Global Investing

Who shivers if Russia cuts off the gas?

Markets are fretting about the prospect of western sanctions on Russia but Europeans will also suffer heavily from any retaliatory trade embargoes from Moscow which supplies roughly a third of the continent’s gas needs  – 130 billion cubic metres in 2012.

After all, memories are still fresh of winter 2009 when Russia cut off gas exports through Ukraine because of Kiev’s failure to pay bills on time.  ING Bank analysts have put together a table showing which countries could be hardest hit if the Kremlin indeed turns off the taps.

So while Hungary and Slovakia depend on Moscow for over a third of their energy,  Germany imported less than 10 percent of its needs  from Russia while Ireland, Spain and the United Kingdom received none at all in 2012, ING’s graphic shows.  So while the main impetus for the sanctions comes from the G7 group of rich countries,  it is central and Eastern Europe who will be in the firing line.

ING analysts point out that Western European countries are also more able to source alternative gas supplies, say in the form of LNG shipped on tanker from Qatar or Algeria:

What experts on the gas supply network suggest is that central and eastern europe is less well-shielded from interruptions to Russian/Ukrainian gas supply and also has fewer back-up options in terms of diverted supply from other regions of Europe.

Iran: a frontier for the future

Investors trawling for new frontier markets have of late been rolling into Iran. Charles Robertson at Renaissance Capital (which bills itself as a Frontier bank) visited recently and his verdict?

It’s like Turkey, but with 9% of the world’s oil reserves.

Most interestingly, Robertson found a bustling stock market with a $170 billion market cap — on par with Poland – which is the result of a raft of privatisations in recent years.  A $150 million daily trading volume exceeds that of Nigeria, a well established frontier markets. And a free-float of $30 billion means that if Iranian shares are included in MSCI’s frontier index, they would have a share of 25 percent, he calculates.

What of the economy? Renaissance estimates its size at $437 billion, which if accurate would place it higher than Austria or Thailand. Foreign investors are keen — a thawing of relations with the West has triggered a race among multinations to explore business opportunities in the country of 78 million. Last month, more than 100 executives from France’s biggest firms visited Iran. Robertson writes:

Iran currency plunge an omen for change?

In recent days Iranians all over the country have been rushing to dealers to change their rials into hard currency. The result has been a spectacular plunge in the rial which has lost a third of its value against the dollar in the past week. Traders in Teheran estimate in fact that it has lost two-thirds of its value since June 2011 as U.S and European economic sanctions bite hard into the country’s oil exports. The government blames the rout on speculators.

According to Charles Robertson at Renaissance Capital,  the rial’s tumble to record lows  and inflation running around 25 percent may be an indicator that Iran is moving towards regime change.  Robertson reminds us of his report from back in March where he pointed out that autocratic countries with a falling per capita income are more likely to move towards democracy. (Click here for what we wrote on this topic at the time)

He says today:

The renewed collapse of the currency recently suggests sanctions are working towards that end.