Ukraine Update: Saudi Arabia and UAE leaders ‘decline calls with Biden’

Incidents following the Ukraine Crisis are developing dramatically. The world markets are also bearing the Crisis’ brunt.

A report by The New York Times said:

A digital barricade went up between Russia and the world. Both Russian authorities and multinational internet companies built the wall with breathtaking speed. And the moves have ruptured an open internet. TikTok and Netflix are suspending their services in the country. Facebook has been blocked. Twitter has been partially blocked and YouTube’s future is in doubt. Apple, Samsung, Microsoft, Oracle, Cisco and others have pulled back or withdrawn entirely from Russia. Even online video games like Minecraft are no longer available.

A Reuters report said:

Russia warned the West on Wednesday that it was working on a broad response to sanctions that would be swift and felt in the West’s most sensitive areas.

“Russia’s reaction will be swift, thoughtful and sensitive for those it addresses,” Dmitry Birichevsky, the director of the foreign ministry’s department for economic cooperation, was quoted as saying by the RIA news agency.

Media reports said:

The de-facto leaders of Saudi Arabia and the United Arab Emirates (UAE) have declined to arrange calls with US president Joe Biden in recent weeks as the U.S. and its allies have sought to contain a surge in energy prices caused by the Ukraine Crisis.

According to the Wall Street Journal, citing Middle East and U.S. officials, both Saudi Crown Prince Mohammed bin Salman and the UAE’s Sheikh Mohammed bin Zayed al Nahyan have been unavailable to Biden after US requests were made for discussions.

“There was some expectation of a phone call, but it didn’t happen,” a U.S. official said of a plan for Saudi Prince Mohammed and Biden to speak. “It was part of turning on the spigot [of Saudi oil].”

Reports of frigid communications come as the Biden administration seeks to increase oil supply after formally banning Russian oil imports on Tuesday, pushing oil prices to $130 a barrel, the highest level in 14 years.

Relations between the U.S. and Saudi Arabia have chilled during the Biden administration over American policy in the Gulf region.

Issues include the revival of the Iran nuclear deal; lack of US support for Saudi intervention in Yemen’s civil war and its refusal to add Houthis to its list of terrorist groups; US help with a Saudi civilian nuclear program; and legal immunity for Prince Mohammed, who is facing lawsuits over the murder of Saudi journalist Jamal Khashoggi by a Saudi hit-team in its Istanbul consulate four years ago.

During Biden’s election campaign he vowed to treat the kingdom as a “pariah” state, saying there is “very little social redeeming value in the present government in Saudi Arabia.”

Earlier this week, White House spokesperson Jen Psaki said there were no plans for the Biden and Prince Mohammed to talk soon, and no plans for the president to travel to Riyadh.

Yousef Al Otaiba, the UAE ambassador to the U.S., confirmed strained relations between the two countries. “Today, we are going through a stress test, but I am confident that we will get out of it and get to a better place,” Al Otaiba predicted.

The two Gulf nations are regarded as the only global suppliers with capacity to pump more oil to ease the price surge.

Senior U.S. officials with the national security council and state department had reported travelled to Riyadh and Abu Dhabi in recent weeks to make direct U.S. representations.

The Journal, however, reported that Biden had spoken with Prince Mohammed’s 86-year-old father, King Salman, on 9 February. On the call they affirmed their countries’ strategic and economic partnership. The UAE’s ministry of foreign affairs said Biden and Sheikh Mohammed call would be rescheduled.

Oil extends rally after U.S. bans Russian imports

A Reuters report said:

Oil prices rose on Wednesday as the U.S. ban on Russian oil imports and Britain’s plan to phase them out by year end raised concerns of tighter global supply.

Brent crude futures were up $2.17, or 1.7%, at $130.15 a barrel at 0133 GMT, after jumping 3.9% the previous day.

U.S. West Texas Intermediate (WTI) crude futures were up $1.57, or 1.3%, at $125.27 a barrel, after also surging 3.6% on Tuesday.

U.S. President Joe Biden on Tuesday imposed an immediate ban on Russian oil and other energy imports and Britain said it would phase out Russian oil imports through the end of 2022.

“On top of the U.S. and Britain’s announcement effects, fears of further disruptions of supply from Russia due to intensifying sanctions on Moscow prompted fresh buying,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

“But Monday’s highs will likely become a ceiling for the short term as speculative buying is expected to slow down soon and countries in the northern hemisphere are headed to spring when fuel demand drops,” he said.

Oil prices jumped on Monday to their highest levels since July 2008, with Brent hitting $139.13 a barrel and WTI $130.50.

Behind the rally was also expectations that an imminent return of Iranian crude to global markets was unlikely, as talks on Iran’s nuclear program have slowed between Tehran and world powers.

Analysts at Oslo-based consultancy Rystad Energy said on Tuesday that global oil prices could rise to $200 a barrel if Europe and the U.S. ban imports of Russian oil.

Russia provides little of US oil imports

The U.S. imported roughly 6.1 million barrels a day last year, which accounted for 40% of the crude processed at American refineries. The biggest share of imports came from Canada (61%) followed by Mexico (10%), Saudi Arabia (6%) and Russia (3%), according to the trade association. Colombia, Iraq and Ecuador follow Russia. In 2021, the U.S. imported an average of 209,000 barrels per day of crude oil from Russia, according to the American Fuel & Petrochemical Manufacturers.

Derrick Morgan, a senior vice president for the fuel group, said oil and gasoline are globally traded commodities and banning imports from Russia to the U.S. would affect countries around the world.

“Taking any oil off globally will have an impact,” he said.

Gas Prices Are Now The Most Expensive In U.S. History

After days of dramatically rising gas prices, the national average for a gallon of gas is now the highest in U.S. history, breaking the record that stood for nearly 14 years. As of Tuesday morning, the cost of regular gas in the U.S. is $4.17, according to AAA, up from $4.06 on Monday. Last week, the average cost was $3.60.

The previous national average high was $4.11, set on July 17, 2008, according to AAA.

“Americans have never seen gasoline prices this high, nor have we seen the pace of increases so fast and furious,” Patrick De Haan, head of petroleum analysis at fuel-savings app GasBuddy, said in a statement on Monday.

U.S. Ban on Russian Oil Expected to Unleash Hell on Consumers

“Putting an embargo on Russian oil will be a nightmare for U.S. consumers as it will send the oil price skyrocketing,” says Nafis Alam, professor of finance and head of the School of Business at Monash University Malaysia. “Russia is the world’s top exporter of crude and oil products combined, with exports of around 7 million barrels per day (bpd), or 7-7.5% of global supply. Additionally, any embargo will be counterproductive for Russia, as higher oil and gas prices will lead to more profitability for Russian oil firms means more funding to continue the war.”

“Any disruption in oil supply due to the embargo on Russian oil and gas will push the prices, which will be painful for the U.S. consumers,” says Alam. “Not only a higher fuel price, but it can also push inflation in the U.S. market. As the global economy is still reeling from the Covid pandemic, any increase in oil prices will damage the U.S. and global economies.

The academic does not rule out that rising oil prices due to the US embargo on Russian crude could pose a significant risk for Biden and the Democrats at the upcoming midterm elections. Gasoline prices have always played a significant role in US politics, and no sitting president will chance making their voters unhappy, according to Alam.

The EU Is Unlikely to Join Washington’s Russia Oil Sanctions

According to global analysts, the prices are likely to surge even further. Thus, Goldman Sachs raised its Brent forecast for 2022 to $135 from $98 and its 2023 outlook to $115 a barrel from $105, expecting the “largest energy supply shocks ever” because of Russia’s key role. For its part, Oslo-based consultancy Rystad Energy said that if the EU follows the U.S.’ lead and bans Russian oil, crude prices may easily jump to $200 a barrel.

Is it impossible to maintain the same oil supply levels globally without Russia, according to Thierry Bros, professor at the Paris Institute of Political Studies and a contributor to Natural Gas World.

While the EU has not yet jumped on the Russian oil embargo bandwagon, the UK is due to phase out Russian crude imports and oil products by the end of 2022, as Prime Minister Boris Johnson said on Tuesday.

For his part, German Chancellor Olaf Scholz on 7 March pushed back against calls from Washington and Kiev for a ban on imports of Russian gas and oil within the framework of broader sanctions on Moscow.

“Europe has deliberately exempted energy supplies from Russia from sanctions,” Scholz said in a statement, as quoted by Politico. “At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens.”

Germany is against the gas and oil embargo, since it has no alternative to Russian energy supplies, explains Dr. Pierre-Emmanuel Thomann, a geopolitical expert. Earlier, Berlin announced the freezing of the certification of Russia’s Nord Stream 2 project which, coupled with sweeping anti-Russia restrictions, has resulted in an unprecedented spike in gas prices. The price of gas on the stock exchange in Europe surpassed $3,600 per 1,000 cubic meters on Monday.

“Germany in particular is opposed to any embargo on Russian gas, on which it is highly dependent, while the United States imports little Russian crude,” says Thomann. “Such a ban on gas and oil imports from Russia ‘would threaten social peace’ in Germany, said Friday Green Minister of Economy Robert Habeck. Germany imports 55% of its gas, 42% of its oil and coal from Russia. The EU depends on Russia for 40% of its natural gas and a quarter of its oil imports.”

Gold Near 19-Month High as Ban on Russian Oil Drives Flight to Safety

A Bloomberg report said:

Gold held near a 19-month high following a ban on Russian oil imports, as mounting concerns over inflation and economic growth boost demand for the haven asset.

Bullion has gained 12% in 2022 and is closing in on a record as investors seek a store of value amid the threat of an inflationary shock to the global economy. Holdings in gold-backed exchange-traded funds have climbed to the highest since March 2021, with inflows of about 152 tons this year, according to initial data compiled by Bloomberg.

The impact of the war in Ukraine and sanctions on Russia have reverberated across the globe, driving commodities higher on supply woes.

“The ban on Russian oil by the U.S. is causing more inflation jitters,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “We all saw that coming, but still, it feels like a roller coaster drop moment. With this ban, oil is easily expected to trade at new records. By that correlation, it is not difficult to see why gold may also be trading at a new record high soon.”

Spot gold dropped 0.2% to $2,047.05 an ounce at 10:24 a.m. in Singapore. Prices touched $2,070.44 on Tuesday, just $5 short of an all-time high reached in August 2020.

Nominal gold prices should breach $2,125 over the next three months and trade in a higher range for the rest of 2022 as “financial markets grapple with surging headline inflation, geopolitical uncertainty, and recession tail risks,” Citigroup Inc. analysts including Aakash Doshi, said in a report dated March 8.

Palladium advanced 3% on concerns over potential supply disruptions as Russia produces about 40% of the metal mined globally. Silver and platinum both traded near June highs.

Silver and Gold Explode

The run in commodities has been stunning. It’s not just silver and gold feeling the love, but oil, wheat, aluminum, nickel, soybeans, corn and others.

We’ve been in a supply-shocked super-cycle for this space and the bulls have reaped the rewards.

But the one that suffers from all of it? The consumer.

Rising oil prices impact gas prices. Rising food costs raise the grocery bill. Rising energy prices raise heating costs. It all circles back to the economy as the burden to bear inflation, which is not good for the global economy.

This morning, silver and gold prices were ripping higher, along with many other commodities.

Let’s take a look at the charts now.

Trading Gold

At today’s high, gold was up more than $80 an ounce and topped out at $2,078.80. That’s just shy of the 2020 high and all-time high up at $2,089.20.

If gold can maintain momentum, this is obviously the next upside level.

Trading Silver

Silver has not performed quite as well as gold, but nonetheless has moved quite nicely lately for the bulls.

The move sent silver to the 61.8% retracement of the recent range, but now it’s struggling.

A move and close above today’s high could open the door to $28.50, then eventually the recent high up at $30.35.

If silver can’t push through the 61.8%, then bulls want to see $25.50 hold as support, along with the 10-day moving average. Below these measures could put the 21-day and 200-day moving averages on the table.

Bank of America Issues Dire Prediction For Global Economy

The global economy is set to experience uncertainty, sky-high energy prices, and slowing growth as tough Russia sanctions put pressure on markets over the coming months, according to the global research team at Bank of America (BofA).

In a Tuesday note to clients, the bank’s analysts warned that “there is no clear off-ramp for Russia” in the Ukraine conflict, and admitted that trying to pin down an exact economic forecast following Russia’s invasion has been like “catching a falling knife.”

“Expert opinion has been repeatedly wrong about the course of events. If we believe the experts, Putin would have never invaded, Ukraine would have offered weak resistance and sanctions would be limited,” the analysts wrote.

The team at BofA lowered their 2022 gross domestic product (GDP) forecasts for the U.S. from 3.6% to 3.3% over the past week, and they now see Euro Area GDP growth falling to just 2.8% this year, compared to 3.5% in previous estimates. The analysts also bumped their 2022 inflation expectations for the U.S. and Euro Area to 7% and 6%, respectively.

They believe Americans should expect lower growth and higher inflation than was previously anticipated in a rough year ahead.

Europe Eyes GM Grains Import Waiver, Says Spain

Another Bloomberg report said:

The EU could consider temporarily lifting a ban on imports of genetically modified (GM) grains from the U.S. and South America to help farmers struggling with supply disruptions caused by the war in Ukraine, according to Spain’s Agriculture Minister Luis Planas.

Spain and France have also proposed a waiver on agricultural goods with traces of herbicide to increase stocks and seek alternative suppliers of mainly corn, which is key for the production of animal feed.

“This is a warning call for us to think about having the capacity to provide food security to our 450 million citizens,” said Planas in an interview with Bloomberg News. “We need the European Union to add flexibility to grain import rules.”

If adopted, the measures could mark a shift from the bloc’s “Farm to Fork” strategy that included objectives to increase organic production and cut pesticide use. That strategy has raised concerns it could ultimately curb crop production in one of the world’s biggest producers of agri-food products.

Any additional imports of genetically modified grains would still need approval by EU’s authorities, and members states could decide whether to take them or not, he said.

Planas said the EU should add targets for the production of vegetable protein and fertilizers as part of its long-term strategy.

Spain is also proposing bolstering grain production by limiting crop rotation and using fallow land, Planas said.

Imports, however, are key as it will take years for Europe to achieve self-sufficiency in the supply of vegetable protein, Planas said. The U.S. and Argentina are not the only markets that may help underpin Europe’s current needs, said Planas, adding the situation is evolving positively.

Ukraine is the main supplier of corn and sunflower oil to Spain, providing almost 30% and 62% of imports respectively, according to the ministry. Planas said the country has already imported around 1.9 million tonnes of corn to supply its meat industries for at least 45 days and can make up for a drop in sunflower oil with local olive oil output.

Imports from other destinations and the substitution of oil with local output will likely further increase food prices in a country struggling with 33-year high inflation.

Spain also fulfills internally about half of its nitrogenous fertilizer demand, which is being affected by the surge in gas prices, so the government “is not worried.”

2 Million Have Fled Ukraine

The number of refugees fleeing Ukraine reached 2 million on Tuesday, according to the UN, the fastest exodus Europe has seen since World War II.

“Today the outflow of refugees from Ukraine reaches 2 million people. Two million,” Filippo Grandi, the UN High Commissioner for Refugees, wrote on Twitter. Michelle Bachelet, the UN high commissioner for human rights, said she is “deeply concerned about civilians trapped in active hostilities in numerous areas.”

Poland has been the escape point for more than 1.2 million of the refugees. Several hundred thousand have fled to other European nations, including about 100,000 to Russia. More than 15% of the country of 45 million people are ethnic Russians.

Brazil Will Not Take Sides

A Reuters report said:

Brazil will not take sides over Russia’s invasion of Ukraine, Foreign Minister Carlos Franca said on Tuesday, adding its stance was one of “impartiality”, not “indifference”, and that it sought peace.

“Brazil’s position is clear… We are on the side of world peace,” Franca told a news conference in Lisbon when asked if he condemned the invasion. “We think we can reach that (peace)… by helping to find a way out (of the war), not by taking sides.”

Brazilian President Jair Bolsonaro, who visited Russian President Vladimir Putin in Moscow shortly before the invasion, angered Western allies by saying he was “in solidarity with Russia” without elaborating.

Bolsonaro, a far-right populist, has also noted that Russian fertilizers are crucial for Brazil’s giant agribusiness sector.

Last month he scolded his Vice President Hamilton Mourao for condemning Russia’s invasion and said that in Brazil only the president could speak about a crisis in eastern Europe.

Venezuela Announces ’Vigorous Reactivation’ of Dialogue With U.S.

Venezuelan President Nicolas Maduro announced a ‘vigorous reactivation’ of discussions with the country’s opposition in remarks given Monday on public TV.

In an apparent sign of the early success of talks between the Maduro administration and the U.S., his announcement was quickly followed by news of the release of U.S. citizens Gustavo Cardenas, one of six Exxon executives detained in Venezuela on corruption and embezzlement charges since 2017, and Jorge Alberto Fernández, a Cuban-American detained on terrorism charges.

Dialogue between the Venezuelan government and opposition factions was suspended in October following the ‘kidnapping’ of diplomat Alex Saab by Cape Verde authorities working with US officials. The announcement came on the heels of the revelation that a high-level U.S. delegation flew to Caracas to meet with Pres. Maduro in an effort to secure access to Venezuela’s oil and weaken the country’s ties with Russia.

Describing the meeting as “respectful, cordial, very diplomatic,” Maduro explained that if Caracas wants to “ask the world for dialogue” in Ukraine, then it must lead by “example.”

The hardline faction of the opposition led by self-declared ‘interim president’ Juan Guaido appeared to be completely caught off-guard by the news that Biden had sent envoys to Venezuela for the first time since the US broke off relations following the 2019 attempted coup by Guaido. After President Maduro confirmed the talks, Senator Marco Rubio (R-FL)–described by the New York Times at the time of the attempted coup in 2019 as its “de facto spokesman”–immediately unleashed a flurry of angry missives on social media.

“The White House offered to abandon those seeking freedom from #Venezuela in exchange for an insignificant amount of oil,” he seethed in one particularly indignant post.

Nonetheless, Republican politicians and right-leaning outlets have reacted with outrage to moves towards rapprochement with a government that the U.S. and corporate media outlets have largely sought to paint as being led by anti-democratic despots since the election of socialist Hugo Chavez in 1998.

“Joe Biden using #Russia as an excuse to do the deal they always wanted to do anyway with the #MaduroRegime,” tweeted Florida Republican Senator Marco Rubio. “Rather than produce more American oil he wants to replace the oil we buy from one murderous dictator with oil from another murderous dictator.”

Instagram Warns Users Who Share Russian State Media

Instagram announced Tuesday that it would implement steps to dampen Russian government propaganda and protect the privacy of users across Ukraine and Russia.

The company will begin downranking posts from Russian state-affiliated media, placing any stories from those outlets below other content from other sources. Users who go to share stories originating with any of these accounts will now see a pop-up message cautioning them against spreading “Russia state-controlled media.”

“Instagram believes the account that created this post may be partially or wholly under the editorial control of the Russian government,” the message reads.

Users who share stories with link stickers pointing to domains associated with Russian state media will get the same treatment. Content from Russian state-linked accounts will also no longer appear in Instagram’s algorithmically populated discovery areas, like Reels and the discovery tab, and Instagram says that it also won’t show up as readily in search either.

Instagram’s efforts to stem the flow of state-backed disinformation about the Russian invasion of Ukraine follows Facebook’s own parallel efforts. Facebook announced last week that it would similarly attempt to bury Russian state media through the use of warning labels and downranking. At the time, Meta Head of Security Policy Nathaniel Gleicher said the labels were on the way “in the days ahead.”

Instagram is also adding a new privacy measure for some users based in Ukraine and Russia. Now, private accounts based in those countries will have their following and follower lists private and their mutual friend lists hidden, adding a layer of protection that obscures real-life social connections.

Instagram and Facebook parent company Meta previously announced that it would make encrypted DMs available to all adult users in Ukraine and Russia and make it easy for accounts in those countries to bulk delete content and activity.

Chinese Companies That Aid Russia Could Face U.S. Repercussions

Gina Raimondo, the secretary of commerce, issued a stern warning Tuesday to Chinese companies that might defy U.S. restrictions against exporting to Russia, saying the United States would cut them off from American equipment and software they need to make their products.

The Biden administration could “essentially shut” down Semiconductor Manufacturing International Corporation or any Chinese companies that defy U.S. sanctions by continuing to supply chips and other advanced technology to Russia, Ms. Raimondo said in an interview with The New York Times.

The U.S., the EU and other governments have issued sweeping sanctions and export controls. The export controls prohibit the sale of certain high-tech products, including advanced semiconductors, to Russia and Belarus.

The U.S. export controls apply not just to American companies, but to companies anywhere in the world that use American software or technology to manufacture their products, which include many Chinese companies.

China does not have the ability to make the world’s most advanced semiconductors, Ms. Raimondo said, and Chinese companies that continue to supply Russia would face harsh penalties.

Russia “is certainly going to be courting other countries to do an end run around our sanctions and export controls,” Ms. Raimondo said. But if the U.S. were to find that a company like the Semiconductor Manufacturing International Corporation, in Shanghai, was selling its chips to Russia, “we could essentially shut SMIC down because we prevent them from using our equipment and our software,” she said.

“They have their own self-interest to not supply this stuff to Russia. So they’re not doing it out of the goodness of their heart. It would be devastating to China’s ability to produce these chips,” Ms. Raimondo added.

German Industrial Output: Conflict Darkens Outlook

A media report said:

German industrial production rose again in January, official figures showed, but the positive picture was likely to be upended by the impact of the war in Ukraine.

Production was up 2.7 percent on the previous month, according to seasonally adjusted figures from the federal statistics agency Destatis, after rising by 1.1 percent in December.

It follows the publication a day earlier of figures showing incoming orders for industry had also risen by 1.8 percent.

The data showed how “the German economic rebound could have looked,” said Carsten Brzeski head of macro at the bank ING, as Europe’s largest economy looked to shake off the drag caused by widespread supply bottlenecks and coronavirus-related restrictions.

The two together caused the economy to shrink by 0.3 percent in the last three months of 2021.
But the Russian invasion of Ukraine at the end of February “has changed everything” for the economic outlook, Brzeski said.

With Germany’s high dependence on imports of Russian gas, the rise in energy prices caused by the conflict could “shave off one percentage point of GDP growth this year,” Brzeski said.

The additional upheaval in supply chains “will weigh on industrial production” too, he said, with the impact felt particularly hard by the flagship automotive sector, which has a significant network of suppliers in Ukraine.

The war would “slow” the rebound, with the strength of the impact “currently unclear,” the economy ministry said in a statement.

While the production figures in January were 1.8 percent above the same month last year, they still trailed the pre-pandemic level by three percent, according to Destatis.

Ukraine Crisis Threatening Steel Industry In Turkey

The war in Ukraine is threatening the free trade agreement signed between the country and Turkey, said Ekol Demir Celik, chairwoman of Elif Tulay.

The agreement was signed last month to increase bilateral trade to $10 billion. But now the Turkish steel industry needs protection, Demiroren News Agency quoted her.

“Due to its close geographical position, we have close export and import ties with Ukraine. We have been procuring most of the raw materials for the iron and steel industry from this country,” she said.

The Ukrainian market is particularly important for high-quality steel, she added.

Turkey was the world’s eighth-largest crude steel producer after China, India, Japan, the U.S., Russia, South Korea and Germany.

Shell Is Already Backtracking On Its Boycott Of Russian Oil

On Tuesday, March 1, Shell was lauded for cutting ties with Russian firms Gazprom and Salym Petroleum, and for ending its involvement in the Nord Stream 2 gas pipeline. “We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security,” Shell CEO Ben van Beurden said at the time. “Our decision to exit is one we take with conviction.”

That conviction lasted less than a week. By Friday (March 4), as the price spread widened between Russia’s Urals crude and Brent crude, the international benchmark for oil prices, Shell bought 100,000 metric tons at a record discount of $28.50 per barrel, according to a report from the Wall Street Journal.

On Twitter, Shell confirmed that it would continue to buy Russian oil, citing a tight market and few alternatives for sourcing crude.

Dmytro Kuleba, Ukraine’s foreign minister, expressed his disappointment.

Shell’s purchase of Russian crude—the first since companies began cutting ties—could signal to the rest of the market that buying Russian oil at a record discount is worth any moral about-face, according to Bloomberg.

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