News, events and analyses related to global trade and snippets of changing trade matrix during the month of February 2016
Iran sanctions lifted
A ban after banning a ban?
January 16, 2016, marked a ‘new chapter’ for Iran in its relations with the world. The day saw several Western powers including US lifting sanctions on Iran (following the nuclear deal signed in July last year). The move which opened doors for Tehran to re-enter the global economy, came following the historic report by UN nuclear watchdog – the International Atomic Energy Agency (IAEA) – which observed that Iran had complied with the Nuclear Deal, and curtailed its nuclear programme. That prompted US, EU and UN to revoke sanctions imposed on Iran’s oil industry in 2012, in response to Iran’s nuclear programme, that had slashed its oil exports by around 2 million barrels per day (bpd). While most nations welcomed the move it also sparked mayhem in a glutted oil market where prices have hit their lowest since 2003. The prospects of Iran pumping additional oil sent stock markets across the Middle East into a tailspin. It must be noted that Iran has already announced that it will export an additional 500,000 barrels a day to reclaim its share in the oil market. According to International Energy Agency, Iran already has 38 million barrels of oil reserves. However, a day after the removal of sanctions, US imposed fresh sanctions on Iranian companies and individuals over a recent ballistic missile test. The new US Treasury sanctions prevent 11 entities and individuals linked to Iran’s ballistic missile programme from using the US banking system.
40-YEAR-OLD OIL EXPORT BAN
Lifting economy or adding to global glut?
In a historic policy shift, US lifted a 40-year-old ban on oil exports as part of a sweeping spending package and tax bill of $1.8 trillion that was signed into law by US President Barack Obama. The ban was imposed in 1975 after the Arab Oil Embargo that dealt a blow to the US economy and sent global oil prices skywards. By putting the ban in place, it was hoped that oil prices in the country would stabilise. The new law will allow the US oil producers to sell their crude oil all over the world and give a boost to the US oil industry. According to the Department of Energy, US, the third-biggest oil producer after Russia and Saudi Arabia, could become a net exporter of crude oil in the next decade. However, experts have also argued that the potential return of US oil to an already oversupplied market could provide another challenge to an already fractured OPEC (Organization of the Petroleum Exporting Countries). There are also concerns that lifting the ban would be bad for the environment. It is now to be seen if the development proves to be more good news than bad or vice versa. In any case, this is a development that guarantees a continued slump in oil prices.
STOCK MARKET HALT
Shocking pills to cure a New Year’s Eve hangover!
Chinese markets had a turbulent start to 2016. On January 7, Chinese stock markets tumbled by more than 7% within the first 30 minutes of trading, triggering an automatic ‘circuit breaker’ forcing exchanges to suspend trading for the second time in a week. The stock markets in the dragon country witnessed the shortest trading day in over two decades as the yuan slid to its weakest point since 2011. Before trading began, the People’s Bank of China (PBOC) set the yuan midpoint at 6.5646 per dollar, 0.5% weaker than the day before, the biggest plunge between consecutive days since devaluation began mid-August, when the PBOC stunned global financial markets by fixing the yuan 1.9% lower against the US dollar, making it the highest-ever one-day fall in the currency. Given that this was the second time trading had been suspended in the same week (the first being on January 4, 2016), investors were alarmed. It was thought that the plunge took place because of worries that the yuan will be further devalued. China – once the darling of the world is not only surrounded with news that makes the biggest of optimists doubt his lucky numbers. Another shock by China in Janaury was its GDP growth numbers. The economy grew by just 6.9% in 2015 (growth was 7.3% in 2014) – the slowest since 1990! Economists who believe China’s numbers are worried. Those who don’t, are more worried.
Seafood Exports
Stink in the shrimp?
In recent months, the Thai seafood industry has been in news for all the wrong reasons. Initially facing an import ban from EU over illegal fishing practices, the industry is yet again under fire, and this time for slavery issues that have dogged the industry. Reports have emerged that shrimp producers in the world’s third largest seafood exporting country trafficked, abused and forced labourers to work 16 hours a day for little or no pay. Despite such reports of slavery in the lucrative shrimp industry, exports of Thai seafood to the United States, Europe and Australia continue unabated. Thailand had already received a warning in April last year from the European Union threatening a ban on fish imports if it fails to crack down on the rampant illegal fishing activities. The European Union bloc is a major importer of Thai seafood and a ban would adversely affect the industry. A delegation from the EU is to visit Thailand soon to check the status of the action taken by the industry.
Growth in tourist arrivals
Tourism beats dairy
This is surely some paradox at play! In New Zealand, where cows outnumber people, tourism has displaced the dairy industry to regain the spot of top export earner for the country. With record-breaking visitor arrivals, the tourism industry’s export earnings for the year ended September 2015 totalled $9.2 billion, putting it ahead of the dairy sector ($8.9 billion) for the first time in five years. Looks like now we know where world tourists were headed in 2015!
LITCHI EXPORTS
Fruitful days ahead?
The end of 2015 marked a new turn for South Africa’s litchi industry. The much-beloved fruit made its way into the United States, marking South Africa’s first air shipment of litchis to Uncle Sam. Given that the fruit is relatively unknown in US, South African exporters are making the most of this opportunity. In addition, the country is also looking to start exporting to China, India, and the Middle East. South Africa’s litchi industry is witnessing significant growth. Just two years back, the industry contributed to the South African economy by creating more than 2,300 jobs and adding almost $8 million to the gross value income. The Department of Agriculture, Forestry and Fisheries (DAFF) of South Africa acclaimed this development as potentially one of the major contributors to the country’s initiative of expanding its export markets, and one that will help position the nation as a leading exporter. Given litchis’ substantial prospect as an export product, this is a healthy development for South African foreign trade.
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