Posts Tagged ‘India’

US Build Act Meant To Make an Alternative to China’s Belt and Road

October 20, 2018

The just-passed US Build Act will create a new agency to lend to developing countries, particularly in Asia and Africa The legislation elevates the US into a potent player in global development financing, five years after Xi Jinping launched his…

BY BHAVAN JAIPRAGAS

Democrats and Republicans in the United States may be deeply divided on almost every aspect of President Donald Trump’s inconsistent foreign policy, but on one issue they are in unison: China’s US$1.1 trillion “Belt and Road Initiative” must be contained.

That rare spirit of bipartisanship was clearly evident this month with the passing of the Better Utilisation of Investment Leading to Development (Build) Act by supermajority votes in both chambers of the American legislature.

Signed into law by Trump on October 5, the act – latched onto must-pass legislation reauthorising the Federal Aviation Administration – will create a new agency that, just like the belt and road plan, will make available loans and guarantees to developing countries, particularly in Asia and Africa.

While the soon-to-be-formed US International Development Finance Corp (IDFC) will have an exposure cap of US$60 billion – a drop in the ocean compared with Chinese-backed development financing – the American effort is viewed by some quarters as having an edge because it could prove a catalyst for attractive private sector financing.

Is China’s belt and road colonialism? Mahathir: not at all

The IDFC’s set-up, meanwhile, comes as most eyes have been on the US-China trade war.

Regional observers say the ratification of the Build Act could well be of greater significance as the rivalry between the world’s two biggest economies heats up.

Tensions have been growing between the two countries in recent months, with the rivalry playing out everywhere from the disputed South China Sea to the World Trade Organisation. Even the 144-year-old international postal alliance hasn’t been spared; this week, Washington withdrew.

Malaysia-based Belt and Road analyst Koh King Hee said there was little doubt the real prize being fought over was in the arena of global development financing.

With the world’s economies facing a funding gap of some US$2.5 trillion – an estimate offered by the United Nations – to meet development needs, creditor nations stand to gain important strategic cache with developing countries if they are viewed as the preferred lender.

The China Railway Express China-Europe line is part of the country’s belt and road plan. Photo: EPA

For China, facing mounting questions that it is staging a form of “debt-trap diplomacy” through the belt and road plan, this particular contest for credibility against the US is all the more important, observers say.

“In my mind, the US effort with the Build Act is squarely about the intensifying rivalry between the two major superpowers,” said Koh, head of the Belt and Road desk at global advisory firm Baker Tilly.

The IDFC’s creation elevates the US into a potent player in the arena five full years after President Xi Jinping launched the belt and road project, his signature initiative. Aimed at enhancing China’s infrastructure links with the Eurasian continent through loans and guarantees backed by China’s vast foreign currency reserves, the initiative is estimated to have a quantum of about US$1.12 trillion currently, in some 2,220 deals spread across 87 countries.

Meet the 8 Chinese judges who’ll sit on belt and road cases

In a thinly veiled dig at the Chinese initiative – which has come under attack because of the debt-trap diplomacy allegations – the White House said soon after the Build Act’s ratification that the IDFC gave developing countries a viable alternative to “state-directed initiatives that come with hidden strings attached”.

This week, the chief architect of the law was unequivocal about its objectives.

Ted Yoho, a Republican Congressman from Florida, told The New York Time sthat long-time foreign-aid sceptics like himself and President Trump had backed the Build Act as a direct response to China’s burgeoning largesse towards developing economies.

“I’ve changed, and I think he’s changed, and it’s all about China,” Yoho told the Times.

For observers here in Asia and in the US, the big question is whether the American effort will actually take off.

The Build Act codifies major reform in the way the US dishes out foreign aid. For one, the IDFC’s US$60 billion exposure cap is double that of the Overseas Private Investment Corporation (OPIC) it is replacing.

Republican Congressman Ted Yoho says he and President Trump backed the Build Act as a direct response to China’s largesse towards developing economies. Photo: YouTube

Unlike the OPIC, which was set up in 1971, the IDFC will crucially also be allowed to invest in equity – a practice commonplace among belt and road-linked Chinese lenders.

This would mean the projects IDFC finds itself financing may be a sea change from the kind of efforts OPIC was involved in: political risk insurance to support the expansion of Kenya’s tourism industry, the construction of irrigation equipment in India and small-scale infrastructure work in Eastern Europe following the fall of the Berlin Wall.

The IDFC of today may find itself being asked by countries to guarantee large-scale infrastructure projects such as ports and metro lines.

Edwin Truman, an American economist specialising in international finance institutions, told This Week in Asia that “as with all reform, the proof of their effectiveness will be in their execution”.

Said the former top International Monetary Fund official: “On this, one can be hopeful but also have doubts. We do not have a great history in some areas of our foreign assistance programmes.”

Mahathir’s pushback against Chinese deals shows belt and road plan needs review

Observers and development-financing insiders warn against prejudging the IDFC solely on the basis of its exposure cap, which pales in comparison to what the Chinese have lent since 2013 at concessionary and non-concessionary terms.

China’s two policy banks, the Chinese Development Bank and the Export-Import Bank of China, had together lent foreign countries some US$700 billion by 2014, according to one study – making its outstanding lending amount on par with the combined lending of the World Bank, European Investment Bank, Inter-American Development Bank, African Development and Asian Development Bank at the time.

Concessionary interest rates offered by the two Chinese lenders range at around 3 per cent, far lower than commercial rates but generally higher than state-backed Japanese loans that can run at about 0.5 per cent.

A Chinese government propaganda billboard promoting President Xi Jinping’s signature belt and road plan. Photo: AP

Japan last year offered India a 50-year loan at 0.1 per cent to fund a bullet train project between Mumbai and Ahmadabad, the financial hub of Prime Minister Narendra Modi’s home state of Gujarat.

“The US is never going to match China in terms of the belt and road’s scale and coverage,” said Koh, the Malaysia-based belt and road watcher.

Koh and fellow analysts such as Alvin Camba, a Filipino researcher of Chinese foreign direct investments at Johns Hopkins University, said the US would likely bank on its vast, freewheeling private banking sector and network of strategic partners to offer debtors “blended financing” options.

“America’s cornerstone will certainly be its ability to gather private sector participation and pledges of transparency and accountability and American values and so forth,” Camba said.

Where does Imran Khan’s government stand on China’s Belt and Road?

A senior banker at a major Southeast Asia lender told This Week in Asia that IDFC guarantees of projects in vulnerable economies – particularly countries with poor credit ratings – could prove crucial in galvanising support from private financial institutions in Washington-friendly Asian countries.

What won’t work in Asia, however, is if the US pitches the IDFC as a white knight that will save credit-starved emerging economies from Chinese debt-trap diplomacy.

That narrative – already prevalent in comments from Yoho and the White House – suggests the Chinese are intentionally creating client states by dishing out loans on which they know countries will default.

Camba said hawkish American foreign policy think tanks were pushing that narrative.

“It just does not logically follow because you have one or two bad projects and then you have 20 good projects … or maybe just 10. How can you conclude that that’s debt diplomacy? It doesn’t follow,” the Filipino researcher said.

Observers say the US will never match China in terms of the belt and road’s scale and coverage. Photo: EPA

In the medium term, China may have little choice but to put up with the malevolent labels put on its international development financing efforts, with the US having the upper hand in the global narrative battle.

“The problem for China is that the English-speaking world is dominated by the US. It just can’t explain, it is crowded out,” Koh said.

Still with the slew of reviews taking place over belt-and-road-linked projects everywhere from Malaysia to the Maldives, Pakistan, Sri Lanka and Africa, Koh said competition from the US might be a good thing.

Chinese handling of Kazakhs a bump in Belt and Road

These countries are among those that have suggested they may have been given lopsided terms by Chinese lenders, or that the Beijing-linked funds were being diverted in the direction of surreptitious activities.

In Sri Lanka, The New York Times in June reported that belt and road funds may have been used to fund Beijing-friendly politicians’ campaigns.

In Malaysia, the new government of Prime Minister Mahathir Mohamad has suggested loans from Chinese-backed infrastructure projects may have been used to cover up the multibillion-dollar 1MDB financial scandal allegedly involving the toppled former leader Najib Razak.

Koh said he foresaw Beijing making transparency a top theme when it hosted the leaders of belt and road countries next year.

“So there will be some changes, for the better where China and the belt and road is concerned. Competition from the US will make sure that happens.”

https://www.scmp.com/week-asia/geopolitics/article/2169441/trump-strikes-blow-us-china-struggle-build-act-contain-xis

Advertisements

Iran calls US efforts to cut its oil exports to zero ‘political bluff’

October 17, 2018

Statements by the United States that it would reduce Iran’s oil exports to zero are a “political bluff,” the head of state-run National Iranian Oil Company (NIOC) said, according to a report published by Tasnim news agency on Wednesday.

US previously said they aim to reduce Iran’s oil exports to zero. (AFP)

.
US officials have said they aim to cut Iran’s oil exports to zero to force its leaders to change their behavior in the region. US sanctions on Iran’s oil exports are scheduled to kick in on Nov. 4.

.
NIOC head Ali Kardor said US President Donald Trump had been trying to reduce Iran’s oil exports for months.

.
“The president of America has done whatever he can and he knows very well that getting Iran’s oil exports to zero was a political bluff,” Kardor said.

.
The US administration has been pushing its allies to cut Iranian oil imports and encouraging Saudi Arabia, other OPEC states and Russia to pump more oil to meet any shortfall.

.
Kardor said Iran did not have any difficulties receiving payments for oil exports and said the Islamic Republic could accept payments in euros instead of dollars if necessary.

.
“There is no problem on this issue,” Kardor said, Iran’s ISNA news agency reported. “With European support there will not be a problem.”

.
European powers have been trying to salvage a nuclear accord with Iran after the United States withdrew in May.

.
The European Union said last month it was considering setting up a Special Purpose Vehicle (SPV) to facilitate trade with Iran and said it could be in place before November.

.
European diplomats have said the SPV would create a barter system, similar to one used by the Soviet Union during the Cold War, to exchange Iranian oil for European goods without money changing hands.

Kardor said Iran was scheduled to sign a new oil contract with a foreign company within two weeks, ISNA reported. He did not provide any additional information.

Reuters

Malaysian Minister Azmin Ali Says China Seen with “Admiration and Trepidation”

October 11, 2018

Praise for Chinese leadership, but South China Sea dispute and Trump’s trade war top the list of concerns on second day of SCMP’s China Conference

BY BHAVAN JAIPRAGAS

Malaysia is looking to China to provide “global leadership” in the economic sphere and beyond, a top lieutenant to Prime Minister Mahathir Mohamad said on Thursday, in the latest signal that bilateral ties are thriving after the brief uncertainties that followed the country’s shock election result in May.

Delivering the closing address at the South China Morning Post ’s China conference in Kuala Lumpur, economic affairs minister Azmin Ali’s optimistic tone about Beijing echoed a common refrain among other speakers at the forum that focused on the role Asia’s biggest economy is playing in Southeast Asia.

However, the South China Sea dispute between China and regional countries remained a potential flash point, speakers said. The conference also heard that stability in the region could be compromised if the US-China trade war intensified into a geopolitical conflict and countries were compelled to take sides in a cold war-esque scenario.

Azmin Ali, Malaysia’s economic affairs minister, says the country is looking to China to provide ‘global leadership’ in the economic sphere and beyond. Photo: K.Y. Cheng

The two-day forum – the Post’s first outside its Hong Kong base – was attended by 800 business leaders, diplomats and academics.

Azmin said the new Malaysian government that came to power after the May 9 general election would increasingly see China as a “country to learn from” as it revived a decades-old “Look East” foreign policy first promoted by Mahathir during his 1981-2003 stint in power.

US-China tensions make Asian free-trade deal ‘a priority’

Investors should refrain from judging Kuala Lumpur’s policy through the prism of its recently cancelled Beijing-backed infrastructure projects, said the minister, who is widely viewed as one of Mahathir’s most trusted lieutenants.

Mahathir caused anxiety in Beijing after he announced the cancellation of some US$23 billion worth of Chinese-backed infrastructure projects after he came to power, citing inflated costs and a lack of need.

THE REGION MUST REMAIN A ZONE OF PEACE, FREEDOM AND NEUTRALITY AND MUST NOT BE MILITARISED
Malaysian Economic Affairs Minister Azmin Ali

“Rather than viewing the new Malaysia with anxiety, I urge Chinese businesses to view us through the prism of hope and opportunity,” Azmin told the conference. “Now, more than ever before, Malaysia is one of the most attractive places in Southeast Asia to do business.”

He added: “Today, we expect China to provide global leadership not just in the economic sphere but in soft power by advancing universal values such as freedom of conscience, mutual respect and justice.”

Azmin said the world was watching geopolitical developments in Southeast Asia closely because of its status as a “bellwether” of the effects on trade, diplomacy and security that China’s rise is likely to have on other countries.

But while Malaysia and its neighbours view China with “genuine admiration”, there is also “some trepidation because of its military might”, the minister said.

Chinese construction in the Spratly Islands chain. There are fears the dispute over the waterway are emerging as a proxy for US-China rivalry. Photo: AP

Amid concerns that the South China Sea dispute was resurfacing as a potential proxy platform for US-China rivalry, Azmin maintained his country’s stance that freedom of navigation through the waterway must not be impeded.

“The region must remain a zone of peace, freedom and neutrality and must not be militarised,” he said.

US versus China? Put that cold war talk on ice

Hotly debated by the forum’s 65 speakers were the opportunities springing up because of the current tense geopolitical landscape.

Malaysia’s top trade negotiator, Norazman Ayob, told the conference that the trade tensions gave Southeast Asian countries reason to move quickly to conclude the Regional Cooperation Economic Partnership, which has been in the works for five years.

The partnership will create the world’s largest free-trade zone with involvement from the 10 members of the Association of Southeast Asian Nations, China, India, South Korea, Japan, Australia and Japan.

“The conflict between the US and China has provided an impetus [for] an early conclusion of [the partnership],” Norazman said.

The South China Sea dispute and the wider US-China rivalry was vigorously discussed by leading regional security experts in a panel earlier on Thursday.

Shahriman Lockman, a senior analyst with Malaysia’s Institute of Strategic and International Studies, challenged speculation that the US and China were headed towards a full blown cold war.

The Malaysian researcher said the current situation was far less severe than the decades-long conflict between the US and the Soviet Union.

That conflict involved “hot wars” – such as the Korean war, Vietnam war and the Cambodian civil war – as well as the Cuban missile crisis and a long campaign against communists in Malaysia, the researcher pointed out.

China-SE Asia’s cultural ties are as binding as economic ones

“That was the cold war. It was serious stuff. What we are seeing here today is what I would say is an uneasy peace,” Shahriman said. “It would be hysterical … if you see it as [if] we are entering the kind of intense security condition that we saw in the cold war.”

He added: “The United States does not believe that China can be contained, nor does it want to contain China.”

Still, the region’s countries must resist any pressure to take sides if the US-China rivalry does intensify, said Joseph Liow, the dean of Singapore’s S. Rajaratnam School of International Studies.

Liow said: “As the saying goes, if we don’t hang together, we will hang individually.”

https://www.scmp.com/week-asia/geopolitics/article/2168164/asia-looks-china-admiration-and-trepidation-malaysian-minister

Iranian tanker delivers oil to China

October 9, 2018

A vessel carrying 2 million barrels of Iranian oil discharged the crude into a bonded storage tank at the port of Dalian in northeast China on Monday, according to Refinitiv Eikon data and a shipping agent with knowledge of the matter.

.
Iran, the third-largest producer in the Organization of Petroleum Exporting Countries (OPEC), is finding fewer takers for its crude ahead of US sanctions on its oil exports that will go into effect on Nov. 4. The country previously held oil in storage at Dalian during the last round of sanctions in 2014 that was later sold to buyers in South Korea and India.

The Iranian tanker carried 2 million barrels of oil to the port of Dalian in Northeastern China. (File/AFP)

.
The very large crude carrier Dune, operated by National Iranian Tanker Co, offloaded oil into a bonded storage site at the Xingang section of the port, according to a shipping source based in Dalian, adding this was the first Iranian oil to discharge into bonded storage in nearly four years.

.
The tanker left the Iranian oil port at Kharg Island on Sept. 12, according to ship-tracking data.

.
The Xingang area is home to several tank farms including commercial and strategic reserves. China National Petroleum Corp. (CNPC) and Dalian Port PDA Co. Ltd. both operate commercial storage in the area, according to information on their company websites.

.
An investor relations official at Dalian Port declined to comment.

.
A manager at the bonded crude storage site operated by Dalian Port declined to comment whether Iranian oil were moved to the tanks, calling it the “worst time” to give any comment regarding Iranian crude because of the US sanctions.

.
A person at the CNPC-owned storage site who refused to identify himself when contacted by Reuters said it is “impossible” that the oil is stored there.

.
A spokesman for CNPC said he had no information on this matter.

.
An executive with the China office of National Iranian Oil Co. (NIOC) declined to comment. NIOC also did not respond to an email request seeking comment if it is storing oil at Dalian.

.
The shipping source said there is no buyer earmarked for the cargo.

.
Three other NITC tankers are set to arrive in Dalian in the next week or two, the ship-tracking data shows. Some of those cargoes are also likely to end up in bonded storage as the refineries in the region, controlled by CNPC, are not equipped to process Iranian oil, said three sources at state-run Chinese refiners.

.
China’s Iranian oil buyers, including state-owned refiner Sinopec and state trader Zhuhai Zhenrong Corp, have shifted their cargoes to vessels owned by NITC since July to keep supplies flowing as the US sanctions have been re-imposed.

.
Keeping oil in bonded storage gives the shipment owner the option to sell into China or to other buyers in the region.

.
In early 2014, NIOC leased bonded tanks in Dalian and oil from there was shipped to South Korea and India, Reuters reported.

Reuters

Pakistan can benefit from U.S. – China trade tiff

October 8, 2018

The ongoing trade war between China and the United States can boost the prospects of Pakistani exports to the American market and encourage Chinese producers to relocate to Pakistan to avoid punitive tariffs on their US shipments and take advantage of cheaper labour.

On top of that, business leaders say it may afford Islamabad an opportunity to renegotiate the terms of China’s future investments in and trade with Pakistan.

Abdul Razzak Dawood, adviser to the prime minister on trade, industry and investment, was quoted last week to have told a gathering of textile manufacturers in Karachi that the trade war between the world’s two largest economies could be beneficial for Pakistan.

See: What’s on everyone’s mind in China-US trade war

“The trade war between China and the United States is getting bigger and bigger by the day… and the demand for goods is not declining (in the US market). Pakistan needs to explore ways so that it can benefit from this war.”

Chinese manufacturers can ward off punitive tariffs on their exports to the United States by relocating their labour-intensive industries to Pakistan, according to PBC CEO Ehsan Malik

Pakistan is already seeking the same market access for its exports that Beijing has given to the Association of South East Asian Nations (Asean), New Zealand and Australia under the 2006 Free Trade Agreement (FTA) that is responsible for heavily tilting the trade balance in favour of China.

Image result for Pakistan, factory workers, photos

Islamabad has also asked China to share complete information of its exports, both under and outside the FTA, with Islamabad in order to help it eliminate under-invoicing by Pakistani importers.

Moreover, efforts are on to convince Beijing to encourage its manufacturers to relocate their industry to Pakistan.

The adviser had also told a Senate panel on industries and production that China-US tensions over trade tariffs was a good sign for Pakistan as it would place the country in a better negotiating position (with China).

“The China-US trade war has put Pakistan in an advantageous position and we have become more competitive than China in some areas like textiles. It offers an opportunity for Pakistan to boost its exports to the United States as well as revive the closed manufacturing capacity (mostly in Punjab),” Pakistan Business Council CEO Ehsan Malik told this correspondent.

He says Chinese manufacturers can also ward off punitive tariffs on their exports to the United States by relocating their labour-intensive industries to Pakistan.

“They (Chinese companies) can bring semi-finished goods and convert them into value-added goods for export to the United States. Then there are products that are made in China but not in Pakistan.

Such industries can also be relocated to Pakistan to avert higher US tariffs on Chinese exports.”

A Lahore-based textile exporter, who requested anonymity, was not too optimistic. “In theory, we can take advantage of the American action against China. But we are not ready to benefit from it. We do not have enough capacity to fill the gap. Nor do we have developed our value-added textiles to replace China in the US market. I think countries like India and Bangladesh will have captured the US market by the time we are ready to even start thinking about benefitting from this opportunity.”

By far, China has shown a rather favourable view of most of Islamabad’s demands. It has expressed willingness to take steps to boost its imports from Pakistan in view of the geopolitical advantages it will draw from the completion of the China-Pakistan Economic Corridor (CPEC), a part of the Belt and Road Initiative around which it has pledged to invest more than $60 billion in energy and transport infrastructure.

“The immediate benefit Pakistan can expect from China because of its worsening trade relations with the United States is improvement in trade terms and extension in the repayment period of loans taken for power projects under the CPEC initiative,” the anonymous textile exporter contended.

“It can be followed up with softer terms for future CPEC investments, relocation of Chinese textiles industry to Pakistan and transfer of technology and skills. My advice for the government will be to focus on these items.”

Published in Dawn, The Business and Finance Weekly, October 8th, 2018

https://www.dawn.com/news/1437409/making-the-most-of-china-us-trade-tiff

India, Russia sign $5 billion deal for S-400 air defense systems

October 5, 2018

India agreed a deal with Russia to buy S-400 surface to air missile systems on Friday, the Kremlin said, as New Delhi disregarded US warnings that such a purchase could trigger sanctions under US law.

.
Although there was no public signing, the deal was sealed during President Vladimir Putin’s ongoing visit to New Delhi for an annual summit.

.
“The deal was signed on the fringes of the summit,” Kremlin spokesman Dmitry Peskov told Reuters. The contract is estimated to be worth more than $5 billion and gives the Indian military the ability to shoot down aircraft and missiles at unprecedented ranges.

Indian Prime Minister Narendra Modi, right, hugs Russian President Vladimir Putin before their meeting in New Delhi on Friday, October 5. (AP)

.
But the United States has said countries trading with Russia’s defense and intelligence sectors would face automatic sanctions under a sweeping legislation called Countering America’s Adversaries Through Sanctions Act.

.
A State Department spokesperson said this week that the implementation of the sanctions act would be focused at countries acquiring weapons such as the S-400 missile batteries.

.
Last month, the United States imposed sanctions on China’s military for its purchase of combat fighters as well as the S-400 missile system it bought from Russia this year.

.
India is hoping that President Donald Trump’s administration will give it a waiver on the weapons systems which New Delhi sees as a deterrent against China’s bigger and superior military.

.
After summit talks between Putin and Modi, the two countries signed eight agreements covering space, nuclear energy and railways at a televised news conference.

Reuters

Oil industry snubs EU effort to defy Trump sanctions on Iran

October 4, 2018

Image result for Iran, oil, photos

Big companies say payments plan would not protect them from US penalties The EU has announced plans to create a special payments channel for crude from Iran © Reuters

By Michael Peel in Brussels, David Sheppard in London and David Keohane in Paris

Big European oil companies are spurning the EU’s attempt to shield Iranian crude from US sanctions because of fears the effort would leave businesses exposed to harsh penalties from the Trump administration.

The EU has announced plans to create a special payments channel for crude from Iran, but oil executives and lawyers said the move was largely symbolic because there were no guarantees it would protect big multinationals from US retribution.

Patrick Pouyanné, chief executive of Total, said this week the French oil company would not join EU efforts to bypass US sanctions on Iran. “We cannot afford to take the risk to be banned from using the US financial system,” he told a conference in Russia. The corporate resistance underlines the struggle faced by EU governments that are trying to keep a landmark Iran nuclear deal alive in the face of US sanctions, which are due to be reimposed on oil exports and Iran’s central bank in November. The biggest European buyers of Iranian oil have included Total, Italy’s Eni and Saras, CEPSA and Repsol of Spain, and Greece’s Hellenic Petroleum.

But the US has vowed to punish any company that defies its Iran sanctions. Many big businesses have pulled back from Iran even as their governments seek to maintain commercial ties, which were vital in persuading Tehran to agree to curbs on its nuclear programme under the 2015 atomic accord. An Eni spokesperson said: “We have no presence in [Iran] any more and our trading contracts will naturally expire in November. We will entirely comply with all the sanctions and rules decided by the international community.”

CEPSA, a Spanish refiner that said Iranian oil made up 13 per cent of its purchases in 2017 and the first half of 2018, warned in a share prospectus this week of the risks that sanctions posed to its business. In mid-October a CEPSA refinery in Spain is due to receive 1m barrels from an Iranian tanker named Monte Udala, a shipment that a company spokesman stressed would be its last from Iran.

“All the companies are going to think of their shareholders first, regardless of what the EU does,” one oil industry executive said. “No one is going to run the risk of falling foul of US sanctions.” Data from Kpler, a tanker tracking company, show that Iranian oil shipments to Europe have fallen.

They dropped to 422,000 barrels a day in September, down from 843,000 b/d a year ago and the lowest since early 2016.

The remaining signatories to the nuclear deal last week formally unveiled a Europe-led plan to create a special purpose vehicle to maintain commercial ties with Iran, including for oil exports. The nuclear accord was signed by China, Russia, France, Germany and the UK, as well as Iran and the US.

Federica Mogherini, the EU foreign policy chief, said the proposed new payment channel would “facilitate legitimate financial transactions with Iran”, to allow companies in Europe and perhaps outside to continue to trade there.

Mohammad Javad Zarif, Iran’s foreign minister, told reporters last week that he was hopeful agreement could be reached to allow Tehran to “sell our oil and get the proceeds”. Tehran is adamant that its oil exports will not be shut off and hopes it will be able to sell crude to small and medium-sized businesses in Europe that have scant ties to the US.

EU foreign relations chief Federica Mogherini with Iran's Foreign Minister Mohamad Javad Zarif at the UN

Federica Mogherini and Iran’s Mohammad Javad Zarif (FILE photo)

But John Bolton, national security adviser, last week mocked the EU as “strong on rhetoric and weak on follow-through”, noting that the mooted special purpose vehicle did not exist and had no official target date for its creation.

“We do not intend to allow our sanctions to be evaded by Europe or anybody else,” he added.

A survey of 10 oil trading executives by the Financial Times did not uncover any willing to trade Iranian crude and risk retaliation from Washington. The threat of sanctions has helped drive a rally in oil prices, pushing Brent crude to $86 a barrel this week, the highest level in four years.

“The companies that are global players do care about their US footprint — and they probably care about that an awful lot more than a bit of Iran business,” said Roger Matthews, a senior lawyer and sanctions specialist at Dechert. “For the bigger players it’s difficult to see how this [payments channel] is going to make an awful lot of difference.”

Brett Hillis, partner and sanctions expert at Reed Smith, an international law firm, said the “extraordinary level of concern” among big businesses about being “caught in the Iranian net” made it hard to see any of them participating in the proposed oil payment system.

Some European diplomats have acknowledged privately for months that their plans were a partly symbolic attempt to signal to Iran their continuing commitment to the nuclear deal.

“Companies make their own decisions,” said one EU government minister of the European countermeasures. “In practice, it is unlikely that large groups will want to take any risk, but it is up to them to choose.”

Additional reporting by Najmeh Bozorgmehr in Tehran, Anjli Raval in London and Tobias Buck in Berlin

https://www.ft.com/content/6eef944e-c6ef-11e8-ba8f-ee390057b8c9

Related:

Oil Traders Bet On Oil At $100 Per Barrel By Next Year — Iran Sanctions Anticipated

October 4, 2018

Oil traders have piled into wagers that US crude oil could surge to $100 a barrel by next year, a milestone that until recently many considered unthinkable due to record US production growth and relatively flat global demand.

.
But the imminent return of US sanctions on Iran and bottlenecks keeping US oil from getting to market have fueled a rally that has taken benchmark oil prices to four-year highs.

.
While big producing nations say supply is ample, hedge funds and speculators are increasingly skeptical of that argument, betting the market could rally further as sanctions on Iran’s crude exports return on Nov. 4.

.
The bullishness is visible in the US options market. The number of open positions on $100 December 2019 WTI call options — bets on futures hitting that price by the end of 2019 — has risen by 30 percent in the last week to a record 31,000 lots, according to CME data.

Image result for Iran, oil, flag, photos

.
“Over the last two weeks, there’s been a lot more evidence that even some of the larger customers — India and China — are not going to be buying Iranian crude from November,” said John Saucer, vice president of research and analysis at Mobius Risk Group.

.
As a result, he said, “these sanctions are likely to be a lot more effective than people even thought.”

.
Overall exports from Iran have dropped to 2 million barrels per day (bpd) in September from 2.8 million bpd in April, the Institute of International Finance said.

.
Estimates for how much of Iran’s exports could be affected range from 500,000 bpd to 2 million bpd, and uncertainty over the impact could ultimately foster price swings in either direction.

.
Brent crude, the international benchmark, rose above $86 a barrel on Wednesday, and US West Texas Intermediate (WTI) US crude hit $76 a barrel, both four-year highs.

.
The Trump administration’s decision to renew sanctions on Iran prompted a sharp shift from the OPEC countries. After about 18 months of restraining supply, OPEC agreed to increase output.

.
Oil markets are looking to OPEC and Russia to make up shortfalls in supply. US production, which sits at a record 11.1 million bpd, cannot replace Middle East crudes, such as Iranian grades, in Asian refineries. In addition, transportation bottlenecks are constraining US output.

.
“We continue to see price risks tilted to the upside and do not rule out a spike in oil prices to $100/barrel,” UBS analyst Giovanni Staunovo said.

.
Open interest in $100 December 2018 Brent call options , which expire in late October, is currently more than 50,000 lots, more than any other strike price for that month, according to InterContinental Exchange data.

.
Implied volatility for very bullish Brent options that expire after the Nov. 4 resumption of sanctions has overtaken that for very bearish options, suggesting increased demand for such bullish bets.
This spread, or skew, is at its most bullish since mid July.

.
Open interest in $100 December 2018 WTI calls, which expire in mid-November, has risen to the highest in over four months at about 15,000 lots.

.
Many traders said these $100 bets face long odds. Option contracts used to speculate on far-fetched outcomes tend to be cheap, and if crude’s rally stalls, those positions will expire worthless. But even a short-term jump could make those options more expensive, and holders could sell them for a profit.

ARAB NEWS

http://www.arabnews.com/node/1382561/business-economy

India’s top court clears way for deportation of seven Rohingya to Myanmar

October 4, 2018

India’s Supreme Court on Thursday rejected a petition seeking to stop the government from deporting seven Rohingya men to neighboring Myanmar, the chief justice said, paving the way for their repatriation later in the day.

“We don’t want to interfere with the center’s (government’s) decision,” Chief Justice Ranjan Gogoi said.

Police on Wednesday bussed the men to the border to be deported for illegal entry, the first such move against the community. The men had been in a jail in northeast India since 2012.

Reuters

Reporting by Suchitra Mohanty in New Delhi; Editing by Krishna N. Das

Image result for Rohingya , Myanmar, fighting for food

A Rohingya woman breaks down after a fight during food distribution at a refugee camp. Credit (AP: Bernat Armangue)

Russia Missile Deal Puts India in U.S. Sanctions Crosshairs

October 3, 2018

Penalizing New Delhi over arms purchase risks antagonizing a key security partner, but granting a waiver undermines curbs on Russian military industry

.

Indian Prime Minister Narendra Modi, right, will host Russian President Vladimir Putin on Friday.
Indian Prime Minister Narendra Modi, right, will host Russian President Vladimir Putin on Friday. PHOTO: METZEL MIKHAIL/ZUMA PRESS
.

When Indian Prime Minister Narendra Modi hosts Russian President Vladimir Putin on Friday, one item on their agenda will be closely tracked in Washington: India’s planned purchase of Russia’s S-400 air-defense missile systems.

Washington is targeting Russia’s defense industry and those who do business with the country using a sanctions power mandated by Congress last year. Sanctioning New Delhi for its deal with Moscow, though, would disrupt U.S. efforts to cultivate India as a security partner—a key prong in its Indo-Pacific strategy to counterbalance China’s rise.

At the same time, granting India a sanctions waiver for a more-than $5 billion deal involving one of Russia’s most advanced weapons systems risks undermining Washington’s escalating campaign against Moscow. The Treasury and State Departments last month sanctioned China’s Equipment Development Department for its recent purchases of Sukhoi Su-25 jet fighters and S-400 missiles from Russia. Officials said the move was intended to send a message to other countries considering similar Russian arms deals.

India has declined to back out of the deal with the Kremlin, with a signing ceremony expected during Mr. Putin’s trip. Russia has long been the biggest source of New Delhi’s military equipment, and its supply of spare parts and maintenance services remains crucial to India’s defense needs. Indian military planners see the S-400 surface-to-air missile system—capable of tracking and taking down aircraft hundreds of miles away—as an important asset against neighbors Pakistan and China.

The deal also reflects India’s effort to repair relations with Russia. Those ties have frayed in recent years as India diversified its arms purchases, turning to the U.S. for equipment, including maritime patrol aircraft and attack helicopters. According to the Stockholm International Peace Research Institute, 62% of India’s arms imports from 2013 to 2017 came from Russia, down from 79% in the five preceding years.

The Indian market remains crucial to Russia’s arms industry, which was the world’s second-largest exporter last year. Russia exported $2 billion worth of arms to India last year, some 13% of its total deliveries world-wide, according to Russian defense think tank CAST.

Officials in New Delhi expect the U.S. will understand that India can’t cut Russia out or allow ties to drift, said Harsh V. Pant, head of strategic studies at the New Delhi-based Observer Research Foundation, adding that imposing sanctions would be “highly disruptive.”

“It would revive old debates and suspicions in India about the U.S.’s agenda,” Mr. Pant said. “Few governments in India would be able to do anything substantial with the U.S. for some time.”

Washington is pushing for new security arrangements in Asia that hinge on bringing India, Japan and Australia together in response to China’s increasingly assertive stance in the region. India and the U.S. have signed two defense pacts in as many years that allow the use of each other’s military bases for repairs and replenishment of supplies and give India access to cutting-edge American military communications technology.

India’s purchases of U.S. military equipment during the 2013-17 period rose by more than 500% from the previous five years, according to the Stockholm International Peace Research Institute.

Richard M. Rossow, an expert in U.S.-India policy at the Center for Strategic and International Studies in Washington, said the U.S. would likely give India a waiver because of longer-term security objectives.

“It’s too important not to, though it would be painful,” he said.

The deal would complicate some possible future U.S. military sales to India over concerns that U.S. technology could be used in close coordination with the Russian systems, Mr. Rossow said. The U.S. has tried, so far without success, to persuade NATO ally Turkey to abandon a deal to procure the S-400 system.

In a recent analysis on the planned Russia-India deal, Ashley Tellis, a senior fellow at the Carnegie Endowment for International Peace, said the Trump administration sees purchases of the S-400 by either rivals and allies as “a conspicuous danger to U.S. military operations,” largely because the systems help to constrain the deployment of forces and their freedom to maneuver.

So far, U.S. officials have given mixed signals on New Delhi’s planned acquisition. Defense Secretary Jim Mattis in April cited the U.S.’s relations with India and Vietnam when he asked Congress to give the U.S. government the power to waive Russia-related sanctions, which Congress granted.

In August, Assistant Defense Secretary for Asia Randall Schriver, said the impression that “we are going to completely protect the India relationship, insulate India from any fallout from this legislation no matter what they do” was “a bit misleading.” A few days later, Secretary of State Mike Pompeo said that the U.S. effort was “not to penalize great strategic partners like India.”

The deal, Mr. Tellis wrote, “may be thorniest problem currently bedeviling the U.S.-India strategic partnership.”

Write to Niharika Mandhana at niharika.mandhana@wsj.com

https://www.wsj.com/articles/russia-missile-deal-puts-india-in-u-s-sanctions-crosshairs-1538586974