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Emerging Markets Daily - March 8
Saudi Oil Site Hit by Houthis, Iran Ramps up Oil Flows to China and Eyes Asia Buyers, China Stocks Enter Correction Territory, India Inc. Slows Foreign Investment, New Kenya Tax Hits Start-ups
Key Saudi Oil Site Hit by Houthi Rebels, Price Pops Above $70
“Saudi Arabia said some of the world’s most protected oil infrastructure came under missile and drone attack in an escalation of regional hostilities that pushed up crude prices.”
“The attacks on Sunday were intercepted, Saudi Arabia said, and oil output appeared to be unaffected. But the latest in a spate of assaults claimed by Iran-backed Houthi rebels briefly pushed oil prices to above $70 a barrel for the first time since January 2020 and will likely complicate efforts by U.S. President Joe Biden to engage in nuclear diplomacy with Iran.”
“The attacks are the most serious against Saudi oil installations since a key processing facility and two fields came under fire in September 2019, cutting production for about a month and exposing the vulnerability of the kingdom’s petroleum industry. Yemen’s Houthi fighters claimed responsibility for that attack, although Riyadh and Washington pointed the finger at arch-rival Iran. The U.S. held back from military confrontation and said at the time it would boost air and missile defenses in the kingdom.”
“On Sunday, the Saudi Energy Ministry said an oil storage tank farm at the Ras Tanura export terminal on the country’s Persian Gulf coast was attacked by a drone from the sea. Shrapnel from a missile also landed close to a residential compound for employees of national oil company Saudi Aramco in Dhahran, where windows shook and witnesses said they took shelter. The compound is home to families of Saudi and expat employees, and there’s a U.S. consulate nearby.”
“Ras Tanura is the world’s largest oil terminal, capable of exporting roughly 6.5 million barrels a day -- nearly 7% of oil demand. The port includes a large storage tank farm where crude is kept before it’s pumped into super-tankers. A refinery at the same site is Aramco’s oldest and largest.” Bloomberg reports.
Iran Quietly Increases Oil Flows to China, Eyes More Asian Buyers
“Iran has quietly moved record amounts of crude oil to top client China in recent months, while India’s state refiners have added Iranian oil to their annual import plans on the assumption that U.S. sanctions on the OPEC supplier will soon ease, according to six industry sources and Refinitiv data.”
“U.S. President Joe Biden has sought to revive talks with Iran on a nuclear deal abandoned by former President Donald Trump in 2018, although harsh economic measures remain in place that Tehran insists be lifted before negotiations resume.”
“The National Iranian Oil Company (NIOC) has started reaching out to customers across Asia since Biden took office to assess potential demand for its crude, said the sources, who declined to be named because of the sensitivity of the matter.”
“The sanctions caused a precipitous drop in Iranian exports to China, India, Japan and South Korea since late 2018. Those measures, and output cuts by fellow OPEC+ producers, have led to tight supplies of Middle East sour crude in Asia, the top global oil market. Asia imports more than half of its crude from the Middle East.”
“Unlike India, China never completely halted Iranian oil imports. Iran moved about 17.8 million tonnes (306,000 barrels per day) of crude into China during the past 14 months, with volumes reaching record levels in January and February, according to Refinitiv Oil Research.”
“Of these, about 75% were ‘indirect’ imports identified as oil from Oman, the United Arab Emirates or Malaysia, which entered China mainly via ports in eastern Shandong province, home to most of China’s independent refiners, or Yingkou port in northeastern Liaoning province.”
“The remaining 25% of imports were marked as official purchases for China’s Strategic Petroleum Reserves, Refinitiv said, as Beijing maintains a small purchase volume despite U.S. sanctions.”
“Tankers carrying Iranian oil typically switch off their transponders when loading to avoid detection, but then become traceable via satellites near ports in Oman, the UAE and Iraq. Some transfer part of their cargoes to other ships near Singapore or Malaysia before sailing to China, Li said.” Reuters reports.
China Stocks Enter Correction Territory on Valuation Concerns
“China’s main stock benchmark entered a correction on Monday, on concerns about liquidity conditions and lofty valuations in some of the recently favored stocks.”
“The CSI 300 Index fell 3.5% on Monday, piercing through its 100-day moving average and putting losses from its recent February 10 peak to 13%. Meanwhile, the nation’s ChiNext index, a gauge of small-cap stocks, slumped 5%.”
“The correction comes just 13 days after the the gauge closed at its highest level since 2007 before the market paused for the Lunar New Year holiday. While the CSI 300 briefly surpassed its 2007 closing high after the break, traders started taking profit and unwinding so-called crowded favorite trades on worries that the market may have heated up too quickly.”
“The violent rotation out of pricey shares in China echoes the global trend where stocks that surged last year -- such as Tesla Inc. and the exchange traded funds managed by Cathie Wood’s Ark Investment Management -- took a beating as yields rise. Monday’s rout will likely weigh on the ongoing National People’s Congress, the most important political event of the year where government officials lay out major economic and political priorities.” Bloomberg reports.
India Inc’s Foreign Investment Falls in February
“India Inc's overseas direct investment fell by 31% to $1.85 billion in February this year, the RBI data showed. Domestic companies made investments of $2.66 billion in their overseas subsidiaries and joint-ventures in the year-ago month, February 2020.”
“Of the total investment made by Indian companies in foreign markets, $1.36 billion was in the form of loan; $297.37 million comprised as equity investment and the rest of $183.82 million was by way of issuance of guarantee, according to the RBI data on outward foreign direct investment (OFDI) - February 2021.”
“Among the major companies who invested in their overseas ventures during the month included Tata Steel ($1 billion in its wholly-owned subsidiary in Singapore), and Sun Pharmaceutical Industries -- $100 million in a joint venture in the U.S.”
“ONGC Videsh Ltd invested a total of $96.15 million in various joint ventures/wholly owned subsidiaries in Russia, Mozambique, Myanmar, Sudan, Colombia, Vietnam and Azerbaijan.”
“JSW Steel made a collective investment of $62.85 million in its three WoS/JVs in the Netherlands and the U.S.. GMM Pfaudler Ltd, which is engaged in pharma equipment manufacturing, put in $45.33 million in its JV in Luxembourg; the Indian Hotels Company $33 million in Netherlands JV; L&T Hydrocarbon Engineering $37.55 million in a JV in Saudi Arabia and Millars Concrete Technologies invested $34.26 million in Luxembourg joint venture.” The Hindu reports.
New Kenya Tax Will Hit Start-ups Hard, CEO Says
“Kenya’s introduction of a minimum business income tax of 1% on January 1st could have a devastating impact on the innovation economy, according to an executive in the tech sector.”
“Thanks to innovations such as mobile money, Kenya has one of the most advanced tech scenes among Africa’s celebrated ‘Silicon Savannah’ tech hubs. In the past, ICT firms flocked to Nairobi where policymakers made a push for startups to thrive by reducing regulatory hurdles, but the new tax could temper exuberance for the sector.”
“Daniel Yu, CEO and founder of Sokowatch, an e-commerce startup that supplies informal shopkeepers with goods, argues that it will push low-margin high-volume businesses like his into loss-making models. E-commerce business models like Amazon, which took years to reach profitability, require heavy investments in infrastructure and logistics with very small initial returns, he says.”
This could have a huge impact on Kenya’s status as a startup destination in Africa, Yu says. ‘If you are an investor, are you going to back the next e-commerce giant in Africa in Kenya if you know that the initial cost of doing business is likely to run into the hundreds of thousands and millions of dollars before your business in this market will get profitable?’ he says.” African Business reports.