Rice Bowls and Revitalization: Navigating China's Complex Food Security Landscape

Introduction

CCP Chairman Xi Jinping has proclaimed that the “Chinese people should hold their rice bowls firmly in their own hands, with grains mainly produced by themselves”. Yet this directly conflicts with his other stated goal of “rural revitalisation”, the effort to identify high value crops and agricultural industries for the purpose of raising farmer’s incomes and to alleviate rural poverty. Such tensions denote the contrast between two old visions of the state's duty to Chinese citizens, with both outlooks sharing little in common with the other.

This is reflective of the dual problems China faces over the coming decades: how to continue on the path of uplifting the rural poor from poverty, whilst simultaneously restricting their choice of crops to core staples in the interest of national food security.

This spotlight presents the problems facing China’s domestic food supply and increasing foreign dependence while discussing the complications caused by goals of both economic uplift of citizens and the long term protection of the nation’s dwindling farmland. Additionally, this spotlight analyses historic trends in Chinese food production and demand and their subsequent effect on global food prices, before reviewing the possible Taiwan-related motivations of the Chinese state. 

This spotlight concludes that the proclaimed “guozhidazhe”, meaning a national priority or a main affair of the state, can be considered both as a push for food security while at the same time demonstrating a deliberate decision to prioritise the food security of the urban middle classes over the rural poor, this tradeoff itself having political and social consequences.

Rural Policy Background

The Deng Xiaoping market reforms of the 1980s seem to fade further and further into the rear view mirror as China trundles along towards true self-sufficiency. That’s when collective farms, a staple of most early communist regimes, were split and farmers were permitted to sell any crop they wished at market price.

Current Chairman, Xi Jingping, takes the opposite view, that Chinese farmers must forget the days when premium sellers such as flowers and fruit were harvested on China’s dwindling and already small stocks of arable land. Instead, farmers must focus on harvesting the staples that keep a nation going, a factory’s workers churning, and the nation’s stockpiles ever expanding. As such, China has been building up huge stockpiles in basic foodstuffs such as wheat, rice, and corn (around a year’s national supply of each). This has raised the global price of grain, with China now hoarding over half the world’s supply.

China is not blessed with good conditions for agricultural production. China has long been troubled by famine, with the emperors of antiquity usually looking to fill bellies as the first step to win hearts and minds. Today, China attempts to feed a fifth of humanity with less than 10% of the world’s farmland and only 7% of the world’s fresh water. Despite this, it manages to produce around a quarter of the world’s grain and ranks first across the globe for the production of cereals, fruit, vegetables, meat, poultry, eggs, and fishery products.

China's food security strategy today faces several challenges and trade-offs. One of them is the dilemma between increasing farmer's incomes and promoting the production of basic foodstuffs over cash crops. Cash crops are crops that are grown for sale rather than for domestic consumption, such as cotton, tobacco, tea, and fruits. Cash crops can provide higher returns for farmers and stimulate rural development, but they also compete with food crops for land, water, and other resources. This is causing confusion and resentment on the ground, where generations of shifting national priorities have been felt in the pockets of China’s rural population.

Another challenge is the dependence of China's food security on the stability of the global food market and the geopolitical situation. China is the world's largest importer of agricultural products, including soybeans, corn, wheat, rice, and dairy products. Between 2000 and 2020, the country’s food self-sufficiency ratio decreased from 93.6 percent to 65.8 percent. This is predominantly due to changing diet patterns with imports of edible oils, sugar, meat, and processed foods increasing. 

This has been spurred on by the increasingly large Chinese urban middle class. More concerned with food safety than their parents, and dismayed from Chinese brands by decades of little to no strict food safety regulations in the country, these people turn increasingly to internationally imported goods. Additionally, there have been many contaminated and unsafe food scandals in China this side of the millennium, for example a large proportion of parents are still loyal to foreign baby formula as the result of six babies dying and hundreds of thousands being poisoned as a result of contaminated domestically produced formula in 2008.

China is also the largest producer of meat on the planet as stated earlier. This has been achieved by diverting many of the basic foodstuffs to livestock instead of to humans. China consumes around 175 million tonnes of corn in animal feed each year and imports approximately 100 million tonnes of soybeans to also use in animal feed. The growing urban middle class has increased demand for animal products domestically, such that corn used for animal feeds tripled from around 20% in the 1960s to 64% by 1994. This has contributed to state concerns over food security, with more of the staples going to livestock than ever before and the population's nutritional intake increasing in complexity. The reliance on imported food to meet those needs presents China with a problem,  not just in terms of quantity for those at the bottom, but also in terms of quality and variety for those in the newly established middle class. China, therefore, is aiming to increase staple harvests not just to meet the needs of the population in terms of calories but also in terms of happiness and nutrition in an evermore complex and dangerous world the CCP perceives in the face of climate and geopolitical threats.

Additionally, it is difficult for food producers to make any meaningful profit farming staples, due to the price controls instituted from the top down. Therefore, another of Xi’s policy staples seems set for the chopping block. Xi has identified the uplifting of the rural poor as a priority for the CCP by allowing them to grow crops of high market value and invest in profitable agricultural industries to achieve rural revitalisation.

China has further diversified its uses for corn into the production of High Fructose Corn Syrup (HFCS). Reforms in the mid-2010s led to a mass sell-off of the nation’s then corn reserves and allowed for HFCS output to increase and for idle capacity to be reignited. HFCS sells for around a third of the price of natural sugar in China and garners a fifth of the domestic sweetener market. Chinese HFCS has also been exported abroad and disrupted the sugar industries of a number of southeast Asian states, with already declining sugar consumption causing concern in the Philippines where sugar cane harvests regularly outstrip demand and where around half of Chinese HFCS ends up. As the CCP pushes for more corn to be grown domestically and therefore be bought within strict price controls, the HFCS industry may further disrupt the growth in sugar demand awaited by many burgeoning economies in the region, particularly India, Indonesia, and Vietnam where imports of Chinese HFCS rank just behind the Philippines. 

The Filipino government enacted trade restrictions on Chinese HFCS to protect domestic sugar production, further export of HFCS will increase tensions, place economic pressure on a key Filipino national industry, and inflame tensions in the region.

However, many question what happened to the “Grain to Green” goal set in the 1990s of planting forests to counter soil erosion and limit desertification. China’s food dependence is predicted to continue increasing, as a result of arable land loss. China in 2019 only possessed 95% of the arable land it held in 2013, this has been attributed to overuse of fertilisers, neglect of land, and climate change. Extreme weather, environmental degradation, water scarcity, and pollution all look to be ready to make the problem worse in the coming years and decades. Researchers from both China and the US judged that climate change and the loss of parts of the ozone layer were responsible for a 10% drop in average crop yields from 1981 to 2010.

The implications for global commodities

A fifth of humanity drastically changing the quantities and types of food they eat has unsurprisingly had major effects on the global price of food in the past. The food price hike of 2007-2008 pushed approximately 400 million people into poverty worldwide and was partly blamed by many on China and India’s rising demand for foreign agriculture leading to increased consumer competition on international markets and therefore higher prices.

However, if China stays on course to increase the amount of food produced domestically, at least in the short to medium term, based on the lack of attention paid to the slowly dwindling supply of arable land, then demand internationally for agricultural commodities like wheat, rice, and corn is bound to fall, possibly leading to a reduction in prices for these basic products and the foodstuffs they produce in combination with other materials and ingredients. Some of the poorest and most import-dependent countries on Earth should expect less competition at the table from now on as China prioritises the stomachs of its people over its farmers’ wallets. 

Why Change So Much So Quickly?

China’s buildup of stockpiles on top of increasing domestic food production has many analysts worried. With tensions over Taiwan at a high, it raises the possibility that China’s move to increase food security is an attempt to prepare for future US-led sanctions and blockades as a consequence of invading what it considers to be a rebel province. 

Alternatively, the justifications of the policy make sense in the opposite terms, not that conflict is planned but that shocks to the global food system, such as the collapse of the Ukraine Russia grain deal of which China was a major beneficiary, are only expected to increase as a result of conflicts in the region, or on the other side of the world. 

It can be easily understood that the push for national food security is one caused by external factors alone, but the initiative’s counteraction against ideals of rural revitalisation demonstrate a definite domestic consequence and a readjustment of the urban/rural political and economic relationship in China. Even as improved physical and digital infrastructure draw the educated and successful back to small towns and villages, there has been very little progress towards bridging the urban/rural divide. In 1995, urban workers made three times their rural counterparts, today the ratio is roughly the same even in the face of government efforts to close the gap. 

The realignment taking place, for farmers to grow low income but highly needed crops to keep both basic food prices low and maintain a steady supply of cheap other foodstuffs such as meat and sweetener, illuminates China’s prioritisation of the urban middle classes with more complex dietary expectations over the farmers and rural poor reaching to claim their share of the Chinese dream.

Conclusion

China's dual objectives of ensuring food security and promoting rural revitalisation underscore a complex challenge. Balancing the imperative for self-sufficiency with the need to uplift rural communities reveals tensions between historical legacies, socioeconomic aspirations, and global realities. The intricate interplay between these goals not only impacts China's domestic landscape but also resonates internationally through changing trade dynamics and geopolitical considerations. The nation's journey to navigate these complexities will define its agricultural trajectory, with far-reaching implications for both its citizens and the global community.

Image credit: Colin W via Wikimedia Commons

The King’s Gambit: The Opportunities and Risks of Israeli Approval of Gaza’s Offshore Gas Extraction

On 18 June 2023, Israel’s prime minister, Benjamin Netanyahu, announced that his country had given the green light to the Palestinian Authority’s (PA) development of a natural gas field off the coast of the Gaza Strip. Given the strained relations and recurring rounds of violent escalation between Israel and militants in Gaza, such a move is not straightforward and must be explained with reference to the political, economic and security interests of the parties involved.

Israel’s interests

To the outside observer, a concession to the Palestinians by an Israeli government broadly seen as the country’s most right-wing ever may be surprising. Yet it is an enduring fact that Israel’s most bold overtures to its neighbours have been carried out by the right wing. It was Menachem Begin’s Likud government that exchanged the Sinai Peninsula for a peace treaty with Egypt in 1979. Karine Elharrar, Israel’s Energy Minister under Israel’s previous, more centrist government related that she had been approached with the Gaza gas proposition toward the end of 2021 but ruled it out as unfeasible as her government was already under fire from the then-Netanyahu-led opposition for its pursuit of a maritime gas deal with Lebanon. The reason Israeli public opinion considers giveaways by the right more palatable is the impression that they have been vigorously negotiated over and, if made, must be squarely in the national interest. The logic here follows from the Israeli-Lebanese precedent: give your enemy something to lose, and they will think twice before risking all-out conflict.

The Israeli right has long opted for ‘managing’ the Israeli-Palestinian conflict over solving it. A recent, pressing challenge to this strategy has been the gradual disintegration of the PA, the governmental body created by the 1993 Oslo Accords and charged with governing the Palestinian Territories. It lost control of Gaza to Hamas after the latter’s violent takeover of the strip in 2007 and its legitimacy among the West Bank’s population has been undermined by accusations of corruption, mismanagement, and collaboration with Israel. Israel hopes the deal will shore up the PA, an important security partner in preventing and punishing local terrorist attacks, by bringing much-needed funds and restoring its image as a responsible, effective authority.

Nevertheless, Israeli leaders do not harbour any illusions about the fact that some of the revenue generated by the gas sales is bound to end up in the hands of Hamas, a militant group designated by it, the US, the EU, and many others as a terrorist organisation. This is widely seen as the reason for the stalling of the initiative since it was first proposed in 1999. Recently, however, experts have suggested that Israel intended the concession as a quid-pro-quo for Hamas’s acquiescence over its military campaign against the Palestinian Islamic Jihad (PIJ) in May 2023. Such an approach attempts to gain Hamas’s cooperation through a carrot-and-stick strategy.

Gaza’s interests

On Gaza’s side, the foremost imperative is economic. Years of economic blockade by Israel and Egypt, alongside local mismanagement have turned Gaza into what certain human rights organisations have called an ‘open-air prison’. Its 2.3 million inhabitants experience power cuts for up to 12 hours a day, a result of an over-dependence on a small local oil-fuelled power plant and insufficient Israeli electricity. Meanwhile, the Gaza Marine field is thought to hold almost 30 billion cubic metres (1 trillion cubic feet) of natural gas. If tapped, this source would be more than enough to cover the area’s estimated 500-megawatt daily requirement, with the remainder piped into liquefaction units in Egypt and sold on global markets, yielding billions of dollars in revenues.

If such a plan materialises, both the PA and Hamas will seek to claim credit. The PA will attempt to win back its support in Gaza and the West Bank as a government that secured economic development and raised living standards through internationally negotiated agreements. Hamas, for its part, would build on its credentials not only as a force of resistance to Israel but as a provider of economic and social benefits in the strip, potentially facilitating its formal consolidation in the West Bank too.

Risks

Progress on an Egyptian-mediated agreement on gas by Israel and the PA faces three principal risks.

First, and most obviously, the breakout of a new round of violence between Israel and Hamas, possibly, but not necessarily, as part of a broader regional escalation (e.g. involving clashes across the Israeli-Lebanese border) will likely cause Israel to take the deal off the table. Israel’s leadership must convince itself, and its supporters, that it is not arming its enemies.

Second, Israel is counting on Egypt to act as a guarantor and third-party stakeholder in securing Hamas’ continued cooperation and underwriting its good behaviour. Yet while Egypt has proved an indispensable mediator in this regard over the last decade, it is unclear how much sway it holds over the militant organisation in comparison to Iran, its chief ally and financial backer. Given the Israeli-Iranian geopolitical archrivalry, it is not straightforward to assume that Hamas is either willing or able to peacefully coexist with Israel for long.

Third, and finally, the recent political turmoil in Israel as a result of the judicial reforms introduced by Netanyahu’s coalition might complicate his efforts to justify the move to his supporters. If the coalition eventually backs down from the reforms demanded by its hard-line elements and supporter base, the addition of a formal concession to the Palestinians may become even harder to stomach, especially after Netanyahu himself had opposed Israel’s previous deal with Lebanon as a ‘surrender to terror’.

The next step

Full-scale extraction of natural gas from the Gaza Marine field will require the PA to obtain a final agreement designating the status of the field in which Israel will relinquish any remaining claims to the reservoir. Israel’s apparent green light for the project could bolster the economic prospects for the strip, and may succeed in furthering regional stability, as its proponents hope. If successful, the project and its Israeli-Lebanese predecessor of last year may illustrate the opportunities for opposing states of leveraging the relative ambiguity and lesser politicisation of maritime boundaries to reach compromises in spite of intransigent public audiences. Nevertheless, the multiplicity of actors involved, with their limited power and often conflicting interests, means the project is fraught with risks that threaten to turn it into another false start in a troubled political relationship.

Image credit: Bureau of Safety and Environmental Enforcement (BSSE)

Niger Coup: What Could've Left the Sahel's Last Bastion so Vulnerable?

Introduction

Niger’s President Mohamed Bazoum has been ousted from power, claims the presidential guard, who appeared on national television late on Wednesday night, mere hours after he was captured in the country’s presidential palace. The coup artists claim to have suspended all political institutions in the country. General Abdourahamane Tiani, the head of Niger’s presidential guard, who previously was rumoured to have been in negotiations with the president after Bazoum planned to demote him from head of the organisation, was initially challenged by the wider armed forces and national guard, who threatened to attack the insurrectionists unless they stepped down; those same armed forces now back the coup against Bazoum to supposedly prevent a bloodbath, even as Bazoum pledged to protect the democratic gains made in the country, in spite of recent events.

The following report provides a summary of the potential contributors to the instability in Niger, including the precarious security situation, growing anti-French and pro-Russian sentiments, dwindling food supply, political mismanagement of the world’s fastest growing population, and a sharp rise in the price of fuel. 

National Overview

Niger is a multicultural yet overwhelmingly Muslim North-West African nation, around double the size of Texas or France, bordering Nigeria to the South, Mali to the West, Algeria and Libya to the North, and Chad to the East, as well as other smaller nations in all directions. It usually resides at the bottom of most indicators of human development and is one of the poorest nations on earth, with a population of around 25 million people. It is a former French colony, with French being the language of administration. France remains one of its primary import and export partners. Moreover, the country still uses the Franc as its currency. 

The Hausa (also majorly present in northern Nigeria) live mainly in the South and centre of the country and are the largest ethnic group at 51% of the population. The Zarma-Songhai make up 21% of the population and primarily reside in the nation’s southwest. 80% of the country’s area is covered by the Sahara Desert. This area, however, only contains 20% of the country’s population, made up primarily of the Tuareg and other ethnic groups, which make up the remainder of Niger’s population. The sheer size of the Sahara makes water scarce, particularly in the north of the country. The South, however, has a  more tropical climate with higher rainfall. It is home to both French and American military bases, with both countries involved in the international effort against Jihadist groups in the Sahel region of North West Africa; a section of this region forms part of Niger’s territory.

Situational Background

Niger is no stranger to coups and coup attempts, with military officers overthrowing presidents in 1974, 1996, 1999, and 2010. Bazoum’s ascent to the presidency, however, was the country’s first ever case of a peaceful transfer of power from one president to another, despite an attempted coup just two days before Bazoum’s inauguration in 2021 as well as accusations of fraud from the second place candidate, Mahamane Ousmane, whose supporters have held mass rallies. Bazoum was the preferred successor of his predecessor, Mahamadou Issoufou, who stepped down voluntarily. Rather than a break with Niger’s tradition of military coups, this suggests an aberration created by the transfer of power from one chairman of the board to another, instead of one governmental apparatus handing over to another. 

Yet, Bazoum’s regime had begun to be viewed within the country as increasingly repressive and not particularly popular. Additionally, his predecessor may have been viewed internationally as an effective democratic leader, but this view is rarely found in Niger itself, with wide scale industrial action taking place under both Bazoum’s and Issoufou’s reigns respectively.

Militants in the Sahel and Lake Chad Basin

Bazoum, seen by many within Niger as a puppet of French authorities, has stated that France’s anti-Jihadist force in the region is a “relative failure, it’s a shared failure, a failure of the entire coalition." He also stated that France’s troop drawdown in the region would have only a limited impact. In fact, on the same day that Bazoum’s election victory was certified by the nation’s constitutional court, armed men on motorbikes attacked a string of villages on the Mali border, leaving 137 dead in the nation’s deadliest violence in recent times.

There are now more fatalities linked to militant islamist groups in the Sahel than in any other region of Africa. In fact, violence in the Sahel increases year on year, while fatalities linked to islamist groups in other parts of Africa have fallen.

In the West, the Islamic State in the Greater Sahara (ISGS) and Jama’at Nusrat al Islam wal Muslimin (JNIM), made up of various Al Qaeda affiliates, with the Macina Liberation Front (FLM) being the one most active in the Sahel, are the largest contributors to fatalities linked to islamist violence in the region. The Africa Center for Strategic Studies attributes these two groups with the majority of violent attacks and islamist militant violence in the Sahel, which now accounts for 60% of such violence across the continent. 

This has led to the displacement of approximately 2.5 million people across the region, although Burkina Faso accounts for the majority of those displaced. Some of the latest data from 2021, the year of Bazmoun’s inauguration, showed a 50% rise in battles between JNIM forces and security forces, while battles with ISGS fell by 45%. 

The main groups operating in Eastern Niger, as part of the Lake Chad Basin, are Boko Haram, the Islamic State in West Africa (ISWA), and Ansaru. These groups are also present in Nigeria, Cameroon, and Chad. The Lake Chad Basin is now the second highest region in Africa for fatalities linked to militant islamist groups. Its trend is overall downward, however, as opposed to the increasing violence in the Sahel. As of 2021, the Basin saw a 32% drop in militant islamist activity and a 21% drop in reported fatalities linked to militant islamist groups. Boko Haram is the group most on the decline, with a drop in linked fatalities of 46%, while ISWA only saw a drop of 3%. This discrepancy is most likely due to the death of Boko Haram’s longtime leader, Abubakur Shekau, in May 2021 and subsequent regrouping.

The relative rise in violence in the Sahel, and the drop in Lake Chad, present new problems for security forces in Niger. In 2012, the vast majority of violence that forces in Niger had to contend with was situated in the east of the nation, in the Lake Chad Basin. Although violence in the Basin has recently been on the decline, the sharp rise in violence in the Sahel, contained in parts of western Niger, leaves the counter-islamist-militant coalition split across the country with only vast desert and a small section of tropical savannah linking the two fronts, making transfers of troops and supplies by land vulnerable and logistically difficult.

Growing Anti-French Sentiment and Increasing Russian Influence Across the Region

There is little information on why the same presidential guard that fought to protect Bazoum’s life in March 2021, has captured him and supplanted Niger’s political institutions. There are serious concerns that the Wagner group is connected. Fans were flamed by Wagner Group Commander Yevgeny Prigozhin’s attendance at a recent Russia-Africa summit in St Petersburg, suggesting Wagner and the Russian state remain partners on the continent. Prigozhin's public statements, characterising the coup as “a battle by the people of Niger against their colonisers”, were especially alarming. The Wagner Group’s goals as a private military company (PMC) are to secure profit while advancing Russian socio-economic and foreign policy interests.

Niger and the wider region of Francophone North-West Africa have come under increasing Russian influence in recent times. This has combined with existing anti-colonial and anti-French sentiment to create a perfect storm of public pressure against the French and the West as a whole. The same week as the coup in Niger, the new Mali constitution, brought in via referendum, demoted French as an official language to the status of a “working” language. This subsequently promoted a number of native languages to official status. 

The French military’s operations in Mali were always only somewhat supported by the population, with one especially gruesome event where a French air strike killed 22 people at a wedding, exemplifying the tension, propensity for callousness, and frequent unforced errors made by the French military. The French government asserted that those killed were Jihadis, while the UN concluded that they were overwhelmingly civilians. Mali has now turned to the Wagner Group for military aid in fighting insurgencies, and expelled its French forces. 

Bazoum, however, has identified France as an easy target for "the populist discourse of certain opinions, especially on social media among African youth” and that “its adversaries want to project an image of France as a neocolonialist power. Some people stick to that cliché, which is not true, but which is very useful for propaganda.” He stated that Wagner had been ineffective in Mali, and that the number of refugees entering Niger from Mali had actually increased since the departure of French forces in the region.

With many of Niger’s neighbours creeping out of western influence, the nation seemed increasingly to be the last bastion of the so-called “coup belt”, a grouping of predominantly Francophone Central and West African countries. 

The French government in particular came to view Niger as a partner of last resort, as its other options dissipated. Ibrahim Yahaya Ibrahim, a senior Sahel analyst at the International Crisis Group speaking to the Financial Times, said Bazoum’s pro-western stance had received a mixed reception at home, where he had taken “quite a hit”. “The same anti-French discourse that has proliferated in Mali and Burkina Faso is also present in Niger”. More specifically, Bazoum had complained of disinformation campaigns by Wagner against his government. Perhaps then it is no surprise that supporters of the Niger coup have been seen waving Russian flags all over the country, seen by many as Niger’s ally against western hegemony and colonialism.

Wagner’s preference for payment in natural resources, most commonly valuable raw minerals, is not news. Niger produces 7% of the world’s Uranium, with most of it ending up in France for use in the nation’s many nuclear power stations, which produce around 70% of French power. Around three quarters of France’s Uranium comes from just four countries: Kazakhstan, Australia, Niger, and Uzbekistan. However, Niger has been diversifying its customer base, with significant shares of the country’s uranium now being sold to companies based in Canada and China, with each nation’s operation in Niger maintaining its own extraction sites.

Therefore, the theory has been circulated that the coup in Niger achieves two goals for Wagner and the Russian government. Firstly, Wagner may now be able to operate in Niger in exchange for uranium, which can then be used in Russia for military and/or civilian purposes, or sold on international markets.

Secondly, Wagner may develop the relationships necessary to divert significant amounts of Uranium away from the French energy market, jeopardising the price of energy in France and bringing an energy-borne cost of living crisis there that countries dependent on Russian gas have been experiencing in the rest of Europe. This aspect of the coup will develop further in the coming weeks and is set for much speculation.

The Ukraine War and Global Fertiliser Supply

Much of Niger’s land is used to produce food. Despite this, the country’s largest import is rice, at a value of $275m. This demonstrates a caloric deficit in the country’s domestic food supply and leaves Niger’s food supply vulnerable to international pressures. For instance, the Russian invasion of Ukraine has left the developing world in the lurch. Russia is the largest agricultural fertiliser producer in the world. As such, the supply of such fertilisers has decreased all across the African continent. This is because most fertilisers are produced using coal or natural gas, the global price of which has led to a sharp increase in the price of fertilisers and subsequently food. As a result, the president of the African Development Bank predicts a 20% drop in food production across the continent. At present, around 44% of Nigerien children are malnourished, and around 18% of the population was predicted to have reached crisis levels of food insecurity between June 2022 and June 2023, this was twice as many as the same 12 month period previously. Niger’s population is also uniquely young, with an average population of around 14, which makes the population particularly exposed to food shortages as such a large proportion of the population are children.

A recent emergency response plan from the Nigerien government was budgeted at $280m; however, it became clear that it included a $200m shortfall. Additionally, the UN Food Programme has slashed food rations by 50% since January 2022 in response to the increasing global scarcity of food. So many children are now entering clinics with malnutrition that clinics across the country no longer have the resources to treat them, with many families not even being able to travel to clinics, being forced to watch their children die at home. 

The Silent Pandemic of Climate Change

The Ukraine war is one reason for the rise in hunger, but another is climate change. Thousands of farmers in Niger are facing the oncoming storm of what has been called the “silent pandemic”. Niger is especially vulnerable to global warming, with temperatures rising there at a rate 1.5 times faster than the rest of the world. Nigerien farmers are being forced to adapt to their new environment as rainfall both becomes more scarce and increasingly erratic, leading to a cycle of droughts that are progressively eroding the 14% of the country’s land that is arable. As a result, the nation has not had a good harvest for around a decade, with 2021 seeing a 39% drop in cereal production. 

Not only can we expect further drops in quantity production but also in quality. Changing conditions in which many grains are grown also have an impact on the quality of that supply and the nutritional benefit of the final product crop. For instance, high levels of atmospheric CO2 lead to a reduction in protein percentage. This, combined with high temperatures limiting the supply of glutenin protein polymers, is likely to have a negative effect on the ability of grain to be turned into dough and thus baked into processed food products such as bread. Additionally, heat stress over 30oC (with temperatures in Niger often reaching 40oC) reduces the rate at which starch accumulates, leading to grains grown in hotter environments containing fewer calories than those grown in more temperate conditions. With the world heating up, the problem of reduced calorie content in grain suggests obvious problems whereby no costs are reduced in production but the final product becomes progressively of less nutritional worth as the planet’s temperature rises.

These factors combine to create what is known as the “lean season”, the period between harvests of about four months. The lean season begins earlier every year, leading many to abandon their villages and settlements in the knowledge that to remain is to ensure starvation, and the only chance they have of survival resides in fleeing either to the cities or relatively aimlessly through the rural areas.

The World’s Fastest Population Growth and the Traitor Narrative

President Bazoum had attempted to make reducing family size a core tenet of his policy programme, with Niger having the world’s highest birth rate. Niger’s population is on track to triple by 2050, from 24 million to 68 million people. For many, this seems to allow Niger to share in the benefits of other populous nations such as China, India, and Nigeria in gaining political clout with the population. However, there are many warnings being made on the link between a high birth rate and rampant poverty.

The attitude most prevalent in Niger, however, is that there is much land but not enough people to fill it. In fact, Garé Amadou, editor in chief of the La Nation newspaper, states that many in the country believe the concerns over population growth are “just something that worries western countries” and that a large proportion of Nigeriens believe that there is a clandestine foreign agenda to contain Africa’s burgeoning population.

Bazoum's public pronouncement of his negative feelings towards rapid population growth has been an act of self-sabotage, especially in combination with specific policy measures. Many in Niger are not comfortable with a president, who has banned his ministers from polygamous marriage and declared the practise “a bad thing” in a country where a third of the population lives in such a marriage. Bazoum has also publicly advocated for the establishment of all girls boarding schools, where children would be educated away from their families by the state. Both of these measures are rooted in the noble goal of keeping women and girls in education for as long as possible. However, many commentators, both within and without Nigerien society, find it hard to comprehend how its president can believe that these measures would ever be popular. 

In fact, these public pronouncements have been read by many within the country as rejections of Nigerien culture and the prescriptions of the Koran. This has created a common view that Bazoum is what in the west would be referred to as “virtue signalling” or “making a contribution to moral discourse that aims to convince others that one is ‘morally respectable”. In this case, the Nigerien population views the “others” that Bazoum is trying to convince of his moral respectability as western observers and authorities. This has contributed to the image of the President as being too pro-western, anti-tradition, and a puppet of the French and American governments.

However, almost all involved in the subject, both nationally and internationally, agree that an average of below three children per woman, is a necessary precondition for rapid economic development. Additionally, the Koran does not advocate for the maximum number of wives and children, but for men to have many children and more than one wife as long as they can be provided for, something that Niger’s economy is not capable of doing so healthily. Additionally, many religious leaders in the country are showing the way on increasing the use of contraception to prevent couples from having children they are unable to afford. 

There has also been a significant cultural transition in maternity wards, with wives now giving birth in the company of their husbands, something quite rare until relatively recently. Furthermore, pregnant women are receiving more attention and care from their partners during pregnancy. However, the director of Issaka Gazoby maternity hospital in the capital Niamey, Mady Nayama, states that “population growth in Africa is frightening” and that the lack of resources available in the country to sustain such a fast growing population leads to intense poverty with “poverty that turns these children into vagabonds.” Niger’s birth rate is still the highest in the world but has been slowly declining for around 20 years. However, Nayama claims that many are still resistant to change and that “our religion tells us that, if God gives a child, he will feed it. But that’s not happening.”

If Bazoum had communicated the link between lowering the birth rate and increasing economic growth to the population, in addition to leaning into the efforts of religious leaders and medical professionals to increase the use of contraception, he may have been aided in steering the political ship away from the erroneous course of mistrust in the nation’s political institutions and making his own voice the herald of unpopular cultural change.

The End of Nigerian Fuel Subsidies and the Collapse of the Black Market

Most coups and coup attempts in Niger come about to secure the revenues of uranium and/or oil exports from the country. Although, it is not yet certain that this is the case here. The motivations of the coup artists remain elusive, with only their public statements to rely on, the candour of which cannot yet be evaluated. What seems more likely is that the very presence of oil and gold in the country has contributed to political instability, in addition to oil price shocks as a result of policy decisions made in neighbouring countries.

Nigeria’s President Bola Tinubu announced during his inauguration speech in May that the Nigerian “fuel subsidy is gone!”, with measures already taking effect in the country. The price of Premium Motor Spirit (PMS) rose rapidly to somewhere between NGN 488 per litre in the capital and NGN 555 per litre in Borno State. 

Niger has also been affected. The major population centres of the south have become dependent on cheap, smuggled, Nigerian-subsidised petrol. Usually arriving at illegal fuel warehouses and being sold on the black market via touts waving petrol canisters by the roadside. The sudden end of subsidies has led to shortages in Niger’s most populated areas and sharp price rises. Previously, a litre of petrol could be bought for around 250 francs (around 45 cents US), but this has risen to around 600 Francs, more expensive than even at regular petrol stations. The rush on those petrol stations is especially severe in the south but is occurring all over the country. According to officials at the nation’s oil ministry, the price of petrol at regular stations has increased tenfold as demand at the pump increases. Consequently, transport costs have increased exponentially. For instance, at markets in the south, the price of a 100 kg sack of maize has risen by 4,000 Francs to 28,000, worsening an already precarious situation around the country’s food supply.

SONIDEP, the Nigerien Company for Oil Products, is coping with the sudden shortfall with reserves from the country’s only oil refinery. However, those reserves will not last forever, and eventually a decision will have to be made on whether to purchase fuel from overseas or begin to operate its sole refinery at maximum output.

The black market also functioned as a primary source of employment for many young men in the south of the country. It is now feared that many of this working-age population will be forced to turn to crime, or worse, to put increasingly expensive food on the table.

Conclusion

This political risk report highlights several key factors contributing to the instability in Niger. The recent ousting of President Bazoum by the presidential guard, leading to the suspension of political institutions, underscores the country's historical vulnerability to coups and power struggles. The precarious security situation, marked by increasing violence from militant Islamist groups in the Sahel and Lake Chad Basin, poses a significant challenge to the nation's stability. Additionally, growing Russian influence left Niger isolated as a bastion of unpopular former colonisers.

Niger's vulnerability to external factors is evident in its food supply situation. Reliance on food imports, particularly rice, coupled with the disruption caused by the Ukraine war and global fertiliser supply issues, exacerbates food insecurity and malnutrition in the country. Climate change is also a critical factor affecting agricultural productivity, contributing to the "silent pandemic" of climate change.

The trajectory of Niger's population growth is a matter of concern, with an anticipated tripling of the population by 2050. The government's attempts to address this issue, such as advocating for smaller family sizes and promoting girls' education, have been met with resistance, leading to perceptions of the president being out of touch with the country's cultural norms and influenced by Western interests.

Furthermore, the recent end of fuel subsidies in Nigeria has had adverse effects on Niger, leading to shortages and price hikes in the country, exacerbating the already challenging economic situation.

Niger faces a complex web of political, security, economic, and social challenges that require careful and strategic management to foster stability and address the underlying causes of instability. Only time will tell if this comes to pass.

The Central European Grain Import Ban Extension: The Stakes and Market Response

Background

Earlier this year, Poland, Bulgaria, Hungary, and Slovakia, sought unilateral grain import bans from Ukraine, citing the threats that cheaper grain prices were hindering the business and livelihoods of their domestic farmers and agricultural producers. These measures raised concerns from other EU member states, who saw these actions as abandoning a war-torn Ukraine in its hour of need. In April, however, Poland and the other EU member states agreed to lift the ban on Ukrainian imports after a deal was reached by the European Commission to “impose temporary curbs” on Ukrainian grain imports. The measures also covered Romania, who shared the same concerns as the other member states, but never took unilateral action. The measures included curbs on wheat, maize, oilseed, and sunflower, while the commission would investigate whether to extend the curbs to other commodities such as eggs and meat. All 5 countries would also receive 100m Euros from the EU to compensate farmers.

Pressure of Extension

On July 19, Poland, along with Bulgaria, Hungary, Slovakia, and Romania, asked the EU to “extend trade curbs on Ukrainian grain amid concerns that Russia’s blockage of Black Sea shipments could put further pressure on their domestic markets.” Poland has been one of the strongest western supporters for Ukraine in its war against Russia, leading calls for solidarity as well as backing the removal of tariffs on Ukrainian foods. However, Poland is facing a highly contested election later this year, where the current right-wing government will depend on the support of farmers, a “cornerstone of its electorate”. There is likely to be strong resistance against an extension among EU member states, as many of these countries have been hit hard from sanctions on Russia and will see this as Poland and the others looking for special treatment. Diplomats from the EU have expressed their dissatisfaction with the extension, while Polish Prime Minister, Mateusz Morawiecki, has warned Brussels that the 5 countries will extend the band themselves if the EU does not comply, stating “we will be tough, determined and we will certainty defend the Polish farmers.” Last week, Russia ended its Black Sea grain deal. This places more pressure on Ukraine to identify other ways to export their grain. Western leaders have expressed that the end of the deal could exacerbate food insecurity in the global south.

What’s at Stake? 

Regarding whether or not the extension will be approved, there are three important points at stake: The upcoming Fall elections in Poland and Slovakia, denunciation from Ukraine and other EU member countries, and the livelihood of farmers in the Central European region. The import bans, along with Russia’s exit from the Black Sea Deal, have put the livelihoods of Ukrainian farmers in jeopardy. As one farmer stated, “We have some reserves so we can survive for a month or so, but if we can’t sell it’s going to be a disaster.” After 17 months of conflict in Ukraine, which has resulted in economic hardship for the country, farmers would feel the brunt of the extension. On the other hand, an end to the extension would cause negative repercussions to the farmers of the 5 countries who continue to push for the extension of the ban. Poland and Slovakia are scheduled to hold parliamentary elections later this year, with both ruling parties of each country greatly needing the support of their rural farmers. Poland’s Law and Justice Party (PiS) is campaigning for a third consecutive term in power, and the party must secure the votes of Polish farmers if they want to secure a win in the parliamentary elections. A failure to extend a ban on grains from Ukraine could cost the PiS the votes needed to secure their desired win. Other EU member states have become increasingly angry at the 5 countries looking to extend the import ban. German agricultural minister, Cem Özdemir, was angered that the 5 countries wanted to extend the import bans, despite getting €100 million in EU money to compensate their domestic farmers, stating “It’s not acceptable that states receive funds from Brussels as a form of mitigation, and then still close their borders''. Ukrainian President, Volodymyr Zelenskyy commented that "Any extension of the restrictions is absolutely unacceptable and outright non-European. Europe has the institutional capacity to act more rationally than to close a border for a particular product.” At a crucial time for European leaders to continue their unified support for Ukraine, there is little room for division and disagreements, an eventuality that would play into Moscow’s hand. 

Current and Likely Market Response

Before the import ban, it was a difficult task for Ukraine to export grain to traditional markets, in Africa and elsewhere, because of the high cost of transportation. As a result, much of the grain from Ukraine has remained in bordering countries, which initially fueled the anger from the 5 EU countries. On top of that, the initial extension of the Black Sea grain deal by Russia and Turkey reduced the demand for land routes that were set up by the EU for transporting grain. Recently, prices have increased because of Russia’s exit from the Black Sea Grain Initiative and from Russian attacks on Ukrainian shipping facilities. As a result, wheat prices soared to a five-month high, and a 2.6% increase in wheat futures trading in Chicago. In recent months, Ukrainian exports of maize, wheat, and barley to the EU have decreased because of the ban.

Source: Euronews

Though global grain supplies and markets have been sufficient, owing to plentiful harvests in Brazil and Australia, the grain export shortages from Ukraine are likely to create volatility in the price of grain. With few options for exporters, agricultural analyst Michael Magdovitz, says that Ukrainian farmers are likely to place some of their harvest into storage. This will decrease their ability to prepare for next year’s harvest, limiting Ukrainian grain production. Analysts also predict that Russia’s withdrawal from the grain deal could benefit the Russian economy, as a major grain exporter, as it is expected to hit a record high harvest this year. This allows Russia to provide free grain to African countries, who were formerly relying on grain exports from Ukraine. 

In 2014, a study authored by Fellman, Helaine and Nekhay, titled Harvest failures, temporary export restrictions and global food security: the example of limited grain exports from Russia, Ukraine and Kazakhstan, revealed that for countries like Ukraine, who export large amounts of grain, “the introduction of export restrictions could potentially result in decreases of domestic consumer prices to a level even below a situation with normal weather conditions.” The same study also discussed the 2008 export restrictions which resulted in Ukrainian wheat prices decreasing to 30% “below the world market price” and showed signs of “slower growth rate of domestic feed and milling wheat prices in the first half of the marketing year 2010/2011.” Though it might be difficult to compare previous export restrictions to the current import ban on Ukrainian grains, an extension of the ban would clearly spell long term trouble for Ukrainian grain farmers.

Zama Zamas or Artisanal Miners? How cheap labour and abandoned gold mines have created a rift between neighbours

Background

South Africa’s rich mineral wealth once brought European invaders to its shores, yet today as the state struggles to keep the lights on, illicit mining has become endemic in the country. Abandoned mines are still full of gold and have been taken over by illegal miners backed by influential business leaders both national and international. These miners (primarily working in Free State Province) are known as Zama Zamas, a Zulu term that loosely translates to "someone who is trying" or “a hustler”. They operate in a criminal underworld that is often violent, dangerous and exploitative. They are often heavily armed and primarily come from South Africa and neighbouring countries such as Lesotho and Zimbabwe. The high unemployment rate in South Africa (currently at 32.9%) leads many to search for any work available legal or otherwise. Youth unemployment stands even higher at 46.5%, with younger workers more attracted to the physically demanding work of the mines.

South Africa holds over 50% of the world’s gold reserves and gold mining makes up around 7% of South Africa’s GDP. There are approximately 6000 abandoned mines in South Africa (remnants from the collapse of the legally recognised mining sector post the gold price crash in 1989). Thus, illegal mining in South Africa is not a new problem and many Zama Zamas were at one point legally recognised miners left without work after the collapse of the legally recognised sector, but reports of Zama Zamas raiding and sexually assaulting members of South African settlements has led to riots in Johannesburg and the burning of the homes of suspected Zama Zamas. But much of the political reaction in South Africa and neighbouring Lesotho, however, has not been in economic terms but social and criminal ones.  In fact, National Police Commissioner, Lieutenant General Fannie Masemola’s description of the conditions by which the police can measure success is in the satisfaction of the community as opposed to the actual prevention of illegal mining. 

Effect on Lesotho Relations

Relations between South Africa and Lesotho have become strained as a result of the Zama Zama problem. Most recently, 31 people were killed by a methane blast at a gold mine that was officially designated as disused, with the South African authorities claiming the victims to be Zama Zamas from Lesotho. Lesotho has provided cheap labour to South African mines for nearly 130 years, but the rising tensions over foreign Zama Zamas in the country has led to new political tensions. The 31 dead from the largest catastrophe at a mine in recent years are not valued enough to have major efforts undertaken to retrieve their bodies, with their illicit status and foreign origin both reasons for the government to prefer to not waste resources on a treacherous and possibly methane filled mine. Many Lesotho nationals both in and out of the small mountain kingdom have lost relatives to mine accidents in South Africa and many have not been able to retrieve the bodies of their relatives. Many of these miners were the breadwinners of their families and the loss of their income leaves families in Lesotho without income or support. When asked by the BBC’s Africa Daily podcast, one Zama Zama from Lesotho said he entered mining as a profession because “hunger drives us to do such things”. The Government of Lesotho has recognised the intense poverty of the country leading to many seeking illegal work in neighbouring South Africa. Around 50% of Lesotho’s population lives in poverty, with unemployment sitting at 18.04% as of 2022.

The South African government has claimed that if the bodies buried in abandoned mines are from Lesotho, then the retrieval of their bodies cannot be South Africa’s responsibility alone. Gwede Mantashe, South Africa’s minister of Mineral Resources and Energy, told a press conference that “If all those bodies are from Lesotho, it means that there is a responsibility… that the Lesotho Government has. So it can not just come to us on the basis of ‘there are bodies underground please take them out.’” He went on to say, “many of them come heavily armed and therefore both governments must have a cooperation in dealing with that crisis as two governments.”

Criminals or Wealth Creators?

However, claims of Zama Zamas being especially violent should be taken with a grain of salt, as Professor Robert Thornton, at the University of Witwatersrand, advocates for use of the term “artisanal miners” to emphasise the entrepreneurial nature of immigrant miners who create vast numbers of jobs and contribute much to the South African local economies. The “non-standard” mining skills of Zama Zamas allows for the exploitation of gold resources major industrialised mines cannot access and directly interact with global gold markets. With better legislation, government support, and improved training they could become part of the social and economic fabric of the country. He claims that most miners are not “stealing gold” but extracting gold that is unreachable by the industrialised mines, additionally he claims that many Zama Zamas originate from South Africa itself and come from many backgrounds, i.e. not just the poorest of the poor. 

South Africa Vs Lesotho, or South African Ethnic Conflict?

David Van Wyk, Chief Researcher of the Bench Marks Foundation (an organisation specialising in the monitoring of multinational corporations in South Africa and the wider region of Southern Africa), claims that in many ways the conflict between Lesotho and South Africa can be alternatively understood as a tribal conflict within South Africa. Many in the Free State, the province most associated with gold mining, speak the same language as those from Lesotho (Sotho) and share a tribal identity as a result. Any Sotho speaker can become a victim of the situation. The colonial history of South Africa contains many land grabs by South African colonial authorities of traditional Lesotho lands leading to the creation of the Free State. Van Wyk thinks it an awkward possibility that Lesotho could quite simply turn around and begin to make land claims of the South African government if tensions continue to rise.

Van Wyk points to the South African government’s tendency to depend on policing on issues such as these, as opposed to regulation and legislation, is leading the situation becoming more and more out of control akin to the current situation in Katanga Province DRC. He suggests “that they be organised into co-operatives and that the co-operatives get registered with the industry and Department of Mineral Resources. We suggested that there be a central buying agency of the gold from the syndicates that are now the main beneficiaries while the hardworking people die in poverty. We speak to the Zama Zamas on a daily basis and they are desperate, they want to be regulated and legislated for.”

Conclusion

The current situation demands cooperation and collaboration between the governments of South Africa and Lesotho. Rather than viewing the issue solely through a lens of blame and responsibility, both governments should work together to find sustainable solutions. By addressing the root causes of poverty and unemployment and providing legitimate opportunities for economic growth, it is possible to transform the Zama Zama issue from a source of conflict into a catalyst for positive change in the region.

Addressing the Zama Zama problem requires a multi-faceted approach, involving comprehensive legislation, cooperation between governments, and a focus on economic development. By acknowledging the potential of these artisanal miners and providing them with opportunities for legal and regulated work, South Africa can harness its mineral wealth to benefit its people and foster stronger relationships with its neighbours.

EU Rejects US Offer: Unravelling the Steel Tariff Dispute

Background

The US-EU trade dispute over steel and aluminium tariffs has been ongoing for several years, and there is no clear resolution in sight. The dispute began in 2018 when then-US President Donald Trump imposed tariffs on steel and aluminium imports from the EU, citing national security concerns. The EU responded with retaliatory tariffs on US goods including bourbon whiskey, Harley-Davidson motorcycles, and motorboats.

The two sides reached an agreement in October 2021 to end the dispute over steel and aluminium tariffs. The deal was a significant breakthrough. However, there are still significant disagreements between the two sides on how to define "sustainable steel" and how to enforce emissions standards.

Source: Economist Intelligence Unit

The US has proposed allowing club members to set their own emissions standards for steel production. This would give countries with lower emissions standards an unfair advantage, as they would be able to produce steel more cheaply. The EU has rejected this proposal, arguing that it would undermine the integrity of the Global Arrangement on Sustainable Steel and Aluminium (GSA).

Developments

Now, the EU and the US are at an impasse in their negotiations to end the tariffs on steel and aluminium. The EU has rejected a proposed US solution, saying that it is not WTO-compliant and discriminates in favour of domestic producers.

The dispute is also multifaceted. The EU has said that the US proposal would allow countries to set their own emissions standards for steel production, which would give them an unfair advantage. The US has said that its proposal is WTO-compliant and that it is necessary to protect American jobs. The two sides have also been unable to agree on how to define "green steel." The EU wants to include steel produced with EAF and DRI technology, while the US wants to include only steel produced with zero-carbon emissions.

The dispute is fuelled by several factors. One is the lack of a CO2 allowance trading system in the United States. The EU has heavily invested in the carbon border adjustment mechanism (CBAM) to protect its domestic steel industry, which is one of the biggest CO2 emitters in the world. However, the US steel industry is a much cleaner producer by international standards and relies more heavily on Electric Arc Furnace (EAF) and Direct Reduced Iron (DRI) technology than the European Union.

Another factor is the EU's apparent lack of interest in reducing its own steel capacity. The US government has a greater interest in fighting overcapacity, but the EU is more concerned with protecting the jobs of its steelworkers. This is especially true in Germany, one of the world's largest steel producers.

Implications

The outcome of the negotiations between the EU and the US on steel and aluminium tariffs will have a significant impact on the global steel market. The tariffs are 25% on steel and 10% on aluminium from Europe, while EU measures target products such as bourbon whiskey and Harley-Davidson motorcycles. If the two sides reach a deal, it could help to reduce tensions and prevent a trade war. However, if they cannot come to an agreement, the tariffs will go back into effect in October, which could disrupt the global steel market and lead to higher prices for consumers. The dispute is also a test of the strength of the WTO. If the two sides cannot reach a deal, it will be a blow to the WTO and could make it more challenging to resolve future trade disputes

However, the chances of an agreement are slim. The US is demanding that the EU reduce its steel capacity, while the EU is refusing to do so. The US is also concerned about the EU's carbon border adjustment mechanism (CBAM), which could give European steelmakers an unfair advantage. The US presidential elections in 2024 are also likely to make an agreement even more difficult. The current US administration is willing to make concessions to reach a deal, but the next administration may not be as willing. This means that the two sides may be unable to reach a deal before the tariffs go back into effect in October.

On July 20, the EU's trade commissioner reiterated his position that the US cannot resolve its steel dispute with Europe through a deal that discriminates against other countries. This underscores the challenge of finding a compromise to end the standoff. Ultimately, the outcome of the negotiations between the EU and the US on steel and aluminium tariffs is uncertain. If the two sides cannot reach a deal, it could have a significant impact on the global steel market and lead to higher prices for consumers.

India’s Rice Export Ban: ​​International Responsibility and the Climate Crisis

On the 20th of July 2023, the Government of India took a significant step to address its domestic food security concerns by imposing a prohibition on the export of non-Basmati white rice, including both semi and wholly-milled varieties. This assertive play comes amidst a pressing need to ensure an adequate food supply within the nation.

Source: Statista

A press release from the Ministry of Consumer Affairs states that it was implemented to “ensure adequate availability” and “allay the rise in prices in the domestic market.” The late arrival of monsoon rains forecasted a potential shortage. Since then, however, there have been heavy showers leading to extreme flooding in key rice-growing areas in North India,  ultimately destroying crop output. This has translated to a 14-15% domestic price rise of rice in the month of March itself. Furthermore, its stock-to-use ratio (a standardised ratio that measures stocks and gives insight into food security) will drop to its lowest point in 5 years. Combined with the high price of tomatoes (increased 340% year-to-date), the harsh reality of food insecurity has started to set in. The export ban is supposedly a strategic endeavour to showcase the current Prime Minister, Mr Modi’s prioritisation of food security before the upcoming union elections in 2024.  This move can be woven into the rise of resource nationalism, examined more closely by Danial Ahmed in a previous report, where he points towards the possible movement to soft commodities. In this context, Reuters has reported that contracts worth an estimated $1 billion could be at risk, indicating the certainty of this shift.

Source: The Hindu

With the already fragile global food market struggling through the repercussions of the ongoing crisis in Ukraine, analysts are concerned about the anticipated impact of this ban. India is the largest rice exporter globally, accounting for a staggering 40% of the rice trade with exports totalling 22.2 million tons. The country’s rice exports also surpass the combined total of the next four largest rice-exporting nations, which will not be able to meet the supply deficit from this ban, exacerbating the existing global food shortage crisis and putting additional pressure on food prices worldwide.

While the ongoing conflict in Ukraine disrupts agricultural production and exports, recently seen with Russia backing out of the UN brokered Black Seas grain deal, the sudden spike in basmati rice demand adds another layer of complexity to the global food insecurity puzzle. Furthermore, China, the largest rice producer in the world, but also the biggest grain importer, has had an abysmal monsoon with its soil moisture levels of the rice growing regions at a very low level, which will lead them to demand more rice for import due to a domestic shortage. This is due to the El Nino Phenomenon, which describes unusually warm waters in the Pacific Ocean impacting wind movement and therefore rainfall and will have more significant effects in the coming months.  The amalgamation of geopolitical tensions and climate-induced agricultural crises poses a grave threat to food availability and affordability worldwide. 

India’s rice ban also unequally targets the most vulnerable with top importers of Indian non-basmati rice including Benin, Bangladesh, Angola, Cameroon, Djibouti, Guinea, Ivory Coast, Kenya, and Nepal: all developing nations with poor historical food security trends. Considering historical evidence of India’s ban on wheat export and the wording of the notification, it might still continue to allow the sale of non-basmati rice to its neighbours. In this case, the market impact may be limited. However, considering the current government’s hardline posture, a hard ban with large implications for dependent countries is a possibility.

Source: The Hindu

That said, developed countries do not have it easy either; the large Indian diaspora (close to 18 million people) is allegedly panic buying Basmati rice as well, further deepening disparities in the global food shortage. In the United States especially, posts on Twitter(X) have shown large crowds and empty rice shelves, with some stores implementing a ‘Only 1 rice bag per family’ policy. This has exponentially increased Basmati rice prices in the US with a 9kg bag of rice selling at $27. The community fears a potential ban on Basmati Rice as well. 

However, Asian Rice Exporting Nations have been able to profit from this supply deficit; Thailand and Vietnam have both experienced a 5% rise in price since the ban. The price of Vietnam’s rice has surpassed its highest level since 2011 and Thailand’s is at a 2-year high. 

In conclusion, India's decision to impose a ban on the export of non-Basmati white rice marks a significant move with far-reaching implications. Driven by the urgency to secure its domestic food security needs, the government's action reflects its commitment to prioritising the well-being of its citizens amidst the challenges posed by climate-induced crises. It truly shows how in today’s world, all politics are climate politics

An EU Hope: Sourcing Critical Raw Materials from South America

In light of the Russian-Ukraine conflict, European countries have been facing a raw material supply crisis. Disrupted supply chains have significantly contributed to the rise in the price of critical minerals, causing lithium and cobalt to double and other essential energy commodities such as gas to increase 14-fold in price over the span of 3 years. The EU has sought new trade partners to mitigate price rises and reduce their dependence on countries such as China and the US, aiming to secure a sustainable supply chain of critical raw materials. The prime candidates for this venture have been South American countries, a region with cultural and historic ties to the EU. Countries in this region are characterised by an abundance of natural resources and arable land, and their economic reliance on commodity exports provides an incentive to create trade partnerships. As a consequence, recent years have seen efforts to develop bilateral relations and trade in goods and services with the EU.

Recent Developments

The most recent development in the EU’s bid to secure critical raw materials has been intensified cooperation with Argentina. President Alberto Fernández and European Commission head Ursula von der Leyen signed a memorandum on June 13 to expand cooperation between Argentina and the European Union in sustainable value chains of critical raw materials. The goal of the agreement is to guarantee a steady and sustainable supply of commodities needed to ensure the clean energy transition, namely minerals, for European countries. The agreement is collaborative in nature, as the EU plans to invest in research and innovation in Argentina, with a special focus on minimising the climate footprint of extractive activities such as mining. While the EU secures a steady inflow of commodities, Argentina profits from quality job creation, increased sustainability, and economic growth from commodity exports, boosting its staggering economy.

Mercosur

Argentina, along with eleven other South American countries, make up the regional trade bloc Mercado Común del Sur (Mercosur). Trade between the EU and Mercosur is plentiful, with the EU being Mercosur's largest trade and investment partner. As of 2021, the EU exported €45 billion to and imported €43 billion from Mercosur. The EU imports mostly mineral and vegetable commodities and exports machinery, appliances, chemicals, and pharmaceutical products. In 2019, the EU sought to intensify this partnership by establishing a political agreement with decreased trade frictions, namely tariffs for small and medium sized enterprises, creating stable rules for trade and investment, and establishing environmental regulations and policies in all Mercosur countries. This agreement, however, has remained in a provisional stage ever since, as efforts to reach a consensus have been stunted by certain conflicting interests.

Graphical Representation of Main EU Imports from Mercosur from 2011 to 2021 

Source: Eurostat

Cooperation Friction

There are various conflicting interests that prevent this deal from going through. For one, Brazil, Mercosur's largest economy, has plans for intensified cooperation with China, one of its main trade partners. Argentina has also increased cooperation with China in recent years, adding to tensions in EU relations. Brazilian President Luiz Inacio Lula da Silva, the current Mercosur president, has also expressed his disapproval of the proposed agreement. Brazil has had intense deforestation in recent years, and although the current Brazilian presidency has decreased these efforts, policies proposed by the EU in the agreement would interfere with domestic policy and development in their agricultural production. Various clauses prohibit the export of products from deforested areas, demand strict labour laws, and provide public procurement rights to EU and Mercosur companies, limiting the Brazilian government's agricultural and industrial policies and weakening its ability to control domestic production autonomously. Lula has taken a stand against this interference and denounces the agreement for reducing South American countries to indefinite commodity suppliers to Europe. 

Various producers in European countries have also voiced their discontent with the deal. With lower commodity prices arising from reduced tariffs and trade restrictions, farmers and raw material producers in these countries would face extremely low prices and struggle to remain competitive. In France, local farmers fear losing profits as a result of an inflow of cheap imported beef. Despite expressing their interest in creating exceptions for agricultural products, farmers know these provisions would be unpopular with Mercosur producers and are thus unlikely to be included in the agreement. Although these farmers’ influence is not as prominent as that of other actors, protests and disruptions have been a cause for concern in the past. There is the possibility of further aggravating the current clashes over pension reforms, which place the French government in a delicate situation. EU member states could face scrutiny if the pact goes through for neglecting local producers and destroying domestic markets, although this might be a risk governments are willing to take in order to secure energy commodities.

Environmentalist organisations also oppose the agreement. Greenpeace has encouraged protests in Brussels against the "poisonous treaty" that aims to increase trade in environmentally detrimental commodities. A particular disapproval of the lower export prices of pesticides was cited in their protests, along with the more pressing matter of deforestation for cultivation in Brazil. These perspectives are shared by various member states in the EU, and their combined efforts have provided advances in the vein of sustainability. In various dealings, member states such as Austria, France, Ireland, Luxembourg, and Belgium have advocated for enforceable provisions regarding environmental issues, and their veto power places pressure on other member states to comply.

Future Prospects

The EU’s most recent supply acquisition, Argentina, will soon face political change that could affect their cooperation. Unlike Lula, who has three years left in his term, Argentine President Alberto Fernandez will be out of office as of December of this year, and the new government could increase friction in the agreement. Various candidate parties in Argentina have ideologies that differ greatly from Lula’s left-leaning policies, and their contrasting economic plans could decrease both bilateral relations and cooperation in Mercosur. Furthermore, the Mercosur deal, along with the bilateral agreement between Argentina and the EU, stipulates environmental policies and regulations for the country’s extractive activities that could slow their development. With Argentina planning on hastily developing oil and gas extraction in Vaca Muerta, these stipulations could very well be violated and harm both deals with the EU. This applies to many Mercosur countries that rely on primary activities but also want to develop other sectors that may have negative environmental impacts, namely industrial production. With economic growth being the main focus of Mercosur states, it is unlikely that they will accept a deal that would hinder development of any kind.

As seen, the political inclinations and plans for economic development of each Mercosur country have vast implications for the bloc’s ability to close a deal with the EU. With Lula’s rise to power, a change in government policy, in this case a decrease in deforestation, favoured the EU’s intention of creating a clean energy supply chain and reinvigorated expectations for cooperation. Nonetheless, the environmental implications of most Mercosur countries’ production models and their cooperation with countries like Russia and China create distrust between both blocs and stunt advances in the agreement. It seems that the EU’s inability to renegotiate environmental policy due to pressure from environmentalist organisations and specific member states will require a complacent Mercosur to finalise dealings. Although the possibility of splitting the agreement into two different parts exists, thus circumventing sustainability policy, it is unlikely the bloc will follow this path as it would aggravate various member states. Mercosur’s strong conviction for sovereignty will prevent them from accepting the stringent regulations currently proposed by the EU, and the EU’s apparent unwillingness to cede certain stipulations will further aggravate tensions between blocs and cause dealings to remain stagnant. With many South American countries undertaking long-haul projects on agricultural production and extractive activities with potential environmental implications, such as Argentina’s 10-year oil pipeline investment, the agreement will likely continue to face conflicts for the next two to five years. Although Lula promised at the July summit with the EU to deliver a definite proposal that is “easy to accept” soon, his declarations against the last draft’s stringent nature put into question whether this version will comply with the requirements stipulated by the EU. As demand from alternative countries like China grows, Mercosur will be less inclined to accept terms that harm its development, causing dealings to drag on until the EU complies.

Examining the rise of Resource Nationalism

Recently, China’s Zhejiang Huayou Cobalt company approved plans for a new $300m lithium processing plant in Zimbabwe. The company is aggressively expanding operations in line with CCP foreign policy, consolidating rare earth resources and the infrastructure needed to process them. The investment comes after the China-based firm purchased the Arcadia hard rock deposit from Australian Prospect Resources for $422m last year. It now brings total investment by Chinese firms in Zimbabwe to over $1 billion since 2021. However, it also raises the potential benefits that resource nationalism may bring to nations, particularly those in Africa.

That is because the investment comes on the heels of recent Zimbabwean export bans on lower grades of lithium and raw lithium ores in an effort to nationalise its lithium production. In December of 2022, Zimbabwean mining minister Winston Chitando stated that ‘no lithium-bearing ores or un-fabricated lithium shall be exported from Zimbabwe to another country except under the written permission of the minister’. This move was further galvanised by the incorporation of a larger group of ‘Approved Processing Plants’ by the government, which means that any firms looking to invest in lithium operations will have to invest in Zimbabwean infrastructure in order to do business. Furthermore,in addition to relying on government approved facilities, the mining firms will have to follow the prices set by the MMCZ when selling their raw ore to processing plants. 

This twofold measure not only confines the entire lithium extraction and refinement process to Zimbabwe, but also pressures foreign firms to have more vested stakes in the development of Zimbabwe. These measures have had no negative impact in Zimbabwe, as foreign investments have shown no signs of slowing. Zimbabwe is quickly reaching its target of $12 billion in production, with future plans to surpass that target in the coming years. This move by Zimbabwe, which is the 6th largest lithium miner globally,further cements the growing wave of resource bans that have become a popular way of raising revenue and encouraging passive investment in infrastructure at little cost.

Zimbabwe is an example in a growing group of nations who are racing to nationalise and control their natural resources. In the Americas, Mexico and Chile recently nationalised their lithium resources and now have total control over the extraction and refinement of the metal, which has allowed them to enjoy considerable economic benefits, in addition to increased infrastructure and employment. Whilst African and South American countries are consolidating their mineral deposits, Asian countries have also joined the fray. In 2020, Indonesia instituted a nickel ore export ban after a six-year debate. Since doing so, it has increased its smelting facilities from 2 to 13 and increased the value of Indonesia’s nickel exports from $57m in 2020, to $750m in just three years.These  

By looking at these cases, there seems to be an ironclad case for resource nationalism, which has seen a resurgence owing to the rise of China as a key economic player. Both Chile and Mexico are relying on Chinese investment and demand, whilst Indonesia’s key infrastructure was developed as a part of the ‘Belt and Road’ initiative.

The role of Covid-19, however, cannot be ignored either, as the pandemic persuaded many countries to nationalise their resources. Additionally, in the case of Chile and Mexico, there is a strong nationalist presence that demands the state have more control over mineral resources. Issues around resource policy became more prevalent during the pandemic, where resource and capital uncertainty pushed some nations to pursue more nationalistic agendas in regards to their resources.

The overall picture of resource nationalism seems to be a positive one, with countries that nationalised seeing a rise in revenue and infrastructure, with the latter being more important to allow for future economic expansion. Other nations have also moved to introduce resource bans. The move to curb artisanal mining has proven to be a positive one, but it could potentially fuel a rise in global prices and lead to more intense resource competition. 

There also are other potential complications that arise from resource nationalisation. In particular, the example of the DRC is one to be cautious of for prospective nations. After implementing their new Mining Code in 2018, the government gained more power to tax and intervene in the mining industry. This led to increased taxation, intervention and corruption as the government became more involved in the mining industry. This was seen when the Congolese government suddenly began revoking permits for mining projects, which resulted in a drop in activity and even legal action in the case of Sundance Resources.However, it should be noted that this did little to slow the creation of new mining ventures or operations, with the government granting 3053 different mining-related permits. In addition, the value of exports have risen since the law was implemented, showing that despite the challenges faced by the law, companies are still willing to engage in activity in the region.

Resource nationalism is gaining more popularity and continues to be a tested source of revenue generation for nations that are already invested in mining and metal industries. With current trends, it would stand to reason that resource nationalism could spread to soft commodities, as states look for ways they can expand their revenue and infrastructure more passively through legislation and private market action. 

Decoding TotalEnergies’s massive $27 billion dollar deal with Iraq

On the 10th of July 2023, French major oil company TotalEnergies and the Iraqi government finally signed a much delayed $27 billion dollar energy deal, directed towards increasing the country’s oil production capacities by developing four oil, gas, and renewable projects. The signing of the deal, named the Gas Growth Integrated Project, took much longer than expected owing to several key reasons. First, a number of Shi'ite lawmakers had also cried foul over the deal, pointing to the lack of transparency and absence of bids from other oil companies. Another significant setback in the initial days of negotiation arose from TotalEnergies rejecting the now abolished Iraq's National Oil Company (INOC) as its partner in the project, mainly due to its lack of full legal status from the new Iraqi government. Iraq’s state owned Basrah Oil (BOC) will now be a partner in the project. The main hindrance to the project stemmed from sharing of revenues, which was finally resolved when Iraq agreed to take a stake in the project of 30 percent, in place of initial demand of 40 percent, giving majority stake to the French company. 

Despite initial hiccups, the deal is seen as a welcome move both overseas and at home, one that will optimistically put Iraq on the path towards achieving energy sufficiency and helping to improve the business climate and attract further foreign investment. Iraq holds the world’s fifth largest proven oil reserves at 145 billion barrels, representing 8.4 percent of global reserves. Iraq’s potential as an oil producing nation has been held back due to years of sectarian violence, lack of transparency, governance, and poor environmental laws, leading to the withdrawal of many oil majors from the country. Exxon Mobil, Shell and BP  have all scaled back their operations in recent years.

The launch of the Gas Growth Integrated Project is a watershed moment in Iraq’s history. The deal will see TotalEnergies intensify its efforts to increase gas production in the Ratawi field in the oil rich Basra region. This will help reduce Iraq’s reliance on gas imports from neighbouring Iran. For a long period of time, Iraq has relied on its neighbour for electricity and gas imports. Iran uses this as a leverage to exert influence on Iraqi politics. Iran, in the past and in the present, funds the training of the Popular Mobilization Forces, a paramilitary group trained to flush out the remaining US troops and anti-Iranian Kurdish elements that have operated in the northern region of the country. All of Iran’s initiatives are aimed towards keeping Iraqi and the American governments on its heels and exerting its influence in the region where the US has sought, from time to time to forge alliances and partnerships in order to nullify Iranian clout. Iran is a significant partner for Iraq in terms of trade and development prospects, with the latest breakthrough being in the railways sector. An MOU had been signed in March 2023, outlining executive procedures for establishing a rail connection between the two countries. Iran is making significant inroads into Iraq's economic landscape, creating an opportunity to invalidate America’s significant investments in the region. Iran’s economically driven shrewd tactics, such as these, will likely help to negate the US influence in the region as a whole and compel the US to rethink on its sanctions against Iran given that the commercial interests are at stake.

It appears that the US has also sought help from its Middle Eastern allies to hold back Iran’s ascendancy into Iraqi soil. Keeping its political differences aside, Saudi Arabia’s ACWA has agreed to develop The 1 GW solar power plant project in collaboration with TotalEnergies. The project seems to be part of the Iraqi government’s long term plan of solving electricity supply woes through installation of renewable sources. A portion of the revenue generated from the Gas Growth Integrated Project will be used by the French company to fund three additional projects: 1 GW solar power plant; a 600 million cubic feet a day gas processing facility, and a seawater project to boost Iraq’s southern oil production. 

From the outside, the establishment of the solar power plant is a welcome move towards advancing Iraq on the path of self-sufficiency through sustainable modes of energy production. At the same time, it also appears to be a well crafted move by the Iraqi leadership to deviate attention from the environmental hazards that oil majors in Iraq have already created over a substantial period of time. Prior western oil majors have caused significant water shortages and pollution during its operations. The same environmentally catastrophic outcomes are likely to happen when TotalEnergies drives its efforts to increase production in the Ratawi oil field. 

Past records also demonstrate that plants used by oil companies including BP and ExxonMobil accounted for 25% of the daily water consumption in a region of almost 5 million people. This leaves significantly less water for agriculture and other activities upon which the local rural communities are dependent upon. The harmful affluents emitted as a result of gas production has already affected the health of the residents in Iraq’s Basra region, with cancer rates having significantly grown in the region. While the deal has been projected to herald a new dawn in Iraq’s history, what remains to be seen is the possibility of the deal causing more harm than good to the Iraqi people in the long run. 

Gallium and Germanium: Pioneers in China's Export Ban

From August 1, 2023, China has announced a ban on the export of gallium and germanium along with their chemical compounds. As per the Critical Raw Materials Alliance, China produces 60% of the world’s germanium and 80% of gallium. Both these metals in question have heavy industrial uses such as in defence, semiconductors and communication equipment. Gallium and germanium, however, are extracted as by-products of aluminium and zinc - metals of which China is largest global exporter - which means that alternative sourcing and supply chain diversification becomes difficult.

China’s export ban stems from the US-led restrictions on the export of semiconductors and related equipment to China. It also comes in the wake of restrictions heralded by Japan and Netherlands against the export of of chip making equipment to China. Given the momentum to diversify supply chains from the world’s largest manufacturer, countries such as Belgium, Canada, Germany, Japan, Ukraine, South Korea, Russia and Germany have been identified as potential sources to produce gallium and germanium. India on the other hand has been identified as a potential destination to take over China’s sway in manufacturing of semiconductors. Such developments present a cue from Kaname Akamatsu’s ‘Flying Geese Model’ that promotes diversification of supply chains. With Taiwan Semiconductor Manufacturing Co allocating resources to develop semiconductor plants in Japan and the USA, plans to cut China’s dominance in chip making have already been rolled out. However, hiccups exist as despite the passage of the CHIPS and Science Act in the US, suppliers based in South Korea and Taiwan remain reluctant to shift their manufacturing bases outside of China given their large-escale investments in the country. Also, the recent protectionist measures unleashed by the US have accentuated concerns about the stability in supply chains as trade and military tensions rise between the globe’s two major economies. 

Although considered a ban, experts opine that China’s ban is more limited in scope as it requires exporters to apply for licences and report details of overseas buyers and their applications. The ban has been identified as a means of retaliation that the Chinese government is willing to take to secure its national interests. China has previously used trade restrictions to sustain its downstream industries and has also faced legal hurdles at the WTO. In the wake of such rising trade restrictions announced by several countries, an examination of Article XI of the General Agreement on Tariffs and Trade (GATT) under the WTO allows for the temporary application of export controls to relieve critical shortage of the commodity in question. In the realm of politics, nation-states tend to manipulate this concept of ‘temporary application’ by laying claim to Article XXI. Article XXI gives WTO members absolute sway in implementing their respective trade restrictions by justifying their policies as crucial to ‘essential security interests’. 

As legislative enactments promoting export control gathers stream across economies, the concept of balancing stakeholder interests both upstream and downstream becomes challenging due to geopolitical issues. Contingency planning, diversification in sourcing and procurement, establishing manufacturing plants outside traditional locations, etc. may become the norm in the future as businesses swim through the ripple effects of deglobalisation policies.

“De-dollarization” – A Teaser

In February 2023, the yuan’s share of global trade increased to 4.5% — close to the Euro at 6% — from less than 2% no longer than a year ago. Simultaneously, the dollar share of central bank foreign reserves fell to a 20-year low of 58% in the same period (IMF). This situation followed the sweeping sanctions imposed by the West on Russia after its invasion of Ukraine, notably freezing Russian dollar reserves through the SWIFT payment system. The financial blockade has naturally led Russia to seek alternatives to the dollar to conduct international trade, rapidly making the Chinese yuan the most traded foreign currency on the Russian exchange.

Beyond Russia, Western sanctions have acted as a shock therapy for emerging economies, with numerous countries announcing their intentions to diversify their currency usage, and multiplying bilateral trade agreements denominated in their own currencies. For instance, Saudi Arabia has reportedly entered into active talks with China to price some of its oil sales in yuan. Similarly, Brazil has positioned the yuan as the second foreign reserve currency, ahead of the Euro, while Banco BOCOM BBM—a Brazilian bank controlled by China's Bank of Communications—became the first bank in Latin America to sign up as a direct participant in China's competing settlement agreement, CIPS, in March 2023. India is also slowly departing from the dollar, multiplying regional trade agreements settled in its own currency.

This movement away from the dollar system reignited the debate around “de-dollarization,” an hypothesis which has featured economic debates since former US President Richard Nixon upended the original Bretton Woods agreements in 1971. However, macroeconomics pundits call for moderation: Money is first and foremost a game of trust, it requires users’ confidence to work. Countries do not hold a foreign currency if their trade partners are unlikely to accept it as payment for their exported goods. On this benchmark, the US dollar is expected to remain the game in town in absence of deep structural changes. Indeed, its closest competitor—the Chinese yuan—is a closed currency: It cannot be exchanged for other currencies without the CCP’s approval, which maintains a tight control over international capital flows. This fundamentally limits the ability for central banks to accumulate yuan as reserve and to use it to trade internationally. As the liberalization of the Chinese financial system would pose major challenges on its economic governance, most believe that the convertibility of the yuan represents an unrealistic scenario for the foreseeable future.

Yet, the underlying trend seems to be clear: BRICS countries are gradually developing into a trading alliance. On August 22nd, the BRICS will hold a meeting in South Africa to explore the possibility of introducing a new shared currency. Such a solution would tackle one of the main impediments of de-dollarization through bilateral agreements. Through a shared currency, the BRICS would tap into a geographically diversified basket of commodities and manufactured goods, making a compelling argument for parking said-shared currency as a central bank foreign reserve, rather than converting it back to US dollars or Euros for international trade.

Would this shared currency be a credible threat to the US dollar in the long-run? Yes. Under its current organization, BRICS countries have outgrown the G7 on a PPP basis. Their geographical diversity would allow a level of self-sufficiency and production range beyond current monetary unions such as the Eurozone, while BRICS’ combined trade surplus would underpin the currency’s stability (FP). Furthermore, as regional economic powerhouses, BRICS could influence their local trade partners to adopt their currency, allowing goods to circumvent any potential bilateral trade restrictions through third countries, thus ensuring global trade continuity. With 19 other commodity-rich countries—such as Argentina, Iran, Egypt, Indonesia, and, most importantly, Saudi Arabia—interested in becoming part of the BRICS association, the challenge to dollar hegemony appears increasingly tangible.

To achieve global acceptance, the BRICS would need to demonstrate successful joint currency management. This would, evidently, be a long and challenging undertaking for the BRICS. However, initial steps toward this vision have already been taken with the creation of the BRICS Interbank Cooperation Mechanism and BRICS Pay, a cross-border payment system that avoids conversion to dollars, while talks of aligning Central Bank Digital Currencies have also been floated. While past efforts to establish ambitious projects have often fallen short of expectations, such as the BRICS credit rating agency or the BRICS’ New Development Bank, the group remains steadfast on de-dollarization, having a history of overcoming internal crises. Despite significant upheavals between its members, the BRICS group has intensified its collaboration and persistently expanded the breadth of policy matters it tackles, a phenomenon which should sound familiar to our European readers. Having now identified de-dollarization as a common goal, it appears unlikely that the group deviates from its trajectory.

On July 7th, the Russian Embassy in Kenya declared on Twitter that “the BRICS countries are planning to introduce a new trading currency, which will be backed by gold,” propelling the yellow metal to $1954 per ounce, along with silver. While Russia’s bombastic announcements should be approached with caution, this path is not unlikely. By tying their currency to gold, BRICS countries could introduce a degree of confidence into their shared currency, harkening back to pre-Bretton Woods monetary arrangements. In today’s fragmented international order, commodities are reclaiming the center stage, as global demand for resources surges amid industrial onshoring, and increased emphases on energy transition and energy security in advanced economies. Those emerging needs are pushing nations to secure strategic reserves and developing their local processing capacities, thereby reshaping antiquated trade dynamics. In this scenario, commodity-rich countries, once sidelined, are finding themselves in positions of increased influence against debt-laden, service economies. As investors reinterpret what constitutes a good sovereign debt collateral, a shift from fiat back to a commodity-backed monetary system could provide the necessary impetus for the BRICS shared currency plan to gain traction and begin the slow erosion of dollar dominance.

Regardless of what will come out of the next BRICS meeting, stay posted for the next joint release from London Politica Global Commodities Watch and Business and Market Watch. We will explore in depth the likelihood, as well as the consequences, of de-dollarization on world politics.

Catching Up to The Rat Race: Operation Expansion in Vaca Muerta

Argentina is home to the second and fourth largest non-conventional shale oil and gas deposits in the world, respectively. Known as Vaca Muerta, this shale field spans over 7.5 million acres and harbours around 308 trillion cubic feet of non-conventional gas and an estimated 16.2 billion barrels of oil. Since extraction activities began in 2011, Vaca Muerta has been the subject of political and social strife, causing setbacks in production and infrastructure development, preventing it from reaching its output potential. In recent years, joint efforts from the Argentine government with gas and oil companies, namely Yacimientos Petrolíferos Fiscales (YPF), Exxon and Petronas, have reinvigorated expectations for a new 'shale boom'.

YPF’s Ambitions

At the forefront of production revitalisation efforts lies the majority state-owned company YPF. Earlier this March, the energy company announced their five-year plan to double their oil output and raise natural gas production by 30% through the expansion of operations in Vaca Muerta. Of the $5 billion in capital expenditure guidance put forth by the company, $2.3 billion will be allocated to operation expansions in Vaca Muerta. 

Nearly $700 million will be invested in infrastructure to support the growth in output, namely oil and gas facilities, with the main growth expected in unconventional reservoirs. YPF has also partnered with major oil superpowers on various projects. Shell revealed plans to invest $300 million in YPF's five year plan, seeking to reach daily production of 15,000 barrels by 2024. A $10 billion joint venture with Petronas will develop a 640 km pipeline from Vaca Muerta to the Buenos Aires province, connecting with the north pipeline systems. This pipeline will be concluded in 10 years and will provide a liquified natural gas (LNG) capacity of 25 million tons per year.

On June 20 2023, the construction of the Presidente Nestor Kirchner (PNK) pipeline began, requiring a $2.7 billion investment that will allow a daily gas transport increment of 11 million cubic metres. This investment is arguably the most important development in terms of infrastructure, as it will provide ease of transport within Argentina to neighbouring countries. This represents the Argentine government’s ambition to make Argentina an energy exporter, establishing itself as the main gas and oil provider to South American countries.

Illustration of Presidente Nestor Kirchner Gas Pipeline (Yellow Line)

Source: Energía Argentina

Shale Déjà Vu

Vaca Muerta has been touted as the protagonist of a new Shale boom by many, yet its performance as of late has contradicted these bold claims. Unlike the United States, site of the latest Shale revolution, Argentina struggles with immense political risk and economic instability. In this year alone, annual inflation is forecast at 146%, and the economy is set to shrink by 3% relative to 2022. The country is extremely polarised and ideologically divided, causing parties with conflicting ideals to come into power and then deviate from the previous governments' efforts. This lack of consistency and stability has led to various defaults, rising deficits, and stagnant projects that have inhibited the growth of the oil and gas extraction sector.

The Argentine shale reserves are comparable to the US', with an estimated 30 billion fewer recoverable oil barrels and 137 trillion more cubic feet of shale gas. It was the US’ superior pipeline infrastructure and favourable government policy, however, that facilitated its shale expansion. Current estimates provided by McKinsey & Company place Vaca  Muerta breakeven prices at $36 per barrel of oil and $1.6 per million British thermal units for gas, providing ample opportunity for investment  payoff. The current potential output of shale reserves in Vaca Muerta far exceeds the capacity of pipelines and extraction systems. In fact, production is already overwhelming workers in extraction facilities, and the expansion initiatives will only be able to meet output growth in the long run. The US, on the other hand, was able to expand its pipeline infrastructure to meet growth and output standards. The use of subsidies, tax credits, and reductions in drilling expenses also provided increased profitability that drove investments and allowed drilling operations to grow rapidly in the US. The previous Argentine government changed the interpretation of subsidies and removed support from energy companies, causing millions in losses for foreign companies. The current government has reinstated many subsidies to the sector, yet these changes between governments cause uncertainty that deters foreign investment and opportunities for growth. 

Risks

Argentina is set to have elections in October, where the country will change its president, vice president, members of Congress, and governors. The current president has announced he will not run for president, and the remaining prospective political parties differ greatly in their approaches to governance. The fierce opposition between these parties will generate issues within Congress and make passing laws and approving state projects more difficult, potentially harming government projects or regulation changes to incentivise growth in Vaca Muerta. One of the main presidential candidates, Javier Milei, has voiced his plan to completely privatise YPF to prevent it from being used as a political tool. His plans for Vaca Muerta include implementing a consistent long-term production growth plan that alters the legal framework of the sector. This approach aims to reduce the power of the government, much like many of his other policies, and clashes greatly with the other political parties. The main opposition party, Juntos Por El Cambio, aims to foster the sector's growth by increasing the government's involvement in the form of subsidies and state investments, ultimately driving economic growth. The differences between candidates, and the current economic conditions, create uncertainty that makes Vaca Muerta a poor investment choice for many. Fear of privatisation also weighs on the sector, as a reduction of the state’s involvement would interfere with the current pipeline projects that are dependent on government funding.

For years on end, local indigenous people have voiced their disapproval of oil and gas extraction activities in Vaca Muerta. The Mapuche people have asked the government to review their plans for the new PNK pipeline to make sure it does not interfere with indigenous communities. Their concern for the environmental impact of these activities is also shared by various activist groups. Although the issue has not caught the attention of international organisations yet, many anti-fracking associations have begun to take notice. Various domestic activist groups, such as Greenpeace and Confederación Mapuche de Neuquén, have worked in cohort with local communities to cause disruptions by blocking extraction and construction sites, resulting in great losses in production. The construction of new pipelines has greatly aggravated these groups, promising issues in the near future. The extraction sector relies heavily on these pipelines, so the vulnerability to protests and further delays in construction is extremely high.

Recently, the International Rights of Nature Tribunal opened a case against fracking activities in Vaca Muerta. A delegation of the organisation concluded their visit to Vaca Muerta and presented their findings to the Deputy Chamber of the Argentine National Congress. In the presentation, the delegation highlighted water pollution, lack of water availability, damage to wildlife, and loss of fertile land in Rio Negro and Neuquen were a direct result of extraction activities. This initiative is one of many attempts to pressure Congress to enact laws that will safeguard the environment and surrounding indigenous communities. The laws and regulations that could result from these efforts would hinder extraction activities by disincentivizing companies from investing in the region through legal and financial sanctions, greatly impacting the development and profitability of the Vaca Muerta project. As extraction operations continue to expand and oil and gas production increases, these groups will likely intensify their efforts and take advantage of the delicate break-even balance of projects to pressure relevant authorities.

Future Prospects

Argentina still has the chance of experiencing a shale boom. All major political parties have expressed their interest in developing Vaca Muerta to facilitate the country’s economic recovery, although their methods differ. Taking the US as an example would suggest that parties that increase subsidies and tax breaks would be the most successful, but Argentina’s situation differs vastly from the US and should not follow the same exact path. Both approaches to expansion, privatisation and increased government involvement, seek to foster growth and monetise Vaca Muerta to establish Argentina as a shale powerhouse. As long as the government’s ambitions remain constant and funds don’t falter, a path to growth is possible.

Iran to begin revamp of Venezuela’s largest refinery complex

Iran’s 100-day revamp of Venezuela’s largest refinery complex signals a commitment by Venezuela to end reliance on U.S. refinery technology whilst strengthening ties with Iran. Additionally, it provides Maduro with the opportunity to boost his domestic popularity by bringing the nation out of economic despair. 

The €460 million contract will see Petroleos de Venezuela (PDVSA) and the National Iranian Oil Refining and Distribution Company (NIORDIC) working together to revamp the Paraguana refinery complex on the coast of western Venezuela in an effort to restore its crude distillation capacity and boost fuel output. Also included in the revamp is a project aimed at restoring the complex’s power supply. Technicians from the Islamic Republic are considering adding upgraded crude from the Petromangas project, a PDVSA joint venture with Russian state-owned company Roszarubezhneft. NIORDIC will outsource work and hire contractors to repair five of the nine distillation units, which do the primary refining of crude oil. Iran will be procuring the parts, overseeing the installation and handling the inspection before PDVSA oversees the refinery’s operations. In May, a €110 million contract was signed to repair Venezuela’s smallest refinery, El Palito, situated in the centre of the country, a project which is currently underway. 

Despite having the largest crude reserves in the world, Venezuela has struggled producing oil products like gasoline due to a lack of investment, refinery outages, and U.S. sanctions. Since 2020, long lines at gasoline stations have been common. The relationship between Iran and Venezuela began under President Chavez when Iran established a plant to produce Iranian bicycles in Venezuela. Iran and Venezuela’s alliance has strengthened in recent years in order to overcome U.S. sanctions. Both nations are seen by the U.S. as sponsors of terrorism and human rights violators. NIORDIC has been sanctioned by the U.S. due to its use of oil to support the Islamic Revolutionary Guard Corps. Prior to the 2017 sanctions, Venezuela’s oil output was 1.9 million bpd before falling to 350,000 bpd in the second half of 2020.

Source: Hart Energy

Iran has provided Venezuela with crude and condensate as well as parts and feedstock for its ageing 1.3 million barrel per day (b/d) oil refining network. Additionally, Iran has also sent multiple fuel tankers to Venezuela to help them cope with the lack of gasoline; Maduro has used gold to pay for Tehran’s services. The Islamic Republic has been of fundamental importance in helping Venezuela boost its severely weakened petrochemical industry and wider economy. Relations between the countries extend beyond commodities as there has been an increase in military cooperation over the years. Qassem Soleimani, late commander of the Islamic Revolutionary Guard Corps, visited Caracas in 2019 to help with the establishment of revolutionary militias and the country’s military industrialisation.

The revamp of Venezuela’s largest refinery complex will see the use of Chinese and Iranian parts and equipment in refineries originally built with US technology. Difficulties may arise with the integration of old and new components. The distillation plants must be online for the refinery to work but Venezuela will have to consider the need for chemical products that the plants require, like catalysts and antifoaming agents, which are manufactured in the United States, in order to carry out modifications and replacement of parts in the distillation units. In the last year, technicians from Iran have inspected the refineries several times in preparation for the 400 Iranian workers who are set to work alongside 1,000-1,500 local Venezuelan staff and contractors. PDVSA sent home hundreds of Venezuelan workers to make way for Iranian technicians during the El Palito revamp which triggered protests, indicating that discontent among Venezuelan workers will be a likely source of contention again. 

International actors view Iran and Venezuela’s alliance as a hindrance to Western values and many see the Latin American nation as simply a base to develop operations to access international markets due to its privileged geographical location. Maduro wants Venezuela to have a relationship with the United States whilst also becoming a partner of the Russians and Iranians, in the process learning how to avoid U.S. sanctions. This seems unlikely, especially given Western hostility towards Russia amidst the invasion of Ukraine and due to the firm relationship Venezuela has built up with Iran over the years. The most likely scenario is that the U.S. will push back against warmer relations with Venezuela due to its growing relationship with Western adversaries Iran and Russia. Since 2017, Venezuela has faced over 350 sanctions from the U.S. and it is probable that more will follow thanks to growing authoritarianism and a lack of political concessions. 

Domestically, if challenges are mitigated, a successful revamp will yield the results that Venezuela is in dire need of. Following the mid-June restart of the 150,000 b/d crude upgrader operated by PDVSA and Roszarubezhneft which turns extra heavy oil into exportable grades, Venezuelan exports have surpassed 700,000 b/d. Exports have primarily gone to China with Iran receiving 131,000 b/d of crude and fuel oil last month and Cuba receiving 75,000 b/d last month. Consequently, Chevron’s exports fell slightly to 134,000 b/d compared to 150,000 b/d in May. If the Paraguana refinery complex is able to start producing fuels again, this will build upon the success of the Petromangas project. Venezuela will be able to boost its fuel output and export diesel and gasoline at higher levels. Exports will go to the United States as part of a 6-month deal with Chevron, and to allies China, Iran, and Cuba. This will have ramifications for the international market as it will increase the fuel supply, much to the benefit of Western countries that have faced shortages in the fallout of Russia’s invasion of Ukraine. The refinery’s return will bring additional wealth to the Latin American nation, but if lavish spending at the hands of Maduro continues, and minimal efforts are made to alleviate the effects of sanctions, domestic discontent will grow, and the President will see his popularity plunge. 

“Protecting America's Strategic Petroleum Reserve from China Act”: Assessing the US Congress’ new idea for depleting Chinese oil markets

On January 12, 2023, the United States House of Representatives passed Bill H.R. 8488, titled the "Protecting America's Strategic Petroleum Reserve from China Act." If enacted, the legislation would prevent the Secretary of Energy from exporting the US strategic petroleum reserve (SPR) “to any entity under the ownership, control, or influence of the Chinese Communist Party”.

The bill received approval with 331 favourable votes and is currently awaiting deliberation by the Senate ever since. The Upper House can either reject or approve the bill and if approved, it would proceed to the President for consideration. This spotlight attempts to clarify the potential impacts on China (if any) in case the Act ever becomes law and restricts its access to imported SPR reserves.

The road ahead on Capitol Hill

The Bill had significant bipartisan support in the Lower House to secure a comfortable majority, with all the 218 present Republicans and about half (113) of present Democrats voting “yes”. Analyst Benjamin Salisbury from Height Capital Markets argues that approval in the Senate might not be so smooth as the Upper House is controlled by Democrats, but it’s still feasible under “tough compromises” - and under greater pressure from voters for a stronger stance against China. The greatest obstacle, however, might arise from the President's Office

President Joe Biden has been depleting the SPRs at an unprecedentedly faster pace to manage oil prices driven up by the war in Ukraine. However, some argue that the move is more about political concerns involved in alleviating inflationary pressures on fuel ahead of an election year.  Since the SPRs are only meant to be used in times of great uncertainty and with due restraint - only enough to secure minimal levels of energetic security - critics point out that the President might be compromising the country’s long-term energetic security for short-term political gains. From this point of view, the Executive would hardly sanction a bill that would constrain its influence on oil markets.

But even in a scenario where the Act is approved by both the Legislative and Executive branches, current data suggests that its effects on China’s energy markets are likely to be minimal.

How will China be impacted?
China is the world’s second-largest consumer of crude oil in total volume, and the commodity accounts for roughly 20% of the country’s total energy generation. This figure is roughly comparable to other large emerging economies like India (23%) and Russia (19%). Nevertheless, China represented only one-fifth of the total foreign purchases of SPR released in 2022, while the US itself accounts for only 2% of China’s total crude imports.

Source: S&P Global Commodity Insight

As evident from the chart above, China depends more on oil producers in the Middle East and Eurasia and has concentrated its diplomatic efforts accordingly. It has expanded economic and financial ties with Saudi Arabia, mediated an agreement with Iran, and continues to purchase Russian oil in large quantities. These efforts are likely to provide China with greater resilience against disturbances that may affect energy supplies and limit the US' ability to manipulate oil markets to harm the Chinese economy. Rather than a practical purpose, the act’s eventual approval would likely serve a rhetorical one: Washington is taking a tougher stance against Beijing.

India's Growing Reliance on Russian Oil Imports

Since Russia's full-scale invasion of Ukraine in 2022, India’s reliance on Russian crude oil has increased tenfold. The proportion has risen from as little as 2% of total crude imports in 2021/2022, to 20% in June 2023. Recent estimates suggest that this percentage may reach as high as 30% by the end of the year.

In the wake of the invasion, there has been a largely concerted effort to sanction Russia’s economy and prevent it from further funding their war of aggression. A key component of the sanctions have been directed at Russia’s oil industry, Russia being the world's third largest producer and second largest crude oil exporter.

In December 2022, the EU’s sixth sanctions package came into effect, banning seaborne crude oil and petroleum products from Russia (90% of total oil imports from Russia). This move complimented similar bans enforced in the USA and the UK. Yet an additional component of the combined sanctions effort has been a price cap on Russian crude oil, which set the maximum  price at $60 per barrel of crude. Despite the fact that the G7 countries (USA, UK, France, Germany, Italy, Japan, Canada and the EU) have already agreed to ban or phase out Russian crude imports, the cap has given leverage to uninvolved countries, including India, when negotiating prices with Russia.

The rapid increase in Indian imports from Russia suggests that India has been able to harness Russia’s weakened bargaining position. At the same time this new arrangement has put downward pressure on the oil prices charged India’s former suppliers in OPEC, primarily, Iraq and Saudi Arabia

Source: Reuters

The price differential between Russian and OPEC sourced crude, provides a clear basis in explaining India’s shift. Taking the April 2023 price as a point of comparison, India was able to pay as little as $68 per barrel for Russian imported oil, while oil from Iraq (traditionally India’s largest supplier) was priced at $77 per barrel and oil from Saudi Arabia cost as much as $86 per barrel. During the month of April, the overall OPEC basket price ranged from $79 to $86 per barrel. The price gap between OPEC suppliers and Russia makes a clear case for India’s growing imports from Russia, while the significantly lower price of Russian crude demonstrates the impact of the $60 price cap.

Source: Euronews

The challenges posed by India’s growing taste for Russian oil are twofold. In the first instance, while the price of Russian oil is considerably lower than OPEC in this case, the $68 per barrel price tag is still well over the imposed price cap, revealing the limitations of the price cap regime. In the second instance, India has become a rapidly growing market for Russian oil and as such a prop for the Russian war economy. While EU oil imports declined, figure 2 shows the relative increase of Indian oil imports, partially offsetting the impact of oil sanctions. India’s growing reliance on imported Russian oil has already become a point of contention with Western leaders. With the forecasted increase of India’s Russian oil imports, it is likely to remain so.

Image credit: President of Russia via Wikimedia Commons

African Green Hydrogen Exports: What are the risks?

Following Europe’s recent scramble for Africa’s natural gas resources due to the Russian invasion of Ukraine, Europe is now increasingly investing in the development of green hydrogen projects on the continent. Given Africa’s significant renewable energy potential, driven by its substantial solar photovoltaic power potential, the continent is well equipped to develop large-scale green hydrogen projects to supply European demand. Whilst there may be significant economic pay-offs for African countries exporting hydrogen to Europe, with an estimated €1 trillion green hydrogen potential, there are also many risks in the development of the nascent industry which may inhibit long-term growth.

Source: International Renewable Energy Agency

European hydrogen plans 

Hydrogen has become a key part of Europe’s decarbonisation plans in its net-zero goals. Despite currently accounting for less than 2% of Europe’s energy consumption, the EU is aiming to ramp up production over the next decade. With the introduction of the REPowerEU plan in May 2022, the European Commission (EC) clearly stated its intention to utilise renewable hydrogen as an important energy carrier in its attempt to reduce its reliance upon Russia's fossil fuel imports. The EU plans to produce 10 million tonnes and import 10 million tonnes of renewable hydrogen by 2030. 

The EU has planned to secure strategic partnerships with developing African nations such as Namibia and Egypt to ensure that they have a secure supply of renewable hydrogen. The incentives built into the EU regulations, enticing African nations to develop green hydrogen export facilities to Europe, could come at the expense of local populations. The energy poverty of many African nations, particularly in sub-Saharan Africa, has led many to argue that their domestic energy needs should be prioritised over helping the EU deliver its climate strategy. 

The EU and individual European nations have already begun making huge commitments to green hydrogen in Africa, including provisions for exports from the continent to serve Europe’s domestic needs. The recent signing of a $34 billion agreement for a giant green hydrogen project in Mauritania is just one of those developments. Similarly, some European nations are working on hydrogen pipeline projects in Africa to meet their climate targets and to provide more secure energy supplies in future. Such projects include the “SoutH2 Corridor” pipeline project connecting North Africa with Italy, Austria, and Germany. The energy ministries in the respective countries have all signed a joint letter of political support for developing the 3,300-kilometre-long hydrogen pipeline corridor. 

Source: Offshore Energy

Risk to African nations

1. Economic feasibility

Whilst many European nations emphasise Africa’s huge renewable energy to create green hydrogen, there are also significant economic risks that remain in its development. According to a study by the European Investment Bank, International Solar Alliance and the African Union, large-scale green hydrogen generation can enable African nations to supply 25 million tons of green hydrogen to global energy markets, equal to 15% of the current amount of gas used in the EU. The study also reported that green hydrogen is economically viable at €2/kg, due to the abundant availability of solar energy, enabling the possibility of low-carbon economic growth across the continent and reducing emissions by 40%. With more than 52 green hydrogen projects in Africa having been already announced, and production set to reach 7.2 million tonnes by the end of 2035, African nations look set to have massive increases in GDP, whilst also benefitting from the many new permanent and skilled jobs generated across the continent.

However, policymakers must be cautious to fully weigh up the economic feasibility of such projects. Limited transportation infrastructure makes transporting hydrogen which costly and hardly economically competitive. Even maritime shipping, the most cost-effective method for distances over 3,000km, would cost an estimated additional$1 to $2.75/kg. For shorter distances, the cost of pipeline transport could be significantly lower, estimated at$0.18/kg per 1,000km for new hydrogen pipelines and $0.08/kg for retrofitted gas pipelines. Given its economic competitiveness, hydrogen pipelines are the preferred choice of transportation for European nations, with the EU set to provide huge subsidies for a proposed hydrogen pipeline, named the“South Corridor”,  stretching from North Africa to Bavaria. Nevertheless, as the green hydrogen industry is at a very early stage of development, it is very difficult to predict how the market will grow in the long term and accurately predict the economic payoffs of hydrogen pipelines for African nations. The demand for hydrogen could vary from150 to 500 million metric tonnes/year by 2050 due to the level of worldwide climate goals, specific actions taken within various sectors, efforts to enhance energy efficiency, direct electrification, and the adoption of carbon capture technologies. Therefore, if the European market does not develop at the speed and scale expected, African nations investing in green hydrogen will be left with huge debts to be paid for by their populations.

Source: IEA

2. Energy poverty 

The potential development of green hydrogen exports to Europe should also not overshadow Africa’s broader energy landscape. At present, 600 million people, primarily located in sub-Saharan Africa and equivalent to 43% of the total African population, lack access to electricity. Sub-Saharan Africa (excluding South Africa) consumes approximately 180 kWh of energy per capita, compared to 13,000 kWh per capita in the U.S. and 6,500 kWh in Europe. Renewables also remain in their infancy in Africa, with approximately 180 TWh of renewable power generated in Africa in 2018, equivalent to approximately less than 0.02% of its estimated potential. African nations must be cautious to ensure that they choose the correct trade-off between utilising hydrogen for exports to Europe and their own domestic needs. Should African nations divert their resources toward hydrogen production for exports, some fear that green hydrogen may become another “neo-colonial resource grab” and starve African nations of their resources. 

Therefore, African nations must ensure that all the benefits of green hydrogen exports are not extracted for European gain. The agreements between the EU and African nations such as Egypt, Morocco and Namibia already show worrying signs of resource exploitation. Despite these deals being presented as a win-win scenario, the rules allow hydrogen projects to “cannibalise” the local infrastructure for exports. Namibia is a prime example as it is racing to become Africa’s first green hydrogen exporting hub despite only 56% of its citizens having access to electricity in 2022 and relying upon imports to meet its electricity demand. The Namibian government hopes to develop 10 hydrogen export projects with European nations. However, there are concerns over potential misuse of climate finance, which should focus on aiding local development, rather than export projects.

Outlook

With increasing interest and investment from European nations into green hydrogen projects in Africa, countries on the continent must remain cautious of the huge benefits promised by their European counterparts. Despite the continent's unparalleled potential for producing low-cost green hydrogen in the future, producing green hydrogen at economically competitive prices remains elusive given the high costs of production and transportation. However, should these costs be brought down by increased European investment, African nations may well prioritise meeting their own domestic energy demands and accelerating domestic renewable energy deployment before considering exporting green hydrogen to Europe in large-scale quantities.

North African Energy Market Analysis: Algeria

This report serves as an overview of the risks – mainly political, economic, social – in the Algerian energy market. It will look at natural gas, as well as crude oil and green energy. The report is also part of a broader series of analyses on North African energy markets.

The Dangote Refinery and its Effect on Commodities

The Dangote Refinery is a massive oil refinery project owned by Nigerian billionaire Aliko Dangote that was inaugurated on the 22nd of May 2023 in Lekki, Nigeria. It is expected to be Africa’s biggest oil refinery and the world’s biggest single-train facility, with a capacity to process up to 650,000 barrels per day of crude oil. The investment is over 19 billion US dollars.

The refinery is expected to have a significant effect on the commodities market, both internationally and in Nigeria. Possible impacts include:

Reduced oil import dependence

The refinery will help Nigeria meet 100% of its refined petroleum product needs (gasoline, 72 million litres per day; diesel, 34 million litres per day; kerosene, 10 million litres per day and jet fuel, 2 million litres per day), with surplus products for the export market. This will reduce Nigeria's reliance on petroleum product imports, which cost the country $23.3 billion in 2022. Nigeria currently imports more than 80% of its refined petroleum products.

Lower fuel prices

The refinery will likely lower the domestic prices of fuel products, as it will eliminate the costs of transportation, demurrage and other charges associated with imports. This will benefit consumers and businesses in Nigeria, as well as reduce the burden of fuel subsidies on the government budget.

Economic growth and diversification

The refinery will stimulate economic growth and diversification in Nigeria, as it will create thousands of direct and indirect jobs, enhance value addition and generate tax revenue for the government. The refinery will also spur the development of other industries that depend on petroleum products, such as petrochemicals, fertilisers, plastics and power generation.

The refinery also faces some challenges that could affect its performance and impact. Here are some of the possible challenges:

Crude supply issues

The refinery needs a constant supply of crude oil to operate at full capacity, but Nigeria's oil production has been declining due to oil theft, vandalism of pipelines and underinvestment. In April 2023, production fell under 1 million bpd, below Angola's output. Lower production could affect the state-owned oil company NNPC Ltd's ability to fulfil an agreement to supply Dangote refinery with 300,000 bpd of crude. According to economist Kelvin Emmanuel, who authored a report on oil theft last year: “The challenge is that if you don't have enough crude production then you can't supply Dangote Refinery with enough crude. And if you don't have enough crude then you can't produce enough refined products for domestic consumption or export.”

Commissioning delays

The refinery has faced several delays and cost overruns since it started in 2013. It was initially planned to be completed in 2016, but was pushed back to late 2018, then late 2019 and then early 2020. However, due to the COVID-19 pandemic and other factors, the refinery was not mechanically complete until May 2023. According to Reuters, citing sources familiar with the project, construction was likely to take at least twice as long as Dangote publicly stated, with partial refining capability not likely to be achieved until late 2023 or early 2024. Oil and gas expert Henry Adigun told the BBC that Monday's launch was “more political than technical” and that “there are still a lot of technical issues that need to be resolved before the refinery can start producing at full capacity”.

Market competition

The refinery will face competition from other refineries in the region and globally. Nigeria's existing refineries are undergoing revamping and are expected to resume operations by 2024. Other African countries such as Ghana, Senegal and Uganda are also building or expanding their refineries. Moreover, the global refining industry is undergoing a transformation due to changing demand patterns, environmental regulations and technological innovations. The progression towards bio-refineries worldwide may divert future research and development towards cleaner fuels and cleaner facilities, leaving traditional refineries at a technological standstill. The refinery will have to adapt to these changes and offer competitive products and prices. According to Bala Zakka, an energy analyst and former NNPC engineer: “The Dangote refinery will have to compete with other refineries in the Atlantic basin and beyond. It will have to be efficient, flexible and innovative to survive in the market.”

Monopoly concerns

The refinery will dominate Nigeria's downstream sector and potentially create a monopoly situation that could harm consumers and other players. Some stakeholders have expressed concerns that Dangote could use his influence and connections to gain unfair advantages or stifle competition. For example, Dangote could lobby for favourable policies, tariffs or subsidies that could undermine other refineries or importers. Alternatively, Dangote could abuse his market power by setting high prices or limiting supply. The government and the regulators will have to ensure a level playing field and protect the public interest. Dr Diran Fawibe, the Chairman of International Energy Services, said: “The government should not allow Dangote to dictate the market or become a monopoly. There should be a regulatory framework that ensures fair competition and consumer protection.”

The refinery's economic, political and social impact will depend on how well it can overcome these challenges and deliver on its promises. Here are some of the possible projections:

Economic impact

The refinery could add up to 2% to Nigeria's GDP, which was $432 billion in 2022. It could also save Nigeria up to $12 billion per year in foreign exchange by reducing fuel imports. There is potential to generate up to $5 billion per year in export revenue from refined products. The refinery could also contribute up to $1.5 billion per year in tax revenue for the government and create up to 70,000 direct and indirect jobs.

Political impact

The refinery could enhance Nigeria's energy security and sovereignty by reducing its dependence on foreign refineries and traders. It could also boost Nigeria's regional and global influence by becoming a major supplier of refined products to other African countries and beyond. It could also improve Nigeria's image and reputation as a destination for investment and innovation. It could also reduce the risk of social unrest and violence caused by fuel scarcity and price hikes.

Social impact

The refinery could improve the living standards and welfare of millions of Nigerians by providing them with affordable and reliable fuel products. It could also improve the quality of life and health of Nigerians by producing cleaner fuels that meet Euro-V standards, reducing air pollution and greenhouse gas emissions. It could also support the development of other sectors such as agriculture, manufacturing, transport, education and health by providing them with cheaper and more stable energy sources. It could also empower local communities and entrepreneurs by creating opportunities for skills development, technology transfer, value addition and backward integration.

Conclusion

The inauguration of the Dangote Refinery marks a significant milestone for Nigeria and the global oil industry. The refinery's immense capacity and ambitious goals hold the potential to bring about transformative impacts, including reduced oil import dependence, increased oil export revenue, lower fuel prices, and overall economic growth and diversification. By meeting Nigeria's refined petroleum product needs and generating surplus for export, the refinery addresses a critical issue of import reliance, saving billions of dollars in foreign exchange annually. It stimulates job creation, boosts local content development, and creates opportunities for value addition and tax revenue generation.

The refinery is not without its challenges. The availability and consistent supply of crude oil pose potential risks, as Nigeria's oil production has been affected by theft, pipeline vandalism, and underinvestment. Furthermore, the refinery's construction delays and cost overruns indicate the need for careful management and resolution of technical issues before achieving full operational capacity. Competition from regional and global refineries, as well as concerns of monopoly control, necessitate the implementation of fair competition policies and regulatory frameworks to safeguard consumer interests.

The success of the Dangote Refinery will depend on how these challenges are addressed. If overcome effectively, the refinery has the potential to make a significant contribution to Nigeria's GDP, enhance energy security, and improve the lives of Nigerians by providing affordable and reliable fuel products. Additionally, it can position Nigeria as a major player in the global oil industry, while reducing environmental impacts through cleaner fuel production. The government's commitment to ensuring a level playing field, protecting consumer interests, and fostering competition will be crucial in maximising the refinery's positive impact on Nigeria's economy, politics, and society.

Image credit: FrankvEck

The Atlantic Declaration: Real Opportunity or Political Dialectic?

“Global Britain” is a slogan that became popular as a result of the Brexit referendum. In the words of former Prime Minister Boris Johnson, and in the minds of all Brexiteers, it would have represented the newly-founded freedom of the UK to reach economic and trade agreements around the world to reimpose its lost global influence. After some years, it might safely be said that none of this is foreseeable in the near future. This is why the expectations around the “Atlantic Declaration” just signed by the UK and the USA should be lowered. However, the document proves interesting when analysed from a global commodities point of view.

The Declaration

The document, it must be said, has a political value that is quite higher than its potential substantial one. Indeed, the first part is dedicated to showing in detail the relationships between the two countries in the last decades after the Second World War. The emphasis is put on the shared history and the democratic and liberal values the two countries share, especially in light of the war in Ukraine. Then, various cooperation sections are outlined: the main areas are about the protection of critical technologies, emerging technologies in the fields of health, security and space, and especially, clean energy and supply chains. Most importantly, the Declaration comes at a critical point for the world economy and the commodities sector specifically. On this note, the Declaration eases some trade barriers between the two countries, strengthens defence and security ties and implements a framework to safeguard sensible data in the face of Chinese threats. Crucially, the two countries agreed to mitigate the adverse effects of the Inflation Reduction Act (IRA) on trade relations, since the law prevents countries without a trade agreement with the US foreseen, under some circumstances, by IRA: indeed, under the Declaration, the UK will be able to access these advantages, notwithstanding the lack of such a trade agreement with the United States.

Potential Consequences

For now, it is fair to say that the Declaration seems no more than a piece of political communication, indicating the willingness by the two historic allies to cooperate and, in the hopes of the UK, to reach a free trade agreement in the near future. However, the document offers some reflection points.

American influence and potential dominance in the commodities sector

The Declaration is a positive step for the United States since it is another demonstration of its resolve to assert itself as the main global actor in the commodities sector. Indeed, Covid, the Ukraine War, and the renewed international tensions made it imperative for countries to relocate their energy supplies. Especially, Western countries have striven to distance themselves from China and Russia and build a coalition guided by the United States to ensure the safety of global chains. In this scenario, the Inflation Reduction Act might be considered one of the most important passages for Biden’s presidency. However, the Act also creates problems for the relationship between the US and other allied countries, in that it is specifically aimed at favouring domestic production over foreign ones. In this sense, the Declaration is a way for the United States to redress this imbalance. In any case, there seem to be doubts about the capability of the United States to assert itself as the dominant actor on the energy market. Indeed, while pump prices in the US have been falling, there is disagreement among experts on whether this might be attributed to decisions made by the Administration or the Federal Reserve. As a consequence, the Declaration, from a political point of view, is certainly significant and underlines the willingness of the United States to “build” a coalition of like-minded states to drive a decoupling move from Chinese and Russian commodities markets. However, it remains to be seen whether the effects will be as good as the words used to present them.

Impact on UK firms

It’s important to analyse the potential effect the Declaration might have on UK firms, especially since it exempts the UK from some limitations for accessing American critical minerals. This is similar to what was granted to Japan, and it is a further demonstration of willingness to limit Chinese dominance in the sector. This move might be significant since the UK is one of the Western countries paying the highest cost in terms of inflation deriving from the Ukraine war. Moreover, Brexit is not helping, since the impact of the UK on commodity markets might be put at risk by it. Moreover, it is no secret that the so-called “green revolution” might represent an incredible hurdle for the British industrial sector, famously in decline since the second half of the 20th century. The Labour Party has recently announced an investment plan to finance this revolution, but the challenges will be difficult to overcome. Undeniably, the Declaration will have positive effects on British industry. Indeed, since the passage of the IRA, it has been argued that UK industries should be given access to American minerals and critical commodities. However, it remains to be seen how this aspect will develop, whether the US will indeed grant access to British industries and, crucially, which minerals this agreement will take into account. Indeed, from a political point of view, Washington is in a better bargaining position and this might be fundamental for it to build its dominance in the commodities sector.

Final Takeaways

The Atlantic Declaration is, surely, an important step in US-UK relations, and it is an occasion for the two countries to “move on” from Brexit and acknowledge the challenge of the post-Covid, post-Ukraine war world. Importantly, it might be the first step towards the conclusion of a US-UK trade agreement. However, as of today, the agreement is much richer in words than in substance. Indeed, it remains to be seen whether it will help the US to build a coalition of Western states to support its staunch de-coupling policies; moreover, from the British side, the advantages for its industrial sector are still uncertain and, especially, they rest on Washington’s willingness to grant more advantageous market conditions to foreign, even if allied, actors.

Image credit: BBC News