A new Global South is taking shape
In the coming months, we will be covering just how war in Ukraine is reshaping markets in the emerging and developing world.
Inverted oil markets
Asia has overtaken Europe as the price-setting region for oil, according to a Reuters senior energy correspondent. Analysts often used the term “Asian premium” to refer to the higher import prices paid for oil from the OPEC+. This trend has reversed, however, as Western sanctions on oil-producing countries have redirected trade at discounted prices.
In 2021, just before de war, it was calculated that Russia produced 540 million tonnes of crude oil, which amounts to 13% of global exports. Of that, 53% was exported to Europe, 20% to China, 4% to the US, and 2% each to Japan and India. These figures show that westbound exports accounted for the majority of revenues, and now the situation is changing rapidly.
A key indicator of Russian oil prices is that of the Urals export blend, which used to sell cheaper than the US Brent in Europe before the war. Now it is selling at discounts of between $10 - $24 in Asia. Relatively cheaper prices have proved to be a boost to many Asian economies. Earlier this month, Indian oil and gas minister Hardeep Singh Puri stated last month that his country will continue buying Russian fossil fuels “if prices continue to be good”.
Other oil producers can however be harmed by Asia’s preference for Russian oil. Sanctioned Iran and Venezuela were able to favour by discounting their own oil to Asian buyers, but now Russia is taking over an important share of their market. The re-routing of shipments also means that traditional sellers, such as the Gulf countries which are geographically close to key buyers, are now undercut by Urals prices. As fossil fuel markets have regained some stability, prices have fallen to pre-war levels. The West Texas Intermediate benchmark price is at $70, the same as in late 2021.
The middlemen
Some countries are also benefitting by acting as intermediaries now that direct links between Russia and the West are being cut. The US Treasury has recently identified Turkey and the UAE as the main channels, as well as Armenia, Uzbekistan and China.
In a press conference, Elizabeth Rosenberg from the US Treasury said UAE companies exported more than $18mn worth of goods to “US-designated Russian entities” between July and November of 2022. She added that $5mn of that was “US-origin, US-export controlled goods to Russia”, including “semiconductor devices, some of which can be used on the battlefield”. This is illegal under current sanctions, but there is no capacity to enforce this outside the US.
In their compliance note to businesses, the US agencies said other red flags for sanctions evasion included the use of shell companies for international wire transfers, last-minute changes to shipping instructions, the use of personal rather than company email addresses, and transactions with entities with little or no online presence.
In a turn of events, Russia has struggled to sell its refined products after Indian, Indian, Chinese and Turkish refiners flooded the market with fuels produced from its own oil, according to Reuters analysts in Moscow.
The Russian card payment system is slowly gaining traction, especially among sanctioned countries. For the most part, the economies involved are small. However, India has shown interest in accepting MIR cards, which could be a major boost to Russian financial infrastructure.
Despite Russia and China’s alliance and the latter’s rivalry with India, Moscow has historically maintained good relations with New Delhi, from Soviet times until today. Relations are mostly based on trade, which complements well between a large industrialising country and a major exporter of natural resources, especially oil and gas. While Indian governments have aligned with the West to counter China, they aren’t concerned by Russia’s politics. This contrasts with Western governments that typically call out human rights abuses or military intervention.
A “liberator” in Africa
For the most part, throughout the developing world, neutrality or friendliness with Russia has been pragmatic, based on beneficial trade relations. However, in some places it is being justified ideologically, especially in Western Africa.
Russia’s influence in Africa has been drawing increasing attention in the last year. Military-led governments in Mali, Guinea and Burkina Faso have brought in Wagner mercenary troops, replacing the French armed forces. The presence of foreign units can be of high value for local governments, as security is a pressing matter.
Some fundamentals have not changed, however. The three West African countries are yet to leave the CFA franc, which is linked to France and the euro. This currency requires member states to hold half their foreign exchange reserves with the French treasury, in order to back its value. Paris is changing some of the conditions, reflecting its diminishing influence in the region.