Page 38 - bne IntelliNews monthly magazine October 2024

38 I Cover story bne October 2024
a small budget deficit that is paying for its war.
The upshot is that the West is now paying a premium for its oil, whereas the friendly countries in emerging markets are now enjoying a discount on the most basic input: energy. According to the last KSE study, the discount Russia offers its friends in Asia has tightened recently but it’s still $11 on a barrel of oil, or about 10% less, which
a major competitive advantage. And
as Russia continues to build its new distribution system these changes
will be hard baked in and will not only apply to oil, but a whole smorgasbord of essential commodities.
Deficit Europe
Food and energy prices are up, and now key raw materials are going missing. Putin demanded that the government draw up a roadmap to restrict strategic raw materials to external markets on September 14, including uranium, nickel and titanium, just as the US was mulling granting Ukraine permission to use its long-range missiles to strike targets deep inside Russia.
“This marks the beginning of
Russia’s transition from exploiting energy dependence on the West to manipulating the market for critical raw materials. As the EU is set to gradually abandon Russian energy resources, Putin is trying to spot
other vulnerabilities in the strategic dependence on the West. This could
be inspired by the Chinese approach, which restricted the export of processed graphite in 2023. Controlling 90% of the supply, China's decision came at a high cost for global EVs production,” says political analysts and bne IntelliNews columnist Denis Cenusa.
Europe has a raw materials deficit. After 500 years of wealth flooding into the Continent from colonialism, Europe
is extremely densely populated – too densely. Western Europe ranks second in terms of population density among continents after Asia, with 180 people per square kilometre, but less in the south and east of the region.
The Continent doesn’t have anywhere near enough natural resources to sustain itself and so has to import a large part
of what is needs. The EU relies heavily on imports of agricultural and energy commodities to meet its demand, as well as metals and chemicals from Russia and food stuffs like cocoa and soyabeans from the rest of the world.
For other products like timber and sugar, domestic production covers a larger share of demand, but not all. For example, the EU needs to import 86% of its soyabean needs, essential animal feed, while its own timber resources have long been maxed out and any growth in demand has to be sourced from elsewhere – previously from Russia’s leading wood products giant Segezha.
The EU produces around 160mn tonnes of steel annually but imports significant quantities from countries like China and Russia, which account for around 18-20% of its total steel consumption.
The situation with more specialist metals is more dramatic. Production
of titanium, essential for aircraft production, is minimal, and 90% of the EU’s titanium consumption is imported from Russia. Power-hungry aluminium is a little better, and the EU produces around 7mn tonnes per year (tpy), but another 45-50% of its needs is met by imports, mainly from countries like Norway, China and Russia, according to the European Commission.
cause prices to spike and drive smaller companies out of business, as there are few alternatives to Russia’s aluminium,” says Chris Weafer, the founder and CEO of Macro Advisory and former head
of research at multiple Moscow-based investment banks.
The US doesn’t suffer from these problems, as it is almost entirely self- sufficient in everything, with a few notable exceptions like uranium.
This list of commodity imports was collectively worth €212bn in 2023, which was about 10% of the total EU import business from external markets of €2.75 trillion, according to European Commission.
The ineffectiveness of sanctions and the West’s continued dependency on some key Russian inputs can be illustrated
by the trade in LNG, fertilisers and uranium.
LNG: The European Parliament
called for an embargo on Russian LNG and sanctions against Gazprom on September 19 by adding Russia’s Arc-7 ice-class ships that export Russian LNG and the rest of the world. However, as bne IntelliNews reported, Europe remains hooked on Russian gas, still buying
25 bcm of gas (18 bcm of LNG, 8 bcm
of piped gas) that still makes up some 20% of the EU’s total gas imports, down from 45% pre-war. Russia is successfully replacing the gas that used to be piped via Nord Stream with LNG shipments.
“This marks the beginning of Russia’s transition from exploiting energy dependence on the West to manipulating the market for critical raw materials”
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Russian aluminium is another “unsanctionable” export item:
“The EU is toying with the idea of slapping sanctions on one of Russia’s most important exports to Europe: aluminium. If it happens, the end of aluminium deliveries to Europe could
LNG imports to the EU took off in 2022, according to Gas Infrastructure Europe (GIE), up 1.7-fold compared to the 2021 level to 127.2 bcm from all sources (mostly US and Qatar) – almost as much as Europe imported from Russia pre-war.