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CUTTING TIES


IS LIFTING US SANCTIONS ON IRAN AND VENEZUELA WORTH IT TO REPLACE RUSSIAN OIL?

Majid Asgaripour/WANA (West Asia News Agency via Reuters
The return of Iranian oil exports?
From our Obsession
How we spend
Consumers' preferences, priorities, and values are reshaping industries.
 * 

By Courtney Vinopal

Breaking news reporter

Published March 7, 2022

The US and its European allies may ban imports of Russian oil in response to the
war in Ukraine, US secretary of State Antony Blinken said yesterday (March 6).

US officials are now exploring alternatives to Russian oil that could help
offset the effects of an import ban, and lifting sanctions on Iran and Venezuela
is one option. But it’s not clear that easing sanctions on either country would
make enough oil available to offset the loss in Russian exports, and some
analysts argue the US would be better served by boosting domestic production
instead.


THE US COULD EASE SANCTIONS ON IRAN, VENEZUELA

US officials met with Venezuelan officials in Caracas over the weekend to
discuss easing sanctions in the hopes of replacing some of the Russian oil US
Gulf Coast refiners rely on with Venezuelan crude. Lifting sanctions on
Venezuela could also help weaken its ties to Russia, which has been the top
buyer of Venezuelan crude oil since 2019, when it was hit by US sanctions over
president Nicolás Maduro’s leadership.




Separately, the US has been part of talks with Iran to revive an agreement over
its nuclear program in exchange for sanctions relief, and Tehran said today
(March 7) it believes a deal can be reached quickly.


POTENTIAL IMPACT OF LIFTING US SANCTIONS

The US imported an average 672,000 barrels per day (bpd) of Russian oil and
refined products in 2021, or about 8% of its total imports. Iran could help make
up for this supply, according to Goldman Sachs’ Damien Courvalin, who told The
Economist lifting sanctions has the potential to boost exports by around half a
million bpd within six months, and double that within a year. Lifting sanctions
on Venezuela would be less impactful, Courvalin said, with the potential to
raise extra exports by half a million within a year.



“In theory, more heavy crude from Venezuela could help Gulf Coast refiners
looking to substitute for Russian heavy,” Ben Cahill, a senior fellow at the
Center for Strategic and International Studies, wrote in an email to Quartz.
“But the fastest way to boost output is from shale,” a source of natural gas
that’s typically extracted through fracking. Cahill said shale companies have a
“strong market incentives to ramp up production in the next 6-12 months,” and
the Biden administration can use this opportunity to enlist them and their
investors in an emergency response.

Lifting US sanctions is unlikely to make a dent in the global oil market, as
Russia exports an estimated 7 million bpd, 60% of which goes to Europe. Some of
the US’s European partners are reluctant to cut off energy supples from Russia,
and German chancellor Olaf Scholz—whose country gets two thirds of its natural
gas from Russia—has officially nixed the idea for the near-term future. The US
may move to ban oil imports even if its European allies aren’t yet on board,
Reuters reported today.

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QUARTZ ESSENTIALS

Facts and figures to help you put this story in context.

 * The Russia-Ukraine conflict, explained
   Everything you need to know about the conflict in Ukraine, and the impacts on
   the global economy.
   
   Tip: tap card to advance👉Next
   
   
   WHY DID RUSSIA INVADE UKRAINE?
   
   
   Image copyright: Sergey Bobok / Getty Images
   
   Russia’s invasion in Ukraine is driven in part by historical and cultural
   ties to the region.
   
    * Ukraine was part of the Soviet Union until it collapsed in 1991.
    * Ethnic Russians accounted for 17% of its population at the time the last
      census was taken in 2001.
    * During the two decades Vladimir Putin has been in power in Russia, he has
      been focused on bringing Ukraine back into the country’s sphere of
      influence. 
    * One of Putin’s earlier salvos included calling for a ban on potential
      Ukrainian membership in the North-Atlantic Treaty Organization (NATO)
   
   
   
   
   HOW ARE OTHER COUNTRIES REACTING TO RUSSIA’S INVASION OF UKRAINE?
   
   As many Western countries mobilize around sanctions and other repercussions
   for Russia, the conflict is also exposing other nations’ ambivalence about
   the conflict in Ukraine.
   
    * China so far has avoided indicating a clear stance on the escalating
      crisis, but could become Russia’s economic lifeline as major economies hit
      Moscow with a barrage of sanctions.
    * On Feb. 28, India abstained from voting on the Russia-Ukraine issue at the
      United Nations Security Council. Among several ties, the country depends
      on Russia for military equipment. 
    * The African Union has called on Russia to respect international law and
      Ukraine’s sovereignty, though not all nations on the continent are
      speaking up.
   
   
   
   
   WHAT WILL SANCTIONS DO TO RUSSIA
   
   $500 billion: Russia’s foreign currency reserves, most of which has been
   frozen
   
   11,000: Member banks in SWIFT
   
   7: Russian banks blocked from SWIFT
   
   5%: Percentage of Russia’s GDP that could be affected by a SWIFT ban
   
   90%: Percentage of Russia’s oil that Transneft transports; its president,
   Nikolai Tokarev, has been sanctioned with other oligarchs
   
   
   WHAT IS SWIFT, AND HOW DOES IT WORK?
   
   The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, is
   a messaging system that allows banks to securely and quickly communicate
   about cross-border payments. Say Amanda in Canada wants to send money to Marc
   in the UK…
   
   1️⃣ She tells her bank the amount to transfer, Marc’s account number, and the
   SWIFT code of Marc’s bank.
   
   2️⃣ If the banks have a relationship, the message goes from one to the other.
   If the banks don’t have a relationship, the message goes through intermediary
   banks.
   
   3️⃣ The banks settle the payment. Marc receives his transfer.
   
   Limiting Russia’s access to SWIFT—as some sanctions have called for—is one
   part of disconnecting it from the international financial system. But banks
   have other options.
   
   
   WHO BUYS OIL FROM RUSSIA
   
   Within this category, Russia mostly exports petroleum oils, oils obtained
   from bituminous minerals, and crude. Top buyers are China and the
   Netherlands.
   
   
   
   
   WHAT THE RUSSIAN INVASION MEANS FOR OIL
   
   Both the US and UK will ban Russian oil in response to the war in Ukraine.
   Unlike other sanctions on Russia, the oil ban is only backed by the two
   nations, limiting its effects. Still, oil makes up about 3% of the global
   economy and its widespread use means that any price increase will spread to
   other goods. Additionally, other oil-producing countries such as Saudi Arabia
   could see a windfall.
   
   Where things stand:
   
   $130: Price per barrel of Brent oil after news of the ban broke
   
   $185: Price per barrel analysts expect by the end of the year if the war
   continues
   
   8%: Share of US oil and petroleum imports from Russia in 2021
   
   8%: Share of UK oil imports from Russia
   
   ≤1%: Percent of Russia’s crude oil production both the UK and the US buy
   
   
   WHAT IS AN OLIGARCH IN RUSSIA?
   
   
   Image copyright: Sputnik/Alexei Nikolskyi/Kremlin via Reuters
   Russian President Vladimir Putin and Head of Rostec state conglomerate Sergei
   Chemezov eat ice cream as they attend an opening of the MAKS 2021 air show in
   Zhukovsky, outside Moscow, Russia, July 20, 2021.
   
   In response to the invasion of Ukraine, the US and other countries have
   imposed sanctions on the Russian elite with close ties to Vladimir Putin.
   
   Here are a few names to know:
   
   🛢 Nikolai Tokarev, the president of Transneft, a state-owned oil and gas
   company responsible for transporting 90% of oil extracted from Russia
   
   🏦 Boris and Arkady Rotenberg, brothers who co-own Russia’s SMP bank
   
   ⚔️ Sergei Chemezov, the CEO of state-owned defense conglomerate Rostec and a
   former KGB agent
   
   
   
   
   
   ←
   
   1 of 7
   
   →
 * 
 * How we spend
   Consumers' preferences, priorities, and values are reshaping industries.
   
   Next
   
   
   THE MOST PRESSING QUESTION
   
   > Does anyone stand a chance against Amazon?
   
   In the US at least, the company has been gobbling up an increasing share of
   retail, and with Covid-19 pushing more shoppers online, Amazon has only
   gotten stronger. Once famous for prioritizing growth over profit, the company
   is now enjoying both. Meanwhile, US regulators fear Amazon is so dominant it
   should be regulated like a railroad.
   
   Amazon still has tough competition though. Walmart, for one, remains much
   bigger, and its network of more than 5,000 US stores has proved to be an
   advantage during the pandemic.
   
   
   BY THE DIGITS
   
   2.3: Physical retail space per capita, in square meters, in the US
   
   0.7: Physical retail space per capita, in square meters, in China
   
   75%: Asia-Pacific region’s share of the world’s retail growth
   
   81%: Share of e-commerce forecast to take place on phones in Asia-Pacific by
   2023
   
   43%: Share of e-commerce forecast to take place on phones in the US by 2023
   
   
   ONE BIG NUMBER
   
   
   Closed signs are seen on an AMC Theatre during the outbreak of the
   coronavirus disease (COVID-19), in New York City, U.S., April 29, 2020.
   REUTERS/Brendan McDermid
   
   $780 million: The approximate drop in market capitalization of AMC
   Entertainment, owner of the biggest theater chain in the world, between
   October 2019 and October 2020. The pandemic has shut theaters in huge
   numbers, hammering their operators’ profits. AMC, which operates more than
   1,000 theaters across 15 countries, was hit so hard it has warned of the
   possibility of bankruptcy—and just in time for its centennial. The box office
   isn’t suffering everywhere though. While Hollywood idles, Japan’s movie
   market is breaking records.
   
   
   CHARTING DISNEY’S PIVOT
   
   Though Disney built its mouse house on parks and box-office hits, streaming
   looks to be its future. The company was already headed in that direction, but
   the pandemic accelerated things. Disney’s theatrical and theme park
   businesses have been devastated by the pandemic, and neither will recover to
   prior levels of profit anytime soon (if ever). Streaming, however, has
   remained the company’s lone bright spot: Disney+ attracted more than 60
   million global subscribers less than a year after launching.
   
   
   
   
   QUOTABLE
   
   “By means of glasses, hotbeds, and hotwalls, very good grapes can be raised
   in Scotland, and very good wine too can be made of them at about thirty times
   the expense for which at least equally good can be brought from foreign
   countries. Would it be a reasonable law to prohibit the importation of all
   foreign wines, merely to encourage the making of claret and burgundy in
   Scotland?” —Adam Smith, The Wealth of Nations
   
   
   COMMONLY HELD QUESTION
   
   > Once the pandemic is over, will we still do all our shopping online?
   
   From the first quarter of 2020 to the second, the US Census found e-commerce
   grew as much as it had in the past four years. Digital sales have similarly
   jumped in regions such as Asia, where online shopping was already more
   prevalent. Some of that growth will inevitably moderate, but experts believe
   more online shopping is just part of the new normal. Consumers are creatures
   of habit, and Covid-19 has forced big changes in those habits. Shoppers who
   never before bought items such as groceries, clothes, or workout equipment
   online are now doing so. At least some of that behavior is likely to stick.
   
   
   PERSON OF INTEREST
   
   
   Image copyright: Reuters/Christian Hartmann
   
   Whether you treat yourself to a Louis Vuitton bag, a bottle of Hennessy, Dior
   shoes, skincare from Sephora, or a Tag Heuer watch, you’re feeding the
   pockets of this man: Bernard Arnault, CEO of LVMH, the world’s largest luxury
   group. Arnault’s empire includes a dizzying number of brands—75 in total
   across the group, with combined sales of more than $60 billion in 2019. Known
   as the “wolf in cashmere” because of his merciless business maneuvering, he
   built LVMH into the company it is today and led a lucrative shift in luxury
   that made it a commodity accessible to the global middle classes, not just
   the rich. He ranks among the wealthiest men in the world, and may soon have
   another jewel in his crown if LVMH’s pandemic-interrupted purchase of famed
   jeweler Tiffany is completed.
   
   
   KEEP READING
   
    *  Retail’s future is in Asia. The region is a fast adopter of new shopping
      technologies.
    *  Macy’s is planning a future outside of malls. The ultimate anchor tenant
      wants out.
    *  Movie theaters are negotiating for their survival. Streaming is changing
      the rules of the game.
    *  TikTok is a sleeping e-commerce giant. With 850 million users, the
      opportunities for engagement with products are enormous.
    *  Covid-19 is changing our shopping habits. From gardening supplies to
      workout equipment, the pandemic has altered how and what we buy.
    *  The Price of Everything: Finding Method in the Madness of What Things
      Cost. Economics reporter Eduardo Porter unravels how there is a price for
      anything imaginable, from a telephone call to a human soul. 
   
   
   
   
   SIGN UP FOR THE QUARTZ DAILY BRIEF
   
   
   
   📬 Kick off each morning with coffee and the Daily Brief (BYO coffee).
   
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   BRIEF HISTORY
   
   The first item sold securely online was Ten Summoner’s Tales, a Sting CD,
   which was bought on Aug. 11, 1994 when the World Wide Web was in its infancy.
   While internet precursors had been used before to sell items—including,
   famously, a bag of weed sold by Stanford students to their counterparts at
   MIT—those sales were consummated in person. The CD purchase was the first
   transacted over the internet using a credit card, on Netmarket, one of the
   few dozen websites that then existed. From that $12.48 sale (plus shipping)
   was born a $3.46 trillion industry.
   
   
   TELL US WHAT YOU THINK!
   
   
   
   We’ve launched some new features for Essentials, and we want to know what you
   think! Take this two-minute survey to tell us how you feel, or if you have
   thoughts on how we can improve.
   
   
   FUN FACT
   
   
   Image copyright: Reuters/Christian Hartmann
   A staff member poses holding a rare Hermes handbag, the mat white Birkin
   Himalaya 35 during an auction preview at Christie’s in Paris, France, March…
   
   Would you invest in a handbag? You might if it was a Birkin, the much
   sought-after, iconic accessory made by Hermès that retail for as much as
   $200,000.
   
   Unlike most consumer goods, there is a robust secondary market for Birkins,
   and they appreciate in value quickly. According to one analysis, Hermès bags
   increased in value 13% over 12 months, beating other collectibles like
   stamps, wine, and even fine art.
   
   
   DIY
   
   Where clothes are concerned, we’re buying more, spending less, and wearing
   items for shorter periods before discarding them. One way to slow the deluge
   of used clothing pouring into landfills every year, or at least extricate
   yourself from it a bit, is to buy more of your fashion used. Because of the
   internet, it’s never been easier to do so. The past decade has seen a
   flourishing of secondhand retailers, from online marketplaces to luxury
   resale sites that have drawn big brands like Gucci to participate.
   
   ←
   
   1 of 13
   
   →




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