Fed hopes biggest rate hike in 22 years tames inflation without recession or stagflation: 3 essential reads on what it all means


The Conversation
Wed, May 4, 2022,

The prices of most meat and other products have been soaring lately. 

AP Photo/Charles Krupa

The Federal Reserve on May 4, 2022, lifted its benchmark interest rate by half a percentage point to a range of 0.75% to 1%, its biggest increase in 22 years. The aggressive move, which has been expected for many months, is part of the U.S. central bank’s effort to slow the fastest inflation in 40 years. More rate hikes are forecast in the coming months.

Economists, financial markets and others are concerned that rising rates could send the economy into recession. Even worse, some worry higher rates could lead to what’s known as stagflation.

But how does the Fed get rising consumer prices under control, can it avoid the dreaded R word – recession – and what the heck is stagflation? In recent weeks, we’ve asked several experts to explain these complex topics to help readers better understand what’s at stake as the Fed takes on its biggest inflation fight in two generations. Here are excerpts from three of those articles.

Cooling the economy

The Fed’s main monetary policy tool is the federal funds rate, which acts as a benchmark for every other interest rate in the U.S. economy – from borrowing rates for mortgages to business loans. It also helps determine many other rates around the world.

When it goes up – or is expected to – consumers and businesses end up paying more to borrow for a new home or build a factory. As a result, they buy less stuff and make fewer investments, slowing the economy, explains Rodney Ramcharan, who has studied how monetary policy affects the economy for decades while working at the Federal Reserve, the International Monetary Fund and now the University of Southern California.

“This is the cost to the economy when the Fed raises interest rates,” he writes. By cooling the economy and reducing demand, lifting interest rates also has the effect of slowing inflation.

But with inflation running at 8.5% year over year, “no one really knows how high interest rates might need to climb in order to get inflation back down” to the level the Fed prefers, around 2%, he adds.

Read more: How raising interest rates curbs inflation – and what could possibly go wrong

Is recession inevitable?

And there’s the rub.

The Fed says it’s serious about taming consumer prices and believes it can execute what’s known as a “soft landing,” in which inflation slows down without seriously damaging the economy.

But the higher rates go, the more economic activity will slow. If you ask Alex Domash and Lawrence Summers of the Harvard Kennedy School, they’ll tell you it’s already too late. Based on their analysis of 70 years of efforts to do so, the Fed probably can’t prevent a recession.

“The history of engineering soft landings is not encouraging,” Domash and Summers write. “We found that every time the Fed has hit the brakes hard enough to bring down inflation in a meaningful way, the economy has gone into recession.”

Read more: Fed hopes for ‘soft landing’ for the US economy, but history suggests it won’t be able to prevent a recession

The nightmare scenario

That brings us to the nightmare scenario. What if the Fed successfully slows the economy but fails to meaningfully reduce inflation?

That’s stagflation – and for policymakers there’s almost nothing worse, explains SUNY Old Westbury economist Veronika Dolar.

“The problem is that the ways to fight either one of those two problems – high inflation, low growth – usually end up making the other one even worse,” she writes. “And that means solving the problem may simply depend on circumstances out of U.S. policymakers’ control, such as an end to the crisis in Ukraine or finding ways to immediately increase oil supply – which is tricky.”

It’s too soon to say whether the U.S. economy will experience stagflation, but it’s certainly on the minds of Fed policymakers.

Read more: Why stagflation is an economic nightmare – and could become a real headache for Biden and the Fed if it emerges in the US


Editor’s note: This story is a roundup of articles from The Conversation’s archives.

Standard Chartered shareholders lodge protest vote against executive pay

Madeleine Bruder



Almost a third of Standard Chartered’s shareholders voted against executive pay at the bank’s annual meeting, after proxy advisers criticised the bank for not cutting top managers’ bonuses enough in the wake of a record UK regulatory fine.

While both remuneration resolutions passed at the annual meeting on Wednesday in London, 31 per cent of votes were cast against the pay policy and 27 per cent opposed the 2021 pay report. Usually, resolutions pass with far higher levels of support.

Before the meeting, shareholder advisers ISS and Glass Lewis told investors to vote against the proposals because they were not satisfied that executives had been adequately punished for a £46.5mn penalty from the Prudential Regulation Authority in December.

The PRA censured the bank for repeatedly reporting a critical liquidity metric incorrectly and not being “open and co-operative” during an investigation.

As a result of the PRA fine, StanChart executives received only a 7 percentage point reduction to their performance scorecard for 2021. They were therefore deemed to have hit 57 per cent of their targets, equivalent to £1.4bn in bonus pay, 38 per cent higher than in 2020.

Chief executive Bill Winters’ total pay increased 19 per cent to £4.66mn last year, while Andy Halford, chief financial officer, received a 21 per cent boost to £2.98mn.

There was a smaller vote against the lender’s net zero-by-2050 plans after a campaign by activists, who hung protest banners outside the AGM venue, while a separate group of protesters disrupted the meeting by chanting and wearing horned devil masks with the faces of Winters and chair José Viñals.

About 17 per cent of investors voted against the policy, while a shareholder resolution to impose a more aggressive set of net zero targets won only 11 per cent support.

The AGM votes came as performance began to improve at the emerging markets-focused lender.

Last week, StanChart reported a 6 per cent increase in pre-tax profits in the first quarter of 2022 after a surge in trading income and transaction banking. The shares jumped more than 14 per cent on the day.

StanChart said: “We are disappointed that a minority of our shareholders voted against the bank’s remuneration report and policy. The views of all shareholders are important to us, and we will continue to engage with them in the forthcoming months.”

Separately, 11 per cent of Barclays shareholders voted against its pay report at its AGM the same day in Manchester. However, 19 per cent opposed its climate strategy and targets, while activists interrupted the meeting for 25 minutes after some glued themselves to chairs and set off alarms.

“There has been extensive engagement with stakeholders around this issue,” the bank said in response. “We are aware of a spectrum of views across the share register . . . and we will continue to engage around this issue and look forward to providing an update on green financing later in the year.”

CRIMINAL CAPITALI$M

BofA Slapped With $10M Fine After Garnishing Customers Illegally

The Consumer Financial Protection Bureau found illegal garnishment orders and ordered the bank to pay customers back.

ELLEN CHANG

Th garnishment orders conducted by Bank of America (BAC) - Get Bank of America Corp Report against customer accounts were illegal and the retail bank is required to pay a $10 million fine to the Consumer Financial Protection Bureau (CFPB).

The enforcement action from the CFPB occurred because the retail bank processed out-of-state garnishment orders against its customers’ bank accounts.

"Bank of America unlawfully froze customer accounts, charged garnishment fees, garnished funds and sent payments to creditors based on out-of-state garnishment court orders that should have been processed under the laws and protections of the states where the consumers lived," the CFPB said.

The bank also violated the law by adding "unfair and unenforceable language" into contracts that "purported to limit customers’ rights to challenge" the garnishments.

A Bank of America spokesperson said the company processed about one million garnishment court orders during the five years reviewed.

"We have enhanced our processes to ensure compliance with all applicable state laws as we execute court orders," said spokesman Bill Halldin. "As part of this agreement, we will refund associated fees to customers involved in approximately 3,700 cases."

The CFPB is requiring Bank of America to either refund or cancel the imposed fees from the unlawful garnishments and review and reform its system for processing garnishments.

“Bank of America imposed unlawful garnishment fees and injured its customers by inserting unenforceable clauses into contracts in an attempt to strip legal rights from families,” said Rohit Chopra, director of the CFPB.

“The CFPB is ordering Bank of America to fix its systems, clean up its contracts, and make its victims whole.”

Garnishments typically occur after a court order when a creditor takes a set amount of money from a bank account to pay back a debt.
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State laws have set limits or “exemptions” for bank account and paycheck garnishments to "make sure people have money left to live on following garnishment," the CFPB said.

The Timeline

Bank of America began unlawfully garnishing at least 3,700 out-of-state accounts in August 2011.

These accounts paid a minimum of $592,000 in garnishment fees.

The bank engaged in both unfair and deceptive acts and practices when money from customers’ bank accounts was frozen or paid out even when local state laws deemed that impermissible due to the location of the accounts, the CFPB said.

Bank of America also harmed consumers by deceiving customers about their rights, imposing unenforceable clauses in take-it-or-leave-it customer contracts and failing to adhere to consumer protections governing customers’ bank accounts, the CFPB said.

Bank of America has conducted other illegal practices against its customers in the past.

The bank was sanctioned by the CFPB in 2014 for its illegal credit card practices and ordered by the CFPB to pay $727 million to its victims.

Charlotte-based Bank of America has $2.5 trillion in consolidated assets as of Dec. 31, 2021 and 4,100 branches, making it the second largest U.S. bank behind JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. Report.

Bank of America must now pay the $10 million civil penalty and also refund or cancel at least $592,000 in garnishment-related fees to consumers impacted by them.

The CFPB has the authority to take action against companies that violate consumer financial laws under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

GM has 4 new plants coming to 'have control over battery cell manufacture': Mary Barra

Ben Werschkul

·Senior Producer and Writer

Wed, May 4, 2022,

In the years ahead, GM (GM) says, it's aiming to be a leading manufacturer of batteries as well as cars.

“For electric vehicles, it's all about the battery,” CEO Mary Barra told Yahoo Finance in a wide-ranging interview this week.

The CEO outlined plans to open at least four new plants just to manufacture batteries that power the company's electric vehicles.

“We decided that we wanted to have control over battery cell manufacture so we formed a joint venture with LG, one of our partners, and we now have a plant coming online this year in Ohio, another one coming online next year, the following year, and one after that,” she says.

GM CEO Mary Barra announces an investment of more than $7 billion in four Michigan manufacturing sites in January, including a new Ultium Cells battery cell plant in Lansing. (JEFF KOWALSKY/AFP via Getty Images)

The collaboration with LG Energy Solution, called Ultium Cells, will power more and more GM vehicles in the years ahead. They have three locations under construction. A Warren, Ohio plant will begin production this August; a Spring Hill, Tennessee location is set to follow in 2023 and one in Lansing, Michigan begins in 2024. The Michigan plant alone is a $2.6 billion investment. According to GM, a fourth plant whose location has yet to be announced will be up and running in 2025.

The ambitious plans come as the company tries to catch up with EV industry leaders like Tesla (TSLA). Elon Musk's company, the world's largest EV maker, has manufactured its own batteries for years and says its Nevada gigafactory became the highest-volume battery plant in the world back in 2018. Tesla also says it produces more batteries — measured by kWh — than all other carmakers combined.

‘Going all the way up to the supply chain’

GM's effort is part of a broader push across the U.S. economy to pivot to clean energy while not trading dependence on oil for another asset, specifically the precious minerals that fuel batteries and much of modern life but are often either mined or processed in places like Russia and Ukraine as well as China.

The White House got involved in the effort this week, announcing over $3 billion to help companies like GM and others with the battery shortage.

A Biden official behind the effort noted to Yahoo Finance Monday that automakers will be a key beneficiary. The efforts from Washington will “feed into those [GM] plants, making the advanced materials needed for those plants as inputs, and going all the way up to the supply chain of developing the advanced minerals that are needed for these plants,” says David Howell, acting director at the Department of Energy's Office of Manufacturing and Energy Supply Chains.

A GM spokesperson told Yahoo Finance that the company, which has close ties with the Biden White House, "is actively pursuing opportunities to localize as much of the EV and battery supply chain as possible and, as such, we are reviewing the battery-related Funding Opportunity Announcements authorized by the U.S. Department of Energy under the Bipartisan Infrastructure Law (BIL)."

In a photo from 2020, the Ohio Ultium factory is shown under construction. It is scheduled to begin production this year. (MEGAN JELINGER/AFP via Getty Images)

‘We're not done yet’

President Joe Biden has set a goal of having half of the cars sold in the U.S. by 2030 be electric; GM has set a similar benchmark, saying it also wants 100% of its light-duty vehicles to be electric by 2035.

The batteries that will power these vehicles currently run on components like lithium and nickel. The White House recently invoked the Defense Production Act — allowing the president to force businesses to take actions — to build up domestic production capability. In effect, it’s likely to mean more mining of these metals in the U.S.

For her part, Barra also underlines the significant job creation GM's effort will entail. Speaking of the jobs set to be created, she said, “roughly every battery plant is around 1,100 to 1,200 people.”

She added, “We're not done yet.”

The higher cost of manufacturing in the U.S. would be outweighed by the supply chain security and the convenience factor, she said.

“When you think about the logistics piece of it, having it close to where we're actually building the vehicle or assembling the battery pack is an advantage,” she said.

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

The Battery Boom Will Redraw Geopolitical Maps


Editor OilPrice.com
Tue, May 3, 2022,

Russia’s invasion of Ukraine has exposed, once again, the vulnerability of the global energy markets and economy to the actions of petrostates with the power to weaponize their energy resources for political purposes.

In the biggest shock to oil flows since the 1973 Arab oil embargo, the war in Ukraine and the hesitancy of Europe to immediately punish Putin threw into sharp relief the geopolitical power that countries with huge oil and gas resources currently hold.

The European Union’s response to Russia’s invasion of Ukraine is to wean off Russian energy as soon as possible and reduce overall fossil fuel consumption in the longer term in order to stop being beholden to malign actors for energy sources.

The mad dash to boost renewables and transport electrification, however, comes with its own set of geopolitical issues.

Countries that aren’t Saudi Arabia, Iraq, and Iran hold vast resources of the metals and minerals that will be critical to enabling a faster energy transition. But those resource holders also include Russia, China, and a host of African and South American nations still living “the resource curse”, where conflict, forced and child labor, and critically low environmental standards are undermining the “green” credentials of the clean energy transition.

As developed economies look to lessen their dependence on fossil fuels and, by extension, on the political goals and whims of major oil and gas resource holders such as Russia and the members of OPEC, the geopolitical influence of the petrostates would likely wane over time. But a new geopolitical issue would rise—potential dependence on countries holding resources of critical minerals. And those countries include the likes of China and the Democratic Republic of Congo (DRC), for example.

Oil Wars

The geopolitics of oil resources has shaped the second half of the 20th century and continues to do so in the 21st century.

“Although the threat of "resource wars" over possession of oil reserves is often exaggerated, the sum total of the political effects generated by the oil industry makes oil a leading cause of war,” Jeff D. Colgan, Assistant Professor in the School of International Service at American University in Washington, D.C, wrote in a policy brief in the peer-reviewed journal International Security nearly a decade ago.

Since 1973, between one-quarter and one-half of interstate wars have been connected to one or more oil-related causal mechanisms, Colgan notes, adding that “No other commodity has had such an impact on international security.”

International and energy security continue to be influenced by fossil fuel resources a decade later.

Due to the high dependence on Russian oil by some of its members, the EU is debating how to implement an oil embargo on Moscow without plunging Europe into a recession and without fracturing a united EU front against Putin and his aggression in Ukraine.

Renewables Could Hold The Key To Energy Independence…

Therefore, the EU is looking to switch to renewables faster, as a way to reduce fossil fuel consumption and reliance on Russia.

“The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system,” European Commission President Ursula von der Leyen said in early March, announcing a goal to reduce EU demand for Russian gas by two-thirds before the end of this year.

Related: Is It Fair To Blame Oil Companies For High Prices?

“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours. And instead of funding fossil fuel imports and Russian oligarchs, we can create jobs here,” European Commission Executive Vice-President for the European Green Deal, Frans Timmermans, said.

The EV revolution would also help reduce the geopolitical power of petrostates.

“The ability to electrify transportation and get off combusting fossil fuels, and oil specifically, means we would solve massive geopolitical problems, which have been just a plague for the last 100 years,” Adam Scott, executive director at Toronto-based charity advocating for sustainable investing, Shift, told Andre Mayer of Canada’s CBC News.

…If Clean Energy Didn’t Need Key Metals Resources

The war in Ukraine is accelerating the shift to increased investment in renewables as a way to lessen dependence on imports of fossil fuels, a large part of which comes from OPEC and Russia.

However, the big challenge in the energy transition will be supply chains, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said last week.

“Costs for solar and wind turbine components are already experiencing inflation and demand is only going to intensify. There’s also going to be a massive scramble to access the metals to build out electrification – from steel, key base metals including copper, aluminum and nickel, and battery raw materials,” Flowers noted.

Developed economies, including the United States, currently depend on imports for boosting low-carbon energy sources. The U.S. imports more than half of its annual consumption of 31 of the 35 critical minerals, the Department of Energy said at the start of President Biden’s term in office. America does not have domestic production for 14 of those critical minerals and is completely dependent on imports to supply its demand.

President Biden included in March strategic and critical materials necessary for the clean energy transition—such as lithium, nickel, cobalt, graphite, and manganese for large-capacity batteries—in the Defense Production Act of 1950.

This is a step in the right direction for ensuring more domestic supply, considering that geopolitics will play a role in the energy transition, too, although the resource holders may be different.

“There is an underappreciated risk to the energy transition: the supply of clean energy depends on mined natural resources, which are steeped in geological, geopolitical, and governance challenges,” KPMG and Eurasia Group said in a report last year.

The new global energy ecosystem could shift “from OPEC to OMEC”, where OMEC is what KPMG and Eurasia Group describe as a “freshly minted acronym for ‘Organisation of Mineral Exporting Countries’ – this grouping may not yet exist, but the point remains: geopolitical power could shift from oil-dominated countries to critical metal-dominated countries.”

By Tsvetana Paraskova for Oilprice.com

UPDATE 3-Guyana, Exxon in talks to build gas pipeline to shore -minister

Tue, May 3, 2022,
By Sabrina Valle and Marianna Parraga




HOUSTON, May 3 (Reuters) - Guyana has started talks with U.S. Exxon Mobil Corp to build a more than 120-mile (190-km) natural gas pipeline from the company's offshore projects, Natural Resources Minister Vickram Bharrat said on Tuesday.

The tiny South American nation is trying to build infrastructure as part of an ambitious development plan that has followed over 30 oil and gas findings by an Exxon-led consortium, one of the world's largest reserve discoveries in the last decade with 11 billion barrels of recoverable resources.

Exxon is likely to participate in the project construction, Bharrat told Reuters on the sidelines of the Offshore Technology Conference in Houston. The pipeline would be used to bring to land up to 140 million cubic feet per day of the associated gas from Exxon's oil output in the Stabroek block, mostly for generating up to 300 megawatts of electricity.

Power demand in Guyana is forecast to triple in the next five years along with a fast-growing economy. The gas line is expected to have 120 miles offshore and another 10 to 15 miles onshore. A budget has not been set, but if enough gas is available, the line could also feed fertilizer plants, said Bharrat, who took part in a conference panel with Exxon's top executive in Guyana.

Investment in Guyana is also poised to grow exponentially in the coming years. The construction of the country's second onshore base is planned by 2023, Bharrat said.

The Exxon-led group currently pumps all the South American country's crude output - some 130,000 barrels per day (bpd) - since production started in 2019. Four projects at Stabroek have been sanctioned for a production potential of 1.2 million barrels per day of oil and gas by 2027.

In February, Guyana Vice President Bharrat Jagdeo told Reuters the country was considering creating a national oil company, while also engaged in talks with Middle Eastern firms to explore new offshore fields.

Guyana is leaning towards offering oil exploration areas outside of Exxon's blocks in a competitive bid, a process that could be done in parallel to the creation on a state oil company. If created, that national company would instead look for partners to explore and develop the new areas, Gopnauth Bobby Gossai, Guyana's senior petroleum coordinator, said in the same event.

A decision on how to award the unassigned blocks - one of which, located close to Suriname, has been identified as "Block C" - is still expected by September, Bharrat said.

Amid rising imported fuel prices, the country is also more eager to study over 20 proposals to build a modular refinery that could process some 20,000 bpd of crude in a first phase, the minister said. (Reporting by Sabrina Valle and Marianna Parraga in Houston; Writing by Arathy Somasekhar, Editing by Emelia Sithole-Matarise, Marguerita Choy and Richard Pullin)

Resilience, anger as New Mexico wildfire burns 'sacred land'

Hermits Peak and Calf Canyon wildfires in New Mexico

Wed, May 4, 2022,
By Andrew Hay

LAS VEGAS, N.M. (Reuters) - Daniel Encinias stands next to his camping trailer in a New Mexico evacuation area and says he will rebuild his home torched by the largest wildfire burning in the United States.

He just wants the U.S. Forest Service (USFS) to pay for it. The USFS has confirmed that one of its controlled burns went out of control early last month and later merged with another fire to become the second largest blaze in state history at 160,104 acres (65,000 hectares).

He is among upwards of 10,000 evacuees from the fire that has torn through centuries-old villages in the Sangre de Cristo mountains 30 miles (48 km) northeast of Santa Fe and burned the house Encinias had built from the ground up.

"We're displaced because of something that was done by forestry," said Encinias, 55, using the term common in the area for the USFS. "All I say is fix what's messed up ...."

Like other people camped nearby, an RV and truck is all Encinias has left. He has no home insurance. He is relying on help from his extended family and his community.

He, his wife, three children, four dogs and eight cats are crammed into the trailer at the Storrie Lake State Park where he plans to go ahead with his daughter's high-school graduation party.

The fire has further strained relations with the U.S. government in villages that saw Spanish colonial land grants stolen by 19th century American speculators and subsistence use of ancestral forests restricted by the USFS.

Governor Michelle Lujan Grisham on Tuesday called on President Joe Biden to sign a disaster decree to compensate families and restore watersheds and forests.

"You have a federal government who is certainly partially to blame for the situation we are in," Lujan Grisham said.

A spokeswoman for the USFS Santa Fe National Forest, where the fire started, did not respond to requests for comment for this story. The second fire that the burn merged with is under investigation.

In the past, homeowners have sued government agencies for controlled burns that went wrong. It also is common for people who have lost homes to receive payouts through emergency funds.

The fire in one of the poorest U.S. states is raging in two counties where household incomes are half the national average. Many of the lost homes are trailers on family land next to older adobe mud-brick homes, said Paula Garcia, who heads a state irrigation association.

At a Tuesday fire briefing, Las Vegas, New Mexico, Mayor Louie Trujillo bristled at officials' description of burned houses as "structures" and said firefighters were defending a centuries-old "herencia" or inheritance.

"That land is spiritual, those houses are spiritual, it's sacred land," Trujillo said. The blaze threatens Trujillo's historic city of 14,000 as well as villages over 30 miles north.

Back at the state park, Michael Salazar says he fled with his truck and trailer from a fire that destroyed 10 of 11 homes in his Tierra Monte area. He linked the destruction to the controlled burn.

"I just hope the government stands up and says, 'Yes we do these things for a reason, they do get out of control, and we are going to try to help you,'" said Salazar, 55, as firefighting helicopters hovered over the nearby lake to fill up with water.

(Reporting by Andrew Hay in Las Vegas, New Mexico; Editing by Donna Bryson and Sandra Maler)

Sri Lanka opposition seeks no-confidence vote on Rajapaksas


Prof. Kumari Jayawardena, a leading Sri Lankan academic and feminism activist holds a placard demanding political and economic stability in the country near the ongoing protest site as the Chinese funded sea reclamation Port City project is seen in the background in Colombo, Sri Lanka, Monday, May 2, 2022. Sri Lanka is near bankruptcy and has announced it is suspending payments on its foreign loans until it negotiates a rescue plan with International Monetary Fund. 

(AP Photo/Eranga Jayawardena)More

KRISHAN FRANCIS
Tue, May 3, 2022, 

COLOMBO, Sri Lanka (AP) — Sri Lanka’s main opposition party on Tuesday issued a no-confidence declaration aiming at ousting Prime Minister Mahinda Rajapaksa and his Cabinet and blaming them of failing in their constitutional duty to provide a decent living standards amid the island nation's worst economic crisis in memory.

A group from United People's Force party, led by leader Sajith Premadasa, delivered the motion demanding the no-confident parliamentary vote to Parliament Speaker Mahinda Yapa Abeywardena.

The move came amid countrywide protests demanding the resignations of Rajapaksa and his younger brother, President Gotabaya Rajapaksa, who the demonstrators hold responsible for the economic crisis.

A majority vote in the 225-member Parliament would be needed to remove Rajapaksa and the Cabinet from power. The United People’s Force can only count on 54 votes but hopes to win votes from smaller opposition parties and defections from the ruling Sri Lanka People’s Front party. The ruling party had nearly 150 votes but that strength has declined amid the economic crisis and defections in a no-confidence vote are possible.

A decision on when to hold the no-confidence vote is expected to happen after members of Parliament start meeting on Wednesday.

The United People’s Force also delivered a no-confidence motion targeting the president, but it would not force him to leave office even a majority of lawmakers vote against him.

Sri Lanka is on the brink of bankruptcy after the country's recent announcement to suspend payments on its foreign loans. The country faces repayments of $7 billion of foreign loans this year of the $ 25 billion it is scheduled to pay by 2026. Sri Lanka has less than than $ 1 billion in foreign reserves.

The foreign currency crisis has limited imports and caused severe shortages of essential goods like fuel, cooking gas, medicine and food. People stand in long lines for hours to buy what they can and many return home with little, if any, of what they were seeking.

The United People’s Force's motion also accuses top government officials of excessively printing money, hurting agricultural production by banning chemical fertilizer to make the production fully organic, failing to order COVID-19 vaccines in a timely manner and buying them later at higher prices.

Protesters on Tuesday were in their 25th day of their occupation of the entrance to the president's office, demanding the resignations of Rajapaksa family members who have ruled Sri Lanka for the last two decades.

Sri Lanka's protests show a fragile unity – for now

Andreas Johansson, 

Researcher at Centre for Theology and Religious Studies,

 Lund University, Senior Lecture at Karlstad University, Lund University
Tue, May 3, 2022,
THE CONVERSATION

Sri Lankan students march during a protest over the economic crisis outside the residence of prime minister Mahinda Rajapaksa in Colombo, April 24, 2022. AP Photo/Eranga Jayawardena

Sri Lanka is facing its worst economic crises since winning independence from Britain in 1948. Inflation is at an all-time high and protests are spreading around the country.

Most public anger is directed toward President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa. Critics point to the Rajapaksas’ poor handling of the COVID-19 crisis, and “Gota out” signs demanding their resignations are seen across the country.

Protesters come from all ethnicities and all religions. This seeming unity is notable in Sri Lanka, which has been deeply divided for decades. The country has a violent history of ethnic and religious conflict, and of scapegoating minorities. In recent years, that has been particularly true of Muslims, who make up about 10% of the population. As a historian of religion who focuses on Sri Lanka, I have studied Muslims’ precarious position in Sri Lankan society amid growing discrimination.

Civil war

Traditionally, Sri Lanka has been divided into three major ethnic groups: the Sinhalese, who make up 74% of the population and are mostly Buddhists; the Tamils, about 15%, most of whom are Hindu; and Muslims, who are descendants of Middle Eastern traders and mostly speak the Tamil language.

In 1983 a civil war broke out between the Sri Lankan government and Tamil separatists that lasted until 2009. Violent tensions between the island’s two biggest groups had existed for years, with the Sinhalese majority believing Tamils had received preferential treatment under the British. After independence, the situation reversed: for example, Sinhala became the only official language, meaning that Tamil-speaking Sri Lankans lost jobs in the public sector.

The constitution assures the religious freedom of all, but Buddhism is also given a special status. It states, “The Republic of Sri Lanka shall give to Buddhism the foremost place and accordingly it shall be the duty of the State to protect and foster” the faith.

The war caused the deaths of at least 100,000 people, including tens of thousands of civilians, though estimates vary. As many as 100,000 Tamils might still be displaced. Both sides were accused of war crimes, including at the end of the war, when Mahinda Rajapaksa – now prime minister – was president, and his brother Gotabaya, now president, was secretary of defense.

Government officials deny abuses, and have tried to block the United Nations’ ongoing investigation.

New tensions

After the war the country’s third-largest ethnic group, Muslims, became the new target for Sinhalese nationalists, who claimed that Muslims had both economic and ideological ties with the Middle East. A hardline Buddhist group called the Bodu Bala Sena encouraged anti-Muslim sentiment, and accused halal food industries of sponsoring international terrorism.

During Easter 2019, local Muslim terrorists inspired by the Islamic State carried out an attack killing over 250 people in several Christian churches and hotels. This was the worst attack in Sri Lanka against civilians since the civil war ended in 2009, and prompted more discrimination against Muslim citizens

Buddhist nationalists supported Gotabaya Rajapaksa’s election as president in 2019. Since then, the government has proposed plans to ban full-face veils in public and to shut down many Islamic schools. During the pandemic, the government forced people who died from COVID-19 to be cremated, in violation of traditional Islamic funeral ceremonies.

In 2021, Amnesty International released an 80-page report about anti-Muslim prejudice in the country. The researchers urged Sri Lanka’s government to repeal the Prevention of Terrorism Act, which has been used to target prominent Muslim activists.

In this Nov. 14, 2019 photo, Muslims offer prayers inside a temporary mosque set up next to a mosque damaged by a mob during 2018 riots in the outskirts of Kandy, Sri Lanka. AP Photo/Dar Yasin

Muslims have also expressed fear of land grabs, which Rauff Hakeem, the leader of the largest Muslim political party, the Sri Lankan Muslim Congress, has called his community’s biggest concern. Land seizures by the army have been major concerns for Tamils, as well.
Unity or division?

For now, ethnic tensions appear to be on hold. The common foe is the Rajapaksa family, as protesters demand that the president and prime minister step down.

Sri Lankan Muslims wait to break the Ramadan fast at a protest site outside the president’s office in Colombo, Sri Lanka, on April 20, 2022. 

AP Photo/Eranga Jayawardena

An official spokesman from the Sri Lankan Muslim Congress, who requested to remain anonymous, told me that Muslims’ participation in protests has “surprised the government. Christians who came in thousands after Easter Sunday mass and the clergy of Buddhists in thousands all over the island came together under one banner as Sri Lankans. Not as Sinhalese, Tamil, Muslim or Christians.”

Yet Muslims are often stereotyped as wealthy. Given Sinhalese nationalists’ past accusations that Muslims have suspect economic ties with the Middle East, some, including contacts of mine inside the country, have voiced concern that leaders could channel ethnic tensions to blame minorities for the country’s economic downfall. Pro-government social media campaigns have frequently targeted minorities like Tamils and Muslims.

“The current protest movement’s focus on the commonality of experience, while understandable, does little to reassure Tamils and Muslims that they are safe from ethnic scapegoating for the country’s economic woes,” Mario Arulthas, a doctoral candidate studying Tamils and nationalism at SOAS University of London, wrote in a recent column. Such scapegoating is “a tactic the state has historically used as a distraction during times of crisis, resulting in pogroms against these communities.”

As Sri Lanka goes forward, its citizens will confront not only the aftermath of the economic crisis, but these legacies of suspicion among ethnic groups.


This article is republished from The Conversation, a nonprofit news site dedicated to sharing ideas from academic experts. It was written by: Andreas Johansson, Lund University.

Read more:

Who are Sri Lanka’s Christians?

Sri Lanka teeters on economic edge, from pandemic-fueled financial crisis and Ukraine war spillovers

The EU is going after Russia's global oil sales by cracking down on anyone from insurers to ship owners, report says

Amanda Cooper
Wed, May 4, 2022, 6

Hani Amara/Reuters

The EU plans to phase out imports of Russian oil, but reports suggest the bloc will ban anyone from shipping or insuring it.

Draft legislation suggests the EU's ban will affect shipments to any country in the world, according to Bloomberg.

The EU relies on Russia for about 25% of its oil, which in turn, accounts for over half of Russia's exports.

The European Union is planning to phase out imports of Russian oil to cut off financing for Moscow's war in Ukraine, but it's not stopping there.

It's also proposing a ban on European ships and companies providing any service related to the shipment of Russian crude and refined products anywhere in the world — such as financing, insurance, or even technical support — according to draft legislation seen by Bloomberg.

Russia produces some 11 million barrels of oil a day, roughly equal to 10% of total world daily output. It exports around 7 million barrels a day to customers around the globe, on tankers and through a vast network of pipelines that stretch to Karlsruhe on the German/French border and all the way to Vladivostok on the Sea of Japan to the east.

On Wednesday, European Commission President Ursula von der Leyen announced a sixth round of sanctions proposals include a complete import ban on all Russian oil. The measure would cover both crude and refined products, such as diesel, and would affect all shipments, both seaborne and via pipeline.

Brent crude futures jumped 4.1% on the day to $109.46 a barrel. The oil price has risen nearly 40% so far in 2022, topping $100 a barrel for the first time in years, driven in part by the prospect of direct sanctions on Russia's energy sector.

The EU accounts for almost half of all Russia's oil exports, and its proposals mean it could ditch all of that over the coming six months.

However, the draft legislation shows the bloc is proposing a crackdown on any shipment of oil that originates in Russia or has been exported from there, to any country, even those outside the EU, Bloomberg reported Wednesday.

"Depending on the timing of this ban, it's a potential big deal, given the current shortage of global tanker capacity and EU carriers' huge role in Russian total oil exports," Jacob Kirkegaard, a senior fellow at the Peterson Institute For International Economics, tweeted.

Robin Brooks, the chief economist at IIF, tweeted a chart last week that shows Greece is by far the biggest shipper of Russian oil and oil products. He said the EU should target the global tanker fleet if it wanted to make any embargo truly effective.

"Russian storage capacity is super limited, so Russia's oil wells will start flooding very quickly. So, even if you just have a one month window before tankers start back up again, it'd do a lot of damage to Putin," Brooks said in a tweeted response.

With the European market already effectively out of bounds for at least 1 million barrels a day of crude, Russia has sought out buyers further afield. It is shipping growing volumes to China, India and other consumers in Asia.

However, Russia's flagship Urals crude is generally loaded onto smaller tankers that rarely make such long voyages. Given that, there would be more call for transferring this oil to VLCCs — supertankers capable of carrying as much as 2 million barrels of oil — to make those trips. The EU's draft legislation suggests even this could become impossible.

"It shall be prohibited to provide, directly or indirectly, technical assistance, brokering services, financing or financial assistance, or any other services related to the transport, including through ship-to-ship transfers, to third countries of crude oil and petroleum products that originate in Russia or have been exported from Russia," Bloomberg reported the draft text as saying.

The West has restricted exports from countries under sanction via clampdowns on insurers before, specifically with Iran and Venezuela. There will still be insurers willing to extend cover to a shipper, but the risks and the costs are far higher than they otherwise would be.

Russia's Oil Output Is Plummeting, And It May Never Recover

Editor OilPrice.com
Wed, May 4, 2022

Russian oil production is falling. In March, it shed half a million bpd, which by the end of April reached a full 1 million bpd, according to BP’s CEO, Bernard Looney. And this may well grow to 2 million bpd this month. These barrels may not be returning to the market any time soon.

As the European Union targeted a barrage of sanctions on Moscow, oil was excluded as a direct target but financial and maritime sanctions affected the industry. Now, the EU is proposing a full oil embargo, save for a handful of member states too dependent on Russian oil to comply, and this will mean a further loss of barrels at a time when the global oil market is already stretched thin.

"We could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions," the secretary-general of OPEC, Mohammed Barkindo, told the European Union last month.

This does not appear to have made any lasting impression on the decision-makers in Brussels, who are moving full steam ahead with the oil embargo. Meanwhile, alternative suppliers would struggle to fill the void left by Russian oil.

Russia expects it could lose some 17% of its pre-war oil production this year, Reuters reported last month, citing a document from the country’s economy ministry. The report noted this would be the biggest production drop since the 1990s—a tumultuous time for Russia following the breakup of the Soviet Union.

That would be close to 2 million bpd—a figure similar to Looney’s forecast and also to a forecast made by Rystad Energy about lost Russian oil production between 2021 and 2030. If the Rystad projections are right, the fallout from the EU oil embargo would be limited and most Russian production will simply be redirected as it already is. If, however, production declines more, this could see international prices spike much higher.

When European buyers started refusing to accept Russian oil cargoes, those cargoes had to return home to be stored somewhere. According to local reports, however, storage space is limited, and this has probably forced the idling of some wells, which if idled, can see their ability to produce in the future affected.

Related: Upstream Oil Industry To See Highest Profits Ever In 2022

But there is also danger ahead for Russia’s future production. This may also not materialize as previously planned because of the exit of Big Oil majors from the country, Dan Dicker, host of The Energy Word, told Yahoo Finance earlier this week. Their exit, combined with financial sanctions on Russian banks, will make developing new resources in eastern Siberia more challenging.

Meanwhile, OPEC is producing less, rather than more, oil, and U.S. producers are under fire from legislators for alleged profiteering from the oil price rally and struggling with shortages of materials, equipment, and workforce.

U.S. oil production will rise by only 800,000 bpd this year, according to the Energy Information Administration’s latest Short-Term Energy Outlook. That’s not good news for America’s European partners. It’s not good news for Americans, either, because it means prices will likely remain high.

Except for OPEC and the United States, there are few producers large enough to spare oil for Europe, if any. Brazil is expanding its oil production but its total stands at around 3 million bpd, which is what the EU was importing from Russia before the war in Ukraine began. That leaves the Central Asian producers, who are parties to the OPEC+ agreement and firmly within the Russian sphere of influence, too.

What all this means is that with the loss of 2 million bpd of Russian production, a lot of the world is in for prolonged oil price pain, which means all-price pain as well. The beneficiaries are China and India, who are buying Russian crude at a discount, with no logical reason for them to stop, despite threats from Washington. But Russia’s oil production could still fall by more than 2 million bpd.

“Europe’s dependence on Russian energy has been a deliberate and decades-long and mutually beneficial relationship. In this early phase of sanctions and embargoes, Russia will benefit as higher prices mean tax revenues are significantly higher than in recent years,” said Daria Melnik, senior analyst at Rystad Energy.

“Pivoting exports to Asia will take time and massive infrastructure investments that in the medium term will see Russia’s production and revenues drop precipitously,” she added.

With most producers constrained in their capacity to boost production fast, should this scenario play out, oil could become a lot more expensive with little in the way of downside pressure, including electric vehicles. Electric vehicles are about to experience a shortage of batteries and still higher prices. There are some really interesting times ahead.

By Irina Slav for Oilprice.com