August 18, 2018

Deciphering the breakthrough Caspian Sea agreement

The Fifth Caspian Summit in Aktau, Kazakhstan, brought the long-sought breakthrough after leaders of Russia, Kazakhstan, Azerbaijan and Iran signed the Convention on the Legal Status of the Caspian Sea – a remarkable feat considering that heretofore, barring bilateral deals, the Caspian has been governed by an obsolete 1940 convention between the Soviet Union (of which four current littoral states were a part) and Iran. As the current Convention incorporates a plethora of trade-offs between countries, let’s look at them in greater detail so as to grasp the implications of the deal.

Caspian deal an antidote to Washington’s bullyboy tactics

The Convention stipulates that relations between littoral states shall be based on principles of national sovereignty, territorial integrity, equality among members, non-use of threat of force (it was only 17 years ago that Azerbaijan and Iran almost started a full-blown naval war over contested fields) and non-intervention. The military-related clauses of the document can be considered a net diplomatic success for the Russian Federation as it prohibits the physical presence of any third-party armed forces, along with banning the provision of a member state’s territory to acts of aggression against any other littoral state. Since Russia is by far the most power nation in terms of both general military clout and military presence around the Caspian, this will placate Russian fears about any potential US (or other) encroachment in the area.

Then there’s energy… Although the Convention establishes a general legal framework for territorial disputes to be solved, it refrains from any particularities. Therefore prolonged negotiations are to be expected with regard to many disputed oilfields, stemming predominantly from Irani and Azerbaijani claims. Iran advocated throughout the entire negotiation process an egalitarian approach to delimiting the seabed (each nation would get 20 percent of the coast), running counter the other countries’ aspirations. The things is that when Russia concluded its seabed delimitation agreements with Kazakhstan and Azerbaijan in 2001 and 2003, respectively, the parties split their parts using the median line. Point 8.1. effectively keeps the delimitation task in the hands of relevant governments, thereby providing a very modest boost to the demarcation of the Southern Caspian (the Northern part is fully delimited).

Read more on Saudi Arabia And Iran Reignite The Oil Price War

There are two main territorial conflicts to be settled – the Irani-Azerbaijani and the Azerbaijani-Turkmen disputes. The row between Baku and Teheran revolves around the Araz-Alov-Sharg field (discovered in 1985-1987 by Soviet geologists), the reserves of which are estimated at 300 million tons of oil and 395 BCm of natural gas. Even though the field is only 90 kilometers away from Baku and should seemingly be under Azerbaijan’s grip, if one is to draw a straight line from the Azerbaijani-Irani border most of the field ought to be allotted to Iran (the median would keep most of it in Azerbaijan). As those old enough to remember the 2001 naval ship hostilities would attest, it does matter at what angle the final line is drawn.

The Serdar/Kapaz field (estimated to contain 50 million tons of oil) is the bone of contention between Azerbaijan and Turkmenistan. Considered to be an extension of Azerbaijan’s main oil-producing unit, the Azeri-Chirag-Guneshli field, Baku sees it as an indispensable element in its quest to mitigate decreasing oil output numbers. Geographically, Serdar/Kapaz is closer to Turkmenistan, yet here too Azerbaijan might come out the ultimate winner. The Apsheron peninsula stretches out some 60km into the Caspian Sea, in effect extending Azerbaijan’s geographical reach. Absent previous demarcation agreements between Baku and Ashgabat, the settlement will once again boil down to getting the angles right, as in the case of Araz-Alov-Sharg. However, it must be said that a resolution might come about as a by-product of new gas endeavors.

Clause 14, dealing with laying sub-sea pipelines and cables, is the one most coveted by energy analysts, since it has the potential to significantly alter Europe’s gas supply options. According to point 14.2, all parties have the right to construct sub-sea pipelines given that they comply with environmental standards (which are particularly strict in the Caspian Sea). With no further caveat included, some analysts might be tempted to think that Russia will inevitably use the “environmental protection” card when trying to stop the construction of the Trans-Caspian pipeline (TCP) from Turkmenistan, a pipeline it spent many years to halt. Under current circumstances, when US-Russian relations falling ever deeper into an insurmountable ditch, Moscow’s decision to allow for the construction of the mightily Washington-backed TCP to take place might be perceived as a massive omission.

Since the Turkmen gas is unlikely to find demand in Azerbaijan or Turkey, it would need to take the whole route via the South Caucasus Pipeline, TANAP and TAP. Merely the transportation tariffs from these pipelines would render any transportation economically unviable unless European gas prices rise substantially to levels above $300/MCm. Moreover, the estimated cost of building the subsea TCP of $2 billion is a disabling burden for either Türkmengaz or SOCAR. Thus, allowing the construction of Trans Caspian gas pipelines might be a brilliant ruse from the Russians – cognizant of all the deficiencies above, they can wield it as a sign of good will in their never-ending negotiations with the European the economics for supplying gas to Europe via the Southern Gas Corridor are far from being Union.

Read more on Who Profits From Iran’s Oil Major Exodus?

This being said, there are natural impediments to see the TCP implemented anytime soon. Azerbaijan might be interested in getting transit fees for Turkmen natural gas, yet it lacks the required infrastructure to include the above volumes in its traditional conduit via Turkey. All in all, the Caspian convention is a good basis for further negotiations, even though it falls short of being an all-encompassing legal framework. Territorial disputes will most likely remain frozen for quite some time and no new gas pipeline projects will see the light of day unless market conditions change.

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Gold futures trading in Turkey doubles during lira’s wild rollercoaster ride

Gold futures volumes have soared on Turkey’s stock exchange as the recent plunge in the volatile national currency attracts speculation and boosts the local price of the precious metal. The 90-day average daily volume reportedly doubled to 40,000 contracts, from about 17,000 in March. At the same time, the price for an ounce of gold in Turkish lira surged by more than 50 percent.

Russia proposes deal with Turkey to ditch US dollar for lira-ruble trade amid currency crisis

“It definitely would make sense to own gold now in Turkey given the depreciation of the lira,” precious metals strategist at Mitsubishi Corp UK Jonathan Butler told Bloomberg. “This is consistent with gold’s status as a safe haven and will likely be mirrored on the physical market with demand increasing for jewelry and gold bars.”

Last week, Turkish President Recep Tayyip Erdogan called on the country’s citizens to sell foreign currencies to bolster the plummeting lira. The Turkish currency has managed to recover by 16 percent, trading at 6.16 lira against the US dollar on Wednesday, after a record plunge earlier this week.

Overall, the lira has lost around 40 percent of its value this year amid investors’ concerns over central bank steps toward tightening the monetary policy and the growing dispute with the US.

Turkey and the US have been at odds over the detention of American pastor Andrew Brunson in Turkey. Brunson has been charged with aiding the failed military coup two years ago and is facing 35 years in a Turkish prison.

Washington has imposed sanctions on Turkish officials and slapped the country’s steel and aluminum exports with additional tariffs. Ankara responded by imposing tariffs on a number of US goods including alcohol and cars, while President Erdogan has called for a boycott of American electronic products.

Though, Turkish gold trading volumes are low compared to those at major exchange hubs in London and New York, the country is a significant source of global demand for the precious metal. Turkey is currently the world’s seventh largest gold consumer with roughly 72 metric tons of gold being purchased annually. The country is also one of the major consumers of gold jewelry.

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Turkey raises tariffs on some US imports in response to economic ‘attacks’

The list of goods subject to the newly raised tariffs was published in the Turkish Official Gazette early on Wednesday. Commenting on the new measure, Vice-President Fuat Oktay tweeted that it was taken “under the principle of reciprocity” against “the US administration’s deliberate attacks on our economy.”

Turkey to boycott iPhones other US electronic products – Erdogan

The Turkish national currency, the lira, has been plunging as Washington doubled its tariffs on aluminum and steel imports from the country to 20 and 50 percent, respectively. So far this year, it has lost 40 percent of its value against the US dollar, dipping to a historic low.

The Turkish government previously said it was taking measures to counteract the massive hit, without specifying their nature. Turkish President Recep Tayyip Erdogan accused the US of seeking “to force Turkey to surrender in every field from finance to politics, to make Turkey and the Turkish nation kneel down.” He also urged Turks to ditch the dollar to support the lira.

Turkey and the US are currently at loggerheads over the arrest of US evangelical pastor Andrew Brunson on terrorism charges in Turkey. Brunson was detained in connection with the failed military coup to oust the country’s president in 2016, which Ankara blames on religious leader Fethullah Gulen, who is living in self-imposed exile in the US. Brunson is facing up to 35 years in prison if found guilty, and Washington wants him freed. In July, US President Donald Trump vowed to impose sanctions on Turkey unless Brunson is liberated. The White House announced sanctions on the Turkish justice and interior ministers, prohibiting US citizens from doing business with them.

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China’s Tesla-killer ready to go public in New York

The company said in a filing on Monday that it’s looking to raise as much as $1.8 billion in the initial public offering (IPO). Nio is backed by Chinese conglomerate Tencent and another giant tech company, Baidu. The Shanghai-based firm listed Morgan Stanley, Goldman Sachs, JPMorgan, Bofa Merill Lynch, Deutsche Bank, Citi, Credit Suisse and UBS as underwriters.

Nio started selling its first vehicle, the ES8 SUV, in December – three years after the company was founded. The vehicle comes with a price tag of $65,000, or about half the current price of the most basic version of Tesla’s Model X SUV in China.

Musk says he’s working with Goldman Sachs, Saudis others to take Tesla private

The Chinese company is seeking to launch the more affordable ES6 sport-utility vehicle next year and bring out a sedan called the ET7 in 2020. “We are generally targeting to launch a new model every year in the near future as we ramp up our business,” the company said in Monday’s filing.

Like Tesla, Nio is burning through money. The company had a net loss of $502.6 million on less than $7 million in revenue in the first half of 2018, according to the filing.

Nio’s move to sell shares in the US comes at a time when Tesla CEO Elon Musk has a plan to set up a gigantic factory in Shanghai, China to corner a market where the government is promoting new-energy vehicles with incentives for buyers.

According to Bloomberg estimates, by 2040, more than half of all new car sales and a third of the world’s automobile fleet, which is 559 million vehicles, will be electric.

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Saudi Arabia and Iran reignite the oil price war

The two countries are currently reigniting the market share and pricing war ahead of the returning US sanctions on Iranian oil.

Saudi Arabia, OPEC’s largest producer, has been boosting oil production to offset supply disruptions elsewhere, including the anticipated loss of Iranian oil supply after US sanctions on Tehran return in early November. The Saudis are also cutting their prices to the prized Asian market to lure more customers as they increase supply.

‘Milestone event’: Five states sign historic deal on status of Caspian Sea

Iran, OPEC’s third-largest producer, is trying to convince its oil customers to continue buying Iranian oil despite stringent US efforts to curb Iranian production.

Iran has slashed its official selling prices (OSPs) for all grades to all markets for September, looking to monetize what could be its last oil sales to some markets in Asia before the U.S. sanctions kick in. Tehran cut the prices for its flagship oil grades to more than a decade low compared to similar varieties of the Saudi crude grades, according to data compiled by Bloomberg.

Last week, the National Iranian Oil Company (NIOC) slashed the OSP for the Iranian Light crude grade to Asia by $0.80 to $1.20 a barrel above the Dubai/Oman average, used for pricing oil to Asia. The September prices for Iranian Light to Asia are at a 14-year-low compared to the similar Saudi grade sold to the world’s fastest-growing oil market, Bloomberg has estimated.

Earlier this month, the Saudis also slashed the September prices to Asia for their flagship grade, Arab Light, by $0.70 to $1.20 a barrel premium over the Dubai/Oman average. The reduction was slightly deeper than expected and the second consecutive monthly cut in pricing. The Saudis cut the prices for all their grades to all markets except for the United States.

Now Iran is also slashing prices for all grades to all markets, with the prices for Iranian Light, Iranian Heavy, Forozan, and Soroush grades to Asia, Northwest Europe, and the Mediterranean all cut by between $0.50 and $1.45, depending on the market and grades.

Read more on Who Profits From Iran’s Oil Major Exodus?

The OSPs for Iranian Heavy and Forozan to Asia were slashed against the similar Saudi grades to their lowest levels since at least 2000, the year in which Bloomberg started compiling the data.

Iranian Light and the Saudi Arab Light for Asia for September are now priced at the same level—$1.20 a barrel above the Dubai/Oman average.

For the Saudis, the cut is aimed at enticing more buyers in order to take advantage of the refiners in Asia that are looking to cut Iranian oil intake for fear of running afoul of the US sanctions. For Tehran, the cut in prices is an attempt to keep refiners buying by offering yet another incentive for them on top of the extended credit periods and nearly free shipping.

It has also been reported that Iran has started to offer India—its second-biggest oil customer after China—cargo insurance and tankers operated by Iranian companies as some Indian insurers have backed out of covering oil cargoes from Iran in the face of the returning US sanctions on Tehran. 

India’s imports from Iran could start to slow from August as some big Indian refiners worry that their access to the US financial system could be cut off if they continue to import Iranian oil, prompting them to reduce oil purchases from Tehran.

Read more on Can China Afford To Slap Tariffs On U.S. Oil?

The US hasn’t been able to persuade Iran’s biggest oil customer China to reduce oil purchases, but Beijing has reportedly agreed not to increase its oil imports from Iran.

Other relatively large Asian buyers of Iranian oil—South Korea and Japan—are looking for US guidance and (possibly) waivers before deciding how to proceed, but they are currently very cautious and on the lookout for alternative supplies.

Analysts, and reportedly the US Administration itself, currently expect the sanctions to remove around 1 million bpd from the oil market.

Considering the intensity of efforts by the U.S. to cut off as much Iranian oil exports as possible, it is unlikely that even Iran’s significant discounts to Asian customers will save the country’s oil exports.

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India’s gold imports surge as rupee plummets to record low against US dollar

According to provisional data from metals consultancy GFMS, India’s gold purchases in July soared by 44.2 percent to 75 tons against the same period a year ago. The upsurge may bolster global prices, which plunged to a 17-month low earlier this week.

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However, growing gold imports by the world’s second-biggest buyer of the precious metal might increase India’s trade deficit and turn up the heat on the country’s weakening national currency. On Monday, the rupee declined to a record low of 69.89 against the US dollar.

“The recent rise in imports was due to stock building due to lower prices ahead of the jewelry show and in anticipation that the rupee may continue to weaken until [it reaches] 71 rupees,” GFMS analyst Cameron Alexander told Reuters.

The India International Jewelry Show, which that opened last week in the Mumbai-based Bombay Exhibition Centre – reportedly attracted 1,300 exhibitors along with 40,000 visitors from more than 80 countries. The exhibition helps jewelers to showcase their designs to international and domestic buyers.

“Jewelers were not buying in June [as they were] expecting a big drop. In July, the correction attracted jewelers, who were on the sidelines,” said a Mumbai-based dealer with a private bullion importing bank, as quoted by the agency.

In July, Indian gold prices fell to their lowest level in six months.The data from GFMS shows that the country’s gold imports for the first seven months of the current year dropped 28 percent to 406.2 tons compared to the same period a year ago.

According to data released by the World Gold Council earlier this month, Indian gold demand will improve in the second half of 2018 after falling six percent in the January-to-June period. The changes will reportedly come amid government reforms that are aimed at boosting farmers’ incomes and increasing rural buying power.

In August, imports are expected to remain robust due to the upcoming peak of the festival season, according to Mukesh Kothari, director at Mumbai-based bullion dealer RiddiSiddhi Bullions. The fourth quarter of the year usually sees strong demand for gold because of the wedding season and festivals such as Diwali and Dussehra.

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FBI warns of imminent hack attack on ATM machines worldwide

The warning issued by the FBI to international banks on Friday revealed that cyber criminals are planning a massive malware attack on ATMs across the globe in the next few days.

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“The FBI has obtained unspecified reporting indicating cyber criminals are planning to conduct a global Automated Teller Machine (ATM) cash-out scheme in the coming days, likely associated with an unknown card issuer breach and commonly referred to as an ‘unlimited operation’,” the report obtained by cyber-security expert Brian Krebs reads.

The analyst warned global lenders of a highly choreographed, global fraud scheme known as an “ATM cash-out.” The criminals are reportedly planning to hack a bank or payment card processor and use cloned cards at cash machines around the world to withdraw millions of dollars in few hours. The similar fraud operation was carried out in 2009, when around $9 million was cleaned out from cash machines worldwide.

According to the report, small-to-mid sized banks that haven’t upgraded their equipment and software to the latest security standards are at higher risk.

“Historic compromises have included small-to-medium size financial institutions, likely due to less robust implementation of cyber security controls, budgets, or third-party vendor vulnerabilities,” the statement reads.

“The FBI expects the ubiquity of this activity to continue or possibly increase in the near future.”

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Turkey to boycott iPhones & other US electronic products

“There is an economic attack against Turkey. Earlier such things were done in secret, and now they are open to us. We can react in two ways: economically and politically,” Erdogan said in Ankara Tuesday.

“Our Ministry of Finance and the Treasury are working day and night…we will boycott electronic goods from the United States. They have iPhones, but on the other hand there are Samsungs. We have our local brand Venus Vestel, we will use it,” the Turkish president added.

Turkish currency hit by perfect storm of US sanctions, tariffs debt, plunges to historic low

Share prices in Turkish electronics manufacturer Vestel rose sharply on Erdogan’s comments.

This is the latest chapter in a growing diplomatic rift between Turkey and the United States. The two countries have been at odds over the detention of American pastor Andrew Brunson in Turkey. Brunson is accused of aiding the failed military coup in 2016. He is facing 35 years in a Turkish prison.

The US imposed sanctions against Turkey and President Trump has doubled steel and aluminium tariffs on Turkish imports. US pressure has created a currency crisis in Turkey with the lira plummeting to a record low of 7.20 against the dollar on Monday before strengthening to 6.61 on Tuesday.

In addition, Turkish Airlines has announced it will stop advertising American products on its flights, authorities in Ankara said.

“What is this you’re doing?” Erdogan asked, referring to the US. “What is it that you are trying to accomplish? What do you want to do? You should know that the character of this nation is not one that wavers.”

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Musk says he’s working with Goldman Sachs, Saudis & others to take Tesla private

“I’m excited to work with Silver Lake and Goldman Sachs as financial advisors, plus Wachtell, Lipton, Rosen Katz and Munger, Tolles Olson as legal advisors, on the proposal to take Tesla private,” Musk tweeted Monday night.

While Silver Lake has been informally assisting Musk, the firm has not been hired as a financial adviser, an anonymous source told Reuters. Goldman Sachs and the other two law firms could not be reached for comment by the news agency.

Earlier on Monday, Musk revealed that the Saudi Arabian government – which holds a stake of between three and five percent in Tesla – has long been interested in taking the company private.

The news comes less than two weeks after Musk tweeted that he was considering taking Tesla private, if its stock were to hit $420. In a blog post, the mercurial CEO explained that he wanted to go private to remove the “major distraction” of fluctuating stock prices, get away from the pressure of quarterly earnings cycles, and remove “perverse incentives for people to try to harm what we’re all trying to achieve.”

Tesla’s stock price jumped 10 percent at the news, adding to gains from a few days previously, when the oil-rich Saudi Arabian government’s stake in the electric carmaker was revealed.

However, shares remained below the $420 price mentioned by Musk, and receded in the days afterwards. Several investors accused Musk of manipulating Tesla’s stock price, deliberately tweeting misinformation to hurt short-sellers.

In a lawsuit, they described Musk’s tweet as a “nuclear attack” brought on to “completely decimate” short-sellers – traders who make money by borrowing overpriced shares, selling them, and then repurchasing the shares at a lower price.

Musk has often lashed out at short-sellers, and mocked them over the weekend, joking that he would soon sell “short shorts” as Tesla merchandise.

The New York Times reported that Musk took to Twitter “impulsively” and tweeted in anger at Tesla’s critics, citing sources close to Musk.

Tesla has been publicly traded since 2010, and has seen its share price rise from just under $20 back then to $360 at time of writing. The company is currently valued at just over $60 billion, with Musk holding almost a 20-percent stake.

Before its recent rally, Tesla’s share price had been in a downward spiral for much of the summer, as the company struggled to meet production targets for its mid-range Model 3 sedan, while Musk’s erratic Twitter behavior worried investors.

On top of his trolling and ongoing feuds with journalists, Musk called a diver involved with the rescue of a Thai children’s soccer team a pedo last month; an outburst that knocked four percent off Tesla’s value.

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Euro could collapse without ECB bond guarantee – Italy’s right-wing Northern League party

“The situation can’t be resolved and it is going to explode,” the economics spokesman of Italy’s ruling Northern League party, Claudio Borghi, told Reuters. His words come after Italian, Spanish, and Portuguese government bond yields rose following the financial turmoil surrounding Turkey.

“Either the ECB offers a guarantee or the euro will be dismantled,” he said. The right-wing Northern League party forms a coalition with the co-ruling 5-Star Movement.

Rothschild worried about new world economic order

A bond yield spread is the difference between yields on differing debt instruments. Typically, the higher risk a bond carries, the higher its yield spread. In other words, if a country’s economy is strong, its bond would carry less risk and the yield would be lower.

Since the 2008 global crisis, differences between euro area countries have become more pronounced, as the spreads of some countries (especially Ireland and Greece) widened much more than those of other countries (such as France and the Netherlands).

“Today the ECB has the power to make you lose your debt and get on your knees. It should be ensured that the Central Bank intervenes as soon as the spread between the securities of two European countries reaches two hundred,” Borghi said back in July.

Eurosceptic Borghi, a top economic adviser for the Northern League, was named the head of the budget committee in the Italian parliament’s lower house this June. Borghi, a former Deutsche Bank trader, is acknowledged for the proposal of Italy’s short-term treasury bills, a form of parallel currency or even a temporary form of payment to be used in a transitional period if the country ditches the euro.

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