Weekend Papers Summary
.NEW YORK TIMES
-Ukrainian forces are trying to push back Russian troops from two key cities and achieve a breakthrough in what has become a grinding battle.
The White House announced that President Biden would meet virtually on Sunday with Volodymyr Zelensky and the leaders of the G7.
-The advances by the Ukrainian army in the north have been modest, but they are emblematic of both sides’ strategy: maneuvering artillery to gain territory.
-Italian authorities announced they had seized a nearly $700M superyacht tied to President Vladimir Putin.
Job growth shows that the US economy has continuing vigor. The Labor Department reported a gain of 428,000 jobs in April, along with a 5.5% increase in average hourly earnings from a year earlier.
-The market pain isn’t over, but you will get through this head-spinning market volatility isn’t all that puzzling, considering the problems faced by the Federal Reserve, our columnist writes.
-While Democrats decry a draft opinion that would eliminate the constitutional right to an abortion, Republicans have been largely silent.
-If Roe v. Wade is overturned, states will set their own rules, leading to one America where abortion access is guaranteed and another where it’s outlawed.
-In a seismic election shift, Northern Ireland’s Sinn Fein is winning. With much of the vote counted, the pro-unity party was on the cusp of being declared the territory’s largest. Some fear the result could sow unrest.
-Boris Johnson and his party have suffered setbacks in local voting in Britain. Mr. Johnson may have survived the storm — for now at least — after the opposition leader was accused of breaking lockdown rules himself.
-The White House has warned of a fall Covid surge and it’s planning how to provide vaccines if there’s no more Covid aid. The White House has been asking Congress for $22.5B in emergency aid to continue responding to the pandemic, but Republicans have insisted on a much lower number.
-Power companies, conservationists, local residents and two U.S. states are mired in an acrimonious dispute about hydroelectricity from Quebec (Canada).
-A blast caused by an apparent gas leak left dozens injured and destroyed parts of a luxury hotel in Havana. Others were possibly trapped in the rubble.
THE FINANCIAL TIMES
-US stocks have suffered the worst streak of weekly losses in more than a decade after days of tumultuous trading surrounding the Federal Reserve’s decision to raise interest rates by half a percentage point.
-Western banks are steeling themselves for a $10B hit on their forays into Russia, as they prepare to pull out of the country because of its invasion of Ukraine.
-If the Supreme Court’s final ruling on Roe, which could be handed down as early as June, mirrors the draft opinion, a slew of conservative states are likely to further restrict abortion access. It would represent the seismic shift in US politics that liberals have long feared and religious conservatives have been working for decades to achieve.
-Non-farm payrolls grew by 428,000 in April, according to data released by the Bureau of Labor Statistics on Friday, matching the revised 428,000 increase in March and exceeding economists’ forecasts for 391,000, according to a Reuters poll.
-Early election returns showed Sinn Féin set for a historic victory in Northern Ireland’s elections in what would mark the first time the nationalist party, committed to Irish reunification, has outperformed unionists in the region.
-Companies that have spent years wanting to be considered as “tech”, for the racier multiples, now emphasise their dull reliability — staples rather than discretionary, value rather than growth. The message to investors: do not adjust your portfolios — we are safe.
-Rome has moved to seize a $700M superyacht docked in a Tuscan port pending a decision on its beneficial owner being included in the European Commission’s forthcoming package of sanctions against Russia. Daniele Franco, Italy’s finance minister, has issued “a decree to freeze the asset pending a decision by the European Union”, the Rome government said in a statement on Friday evening.
-Boris Johnson faced renewed pressure on his leadership on Friday after his Conservative party lost hundreds of council seats, with southern Tory voters switching sharply to Labor in London and to the Liberal Democrats in the so-called “blue wall”.
-The owner of the Times Square building, where the New Year’s Eve Ball drops each December before tens of thousands of revelers, will invest $500mn in its renovation in another vote of confidence in a New York City neighborhood trying to recover from the pandemic.
-Last week, Shenzhen officials finally agreed to remove Arm China head Allen Wu, clearing his name from business records and fashioning a new “chop”, or company seal, which authorizes official documents and with which Wu has wielded power for nearly two years.
-Samsung Electronics is under growing pressure over its inaction on fossil fuel emissions, as it falls behind rivals Apple and Taiwanese chipmaker TSMC in making environmental commitments.
THE NEW YORK POST
-John Paul Mac Isaac shares the night he met Hunter Biden. On a fateful night in April 2019, John Paul Mac Isaac was working at his store, The Mac Shop in Wilmington, Del., when a customer walked in who would upend his life. In his forthcoming book, “American Injustice: My Battle to Expose the Truth,” Isaac will tell his story — and in an exclusive first look, he describes the moment he met Hunter Biden to the NY Post.
-Starbucks is demanding equal time with President Biden after the White House invited a unionizing barista to meet top administration officials — including the commander-in-chief.
Laura Garza, an employee who is among those leading the unionization drive of workers at Starbucks’ New York City Roastery, met with Biden at the White House on Thursday.
-Big tech companies like Google and Facebook parent Meta would have to comply with tough British rules under a new digital watchdog aimed at giving consumers more choice online — or face the threat of big fines.
China wary of Russia-type sanctions, but Beijing’s ‘financial nuclear bombs’ are a powerful deterrent
Punishing the world’s second-largest economy with destructive financial and economic sanctions – such as expelling China from the international Swift payment system and freezing foreign reserves – had never been publicly considered an option by Washington.
But that changed when they were levied against Russia for its invasion of Ukraine.
Now, the breadth of those sanctions, and the speed at which they were applied, have given Beijing a glimpse of what it could face if it offers support to Moscow or tries to forcefully reunify Taiwan with the Chinese mainland.
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However, Russia is no China, whose economy is about 10 times larger and much more closely intertwined with the rest of the world.
China remains highly dependent on foreign trade and has the world’s largest foreign exchange reserves – worth US$3.25 trillion – much of which is stored in the United States and Europe.
China’s support for Russia galvanises West as US examines action against Beijing
“The expansive economic sanctions that US-led Western countries have imposed on Russia can be seen as a textbook warning for China – on how far [the sanctions] can go,” said He Weiwen, former economic and commercial counsellor at the Chinese consulates in New York and San Francisco.
Some say the economic impact could be much more debilitating for China.
“Once sanctioned, China would be hurt far more than Russia,” said a Beijing-based European diplomat on condition of anonymity. “China is worried and doesn’t have many tools [to counter the impact of sanctions].”
On the other hand, China has carved out such a strong foothold in the global value chain that analysts say it would be extremely difficult, if not impossible, for more than 120 countries and regions, including the United States, to sever ties entirely with their top trade partner.
The effects of any sanctions are mutual. We have assets in the US and Europe, and so do they in China
Lu Xiang, Chinese Academy of Social Sciences
He, who is now a senior fellow with the Centre for China and Globalisation (CCG), a Beijing-based think tank, said: “China and the US have a stake in each other, so for the US, China is totally different from Russia. The political calculations will inevitably be restrained by economic conditions.”
Lu Xiang, a senior fellow with the Chinese Academy of Social Sciences (CASS), also said that if the same sanctions were levied against China, they would have unintended consequences for the nation or global bloc imposing them.
“The effects of any sanctions are mutual,” Lu said. “We have assets in the US and Europe, and so do they in China.”
Some US sanctions will inevitably remain in place, and perhaps more will come, but the unfolding of the sanctions will follow its original pace, according to Shi Yinhong, an international relations professor at Renmin University and an adviser to the State Council, the country’s cabinet.
“A sharp and sudden escalation is quite unlikely,” Shi said.
Potential triggers: Ukraine, Taiwan and ambiguity
More than two months into the Ukraine war, it has become increasingly difficult for Beijing to distance itself from the tension. While Chinese diplomats have been calling for a peaceful resolution, Beijing’s insistence on maintaining a neutral stance has come under fire from the US and its allies.
CIA director William Burns called China “a silent partner in Putin’s aggression” when speaking to students and faculty last month at the Georgia Institute of Technology.
But to trigger potential secondary sanctions against China, a generally acknowledged red line is the provision of weapons, even though Washington has been vague in its wording on this, saying there would be “consequences” if Beijing offered “material support to Russia’s invasion”.
“The United States is now playing with ambiguity,” said another Beijing-based foreign diplomat. “China also wants to know, clearly, under what specific circumstances it would be sanctioned.”
US intelligence has not found evidence of China selling weapons to Russia, according to Ned Price, spokesman for the US Department of State.
“We’re going to continue to watch very closely,” he said during a press conference on April 18. “We offered an assessment a couple of weeks ago now that we had not seen the provision of weapons, of supplies, and that assessment has not changed.”
Accordingly, the Chinese government, along with state-owned banks and enterprises that have business relations with Russia, have been adopting a very prudent approach since the war began, according to Professor Shi with Renmin University.
“Such a Western attitude [towards Russian aggression] has probably been fully anticipated by China, so to protect Chinese assets, I think so far, China has been acting very cautiously,” Shi said.
Legal sources told the Post that various state-owned enterprises in China, such as banks, oil companies and semiconductor firms, have been seeking advice on whether to continue their trade with Russia since the war began.
But as long as China does not provide munitions to Russia, secondary sanctions on China are a non-existent problem, said Wang Huiyao, founder of the CCG think tank and also a State Council adviser.
“China is conducting normal trade with Russia, and so is the EU,” Wang said. “The key point is that [the US] has no reason to impose sanctions [on China] because of the war.”
‘Decoupling is unworkable’, Xi Jinping says, in call for global peace
Meanwhile, US officials have been increasingly using the measures taken against Russia as a warning to China, suggesting that a similar playbook would be employed if China were to one day attempt to take Taiwan by force.
One US official told the Post that anyone who assumes the US would hold back on similarly powerful economic retaliation against Beijing – if it one day attacks Taiwan – is misunderstanding just how far and how quickly the conversation has changed in Washington since the Ukraine war began.
Beijing regards the island as a breakaway province that must be reunified with the mainland – by force if necessary. And tensions have risen in recent years as Washington shifted away from the one-China policy that had been the bedrock of Sino-US relations for four decades.
However, some Chinese government advisers have suggested that Beijing may be in no rush to take Taiwan by force.
“Although there are frequent tensions on the Taiwan issue, the basic framework is quite stable,” Shi said. “Under the circumstances we can now foresee, there will be no substantial Sino-US conflict on the Taiwan issue.
“China absolutely does not tolerate Taiwan’s independence and foreign control of Taiwan, and the United States understands it very well. So, in terms of such a fundamental red line, I think [Beijing and Washington] have a clear understanding of each other.”
And as long as China maintains good relations with Asean countries, the US cannot make waves in the South China Sea
He Weiwen
As for Xinjiang and the South China Sea, it is not worthwhile for the US to impose the same level of sanctions that would jeopardise its own economy, said He, the former diplomat.
“For the US, Xinjiang is more of a pawn that they use to cause trouble for China while garnering international support. And as long as China maintains good relations with Asean countries, the US cannot make waves in the South China Sea.”
But as evidenced by the abruptness of the Ukraine war, surprises can pop up overnight, said Lu from the CASS.
“China has repeatedly made it clear to the United States that Taiwan is the most sensitive and important issue in the relationship between the two countries, and the US understands this well,” Lu said. “But will the US challenge China on this issue precisely because it understands the importance? We must also make various assumptions.”
Even with leverage, China must prepare for the worst
Since the war began, the Swift international financial messaging system has been widely regarded as the most impactful way to cut off Russia from the international financial system – and the US and its Western allies indeed moved quickly to exclude selected Russian banks from Swift.
But that expulsion was a compromised version – energy trade has thus far been excluded from the punishment.
“The international payments system is just the international supply chains in reverse,” said Shahin Vallee, head of the Geo-Economics Programme with the German Council on Foreign Relations, in an article in March.
Germany ‘top buyer’ of Russian energy since Ukraine war began
“It is not possible to cut off Russia from the international payments system unless one is prepared to cut it off from global supply chains – or, in this case, from energy supplies to Europe.”
Likewise, China’s biggest strength lies in its deep participation in the global supply chain, which also raises additional concerns for the US. If the actions taken against Russia were to be similarly applied to China, the US’ allies may be less likely to follow suit.
“The US knows well that Europe would be more reluctant to impose sanctions on China, because China-EU economic and trade relations are too close,” said the second foreign diplomat in Beijing.
Still, Beijing has to do everything in its power to ensure that China is not excluded from Swift, according to former Chinese government officials. There is still a long way to go for the Chinese yuan to reach the same level as the US dollar or euro, in terms of international standing.
And China’s own yuan payment system – the Cross-Border Interbank Payment System (CIPS) still relies on Swift for cross-border messaging.
“It is necessary to speed up the construction and external connection of the cross-border yuan clearing system CIPS … [But] the primary choice is to continue to strengthen cooperation with Swift,” said Wang Yongli, a former vice-president with the Bank of China and a former board member for Swift, in an article in March.
Meanwhile, a far stronger action taken by the US and its allies – freezing the Russian central bank’s assets held overseas – has not gone unnoticed by Beijing, as China has the world’s largest foreign currency reserve assets, most of which are in US dollars.
The huge foreign exchange reserves are hard-won, and they are China’s ‘financial nuclear bombs’ with a powerful deterrent effect
Wang Yongli, former Swift board member
The total value has been maintained at around US$3.2 trillion since 2020, more than double that of the second biggest holder, Japan.
There has been talk inside China of slashing its huge holding of reserves, but experts say this is not feasible, as a sudden change in the volume could have catastrophic consequences in global markets.
“The huge foreign exchange reserves are hard-won, and they are China’s ‘financial nuclear bombs’ with a powerful deterrent effect. It must be used properly rather than arbitrarily, and cannot be easily slashed,” Wang Yongli said.
“Of course, this does not rule out China increasing its purchase of gold or other strategic materials, or adjusting the currency and country composition of foreign exchange reserves, to further reduce its US dollar reserves, but we avoid this as much as possible to use it as a means of confrontation with the US.”
China takes step to ‘revitalise’ seed industry as food security fears grow
Indeed, China has been stepping up efforts to diversify its foreign exchange reserve assets in the past two decades, according to data from the State Administration Of Foreign Exchange.
In 1995, the proportion of China’s US dollar reserve assets reached 79 per cent – much higher than the international average of 59 per cent. But China’s share fell below 60 per cent between 2014 and 2016, below the international average of over 65 per cent.
One countermeasure China can take is to expand its economic and financial opening up to the outside world, and encourage foreign investors to hold more Chinese assets, according to Chinese government advisers.
Meanwhile, foreign multinational corporations are already prepared for a scenario in which China is sanctioned.
For instance, some may accelerate the implementation of an “In China, for China” strategy where goods are specifically produced for local consumption, according to the European diplomat who said China will hurt more than Russia if sanctioned.
Dan Wang, a technology analyst at Gavekal Dragonomics, said China is doing its best to mitigate any collateral damage from the Western sanctions against Russia, given China’s dependence on foreign markets as well as critical technologies such as chips, seeds and aviation.
China speeds up inward economic push with plan for ‘unified domestic market’
“Efforts to increase self-sufficiency are under way, but China is unlikely to free itself within the present decade,” Dan Wang said.
“But once China decides it no longer needs Western technologies, it may no longer feel such restraint.”
Qin Gang, China’s ambassador to the US, published an opinion piece in The National Interest on April 18, saying: “A worse Russia-US relationship does not mean a better China-US relationship. And likewise, a worse China-Russia relationship does not mean a better US-Russia relationship, either.
“More importantly, if the China-US relationship is messed up, that does not augur well for Russia-US relations or the world.”
Boehly-Led Group Said to Have Reached Deal to Buy Chelsea F.C.
The sale attracted a host of U.S. bidders seeking to acquire the brand from Russian billionaire Roman Abramovich
A group led by Los Angeles Dodgers part-owner Todd Boehly reached a deal to acquire Chelsea Football Club from Russian billionaire Roman Abramovich for almost £4.3 billion, equivalent to $5.2 billion, the team said late Friday, marking a record sale price for a professional sports team.
The deal’s completion is expected later this month, assuming the deal wins regulator approvals, Chelsea said in a statement. It follows a roughly two-month auction process that attracted a who’s who of American bidders seeking to acquire the marquee sports brand.
The Wall Street Journal reported earlier Friday a deal had been reached. The Boehly group, which also includes U.S.-based investment firm Clearlake Capital among others, beat out two other U.S.-led groups for the right to negotiate a final deal.
The Chelsea sale is a high-profile example of the financial reshuffling of Russian wealth sparked by the war in Ukraine.
Mr. Abramovich has owned Chelsea for almost 20 years, spending lavishly on players and absorbing total team losses of more than $1 billion to turn the English Premier League club into a consistent performer often competing for titles. It won last year’s Champions League, the top tournament among European clubs.
But in March, the Russian oligarch, under pressure from U.K.-imposed sanctions because of his ties to the Kremlin, put the team up for sale. U.K. government officials have closely followed the process to make sure proceeds of the sale don’t benefit Mr. Abramovich.
Of the total investment, £2.5 billion will be used to buy the shares in Chelsea and that money will be distributed to charity. The remaining £1.75 billion is earmarked for investment in the club, including its stadium and women’s team.
At more than £4 billion, the price tag would surpass the $2.4 billion acquisition in 2020 of Major League Baseball’s New York Mets by billionaire hedge-fund manager Steven A. Cohen as the most ever paid for a professional sports team, according to Dealogic’s data on publicly announced transactions.
Chelsea, though, might not hold that title for long as the sale of the National Football League’s Denver Broncos is expected to fetch even more.
Mr. Boehly, former president of financial firm Guggenheim Partners LLC who now runs holding company Eldridge Industries, in 2019 made an offer to buy Chelsea but was rebuffed after the price fell short of the $3 billion Mr. Abramovich was seeking, the Journal reported.
In 2012, he was part of the ownership group that snapped up the Dodgers for a record $2.15 billion.
The Chelsea deal underscores the growing popularity of the Premier League among U.S. audiences. NBCUniversal, owned by Comcast Corp. , last year agreed to pay close to $2.7 billion to extend its Premier League broadcasting rights for six years. That is close to triple the $1 billion value of the broadcaster’s current six-year deal, which expires soon.
With the Boehly group deal, U.S. investors would control more English Premier League clubs than U.K. owners, cementing their position as a dominant force in the league. They include Boston Red Sox owner Fenway Sports Group, owner of Liverpool F.C.; the Florida-based Glazer family, controlling shareholder of Manchester United F.C.; Arsenal F.C., which Los Angeles Rams owner Stan Kroenke owns; and Aston Villa F.C., which is controlled by Fortress Investment co-founder Wes Edens along with Egyptian billionaire Nassef Sawiris.
One rival group in the running for Chelsea was headed by Stephen Pagliuca, co-owner of the Boston Celtics and co-chairman of private-equity firm Bain Capital; another was led by Philadelphia 76ers co-owners and private-equity veterans Josh Harris and David Blitzer.
Billionaire George Kaiser’s Bank Drills Deeper Into the Oil Patch
While other lenders edge back from oil-and-gas lending, BOK Financial is snatching market share
Banks all over the U.S. and around the world have curtailed lending to the U.S. oil-and-gas sector. BOK Financial Corp. BOKF 1.09% has doubled down.
The Tulsa, Okla.-based bank holding company for the Bank of Albuquerque, Bank of Oklahoma and Bank of Texas, along with other financial-services companies, is majority-owned by billionaire oilman George Kaiser. It has been snatching market share from big European banks and local rivals that retreated from the industry even as oil prices leapt from historic lows to near-historic highs in less than two years.
“We’re demonstrating that we can be very aggressive,” said Stacy Kymes, BOK’s chief executive officer. “Some have struggled with underwriting and managing the credit risk.”
The outlook for energy companies today is much better than in the depths of the pandemic, when an oil glut depressed prices, drivers stayed home and airlines grounded flights.
Demand has returned. Oil is now in short supply, a dynamic worsened by international sanctions on Russian oil following Russia’s invasion of Ukraine. Oil prices have jumped, reaching multiyear highs around $100 a barrel, and so have the prospects of energy providers, who now have more access to capital from investors and the remaining lenders in the sector.
BOK was bookrunner on $2 billion in loans to U.S. oil-and-gas companies during the first quarter of this year, representing 6.7% of lending in the sector, according to data provider Refinitiv. The bank ranked fifth overall, behind national giants Wells Fargo & Co., Bank of America Corp., Citigroup Inc. , and JPMorgan Chase & Co.
During the first quarter, the lender’s energy-loan balances increased by $191 million to $3.2 billion. Energy loans make up about 15% of the bank’s total book.
The lender added 19 new borrowers during the quarter, as others backed away from the energy sector because they were trying to limit exposure to carbon-producing industries, said Mr. Kymes during an earnings call with analysts on Wednesday.
This year’s lending builds on last year, when BOK was 11th in oil-and-gas loans. Its 2.8% market share was the bank’s highest ever.
The bank’s run up the league tables has come as overall energy lending has fallen, despite a rebound in oil prices.
Last year’s $143.7 billion in U.S. oil-and-gas loan financing was the third-lowest total in the past 10 years, higher only than 2020, the year the pandemic began, and 2016, after oil prices had collapsed from their 2014 highs, according to Refinitiv. Companies raised $219.9 billion by selling bonds last year, a 30% drop from 2020.
This year, high oil prices have boosted energy companies’ cash flows, so they don’t need to borrow as much to run their businesses. Many U.S. producers have said they don’t intend to increase production, even with high oil prices, which is limiting their need for capital.
Banks have also been reducing oil-and-gas lending to reduce their exposure to greenhouse gas-emitting industries. Firms such as HSBC Holdings PLC, Barclays PLC and Bank of Montreal have said they are cutting their exposure to the energy sector as part of broader climate-change goals.
Other lenders have been put off by an extremely volatile oil market that has made it difficult for them to assess risk.
Prices for U.S. benchmark West Texas Intermediate crude plunged by more than 50% between 2014 and 2015, turned negative for the first time in 2020 at the beginning of the pandemic, and then jumped over $100 a barrel again this year after Russia’s invasion of Ukraine.
The volatility has caused longtime lenders such as San Antonio-based Cullen/Frost Bankers Inc. to shrink lending books and reduce shareholder exposure to the oil market.
“We’re a bank, and banks typically aren’t that volatile,” said Bill Day, a Cullen/Frost spokesman. “When investors buy a bank, they don’t think they’re buying energy.”
Cullen/Frost, whose Texas roots go back to the 1890s, is trying to reduce energy loans to roughly 5% of its total lending book. Those loans made up 6.6% of the bank’s book at the end of last year, down from 8.2% in 2020. In 2015, roughly 16% of all its lending was to oil-and-gas companies, the bank said.
“There’s less capital available washing around the industry,” said Buddy Clark, a Houston-based partner in the energy practice of Haynes and Boone LLP.
Although rising oil prices have allowed banks to increase the size of the credit lines they are offering energy companies, which are backed by the value of oil reserves, banks are setting stricter limits on how much debt companies can carry and how they can use their borrowings, he said.
“If you don’t have a bunch of banks competing with one another to get the latest loan transaction, that means that the banks who are selling capital can make a tougher deal,” he said.
For BOK, oil and gas remain central. Mr. Kaiser, chairman of board, bought the firm in 1990 out of receivership from the Federal Deposit Insurance Corp. The billionaire from Tulsa, Okla., now owns a nearly 56% stake.
Mr. Kaiser made his fortune in the oil-and-gas industry, and owns Kaiser-Francis Oil Co. Earlier this year, he boosted his net worth by publicly listing Excelerate Energy Inc., a company that makes floating liquefied-natural-gas terminals.
Mr. Kaiser’s commitment to the industry hasn’t helped share prices in the short term, however. BOK’s stock is down roughly 20% so far this year. The company reported first-quarter net income that was $55 million lower than a year earlier, as profit was weighed down by the bank’s mortgage-servicing and securities-trading businesses, hurt by rising interest rates.
EU needs to make food security a priority for gas supplies
Farmers, fertiliser manufacturers and fisheries must be supplied with gas and diesel to avoid production shortages
The EU has not yet grasped the nettle of what it will take to ensure the security of its food supply in a war environment. The founders did; that is why the Common Agricultural Policy was finally put into place in 1962. The signers of the original Treaty of Rome knew the price of failure was hunger.
Their successors seem to have forgotten both the wartime food shortages and even the 2008 crisis, which was the last time critical farming input prices were this high. There was a modest €500mm European Commission “support package” for the agricultural sector, as well as a “temporary crisis framework” for farmers, fertiliser producers and fisheries.
But there was an apparent lack of urgency on the part of the commission. As agriculture commissioner, Janusz Wojciechowski said in passing in a speech this month that “the EU itself does not face a food security risk”.
Oh yes it does. Specifically, farmers do not have enough mineral fertiliser or diesel fuel to maintain food production. As one fertiliser industry person I know put it, accurately in my view: “the last few drops of diesel should be used by a tractor to spread fertiliser made with the last bit of gas”.
That is not the set of priorities that is set by current European law. In the EU regulation of October 2017, “concerning measures to safeguard the security of gas supply” fertiliser production and food supply are not mentioned as an official priority. This is wrong-headed. Last year’s surges in gas prices led to widespread shutdowns of European nitrogen fertiliser makers, at a time when Russian and Chinese producers had cut off their exports.
If there is another “negative disruption of gas supply” this year, such as a cut-off of Russian supplies, food shortages will quickly develop in Europe. Farmers, fertiliser manufacturers and fisheries must have their gas and diesel supplies prioritised over those for household use.
In case the top of Brussels has not noticed, we are seeing a disruption of gas supply. And while it is nice, speaking as a member of an EU household, that our gas is not rationed I would be much more concerned if we ran short of food.
That has not happened yet. But there will be food shortages next year if food production is cut in crops being planted now. The food we have been eating was harvested with fertiliser and diesel fuel set at last autumn’s prices.
If Europe does not change priorities, farmers will skimp on the first applications of ammonia-based fertiliser in the coming autumn for next year’s crops of wheat and rapeseed. European farmers have already reduced their application of expensive potash and phosphate fertiliser but it takes about two years of economising for the effects of those shortfalls to become dire. A lack of ammonia-based fertiliser will quickly lead to a disastrous harvest.
High-level European officials are not the only policymakers in the world to be struggling to grasp the issue fully. Samantha Power, administrator of the US Agency for International Development, opined last Sunday on a TV talk show that “as a result [of the fertiliser shortages] we’re working with countries to think about natural solutions like manure and compost. And this may hasten transitions that would have been in the interest of farmers to make eventually anyway. So, never let a crisis go to waste . . . ”
Power, despite her high office, seemed unaware of a less-than-ideal example of such a transition, or unwasted crisis: Sri Lanka. The island state’s leadership decided last April on an abrupt “transition” to closed-loop farming methods where organic material is recycled back into the soil, forbidding the import of synthetic fertiliser. The results were disastrous, escalating an already severe economic crisis. Rice yields have fallen heavily, adding to widespread food shortages and a surge in inflation.
Fortunately, only about 4 per cent of Europe’s natural gas use goes to ammonia fertiliser production, according to an industry expert. It is, though, the largest single industrial use of gas. I believe that ensuring an adequate food supply for Europe will require a subsidised set-aside of natural gas for fertiliser and diesel fuel for farm equipment until the end of the war in Ukraine and the reopening of the Black Sea ports.