If you want to hit the Russian economy hard, aim for energy export | Nils Pratley

At the start of Russia’s invasion of Ukraine a week ago, almost all analysts agreed that Russian oil and gas would continue to flow west. The state of mutual energy dependence seemed too entrenched. On the one hand, the EU could not easily decouple from the source of 38% of its natural gas imports. On the other hand, Russia under financial sanctions would need liquidity. The elders have shown that even during the long decades of the Cold War, the Soviet Union and Europe maintained trade relations in the field of energy.

A week later, such a thought seems naïve. The “shock and awe” financial sanctions, particularly those aimed at the Russian central bank, are beyond anything we’ve seen so far, but the shortcoming is obvious: if you really want to hit the Russian economy hard, you must target its energy export sector, a part that has so far been spared sanctions and generates hundreds of millions of dollars a day. This point is repeated repeatedly by Ukrainian officials in their calls for an end to the trade, and its moral force is hammered home with each new Russian atrocity.

The White House on Wednesday said it was “very open” to the idea of ​​energy sanctions against Russia. One could say cynically that it is easier to express such sentiments from Washington than from Europe, but even German ministers speak publicly about what would happen if Russia suddenly cut off the gas supply. “We are prepared for this. I can give the green light for the current winter and summer,” said Robert Habeck, Minister of Economy. used as relief, he argued.

If that’s really the case, the obvious question is why the West shouldn’t just impose a few energy sanctions – even if it’s just caps on imports to begin with – and accept the pain. financial. There is already a taste of the various “self-sanction” measures taken by European refineries to avoid buying Russian oil and by European gas suppliers (including Centrica) to break away from Gazprom. The price of a barrel of Brent reached 113 dollars on Wednesday, the highest in seven years. UK natural gas prices have returned to the dizzying levels of last autumn and pump prices are setting records.

Prices would likely rise further if large-scale energy sanctions were imposed, but what about security of supply? Here is Brussels think tank Bruegel: “If the EU is forced or willing to bear the cost, it should be possible to replace Russian gas as early as next winter without economic activity being devastated, people freeze up or the electricity supply is interrupted.”

It also needs to be said, he also described the challenge as “momentary”, said the rules should be rewritten and concluded that “exceptional measures” may be needed to reduce demand. But the abbreviated version seems to be: yes, if you’re willing to accept the costs, it’s doable. It is there, one suspects it, that the debate on the sanctions is heading quickly. He probably should have been there from the start.

Lack of trust in Aviva

Aviva’s plan to return £4.75bn to shareholders hasn’t quite met the £5bn target set by activist investor Cevian Capital, but the sum should be enough. The £250m gap can be mentally covered by Aviva’s £385m purchase of UK financial advisory firm Succession Wealth. Even activists tend not to object to conventional add-on acquisitions.

The missing bit in the script is a higher stock price. At 410p, Aviva is about where it was three years ago, before chief executive Amanda Blanc got to work with a series of major overseas divestments and a heavy cost-cutting program.

It’s a bit of a weird position. The fresh element of return of capital is a quarter of Aviva’s market value and Blanc’s 33p dividend promise for 2023 represents a big yield in prospect, which should attract the attention of income investors.

Put it down to a lack of faith in the idea that Aviva can truly emerge as a reliable cash generator. It’s not the fault of Blanc, who has done everything she promised and has now set herself some financial goals on which she must be judged. But, yes, after 20 years of disappointing shareholders, the idea that Aviva could be fixed may take time to become truly credible.

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