prices soaring. Sanity is now returning. Prices have fallen but are likely to move even lower over the next few months.

The panic attack was caused largely by Trump’s August 7 announcement that sanctions would be re-imposed on Iran. Anxiety about the effect on oil supply and prices was reasonable but the reaction was hysterical.

From August 15 to October 1, Brent December futures spreads increased $3.01 (175 percent) from $1.72 to $4.73. Brent prices increased $15.53 (22 percent) from $70.76 to $86.29 (Figure 1).

(Click to enlarge)

Figure 1. Brent Dec spreads collapsed from $4.73 to $1.52 since Oct 1 & are now less than when price rally began after announcement to re-impose Iran sanctions in mid-August. Front-month Brent down from $86.29 to $76.17 but still higher than $70.76 Aug 15 price. Source: Barchart and Labyrinth Consulting Services, Inc.

Then spreads and prices collapsed. By October 24, spreads had fallen from $4.73 to $1.52, less than when the price rally began. Front-month Brent price decreased from $86.29 to $76.17. Prices and spreads recovered slightly on October 24 closing at $76.89 and $1.76, respectively.

It seems unlikely that the correction is over. The timing depends on how long it takes for markets to fully recover from what Vitol’s Ian Taylor calls the supply fear factor. After 6 weeks of fear, markets must adjust to the reality that the “oil market is adequately supplied for now.”

Clearly markets are concerned about more than just Iran. Falling or uncertain output from the problem children Venezuela, Libya and Nigeria, and take-away constraints from the Permian basin are critical.

Iran, however, is different because it is a completely artificial supply crisis. It was a choice made by Donald Trump and his advisors. Markets are used to the uncertainty of its problem children but not to the apparent certainty of an executive decision. The reaction was consistent with the cause—certain and linear.

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What sanctions on Russia and China really mean

October 20, 2018

What sanctions on Russia and China really mean

The Pentagon may not be advocating total war against both Russia and China – as it has been interpreted in some quarters

The Trump administration has taken a hard line against China and Russia. Photo: IStock

A crucial Pentagon report on the US defense industrial base and “supply chain resiliency” bluntly accuses China of “military expansion” and “a strategy of economic aggression,” mostly because Beijing is the only source for “a number of chemical products used in munitions and missiles.”

Russia is mentioned only once, but in a crucial paragraph: as a – what else – “threat,” alongside China, for the US defense industry.

The Pentagon, in this report, may not be advocating total war against both Russia and China – as it was interpreted in some quarters. What it does is configure the trade war against China as even more incandescent, while laying bare the true motivations behind the sanctioning of Russia.

The US Department of Commerce has imposed restrictions on 12 Russian corporations that are deemed to be “acting contrary to the national security or foreign policy interests of the US.” In practice, this means that American corporations cannot export dual-use products to any of the sanctioned Russian companies.

There are very clear reasons behind these sanctions – and they are not related to national security. It’s all about “free market”competition.

At the heart of the storm is the Irkut MC-21 narrow-body passenger jet – the first in the world with a capacity of more than 130 passengers to have composite-based wings.

AeroComposit is responsible for the development of these composite wings. The estimated share of composites in the overall design is 40%.

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Germany Clashes With The U.S. Over Energy Geopolitics

October 18, 2018

Germany Clashes With The U.S. Over Energy Geopolitics

The United States and the European Union (EU) are at odds over more than just the Iran nuclear deal – tensions surrounding energy policy have also become a flashpoint for the two global powerhouses.

In energy policy, the U.S. has been opposing the Gazprom-led and highly controversial Nord Stream 2 pipeline project, which will follow the existing Nord Stream natural gas pipeline between Russia and Germany via the Baltic Sea. EU institutions and some EU members such as Poland and Lithuania are also against it, but one of the leaders of the EU and the end-point of the planned project—Germany— supports Nord Stream 2 and sees the project as a private commercial venture that will help it to meet rising natural gas demand.

While the U.S. has been hinting this year that it could sanction the project and the companies involved in it—which include not only Gazprom but also major European firms Shell, Engie, OMV, Uniper, and Wintershall—Germany has just said that Washington shouldn’t interfere with Europe’s energy choices and policies.

“I don’t want European energy policy to be defined in Washington,” Germany’s Foreign Ministry State Secretary Andreas Michaelis said at a conference on trans-Atlantic ties in Berlin this week.

Germany has to consult with its European partners regarding the project, Michaelis said, and noted, as quoted by Reuters, that he was “certainly not willing to accept that Washington is deciding at the end of the day that we should not rely on Russian gas and that we should not complete this pipeline project.”

In July this year, U.S. President Donald Trump said at a meeting with NATO Secretary General Jens Stoltenberg that “Germany is a captive of Russia because they supply.”

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Opinion: Powell has lost his North Star, and the Fed is flying blind

October 16, 2018

Opinion: Powell has lost his North Star, and the Fed is flying blind

The Fed risks raising interest rates too much as the compass spins wildly

Stars appear to rotate around Polaris, the North Star, in this time exposure of the Kitt Peak National Observatory near Tucson, Ariz.

Federal Reserve Chairman Jerome Powell is in an unenviable position. Folks expect him to fine-tune interest rates to keep the economy going and inflation tame but he can’t make things much better — only worse.

Growth is nearly 3% and unemployment is at its lowest level since 1969. What inflation we have above the Fed target of 2% is driven largely by oil prices and those by forces beyond the influence of U.S. economic conditions — OPEC politics, U.S. sanctions on Iran, and dystopian political forces in Venezuela and a few other garden spots.

When the current turbulence in oil markets recedes, we are likely in for a period of headline inflation below 2%, just as those forces are now driving prices higher now.

Overall, long-term inflation has settled in at the Fed target of about 2%. The Fed should not obsess about it but keep a watchful eye.

Amid all this, Powell’s inflation compass has gone missing. The Phillips curve, as he puts it, may not be dead but just resting. To my thinking, it’s in a coma if it was ever alive at all.

That contraption is a shorthand equation sitting atop a pyramid of more fundamental behavioral relationships. Those include the supply and demand for domestic workers and in turn, an historically large contingent labor force of healthy prime-age adults sitting on the sidelines, the shifting skill requirements of a workplace transformed by artificial intelligence and robotics, import prices influenced by weak growth in Europe and China, and immigration.

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NATO Coordinates Information War on Russia

October 15, 2018

NATO Coordinates Information War on Russia

The US, Britain and other NATO allies upped the ante this week with a coordinated campaign of information war to criminalize Russia. Moscow dismissed the wide-ranging claims as “spy mania”. But the implications amount to a grave assault recklessly escalating international tensions with Russia.

The accusations that the Kremlin is running a global cyberattack operation are tantamount to accusing Russia of “acts of war”. That, in turn, is creating a pretext for NATO powers to carry out “defensive” actions on Moscow, including increased economic and diplomatic sanctions against Russia, as well as “counter” cyberattacks on Russian territory.

This is a highly dangerous dynamic that could ultimately lead to military confrontation between nuclear-armed states.

There are notably suspicious signs that the latest accusations against Russia are a coordinated effort to contrive false charges.

First, there is the concerted nature of the claims. British state intelligence initiated the latest phase of information war by claiming that Russian military intelligence, GRU, was conducting cyberattacks on infrastructure and industries in various countries, costing national economies “millions of pounds” in damages.

Then, within hours of the British claims, the United States and Canada, as well as NATO partners Australia and New Zealand followed up with similar highly publicized accusations against Russia. It is significant that those Anglophone countries, known as the “Five Eyes”, have a long history of intelligence collaboration going back to the Cold War years against the Soviet Union.

The Netherlands, another NATO member, added to the “spy mania” by claiming it had expelled four members of Russian state intelligence earlier this year for allegedly trying to hack into the headquarters of the Organization for the Prohibition of Chemical Weapons (OPCW), based in The Hague.

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India Yet To Figure Out Way To Pay for Iranian Oil Imports

October 15, 2018

India Yet To Figure Out Way To Pay for Iranian Oil Imports

India hasn’t worked out yet a payment system for continued purchases of crude oil from Iran, Subhash Chandra Garg, economic affairs secretary at India’s finance ministry, said on Friday.

India’s Oil Minister Dharmendra Pradhan has conveyed the message that his country would continue to buy Iranian oil to some extent, Garg told CNBC TV18 news channel, as quoted by Reuters.

Recent reports have it that India has discussed ditching the U.S. dollar in its trading of oil with Russia, Venezuela, and Iran, instead settling the trade either in Indian rupees or under a barter agreement.

India is Iran’s second-largest single oil customer after China and was expected to cut back on Iranian oil purchases, but it is unlikely to cut off completely the cheap Iranian oil that is suitable for its refineries.

India wants to keep importing oil from Iran, because Tehran offers some discounts and incentives for Indian buyers at a time when the Indian government is struggling with higher oil prices and a weakening local currency that additionally weighs on its oil import bill.

But the United States continues to insist that it expects Iranian oil buyers to bring their purchases down to zero.

Earlier this week, Indian officials said that they hoped India could secure a waiver from the United States, because it has significantly reduced purchases of Iranian oil. Late last week, the United States hinted that it was at least considering waivers.

Meanwhile, Special Representative for Iran Brian Hook is currently touring India and Europe to discuss U.S. foreign policy toward Iran, the U.S. Department of State said on Thursday.

Special Representative Hook and Assistant Secretary of State for Energy Resources Francis R. Fannon are will be meeting with Indian government counterparts for consultations.

“During this trip, Special Representative Hook will engage our allies and partners on our shared need to counter the entirety of the Iranian regime’s destructive behavior in the Middle East, and in their own neighborhoods,” the State Department said.

Saudi Stocks Crash Most Since 2016 As Riyadh Threatens US With “Very Strong” Retaliation

October 14, 2018

Saudi Stocks Crash Most Since 2016 As Riyadh Threatens US With “Very Strong” Retaliation

Saudi Arabia warned on Sunday it would respond to any “threats” against it as its stock market crashed the most since 2016 after President Trump’s warning of “severe punishment” over the disappearance of Washington Post contributor Jamal Khashoggi.

On Saturday, Trump said the U.S. could take “very, very powerful, very strong, strong measures” against the country if its leaders are found responsible for the Saudi citizen’s fate. The kingdom, which denies its involvement in Khashoggi’s disappearance, announced it would retaliate against any punitive measures with an even “stronger” response, the Saudi Press Agency reported, citing an official it didn’t identify.

“The kingdom affirms its total rejection of any threats and attempts to undermine it, whether through economic sanctions, political pressure or repeating false accusations,” the kingdom’s statement said. “The kingdom also affirms that if it is (targeted by) any action, it will respond with greater action.”

Saudi Arabia has traditionally been one of Trump’s closest foreign allies, the US president made a point of visiting the kingdom on his first overseas trip as president and has touted arms sales to Saudi Arabia. But both the White House and the kingdom are under mounting pressure as concern grows over the fate of the veteran journalist, who hasn’t been seen since he entered the Saudi Consulate in Istanbul on Oct. 2.

The Saudi response came after Saudi Arabian stocks slumped the most since 2016 amid a broad selloff over collapsing relations with the US, with the Tadawul All Share Index, or TASI, plunging by 7% at one point during the week’s first day of trading, the most since December 2014, with all but seven of the gauge’s 186 members fell, led by Saudi Telecom, which declined 6.2%, Jabal Omar lost 6% and Saudi Basic Industries Corp. retreated 1.9%. Selling volume soared, with the number of shares traded more than double the 30-day average.

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