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The Iran-related energy spike reduces the room for rate reductions in emerging markets
Oil prices spiked due to the war in Iran, and for now this has halted any monetary easing efforts by emerging market central bankers from Poland to Turkey. This is because policymakers are coping with an increase in inflation expectations as well as a rise in risk aversion. After a series of shocks, from the COVID outbreak to Russia's invasion in?Ukraine, that have shook markets, slowed growth, and fueled inflation, central banks are finally becoming more optimistic about global economic resilience?and easing price pressures. The dollar gained ground, and U.S. Treasury Yields rose as a proxy of borrowing costs in emerging markets. The outlook for global economic growth and inflation in a period of geopolitical instability remains uncertain, even though some of these moves have been reversed. Before the outbreak of the war in late February, ten out of fifteen major central banks in emerging markets were expected to lower policy rates in the following six months by at least ten basis points. JPMorgan's calculations show that on Tuesday, this number was down to six. The amount of easing expected for those who are still expected to reduce rates has also been reduced. "Central banks in emerging markets will likely signal an increasing 'wait and watch' approach pending resolution to the conflict related uncertainty with Iran," said Petar Athanasov. He is Co-Head, Sovereign Research and Strategy for Gramercy Funds Management. Emerging Europe Shifts from Easing to Possible Tightening Not only emerging markets. In the past week, bets on rate cuts for the U.S. Federal Reserve have been drastically reduced. The shift is most apparent in emerging Europe where the market prices for the Czech Republic and Hungary, as well as Poland, indicate a possible tightening of the markets in the next six-month period. In recent days, policymakers in Poland have admitted that the room to lower rates has shrunk. Their counterparts in Hungary and Czech Republic also acknowledged the risks and uncertainty reverberating out of the 'Iran conflict. Juan Orts, CEEMEA Economist, Societe Generale, said that energy imports were a major factor. He said that Poland and Hungary, for example (in Central and Eastern Europe), are very sensitive to the oil price. A BALANCING STEP BETWEEN GROWTH PROBLEMS AND INFLATION RISKS Analysts said that the uncertainty surrounding crude oil and the overall rise in energy prices are at the core of the global balancing act emerging markets face, as they must weigh the concerns about rising price pressures versus the impact on the growth. James Lord, Global Director of FX Strategy and Emerging Markets at Morgan Stanley said: "It is a negative shock to growth." It's a tax on consumption and could lead central banks to tighten policy due to inflation risks. Markets in Latin America have priced in less easing, but the central bank is still expected, due to anaemic economic growth, to cut rates. The central bank stopped an aggressive tightening process last July, and since then has kept the benchmark interest rate at 15% - the highest for nearly two decades. Turkey is another flashpoint. As an energy importer, Turkey is highly susceptible to inflation pressures. The central bank will publish its rate announcement on Thursday. Atanasov, of Gramercy, said: "We expect CBRT to respond by pausing their rate-cutting cycle in order to await further developments regarding the duration of the conflict as well as the economic ripple effects." The Middle East conflict and its knock-on effect may cause central banks to pause or slow down rate cuts in the short term. However, the future is less clear. In 2021-2022, as economies were still recovering from the pandemic, and suddenly facing shocks relating to the outbreaks of the Ukraine War, central banks in emerging markets were the first to raise rates and combat inflation pressures. Many of their counterparts in developed economies believed that the situation was temporary. Lesetja Kganyago, South African Reserve Bank Governor, said that the central bankers' judgment on the impact of energy prices and inflationary fallouts will again be crucial. He said that underestimating the?persistence of inflation could lead to a more aggressive and costly policy in the future. However, taking action early on would make it easier for policy makers to take smoother actions over time. Kganyago stated that 2021/2022 was a lesson to be learned. "The central bankers who acted early discovered that they did not have to act aggressively... in one go, as was the case with the central banks which only reacted during the second half 2022."
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Brazil's Raizen secures $12.6 billion out-of-court debt restructuring deal
Brazilian sugar and ethanol ?producer Raizen said on Wednesday it had reached an ?out-of-court agreement with ?creditors and bondholders ?to restructureapproximately ?65.1 billion reais ($12.61 billion) in debt obligations. The company is a joint-venture between Shell, an oil giant listed in London, and Brazilian conglomerate Cosan. It has been in talks for months to find ways to improve its capital structure and reduce its debt. Raizen stated in a?security filing that creditors who hold 47% of the company's unsecured debt had already endorsed this plan. The company has 90 days to get enough?support to receive final approval. After that, the new 'payment terms' will apply to all covered claims. Raizen, the world's biggest sugar producer, was under increasing pressure because of a combination that included high capital expenditures, bad weather and wildfires which damaged harvests and decreased cane crushing?volumes. Last week, the company indicated that it would pursue an out of court restructuring to resolve its debt crisis. This had led to "significant uncertainty" regarding its ability to continue operating. According to the filing on Wednesday, the restructuring plan may involve a reorganization of the company's?shareholder capital, the conversion of a part of its outstanding credit into equity, as well as new debt issuances and asset sales. Raizen stated that the agreement does not impact 'obligations towards customers, suppliers, distributors, or other commercial partners. Operations will continue to run as normal.
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Iraq asks KRG for help in piping crude oil to Turkey sources
Two oil officials familiar with the matter said that Iraq asked the Kurdistan Regional Government to pump 100,000 barrels of crude oil per day out of its Kirkuk oilfields into Turkey's Ceyhan port. The officials confirmed that the Iraqi oil ministry had sent the KRG a request in a letter early last week. The Kurdistan Pipeline Company is responsible for the main oil pipeline in Iraqi Kurdistan. It transports crude oil from northern Iraq to a border point where it connects with the Iraq-Turkey Pipeline. Baghdad will pay for the transit fees and Baghdad could increase the shipments based on the availability of goods, according to the officials. They added that the KRG has not yet responded. Officials said that the move was made 'to reduce the enormous losses in Iraq's oil revenue caused by the stoppage of southern crude exports. KRG spokesperson Peshawa hawramani didn't immediately respond to an inquiry for comment. Iraqi sources said that oil production in the main southern oilfields of Iraq, where the majority of the oil is produced and export, had fallen 70% from 4.3 to 1.3 million barrels per day (bpd), as the country was unable to export through the Gulf because of the war with Iran. Iraq's northern Kirkuk Oilfields currently produce around 350,000 bpd. All of it is diverted to refineries in north Iraq, including the largest refinery, the Baiji refinery. One oil ministry source said that the oil?ministry will send crude oil from its southern oilfields to Baiji as compensation for Kirkuk oil sent to Ceyhan. As the government depends on oil income to fund nearly its entire budget, a fall in production and lower exports will likely tighten Iraq's fragile fiscal position. Ahmed Rasheed, Andrew Heavens, and Jason Neely edited the article.
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Japan will release part of its oil reserves before IEA decision, says PM
Sanae Takaichi, Japan's Prime Minister, said that Japan will release 15 days of private sector oil reserves as well as one month of state oil reserves. This is in preparation for the International Energy Agency's action. She said that to avoid a disruption in gasoline and other petroleum products supplies, Japan would tap its reserves with the G7 and IEA. However, they will start releasing them 'from 16 March. Takaichi, in a broadcast, said that Japan would act before waiting for formal IEA?approval?of a coordinated release of international reserves to ease the global energy'market supply and?demand. It will release reserves as soon as?the 16th of this month. Around 95% of Japan's oil is sourced from the Middle East. The government and industry released data on Wednesday showing that the retail price of gasoline in Japan?rose? to its highest level since December, and refineries reduced their production last week. This was the first 'week?of the U.S./Israeli war against Iran. We will deliver as soon as possible '15 days' of private sector reserves and one month's worth of national reserves to domestic refiners. Takaichi stated that we will also quickly use joint reserves with oil producing nations. Japan has a total of 254 days worth of emergency oil reserves, which includes national stocks (146 days), private sector reserves (101 days), and joint stockpiles held with other producing countries (7days). (Reporting and editing by Louise Heavens, Kantaro Kommiya, Katya Glubkova)
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Aluminium rallies bring Middle East turmoil to the forefront
After a brief selloff caused by comments made by U.S. President Donald Trump about the Iran war, the focus shifted to 'pricing global supply losses due to the Middle East conflict. At 1018 GMT, benchmark aluminium at the London Metal Exchange had risen 1% to $3,439 per metric tonne. It reached $3,544 per ton earlier this week, its highest level since April 2022. Around seven?million tons of aluminum smelting is located in the Middle East, which represents 9% of global capacity. Trump predicted on Monday that the conflict would be over well before the four-week timeline he had set out. The war has frozen global supplies of aluminum used for transport, construction, and packaging. Last week, Aluminum Bahrain, or 'Alba', which operates one of the largest smelters in the world, declared force majeure, warning customers of delays. Meanwhile, Qatari smelter Qatalum began to shut down. Aluminium stocks in LME approved warehouses are a source of concern about supply. . On Tuesday, the number of cancelled warrants and metals destined for delivery was 177,325, which is 40%, up from 9% the previous day, before the Middle East turmoil began. Concerns about tight?aluminum?supplies has created a premium for the cash contract?over the three month?forward?on the LME. The soaring dollar and oil prices are causing concern about the global economy. The dollar's value is inflated by a rising U.S. currency, making metals priced in dollars more expensive to holders of other currencies. This could reduce demand. The inflation data due on Wednesday could provide clues about U.S.?monetary policy, and the dollar?s prospects. Copper fell 1.1% to $12,997 per ton. Zinc was down 0.6% at $3,326, while lead dropped 0.2% to 1,940. Tin declined 1.3% to $48,800, and nickel was down 0.4% at $17,425.
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Russian oil prices used to tax state revenues exceed budget targets
Calculations showed that the price of Russian crude oil, used to tax the country, has exceeded the budget target?for the first time since Jan 2025?because?of?the rise in global prices due to the Iran War. Since the beginning of the war in Ukraine, in 2022, Russia has increased its military spending, increasing its deficit. In January-February, it was 3.45 trillion Russian roubles (43.70 billion dollars), or 1.5%. The Iran War, which involved U.S., Israeli and Iranian strikes on Iran, and Iranian strikes against Israel and U.S. military bases, as well as Gulf states has fueled a significant increase in demand for Russian gas and oil,?boosting the exports that had been affected by sanctions related to the war in Ukraine. To highlight the boost in Russian revenue, traders said on Friday that Russian flagship Urals delivered to Indian ports for the?first time sold?at a higher price than Brent crude, which is the international benchmark. Based on industry data, calculations show that the Russian oil used to calculate taxation on Monday reached 6,105 Russian roubles a barrel, an 82% increase from the 27th of February, just a day prior to the United States' and Israel's military campaign against Iran. This is more than the assumed price of $5,440 per barrel (or $59 per barrel) at a rouble exchange rate of $92, per U.S. dollars, in the federal budget for 2026. The Russian oil trade above budget targets may be short-lived due to a drop in the price of oil globally and the strong rouble. The price of Russian oil on Wednesday was around $62 per barrel, after reports of possible oil stockpile releases to reduce the oil deficit due to a blockage of Strait of Hormuz. This is an important route used for oil flow globally. According to data from the Finance Ministry, the state's?oil-and-gas revenues in February fell by 44% to 432.3 billion Russian roubles compared to the same month last year. This was due to lower oil prices and the stronger rouble.
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Minister says oil producers should invest in Nigeria in order to diversify their supply during times of crisis.
Yusuf Tuggar, the Foreign Minister, told?that the Middle -East conflict shows that Gulf oil and gas companies should view Nigeria as a 'partner, not a rival' to help diversify their supply in times of crisis. The remarks coincide with the war in Iran, which has disrupted shipments through Strait of Hormuz. This corridor accounts for about a quarter of global supplies, forcing exporters and price spikes. Tuggar stated that Nigeria's untapped oil and gas reserves provide Gulf States with an alternative source at a moment when global flows of crude are vulnerable. The demand for hydrocarbons will?remain high for many years to come, he added. He said, "It is in line with our advocacy - that other countries who might consider us competitors?should partner with and invest with us so they can increase their market share by working with us." NIGERIA'S TOTAL OUTPUT HAS BEEN RAISED TO ABOUT 1.7 MILLION BPDS Nigeria's long-hampered economy has been impacted by theft, pipeline vandalism and underinvestment. The total production is now 1.7 million barrels a day, up from 1.4 million in 2023, when Bola Tinubu assumed office. Tuggar said that the country could increase its output further with more capital for pipelines and fields. Tuggar says the opposite may also be true. Some analysts believe that U.S., Israeli and Iranian strikes against Iran and Tehran's attacks against Gulf states could cause the region to delay African bets. It could cause them to want to work with oil-rich countries like Nigeria to diversify the market for both countries' benefit, or it could cause them to hold back. Nigeria and the United Arab Emirates (UAE) signed the Comprehensive Economic Partnership Agreement in January. Abuja claims that the agreement will unlock trade and investments. Qatari investors also have plans to invest in gas in Nigeria, but timelines are unclear. Analysts Flag Long Approval Cycles, Execution Risks Analysts warn that headline investment promises often face long approval cycles and execution risk in Nigeria. Tuggar stated that Nigeria felt the impact of higher oil prices because it imports large quantities of refined products. This has led to a rise in transport and food costs, particularly during Ramadan when muslims fast. He said Nigeria would be better able to handle longer-term shocks, as the domestic refining industry expands. Dangote, a privately-owned refinery, says that it operates at a nameplate capacity of 650,000 barrels per day. This is enough to meet the domestic demand. Tuggar said that oil will "remain relevant for many years." At the moment, the world consumes between 105 and 106 million barrels of oil per day. I don't think that will change anytime soon. We need to work together in order to have enough hydrocarbons. (Reporting and editing by Clarence Fernandez; David Lewis is the reporter)
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UK gilts suffer new decline as investors focus on oil reserves
The price of British government bonds?fell dramatically in early trade on Tuesday, as the markets questioned if the plans for a record releasing?of oil reserve could offset any potential supply shocks resulting from the U.S. and Israeli war against Iran. As of 0906 GMT the short-dated gilt yields were up around 12 basis points, completely erasing Tuesday's large drops. Investors have also reduced their bets for a Bank of England rate cut in this year. The probability is now?roughly 20 percent, down from 50 percent a day ago. The British public is more vulnerable to a shock in energy prices than many other European countries, due to the 'weakness of its finances and its heavy dependence on gas. The yield on two-year bonds is 46 basis points higher than the equivalent French, German, and U.S. debts. Investors have been watching developments in the Strait of Hormuz. This is a major artery that accounts for about 20% of global oil and natural gas supplies. It has fallen 'rapidly' since the Iran conflict started on February 28. Emma Wall, chief investment strategist of Hargreaves Lansdown, said that the Strait of Hormuz is a major factor in determining long-term impact on equity markets, bond markets, inflation, and economic growth. The Treasury Committee of Parliament will be asking questions to the Finance Minister Rachel Reeves at 945 GMT. Andy Bruce is reporting; Suban Abdulla is editing.
Meloni, an Italian critic, says that the US war against Iran is part of a dangerous trend
Giorgia meloni, the Italian Prime Minister, delivered her strongest criticism to date of the U.S. and Israeli war against Iran on Wednesday. She described it as a dangerous trend of "interventions outside the scope of international laws".
Her comments to the parliament followed repeated accusations by the opposition that her government's right-wing had been "too soft" toward its allies. Spain is the only notable exception. Most European nations have not criticised the U.S. or Israeli attacks directly, instead calling for restraint.
Meloni, who is close to U.S. president Donald Trump, also stated that Iran should not be allowed develop nuclear weapons as this would end the non-proliferation regime with "dramatic consequences for global security", exposing?Italy & Europe to a potential nuclear threat by Tehran.
As the Middle East war entered its 12th day the U.S., Israel and Iran traded airstrikes with Iran. The conflict has stopped the flow of a fifth of the world's gas and oil supplies.
Meloni, who addressed the parliament about the crisis, drew parallels with the conflict in the Middle East and Russia's invasion of Ukraine 2022, which, she said, triggered a wider global destabilisation.
She told the Senate that "it is within this context of structural crisis in the international system where threats are increasing and 'unilateral interventions' outside the scope of international laws are multiplying" that we should also place the American-Israeli intervention against the Iranian regime.
Meloni stated that Rome is providing air-defense assets to Gulf nations hit by attacks from Tehran.
"This is because they are strategic allies of Italy and friendly nations, but there are also tens of thousand of Italians in that region who we need to protect. Not to mention that there are around 2,000 Italian troops stationed there." (Reporting and editing by Angelo Amante, Giuseppe Fonte)
(source: Reuters)