Page 33 - bne IntelliNews monthly magazine December 2023

bne December 2023 Cover story I 33
operating in Germany are now looking to relocate at least some of their operations abroad to save money.
And a lot of money has been spent. The US reportedly made over $1 trillion in excess profits from LNG exports to the EU last year in the midst of the energy crisis that saw prices decuple. The EU reportedly lost €1 trillion through hand outs and energy subsidies to protect households from the worst: governments provided $830bn to assist consumers and another $446bn to fossil-fuel producers, many of whom recorded bumper profits.
Western governments can’t keep that level of spending up. The US is reportedly planning to end energy subsidies this winter and will pass more of the costs on to the consumer. UK regulator Ofgem has raised the national price cap for
the first quarter of next year by 5% at a time when Britons are facing persistent inflation in the price of food and basic goods, and the government is struggling with worsening economic growth forecasts.
Likewise, Germany's €200bn fund to soften the impact of rising energy prices on consumers and businesses will expire at the end of 2023, Finance Minister Christian Lindner told Deutschlandfunk at the end of November. “As of December 31 of this year the Economic and Stabilisation Fund will be closed,” he said in a recent interview. “There will
be no more payouts from this. The electricity and gas price brakes will also be terminated.” The fund, known by its German abbreviation WSF, is one of the off-budget funds ruled unconstitutional by the country's highest court in the middle of November.
Twelfth package of sanctions
The tensions between government’s desire to protect their struggling industries and the EC’s determination to do Russia in has come to a head with the twelfth sanctions package, now under discussion.
The details were due to have been announced on November 17, but this
has now been delayed to sometime in mid-December as the intra-EU wrangling becomes fraught.
The latest package is designed to better enforce the existing sanctions, which have largely failed to inflict much pain on Russia. As bne IntelliNews has extensively reported, Russia has managed to avoid almost all the sanctions, which have done little more than impose some extra costs on its trade. Oil sanctions are a spent cannon and the FT reports that not one barrel of oil has been sold below the
$60 per barrel oil price cap. Technology sanctions have also failed thanks to
the co-operation of Russia’s friendly countries; to illustrate, German exports to Kyrgyzstan alone, especially of cars, are up by 5,500% since the start of the war.
Kyrgyzstan has become a key destination for all European exports that – ultimately – go to Russia. Estonian exports to Kyrgyzstan are up 10,000%. Finnish exports are up 3,100%, Poland's are up 2,200% and Greece's are up 2,100%,
IIF reports.
German exports to Kyrgyzstan
European companies that break the rules. However, Bloomberg reported on November 24 that several EU members are already pushing back hard, as
they don’t want to punish their own companies for Russia’s wrongdoing. They also don’t want to forgo the money they are making.
The EC is proposing to prohibit importers from reselling many goods, in particular, semiconductors used in Russia for the production of weapons.
It is also proposing to fine EU countries that ignore the rules and put the money in a special “Ukraine Recovery Fund”. Exporters will also be required to inform national authorities of any violations by third-country companies.
However, diplomats from an unnamed group of major EU member states raised several “concerns” about the proposals in the last week of November, including questions about their legality and whether such guarantees and conditions could be demanded from importers.
Bloomberg’s sources said that the group of countries want to narrow the scope
of the proposed rules, reduce the list
of goods to which the new laws will apply and introduce more exemptions and calve-outs that have already fatally weakened the existing sanctions regime. They are afraid the rules will place them at a “competitive disadvantage.
The problems that arise from on the one hand sanctioning Russia’s biggest export earners and the losses to European firms using or buying those products are thrown into relief by the proposed bans on diamonds and aluminium.
Diamonds: Russia is one of the world’s biggest producers of diamonds in
the world and accounted for 35% of
the world’s trade in 2021, worth $4bn. Belgium buys up to half of Russia’s diamond exports, 28.2mn carats, worth approximately $2.5bn in 2021, according to Kimberley Process data, which are sold in Antwerp. Unhappy about losing this significant trade, Belgium has successfully kept diamonds off the sanctions lists until now, but diamonds are likely to be included in the twelfth sanctions package.
Source: IIF
More insidious are reports that Turkish exports of dual-use goods to Russia were up three-fold in 2023, the FT reported on November 27. Turkey recorded $158mn in exports of 45 goods like microchips over the first nine months of 2023, marked by the US as sensitive to Russia and five "former Soviet countries" suspected of serving as intermediaries for Moscow. The average figure for the trade of the same goods in 2015-21 was $28mn, according to the FT.
The new package is supposed to tighten the noose and will impose new regulations, reporting and fines on
www.bne.eu