Wednesday, May 17, 2023

India-Russia Trade: Is Indian Rupee Worthless For Cross-Border Transactions?

What good is a currency in global trade if it can not be used to buy products and services from other nations that a country needs?  The answer to this question came when Russia said it has accumulated billions of rupees in Indian banks which it can not use. “This is a problem”,  Russian Foreign Minister Sergei Lavrov told reporters in India’s Western state of Goa on the sidelines of the Shanghai Cooperation Organization meeting.  “We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now”.  Russia has decided it won't take any more Indian rupees. Moscow has rejected New Delhi's proposal for the Kremlin to invest rupees from oil and military equipment payments back into Indian capital markets so the currency doesn't pile up.

Global Export Map 2023. Source: World Population Review


Only the currencies issued by the governments of the world's largest exporters are useful for buying products and services on the world markets. China, United States, Germany, Japan and the United Kingdom are the world's top 5 exporting nations as of 2020. This makes Chinese Yuan, US Dollar, European Euro, Japanese Yen and British Pound the most important international trade currencies. Of these currencies, only the Chinese Yuan is not impacted by the western sanctions on trade with Russia. Russia wants India to convert Indian Rupees to Chinese Yuan to pay for energy and military equipment imports from Russia. 

Yuan vs Dollar in Chinese Cross-Border Trade. Source: Bloomberg 


The share of the Chinese Yuan in international trade has been increasing since the US imposed sanctions on the use of the US dollar in trade with Russia. Earlier this year, the Chinese Yuan eclipsed the US dollar as the most used currency for Chinese cross-border transactions, according to Market Insider. The Yuan's use in cross-border payments and receipts rose to 48.4% at the end of March while the dollar's share slid to 46.7%, according to a Reuters calculation of data from China's State Administration of Foreign Exchange. The yuan's use in global trade finance remains low, though it has shown steady increases. Data from SWIFT showed that the Chinese yuan's share of global currency transactions for trade finance rose to 4.5% in March, while the US dollar accounted for 83.71%, according to Reuters. 

Related Links:

Haq's Musings

South Asia Investor Review

Impact of Russia Sanctions on US Dollar

India Biggest Winner of Russia Sanctions and US-China Tensions

Ukraine Resists Russia Alone: A Tale of West's Broken Promises

Ukraine's Lesson For Pakistan: Never Give Up Nuclear Weapons

Pakistani-American Heads SWIFT

Russia Sanction: India Profiting From Selling Russian Oil

Indian Diplomat on Pakistan's "Resilience", "Strategic CPEC"

Why Does India Lag So Far Behind China?

24 comments:

Javed E. said...

Interesting - and do you see any impact on gold prices?

Riaz Haq said...

Gold Price in Indian Rupee is at a current level of 165970.1 per troy ounce, up from 165491.9 the previous market day and up from 142229.0 one year ago. This is a change of 0.29% from the previous market day and 16.69% from one year ago.

https://ycharts.com/indicators/gold_price_in_indian_rupee#:~:text=Gold%20Price%20in%20Indian%20Rupee%20(I%3AGPIR)&text=Gold%20Price%20in%20Indian%20Rupee%20is%20at%20a%20current%20level,16.69%25%20from%20one%20year%20ago.

SAMIR SARDANA said...

THE RUPEE IS WORTHLESS IF ADJUSTED FOR BANK NPA AND FRAUDS

ONLY A NE BUYER FROM THE CHAIWALA WHO HAS A TRADE DEFICIT WITH CHAIWALA HAS SOME USE FOR THE INR !

THESE ARE SUPERPOWER NATIONS LIKE NEPAL,BHUTAN,MALDIVES ETC.

WHAT CAN THEY EXPORT TO PUTIN ? ONLY GOBAR + GAU MUTRAM !

WHICH PUTIN NEEDS NOT !

PAKISTAN NEED NOT WORRY ABOUT FX RATE !

INDONNESIA - 1 USD + 1500O RUPIAH !

PAKISTAN WILL WIN IN DUE COURSE ! IT IS AN ISLAMIC NATION !

WHOEVER FOLLOWS THE ORAL LAW - WINS !

ALL NATIONS WHICH FOLLOWED HINDOOISM WERE DOOMED !

CHAIWALA AND HINDOOSTHAN ARE DOOMED !

IN EVERY CENTURY FROM ASHOKA TIMES THERE WERE ILLUSIONS OF DIVINITY AND DOOM FOLLOWED !

HINDOOISM IS A SATANIC CULT AND PURE EVIL WHICH HAS TO BE DESTROYED ! AND PAKISTAN WILL FULFIL THAT DESTINY WITH THE MONGOLS AND TURKS AND OTHERS !

FILTH LIKE THE VHP AND BAJRANG DAL HAVE TO BE CULLED ! dindooohindoo

THE RSS AND BANIA COMPANY THINK THAT ISLAM IS A DEATH CULT - JUST LIKE THE ISRAELIS !

Anonymous said...

@Haq Bhai,

India can pay Russia in a host of currencies including yuan, dinar and even Gold. India has a good amount of gold reservers or even silver. The amount remaining with Russia is not much. Billions of rupees is merely some 100 million dollars at max. So.. its not as much of issue for India.

There is something else I see on your comment section, some folks have gone totally off the rockers. What gives?

Riaz Haq said...

Anon: "Billions of rupees is merely some 100 million dollars at max. So.. its not as much of issue for India"


It may not be an issue for India but it is an issue for Russia.

India's trade deficit with Russia has expanded sevenfold due to its rising dependence on crude oil, according to government data. Business Standard reported that India had the maximum trade deficit with China at $71.58 billion, followed by Russia $34.79 billion, from April through January 2022-23 (FY23).


And the deficit with Russia will continue to build up as India imports more and more arms and oil from Russia. And so will the deficit with China whose currency India will need to satisfy Moscow.

LoluLola said...

@SAMIR SARDANA
Do you know who runs trade deficit with India?

USA,
Netherlands,
Japan,
Bangladesh,
UK,
Italy
and many more...

I am sure these are enough to impress you.

Anonymous said...

@Haq bhai,

122 million in over one year of trade (worth 37-40 billion dollars) is peanuts. Russia is making noise because it wants a better deal for itself. That is totally okay. We all do that.

A good amount of Russian oil coming to India is actually exported after processing. Its an open secret. The export bring a wealth of foreign currencies. So if India wants to pay a larger fraction in forex (like Dinar, Yuan etc), it can without much issue. It is going to make money on imports from Russia anyways and that too in dollars or forex. Petro products sell for more than crude. If crude is discounted enough, perfect!

And I disagree that "deficit" is going to keep on growing because more India imports crude, more it can export the products. Its a net positive loop. Just not from Russia but over all BoP benefits by import of russian oil. Its limited by foreign demand and more so, our processing capability.

And India will push Moscow as much as possible to take INR. It forces them to buy Indian products. They hate that obviously but they have no choice.

Buying more Russian oil has been very profitable for Indian businessmen and government of India.

Riaz Haq said...

Anon: "And India will push Moscow as much as possible to take INR. It forces them to buy Indian products. They hate that obviously but they have no choice"

What can India sell them?

Russians don't need refined petroleum products which are India's top export.

Russians need products which the West wouldn't sell to them...such as electronics components, sophisticated machinery and other products that China can produce and supply. Russians need Chinese Yuans, not Indian rupees foe that.

https://tradingeconomics.com/russia/imports/china

Riaz Haq said...

Anon: "There are quite a few things. Like Pharama products. Like Automobiles. Like Automobile spares. Like agricultural and forestry products. India produces and exports a lot of them"


So why has India failed to persuade Russia to buy these Indian products?


"the discontinuation of efforts to establish a means of trade settlement in rupees between India and Russia represents a significant hindrance for Indian importers who rely on cost-effective oil and coal. The decision comes after months of negotiations failed to convince Moscow to keep rupees in its coffers, with Russia fearing accumulating a rupee surplus of over $40 billion annually and not feeling comfortable holding the currency"


https://thegeopolitics.com/why-have-india-and-russia-suspended-to-settle-trade-in-rupee/

Riaz Haq said...

In the first 11 months of the 2022-23 financial year, Indian imports from Russia were worth nearly $41.5 billion (€38 billion), while exports amounted to just $2.8 billion, according to data from the Ministry of Commerce and Industry.

https://www.dw.com/en/russias-rupee-problem-risks-harming-trade-ties-with-india/a-65628922


This has left Russian oil companies and banks with billions of rupees in their Indian bank accounts — a pile of cash they are struggling to use.

"I don't think this situation can continue for long," Nandan Unnikrishnan, distinguished fellow and Russia expert at the Observer Research Foundation (ORF) in New Delhi, told DW. "If both sides fail to resolve the problem, it will impact purchases of not only oil but everything."

Russian Foreign Minister Sergei Lavrov also recently commented on the issue while attending a Shanghai Cooperation Organization meeting in the Indian state of Goa.

"We need to use this money. But for this, these rupees must be transferred in another currency, and this is being discussed now," he was quoted by news agency Bloomberg as saying.


The uncertainties over payment mechanisms have also hurt defense imports, Bloomberg reported. New Delhi and Moscow share longstanding political and security ties.

India is a major buyer of Russian weapons, although it has been attempting to diversify its sources of military equipment, increasingly turning to countries like the US and France in recent years.

Russia accounted for $8.5 billion of the $18.3 billion New Delhi has spent on weapons imports since 2017, according to data from the Stockholm International Peace Research Institute.

Both sides are also in talks to reach a free trade agreement.

The Indian government has so far refrained from explicitly criticizing Russia's war in Ukraine. New Delhi has abstained several times from voting on UN resolutions against Moscow. It has, however, called for a peaceful resolution of the conflict through dialogue.

The ramping up of trade ties, meanwhile, has been viewed with concern in Western capitals, as they fear it's undermining the stringent sanctions regime in place against Moscow.

Besides the Indian rupee, the UAE dirhams and the Chinese yuan are seen by some as potential options to settle trade between India and Russia.

"Russia wants a currency that it can use to buy goods that it requires for its economy… the question is identifying that currency," said Unnikrishnan. "Russians would be happy to use the yuan," he underlined, pointing to their bilateral trade worth hundreds of billions of dollars.

In 2022, Russia-China commerce hit a record high of $190 billion.

But Unnikrishnan noted that New Delhi would not be comfortable allowing trade settlement in the yuan, given the tense relations between India and China due to their border disputes.

The Reuters news agency also reported in March, citing Indian officials, that the Indian government had asked banks and businesses to avoid using the yuan to pay for Russian imports.

Another option is the use of UAE dirhams to pay for India's Russian imports but experts say this might not offer a viable long-term solution, due to the sensitivity of that currency to Western sanctions.

Unnikrishnan stressed that India and Russia could come up with alternative solutions, like productively investing the rupees into joint ventures that produce goods that are of use to Russia or could be exported to other parts of the world.

"There are multiple ways to deploy this money, and both sides just have to show the political will to reach that agreement," Unnikrishnan said.

AK said...

Russia and India should barter

Riaz Haq said...

AK: "Russia and India should barter"


Barter works when both sides exchange products/services of roughly equal value.

Russians don't need refined petroleum products which are India's top export.

Russians need products which the West wouldn't sell to them...such as electronics components, sophisticated machinery and other products that China can produce and supply. Russians need Chinese Yuans, not Indian rupees for that.

SAMIR SARDANA said...

LoluLola said...

@SAMIR SARDANA

Do you know who runs trade deficit with India?

JAPAN HAS A TRADE SURPLUS WITH CHAUWALA

BANGLADESH IS A SUPERPOWER LIKE NEPAL AND BHUTAN

UK HAS A SMALL TRADE DEFICIT WITH INDIA

ITALY HAS A 6 BILLION USD TRADE DEFICIT

DUTCH HAVE A 5 BILLION USD TRADE DEFICIT WITH CHAIWALA

THE RUPEE TRADE WORKS,WHEN THE TARGET NATION, LIKE THE UK/DUTCH DO NOT HAVE A NATURAL FREE FLOAT CURRENCY LIKE IRAN/ RUSSIA/ DPRK AND SUPERPOWERS LIKE NEPAL/BHUTAN OR BANGLADESH

UK,ITALY,DUTCH HAVE EURO AND GPP WITH A CROSS TO THE USD

EVEN THAIS HAVE A RUPEE TRADE DEAL AS THE BAHT IS NOT ON FREE FLOAT

ONLY AN INSANE FOOL WILL TRADE WITH CHAIWALA IN RUPEES

Anonymous said...

@SAMIR SARDANA

I wonder why you skipped US? Thats the BIGGEST super power of all and India runs a trade surplus of 28 billion dollars with them. To put it in perspective, Pakistan's ENTIRE export for last year was 39 billion dollars. India's trade surplus with USA is 3/4th the TOTAL exports of Pakistan.


Now, unfortunately for Russia, it has no where else to go. So they can complain but they will trade with us. That too in INR.

Riaz Haq said...

Russia pleads with India for help avoiding financial black list, warning oil and weapons deals are at risk, report says

https://finance.yahoo.com/news/russia-pleads-india-help-avoiding-223121729.html

Filip De Mott


Russia could become black listed by the Financial Action Task Force in June.

To avoid this, Moscow is pressuring India to help thwart the blacklisting effort, Bloomberg reported.

Russia has told India that key energy and weapons deals would be at risk.

Russia is asking for India's support to avoid getting on a black list that would further isolate Moscow from global finance, Bloomberg reported.

The pressure comes as the Financial Action Task Force — an intergovernmental group focused on combating money laundering and terrorist financing — prepares for a June meeting, during which members could implement restrictions on Russia.

Though its invasion of Ukraine had already made Russia the world's most heavily sanctioned country, an FATF blacklisting would put Moscow in the same category as North Korea, Iran, and Myanmar.

If Russia is added to the black list, FATF members, banks, investment firms, and payment-processors must perform additional due diligence and could even enact countermeasures, according to Bloomberg.

Because Russia was suspended from FATF in February, it's urging other countries like India to help thwart the blacklisting effort.

The Kremlin has warned India that defense, energy, and transportation deals between the two countries would be at risk under the designation.

They include weapons exports, cooperation between oil firms Rosneft and Nayara Energy Limited, and the development of a railway corridor. Russia is India's top arm supplier and has emerged as a major oil supplier in the last year.

Russia has also said that even being added on the FATF's "gray list" — a less severe measure — would still threaten deals.

Moscow believes that India has "special credibility" within the FATF that should be used, but has also turned to other governments for similar support, sources told Bloomberg. Meanwhile, Ukraine has championed the black listing, but is not a member itself.

Read the original article on Business Insider

SAMIR SARDANA said...

Anonymous Anonymous said...
@SAMIR SARDANA


US IS REAL SUPERPOWER UNLIKE NEPAL.DHAKA.BANGLADESH.MAURITIUS,LANKA WHO ARE ALT SUPERPOWERS FOR INR TRADE

EVEN IF EU HAD A 1O0 BILLION TRADE DEFICIT WITH CHAIWALA IT WOULD NOT TRADE IN INR,AS

1- IT HAS A EURO AND A CROSS RATE - SO EU WILL 1ST NEED TO BUY INR - WHICH THE RBI WILL NEED TO FLOAT AND WHICH IT WILL NOT OR RBI WILL GIVE A LOC IN INR TO EI - WHICH EU WILL NOT TAKE.SO CHAIWALA WILL NEED TO OFFER SAY RS 75 TO A EU FOR EXPORTS TO EU SO THAT EU PAYS AT 1 EURO = 75 RS ! Y WILL CHAIWALA DO THAT ? AS INDIA EXPORTS COMMODITIES - WHICH HAVE ALT MARKET

2. SAY THERE IS A 100 BILLION TRADE SURPLUS OF INDIA WITH EU.BUT THE TRADE SURPLUS HAS AN IMPORT CONTENT OF 50% ! WHERE WILL CHAIWALA GET THE 50 BILLION ?

SO EU WILL NEVER TRADE IN INR

US ??????????????????????? IT IS THE RESERVE CURRENCY ! THERE IS ONLY 1 CENTRAL BANK IN THE WORLD AND THAT IS THE US FED ! THE PHYSICAL WORLD MOVES AROUND THE US FED, TBILLS YIELD AND DOW JONES !

INR TRADES ARE DONE BY SUPERPOWERS LIKE NEPAL.DHAKA.BANGLADESH.MAURITIUS,LANKA ,WHO HAVE NO CHOICE ANO NO FX AND BEHOLDEN TO CHAIWALA

CHAIWALA DOES NOT WANT RUPEE ON FULL FLOAT AS THAT WILL WRECK THE INR AND ECONOMY

EVEN PBC DOES NOT WANT CIPS AND YUAN TO REPLACE SWIFT AND USD. 30-40% REPLACEMENT IS OK FOR PBOC !

ONLY A DOOMED NATION WILL USE INR AS EXCHANGE - WITH THE ONLY EXCEPTION BEING THAILAND - AND THAT TOO, FOR A SPECIFIC PRODUCT !

EVEN THESE DOOMED NATIONS ARE GIVEN A LOC IN INR BY THE GOI - AS ELSE,HOW WILL THEY GET INR FROM ? UNLESS THEY EXPORT INR TO INDIA ! WHICH MAKES NO SENSE AS THESE DOOMED NATIONS NEED USD FOR THEIR OWN IMPORTS !

SO ULTIMATELY,THE INR TRADE IS A EXPORT SUBSIDY BY CHAIWALA TO ENTICE DOOMED NATIONS TO IMPORT FROM INDIA AT A CONCESSIONAL RUPEE RATE ! HOW THAT NATION WILL REPAY THE LOC IN INR IS ANOTHER QUESTION !

RUSSIA NEED WEAPONS AND MATERIALS FOR WEAPONS WHICH INDIA CANNOT SUPPLY AND IS GUTLESS TO SUPPLY ! BESIDES PHARMA AND FOOD - CHAIWALA CAN OFFER NOTHING TO PUTIN !

RUSSIANS HAVE MADE A BIG BLUNDER, IN INR EXPORTS TO INDIA !

IF USD RISES - INR FALLS

MANY COMMODITIES FALL WHEN USD RISES !

SO IF PUTIN HAD 78 USD HE WOULD BUY 1 BARREL OF OIL FROM CHAIWALA

NOW HE HAD SAY RS 5000 IN INR EARNED WHEN INR WAS 75 TO USD.SO NOW HE WILL GET ONLY 0.75 OF A BARREL OF OIL !

THIS IS WHAT HAPPENS WHEN U ALLY WITH CHAIWALA ! IT MAKES NO SENSE FOR PUTIN TO SELL ADS, NPP AND WEAPONS TO CHAIWALA, IN INR,WHEN THEIR CONTENT IS IMPORTED, OR IS EXPORTABLE !

PUTIN IS LOSING USD AND SITTING ON A PILE OF INR SHIT !

RUSKIES NEEDS CONSULTING ADVICE !

SAMIR SARDANA said...

THERE IS 1 GOOD NEWS

https://edition.cnn.com/2023/05/23/india/india-g20-kashmir-china-boycott-intl-hnk/index.html

CHINA ,PAKISTAN, SAUDIA, TURKEY BOYCOTT G20 MEET OF CHAIWALA IN IOJK

NOW A TOURISM CONFERENCE CAN BE HELD BY PAKISTAN IN GILGIT WITH THE WORLD

IT IS THE SUCCESS OF THE DASHING DAPPER BILAWAL BHUTTO WHO WILL FULFIL THE DREAMS OF ZULFIQAR

JIYE JIYE PAKISTAN

Anonymous said...

@Riaz Haq Bhai
"Russia pleads with India for help avoiding financial black list, warning oil and weapons deals are at risk, report says"


What did I tell you? Now tell me, will Russia negotiate trade in INR or not?

Anonymous said...

@SAMIR SARDANA

China was never expected to attend that meeting.

Turkey has been trying to project herself as some kind of leader among Muslim nations. So expected to not attend the meeting.

Saudia has been competing with Turkey on that role. So they will also follow that.

What more significant that like of Singapore, UK and US went ahead. India is promoting Kashmir as a tourist destination, investment destinatoin and movie destination. All of these are fulfilled by this meet. A record number of tourists arriving in Kashmir. Helps to make Pakistan's claims ineffective as no one wants to consider Pakistan proposition if there is more profit to be made against it.

SAMIR SARDANA said...

Anonymous said...
@Riaz Haq Bhai
"Russia pleads with India for help avoiding financial black list, warning oil and weapons deals are at risk, report says"

MY DEAREST- THIS IS FATF

RUSSIA IS THREATENING CHAIWALA THAT THE ARMS ND NUKES SOLD TO CHAOWALA WILL STOP IF RUSSIA IS PLACED IN FATF

PUTIN WANTS CHAIWALA TO BLOCK FATF

ONCE PUTIN IS IN FATF - CHAIWALA CANNOT USE SWIFT OR EVEN CIPS TO TRADE

SO IT HAS NO LINK TO INR TRADE

IF CHAIWALA TRADES WITH PUTIN HE WILL ALSO BE UNDER SANCTIONS

Riaz Haq said...

#India Is Scrapping Rs 2,000 note. Critics call it ham-handed, saying it has shaken consumer confidence & damaged rupee. Others noted that while 2016 #demonetization helped gov't claw back nearly all of withdrawn bills, it didn't eliminate black money. https://www.nytimes.com/2023/05/31/business/india-2000-rs-rupee-notes.html?smid=tw-share

The move to retire 2,000-rupee notes, worth $24, has triggered bad memories of a similar campaign in 2016. It has also left some businesses short of change.

Indians have been filing into gas stations, jewelry stores, fruit stands and any other businesses that still accept soon-to-be-withdrawn 2,000-rupee notes, each worth about $24.

The race to spend India’s biggest bill has been on since its central bank announced this month that they would be removed from circulation by early fall.

India’s vast economy remains heavily reliant on cash, and many businesses have welcomed the surge in traffic, even if it has left them a bit short of change. Economists say retiring the big bill may help fight corruption, bring workers into the formal economy, improve tax collection and accelerate India’s push for digital payments.

But for some consumers, the move has dredged up unpleasant memories of 2016, when Prime Minister Narendra Modi’s sudden ban on large notes left them without enough cash for basic transactions. In an economy that is driven by rural and informal workers, some do not own bank accounts — or trust the government’s economic policies.

“It is better to buy gold or silver and keep it,” said Meenu Kevat, 32, a cleaner in New Delhi who does not have a bank account and hoards her cash earnings in a tin box. After the recent ban was announced, she said, it took her four days to cajole shopkeepers into converting 12 of her 2,000-rupee notes into smaller dominations.

“I don’t trust cash now the government can do anything it wants,” Ms. Kevat said, standing outside a grocery store in south Delhi. “It can cancel a note anytime, no matter how small or big.”

The fine print
In 2016, Mr. Modi’s government announced without warning that it was withdrawing India’s two largest denominations at the time — the 500- and 1,000-rupee bills — to expose and penalize people who held huge amounts of money that could not be accounted for.

After that sudden demonetization, A.T.M.s were overrun, and some retail businesses came to a standstill because customers were hoarding the little cash they had. And because the withdrawn notes amounted to about 86 percent of the cash in circulation at the time, the government decided to introduce the 2,000-rupee bill as a “remonetization” measure to ease the currency crunch.

So far, the move to withdraw the 2,000-rupee bills from circulation is causing far less disruption. That may be because they account for less than 11 percent of the currency in circulation. India’s 1.4 billion citizens also have until Sept. 30 to either spend the bills or exchange them at banks. (The bills will remain legal tender after that, but many Indians are taking the deadline seriously, because they worry that government policy could change.)

In the long term, removing the 2,000-rupee bills will probably help with a gradual, positive move toward formalization and transparency, said Phyllis Papadavid​, an economist who studied the 2016 demonetization program. More workers should be able to formally register and claim benefits, for example, and there will be higher barriers to tax evasion.

“I can’t think of any aspect of an economy that is worse off by digitalization or formalization, because, basically, you have better usage and management of information, and accountability,” said Ms. Papadavid, the director of research and advisory at Asia House, a research outfit in London.

In the short term, though, the cash rush has caused a few headaches.


Riaz Haq said...

#Russia doesn't know what to do with the $1 billion in #Indian rupees it is amassing in #India each month. #trade #currency #oil #Modi #BJP


https://www.businessinsider.com/dedollarization-russia-dollar-yuan-billions-india-struggle-use-ruble-2023-6

Russia's amassing $1 billion worth of Indian rupees each month that it's struggling to use.

India has been buying Russian oil using rupees as Moscow has been shut out of the USD-denominated global payments system.

But Russia now has problems using the rupees and repatriating the currency.

Riaz Haq said...

#European companies suffer €100 billion hit from #Russia operations. Losses concentrated in #energy sector. #Germany is the biggest loser. #UkraineWar https://www.ft.com/content/c4ea72b4-4b02-4ee9-b34c-0fac4a4033f5
Energy and utility groups have reported more than half the combined losses, according to FT analysis of direct impact of the Ukraine war


Europe’s biggest companies have suffered at least €100bn in direct losses from their operations in Russia since President Vladimir Putin’s full-scale invasion of Ukraine last year, according to analysis by the Financial Times.

A survey of 600 European groups’ annual reports and 2023 financial statements shows that 176 companies have recorded asset impairments, foreign exchange-related charges and other one-off expenses as a result of the sale, closure or reduction of Russian businesses.

The aggregate figure does not include the war’s indirect macroeconomic impacts such as higher energy and commodities costs. The war has also delivered a profit boost for oil and gas groups and defence companies.

Moscow’s decision to seize control of the Russian businesses of gas importers Fortum and Uniper in April, followed by the expropriation of Danone and Carlsberg last month, suggests more pain lies ahead, according to analysts.

More than 50 per cent of the 1,871 European-owned entities in Russia before the war are still operating in the country, according to data compiled by the Kyiv School of Economics. European companies still present in Russia include Italy’s UniCredit, Austria’s Raiffeisen, Switzerland’s NestlĂ© and the UK’s Unilever.

“Even if a company lost a lot of money leaving Russia, those who stay risk much bigger losses,” said Nabi Abdullaev, partner at strategic consultancy Control Risks. “It turns out that cut and run was the best strategy for companies deciding what to do at the start of the war. The faster you left, the lower your loss.”



The heaviest costs of withdrawal are concentrated in a few exposed sectors. Those with the biggest writedowns and charges are oil and gas groups, where three companies alone — BP, Shell and TotalEnergies — reported combined charges of €40.6bn. The losses were far outweighed by higher oil and gas prices, which helped these groups report bumper aggregate profits of about €95bn ($104bn) last year. Defence companies’ shares have been buoyed by the conflict.


Utilities took a direct hit of €14.7bn, while industrial companies, including carmakers, have suffered a €13.6bn blow. Financial companies including banks, insurers and investment firms, have recorded €17.5bn in writedowns and other charges.

Simon Evenett, economics professor at University of St Gallen, said: “You have a small number of companies which have taken a big hit. Once you get away from big ticket charges, the average writedown is probably fairly manageable given the limited Russian footprint.”

Looking at global investment flows into Russia, “even if Europeans were the only investors there, which they are not, the country would account for just 3.5 per cent of their total outward investments”, he said.


BP reported a $25.5bn charge, announcing three days after the invasion that it would sell its 19.75 per cent stake in state-owned oil group Rosneft.

It took TotalEnergies longer to report a total cost of $14.8bn. The French energy group has yet to write down its 20 per cent stake in the Yamal LNG project. Shell took a $4.1bn charge, while Norwegian oil and gas group Equinor and Austria’s OMV have reported €1bn and €2.5bn respectively.

German group Wintershall Dea in January said the Kremlin’s expropriation of its Russia business had wiped €2bn of cash from its bank accounts. In turn Wintershall’s owner BASF wrote down its stake in the energy explorer by €6.5bn.

Uniper, which was bailed out by the German state last year, booked €5.7bn in impairments, while Finland’s Fortum took a €5.3bn hit.


Riaz Haq said...

Arnaud Bertrand
@RnaudBertrand
SCMP editorial: https://scmp.com/comment/opinion/article/3242880/dollar-still-king-how-much-longer

"The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap...

In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift."


https://x.com/RnaudBertrand/status/1728923824996139481?s=20

---------------------

The increasingly close relationship between China and Saudi Arabia has taken another significant step forward. The central banks of both countries have agreed on their first currency swap worth a maximum of 50 billion yuan (HK$55 billion) over the next three years.

In immediate terms, the pact will foster bilateral commerce denominated in both the yuan and the riyal. In the longer term, it augurs a petroyuan future as the two countries are already the most important trading partners of each other.

In a global political economy long dominated by the petrodollar, this could be the beginning of a seismic shift. It has been a very long time coming.

Almost a year ago, President Xi Jinping made a historic visit to Riyadh, followed by Hong Kong Chief Executive John Lee Ka-chiu in February. A flurry of deals followed.


The Shanghai Stock Exchange and its Saudi counterpart have started collaboration on cross-listings, including exchange-traded funds (ETFs), financial technology (fintech), environmental, social and governance (ESG) and data exchange.

China, Saudi Arabia central banks sign currency swap accord to foster trade
21 Nov 2023
The People’s Bank of China (PBOC) building in Beijing on Tuesday, April 18, 2023. Photo: Bloomberg
The Hong Kong Monetary Authority, the city’s de facto central bank, and the Saudi Central Bank have enhanced ties covering the latest technologies in regulatory supervision and monitoring, and in financial fields such as tokenisation and new payment systems.

However, the latest currency swap pact will be the most important. It means trade can be conducted in local currencies, instead of defaulting to the US dollar. This may be seen as a challenge to US dollar dominance. Perhaps in the longer term, it is. But there is a good economic reason.

The current US federal interest rate of 5-plus per cent has pushed the dollar to historical levels against most other currencies, making trade denominated in the dollar more expensive.

There are obvious advantages for two big trade partners like China and Saudi Arabia to be able to utilise a local-currency option, which will help relieve pressures from having to trade in a more expensive currency.

Global “de-dollarisation” may take a while yet, but the trend already reflects cracks in a global economy long used to US currency settlements.

The yuan may or may not pose a challenge to dollar hegemony, but its internationalisation continues apace – to the benefit of both the Chinese and global economies.