American liquefied natural gas producers have emerged as an economic winner after Russia's invasion of Ukraine as Germany ended almost all Russian natural gas imports, and switched to LNG for its energy needs.POOL/AFP/Getty Images
First there was the pandemic. Then, what seemed like moments later, Russia’s invasion of Ukraine. The two events whipsawed the global economy. Oil prices, to take one example, actually turned negative during the early days of the pandemic, only to reach near-record highs two years later.
The reshaping of everything from energy markets to supply chains has created a bevy of winners and losers since Russian President Vladimir Putin launched his murderous invasion a year ago. Herewith, my list of who is up and who is down in the economic and business worlds as the war in Ukraine intensifies.
Winner: American liquefied natural gas (LNG)
In 2021, Germany relied on Russia for about half of its imported natural gas, a seemingly endless supply of cheap fuel that had helped turn Germany into a manufacturing powerhouse. When the invasion started, Russia ended almost all gas exports to Germany (and the rest of Europe). American LNG came to the rescue. In the first 11 months of 2022, U.S. LNG exports to Europe rose 137 per cent over the year before, according to data from Kpler. The upward trend is expected to continue this year now that Germany, Europe’s top gas consumer, is commissioning a fleet of floating LNG gas terminals. The surge in U.S. exports helped keep the lights on in Europe over the winter, but the rescue mission came at a high price. In Europe, LNG costs a lot more than Russian pipeline gas. American exporters generated US$35-billion in sales through September, four times what they did in the same period in 2021, according to the U.S. Energy Information Administration. Over the long term, Europe is bound to find alternatives to LNG. In the meantime, the continent is the new El Dorado for U.S. exporters of the fuel.
Loser: The owners of the Nord Stream pipelines
On Sept. 26, a series of explosions at the bottom of the Baltic Sea wrecked the Nord Stream 1 and Nord Stream 2 gas pipelines that run in parallel from western Russia to northern Germany. Russia’s state-owned Gazprom controlled the consortium that owned the pipelines, but 49 per cent was owned by several high-profile European energy companies, including Germany’s Wintershall Dea and France’s Engie. Those companies lost fortunes shutting down and writing off their exposure to Nord Stream and other Russian energy ventures even before the pipelines were damaged. Could any of those investments be recovered? A Swedish inquiry determined that the explosions were the result of sabotage, though various investigations have not found the culprit. Earlier his month, U.S. investigative reporter Seymour Hersh blamed the CIA and the U.S. and Norwegian navies for the apparent attack. If his allegations prove true – Washington has dismissed Mr. Hersh’s report as fiction – the sabotage could be considered an act of war, and war is generally not covered by insurers.
Winner: Chinese and Indian oil importers and suppliers
As part of their sanctions package, the European Union and Britain stopped importing seaborne Russian crude oil in December. Russia simply diverted its oil cargoes to China and especially India. Problem solved? Not quite. As buyers of last resort, China and India are demanding – and getting – huge discounts. In recent months, Russia’s benchmark Urals crude has been selling at US$25 to US$35 below Brent crude, which is trading at about US$82 a barrel. No wonder Chinese and Indian imports of Russian crude are at record or near-record levels every month. Kpler estimates that India bought 4.5 million barrels from Russia in January, about three times the monthly average in 2021. Now you know why China and India have zero interest in slapping sanctions on Russia.
Loser: Globalization
The neoliberal mob loved globalization, which in essence urged companies to build products in the cheapest spots on the planet, all the better to minimize consumer prices and maximize shareholder returns. The concept took off in recent decades and worked well as long as trade routes and supply chains operated with minimal friction. Then came the pandemic. Supply chains fell apart, creating shortages of everything from car airbags to lumber for new houses. The war in Ukraine has accelerated globalization’s retreat. Countries are now obsessed with making the products that are essential for their own security and well-being. The United States and Europe are investing billions of dollars to open sites that make ammunition, semiconductors, vaccines, protective gear, batteries and other products that can no longer be reliably bought from countries half a world away. As China threatens Taiwan, a big source of high-end products – everything from electronics to racing-bike frames – globalization’s continued unravelling seems assured. Note that Taiwan Semiconductor Manufacturing Co. (TSMC), Intel and Micron plan to spend tens of billions to build chip plants in the U.S., much to the White House’s delight.
Winner: The defence industry, sort of
The war in Ukraine in many ways resembles the battles of the First and Second World wars, with each side fighting for a few metres of terrain by lobbing thousands of artillery rounds, missiles and rockets at each other every day. Russia is running low on ammunition, as are Ukraine and the Western countries that keep the Ukrainian military equipped. The world’s biggest defence contractors – mostly American, among them Lockheed Martin LMT-N (Javelin anti-tank missiles and Himars rocket launchers) and Raytheon RTX-N (Stinger surface-to-air missiles and counter-artillery radar) are receiving billions of dollars of new orders. The problem is that supply-chain glitches, difficulty finding skilled employees and delays in expanding factories mean the profit bonanza is still some time away. Lockheed recently said it actually expects sales to drop in 2023, as they did in 2022, while it struggles to gear up production. Shareholders don’t seem to care. Lockheed shares are up 23 per cent since the invasion started; Raytheon’s are up 8 per cent.
Loser: Consumers everywhere
Inflationary forces were in place well before the invasion started. They went into overdrive last February, when the war pushed up energy and food prices, eating into consumer buying power and boosting poverty rates around the world. While energy and food prices are well off their peaks, they remain high in real (inflation-adjusted) terms. Inflation in some G20 countries remains painful. In January, Turkey’s was running at an annual rate of almost 58 per cent; Argentina’s at almost 100 per cent. Rates in Western Europe are coming down but, at almost 10 per cent, are still at levels that were unthinkable before the invasion. Inflation hurts the poor the most, and rising interest rates – used to tame inflation, at the risk of triggering a recession – are hurting everyone. With the war showing no sign of ending, it seems unlikely that inflation will return to many central banks’ target rate of 2 per cent any time soon.