The Worst Is Yet To Come!

The Worst Is Yet To Come!                                                              04 March 2022

The Land Department, with Property Finder, has released the emirate’s first ever official Residential Rental Performance Index. Using 2013 as its base, this January, the overall monthly Index recorded 0.938, (and an index price of US$ 13.9k), with apartments at 0.943 and an index price of US$ 12.8k, and villas/townhouses recording returns of 0.868 and US$ 35.9k. According to the index, of the 51.5k leases posted in January 2022, 52% were for new contracts, and the balance for renewed contracts; 81% of contracts were for the year and 19% for non-annual. Further analysis of the figures points to the interesting fact that for the five years to 2020, the annual number of leases rose at an average annual 7.0% – but in 2021 this jumped to 56%, as 564k leases shattered a twelve-year record in terms of volume for real estate rental contracts. January saw 51.5k rental contracts, split almost equally between new and renewal contracts. That month, the top ten areas – led by Jabal Ali First with 1.8k registrations, followed by Naif’s 1.8k, Al Karama (1.7k) and Al Warsan First (1.6k) – accounted for 28% of that month’s transactions. Property Finder residential search data for apartment rental searches in 2021 indicates that Dubai Marina was the highest searched area, accounting for more than 11% of all searches, followed by Downtown Dubai, Business Bay, JVC and JLT. The top five locations for villas/townhouses were Jumeirah, Dubai Hills Estate and The Springs, (the three accounting for approximately 18% of all searches), followed by Arabian Ranches and Umm Suqeim.

According to Knight Frank’s The Wealth Report, a study of prime price performance in one hundred global city and second home markets, Dubai prices of luxury homes skyrocketed by 44% last year. Apart from Moscow, which had an annual price rise of 42%, all other locations trailed way behind with San Diego, (28.3%), Miami (28.2%) and The Hamptons (21.3%) taking up the other five leading places.  This blog concurs with the consultancy noting that, “in a sentiment driven market, this has helped to spectacularly mark the start of the city’s third property cycle. It’s unlikely the growth of 2021 will be repeated this year, but with such limited prime stock, the top end of the market still has room for growth”. It also commented that, “Dubai’s investments in world class infrastructure, health and education, coupled with the exceptional lifestyle and amenities, from the world’s best restaurants and hotels have helped transform the city into a destination that people want to own a property in.”

35% of the surveyed locations posted prices rises over 10% and only 7% fell into negative annual growth. This result, as Dubai prices rose at the fastest rate on record, and following seven years of negative price growth, still sees overall price 30% below their 2014 peak. The value of Knight Frank’s PIRI increased by 8.4% in 2021, up from just under 2% in 2020 – its highest annual increase since the index launched thirteen years ago. Location-wise, the Americas led the field with growth of 13.0%, followed by Asia-Pacific (7.5%) the EMEA region (7.2%) – despite Australia posting a 12.3% increase – and Asia (a modest growth of 5.5%). The report concludes that Dubai, Miami and Zurich will be the three leading locations, with the biggest increases in 2022, with global prime prices expected to end the year between 10% and 12% higher.

The consultancy lists nine factors that have pushed record prices on the world stage for prime properties. Most of these will also be some of the reasons why the Dubai property cycle is on the up:

  • Low interest rates, the availability of cheap finance
  • A shortage of prime stock
  • Rising wages and accrued savings in lockdowns
  • Strong-performing equity markets and record bonuses
  • A reassessment of housing need and lifestyles
  • More flexible working patterns
  • Wealth creation – five million new millionaires in 2021 globally
  • Growth of co-primary living, heightened demand for second homes
  • The appeal of property as an inflation hedge

What will become the world’s tallest stand-alone hotel, at 365 mt, is now at its half-way stage. Developed by The First Group and located in Dubai Marina, Ciel Tower is slated for completion in Q4 2023, and for opening in H1 2024. Designed by architectural company NORR, and built by the China Railway Construction Corporation, the building will surpass Dubai’s Gevora Hotel as the tallest in the world. The hotel, with eighty-two floors, will boast a 300 mt atrium with vertically stacked landscaped terraces and will have more than 1k guest rooms and suites. In 2018, the Gevora was ranked the tallest hotel in the world, at 356 mt, then beating its near neighbour, JW Marriott Marquis, by only six metres.

It is reported that HH Sheikh Hamdan bin Mohammed has approved a savings pension plan for non-Emiratis working in Dubai’s government and public sector which is in addition to the existing end-of-service benefit scheme under which staff receive a lump sum when they leave their job. The good news is that the Crown Prince indicated that it could be expanded to the private sector on a voluntary basis only. It appears that a variety of investment plans will be offered and that those who do not wish to invest will have their capital ring-fenced. This is yet another government measure to make Dubai more attractive to people from around the world. It is expected that there will be a mix of investment plans on offer ranging from just capital projection, for those who do not wish to invest, or to invest in Shariah, or those who want to utilise more traditional investment vehicles. A committee will be formed to supervise the project.

In cooperation with the UAE Artificial Intelligence Office, the DIFC has started an AI and coding licence – the first ever in the country and another step to enhance the UAE’s growing reputation in this field. Apart from providing an opportunity to obtain the UAE Golden Visa, it will allow licence holders to work in what is the region’s largest cluster of FinTech and innovation companies. It is estimated that 60% of GCC Fin Techs are based in the DIFC Innovation Hub which hosts more than five hundred firms, ranging from start-ups to global unicorns, which is set to expand, as Dubai becomes more amenable to AI companies and coders from around the world.

Despite recognising that the UAE had made positive progress, in its fight against money laundering and countering the financing of terrorism, the Financial Action Task Force, has surprisingly announced that it has placed the country under increased monitoring. FATF indicated that this action was being carried out to ensure the success and sustainability of the UAE’s efforts to strengthen its anti-financial crime framework. The UAE’s Executive Office of Anti-Money Laundering and Countering the Financing of Terrorism posted that, “the UAE takes its role in protecting the integrity of the global financial system extremely seriously and will work closely with the FATF to quickly remedy the areas of improvement identified. On this basis, the UAE will continue its ongoing efforts to identify, disrupt and punish criminals and illicit financial networks in line with FATF’s findings and the UAE’s National Action Plan, as well as through close coordination with our international partners.”

In 2021, the Executive Office to Combat Money Laundering and Terrorist Financing collected US$ 1.05 billion in penalties, as the department, founded in February 2021, carried out 5.5k desk inspections. This amount included asset seizures worth US$ 625 million, confiscations valued at US$ 109 million, preventive measures to address terrorist financing and collective actions amounting to US$ 234 million against forty-eight defendants and companies fines, for non-compliance to anti-money laundering and terrorism financing regulations, worth US$ 64 million, and tax evasion and money laundering fines on individuals worth US$ 11 million. There is no doubt that significant progress has been made in addressing anti-money laundering and terrorism financing, in line with international standards.

HH Sheikh Mohammed bin Rashid Al Maktoum tweeted that the country’s 2021 non-oil foreign trade had surged by a “record single year leap” 27% to US$ 517 billion – and a sure indicator, that the UAE’s economy continues to recover well from the pandemic, was that this figure was 11% higher than pre-Covid levels. All seven emirates recorded increases in non-oil foreign trade. Last month, the IMF reported that the UAE’s economy had grown 2.2% in 2021 but that its non-oil sector came in 3.2% to the good; this year, the world body sees the country’s economy expanding 3.5%, with non-oil at 3.4%, whilst the UAE Central Bank is a little more bullish forecasting total growth at 4.2%. The value of national non-oil exports rose 33.3% to US$ 96.5 billion, (AED 354 billion – and exceeding AED 300 billion for the first time in its history), and 47.3% higher compared to that of 2019.

On Tuesday, the construction of the 256 km rail link between Abu Dhabi and Dubai was completed, after 13.3k workers had toiled for more than 47 million hours. This link, which includes 29 bridges, 60 crossings and 137 drainage channels, is an important milestone for Etihad Rail and its aim to carry passengers and freight between the emirates and, eventually, across the country. A launch date for services between the two emirates has yet to be announced. Once the whole project is completed, its network will include eleven cities across the country, ranging from Sila in the west, to Fujairah in the north; trains will travel at speeds up to 200 kph. It is expected that 36 million passengers will be using the train by 2030.

Following double-digit price rises last month, there is more of the same this month. March petrol costs jumped to new seven-year highs, as from last Tuesday, 01 March, on the back of surging global oil prices, allied with tightening supply, as Brent started the week on US$ 97. Super 98, Special 95 and diesel rose by US$ 0.079 (9.86%) to US$ 0.880, by US$ 0.079 (10.63%), to US$ 0.085, and by US$ 0.087 (10.76%) to US$ 0.869. This is the first time that fuel prices have exceeded the AED 3.00 mark across the range.

Being the largest listing venue in the ME for US$-denominated debt listings, there was no surprise to the Capital Bank of Jordan select Nasdaq to list a US$ 100 million perpetual AT1 bond. The main aim of the issuance, which came within the requirements of Basel 3, was to cultivate a diverse base of investors from the region. Last year, Nasdaq Dubai posted thirty  listings of Sukuk and bonds, totalling US$ 23 billion, and a record-breaking fourteen bond issuances, valued at US$ 11.2 billion – 141% higher on the year.

Talabat UAE has seen a 60% year on year rise in orders which include food, groceries, and other non-food verticals, as well as a 30% growth in its customer base. In 2021, it had over two million new app downloads and saw a doubling of its non-food orders, whilst serving 17k restaurant partners. Talabat Mart, its own q-commerce and dark store concept, posted a 70% hike in orders, with more than twenty-five stores located across all seven emirates. With its in-app donations by customers, valued at US$ 668k, it was able to donate 565k meals to charitable causes.

SHUAA Capital announced its US$ 100 million Special Purpose Acquisition Company, listed on the NASDAQ Global Market on Wednesday. The leading asset management and investment banking platform in the region confirmed the successful pricing of the IPO of ten million units of SHUAA Partners Acquisition Corp I at US$ 10.00 per unit, with each unit comprising one Class A ordinary share and one-half of one redeemable warrant; each whole warrant entitles the holder to purchase one Class A ordinary share at a price of US$ 11.50 per share after the consummation of a business combination, with the company focussing on technology and/or tech-enabled financial services businesses based in the MENAT region. SHUAA recently led the successful listing of Anghami, the first Arab technology company on NASDAQ, via a similar SPAC transaction.

The shareholders of Dubai Islamic Bank approved a 2021 dividend payment of US$ 490 million, equating to 25% of its paid-up capital. The UAE’s biggest Sharia-compliant lender by assets, posted a 33% hike in 2021 profit to US$ 1.20 billion, as impairment charges during the period fell 46% to US$ 665 million, while income from investment properties more than doubled to US$ 61 million.

The DFM opened on Monday, 28 February, 15 points (0.5%) lower on the previous week, gained 122 points (3.7%) to close on Friday 04 March, at 3,429. Emaar Properties, US$ 0.04 lower the previous week, was US$ 0.09 higher to close on US$ 1.44. Emirates NBD, DIB and DFM started the previous week on US$ 3.62, US$ 1.64 and US$ 0.63 and closed on US$ 4.10, US$ 1.72 and US$ 0.66. On 04 March, trading was at 119 million shares, with a value of US$ 111 million, compared to 168 million shares, with a value of US$ 73 million, on 25 February 2022.

For the month of February, the bourse had opened on 3,208 and, having closed the month on 3355, was 147 points (4.6%) higher. Emaar traded US$ 0.06 higher from its 01 February 2022 opening figure of US$ 1.32, to close the month at US$ 1.38. Three other bellwether stocks, Emirates NBD, DIB and DFM started the month on US$ 3.64, US$ 1.50 and US$ 0.65 and closed on 28 February 2022 on US$ 3.90, US$ 1.66 and US$ 0.63 respectively. The bourse had opened the year on 3,196 and, having closed February on 3,355, was 159 points (5.0%) higher, YTD. Emaar traded US$ 0.05 higher from its 01 January 2022 opening figure of US$ 1.33, to close February at US$ 1.38. Three other bellwether stocks, Emirates NBD, DIB and DFM started the year on US$ 3.69, US$ 1.47 and US$ 0.72 and closed on 28 February on US$ 3.90, US$ 1.66 and US$ 0.63 respectively.

By Friday 04 March 2022, Brent, US$ 4.16 (4.4%) higher the previous week, gained US$ 20.18 (20.6%), to close on US$ 118.11. Gold, US$ 11 (0.6%) lower the previous week, gained by US$ 85 (4.5%), to close Friday 04 March on US$ 1,975.

Brent started the year on US$ 77.68 and gained US$ 21.55 (27.7%), to close 28 February on US$ 99.23. Meanwhile, the yellow metal opened January trading at US$ 1,831 and has gained US$ 90 (4.9%) during 2022, to close on US$ 1,921.

On the last day of the month, oil prices rebounded after falling below US$ 100 on Friday. It appears that the US and EU have been very selective in what is, and what is not, to be sanctioned. In the latter category, the decision has been made to exclude sanctions on Russia’s energy and commodity industries, which are integral to the global economy. Russia is among the world’s biggest energy producers, in addition to nickel, aluminium, palladium, cobalt, copper, wheat and barley. With producing 10.2 million bpd, Russia is the second biggest oil country after the US, but ahead of Saudi Arabia; it is also second globally to the US for natural gas condensate. Earlier last week, gold hit a US$ 1,971 high but had weakened to US$ 1,890 by Friday after it was found that the sanctions were not as severe as first thought, (or should have been). Early Monday trading saw a 1.18% increase to US$ 1,911.

With the Opec+ twenty-three member producers meeting on Wednesday, 02 March 2022, Brent traded 6.3% higher at US$ 111.56, after the IEA released sixty million barrels of oil from emergency stocks to bring stability to energy markets. The group is still expected to stay the course and bring another 400k bpd of crude to the market in April. Apart from the rapidly deteriorating situation in Ukraine, there were other factors in play to concern the oil market, including “already tight global oil markets, heightened price volatility, commercial inventories, that are at their lowest level since 2014, and a limited ability of producers to provide additional supply in the short term”. Another interesting fact is that the self-imposed Opec compliance is running well above 100% which would indicate that most producers are already at full capacity; this, allied with the facts that 60% of Russia’s oil production, equating to 6 million bpd, is exported to Europe and that global oil demand is projected to rise by 4.2 million bpd this year, indicates that prices can only go one way and could soon top US$ 150.

Greg Kelly, the former Nissan executive and cohort of the fleeing of its ex-CEO, has been found guilty of assisting Carlos Ghosn to evade pay disclosure laws. He was sentenced to six months in jail, suspended for three years for assisting Ghosn hide part of US$ 80 million of his income from financial regulators. Although prosecutors were claiming that the American executive had been hiding the CEO’s true pay since 2010, he was convicted of just one count of misreporting financial information, for one year, 2018. The car maker, which had pleaded guilty before the trial started eighteen months ago, was fined US$ 2 million for failing to disclose Mr Ghosn’s pay. This case has been controversial highlighting the idiosyncrasies of Japan’s judicial system, in particular its system of detaining and interrogating suspects for long periods, without charge and without an attorney present.

In a dispute which appears to be becoming more acrimonious, Airbus has requested a British judge to award US$220 million in damages from Qatar Airways over two undelivered A-350s.This counterclaim arose because the ME airline refused to accept them because they had already lodged a US$ 600 million claim over the erosion to the surface of more than twenty previously delivered jets. To make matters worse, the French plane maker is also wanting to recover millions of dollars of credits awarded to the airline. The current argument seems to be over erosion to the painted surface and damage including gaps in lightning protection on A350 jets, with the airline indicating that the surface degradation raises unanswered questions over the safety of the jets, prompting its regulator to ground a new A350 every time they came under their jurisdiction; the latest, number 22, arrived in Qatar and was grounded last Monday for the same reason. Airbus has argued that the planes are safe because of margins built into the anti-lightning system and accused Qatar Airways of colluding with its safety regulator over the groundings; but it did acknowledge quality problems but accused the airline of mislabelling them as safety issues to get compensation.

Zoom Video Communications posted an 88.4% hike, year on year, (and 44.2% on the quarter) in Q4 profits to US$ 491 million, driven by a growth in the number of paying customers; revenue was 21.4% higher at US$ 1.07 billion. For the year, profit more than doubled to US$ 1.3 billion, as revenue climbed 54.6% to US$ 4.09 billion. This year, Zoom plans to “plan to build out our platform to further enrich the customer experience with new cloud-based technologies”. As at year end, the company saw an almost 9% increase in paid customers, with more than ten employees, equating to 510k. During the year, it invested US$ 117 million in research and development, equating to more than 9.2% of the total revenue earned during Q4. Its quarterly net cash flow, at US$ 209 million, was 47% down on the same period last year. By Tuesday, its share value had dropped 3.0%, on the day, to US$ 128.6, and 30.2% lower YTD.

Having claimed nearly US$ 150 million in furlough payments but seeing 2021 profits 125% higher, at US$ 520 million, (driven by a surge in online betting during the pandemic), Emtain has decided to return about 50% of that to the government coffers. The gaming giant, which owns Ladbrokes, has argued that the furlough scheme had helped to protect 14k jobs, and a “more certain medium-term outlook” had made the partial repayment possible. It has 3k betting shops in the UK, branded Ladbrokes or Coral, which it had to close for large parts of 2020 and 2021 because of restrictions, but revenue still climbed 8%. It seems that of its two main rivals, William Hills “did the right thing”, and returned the US$ 32 million it claimed in 2020, but that Betfred, which had claimed US$ 62 million, has yet to repay.

IATA is confident that, by 2024, global air passenger numbers will top four billion, surpassing the pre-Covid number by 3%. Last year, overall global traveller numbers were 47% of 2019 levels, but the ratio will improve over the next two years – 83% and 94%. However, it is less bullish on the ME region because of its limited short-haul markets and its focus on longer distances, and forecasts that it will only exceed its 2019 numbers come 2025, reaching 81% by 2022 and 98% in 2024. International air traffic is not expected to equal pre-Covid numbers until 2025 with the following percentages for the years 2021 – 2025 – 27%, 69%, 82%, 92% and 101%. Meanwhile, domestic traveller numbers will return to pre-pandemic levels by 2023, and will be 18% higher in 2025. But these forecasts could quickly change if the Ukraine crisis worsens and drags on.

On Monday, the Indian currency was moving in a tight range of 75.78 and 75.70 to the greenback, driven by the rising tensions over Ukraine, (exacerbated by Vladimir Putin ordering his nuclear forces to be on high alert), and surging crude prices., up over 4.2% to US$ 102. By Friday it was trading at 76.43. The dollar index, which gauges the dollar’s strength against a basket of six currencies, was trading 0.78% higher at 97.37.

This week, US unemployment figures surprised analysts, who had expected 400k in job gains, by adding 678k jobs in February, as activity continued to rebound, with the unemployment rate nudging down to 3.8%. Job growth was widespread, with the main drivers being gains in leisure, (175k new jobs), hospitality, (124k), professional/business services, (95k), health care, and construction. Over the past twelve months, average hourly earnings rose 5.1%, although this was 0.6% lower down on the month. Worryingly, the total number of jobs on US payrolls is still 2.1 million below pre-pandemic levels. The improving job sector is yet another reason that makes a March Fed rate hike inevitable.

Early Monday morning trading saw a turbulent forex market, none more so than the Russian rouble and the Indian rupee. Russia’s rouble plunged more than 28% to a record low of 118 against the dollar after the US and EU allies imposed tighter sanctions over the weekend, including disconnecting certain Russian banks from the global Swift payments network; on the domestic market rates were a lot higher at over 150 to the dollar, as people tried to get out of the tanking local currency. By Tuesday, the rouble had clawed back some of its Monday’s losses, to be trading at a more respectable 98 roubles to the US$ but by Friday’s close was at 124. Last Thursday, Moscow’s benchmark MOEX stock market briefly suspended trading, after it plunged more than 45%, losing up to US$ 254 billion, and closed 33% lower, making it the fifth-worst plunge in stock market history.

Not only are beer drinkers suffering from higher prices and sanctions against Russia but so are the brewers. Evidently, the Belgian brewing industry has already started feeling the pinch and not only from the usual ‘suspects’ – soaring energy prices, raw material supply issues, payment disruptions, lockdowns etc – but also from export markets disappearing overnight. For example, 70% of Wallonia’s Lefebvre brewery’s production is exported and 22% of that total goes to three countries – Ukraine, Belarus and Russia – where the chances of future deliveries and outstanding payments are currently non-existent.

Although it does not have any manufacturing sites in Russia nor Ukraine, Jaguar Land Rover has paused the delivery of its cars to Russia due to “trading challenges”, a country in which it sold 6.9k vehicles last year. Perhaps not for altruistic reasons, it is thought that the main reason for the pull-out was sanctions making it difficult for JLR to sell cars into the market.

The UK’s biggest car manufacturer, owned by Indian company Tata Motors, has a European manufacturing facility based in Slovakia and their decision came after Volvo confirmed it would stop delivering cars to Russia until further notice.

One of the first business casualties from the Ukraine crises sees BP exiting its 19.75% shareholding in Russian oil giant Rosneft and the resignation of its chief executive Bernard Looney from the Russian petro giant’s board with “immediate effect”. Noting that Russia’s attack on Ukraine “is an act of aggression which is having tragic consequences across the region,” BP chairman Helge Lund commented that, “it has led the BP board to conclude, after a thorough process, that our involvement with Rosneft, a state-owned enterprise, simply cannot continue.” This move will cost BP at least US$ 25 billion, which could rise even further.

Following BP’s announcement, Shell decided to end all its JVs with the Russian energy company Gazprom, including a 27.5% stake in a major LNG plant and a 50% stake in two Siberian oilfield projects, as well as quitting the flagship Sakhalin II facility, which is 50% owned and operated by Gazprom, and ending its involvement in the Nord Stream 2 gas 1.2k km pipeline from Russia to Germany, which it helped finance along  with a mix of other companies. While nowhere near the scale of BP’s potential loss, Shell could see a charge of up to US$ 3 billion, as it offloads any interests in which it is a partner with state-owned gas giant Gazprom. As with BP, it is unclear how or to whom these businesses will be offloaded and whether they are worth anything. Norwegian oil and gas producer Equinor also announced its exit from Russia, indicating that it would begin the process of divesting from its JVs in the country. ExxonMobil also decided to exit the country. French energy giant TotalEnergies stopped short of saying it would divest or pull out of Russia but confirmed its support of the EU sanctions. It did confirm that it will no longer provide capital for new projects in Russia and that it “condemns” Russia’s military offensive in Ukraine.

As the week progressed, more MNCs joined the boycott, with the growing list including auto makers GM, Volvo and Volkswagen; shipping giants, Maersk and MSC, followed suit, suspending container shipping to and from Russia, with their move deepening the country’s isolation, and resulting in the world’s eleventh-largest economy and supplier of one-sixth of all commodities, being now effectively cut off from a large chunk of the globe’s shipping capacity.

Social media outlets also showed their concern, with the likes of Facebook and TikTok taking steps to curb Russian media from using misinformation as a means of communication to its populace. Other tech giants, such as Apple and Google, have closed the doors on Putin’s Russia, with Apple confirming that it has stopped sales of iPhones and other products. Not to be outdone, both Airbus and rival plane maker Boeing have decided to cut ties with Russia, with the former stopping support and supply of spare parts for Russia’s aviation industry, and Boeing suspending operations. Harley-Davidson Inc has also suspended its business and bike shipments. Even the UK Co-op has stopped selling Russian vodka

Another blow to the Russian economy came with Moody’s Investors Service placing the ratings of fifty-one Russian non-financial corporates, as are the baseline credit assessments of government-related issuers, on review for downgrade. Moody’s, which last month had warned that this would happen if Russia decided to invade Ukraine, confirmed that the move “reflects the negative credit implications for Russia’s credit profile from the additional and more severe sanctions being imposed”.

The London Stock Exchange has suspended the shares of twenty-eight Russian-linked companies, including green energy and metals company En+ Group, run by US-sanctioned oligarch Oleg Deripaska, with Conservative peer and former energy minister Greg Barker being its chairman. Last week, a subsidiary of Russia’s second largest bank, VTB, was suspended, but there are several Russian companies, including the Roman Abramovich-backed Evraz, that continue to trade on the LSE, despite criticism from politicians. New economic sanctions have also been announced to stop Russian aviation and space companies getting access to the UK insurance market. The move will limit the benefits Russian businesses can receive from their access to the global insurance and reinsurance market through Lloyd’s, the world’s biggest insurance market.

David Malpass, the President of the World Bank, warned that the Ukraine war is a catastrophe for the world which will cut global economic growth, andcomes at a bad time for the world because inflation was already rising,” Both energy and food prices will be pushed higher which will “hit the poor the most, as does inflation”. He indicated that since both Russia and Ukraine are big food producers – Ukraine is the world’s biggest producer of sunflower oil, followed by Russia, with both accounting for 60% of global production and the two countries account for 29% of global wheat production. About 39% of the EU’s electricity comes from power stations that burn fossil fuels, and Russia is the biggest source of oil and gas The war will also have a drastic impact on the people and economy of Ukraine. In 2014, the World Bank had committed US$ 7.9 billion to make the country more efficient and more productive, including the privatisation of the banking and energy sectors; massive FDI and a crackdown on corruption were helping transform the country. Earlier in the year, Ukraine was looking at its US$ 180 billion economy growing by a credible 3.4% but mass destruction of its infrastructure, production collapsing and hundreds of thousands of Ukrainians fleeing the country will inevitably push the country back decades. Russia is the biggest source of oil and gas

In what to some seems a desperate move, Russia has more than doubled its key interest rate from 9.5% to 20.0% to help cushion the impact on prices because of the rouble’s slide. This comes after the US, the EU and their allies cut off a number of Russian banks from Swift, as well as freezing the assets of the country’s central bank, (whose reserves are estimated in the region of US$ 630 billion), which will limit the Kremlin’s access to its overseas assets, and stop it from selling assets overseas to support its own banks and companies. Because of its energy companies’ reliance for exports on Swift, this move will badly hit Russia as it will become isolated from the global economy and financial system. More trouble for the Putin administration is that there is every possibility that Moody’s may follow S&P and downgrade Russian bonds to ‘junk’ status which will make the country’s debt more expensive to service because of the higher borrowing costs for riskier assets. The central bank has announced that it “has the necessary resources and tools to maintain financial stability and ensure the operational continuity of the financial sector”. Time will tell when there is a run on Russian banks besieged by customers trying to withdraw money.

During the week, European authorities have also been targeting Russian oligarchs’ super yachts, with ‘Amore Vero’, a yacht owned by Igor Sechin, boss of Russian state energy company Rosneft, taken by French customs officers near Marseille, whilst in Hamburg shipyard authorities seized Alisher Usmanov’s 156 mt ‘Dilbar’, the world’s largest motor yacht by gross tonnage and valued at US$ 600 million. It has also been reported that yachts, belonging to five other Russian billionaires, were heading to the Maldives, regarded as a safe home because it does not have an extradition treaty with the US. Meanwhile, the Johnson administration has been quick to deny claims that it had been slower than the EU to introduce sanctions or that legal hold-ups were preventing sanctions on Russian oligarchs. Some have already been sanctioned, so their assets and bank accounts have been frozen, whilst others are taking advantage in any delay in their names being added to the list. In short, some oligarchs are making use of this extra time to move their money and portable assets out of the UK before sanctions are laid. There are 195 individuals on the UK’s government’s sanctions list, of which only fifteen, (including President Vladimir Putin), being added since this war began.

There is the danger that all the economic factors and commentary emanating from the Ukraine crisis over the past eight days have masked the true cost of the Russian invasion – and that is human lives. According to the country’s state emergency sector, the number is above 2k civilians, with other figures indicating a further 2.9k troops. Unfortunately, this number will carry on rising in the days ahead, as Ukrainians continue their fierce resistance. On top of that, there is the devastation to the country’s infrastructure, more than one million refugees, (that will quickly escalate to over five million), already having left the forty-four million populated country, and the potential for a major accident at Europe’s biggest nuclear power plant, which has been a target for heavy Russian shelling. As usual, it seems that the bodies, most notably the UN and NATO which, over the years, have been recipients of huge amounts of public money and resources appear almost powerless, despite “the allies having never been so unified and Russia having been so divided”. Going into Day 9, to the outsider, ‘boots on the ground” is winning the battle over diplomacy and random sanctions. One thing that both sides seem to agree on is that The Worst Is Yet To Come!

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