In Geopolitics Today: Wednesday, April 12th
Oil Trade Route Shifts Cause Disruption in Shipping Industry, Hungary Secures New Energy Agreements with Russia, and other stories.
China, India, and Russia Seek to Bypass US Dollar Transactions
Recent developments in New Delhi suggest that Russia is seeking to strengthen its economic ties with India and China as a means of facilitating a parallel economy free from US dollar transactions. Following the invasion of Ukraine, Russia has become increasingly reliant on trade ties with India and China to keep its economy afloat, increasing its use of the Chinese yuan. At the same time, India has become Russia's fourth-largest trade partner, with imports from Russia increasing by 400% over the past fiscal year. However, tensions between India and China over their Himalayan border remain a significant obstacle to Russia's plans.
Despite these challenges, Moscow may be able to find a way to ease tensions between India and China and appeal to their broader ambitions, creating a new bloc in the East that could challenge the dominance of the dollar. This trend is something that Washington should be closely monitoring, as concerns over US hegemony are a significant part of the strategic culture of all three countries, potentially leading to a shift away from the dollar as the world's dominant currency. It remains to be seen whether Moscow will be successful in its efforts to create a parallel economy, but the recent meeting in New Delhi suggests that Russian leaders are actively pursuing this goal and that a new power dynamic may be emerging in the East.
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Oil Trade Route Shifts Cause Disruption in Shipping Industry
Recent shifts in oil trade routes and trade patterns have caused significant disruptions to the shipping industry, leading to increased demand for tankers carrying petroleum products. Embargoes on seaborne imports of Russian crude and refined products have forced Russia to divert its oil product cargoes to North Africa and Asia, while Europe has begun to buy more diesel and other fuels from the Middle East, Asia, and North America.
The resulting longer travel distances have made shipping fuels more expensive, with average rates for tankers shipping fuels more than doubling since the embargo was implemented. Additionally, the cap on Russian diesel and lower-cost petroleum products has created inefficiencies in refined products trade that are unlikely to be reversed anytime soon. Despite these challenges, tanker tracking suggests that Russia has been successful in placing most of its fuels in markets other than Europe, with North Africa becoming a key export outlet for Russia’s diesel and other petroleum products.
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United States Approves Sale of Military Equipment to Morocco
The US government recently approved the sale of military equipment to Morocco, including mobile artillery systems and guided air-to-ground bombs. The sale, if approved, would mark the first transfer of HIMARS mobile artillery systems to a North African country. The announcement comes at a time when Morocco has drawn closer to the United States following its normalization of relations with Israel under the Abraham Accords.
The US State Department said the proposed sale of military equipment and support to Morocco would improve Morocco’s capability to meet “current and future threats” as well as contribute to Morocco’s “ability to detect threats and control its borders.” Tensions in North Africa are rising, coinciding with this sale of military equipment to Morocco. Algeria's President Abdel Majid Tebboune is expected to visit Moscow next month to strengthen his country's strategic ties with Russia. Algeria is Morocco's rival in the Maghreb and supports the Polisario separatist movement in the Western Sahara. Meanwhile, Tunisia, which has been leaning closer to Algeria, has moved closer to the Polisario Front, leading Morocco to recall its ambassador from Tunis.
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US Sanctions on Russia Not Stopping the Flow of Semiconductors
A recent investigation by Nikkei has revealed that US sanctions on Russia have not been entirely effective, as hundreds of millions of dollars worth of semiconductors are still making their way into the country. These chips are vital components for military equipment, with US manufacturers having a significant share in the high-performance product market. Russia has been acquiring these chips through indirect routes, mainly through small traders in Hong Kong and mainland China. The prices of these products may reflect the advanced nature of the chips Russia seeks.
Despite strict monitoring by US authorities of established distributors and chipmakers, smaller traders have proven more difficult to monitor, and principles of due diligence are often ignored, especially when supplies are ample. Nikkei's investigative team tracked down some of these unknown trading and shell companies, revealing a parallel system of supplying chips to Russia. This situation highlights the challenges of enforcing sanctions in a globalized world where goods can easily move through a network of intermediaries and shadowy channels. It also emphasizes the need for robust monitoring and enforcement mechanisms to ensure that sanctions achieve their intended goals.
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Hungary Secures New Energy Agreements with Russia
Hungary has recently secured new agreements with Russia to guarantee its supply of natural gas and oil. The country’s foreign affairs and trade minister emphasized the importance of cooperation with Russia to ensure energy security, especially in light of the critical need for energy supply security in the next heating season. Hungary sees Russia as a key partner in meeting its energy needs, as Europe’s LNG capacities are limited and China’s energy needs continue to rise.
The agreements provide Hungary with the option to increase gas imports beyond the volume specified in the country’s long-term purchase agreements, and defer payments of gas over a certain price threshold. In addition to these energy agreements, Hungary and Russia have also agreed on changes to the construction and financing contract for the upgrade of the Paks nuclear power plant. The modifications were deemed necessary due to technical and technological changes in the nine years since the contract was signed, as well as the impact of sanctions on nuclear energy cooperation between Hungary and Russia.