UK

NOT EVEN A RED TORY BUT A PINK ONE

SIR Keir Starmer  says he’s happy to be branded a ‘fiscal conservative’ as he refuses to commit to greater public spending

JEREMY CORBIN THOU SHALL BE AVENGED

Adam Forrest
Sun, July 16, 2023 

Sir Keir Starmer has said he is happy to be branded a “fiscal conservative” as he repeatedly refused to commit to greater spending on the NHS and other public services.

The Labour leader was called “delusional” by the Labour left – but Sir Keir insisted that he did not mind “ruffling feathers” and argued that his party could not win power by offering reckless spending pledges.

Sir Keir is also facing a row over his party’s benefits policy, after he revealed that a Labour government would keep the controversial two-child cap on benefits devised by austerity architect George Osborne.

His shadow work and pensions secretary Jonathan Ashworth had signalled an end to the two-child benefit cap only last month, calling the policy “heinous” and arguing that it was “absolutely keeping children in poverty”.

But asked on the BBC’s Sunday with Laura Kuenssberg if he would scrap the cap, which means support is only provided for the first two children in a family, Sir Keir said: “We’re not changing that policy.”

The Labour leader repeatedly refused to say whether his party would spend more on public services in government, stating only that “a Labour government always will invest in our public services. The way to invest in our public services is to grow our economy.”

Urging “reform” of the NHS rather than committing to providing it with more money, Sir Keir said: “If all we do is simply patch up and keep going, then we won’t fix the fundamentals, and that’s why reform is so important.”

Asked if he was happy to be known as a “fiscal conservative”, Sir Keir said: “I don’t mind what label people put on me.”

Sir Keir is thought to want a Labour government to follow the Tories’ tax and public spending levels until growth returns to Britain’s juddering economy.

The Labour leader has acknowledged frustration with his plan for fiscal restraint. “Taking seriously the foundations of economic responsibility may not set people’s pulses racing – but the new country we can build on top of them will do,” Sir Keir wrote in The Observer.

Keir Starmer is under pressure to spend more on public services (PA Wire)

Andrew Fisher, who was policy chief for Jeremy Corbyn when he was leader of the party, said it was “delusional” to refuse to commit to extra spending on the NHS and public services. “Reforms are necessary, but they’re not an alternative to spending more,” he tweeted.

Mick Lynch, the firebrand leader of the Rail, Maritime and Transport (RMT) union, said people cannot “spot the difference” between Labour and the Tories. “He’s got to show that he’s on the side of working people,” he told Sky News’s Sophy Ridge on Sunday.

“Keir Starmer and his team have got to show some clear water, some red water, between themselves and the Daily Mail, the Telegraph, and themselves and the Conservatives.”

The left-wing campaign group Momentum said Sir Keir was “siding with the Daily Mail” when it comes to the “cruel” two-child benefit cap, and called for “real investment” in public services and infrastructure.

But Sir Keir took on his critics on economic policy. “Frankly, the left has to start caring a lot more about growth, about creating wealth, attracting inward investment and kickstarting a spirit of enterprise,” he said – calling it “the only show in town”.

Keir Starmer with Keir Mather, the Labour candidate in next week’s Selby by-election (Getty)

Grilled on deselections, suspensions, and the blocking of left-wing candidates – including the North of Tyne mayor, Jamie Driscoll – Sir Keir said he “rejects” the idea that he is ditching people and policies.

Asked by Laura Kuenssberg if he is happy to “ruffle feathers” in order to win power, Sir Keir said: “Of course” – before suggesting that he would be happy with even a one-seat Labour majority in 2024.

“The biggest danger is complacency,” he said on the chances of a Labour government. “I remind myself every day ... that to get from where we landed in 2019 to a one-seat majority at the next election will be a bigger swing than Tony Blair got in 1997.”

Deputy leader Angela Rayner said a Labour government will not nationalise industries if it will cost “a load of money” to do so. She told The Observer: “With the rail companies, we have said that once their contracts are up we’d bring them back into public ownership, and that’s a way of doing it. It’s pragmatism, not ideology. It’s about asking, ‘Will it improve people’s lives?’”

Asked about Sir Keir’s treatment of figures on the left of the party, she insisted that Labour needs to remain a broad church. “It has to be, because it’s not just about the party, it’s about voters,” she said.

Meanwhile, Sir Keir wouldn’t say if he would keep negotiating on current public-sector pay disputes, describing it as “the government’s mess” in his BBC interview. He also refused to put an “arbitrary” target on housebuilding – saying only that he wants to see “hundreds of thousands more houses” built.

Sir Keir did not rule out changing the Bank of England’s 2 per cent inflation target under a Labour government. Asked if he would look at changing the target, he said: “That’s something, I think, for us to address closer to the election.”

Starmer Faces UK Labour Backlash Over Bid for Fiscal Restraint



Alex Wickham
Mon, July 17, 2023

(Bloomberg) -- UK opposition leader Keir Starmer faced criticism from across his own Labour party over a pledge to keep a controversial limit on child benefits brought in by the governing Conservatives.

Four Labour mayors, including London’s Sadiq Khan, are opposing Starmer’s announcement that he would keep the two-child cap on benefits, according to people familiar with their thinking. They add to several members of Starmer’s top team who strongly criticized the Tory policy before their own leader’s reversal on the matter.

The push-back highlights the tricky balance Starmer is trying to strike as he bids to lead Labour back to power after more than 13 years in opposition. The Labour leadership is seeking to convince voters that the party will not be reckless with public spending if it wins a general election due by January 2025. But that comes at the price of abandoning previous Labour promises of largess and riling both the party’s members and its traditional supporters.

The Child Poverty Action Group charity estimates that scrapping the current Conservative policy that prevents parents from claiming universal credit or child tax credit for their third child would cost the exchequer some £1.3 billion ($1.7 billion) a year — while lifting 250,000 children out of poverty and benefiting another 850,000 children still in poverty. But Starmer told the BBC’s Laura Kuenssberg that Labour was “not changing that policy” if it gets into power.

Traditionally, the Conservative Party has sought to portray Labour as reckless with the public finances during election campaigns, a charge Starmer is determined to counter. But that also risks alienating his own party.

Khan, along with Liverpool City Mayor Steve Rotheram, West Yorkshire Mayor Tracy Brabin and Marvin Rees, the Mayor of Bristol, all think the cap should be scrapped, the people familiar said.

The backlash extends further than that, from lawmakers who are concerned that Labour’s focus on fiscal restraint means they are not offering voters enough hope or change from the status quo.

Scottish Labour leader Anas Sarwar told the Daily Record newspaper Monday that his regional party will “continue to oppose the two child limit.” Meanwhile, Rosie Duffield, a Member of Parliament on the right of the party, and Zarah Sultana, a left-wing MP, both opposed Starmer’s position on Twitter.

Several members of Starmer’s Shadow Cabinet, including Deputy Leader Angela Rayner, and Shadow Work and Pensions Secretary Jonathan Ashworth, have previously strongly condemned the two-child cap.

Separately, Jamie Driscoll, another regional mayor who is also on the left of the party, resigned from Labour on Monday after he was blocked from standing for the party.

--With assistance from Kitty Donaldson and Emily Ashton.

70% of UK's most popular domestic flights 'are faster and cheaper by train'


Ellen Manning
Sun, July 16, 2023 

Some of the most popular domestic flights in the UK could be completed quicker, cheaper and more environmentally friendly by train, a new report has found. (Stock image: Getty)

Most of the nation’s most popular domestic flights and some short-haul European destinations could be completed cheaper and faster by train, according to a new report.

Of the 23 most popular flights to UK and Europe destinations, 70 per cent were faster by rail and 57 per cent were cheaper or the same price, research by the Campaign for Better Transport (CBT) found.

On top of the time and money savings, switching just a quarter of those domestic flights for rail journeys would save 171,377 tonnes of carbon emissions - equivalent to taking 117,900 cars off the road, researchers found, while switching half of the flights would equate to taking 283,000 cars off the road.

Public transport lobby the CBT is calling for airlines to provide "realistic travelling times" for domestic flights as part of its Fewer Flights Charter aimed at reducing aviation’s carbon emissions.

The CBT is calling for various measures to encourage people to travel by train and to reduce flights. (Stock image: Getty)

Its research showed that flying from London Heathrow to Edinburgh costs between £60 and £300 by air versus £24.90 to £145.70 by rail.

Accounting for travel and processing time in the station or airport, taking the train to the Scottish capital would be 20 minutes quicker than via plane, it found, while the carbon emission for the flight per passenger was 132.35kg versus 14.53kg by train.

Read more: How the pay rise for public sector workers compares to people in the private sector

It took less than half the time of a flight to catch a train from Heathrow to Manchester - at two hours and six minutes versus four hours 30 minutes, while each rail passenger would emit 54.94kg less carbon emissions, at just 7.02kg.

In addition, travelling from the same airport to Brussels would take four hours 35 minutes by air but just one hour 53 by rail, with carbon emissions at 54.04kg versus 1.57kg.

The CBT is calling for airlines to publish 'realistic' travel times. (Stock image: Getty)

Silviya Barrett, from Campaign for Better Transport, said: “Travelling by rail within the UK and to the near continent is much more environmentally friendly than flying but also, as our report proves, in many cases cheaper, faster and more economically productive. Yet people simply aren’t aware that this is the case.

"To help incentivise train travel more and reduce carbon emissions from transport, we need to see government policies which ensure rail is always the easier and cheaper option so that more people can choose the train over the plane."

The CBT's report, ‘Plane speaking: moving from journeys from air to rail’ calls for a reduction on the number of flights to cut aviation emissions.

The group’s ten-point manifesto calls on government to require airlines to give passengers realistic travelling times for domestic flights, and force them to publish carbon emissions for domestic flights and the equivalent rail option.

They also want airlines to offer free rail tickets to the airport for passengers taking international flights, to introduce a domestic flight reduction target, set up a tax on domestic aviation fuel, and reverse the cut in Air Passenger Duty for domestic flights.

On top of that, the CBT is calling for a new rate of Air Passenger Duty for all private jet passengers, and for VAT to be applied every private jet flight, as well as penalties for airlines flying empty aircraft unnecessarily, as well as investment in more railway lines and stations and improvements to fares and ticketing.

War, Debt Distress, Inflation: G-20 Finance Chiefs Spar in India

Ruchi Bhatia
Fri, July 14, 2023 


(Bloomberg) -- The finance and central bank chiefs of the world’s largest economies will debate the risks of Russia’s prolonged war in Ukraine and yet another shift to resuming interest rate hikes in meetings next week in Gandhinagar, India.

The discussions among the Group of 20 nations come as the war drags on for nearly 17 months, slowing the global economy and keeping policymakers on edge over resurgent inflation and stuttering growth. G-20 chiefs are also examining regulations for cryptocurrencies and ways to access more climate financing.

There will be demands on the World Bank and the International Monetary Fund to shore up their balance sheets and address the impact of climate change and future pandemics. The G-20 meetings will build on discussions in Paris last month involving 40 world leaders who made commitments for easier access to cash for poorer countries facing debt stress.

Here are the major themes at play for the key meetings next Monday and Tuesday:

War Language

As the G-20 president this year, India struggled to get countries to agree to language around the war and is trying to achieve a chair summary at the end of next week’s meetings. That’s a tall order given India failed to secure a statement in the last finance ministers’ meeting in April.

China and Russia had objected to language describing the conflict even as Western leaders condemned Moscow and pledged further support for Ukraine. It’s expected it will remain tough for India to negotiate language that is palatable to all the G-20 members ahead of the leaders’ summit in September.

“On all items in core agenda, common ground was found, except for the impact of war between Russia and Ukraine on the world economy,” India’s Economic Affairs Secretary Ajay Seth said on Thursday.

Interest Rate Conundrum

Global monetary policymakers are increasingly diverging on policy stances, particularly when it comes to inflation. While elevated price gains are keeping US and European central banks in tightening mode, the prospect of deflation is compelling China to consider further easing.

Central bankers will also discuss threats posed by the banking sector turmoil that shook investors worldwide earlier this year. The failure of two mid-sized US lenders and a near-collapse of European banking giant Credit Suisse Group raised fears of a contagion, complicating the growth trajectory for the world that’s also dealing with the after-effects of the war in Europe.

Multilateral Reforms

An overhaul of the World Bank and the IMF will be on the table with Treasury Secretary Janet Yellen leading the charge. She has urged the development lenders to work harder to mobilize private capital as global challenges mount.

An expert panel headed by economists Lawrence Summers and NK Singh suggested both lenders ramp up annual loans to developing countries while tapping sovereign donors and the private sector for further funds, according to people familiar with the matter.

The panel has also advocated boosting market-linked financing to $300 billion annually by 2030, they said. In comparison, the volume of financing resources committed by multilateral organization stood at $162 billion in 2016, according to an Organisation for Economic Cooperation Development report.

A spokesperson for India’s finance ministry didn’t respond to requests for comment.

The G-20 countries are also exploring ways for the lenders to deliver loans with special provisions to protect developing nations from climate risk.

Debt Distress

The proportion of countries in debt distress, or at high risk of one, has doubled to 60% from 2015 levels, according to International Monetary Fund data. However, there are tentative signs of debt breakthroughs.

Countries like Zambia, which has been waiting for debt resolution for years, secured a deal with official creditors, including China under the G-20’s Common Framework.

The development could lead the way for other nations such as Ghana, Sri Lanka and Ethiopia, which are locked in negotiations with creditors and bondholders to restructure debt.

Crypto Regulations

Bankrupt FTX Trading Ltd. and other high-profile failures in crypto-asset markets over the past year have pushed regulators including the Financial Stability Board and the IMF to find ways to implement global standards.

“We must avoid a globally fragmented system of regulation that would allow crypto-asset activities to flow to the areas where regulation is less stringent,” said FSB Chair Klaas Knot in a letter to G-20 Finance Ministers ahead of the meeting. “This will require a further strengthening of cross-border cooperation and information sharing.”

Digital currencies issued by central banks are gaining more traction as global trade expands after the pandemic.

More than half of the world’s central banks are exploring or developing digital currencies, according to the IMF. India’s Central Bank Digital Currency has 1.3 million customers since its launch and is aiming for a million transactions a day by end-2023.

--With assistance from Erica Yokoyama, Michelle Jamrisko and Anup Roy.

Bloomberg Businessweek

NATO NATION BUILDING
Libya’s security forces release ex-minister whose detention prompted oil closure, tribal elder says

Associated Press
Sat, July 15, 2023 

CAIRO (AP) — Security authorities in the Libyan capital of Tripoli released a former minister Saturday less than a week after his detention which had prompted his tribesmen to shut down crucial oil fields, a tribal elder said.

Former Finance Minister Faraj Bumatari, who hails from the al-Zawi tribe in southeastern Libya, walked free Saturday afternoon from detention in Tripoli, said al-Senussi al-Zawi, one of the tribe's elders.

“I spoke with him by phone, and he is awaiting a flight to the east” of Libya, al-Zawi told The Associated Press by phone.

Bumatari was detained earlier this week by the Tripoli-based Internal Security Agency which is allied with the government of Prime Minister Minister Abdul Hamid Dbeibah, according to local media.

His detention was prompted by his bid to replace Sadiq al-Kabir as governor of the Central Bank of Libya, according to al-Zawi. Al-Kabir, a divisive figure in Libya, is a close ally of Dbeibah.

Dbeibah’s government didn’t comment on Bumatari’s detention.

To force his release, Bumatari’s tribe shut down crucial oil fields, which produce hundreds of thousands of barrels per day.

Al-Zawi didn’t say when they would allow the resumption of oil production. Local media, however, said technical teams were working to restart production from the closed fields.

Libya’s prized oil output has been subjected to repeated closures for different political reasons and local protesters’ demands during the chaotic decade since the 2011 NATO-backed uprising against former leader Muammar Gaddafi.

The North African country has been divided between two rival governments, each backed by international patrons and numerous armed militias on the ground.

THE WAR IS OVER

Iraqi PM visits Syria in first trip since Syrian war



Sun, July 16, 2023 
By Timour Azhari

BAGHDAD (Reuters) - Iraqi Prime Minister Mohammed Shia Al-Sudani began an official visit to Syria on Sunday, the first by an Iraqi premier since the outbreak of the Syrian war in 2011, in a trip aimed at securing their shared border and bolstering economic ties.

Iraq and Syria, which have close economic, military and political ties to regional heavyweight Iran, maintained relations throughout Syria's civil war even as other Arab states withdrew their ambassadors and closed their embassies in Syria.

Baghdad and Damascus, along with Shi'ite armed groups backed by Iran, cooperated in the fight against militant group Islamic State, which spread from Iraq into Syria and at one point controlled more than a third of both countries.

Farhad Alaaldin, foreign affairs adviser to the prime minister, said Sudani was set to discuss combatting the flow of drugs, especially the amphetamine Captagon, and preventing the infiltration of Islamic State militants over their shared 600km border.

The prime minister would also discuss trade and economic cooperation and possibilities for reopening an oil export pipeline in the Mediterranean, which could help Iraq diversify its export routes, he said.

Sudani's visit comes as other countries, including Saudi Arabia, rebuild relations with Damascus after years of tensions.

Syria was suspended from the Arab League in 2011 over Assad's brutal crackdown on protests and several Gulf states supported the armed opposition to his rule.

But Assad has regained control of most of Syria with military and economic support from Russia and Iran, Syria was readmitted to the Arab League in May, and regional countries are seeking dialogue with him to end drug smuggling and return millions of refugees.

Syria has agreed to help end drug trafficking across its borders with Jordan and Iraq.

Top Syrian officials and relatives of Assad have been put on sanctions lists in recent months in the United States, United Kingdom and European Union over their alleged ties to the trade.

The Syrian government denies involvement in the drug trade.

(Reporting by Timour Azhari; Editing by Alexandra Hudson)

Iraqi premier in Syria for first visit in over a decade to discuss boosting cooperation

In this photo released by the Syrian official news agency SANA, Syrian President Bashar Assad, right, welcomes Iraq's Prime Minister Mohammed Shia al-Sudani during a welcome ceremony in Damascus, Syria, Sunday, July 16, 2023. Iraq's prime minister held talks Sunday with Syrian President Bashar Assad in Damascus during the first such trip by an Iraqi premier to the war-torn country since the 12-year conflict began. 

(SANA via AP)

SAMAR KASSABALI and ABDULRAHMAN ZEYAD
Updated Sun, July 16, 2023 

DAMASCUS, Syria (AP) — Iraq’s prime minister held talks Sunday with Syrian President Bashar Assad in Damascus during the first trip of its kind to the war-torn country since the 12-year conflict began.

The two leaders told reporters that they discussed fighting drugs, the return of Syrian refugees and the imperative of lifting Western sanctions imposed in Syria. They also talked about Israel's strikes on the war-torn country and water shortages in the Euphrates River that cuts through both countries because of projects in Turkey.

Iraq and Syria have had close relations for years even after many Arab countries withdrew their ambassadors from Damascus and Syria’s membership in the 22-member Arab League was suspended because of the crackdown on protesters in 2011.

Assad received Mohammed Shia al-Sudani, who was heading a high-ranking delegation, at the presidential palace in Damascus. They discussed mutual relations and cooperation between the two neighboring countries among other issues, according to the office of Syria’s president.

Al-Sudani’s office said in a statement that talks revolved around ways of expanding cooperation in the fields of trade, economy, transportation, tourism, how to combat climate change and collaboration to fight terrorism.

Security cooperation against extremist groups was likely to top the agenda for the two-day visit. The two countries, where Iran enjoys wide influence, have a joint 600 kilometer-long (373-mile) border. In June 2014, the Islamic State group declared the establishment of a self-styled “caliphate,” a traditional model of Islamic rule, in wide areas under its control in Iraq and Syria.

After a yearslong campaign that left tens of thousands dead in both countries, IS was defeated in Iraq in 2017 and in March 2019 in Syria. In recent years, Syrian government forces regained control of much of Syria with the help of Russia and Iran.

Earlier this year, Syria’s membership in the Arab League was reinstated and Assad attended the Arab summit that was held in Saudi Arabia in May.

Assad referred to Turkey without naming it as being behind the “theft” of Iraq and Syria's shares in the Eurphrates River in what is affecting agriculture in both countries. Assad also said that they discussed cooperating on fighting drugs, a scourge he said is "no different from terrorism as it can destroy the society the way terrorism does.”

Syria's conflict that started in March 2011 has killed half a million people and displaced half the country's pre-war population of 23 million, including more than 5 million who are refugees.

“We are interested in working through official and government channels to solve the issue of refugees and guarantee a safe return for them as soon as the situation becomes stable in places where they reside,” al-Sudani said. Iraq is hosting about 250,000 Syrian refugees.

Al-Sudani was invited to visit Damascus during a trip by Syria’s Foreign Minister Faisal Mekdad to Baghdad last month.

The Iraqi prime minister said countries around the world that have citizens in Syria's al-Hol camp, home to tens of thousands of mostly women and children linked to IS, should start working on repatriating them as Baghdad is doing.

Al-Hol camp in northeast Syria near the Iraqi border holds about 51,000 people, including the wives, widows and other family members of IS militants. Most are Syrians and Iraqis. But there are also around 8,000 women and children from 60 other nationalities who live in a part of the camp known as the Annex. They are generally considered the most die-hard IS supporters among the camp residents.

Many countries are refusing to repatriate their citizens out of concern that they might be a security threat. Iraq has repatriated hundreds of families over the past months where they undergo rehabilitation programs.

The U.S. has a presence in both Syria and Iraq and Syrian officials have been calling for the withdrawal of American troops from the country who first arrived in 2015.

On any given day there are at least 900 U.S. forces in Syria, along with an undisclosed number of contractors attempting to prevent the resurgence of the Islamic State group. U.S. special operations forces also move in and out of the country but are usually in small teams and are not included in the official count.

U.S.-led coalition forces have officially ended their combat mission in Iraq, but continue to play an advisory role to Iraqi forces in the fight against the Islamic State extremist group.

____

Zeyad reported from Baghdad. Associated Press writer Bassem Mroue contributed from Beirut.

Welcome to the Dollar War — the global battle that will decide the fate of America's economy

Phil Rosen
Sun, July 16, 2023 

While the US dollar won't be replaced as the world's favorite currency overnight, a concerted effort to eat into its dominance has the chance to erode the greenback's place in the world.

Chelsea Jia Feng/Insider

A global battle over cash will decide who rules the world economy

The US dollar isn't just for Americans — every country in the world relies on it.

The greenback has been facilitating the flow of money and goods around the world for over a century. Buying or selling oil? Usually done with dollars. Countries issuing government debt? Usually the price of those bonds is in US dollars. For generations, the greenback has been the safe haven for investors when markets crash and systems go haywire. The US even reminded everyone just how influential the buck is when it effectively froze Russia out of the global financial system with sanctions last year.

But if you listen to certain corners of the financial world and internet, the dollar's reign as the world's financial instrument of choice could be coming to an end. Motivated by a mix of politics and economics, countries from Israel and France to Russia and China have signaled they're looking to start doing more business in a currency other than the US dollar. Central banks have also started to tiptoe away from the dollar, with currencies like the Chinese yuan, Japanese yen, and euro taking up a growing portion of global reserves.

These doom-and-gloom scenarios are overblown, financial experts told me, but in classic conspiracy fashion there's a kernel of truth to the freak out if you look hard enough. The percentage of financial transactions done in US dollars has slipped over the past few decades, and the percentage of countries' cash reserves that are held in dollars has been sliding.

These shifts, while notable, don't mean the US dollar's dominance is going to end anytime soon. There may be changes around the edges, but as the Stanford finance professor Chenzi Xu told me, there's still no viable alternative to cold, hard American cash.

"What currency would those countries hold instead?" Xu said. "We need something that looks like money, that will act like money. If you don't hold dollars, there's no alternative because everything else is too small or subject to the same risks as the dollar but worse."

While the US dollar won't be replaced as the world's reserve currency overnight, a concerted effort to eat into its dominance has the chance to erode the greenback's place in the world and cause real shifts in the financial system. If America wants to stay on top, the US can't take the dollar's status for granted.

The long arm of the dollar

Over the past five centuries, only a handful of countries have issued the bills the world uses to conduct financial transactions — the globe's reserve currency. Becoming the issuer of the global reserve currency is about trust. Whether it was the Dutch guilder, the French franc, or the British pound sterling, people trusted that the value of that currency — backed by the country's government — would stay steady enough to be the benchmark for a transaction. Political instability or prolonged economic downturns can chip away at that trust, until one day the currency is supplanted by cash from a country that is more powerful, more economically stable, and therefore more trustworthy.

For the past 102 years, the US has sat atop of the currency heap. And the globalized nature of the world's economy means the US dollar has achieved a more powerful status than previous reserve currencies. This so-called "exorbitant privilege" places America on top of an asymmetric financial system, grants the US major trade benefits, and mutes the blowback of other nations' economic fluctuations. This dynamic also means that the Federal Reserve — which is responsible for printing and controlling the supply of US dollars — is closely watched around the globe. The rest of the world pays far more attention to its policy decisions than, say, the European Central Bank or the People's Bank of China. Ron Temple, the chief market strategist at Lazard, told me that the US dollar achieved this vaunted status thanks to more than a century's worth of rule of law and stable markets, which helped earn the confidence of investors.

"People in any country around the world can be found with $100 bills tucked away for safety," he said. "That especially became true after World War II, when the US dominated manufacturing and trade while other countries were still rebuilding after the war. The US was just an economic powerhouse, with robust institutions that could withstand partisanship and conflict."

The US has controlled the global reserve currency for 102 years — giving it a special status in the world economy.

CFOTO/Future Publishing via Getty Images

Today, nearly 60% of international reserves are held in dollar-denominated assets, according to the International Monetary Fund, and it's by far the most-used currency for trade. Data from the Bank of International Settlements shows the dollar is involved in about 88% of all international trade transactions. A good litmus test to see exactly how much sway a reserve currency has is to look at what happens during financial crises. And for the past century, investors always rush to assets they can convert to dollars.

Countries like China or Saudi Arabia are doing what they can to "thumb their nose in the direction of the US," Gregory Brew, an analyst at the consultancy firm Eurasia Group, told me, but until American assets are no longer viewed as the best option in times of catastrophe, the dollar won't lose its seat at the head of the table anytime soon. Still, given that the country controlling the global reserve currency holds that status of an average of 94 years, history seems to indicate it's high time for a successor. So while the timeline may be long, talks of de-dollarization are proof that there may be a new movement afoot.

Threats to hegemony

The global economic order as we know it will end with Operation Sandman.

When Operation Sandman is launched, the emerging theory goes, 100 countries from around the world will sell off trillions of dollars worth of US government debt in a coordinated effort to undermine the value of the dollar and break America's dominance over the world's economy. The move will be calamitous for America and the global order, but in time, the effort to break the US dollar's hold on the world will open the door to a new hierarchy of economic superpowers.

If that all sounds a little far-fetched, that's because discussion of Operation Sandman is mostly confined to chatter on economic and currency conspiracy accounts on Reddit and TikTok. This "mother of all dollar conspiracies," as one Reddit user called it, would certainly be a momentous start to a new chapter, but there's little real-world indication that it could come to fruition.

"I think we live in a conspiratorial time," Eurasia's Brew said. "There's an abiding interest in certain online communities in the idea that the global economy — and specifically the world of fiat currency — is teetering on the brink of some kind of systemic collapse."

Despite the crackpot inclinations of Operation Sandman's biggest fans, they do get one thing right: There's clear evidence the world is de-dollarizing.

Stephen Jen, the chief executive of Eurizon SLJ Capital and a former economist at the IMF, caused a stir in economic circles with an April note to clients that declared the "erosion of the dollar's reserve currency status has accelerated in recent years at an alarming pace." By Jen's calculations, the share of global reserves held in dollars saw a sharp decline in 2022, eroding at nearly 10 times the average annual pace of the past two decades. In 2003, the dollar accounted for roughly two-thirds of global reserves, but Jen said his data shows that's fallen to about 47% — a much lower mark than the IMF's 60% estimate. Other groups have failed to detect as steep a drop, he told me, because they don't account for fluctuations in the underlying value of the dollars in central banks' coffers.

Jen told me that while countries beyond the US are still frequently using dollars, the appetite for the currency has cooled recently. "We've seen a sharp decline in global interest in US dollars," he said. "After 15 years of very gradual declines, we've seen a plunge, an absolute plunge in the past year."

Most shifts away from the dollar can be chalked up to politics. The world is waking up to just how America-centric the financial world has become, Jen explained — a far cry from the multipolar nature of the cultural and political landscape. And the economies in developing countries have grown larger and more sophisticated over the past few decades, which means there are fewer reasons to stay embedded in a financial landscape that hinges on the dollar and the Fed.

"There is a legitimate argument to ask the question of whether other countries should cope with a unipolar currency world," Jen said. "There's a disconnect between the two — the financial world and the real world."

It's an interesting line of thinking. Why shouldn't the financial world resemble something closer to the mosaic of cultures, politics, and nations that exists today? Naturally, it's something other world powers, such as Russia and China, would want. When the US froze hundreds of billions of Moscow's dollar reserves, it reminded other countries that the buck can indeed be weaponized.

Stanford's Xu told me that other countries are thinking: "Well, if I end up in Russia's shoes, where all my dollar assets are unusable, then it makes sense to go back to our own domestic currency." While it would make every transaction more difficult, Xu added it could "shield you from bigger shocks of not being able to use your savings."

China, for one, has made a concerted effort to promote its currency — the yuan — for international trade as a way to shield itself during a time of heightened geopolitical tensions with the US. While China's yuan comprises less than 3% of global reserve currencies, it's seen its slice of the pie grow at the fastest rate of any currency since 2016. Meanwhile, Saudi Arabia, France, Brazil, India, Pakistan, Bolivia, Iraq, and others have either completed trades using yuan or expressed a willingness to participate in yuan-denominated trade in the future. These make up a tiny fraction of total dollar transactions, but the trend is emerging.

"There's a very strong political element to this, particularly with US-China relations worsening," Eurasia's Brew told me. "From China's point of view, de-dollarization reduces their exposure to US influence and potential future sanctions. It's becoming clear the two will compete economically and diplomatically, and the yuan is becoming a political driver for other countries interested in improving their relations with China."

Meanwhile, BRICS nations — Brazil, Russia, India, China, and South Africa — have indicated that they want to launch a shared currency to directly rival the dollar. "Every night I ask myself why all countries have to base their trade on the dollar," Brazil's leftist president Luiz Inácio Lula da Silva said in April. "Why can't we do trade based on our own currencies?"

There are plenty of other threats to the dollar too: digital currencies, unexpected backlash to US sanctions, even the Fed. Josh Lipsky, the senior director at the Atlantic Council, said that the Fed's aggressive interest-rate hikes over the past year and a half have widened the gap in exchange rates between many developing nations and the US. As a result, other countries' debt gets more expensive.

"Other economies have felt the pain from the dollar very acutely," Lipsky said. "Evidence of de-dollarization is small but growing."

Small shifts, long ripples

For most people whose financial lives consist of paying bills, buying gas, and getting a mortgage, the idea of de-dollarization may seem a world away. It's not as if the average American is going to settle a cross-border oil contract or that the grocery store is going to refuse dollars anytime soon. The experts I talked to agreed: Unless you regularly transact at an institutional- or country-level, Americans probably won't notice the direct effects in their everyday lives.

But for firms that do transact at the institutional level, a weaker buck — one possible consequence of de-dollarization — could gradually crimp demand for dollars and diminish its standing as the go-to currency for big deals.

JPMorgan strategists Alexander Wise and Jan Loeys told clients they only expect marginal de-dollarization over the next decade. If the dollar's status does wane beyond that, it's possible US assets could see a hit — lower stocks, higher bond yields, pricier imports. The biggest threat, Wise and Loeys said, is if the US's geopolitical standing takes a hit.

"De-dollarization per se probably has little impact on growth and inflation, but the adverse events which could catalyze de-dollarization would probably worsen both," Wise and Loeys wrote in June.

If being the reserve currency is about trust, then any shift away from the US dollar would indicate an erosion of trust in America — its government, its economy, its financial system. The events that would cause that decline in faith would clearly be a negative for both our economy and society. A politically fueled debt default or a sudden divestment from American assets (albeit in a less coordinated fashion than Operation Sandman), would erode that faith — though neither have historical precedent.

The most likely path forward, according to the JPMorgan team, is partial de-dollarization that takes place over several decades, with the Chinese yuan the most likely candidate to cut into the dollar's share of trade and reserves. But shifting to the yuan would come with a host of new issues, from China's rules around cash leaving the mainland to the country's own economic problems. It's not even clear Beijing wants its currency to take on the reserve role.

To Stanford's Xu, de-dollarization fears are largely moot given the sheer number of greenbacks sloshing around the global financial system. It's estimated that half of all international loans and trade invoices are denominated in dollars, and the more companies and governments that use dollars as their benchmark, the more that liquidity deepens. For de-dollarization to happen, a very large stockpile of safe, low-risk debt backed by another currency would have to materialize, and Xu said that would probably require a crisis-level scenario where everyone dumps their dollars all at once. And, again, the odds of either happening remain slim.

"Having the reserve currency is unambiguously a good thing for the US," Xu said. "Part of maintaining that does require having some amount of goodwill in the world, and if the US can do that, it's going to keep providing safe assets for the international economy."

The panic is overdone, but the trend is real

It's easy to scoff at conspiracies on Reddit, but there is truth behind the whispers of de-dollarization. It is real, and it is happening — but at a far slower clip than the recent headlines may suggest.

Rather than shrugging it off entirely, however, America's leaders — from Congress to the Fed — should take all of the talk as a reminder not to take the coveted status for granted. Fooling around with Fed policy, threatening to default on US debt, or hastily imposing financial sanctions, Lazard's Temple said, isn't doing America any favors. A century of having the top currency shouldn't lead anyone to believe we'll have a century longer.

"We should always recognize we get tremendous benefits from maintaining the dollar's status," Temple said. "I don't think anything is permanent, and other countries could be ready to use something other than the dollar at some point. The 'exorbitant privilege' that we've had for decades is not a birthright."

Phil Rosen is a senior reporter for Insider covering markets and the economy.

History Says It’s Time to Buy Long-Term Bonds as Peak Rates Near


Ye Xie and Liz Capo McCormick
Sat, July 15, 2023 at 2:00 PM MDT·5 min read





(Bloomberg) -- Investors loading up on long-term bonds have history at their back.

For decades, Treasuries maturing in 10 or more years have consistently outperformed shorter-dated sectors immediately following the last in a series of interest-rate increases by the Federal Reserve. On average, they returned 10% over six months after the fed funds rate peaked.

Of course, only in hindsight is it known whether a rate increase is the last one. But investors have embraced the view that an expected quarter-point hike in the target range for the federal funds rate on July 26 will conclude the epic series that began in March 2022. And surveys by Bank of America Corp. and JPMorgan Chase & Co. have found that investors digesting the price action have jacked up their exposure to long-dated bonds.

“We like the idea of extending and adding duration at this point in the cycle,” said Nisha Patel, a managing director of SMA portfolio management at Parametric Portfolio Associates LLC. “Historically, over previous tightening cycles, yields have tended to decline” during the period between the last hike and the first rate cut, she said.

Bonds this week logged their biggest gains since March — when the failure of several regional banks unleashed haven demand — after a report showed consumer prices increased at the slowest pace in two years. Swap contracts that as recently as last week assigned more than 50% odds to another Fed rate increase after this month repriced that to around 20%, and added to wagers on rate cuts next year.

The sentiment shift kneecapped the dollar, which suffered its biggest weekly loss since November. With the European Central Bank and other major monetary authorities expected to remain in tightening mode, there’s probably more downside in store for the greenback, according to strategists at ING Bank N.V.

In bonds, the biggest moves in yield were in short- and intermediate-maturity tenors where expectations for Fed policy are expressed. The five-year rate tumbled nearly 35 basis points, compared with just 13 basis points for the 30-year.

But long-dated bonds’ greater price sensitivity to a given change in yield means investors can reap bigger rewards. On average, Treasuries maturing in 10 or more years have gained 10% in the six months after a Fed policy-rate peak, compared with 6.5% for bonds maturing between five and seven years and 3.7% for those due within three years, according to data compiled by Bloomberg. In 12 months, the longest-dated bonds returned 13%, outpacing the other sectors.

“There is finally income to be earned in the fixed-income market,” BlackRock President Rob Kapito told analysts Friday, calling the higher yields a “remarkable shift” and a “once-in-a-generation opportunity.”

As an end-of-cycle theme, it’s proven more reliable than wagering on relative changes in yields such as the one that occurred this week as two- to five-year rates dropped more than longer-dated ones, producing a steeper yield curve.

The difference between two- and 10-year yields increased in the six months after the Fed concluded a tightening cycle in December 2018, but it narrowed following the end of one in 2006.

“Going long duration at the end of the hiking cycle is a more consistent trade than the steepener, which is more conditional on a harder landing outcome from the Fed,” Bank of America’s strategists including Mark Cabana and Meghan Swiber wrote in a note.

A Bank of America investor survey conducted monthly since 2004 found that respondents had amassed a record amount of interest-rate risk relative to their benchmarks in June before trimming a bit this month.

“I love duration here,” said Eddy Vataru, a fixed-income manager at Osterweis Capital Management. Inflation, which cooled to 3% last month, its 12th straight drop from a peak of 9.1% last year, has scope to fall below 2%, he said.

To be sure, Fed policymakers remain on guard. Their quarterly forecasts for the policy rate released in June had a median expectation for two additional increases this year. Fed Governor Christopher Waller Thursday said he agreed with that even after the latest inflation reading as the labor market remains very robust.

Even if employment strength induces the Fed to keep tightening beyond July, investors may pile into Treasuries because yields are high enough to be a compelling hedge against a possible recession, said Michael Franzese, head of fixed-income trading for New York-based market-maker MCAP LLC.

“You have a lot of investors looking now to make a bet and buy” if yields move back up, he said. “We may see a wave of new buying coming in, as Treasuries are an asset that could start to accrete really well for investors when the Fed does eventually start cutting.”

WAR ON THE G IN ESG
House Republicans want to change the way shareholder meetings work. Here's how.

The ideas range from making it easier for corporate leadership to summarily dispatch shareholder proposals, to limits on the role of the SEC.

ESG needs to focus on 'investing first and not marketing': Strategist

- Investors are continuing  to pull away from ESG funds


Ben Werschkul
·Washington Correspondent
Sun, July 16, 2023

House Republicans unveiled a push last week aimed at changing how shareholder meetings work as part of their larger campaign against socially-conscious investing.

The effort included a whopping 13 bills as well as two separate Congressional hearings devoted to the subject.

Some ideas would make it easier for corporate leadership to quickly dispatch shareholder proposals without a vote. Others would place limits on the role of the Securities and Exchange Commission (SEC). The proxy voting process — which conservatives say introduces too many "non-material" topics — is also an area of intense interest.

Republicans are looking to potentially pass some proposals by the end of the month but the ideas are unlikely to be embraced by Senate Democrats. Nonetheless, the keen focus on these often non-political gatherings could put further pressure on companies as they try to strike a balance between rising shareholder activism and the political backlash against so-called environmental, social, and corporate governance (ESG) principles.

"We must prevent shareholder activism from diverting attention and resources away from the core issues at hand," House Financial Services Committee chair Patrick McHenry (R-NC) said as he kicked off his party’s ‘ESG month’. He promises that these proposals are serious efforts to force change not simply so-called messaging bills designed to make a political point.

Warren Buffett's image welcomes Berkshire Hathaway shareholders to a picnic during the company's annual meeting in Omaha, Nebraska in 2011. (REUTERS/Rick Wilking)

Democrats, meanwhile, charge that Republicans are unduly influenced by fossil fuel companies, and these efforts are little more than an attempt to shut down the voices of women and minorities in the corporate governance process.

"The reason for this hearing is not because investors won’t vote for these resolutions, it’s because they will," said Rep. Brad Sherman (D-CA). Rep. Maxine Waters (D-CA) added sarcastically that the proposals are designed to "protect investors from their own ideas."

The shareholder proposal process is typically a non-binding affair — CEOs and boards are usually free to ignore them if they wish — but they can exert pressure on companies to change behaviors. Corporate directors often feel the pressure most acutely, as the same group of shareholders putting forward these proposals also vote on their appointment or removal from office.
A movement in response to a rising trend of shareholder activism

The campaign in Washington comes in response to a surge in shareholder activism in the pro- and anti- ESG directions.

An analysis by ISS Corporate Solutions found a record number of shareholder proposals through the first five months of 2023 with just 8.3% being approved so far.

A big factor in the surge is a rise of anti-ESG efforts. ISS found this type of proposal has grown by more than 400% since 2020 and a recent Harvard University analysis found that concerns there were decidedly focused on diversity matters with two-thirds of the proposals in 2023. Only about 10% concerned the environment.

The rising shareholder activism has come in part following a change in the rules after Joe Biden took office. During the Trump administration, then-SEC Chair Jay Clayton often discouraged proposals with an agency that was empowered to take actions like so-called "no action letters" to short-circuit some shareholder proposals.

Rep. Patrick McHenry (R-NC) is chair of the House Financial Services Committee. (Tom Williams/CQ-Roll Call, Inc via Getty Images)

Many of those rules were reversed in 2021 when Gary Gensler took office as chair of the SEC. In recent years, the agency has instead actively prodded corporate directors and shareholders to more forcefully consider issues like the climate.

Many of the latest bills introduced would re-implement some Trump-era rules but with the additional force of law.

One proposal would allow corporate boards to simply exclude a resolution "if the subject matter of the shareholder proposal is environmental, social, or political." Additional ideas take aim at proposals that are deemed repetitive with other GOP lawmakers focused on limiting the influence of asset management giants like BlackRock. Others would forbid the SEC from weighing in.
A focus on proxy advisory firms

Republicans have also unified around a key villain that they say is tipping the scales: Proxy advisory firms.

The two main companies in the space —Glass Lewis and Institutional Shareholder Services (ISS) — are far from household names but their purported influence came up again and again.

"I would love to see this duopoly broken up," said Rep. Bryan Steil (R-WI) in one of many heated moments in recent days.

These firms emerged over the past few years in concert with giant asset management giants like BlackRock and State Street who hold large stakes in companies across the economy due to the trillions that they manage for their clients.

Rep. Maxine Waters (D-CA) led Democrats lawmakers during a news conference to lambaste the GOP focus on corporate environmental and social policy investing. (Drew Angerer/Getty Images)

The proxy advisory firms' stated purpose is to provide information to the asset management companies about their investments but the charge from Republicans is that the companies have ESG-infused models that are essentially forcing the principles down companies’ throats.

The Business Roundtable has weighed in on what it says is an outsized influence for these firms. Kristen Silverberg, the group’s President and COO, wrote in a letter to lawmakers that "recommendations of proxy advisory firms often dictate the outcome of shareholder votes, and with them, some of the most important decisions facing public companies."

For their part, these firms deny any outsized influence, with both Glass Lewis and ISS appearing before lawmakers this week to defend themselves.

Steven Friedman, the general counsel at ISS promised lawmakers "we perform our work in a prudent, open, and honest manner, consistent with our fiduciary responsibilities."

Ben Werschkul is a Washington correspondent for Yahoo Finance.

Appeals court pauses order limiting Biden administration contact with social media companies


President Joe Biden gives a thumbs up as he walks with first lady Jill Biden to board Marine One on the South Lawn of the White House in Washington, Friday, July 14, 2023, as they head to Camp David for the weekend. 

(AP Photo/Stephanie Scarbrough)


KEVIN McGILL
Updated Fri, July 14, 2023 

NEW ORLEANS (AP) — A federal appeals court Friday temporarily paused a lower court’s order limiting executive branch officials’ communications with social media companies about controversial online posts.

Biden administration lawyers had asked the 5th U.S. Circuit Court of Appeals in New Orleans to stay the preliminary injunction issued on July 4 by U.S. District Judge Terry Doughty. Doughty himself had rejected a request to put his order on hold pending appeal.

Friday's brief 5th Circuit order put Doughty's injunction on hold “until further orders of the court.” It called for arguments in the case to be scheduled on an expedited basis.

Filed last year, the lawsuit claimed the administration, in effect, censored free speech by discussing possible regulatory action the government could take while pressuring companies to remove what it deemed misinformation. COVID-19 vaccines, legal issues involving President Joe Biden’s son Hunter and election fraud allegations were among the topics spotlighted in the lawsuit.

Doughty, nominated to the federal bench by former President Donald Trump, issued an Independence Day order and accompanying reasons that covered more than 160 pages. He said the plaintiffs were likely to win their ongoing lawsuit. His injunction blocked the Department of Health and Human Services, the FBI and multiple other government agencies and administration officials from “encouraging, pressuring, or inducing in any manner the removal, deletion, suppression, or reduction of content containing protected free speech."

Administration lawyers said the order was overly broad and vague, raising questions about what officials can say in conversations with social media companies or in public statements. They said Doughty's order posed a threat of “grave” public harm by chilling executive branch efforts to combat online misinformation.

Doughty rejected the administration's request for a stay on Monday, writing: “Defendants argue that the injunction should be stayed because it might interfere with the Government’s ability to continue working with social-media companies to censor Americans’ core political speech on the basis of viewpoint. In other words, the Government seeks a stay of the injunction so that it can continue violating the First Amendment.”

In its request that the 5th Circuit issue a stay, administration lawyers said there has been no evidence of threats by the administration. “The district court identified no evidence suggesting that a threat accompanied any request for the removal of content. Indeed, the order denying the stay — presumably highlighting the ostensibly strongest evidence — referred to ‘a series of public media statements,’” the administration said.

Friday's "administrative stay" was issued without comment by a panel of three 5th Circuit judges: Carl Stewart, nominated to the court by former President Bill Clinton; James Graves, nominated by former President Barack Obama; and Andrew Oldham, nominated by Trump. A different panel drawn from the court, which has 17 active members, will hear arguments on a longer stay.

THE POLITICAL ECONOMY OF WAR

Russia Ukraine War Grain Deal Explainer

Why allowing Ukraine to ship grain during Russia's war matters to the world
 

 A farmer collects harvest in a field ten kilometers from the front line, around a crater left by a Russian rocket in the foreground, in the Dnipropetrovsk region, Ukraine, July 4, 2022. 

(AP Photo/Efrem Lukatsky, File)

 

 Workers load grain at a grain port in Izmail, Ukraine, April 26, 2023. 

(AP Photo/Andrew Kravchenko, File)

 

Harvesters collect wheat in the village of Zghurivka, Ukraine, on Aug. 9, 2022. 

 (AP Photo/Efrem Lukatsky, File)

 Exterior view of the grain storage terminal during visit of United Nations Secretary General Antonio Guterres at the Odesa Sea Port, in Odesa, Ukraine, Aug. 19, 2022. Agreements that the U.N. and Turkey brokered with Ukraine and Russia to allow food and fertilizer to get from the warring nations to parts of the world where millions are going hungry have eased concerns over global food security. But they face increasing risks. Moscow has ramped up its rhetoric, saying it may not extend the deal that expires Monday July 17, 2023, unless its demands are met. 

(AP Photo/Kostiantyn Liberov, File)


COURTNEY BONNELL
Sat, July 15, 2023 

LONDON (AP) — Agreements that the United Nations and Turkey brokered with Ukraine and Russia to allow food and fertilizer to get from the warring nations to parts of the world where millions are going hungry have eased concerns over global food security. But they face increasing risks.

Moscow has ramped up its rhetoric, saying it may not extend the deal that expires Monday unless its demands are met, including ensuring its own agricultural shipments don't face hurdles.

The Black Sea Grain Initiative has allowed 32.8 million metric tons (36.2 million tons) of food to be exported from Ukraine since last August, more than half to developing countries, including those getting relief from the World Food Program.

If the deal isn’t renewed, “you will have a new spike for sure” in food prices, said Maximo Torero, U.N. Food and Agriculture Organization chief economist. “The duration of that spike will depend a lot on how markets will respond."

The good news is some analysts don't foresee a lasting rise in the cost of global food commodities like wheat because there’s enough grain in the world to go around. But many countries are already struggling with high local food prices, which are helping fuel hunger.

Here's a look at the crucial accord and what it means for the world:

WHAT IS THE GRAIN DEAL?

Ukraine and Russia signed separate agreements in August 2022 that reopened three of Ukraine's Black Sea ports, which were blocked for months following Moscow's invasion. They also facilitated the movement of Russian produce amid Western sanctions.

Both countries are major global suppliers of wheat, barley, sunflower oil and other affordable food products that Africa, the Middle East and parts of Asia rely on. Ukraine is also a huge exporter of corn, and Russia of fertilizer — other critical parts of the food chain.

Interrupted shipments from Ukraine, dubbed the “breadbasket of the world,” exacerbated a global food crisis and sent prices for grain soaring worldwide.

“One major agricultural producer is waging war on another major agricultural producer, which is affecting the price of food and fertilizers for millions of people around the world,” said Caitlin Welsh, director of the Global Food and Water Security Program at the Center for Strategic and International Studies.

The deal provides assurances that ships won't be attacked entering and leaving Ukrainian ports. Vessels are checked by Russian, Ukrainian, U.N. and Turkish officials to ensure they carry only food and not weapons that could help either side.

Meant to be extended every four months, the deal was hailed as a beacon of hope amid war and has been renewed three times — the last two for only two months as Russia insisted its exports were being held up.

WHAT HAS IT ACCOMPLISHED?

The deal helped bring down global prices of food commodities like wheat that hit record highs after Russia invaded Ukraine.

As the war caused food and energy costs to surge worldwide, millions of people were thrown into poverty and faced greater food insecurity in already vulnerable nations.

Once the grain deal was struck, the World Food Program got back its No. 2 supplier, allowing 725,000 metric tons (800,000 tons) of humanitarian food aid to leave Ukraine and reach countries on the precipice of famine, including Ethiopia, Afghanistan and Yemen.

“It is a pretty unique phenomenon to have two warring parties and two intermediaries agree to establish this sort of corridor to get humanitarian products — which is ostensibly what this is — out to markets that need it most,” said John Stawpert, senior manager of environment and trade for the International Chamber of Shipping, which represents 80% of the world’s commercial fleet.

WHAT THREATENS THE DEAL?

Russian President Vladimir Putin said Moscow wouldn’t extend the grain deal unless the West fulfills “the promises given to us.”

“We have repeatedly shown goodwill to extend this deal," Putin told reporters Thursday. "Enough is enough.”

He said he wants an end to sanctions on the Russian Agricultural Bank and to restrictions on shipping and insurance that he insists have hampered agricultural exports.

Some companies have been wary of doing business with Russia because of sanctions, but Western allies have made assurances that food and fertilizer are exempt.

“It’s not uncommon in situations like this for countries to use whatever levers they have to try and get sanctions regimes changed," said Simon Evenett, professor of international trade and economic development at the University of St. Gallen in Switzerland.

U.N. Secretary-General Antonio Guterres sent a letter to Putin this week proposing to ease transactions through the agricultural bank, a spokesperson said.

Russian “claims that its agriculture sector is suffering are countered by the reality" that production and exports are up since before the war, Welsh said.

Russia exported a record 45.5 million metric tons of wheat in the 2022-2023 trade year, with another all-time high of 47.5 million metric tons expected in 2023-2024, according to U.S. Department of Agriculture estimates.

WHO IS AFFECTED?

The International Rescue Committee calls the grain deal a “lifeline for the 79 countries and 349 million people on the frontlines of food insecurity."

East Africa, for instance, has seen both severe drought and flooding, destroying crops for 2.2 million people who depend on farming for their livelihoods, said Shashwat Saraf, the group’s regional emergency director for East Africa.

“It is critical that the deal is extended for a longer term to create some predictability and stability,” he said in a statement.

Countries that depend on imported food, from Lebanon to Egypt, would need to find suppliers outside the Black Sea region, which would raise costs because they are further away, analysts say.

That would compound costs for countries that also have seen their currencies weaken and debt levels grow because they pay for food shipments in dollars.

For low-income countries and people, food “will be less affordable” if the grain deal isn't renewed, World Food Program chief economist Arif Husain told reporters.

WHAT ABOUT UKRAINE?

Ukraine's economy depends on agriculture, and before the war, 75% of its grain exports went through the Black Sea.

It can send its food by land or river through Europe, so it wouldn’t be cut off from world markets if the grain deal ends, but those routes have a lower capacity than sea shipments and have stirred anger from farmers in neighboring countries.

Nonetheless, the Ukrainian Grain Association wants to send more grain through the Danube River to neighboring Romania's Black Sea ports, saying it's possible to double monthly exports along that route to 4 million metric tons.

Ukraine’s wheat shipments have fallen by more than 40% from its pre-war average, with the USDA expecting 10.5 million metric tons exported in the coming year.

Ukraine has accused Russia of slowing down inspections of ships and preventing new ones from joining the initiative, leading to a drop in its food exports from a high of 4.2 million metric tons in October to 2 million in June.

WHAT ELSE AFFECTS FOOD SUPPLY?

Fallout from the pandemic, economic crises, drought and other climate factors affect the ability of people to get enough to eat.

There are 45 countries that need food assistance, the Food and Agriculture Organization said in a July report. High domestic food prices are driving hunger in most of those countries, including Haiti, Ukraine, Venezuela and several in Africa and Asia.

While drought can also be a problem for major grain suppliers, analysts see other countries producing enough grain to counterbalance any losses from Ukraine.

Besides Russia's huge exports, Europe and Argentina are increasing wheat shipments, while Brazil saw a banner year for corn.

“These markets adapt and producers adapt — and boy, the wheat and corn markets have adapted very, very quickly,” said Peter Meyer, head of grain analytics at S&P Global Commodity Insights.

___

AP reporter Edith M. Lederer at the United Nations contributed