Originally published in The Financial Express on 14 July 2023
The Russo-Ukraine war is fast approaching its 2nd anniversary and by the looks of it, there is no sign of this conflict coming to an end soon. Previously, countries belonging to the European Union (EU) had been the largest consumers of Russian fossil fuels including natural gas and crude oil. The market for bulk of Russian coal was already being consumed by the Asian market, led by China. The self-imposed sanctions by the EU have resulted in a Russian pivot to Asia.
According to Professor Feroz Alom of RMIT University, the global oil hubs of refining crude Russian oil at multiple refineries in Amsterdam, Rotterdam and Antwerp and generating in the process daily revenue of around Euro (€) 100 – 150 billion a day have now shifted to Asia. This is evident from the channelling of massive volumes of Russian crude to both China and India which have profited immensely from one, the cut rate price offered by Russian state for its oil and round-the-clock operation by refiners in these countries. India, in particular has done particularly well because China has consumed most of its imported oil, whereas the latter has re-exported a significant portion of the imported crude back to international markets as refined products.
Time will tell precisely what the West has gained or lost from this war in Europe, but it is clearly evident that realignments are going on in other parts of the world where the US had clearly held a lot of sway previously. For instance, OPEC +, with countries like the Kingdom of Saudi Arabia (KSA), Qatar and UAE have traditionally come under the US sphere of influence. This war has shifted the balance in favour of China. While still under Western sanctions, Russia now have much better relations with other OPEC nations. These are relations based on trade and commercial interests. But it certainly woke everyone up when China brokered the diplomatic deal-of-the-century between the KSA and Iran, two estranged nations on the fabric of the Middle East, re-establish diplomatic relations after decades of open animosity.
Interestingly, the other development that is taking place amongst countries like China, Russia and the BRICS member nations is the move to de-dollarise payments for fossil fuel trade. This is by far the greatest threat to the US and its present global influence. Of course, while the bigger economies of China and India are able to withstand external diplomatic pressure and forge ahead with plans to pay in their respective national currencies, the same cannot be said for developing nations such as Bangladesh. That however may change in the near future because dozens of nations have applied for membership of the BRICS.
As for Bangladesh, experts are predicting that up to 60 per cent of the energy mix will become import-dependent in the current fiscal. That said, given the dollar-crunch, precisely what are countries like Bangladesh to do, if not trade in other currency? After all, the global order of things state that the US dollar has until now been the gold standard, i.e., the currency of choice in international trade. Who would have thought that in the course of less than two years, the dollar’s dominance is being challenged so aggressively where previous attempts in decades gone by have led to the unravelling of entire nation states and resulted in forced regime change in some cases.
It will be interesting to see how Bangladesh can take advantage of BRICS membership. It will be good if policymakers go the extra mile to take advantage of alternative finance mechanisms to ensure sustainable fuel supply to the economy. Recent media reports are now making plain what has been known to experts all along, and that is, Bangladesh cannot sustain an import-driven fuel energy mix. It simply doesn’t have enough foreign exchange to do so. In fact, it never will. So, alternative ways to pay for those imports will have to be found. This indeed is a catch-22 situation for the country. How to de-dollarise energy imports, or find alternative financing mechanisms needed to develop its own coal reserves and gas exploration (onshore)? The odd cargo (or cargos) of liquefied natural gas (LNG) imports are not going to save the economy. Foreign investors’ millions have poured into Bangladesh on the promise of many things, including sustainable energy supply. Policymakers are now stuck with fast depletion of gas supply from proven sources; and no matter what is stated in public about LNG as the saviour of the economy, exactly the opposite is true. With the West’s hypocrisy becoming all too apparent in their collective decision not to fund fossil-fired power plants in developing nations, countries like Bangladesh will have to find alternative financing. It is a matter of life and death for the economy and hopefully the right decisions will be taken this time. The alternative is simply too bleak to imagine.