Two decoupled energy blocs with India and the Gulf in the middle

Australia’s Strategic Policy Institute opined on the emergence post Russia’s invasion of Ukraine, of two decoupled energy blocs with China and Russia on one side, and Europe, North America, and the Indo-Pacific democracies, on the other side. Prior to Russia’s invasion of Ukraine, in 2020 almost 30% of EU crude oil imports came from Russia and over 40% of natural gas imports came from Russia while more than half of solid fossil fuel (mostly coal) imports originated from Russia (54 %). European nations are now seeking new sources of gas, oil and diesel fuel from the Americas, Africa, the Middle East, and India, as well as an increased focus on local energy production to wean themselves off Russian energy sources.



With Russian oil banned in the United States and Europe, India finds itself in the middle of the two decoupled energy blocs buying Russian crude at substantial discounts, powering its energy-thirsty economy at a lower cost, and refining into products like diesel and jet fuel to sell at better-than-usual margins abroad. Ironically, Europe is eager to buy the same Russian crude after it is refined in India into diesel shipping the fuel to Europe since March 2022, with increased trade flows expected over the coming months. China buys 50% of its oil supplies from the Gulf.

The Strait of Hormuz is the most important chokepoint between the two decoupled energy blocs accounting for about a third of the world’s sea-borne oil (and a fifth of the world’s total oil exports), linking oil and gas Upstream producers in the Middle East with Downstream consumers in Europe, North America, China and Indo-Pacific.

In 2016, according to America’s Energy Information Administration, the waterway carried some 19m barrels of crude and other petroleum products a day. This volume will accelerate through 2030 because of new mega refineries in the Gulf China and India and growing demand in Europe and emerging markets. According to Bloomberg, State-run Qatar Energy’s six new gas-liquefaction plants are set to produce 8 million tons of LNG per year for export to Europe. Morgan Stanley forecasts global LNG consumption to rise by 60% through 2030.

Thanks to proposed ECB negative deposit rates Euro may go through a massive drop - what should expats do?

Austerity obsessed ECB lowered its main interest rate this week from 0.75% to 0.5% but along with this cut caused a stir about whether the bank might also cut the deposit rate, taking it into negative territory (which would mean banks having to pay for leaving money in the facility and would ostensibly push banks to lend more rather than hoard cash). ECB dropped hints on the negative deposit rates to express their frustration with banks that are hoarding cash and not lending. Clearly at the ECB, the money printing carrot does not seem to be enough to revive the moribund European economy so now this stick has been added to the equation. The unintended consequence of these negative deposit rates would be to put enormous downward pressure on the Euro jeopardizing the value of Euro denominated assets. Expats should look at reducing this risk by diversifying their portfolio through exposure to US dollar denominated assets. The most suitable vehicle for this type of optimal diversification would be an offshore bond.

Mass evictions and a new mortgage crisis in Europe - another warning sign for expats

A new austerity driven mortgage crisis may be on the horizon in Europe. The Financial Times reports today that Ireland faces a new mortgage crisis that could trigger mass evictions and jeopardise the stability of the country's recovering economy. The FT reports that the struggling mortgage holders in Ireland face the threat of eviction following Dublin’s decision to lift a ban on house repossessions. "The contentious change of policy on repossessions was sought by the troika of international lenders – the EU, European Central Bank and the International Monetary Fund – which had warned that the escalating mortgage crisis was jeopardising Ireland’s fragile economic recovery."  A couple of weeks ago, the Mirror had reported that the UK Government’s welfare cuts will suck £19 billion a year out of the UK economy citing a study by the Sheffield Hallam University. According to the study Northern families in Blackpool, Middlesbrough, Liverpool and Glasgow will be hit hardest – and wealthy southern areas such as Surrey will see the smallest financial loss further exacerbating the North South divide. This serves as an advance warning of the shape of things to come (see video) and expats are urged to make investments in assets denominated in the right currencies and to have investments in the right locations and to have the right assets in their portfolios.

State of the European Union - enough to make you cry!

Spain's unemployment hit a new record of 27.2% (over 6 million unemployed) with the unemployment rate for the under 25 a staggering 57%. France followed suit with a new record unemployment rate of 10.2% (over 3.2 million unemployed). Even though the UK managed to avoid a triple dip recession with a modest growth in GDP in 1Q2013 of 0.3%, as Ed Balls descries it, the UK economy is essentially flat lining with no new job growth. Inflation figures are massaged by all the EU nations. The citizens of the Eurozone have to sponsor the banks without knowing whether there will ever be return on investment, not to mention return of investment. It’s become increasingly hard to conclude whether the mainstream media is bringing us ‘independent news’.Child hunger in Greece is exploding. Some families are trying to survive on pasta and ketchup. People in Cyprus are being robbed of their savings. Even the Cypriot children who became orphans after their parents died in the 2005 plane crash and who have been paid damages, ensuring them a security for their future and education, have been confiscated a very large portion of their money with the closure of Laiki. Former customers of Irish IBRC (former Anglo Irish) have been informed that their retirement savings had no cover.

Pensions schemes and retirement funds are excluded from the deposit guarantee scheme. Goodbye retirement savings ! And you want us to have confidence in you ? No one is sure whether contributions towards pensions are secure. Those of us who have a job, will need to work until they have the two feet in the grave. - Poverty rates are soaring and the middle-class is disappearing. - The financial sector is moving away from Europe to Dubai, Hong Kong, SingaporeTo add to this gloom, German Chancellor Angela Merkel said on Monday that euro zone members must be prepared to cede control over certain policy domains to European institutions if the bloc is truly to overcome its debt crisis and win back foreign investors. Where have we seen this scenario before? Way back in the 1930s during the great depression ofcourse. History is repeating itself  and we are perhaps a few meals away from a social revolution (see video).

Retreat of Austerity from Europe may bring more opportunities for British expats working in Europe

For the last three years or more, Austerity has been the mantra in Europe blindly adopted by the governments of almost all the EU 27 nations. This policy has prolonged recession in Europe and especially in the UK which is showing signs of going through a triple dip recession. As the video shows, the calculations behind the Austerity programs are now more suspect and may be the result of something as mundane as an excel coding error. Gavin Hewitt, European editor of the BBC writes today that the austerity believers are in retreat since Europe's leaders and officials fear more now is unemployment, recession, and growing disillusionment with the eurozone that seems unable to deliver. Reducing debt is no longer the priority. This turning point is probably the beginning of the creation of a great jobs boom by next year as Governments ease on austerity and target unemployment. British expats, already well placed in Europe will now see their horizons open up as more job opportunities start to appear. Time to revisit plans for setting up a QROPS or QNUPS or an offshore bond.

As British expats look for opportunities outside UK, Britain looks set to be deluged by immigrants

As reported by the Telegraph today, Britain's ministers have no idea how many new Eastern European immigrants will come to the UK next year. According to the Telegraph (which I am now reproducing here verbatim), "a specially-commissioned study by a research group suggested that Britain is woefully unprepared for the ending of migration restrictions later this year suggesting that any influx of Romanians and Bulgarians could put a strain on schools and be made worse by the economic crisis in Italy and Spain. The National Institute of Economic and Social Research was asked by the Foreign Office to examine the “potential impact” of migration from Romania and Bulgaria, who joined the European Union on 1 January 2007. According to a British Labour Force sample survey, there are currently 26,000 Bulgarians and 80,000 Romanians living in the UK, but the actual numbers could be larger. The Niesr report also warned of the impact on the UK and the likely “pull” factors which could drive them to the UK, including:
• continuing economic problems in southern EU countries like Spain and Italy could mean that more Romanians and Bulgarians migrate to UK next year;
• Romanians and Bulgarians might be tempted to come here because they earn 40 per cent less than people in Britain and other European countries;
• Romanians and Bulgarians are most likely to settle in the south east of England – rather than fan out across the country as the Poles and others did after 2004;
• pressure on public services is most likely to be felt in primary schools – where there is already a severe forecast shortage of spaces. Figures show more than 800,000 extra places will be needed in state-funded nursery and primary schools by the end of the decade.
Earlier this month Professor John Howson, senior research fellow at Oxford University, said the shortage of places for five-year-olds was the “biggest problem” facing schools in England."

For whom the Euro tolls - Martin Feldstein and Bernard Connolly's old predictions playing out today

Seventeen years ago, Bernard Connolly who was running the European Commission's Monetary Affairs Unit, the Brussels bureaucracy charged with ushering the euro into being and publicly expressed his doubts and the misery that awaited the European Union in a book called "The Rotten Heart of Europe," he was promptly fired. According to Mr. Connolly, the European political believes that the crisis "hit its high point last summer in 2012 because that was when there was an imminent danger, from their point of view, that their wonderful dream would disappear." But from the perspective "of real live people, and families and firms and economies," he says, the situation "is just getting worse and worse." Similarly Harvard professor Martin Feldstein who expressed doubts about the Euro fifteen years ago (see BBC news clip above) is seeing his predictions play out today. For all their faults, the US dollar and the pound sterling still provide a modicum of safety, however small, while gold may be a holder of monetary value in the short term.