FT : Now the UK is finally tackling ‘Londongrad’, it’s time the US upped its gam

Now the UK is finally tackling ‘Londongrad’, it’s time the US upped its game
Spurred by Russia’s invasion of Ukraine, Westminster is at long last stemming the flows of illicit wealth into Britain’s capital

A year ago, with a new administration rising in Washington, it was clear that the US had taken the lead in the transatlantic fight against kleptocracy. But over the past few months, London has begun laying a blueprint to regain that pole position, and started to challenge its western allies to expand their own fight against illicit wealth and international money laundering. 

These moves were already long overdue. Spurred by Russia’s invasion of Ukraine, the government finally brought in regulations so that even if “Londongrad” is not, as the Conservatives claim, fully closed, the days of illicit Russian wealth flooding into the UK are finally coming to an end. 

The most notable of these new developments targets owners of British property hidden behind foreign shell companies. Thanks to last year’s Economic Crime Act, the offshore companies masking real estate ownership will now need to disclose their real, beneficial owners. Most remarkably, the regulations appear to be working. As researchers found, these kinds of property purchases have plummeted in recent months, part of a decline that predates the most recent Russia sanctions. 

There are encouraging signs of further action. Britain’s shell company registry, which has been largely unenforced, has so far allowed “Adolf Tooth Fairy Hitler” and “Donald Duck” to be listed among company names and directors. But once the forthcoming economic crime and corporate transparency bill passes, the registry will come with verification requirements, meaning the days of these cartoon monikers masking duplicitous companies should be behind us. 

It’s not just government policies that give reasons for optimism. Spying an opening, the Labour leadership has transformed the fight against kleptocracy into a primary election plank. Shadow foreign secretary David Lammy recently described the fight against kleptocracy as “not just a job for the police. This is foreign policy.”

Rooting out dirty money and opposing dictatorship should indeed be one and the same. Lammy has begun outlining the need for a “progressive moment”, co-ordinating with allies in Washington and elsewhere to align counter-kleptocracy efforts more broadly.

To those on Capitol Hill, this rhetoric plus the other developments have been a welcome boost of confidence that London is, at long last, recognising the threats of kleptocracy and its own responsibilities in driving out corruption. As an American, I welcome this jolt of much-needed energy for US officials, especially those in the White House, who are flagging in the fight. 

Even though the current administration is a clear step up from a Trumpian alternative, it is not living up to its early promise. Over two years into President Joe Biden’s tenure, the US has hardly improved transparency for real estate or private investment — two well-known sanctuaries for illicit, kleptocratic wealth. We’ve likewise seen little movement towards regulating how US lawyers help kleptocrats move and launder their wealth. Most embarrassingly, when Biden’s Treasury department recently outlined plans for America’s own shell company registry, the proposals included an option for leaving company owners “unknown” — undermining the entire purpose of the registry. 

Thankfully, these requirements are now being redrafted. But the initial optimism about Washington’s leadership is fading, buried in partisanship and distractions elsewhere. London’s recent momentum in this space is not only welcome, but may be a means of galvanising its allies on the other side of the Atlantic. 

Last year the US challenged Britain to step up its fight. Now, the tables have turned. It’s time American partners followed the UK’s lead. 

Miss Tweed : The Luxury Problem That Keeps Piling Up

The Luxury Problem That Keeps Piling Up

Most big luxury houses like Chanel, Hermès, Dior and Louis Vuitton for decades burnt their unsold stock to preserve their image. After they had offloaded unwanted goods through staff, “friends and family sales,” outlets and third-party organizers of private events, they destroyed whatever was left out of fear that old stock could be sold for cheap and weaken their pricing power and exclusivity.

But today a reckoning is underway. In an age of climate crisis, the world’s top brands are having to face a future when they cannot destroy goods. It’s been banned in France, the crucible of the luxury industry, since last year. Another, more extensive ban is shortly expected to become law throughout the European Union. That change has come amid mounting consumer outrage over the practice of burning unwanted goods.

In 2018, Burberry was at the center of a media firestorm after it revealed in its annual report that it had burnt £28 million worth of stock. The British fashion house was the first major luxury brand to talk about it. Most of its French and Italian rivals did it for years but never mentioned it. Under new EU regulation that could be voted as early as this year, brands will no longer be allowed to burn products and they will have to disclose in their annual report what they do with unsold stock. This is a very unpalatable prospect for luxury brands as they do not like to talk about anything but the high-quality and creativity of their products.

Since that disclosure, Burberry has stopped burning stock. It recycles parts of it, particularly its leather goods, and offers a wide array of repair services, as do many other luxury brands.

ECODESIGN
In France you can no longer destroy non-edible products such as textiles and shoes but you can still burn cars and handbags. This week, the European Commission formalized plans to submit to the European parliament a regulation that will require companies to publicly disclose how many goods they destroy and will put pressure on them to recycle and reuse materials. It will also force companies to provide digital passports for their products to inform consumers about their environmental sustainability.

Brussels’ Ecodesign Sustainable Product Regulation will be debated and reviewed by the European Parliament and the Council over the course of next few months. “The Ecodesign regulation will make sure that products sold in the EU market are fit and ready for the green transition,” said Ebba Busch, Swedish Minister for Energy, Business and Industry and Deputy Prime Minister said in a statement issued on Monday. In January, Sweden took over the rotating presidency of the EU Council for six months with a pledge to push for reforms on green and energy transitions among other issues.

This regulation, together will others in the pipeline in Europe and elsewhere, will force fashion and luxury brands to be transparent about what happens to their unsold wares, how they are made and to what extent they can be recycled or upcycled. The luxury goods industry has been quietly preparing for such major regulatory changes but it’s far from being ready yet, industry sources say.

Adapting to the EU and other countries’ regulation to help preserve the environment and fight climate change is a huge and complex task. It will require not only significant amounts of investment but also a dramatic change in mentality. Fashion and luxury brands will have to talk openly about one the least glamorous aspects of their business: the resources and materials they use and what they do with unsold items - a major taboo until now.

“This is a big spanner in the works for those brands which are not prepared,” said one senior industry executive who follows closely EU regulatory changes. “Of course, Brussels will give them a few years to adapt but such demands will have to be enforced much more quickly than you expect.”

PRODUCE LESS AND BETTER
If middle class consumers have become smarter in recent years, snubbing fast fashion and “buying less and better,” many luxury brands have also been trying to produce less and better. Major luxury players including Hermès, Louis Vuitton and Chanel have invested in software that allows them to track in real time the sale of every item and limit production to volumes they are close to certain they will sell. That way, they create rarity and preserve desirability. It also helps them limit the amount of unsold goods. It is those smaller brands that do not have the means to invest in such technology that end up with excess items they struggle to get rid of. Louis Vuitton was the first luxury brand to put such system in place more than two decades ago.

“Production of the collections is only launched when orders are received from our buyers, which considerably reduces potential unsold stock,” a spokeswoman for Chanel said in response to Miss Tweed’s query. The buyers in this case are mainly the brand’s boutiques not individual buyers themselves. The brand added that once a year, it organizes private sales “exclusively for our employees, who can purchase items from previous collections.”

Louis Vuitton, Hermès, Dior and many other luxury brands also conduct sales for their staff once or twice a year that can be extended to “friends and family.” In recent years, they have taken place online. If you are lucky, you can get Chanel ballerina shoes for €150, a bag for €700 euros and a jacket for €1,200. Today, Chanel ballerinas cost nearly €1,000 at full price and most bags fetch more than €6,000 – catching up with Hermès price tags.

Sales to staff and their family and friends represent a non-negligeable source of revenue. For Hermès, they generate more than €100 million every year, industry insiders estimate. When you employ more than 15,000 staff – that’s a pretty sizeable and loyal customer base.

Since many people working in boutiques and in production plants do not receive big salaries, these private sales help make up for it and allow them to wear luxury goods they could never afford otherwise. It's also a good way to retain staff and attract talents.

“As for the limited stocks remaining, they can be used by the ‘Petit h’ business [which uses mainly excess materials], sold during sales or private sales for staff, or directed towards recycling channels,” a spokeswoman for Hermès said.

Chanel, Dior and Hermès for example hold sales in its stores during certain periods of time and they remain discreet about them. In France, they take place during the period applied to all retailers, this year from June 28 to July 25 and then after the Christmas sales next year. Customers only get details if they ask for them when physically in the store.

OUTLETS
LVMH’s Dior is the only top luxury brand to have outlets: one in the UK and another in the United States. Its rivals Hermès, Louis Vuitton and Chanel have none, but they are increasingly thinking about, industry insiders say. It’s a pretty efficient and profitable way of turning unsold stock into cash. Kering’s Gucci for example has many outlets and produces exclusively for them, like many other high-end brands.

Another secret luxury brands do not want their customers to know is that outlets are hugely profitable. They cost much less to open and operate than a flagship and their sales density is much higher. You often find queues in front of outlets and by contrast, generally only a few customers in a brand’s flagship boutique in a major city.

Many luxury brands including Burberry, Gucci and Ferragamo are reluctant to wean themselves from outlets even though they know that it blemishes their image. Yet, these three fashion houses, and they are not alone, keep telling investors and analysts they are working on “elevating the brand.” However, everyone knows that cannot happen until they stop selling goods, particularly ready-to-wear at 70 percent discounts in outlets.

Outlets provide a good yardstick of a brand’s desirability and sales momentum. The weaker the brand, the more outlets it needs. It also works the other way around. For example, LVMH’s Loewe and Celine have been cutting down on the number of outlets they have around the world because their sales growth has been so strong, industry insiders say. However, Burberry on the other hand, is still very dependent on outlets. The brokerage HSBC estimates that Burberry makes around half of its profits from outlets and dedicates a good part of its production exclusively for them as do many other brands. Ralph Lauren makes more than 70 percent of its profits from outlets. But outlets have harmed the brand’s desirability so much that no-one wants to buy Ralph Lauren even though it has been on the market for many years.

A more discreet way of offloading unwanted items is through third parties such as Arlettie and IK VP that organize private sales in France and in the UK in bricks-and-mortar premises as well as online. There is also Veepee and other online flash sales specialists in France and elsewhere. Even in China, there exists many organizers of private sales online and in physical stores.

And there is another non-visible way of getting rid of unwanted goods: work with companies such as France’s Efficio. It buys unsold goods from brands, usually watches but they can also include handbags, shoes or ready-to-wear. It pays in cash or it exchanges the lot for advertising space it has bought in bulk from big media companies. It’s a peculiar form of barter but one that has become increasingly popular. Usually, analysts estimate that around 2-7 percent of a brand’s stock is unsold. “If you have more than 10 percent, then you really have to reconsider your offer,” explains Maximilien Urso, CEO of Efficio and of second-hand watch specialist Cresus. “If everybody produced only goods which they knew they could sell, there would not be any unsold products or ‘slow movers’ as we call them,” Urso says.

RECYCLING
Chanel, like most of its major rivals, said it was “looking into the best way to recycle items that cannot be sold or offered during our in-store sales periods because they are defective.”

“With this in mind, and for several years now, Chanel Mode has no longer been destroying its unsold items, thanks to its collaboration with Atelier des Matières, whose mission is to recycle unused materials and unsold finished products from the fashion and luxury sectors,” a spokeswoman for the brand said.

Founded in 2019 by Chanel, L'Atelier des Matières collects unsold products and materials that are not used in the production cycle such as textiles, leathers, threads, buttons, etc. These are sorted and disassembled to enable them to be transformed into high-quality recovered materials, before being returned to the supplier or offered to another customer, Chanel said. Some items can be reused for the development of new collections. L’Atelier des Matières works for Chanel and other brands, but Chanel did not wish to disclose them.

It's the same for RE-Valorem which has emerged as a key player. It cannot reveal the identity of its major clients even though everyone in the industry knows that it works for every major luxury group including Richemont, LVMH and Kering as well as several major Italian brands. Launched in 2020 by former Arthur Andersen consultants, the French company dismantles unsold goods and recuperates materials that can be reused. It handles tons of bags, shoes and textiles and is now trialing a way to recycle acetate in eyewear.

“Our business is a bit like extracting ore,” Eric Legent, ReValorem’s co-founder and managing director. “We extract raw materials from a deposit.” Legent and his teams are not comfortable talking to journalists because their activity concerns one of the least glamorous aspects of luxury goods. Also, they are aware that their company exists because of luxury brands’ inability to adjust production to demand. “For our customers, it's important to be prepared for the big wave of recycling that's coming,” Legent says.

On average, ReValorem is able to recuperate around 65-67 percent of a products’ raw materials. The rest is destroyed if it cannot be recycled or reused. A good part serves as fuel for heating furnaces used by public heating infrastructures.

For Legent, the creation of a 100 percent circular economy products is a myth. “In order to be virtuous, the reuse of recycled raw material can only be part of an industrial approach, with its quality, volume and supply constraints,” says Legent. “One-off closed-loop initiatives, or what we call upcycling, are a good way of describing what's possible, but they cannot provide a lasting solution for the reuse of recycled raw materials.”

FT : Saudi crown prince turns to ‘state capitalism’ after change in the guard

Saudi crown prince turns to ‘state capitalism’ after change in the guard
Companies backed by Public Investment Fund have risen to prominence as the kingdom’s day-to-day ruler asserts control

As Saudi Arabia enjoyed an unprecedented oil boom in the 1970s, the monarchy turned to a handful of merchant family companies to build the nation’s infrastructure.

But almost 50 years and another oil windfall later, many have been sidelined by a rising cadre of businesses that have one thing in common: the state Public Investment Fund has taken a stake in each.

The growing dominance of the $650bn sovereign wealth fund, chaired by Crown Prince Mohammed bin Salman, underscores the extent to which the country’s day-to-day ruler has upended the old order as he robustly asserts his control over the economy and seeks to diversify it away from oil revenues.

“There’s definitely a change in the guard,” said Monica Malik, chief economist at the Abu Dhabi Commercial Bank and author of a book on the Saudi private sector. “Development is being driven by government-led entities, it’s very much more a centralised and public sector-led growth.”

In February, the sovereign wealth fund announced it was investing $1.3bn in four companies that have risen to prominence in recent years: Nesma & Partners Contracting Company, El Seif Engineering Contracting Company, Albawani Holding Company and Almabani General Contractors.

They have all been around for decades, but have come to the forefront as rivals that once secured the biggest contracts lost Riyadh’s support. El Seif was founded by the Riyadh-born Khaled El Seif in 1975. Abdul Moeen Al Shawaf, also from the capital, founded Albawani in 1991. Almabani was founded in 1972 in Jeddah by the late Saudi businessman Kamal Adham.

Several of those formerly favoured, such as Saudi Binladin Group, were forced to hand over $100bn worth of what the government described as ill-gotten assets, after an anti-corruption drive was launched less than a year after Prince Mohammed’s 2017 appointment as crown prince. About 300 businessmen, princes, and bureaucrats were detained in the Saudi capital’s Ritz-Carlton Hotel as part of the anti-graft campaign, sending shockwaves through the business community.

Saudi Binladin came under the control of a government-appointed committee, with an almost 40 per cent stake transferred to a state-owned company.

Officials from the PIF argue that some companies had grown accustomed to receiving government contracts and subsidies and so were reluctant to take risks or innovate. This meant the private sector could not be relied upon to steer the country’s economic transformation alone.

“There’s an idea among [Prince Mohammed] and some of his advisers that the old merchant class were leeches, unproductive rent seekers, and they want to rear a new business class,” said Steffen Hertog, a Gulf expert and associate professor in comparative politics at London School of Economics.

Some businesses never recovered from the anti-graft drive, while others have since kept a low profile. A regional banker said: “It’s not just that they lost out — they lost confidence and disappeared. They were marginalised. Their bank accounts were monitored.”

“I still see [the business owners] . . . they’re critical of what’s happening,” the banker said.

The ostensible anti-corruption purge was popular among many Saudis, but came amid a wider crackdown on dissent. Observers saw it as a statement by the crown prince, who had sidelined opponents within the royal family and their business supporters.

“It was kind of like shooting the Tsar. The Bolsheviks had already won but they made it clear there was no going back,” said David Rundell, a consultant and former US diplomat who served in Saudi Arabia.

However, the emergence of a new cohort of PIF-backed companies has led to accusations that the state has replaced one set of preferred businessmen with another. An official familiar with the fund said the PIF invested in such businesses because they were well-run and experienced.

Nesma was founded in 1979 by Saleh Al-Turki, who stepped down as president and chair in 2018 when he was appointed mayor of Jeddah, the commercial capital, by royal decree. He enjoys good ties with Prince Mohammed, a person familiar with the matter said.

“Before it used to be state socialism, now it’s state capitalism,” said a Saudi analyst who requested anonymity. “There’s a lot of bitterness . . . You’re just giving all the contracts to the PIF and you created a [new] class of bureaucrats who are young, ambitious and greedy.”

But other analysts say the dynamics are very different now, with favoured companies getting smaller margins from contracts than would have been normal in the past. “It’s all PIF-led, but they’re all being offered narrow margins. The PIF is negotiating hard,” said the banker.

Some of the old Jeddah merchant companies, such as Almunajem Foods and retail giant BinDawood, have been able to grow their businesses in recent years. But many others have fared poorly after energy subsidies were curbed as part of Riyadh’s economic reform drive and fees were increased for companies hiring foreign workers.

“Most of those businesses were drugged with the subsidies . . . the cheap energy, the labour, the corruption,” said an executive of a Jeddah-based family company who requested anonymity.

“You need to have relationships when you’re taking any project, but it’s not entirely dependent on that,” the executive said. “In the end, if it’s not adding value economically, I won’t get [a contract] just from my connection. [The government] needs to do a stress test, it needs to know I can deliver.”

“The PIF acquires stakes in companies to create national champions,” said Hertog, of the LSE. “There’s a form of displacement, but I don’t see large-scale rent-seeking. I don’t think that the management of those state-owned firms take huge cuts, I don’t see large-scale corruption.”

FT : Après debt ceiling deal, le T-bill déluge

Après debt ceiling deal, le T-bill déluge



So we have a debt ceiling deal. It still needs to actually be passed by Congress and the Senate, and only punts this weapons-grade idiocy into late 2024, but as Matt Yglesias writes, it seems a reasonable deal overall.

However, as we wrote last week, even a debt ceiling deal doesn’t mean that we will avoid negative financial and economic consequences from the whole tedious saga.

Since it hit the debt ceiling the US government has been drawing down money held in the Treasury General Account with the Fed. As a result its balance there has dropped from about $700bn at the end of 2022 to under $50bn now. Quickly rebuilding that buffer will boost Treasury bill issuance to $730bn over the next three months, and about $1.25tn over the rest of the year, according to Morgan Stanley.

This glut could cause problems at an already dicey juncture for markets, argues Vishwanath Tirupattur, head of fixed income research at Morgan Stanley:

The consequences of this expected burst of T-bill issuance for liquidity in the banking system and short-term rates could be meaningful. The outcome depends critically on who buys the T-bills and how. A bit of context may be useful here. As the Fed tightened monetary policy to combat inflation by rapidly raising the fed funds rate, we have seen a steady outflow of funds from bank deposits into money market funds (MMFs), which picked up dramatically after the regional banking problems that began in March. The debt ceiling concerns have added to the cash parked at MMFs, which reached an unprecedented US$5.81 trillion as of May 25. MMFs in turn have deposited their cash at the Federal Reserve using reverse repo purchase agreements (RRPs), earning the reverse repo rate.

While MMFs are the ‘natural’ buyers of the deluge of T-bills to come, the yield needs to be above the RRP rate for them to buy them. This means higher funding costs in the short-term money markets, which in turn would add to liquidity challenges for banks. Furthermore, if the path ahead for monetary policy remains uncertain, MMFs would be reluctant to get out of RRPs and into T-bills, especially if it means extending the maturity of securities in their portfolios. Liquidity stresses for regional banks linger on, as suggested by their continued reliance on the Bank Term Lending Facility (BTFP), which crept up to US$91 billion this week. On the other hand, if other investors were to buy the T-bills, they would need to do so using funds invested in other assets, which could drain liquidity in the system for those assets. Either way, the risk of heightened market volatility looms large.

Against this backdrop, the relative calm that pervades markets seems puzzling to us. Volatility in equity, rates and credit markets appears relatively contained and well below March levels. Looking back to 2011, markets were also fairly calm before the X-date but subsequently registered sharp moves. In the three weeks after the resolution, the S&P 500 fell by over 12%, 10-year Treasury yields declined by 70bp and high yield bond index spreads widened by more than 160bp. In our view, these changes resulted in part from the fiscal contraction embedded in the agreement that resolved the 2011 debt ceiling impasse. We don’t know yet what the current resolution will entail and would caution against expecting a similar market reaction this time, especially in Treasury yields.

Overall, the risks ahead after the debt ceiling issues are resolved do give us pause. We advise defensive positioning and would be underweight equities versus high grade bonds in developed markets.

Morgan Stanley has been pretty gloomy for a while now, so this could be a case of analysts simply looking for a catalyst — any catalyst — to justify pre-held views.

For example, if the debt ceiling deal passes the Treasury has two years until the next debt ceiling stand-off, and could decide to take a more measured approach to rebuilding the TGA. And the situation in 2011 was radically different from what it is today, so we wouldn’t over-extrapolate from that.

That said, the level of T-bill issuance in the pipeline unquestionably comes at a time of justifiably heightened concerns over liquidity, and is not gonna help things simmer down.

Nature : Chronic stress can inflame the gut — now scientists know why

Chronic stress can inflame the gut — now scientists know why
Signals originating in the brain make their way to gut nerve cells, leading to a release of inflammatory chemicals.

Psychological stress is known to worsen the gut inflammation caused by certain bowel diseases. Now scientists have found out why. New research1 outlines a sweeping narrative that begins with chemical cues produced in the brain and ends with immune cells in the gut — a sequence that spells trouble for people with these conditions.

The work, published today in Cell, helps to explain how chronic stress can trigger physical distress. And it implies that managing stress levels might have a profound influence over the effectiveness of treatments for inflammatory bowel disease (IBD). That idea runs contrary to conventional medical treatment, which has “completely neglected the psychological state of a patient as a major driver of [the] response to treatment”, says study co-author Christoph Thaiss, a microbiologist at the University of Pennsylvania in Philadelphia.

The path from brain to gut
Abdominal pain, diarrhoea and fatigue are just a few of the symptoms that people with IBD experience. The two main types of IBD, ulcerative colitis and Crohn’s disease, are mild in some people but, in others, can be debilitating or even life-threatening.

Stressful events, such as losing one’s job or breaking up with a partner, often precede IBD flare-ups. Thaiss and his colleagues have now traced that linkage. After a surge of stress, the brain sends signals to the adrenal glands, which release chemicals called glucocorticoids to the rest of the body.

Initially, the researchers considered the idea that glucocorticoids act directly on immune cells, which respond by releasing molecules that cause inflammation. “But it turns out that there is a sort of layer in between,” Thaiss says. Working in mice, they found that glucocorticoids act instead on neurons in the gut and on cells called glia that connect gut neurons to one another.

Co-opted immune cells
After being switched on by glucocorticoids, some glial cells release molecules that trigger immune cells. In turn, those immune cells release molecules that would normally be used to fight off pathogens, but in this case end up causing painful bowel inflammation.

At the same time, glucocorticoids block immature gut neurons from developing fully, the researchers found. As a consequence, these neurons produce only low levels of signalling molecules that cause gut muscles to contract. This means food moves slowly through the digestive system, which adds to the discomfort of IBD.

The researchers were surprised to learn that glucocorticoids cause gut inflammation, because these compounds are sometimes used to treat IBD. This apparent paradox might be explained by the short time frame on which such treatments are used. Although quick bursts of glucocorticoids seem to be anti-inflammatory, when stress becomes chronic, “the system completely shifts” and glucocorticoids take on a pro-inflammatory role, Thaiss says. It’s a “plausible explanation”, says gastroenterologist and immunologist John Chang at the University of California, San Diego.

Stress management for symptom relief
The brain’s ability to drive inflammation in far-flung organs “seems to be much stronger” than was thought before, Thaiss says. This suggests that IBD drugs, in combination with stress-management techniques, could be more effective than the drugs alone. Molecules in the signalling pathway that runs from the brain to the gut could also become targets for new pharmacological treatments — “an exciting possibility”, Chang says.

The implications of the work could reach beyond IBD. Stress is also thought to heighten inflammatory diseases of the skin and lungs, possibly through similar signalling pathways.

Moving forwards, Thaiss is excited to explore whether brain states other than stress influence a person’s overall health. “There’s definitely a huge amount we still need to learn about the brain and how the brain controls seemingly unrelated aspects of physiology and disease.”

WSJ : Saudi Arabia, Russia Ties Under Strain Over Oil-Production Cuts

Saudi Arabia, Russia Ties Under Strain Over Oil-Production Cuts
Moscow is exporting cheaper crude, hurting Riyadh’s efforts to boost energy prices

Tensions are rising between Saudi Arabia and Russia as Moscow keeps pumping huge volumes of cheaper crude into the market that is undermining Riyadh’s efforts to bolster energy prices, people familiar with the matter say.

Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, has expressed its anger to Russia for not following through fully on its pledge to throttle production in response to Western sanctions, the people said.

Saudi officials have complained to senior Russian officials and asked them to respect the agreed cuts, the people said.

The friction is very apparent between the world’s two biggest oil producers ahead of a crucial meeting between members of OPEC and a group of Russia-led oil producers, collectively known as OPEC+, in Vienna on June 4, the people said. The cartel is set to decide on a production plan for the second half of the year amid growing concerns about a slowing global economy crimping energy demand.

Earlier this week, the Saudi energy minister issued a warning to oil speculators, signaling to the market that a further production cut was on the table amid worries over the latest buildup in short positions and Russia’s failure to meet its promised voluntary cuts. Meanwhile, Russian President Vladimir Putin said oil prices were approaching “economically justified” levels, indicating that there might not be a need for an immediate change to the group’s production policy.

The OPEC+ meeting comes after Saudi Arabia, Russia and other OPEC+ members in early April said they would reduce output in a move that was expected to prop up oil prices. Riyadh started cutting production this month. Moscow at the time said it would extend unilateral curbs that took effect in March to the end of the year.

Now, the latest available data indicates that Russia continues to pump large volumes of oil into the market, which has helped maximize income for its beleaguered economy but added to a global surplus, industry officials and traders say.

Oil prices are down about 10% from where they stood in early April despite the Saudi-led intervention and sharply down from the highs they hit following Russia’s invasion of Ukraine early last year. Friday, Brent, the international oil contract, rose 0.9% to $76.95 a barrel.

It remains unclear if Saudi Arabia will take any immediate action that would affect the energy alliance with Russia. Frictions between Riyadh and Moscow aren’t new to OPEC+. In March 2020, oil prices collapsed after Saudi Arabia and Russia failed to agree on an emergency plan to address a supply glut. After the disagreement, Saudi Arabia embarked on a price war in an attempt to grab market share from Russia.

Saudi Arabia and Russia are allies in a broad effort by oil producers to prop up energy prices. It has drawn rebuke from the White House, which called the decision shortsighted and suggested OPEC+ was actively supporting Russia pay for its war in Ukraine. Yet beyond oil, their partnership has yielded little so far when it comes to security cooperation, trade or investment.

Last week, Saudi Arabia invited Ukrainian President Volodymyr Zelensky to attend the annual Arab League summit as a special guest. The kingdom is one of the many countries offering to mediate an end to the war. It helped negotiate a high-profile prisoner swap last year between Russia and Ukraine and announced $400 million in humanitarian aid for Kyiv.

The energy ministries of Saudi Arabia and Russia didn’t respond to requests for comment.

Russian Deputy Prime Minister Alexander Novak issued a statement earlier this month saying Moscow was abiding by its voluntary pledge to cut oil output by 500,000 barrels a day from March until the end of the year. Moscow has said it would cut its oil output by around 5% after the Group of Seven imposed price caps on Russian oil and oil products.

“Taking into account the unfounded speculation in the press regarding oil production levels, Russia reaffirms its full commitment to and implementation of voluntary oil production cut levels,” Novak said.

Russia’s Energy Ministry in recent weeks has also reached out to trade publications to explain it had to delay shutting down some oil wells due to exceptionally freezing weather in parts of the country. The ministry said the country had still managed to cut 400,000 barrels a day in early May—close to the level it had pledged to curb, say people familiar with the matter.

Last week, it also pressed secondary sources to alter their estimates of its oil production, but the agencies rebuffed the requests, these people said.

There is no specific requirement that Russia accurately report its production but the discrepancy adds to tensions within OPEC+ over whether to cut output further.

Western sanctions on Russian fossil fuels are accelerating the shift in global energy flows, with China and India increasingly taking advantage of Russian oil discounts and Middle Eastern suppliers redirecting their crude to Europe.

In March, Russia surpassed Saudi Arabia as China’s top oil supplier, while last month India’s imports of Russian oil exceeded combined flows from Saudi Arabia and Iraq for the first time ever, according to data from Vortexa, a data-commodity company.

Saudi officials and other people familiar with Saudi oil policy say Riyadh is under pressure to maintain higher oil prices with its budget requiring an estimated $81 a barrel—about $5 more than current levels. The kingdom needs to pay for massive development projects at home, some of which are so big that the Saudis call them gigaprojects. These include a Red Sea resort the size of Belgium with Maldives-style hotels hovering above the water and a $500 billion futuristic, high-tech city in the desert that is 33 times bigger than New York City.

Saudi Crown Prince Mohammed bin Salman, the de facto Saudi ruler, is halfway through an ambitious plan to use his country’s gusher of oil revenue to transform its economy, rework its physical landscape and upend its conservative culture. As prices hit $100 a barrel last year following the Russian invasion of Ukraine, the kingdom accelerated those efforts, which are financed largely by the $650 billion sovereign-wealth fund chaired by Mohammed.

In recent months, Saudi economic advisers have privately warned senior policy makers that the kingdom needs elevated oil prices for the next five years to keep spending billions of dollars on projects that have so far attracted meager investment from abroad.

WSJ : In Debt-Ceiling Talks, Biden, Republicans Signal a Deal Could Be Near

In Debt-Ceiling Talks, Biden, Republicans Signal a Deal Could Be Near
House Speaker Kevin McCarthy plans to brief the GOP conference and congressional leaders before announcing a deal

WASHINGTON—Negotiations to raise the nation’s $31.4 trillion debt ceiling and avert an unprecedented default stretched through Saturday, as President Biden and House Republicans signaled that a deal was near but sticking points remained.

Biden was expected to speak by phone on Saturday evening with House Speaker Kevin McCarthy (R., Calif.), two people familiar with the matter said, after representatives for the White House and House Republicans spent the day in negotiations.

The president spoke earlier Saturday with Democratic leaders in Congress—Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries, both of New York—these people said.

McCarthy started the day saying he was unsure when a deal would be ready. “We’ll get it when it gets right… We’ve got to make sure we get a right agreement for the American people,” he said. McCarthy also said that before announcing a deal, he plans to brief the GOP conference and congressional leaders. Lawmakers will be given 72 hours to review the text before a vote, which will also give them time to return to Washington.

Negotiators are trading a shortlist of final items, hoping to strike a deal soon to set up votes on the legislation next week. The Treasury Department, which is using extraordinary measures to avoid exceeding the debt ceiling, estimated Friday that the government could run out of money to pay its bills if Congress doesn’t act by June 5.

McCarthy huddled with his team in his Capitol office for most of the day. Just before noon, he and his lieutenants headed to Chipotle for lunch in the midst of negotiations. Asked what it meant for the status of the deal, McCarthy told reporters that it meant that he was hungry.

Reaching a deal would ease mounting concerns about the government’s ability to pay its bills. Lawmakers of both parties, business groups and Wall Street companies have raised alarms over the prospect of a government default, which they say would be disastrous for financial markets and the U.S. economy. If the government ran short of money, it would have to suspend certain pension payments, withhold or cut the pay of soldiers and federal workers, and potentially delay interest payments, which would constitute default.

McCarthy said that an agreement to ease the federal permitting process to speed construction of energy projects was still in the works. The latest measure under discussion was modeled on legislation by Sen. John Hickenlooper (D., Colo.) that would create interregional transmission networks to help upgrade the electric power grid.

Last year’s Inflation Reduction Act called for expanding renewable energy production, leading to concerns that the country needs new transmission lines to accommodate all the new projects. House Republicans also passed their own energy measure earlier this year.

Work requirements emerged Friday as one of the last remaining sticking points in the talks, which appeared to have made progress on a two-year agreement to cap spending and raise the borrowing limit, extending it past the 2024 election.

The right flank of the House GOP began opposing the deal before it was announced, signaling that McCarthy could have a problem getting votes from the hardline conservatives in his conference.

“Moving the issue of unsustainable debt beyond the presidential election, even though 60% of Americans are with the GOP on it? That must be a false rumor,” Rep. Dan Bishop (R., N.C.) tweeted.

Republicans are pushing to strengthen the work mandate on individuals without disabilities or dependents, something Democrats adamantly oppose. The issue is so polarizing that the final decision on work requirements could cause significant defections from either party, depending on what is included, despite a relatively small budgetary impact.

“It comes down to whether or not we’re going to default on the American debt, we’re going to default on seniors on Social Security or Medicare or have the Democrats continue to say we’re going to prioritize welfare payments for people that are refusing to work,” said Rep. Garret Graves (R., La.), who has been taking part in the talks.

Biden has indicated he won’t consider a GOP proposal to impose new work requirements for Medicaid, a healthcare program for low-income and disabled people. However, he hasn’t closed the door as firmly on changes to existing requirements for food aid and cash-assistance programs. The White House put out a statement Friday calling proposed requirements cruel and ineffective.

Beefing up work requirements would mark a political win for Republicans, but do relatively little to rein in federal spending.

The spending deal under discussion would cap federal spending but would include increases for the military and veterans, one person familiar with the discussions said. Setting the top-line numbers for spending has consequences for how military spending, veterans benefits and nondefense programs such as early childhood education and cancer research are funded.

Also up for discussion is rescinding some of the $80 billion that Congress approved last year to expand the Internal Revenue Service, which the agency had planned to use to boost tax enforcement and modernize its technology, people familiar said. Republicans voted earlier this year to claw back most of the money, a move that would be a net increase in the budget deficit because it would shrink tax revenue.

Democrats say the money is necessary so the government can reverse a decade of attrition at the tax agency, hiring thousands of new auditors and directing them at high-income households and large corporations. Republicans campaigned against the additional IRS money, warning that the agency couldn’t be trusted and that more audits would ultimately burden small businesses and middle-income Americans.

Congress intended the money as long-term funding through fiscal 2031, a supplement atop the agency’s annual budget. Losing some of that money would force the IRS to scale back its plans or come back to Congress sooner than intended for another tranche of long-term money.

CrunchBase : The Week’s 10 Biggest Funding Rounds: Anthropic Generates Another H

The Week’s 10 Biggest Funding Rounds: Anthropic Generates Another Huge Round, Biotech Has Big Week

The week can be summed up pretty succinctly by just saying AI and biotech. Another AI startup — one we’ve seen before — had another huge raise, and biotech had three huge rounds and a lot of good-sized ones. In general, it does seem like venture investing has been creeping up the past few weeks — at least when analyzing big rounds — but we’ll see what the summer holds.

1. Anthropic, $450M, artificial intelligence: If Anthropic looks familiar to you on this list, there’s a reason. In February there were reports that Google had invested between $300 million and $400 million into the San Francisco-based startup. That was followed in March by reports that Anthropic was raising another $300 million round at a pre-investment valuation of $4.1 billion. Then this week, Anthropic — a ChatGPT rival with its AI assistant Claude — announced it had raised $450 million in Series C funding led by Spark Capital with participation from Google, Salesforce Ventures, Sound Ventures, Zoom Ventures and others. Anthropic itself previously announced a $124 million Series A in 2021 and a $580 million Series B in 2022 — led by none other than disgraced FTX founder Sam Bankman-Fried. Of course, nothing has been hotter than AI this year. The raise was only topped by the $10 billion investment into OpenAI reportedly by Microsoft in January.

2. ElevateBio, $401M, biotech: We say this every week, but we really mean it this time — it was a huge week for biotech as three rounds brought in more than $850 million. First up is Massachusetts-based gene therapy startup ElevateBio, which raised a $401 million Series D led by the AyurMaya Capital Management Fund, a VC fund managed by Matrix Capital Management. The startup has multiple platforms for things such as drug development and manufacturing which interconnect with one another — making it an end-to-end biopharma company. The company has multiple drug development pipelines as demand grows for gene therapies that help the immune system fight its way through disease. Founded in 2017, the company has now raised $1.2 billion, per Crunchbase.

3. ReNAgade Therapeutics, $300M, biotech: This brings us to our second big biotech raise. Cambridge, Massachusetts-based ReNAgade Therapeutics locked up a $300 million Series A led by MPM BioImpact and F2 Ventures. That money would be big for any round, but a $300 million Series A in this venture market borders on the amazing (yes, it can be difficult to figure out how long a round took to raise, but still). ReNAgade is developing RNA therapeutics (hence the name) to fight disease. The company already has established a joint venture with Orna Therapeutics. Founded in 2021, this is the company’s first outside funding, per Crunchbase.

4. Carmot Therapeutics, $150M, biotech: Not to be forgotten, Berkeley, California-based biotech firm Carmot Therapeutics closed a $150 million Series E led by Deep Track Capital. The startup is developing therapies for metabolic diseases including obesity and diabetes. The company has several therapeutics in its pipeline and the new cash infusion to add to its portfolio. Founded in 2008, the company has raised nearly $385 million, per Crunchbase.

5. Tools For Humanity, $115M, crypto: It’s Sam Altman’s world, we’re just living in it. Worldcoin developer Tools For Humanity — co-founded by Altman — raised a $115 million Series C led by Blockchain Capital. The San Francisco-based startup is building tools in support of Worldcoin, an Ethereum-based token currently in beta. Its World ID platform is attempting to create unique digital identities — based on blockchain technology — for people by scanning their eyes with a small orb. The startup has raised many questions surrounding AI, data and privacy. While such an identity platform could be useful as AI makes it more difficult to know who or what one is dealing with over the internet, the scanning of people’s eyes to create a digital identity and how that information could be used has raised privacy and data concerns.The company did not reveal a valuation, but an earlier report said it is looking to raise money at a $3 billion valuation.

6. Nymbus, $70M, fintech: Jacksonville, Florida-based fintech startup Nymbus raised a $70 million Series D led by Insight Partners. Founded in 2015, the company has raised nearly $200 million.

7. OnKure Therapeutics, $54M, biotech: Boulder, Colorado-based precision oncology startup OnKure closed a $54 million Series C led by Surveyor Capital. Founded in 2011, the company has raised $121.5 million, per Crunchbase.

8. Quanta Therapeutics, $51M, biotech: San Francisco-based biotech Quanta Therapeutics locked up a $50.7 million Series D led by Avidity Partners. Founded in 2018, Quanta has raised more than $142 million, according to Crunchbase.

9. Episode Six, $48M, fintech: Austin, Texas-based payment processing startup Episode Six raised a $48 million Series C financing led by Avenir. Founded in 2015, the company has raised $90 million, per Crunchbase.

10. Larkspur Biosciences, $36M, biotech: Watertown, Massachusetts-based biotech firm Larkspur Biosciences launched with $35.5 million in a combined seed and Series A round co-led by Polaris Partners, 3E Bioventures Capital and Takeda Ventures.


Big global deals
Not surprisingly, the biggest non-U.S. round of the week also involved AI.
  • London-based Builder.ai raised a Series D of more than $250 million led by Qatar Investment Authority. The company uses AI in its software development platform.