It must be wonderful living in Cloud Comrade Land, when your economy is in dire straits, you can get oil for (next to nothing) from Russia, and your backhanders for free.
Mineral resources & energy minister Gwede Mantashe didn’t miss a beat during a parliamentary debate on the rising fuel price on Wednesday, unbuckling his expanding contempt for “Western imperialists” and laying it on the podium for all to see.
“It, therefore, begs the question, if — as we are told — the conflict is one of democracy versus authoritarianism; why are fledgling democracies of developing countries subjected to untold misery?,” he observed with logical contortions that would have had Russia’s child gymnasts squealing in delight.
“Western countries should be reminded that the economic war they have unleashed disproportionately impacts SA, and countries like ours.”
Terrible imperialists trying to avoid the third world war. So selfish of them not to allow Vladimir Putin’s tanks to just ride roughshod over a sovereign nation defending its territory.
Not done with putting those awful climate-and-Western-neocolonialists in their privileged places, Mantashe then proceeded to pucker up to Putin’s posterior ahead of this week’s Brics summit being hosted virtually by China.
Mantashe told the National Assembly that people shouldn't be emotional when responding to the global oil price.
“We should consider importing crude oil from Russia at a low price because it is not sanctioned. Of all the sanctions, there are no sanctions against crude oil, so we can import crude oil from Russia at a lower price.”
Crude thinking, minister! Has anyone told you that none of our coastal refineries are operational? The one remaining crude refinery is mostly Sasol owned and still has a listing in the imperial heartland. I wonder how keen it is to take Russian crude given its exit from Iran?
I wonder how those imperialist funders of SA’s $8,5bn just transition pledge would respond to us buying Russian oil? The minister will most likely be showered with praise by those inside his party and his cabinet colleagues, who will revere his mighty middle finger.
After all, he was just emulating the president of the country and governing party, Cyril Ramaphosa, who cosied up telephonically with “the Butcher of Mariupol” on Wednesday evening. The Kremlin said Ramaphosa had initiated the call and that the two leaders had agreed to maintain contact.
“The presidents expressed satisfaction with the current level of the two countries’ strategic partnership and stressed the shared intention to expand mutually beneficial co-operation, above all in trade, the economy and investment,” a Kremlin press release said.
Sure, buying Russian oil wouldn’t make us outliers — our Brics colleagues are helping themselves. During the first 100 days of Putin’s war in Ukraine (from February 24 to June 3), Russia earned $98bn in revenue from fossil fuel exports, of which 61% came from European nations. During this period India emerged among the top 10 importers of Russian fossil fuels, with China, Germany, Italy and Netherlands topping the chart, a report by Finland-based independent organisation Centre for Research on Energy & Clean Air shows.
Russia accounted for 18% of India’s crude imports in May, a huge rise from 1% before the Ukraine war, shows the report. But I don’t see an SA bank brave enough to facilitate such a trade.
What Mantashe did put his finger on — without, I suspect, realising it — is the systemic nature of the world’s energy crisis, which is fuelling inflation and the unprecedented response we’ve seen from central banks around the world to aggressively start tightening monetary policy to tame it.
Energy is a fundamentally cyclical business, driven in large part by a carefully choreographed capital spending cycle. Tight energy markets cause prices to rally. Companies generate windfall profits and attract investor capital. The market rewards growth, incentivising companies to use their newfound capital to drill more wells.
Supply begins to grow and eventually exceeds demand. The cycle reverses itself as energy prices fall, corporate profitability collapses, stock prices decline and capital flees the industry. Over time, depletion takes hold yet again, supply ratchets relentlessly lower, and the cycle repeat itself.
But as I’ve observed before, the normal market/investment cycle is being hindered by outside forces that didn’t exist previously. The emergence of environment, social & governance (ESG) concerns has forced capital to flow out of the traditional hydrocarbon energy and into renewables.
The market has signalled the need for more investment in upstream production. However, capital spending budgets during this cycle have hardly budged. Analysts Goehring and Rozencwajg estimate that US exploration and production companies will spend just $45bn in 2022 — up from the Covid-19 low of $30bn but far below even 2019’s depressed level.
The last time oil averaged $100 a barrel was 2014, a year in which exploration and production capital spending totalled $140bn — nearly four times higher than they expect this year. So, while debates about the tax component of the fuel price strike a populist chord, it’s like Ninety One’s Hendrik du Toit said ahead of Cop26: “It is not about excluding the brown and favouring the green. It’s about supporting the brown as it works to become greener, shifting the entire system at once so everyone has the means to reach net-zero emissions by 2050.”
• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at Badger@businesslive.co.za.
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