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Russia appears to soften its gas-for-rubles demand

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A worker adjusts a Gazprom branded end cap on a section of pipework during pipeline laying operations for the Gazprom PJSC Power of Siberia gas transmission line between the Kovyktinskoye and Chayandinskoye gas fields near Irkutsk, Russia, on Tuesday, April 6, 2021.

Andrey Rudakov | Bloomberg via Getty Images

Russia appears to have walked back demands that European companies pay for gas supplies in rubles from Thursday, temporarily alleviating the risk of supply disruptions.

It comes after Russia’s President Vladimir Putin repeatedly demanded that so-called “unfriendly” countries pay for gas in rubles, rather than in euros or dollars, targeting those behind the heavy economic sanctions designed to isolate Russia over its unprovoked onslaught in Ukraine.

Putin had instructed state-controlled gas giant Gazprom, the central bank and the government to outline proposals for how this policy would be implemented by Thursday. The currency switch for gas supplies had been rejected by major G-7 economies.

However, in a call with German Chancellor Olaf Scholz on Wednesday, Putin said European companies could continue paying for gas supplies in euros or dollars.

The money will be paid into Gazprom Bank and transferred in rubles to Russia, German broadcaster Deutsche Well reported.

Scholz did not agree to this procedure in the talks but asked for written information to better understand the proposal, according to the report.

German Chancellor Olaf Scholz (SPD, r) and Russian President Vladimir Putin look up after several hours of one-on-one talks at a joint press conference. Scholz met the Russian president for talks on the situation on the Ukrainian-Russian border.

Kay Nietfeld | picture alliance | Getty Images

The Kremlin said the currency switch was necessary due to the fact that the foreign exchange reserves of the Bank of Russia had been frozen by EU member states. It was agreed that experts from Russia and Germany would continue to negotiate on this matter, the Russian statement said.

Separately, Kremlin spokesman Dmitry Peskov on Wednesday confirmed that Russia would not be seeking gas payments in rubles immediately, saying instead the switch was likely to be a “gradual process.”

Germany, alongside the G-7, has signaled that gas supply agreements cannot be unilaterally modified and European buyers of Russian gas say the Kremlin is not entitled to redraw long-term contracts.

Most countries currently pay for Russian gas in euros or dollars.

What now?

The gas-for-rubles threat had raised the prospect of a supply cut-off to European countries, with Germany and Austria taking precautionary steps toward gas rationing to avoid a potential halt in deliveries amid the dispute.

However, analysts at political risk consultancy Eurasia Group say it is unlikely Gazprom will violate its existing contracts by refusing to supply gas to customers who refuse to pay in rubles in the short term.

“More likely, Gazprom will instead seek to renegotiate existing contracts — a time-consuming process at the best of times — in the context of periodic reviews which most long-term contracts allow for. Longer-term, Gazprom is likely to insist that new contracts reflect the new policy once they come up for renewal,” analysts at Eurasia Group said in a research note.

“There is a risk that Russia will move more aggressively, which would imply a higher chance of gas supply disruption in the short term,” they added. “But a drawn-out negotiation process is more likely.”

European countries’ dependence on Russian energy exports has been thrust into the spotlight since the Kremlin launched its invasion of Ukraine on Feb. 24, particularly as energy-importing countries continue to top up Putin’s war chest with oil and gas revenue on a daily basis.

Indeed, revenue from Russian oil and gas was seen to be responsible for roughly 43% of the Kremlin’s federal budget between 2011 and 2020, highlighting how fossil fuels play a central role for the Russian government.

The European Union receives roughly 40% of its gas via Russian pipelines and several of which run through Ukraine.

‘Lengthy arbitration’ risk

Anne-Sophie Corbeau, a research scholar at Columbia University’s Center on Global Energy Policy, told CNBC that a failure to resolve the ruble payments stand-off could result in a lengthy arbitration process.

Companies have long-term contracts with Gazprom. If there is a clause within these contracts allowing companies to switch currencies to pay in rubles, Corbeau said this could be one possible outcome. If there is no clause, however, the terms of the contract prevail, most likely in either euros or dollars — and this cannot be changed.

In this latter scenario, Corbeau said Gazprom “would need to ask for a formal renegotiation of the terms of the contract, but I would not expect buyers to agree, and you would end up with a lengthy arbitration.”

The front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, traded down over 7% at 111 euros ($123.9) per megawatt-hour on Thursday, according to New York’s Intercontinental Exchange.

The TTF-month ahead index has traded at elevated levels in recent weeks, partly due to persistent geopolitical concerns.

“Should renegotiations start at the insistence of Russia, it is likely that importers will be offered value elsewhere in their deals with Russia in return for the change to ruble payments,” Vinicius Romano, senior analyst at Rystad Energy, said in a research note.

“The challenge to put this in practice is that each buyer may have different conditions, while some may not even be willing to alter contractual terms. This suggests that negotiations might take some time, which means there is still no abrupt deadline for the payment to switch to rubles.”



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IMF hikes global growth forecast as inflation cools

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The IMF has revised its global economic outlook upwards.

Norberto Duarte | Afp | Getty Images

The International Monetary Fund on Monday revised upward its global growth projections for the year, but warned that higher interest rates and Russia’s invasion of Ukraine would likely still weigh on activity.

In its latest economic update, the institution said the global economy will grow 2.9% this year — which represents a 0.2 percentage point improvement from its previous forecast in October. However, it said that number would still mean a fall from an expansion of 3.4% in 2022.

It also revised its projection for 2024 down to 3.1%.

“Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity,” Pierre-Olivier Gourinchas, director of the research department at the IMF, said in a blog post.

The Fund turned more positive on the global economy due to better-than-expected domestic factors in several countries, such as the United States.

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Gourinchas said, also noting that inflationary pressures have come down.

Global outlook is better but don't get too optimistic, IMF chief warns at Davos

In addition, China announced the reopening of its economy after strict Covid-19 lockdowns, which is expected to contribute to higher global growth. A weaker U.S. dollar has also brightened the prospects for emerging countries that hold debt in foreign currency.

However, the picture isn’t totally positive. IMF Managing Director Kristalina Georgieva warned earlier this month that the economy was not as bad as some feared, “but less bad doesn’t quite yet mean good.”

“We have to be cautious,” she said during a CNBC-moderated panel at the World Economic Forum in Davos, Switzerland.

The IMF on Monday warned of several factors that could deteriorate the outlook in the coming months. These included the fact that China’s Covid reopening could stall; inflation could remain high; Russia’s invasion of Ukraine could shake energy and food costs even further; and markets could turn sour on worse-than-expected inflation prints.

IMF calculations say that about 84% of nations will face lower headline inflation this year compared to 2022, but they still forecast an annual average rate of 6.6% in 2023 and of 4.3% in 2024.

As such, the Washington, D.C.-based institution said one of the main policy priorities is that central banks keep addressing the surge in consumer prices.

“Clear central bank communication and appropriate reactions to shifts in the data will help keep inflation expectations anchored and lessen wage and price pressures,” the IMF said in its latest report.

“Central banks’ balance sheets will need to be unwound carefully, amid market liquidity risks,” it added.



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Credit Suisse see Apple beating the Street this week for a few reasons

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Most Adani shares continue losses; founder loses $28 billion in month

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Gautam Adani, chairperson of Indian conglomerate Adani Group, at the World Congress of Accountants in Mumbai on Nov. 19, 2022. Founder Gautam Adani, the richest man in Asia and once second only to Elon Musk, fell out of the world’s top five richest to rank seventh on the Bloomberg’s Billionaire Index.

Indranil Mukherjee | Afp | Getty Images

Shares of most of Adani Group companies continued to see sharp losses for a third consecutive trading session as the company attempted to rebut short seller firm Hindenburg’s report, which accused the conglomerate of stock manipulation and an “accounting fraud scheme.”

Adani Enterprises erased earlier gains of up to 10% and last traded flat in Mumbai’s afternoon trade after the group published a lengthy response of over 400 pages to Hindenburg’s report over the weekend, saying that it will exercise its rights to “pursue remedies” to protect its investors “before all appropriate authorities.”

Adani Enterprises’ stock price remains more than 25% lower in the month to date, Refinitiv data showed. It proceeded with a secondary share sale worth $2.5 billion, which were overshadowed by a rout that wiped out a total of $48 billion as of last week’s close.

Founder Gautam Adani, the richest man in Asia and once second only to Elon Musk, fell out of the world’s top five richest to seventh place on the Bloomberg’s Billionaire Index.

His net worth fell $27.9 billion year to date, the index showed. It peaked at $150 billion on Sept. 20, 2022, before falling to to $92.7 billion as of last week’s close, according to the index.

Despite small gains seen in Adani Enterprises, other affiliates of the Adani Group continued to plunge.

‘Attack on India’

Adani Group said Hindenburg’s allegations were a “calculated attack on India, independence, integrity and quality of Indian institutions, and growth story and ambition of India,” in the response it released over the weekend.

The group’s chief financial officer Jugeshinder Singh said in an interview with CNBC-TV18, an affiliate of CNBC, that the value of Adani Enterprises has not changed “simply because” of share price volatility, adding it instead lies in its “ability to incubate new businesses.”

He added that he is confident Adani Enterprises‘ follow-on public offering will be fully subscribed, calling Hindenburg’s report “simply a lie” and the timing of the report “malicious.”

Hindenburg on Monday morning described the group’s response “bloated” and claimed it “ignores every key allegation” against the conglomerate that it raised.

“Fraud cannot be obfuscated by nationalism of a bloated response that ignores every key allegation we raised,” the short seller titled its response to Adani Group.



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