September 8, 2023: Global News Roundup
The rising price of oil and rice—Tariffs, export bans, production cuts, buffer stocks, and the politics of commodities markets
The Global News Roundup collects news stories from entirely international (non-US) media sources on variety of pressing global issues and events.
There are few commodities more essential for the wellbeing of people around the world than oil and rice. News this week indicated ongoing volatility in these critical global markets, with prices rising quickly in recent weeks owing largely to weather events and government policy decisions.
Recent events in oil and rice markets are part of a broader political-economic trend. Government intervention in commodities markets has become more frequent and persistent over the past 15 years—gradually becoming more of a structural economic feature than an irregularity since the 2007-2008 global food crisis, which was followed closely by the Great Recession—with the trend accelerating over the past few years as the pandemic and Ukraine war disrupted markets for food, energy, and other basic materials and as tensions between Great Powers grew colder and more fraught. Prior posts discuss these dynamic at more length and in different contexts, including recent posts about international competition for metals, government regulation of oil markets, the geopolitics of natural gas markets, the impact of the Ukraine war on markets for grain and fertilizer, and the growing international use of barter trade in commodities.
First, rice. Global rice prices rose to 15-year highs last week after the government of India imposed new controls on exports (an additional 20% duty (export tax) on parboiled rice) to try to stabilize domestic prices as erratic weather conditions reduced rice yields. The new controls follow the imposition of more limited export controls last year, and another major intervention more recently on July 20, 2023 in which the Indian government banned the export of non-basmati white rice in the wake of heavy monsoon rains that damaged crops and sent domestic prices up 3%.
India accounts for 40% of global rice exports, meaning that the ban is having a large impact on world prices. By late August, rice prices in Vietnam and Thailand, for example, had already risen 20% owing to India’s ban. The graph below shows country shares of global rice exports, with India leading the pack:
(Image: “India’s importance in the global rice market”, from Reuters, here.)
An op-ed this week in the Gulf Times explained that 3 billion people rely on rice as a staple food and rice contributes as much as 60% to the daily caloric intake of people in parts of Southeast Asia and Africa: “Spikes in rice prices always hurt poor consumers the most,” noted the article quoting Harvard economist Peter Timmer, “The most pressing concern right now is whether Thailand and Vietnam follow India and put significant controls on their rice exports.” Historically, controls like these are a common policy response to food price volatility. For example, during the 2007-2008 global food crisis, many governments implemented trade bans and other controls in food and agricultural markets order to stabilize domestic prices and ensure adequate supplies.
This week, it was reported that the government of Vietnam is currently considering imposing a rice price export floor to ensure stable domestic supplies, a price level below which rice would not be exported abroad, and the Vietnam Food Association (VFA) is urging exporters to limit purchases by foreign entities. In Thailand, where recent droughts associated with El Nino have reduced rice yields, “[h]oarding is expected to push Thai rice prices to uncompetitive levels and prevent Thailand from increasing exports…”. Thailand is a major rice exporter, so domestic hoarding will, all else equal, further reduce global supplies and push prices even higher.
While the government of the Philippines is also taking measures to stabilize domestic prices, for now it looks like they’ve opted for a domestic price ceiling/cap and an extension of reductions in rice import tariffs (which makes importing rice cheaper), but have not yet imposed export controls (the Philippines is a net rice importer). The Indonesian government is boosting imports in order “to top up government stocks”, and the government of Myanmar is planning to “temporarily restrict rice exports”.
Turning to oil, which is the most widely traded legal commodity in the world by value, OPEC+ members Saudi Arabia and Russia flexed their commodity-market muscles this week with production cuts that “shocked” investors. (Recall a similar episode from last October, when Saudi Arabia defied Washington and cut production heading into the US midterm elections.) While prices were already rising late last week in the lead up to the decision (it was expected that Saudi Arabia would extend production cuts through October), they rose further following Saudi Arabia’s announcement on Tuesday that the cuts would extend through the end of the year. Russia followed suit, and Brent oil prices topped $90/barrel on Tuesday for the first time since last November.
The Financial Times explained some of the politics lurking behind the decision:
The move, which threatens to reignite inflation concerns globally, is the latest effort by two of the world’s largest oil producers to boost prices despite much of the world grappling with higher energy costs.
It is likely to raise tensions with the White House, which has criticised the kingdom for collaborating closely with Russia, despite Moscow’s full-scale invasion of Ukraine and its weaponisation of natural gas supplies to Europe.
The Biden administration is keen to keep pump prices in check ahead of the presidential election next year, where inflation and fuel costs have already become areas of attack for the Republican party.
Further, as John Kent reported for Reuters last week, the US’s commercial oil inventories have shrunk in recent weeks and the US government has ceased using the Strategic Petroleum Reserve to suppress prices, also contributing to tighter global supplies and upward price pressure (the SPR is a national oil stockpile, a “buffer stock” that can help cushion supplies and prices during times of volatility/crisis):
The U.S. Department of Energy released almost 26 million barrels of crude from the Strategic Petroleum Reserve (SPR) in the first six months of 2023 and had released total of 247 million barrels since the start of 2022.
Releases contributed to downward pressure on both spot prices and calendar spreads by increasing the amount of oil readily available to traders and refiners.
The Biden administration directed them to offset any shortage of oil and upward pressure on prices as a result of Russia's invasion of Ukraine and the U.S. and EU sanctions imposed in response.
But the releases were essentially completed by the end of June and the department has since added almost 3 million barrels to the SPR, part of its plan to gradually refill the stockpile when prices are relatively low.
In related news, the government of Nigeria faced backlash this week to its announcement of an “increase in the prices of single-phase and three-phase pre-paid electricity meters”. Thousands of people in Colombia took to the streets last week, on motorcycles and in cars, to protest reductions in government energy subsidies which caused a 50% hike in gasoline prices. And, rising electricity prices motivated major protests in Pakistan this week, as consumers struggled with rising costs owing to reduced government energy subsidies (a condition of a recent IMF loan), old and outdated energy infrastructure, and a weakened rupee (the local currency) which has struggled to maintain its value against the US dollar (which pushes up import costs). Residents are burning their energy bills in protest, though the government risks violating the conditions of its IMF loan if it provides relief/support to consumers.
(Image: “An electricity bill is burned during a protest in Karachi last week against rising living costs. Photograph: Shahzaib Akber/EPA”, from The Guardian, 9/5/2023, here).
Things I’m keeping an eye on:
1. China and economic warfare: With Saudi Arabia and Russia, China has also been flexing its economic muscles this week. The Chinese government reportedly banned the use of iPhones (manufactured by US-based Apple) by Chinese government officials. Apple share prices dipped on the news: “Beijing’s reported curbs on government iPhones, alongside a resurgent Huawei, threaten to derail what should have been a moment of triumph for Apple: unseating Samsung at the top of the smartphone market… However, Apple’s shares have fallen by about 6 per cent over the course of the past two days, as investors fretted about its fate in China, which makes up roughly a fifth of its revenue”, reported the Financial Times.
2. G20 meetings in India: The annual G20 summit starts tomorrow. The Guardian discussed how important this event is for India, this year’s G20 host: “The messaging of the campaign has been forthright: that under Modi, India has become a global player to be reckoned with and the prestige of the G20, and its array of important foreign guests, will be India’s moment to show this off to the world.” Critics of PM Modi offered a different interpretation, including the powerful critique below from author and activist Arundhati Roy, drawn from an interview in Al Jazeera this week. Roy argues Modi is trying to score political points for the BJP Party in the lead up to national elections this fall and distract from ongoing and widespread violence against India’s Muslim minority:
Of course it’s a vanity event. He’ll pirouette and it’s just before the elections. So it will feed into his campaign. All these Western leaders who speak about democracy – I mean, you can forgive someone like Trump because he doesn’t believe in democracy – but Biden, Macron, all these people who talk about democracy, they know exactly what’s going on here. They know that Muslims have been massacred, that Muslims who protest have their homes bulldozed, which means all the public institutions – courts, magistrates, the press – collude in that. They know that Muslims in certain towns have X marks on their doors and are being asked to leave…They know all this, but that doesn’t matter because as always with certain Western countries, it’s like “democracy for us” and, you know, “dictatorship or whatever else it is for our non-white friends”. It doesn’t matter.
Chinese President Xi Jinping announced that he was not going to attend the annual G20 meeting in India (the summit starts tomorrow). I’ve seen a lot of different interpretations of Xi’s move, some downplaying it but others variously arguing that Xi intends to “snub” Indian Prime Minister Modi or intends to “snub” the Western members of the G20 (like the US, UK, and Japan) or that Xi is trying to signal the irrelevance of the G20 organization as the BRICS grow stronger. Recall that Xi and Modi just met in person on the sidelines of the BRICS summit last month. Last year’s G20 summit in Indonesia was a tense one, in part owing to different positions on the Ukraine war among members.