The critical cog in Putin’s machine and how British firms help to keep Russian gas flowing into Europe
This is the story of how an obscure company based in an office block on a quiet street in Glasgow became an accessory in Vladimir Putin’s war on Ukraine. It is the story of how Europe and Russia remain locked in a tense relationship of economic dependence, even as they supposedly cut their ties. It is the story of the uncomfortable truth behind why the cost of living crisis came to an end.
But before all of that, it is the story of a ship – a very unusual ship indeed.
If you ever spot the Yakov Gakkel as it sails through the English Channel or the Irish Sea (I first set eyes on it in the Channel but at the time of writing it was sailing northwards, about 20 miles off the coast of Anglesey) you might not find it all that remarkable.
At first glance it looks like many of the other large, nondescript tankers and cargo vessels passing these shores. Its profile is dominated by an enormous blue prow which reaches high out of the water and ends, 50 metres further back, at its unexpectedly angular stern.
Yet the ship’s slightly odd shape – all hull and barely any deck – is the first clue about what makes the Yakov Gakkel so special. Because this is one of the world’s most advanced liquefied natural gas (LNG) tankers, with an unusual trick up its sleeve.
The Yakov Gakkel tanker
LNG tankers are extraordinary ships, with insides so cleverly engineered they are capable of holding vast amounts of natural gas at temperatures of approximately −163C.
For all that the world is embracing renewable energy, natural gas remains one of the most important energy sources, essential for much of Europe’s heating and power, not to mention its industries. For the time being, there is no cheap way of making many industrial products, from glass and paper to critical chemicals and fertilisers, without gas.
Once upon a time, moving natural gas from one part of the world to another necessitated sending it down long, expensive, vulnerable pipelines, meaning only countries with a physical connection to gas producers could receive this vital fuel. But LNG tankers like the Yakov Gakkel are part of the answer to this problem, since they allow gas producers to send it by sea to anywhere with a terminal capable of turning their supercooled methane back into the gas we use to heat our homes and power our grids.
Politicians in Europe promised to end the continent’s reliance on Russian gas
But the Yakov Gakkel can also do something most other LNG tankers cannot, for that enormous blue double hull allows it to carve through ice, enabling it to travel up into the Arctic Circle and back even in the depths of winter.
And that is precisely what this ship does, more or less constantly: travelling back and forth between Siberia and Europe, through winter and summer, bringing copious volumes of gas from Russia to Europe. It is part of the explanation for how Europe never ran out of gas, even after the Russian invasion of Ukraine.
This is not, it’s worth saying, the conventional wisdom. Back when Russia invaded Ukraine, European policymakers declared they planned to eliminate the continent’s reliance on Russian gas – which accounted for roughly a third of their supplies before 2022.
And many assumed that had already happened – especially after the Nord Stream pipeline, the single biggest source of European gas imports, was sabotaged in late 2022. But while volumes of Russian pipeline gas into Europe have dropped dramatically, the amount of Russian LNG coming into Europe has risen to record levels.
LNG tankers sail between Siberia and various ports in Europe, including Zeebrugge
Russia helps Europe replenish gas stores
Today, Europe still depends on Russia for around 15% of its gas, an ever-growing proportion of which now comes in via the sealanes, on tankers like the Yakov Gakkel. And while the US has stepped in to make up some of the volumes lost when those pipelines stopped, only last month Russia overtook the US to become the second biggest provider of gas to the continent. It’s further evidence that those LNG volumes carried on ships through the North Sea, the Irish Sea and the English Channel, are increasing, rather than falling.
This Russian gas has helped Europe replenish its gas stores, it has helped keep the continent’s heavy industry going throughout the Ukraine war. And this dependence has not come cheap: the total amount Europe has paid Russia for LNG since 2022 comes to around €10bn.
The continued presence of Russian gas running through European grids is at least part of the explanation for why European energy prices have fallen so sharply since those post-invasion highs. Back then, many in the market were pricing in a complete end of Russian gas supply to Europe – something that would have had disastrous consequences. But it never actually happened.
Perhaps this explains why the continent’s politicians have, so far, stopped short of banning imports of Russian gas: they are aware that their economy would struggle to withstand another sharp spike in inflation – which would almost certainly eventuate if it stopped taking Russian gas altogether.
Russian gas has helped keep Europe’s heavy industry going throughout the Ukraine war
This week, European leaders agreed to stop allowing Russia to use its ports to “trans-ship” its LNG – essentially acting as a stop-off point towards other destinations. However, those transshipments account for only a fraction – at most a quarter – of the Russian gas coming in on tankers to Europe. The vast majority ends up in Belgium, France and Spain, heating European homes, fuelling power stations and powering machinery in factories.
While European leaders have imposed wide-ranging sanctions and price caps on shipments of oil, no such controls exist for liquefied natural gas. So the Yakov Gakkel and a fleet of LNG tankers carry on sailing between Siberia and various ports in Europe – Zeebrugge, Dunkirk, Montoir and Bilbao – keeping the continent supplied with the Russian hydrocarbons it still cannot live without.
British firm’s role in lucrative trade
But there is another reason why this ship is particularly unique, for the Yakov Gakkel – this critical cog in the financial machine that helps finance the Russian regime – is actually part-owned and operated by a British company.
That brings us back to a street overlooking the Clyde in Glasgow, where, in a glass-fronted office block, you will find the operational headquarters of a company called Seapeak. The chances are you haven’t heard of Seapeak before, but this business owns and operates a fleet of LNG tankers all across the world.
That fleet includes the Yakov Gakkel and four other LNG icebreakers that ply this Siberian trade. That a British company might be facilitating this lucrative trade for Russia might come as a surprise, but there is nothing illegal about this: the sanctions regime on Russia just turns out to be significantly more porous than you might have thought.
We tried repeatedly to speak to Seapeak – to ask them about the Yakov Gakkel and whether they felt it was appropriate – given the UK has forsworn LNG imports – that a British company and British workers are helping administer this Russian trade. We sent emails with questions. However, they did not respond to our calls or our emails.
When, after weeks of efforts to get a response, I visited their offices in Glasgow, I was met by a security guard who told me Seapeak would not see me without an appointment (which they were refusing to give me). Eventually I was told that if I would not leave they would call the police.
A security guard at Seapeak’s offices in Glasgow said no one was available to speak to Sky News
Seapeak is not the only British company helping keep Russian gas flowing. While British insurers are banned from protecting oil tankers carrying Russian crude, there’s no equivalent sanction on Russian LNG ships, with the upshot that many of these tankers are insured by British companies operating out of the Square Mile.
We spent some time tracking another icebreaking tanker, the Vladimir Rusanov, as it approached Zeebrugge. It is insured by the UK P&I Club, which also insures a number of other LNG carriers.
In a statement, it said: “The UK Club takes great care to observe all applicable sanctions regulations in relation to Russian energy cargoes, but the direct carriage of LNG from Yamal to Zeebrugge, and provision of insurance services for such carriage, is not presently sanctioned. If the EU and G7 nations were to change their policy… the Club would of course comply by adjusting or withdrawing its services, as necessary.”
The Vladimir Rusanov off the coast of Zeebrugge
The transport of Russian gas into Europe – its dependence on British operators and insurers – is only one small example of the loopholes and omissions in the UK sanctions regime. But while government ministers have expressed concern about the effectiveness of the broader sanctions regime, there is still scant evidence they intend to tighten up this corner of it.
Before the election was called the Treasury Select Committee was in the middle of collecting evidence for its own inquiry into the regime, which was expected to focus on insurers of vessels taking Russian goods. However, the inquiry was wound up prematurely when the election was called in May.
Read more on Sky News:
EU sanctions target Russian gas for first time
Russian oil still seeping into the UK
In the meantime, ships like the Yakov Gakkel carry on taking billions of cubic metres of gas from the gas fields of Yamal in Siberia down to Europe, in exchange for billions of euros. And those and other hydrocarbon revenues are one of the main explanations for how Russia is able to produce more missiles and weapons than the Ukrainians.
So Europe carries on fuelling its industry and its power and heating grids with molecules of gas coming from Siberian gasfields, while assuring itself it’s doing everything it can to fight Vladimir Putin.
It is, in short, a discomforting situation. But given the alternative is to induce another cost of living crisis, there is little appetite in Europe to change things.
Business
Donald Trump has finally blinked – but it’s not the stock markets that have forced him to act
Chalk this one up to the bond vigilantes.
This is the term used periodically to describe investors who push back against what are perceived to be irresponsible fiscal or monetary policies by selling government bonds, in the process pushing up yields, or implied borrowing costs.
Most of the focus on markets in the wake of Donald Trump’s imposition of tariffs on the rest of the world has, in the last week, been about the calamitous stock market reaction.
This was previously something that was assumed to have been taken seriously by Mr Trump.
During his first term in the White House, the president took the strength of US equities – in particular the S&P 500 – as being a barometer of the success, or otherwise, of his administration.
Donald Trump in the Oval Office today. Pic: Reuters
He had, over the last week, brushed off the sour equity market reaction to his tariffs as being akin to “medicine” that had to be taken to rectify what he perceived as harmful trade imbalances around the world.
But, as ever, it is the bond markets that have forced Mr Trump to blink – and, make no mistake, blink is what he has done.
To begin with, following the imposition of his tariffs – which were justified by some cockamamie mathematics and a spurious equation complete with Greek characters – bond prices rose as equities sold off.
That was not unusual: big sell-offs in equities, such as those seen in 1987 and in 2008, tend to be accompanied by rallies in bonds.
Please use Chrome browser for a more accessible video player
What it’s like on the New York stock exchange floor
However, this week has seen something altogether different, with equities continuing to crater and US government bonds following suit.
At the beginning of the week yields on 10-year US Treasury bonds, traditionally seen as the safest of safe haven investments, were at 4.00%.
By early yesterday, they had risen to 4.51%, a huge jump by the standards of most investors. This is important.
The 10-year yield helps determine the interest rate on a whole clutch of financial products important to ordinary Americans, including mortgages, car loans and credit card borrowing.
By pushing up the yield on such a security, the bond investors were doing their stuff. It is not over-egging things to say that this was something akin to what Liz Truss and Kwasi Kwarteng experienced when the latter unveiled his mini-budget in October 2022.
And, as with the aftermath to that event, the violent reaction in bonds was caused by forced selling.
Now part of the selling appears to have been down to investors concluding, probably rightly, that Mr Trump’s tariffs would inject a big dose of inflation into the US economy – and inflation is the enemy of all bond investors.
Part of it appears to be due to the fact the US Treasury had on Tuesday suffered the weakest demand in nearly 18 months for $58bn worth of three-year bonds that it was trying to sell.
But in this particular case, the selling appears to have been primarily due to investors, chiefly hedge funds, unwinding what are known as ‘basis trades’ – in simple terms a strategy used to profit from the difference between a bond priced at, say, $100 and a futures contract for that same bond priced at, say, $105.
In ordinary circumstances, a hedge fund might buy the bond at $100 and sell the futures contract at $105 and make a profit when the two prices converge, in what is normally a relatively risk-free trade.
So risk-free, in fact, that hedge funds will ‘leverage’ – or borrow heavily – themselves to maximise potential returns.
The sudden and violent fall in US Treasuries this week reflected the fact that hedge funds were having to close those trades by selling Treasuries.
More from Sky News:
What a global recession would mean
Is there method to the madness?
Please use Chrome browser for a more accessible video player
Trump freezes tariffs at 10% – except China
Confronted by a potential hike in borrowing costs for millions of American homeowners, consumers and businesses, the White House has decided to rein back its tariffs, rightly so.
It was immediately rewarded by a spectacular rally in equity markets – the Nasdaq enjoyed its second-best-ever day, and its best since 2001, while the S&P 500 enjoyed its third-best session since World War Two – and by a rally in US Treasuries.
The influential Wall Street investment bank Goldman Sachs immediately trimmed its forecast of the probability of a US recession this year from 65% to 45%.
Of course, Mr Trump will not admit he has blinked, claiming last night some investors had got “a little bit yippy, a little bit afraid”.
And it is perfectly possible that markets face more volatile days ahead: the spectre of Mr Trump’s tariffs being reinstated 90 days from now still looms and a full-blown trade war between the US and China is now raging.
But Mr Trump has blinked. The bond vigilantes have brought him to heel. This president, who by his aggressive use of emergency executive powers had appeared to be more powerful than any of his predecessors, will never seem quite so powerful again.
Is there method to the madness? Donald Trump and his acolytes would have you believe so.
The US president is standing firm among all the market chaos.
Just this weekend, after US stock markets suffered their sharpest falls since the onset of the pandemic, Trump reposted a video on his social media platform Truth Social. This was its title: “Trump is purposefully CRASHING the market.”
Tariffs latest: ‘BE COOL’, Trump says as trade war escalates
The video claimed the president was engineering a flight to US government bonds, also known as treasuries – a safe haven in turbulent times. The video suggested Trump was deliberately throwing the stock market into chaos so investors would take their money out and buy bonds instead.
Why? Because demand for treasuries pushes up the price of the bonds, and that, in turn, lowers the yield on those bonds.
The yield is the interest rate on the debt, so a lower yield pushes down government borrowing costs. That would provide some relief for a government that has $9.2trn of government debt to refinance this year. Consumers also stand to benefit as the US Federal Reserve, the US central bank, would likely follow suit, feeling the pressure to cut interest rates.
A trader works on the floor at the New York Stock Exchange. Pic: Reuters
Trump and his treasury secretary, Scott Bessent, have made it a key policy priority to lower yields. For a while, it looked like the plan was working. As stock markets tumbled in response to Trump’s tariffs agenda, investors ploughed their money into bonds instead.
However, Trump may have spoken too soon. On Monday, the markets had a change of heart and rapidly started selling government bonds. Thirty-year treasury yields hit 4.92% on Wednesday, their biggest three-day jump since 1982. That means government borrowing costs are rising – and not just in the US. The sell-off has spiralled to government bonds worldwide.
Rachel Reeves will be watching anxiously. Yields on Britain’s 30-year government bonds, also known as gilts, hit their highest level since May 1998. They registered a 27 basis point jump to 5.642% today – that’s on track to be the largest one-day move since the aftermath of former prime minister Liz Truss’ “mini-budget” in October 2022.
Please use Chrome browser for a more accessible video player
‘These countries are dying to make a deal’
This is a big deal. It is the sharpest sell-off in the US bond market since the pandemic. Back then, investors also rushed into bonds before dumping them and the motivations, on one level, are similar.
In 2020, investors sold bonds because they had to cover losses elsewhere in their portfolios. When markets fall, as they have done over the past few days, lenders can demand that an investor who has borrowed money stump up more cash against the value of their loan because the collateral against those loans has fallen in value. This is known as a “margin call”. Government bonds are easy to sell as investors “dash for cash”.
There are signs that this may be happening again and central banks, which had to step in last time, are alert.
The Bank of England warned today of the growing risks to financial stability. “A sharp increase in government bond yields could crystallise relatively quickly,” it said.
There are other forces weighing on government bonds. With policy uncertainty unfolding in the US, investors could also be signalling that US debt isn’t the safe haven it once was. That loss of confidence also seems to have hurt the dollar, one of the world’s safest places to park your money. It’s had a turbulent journey but is down 1.15% against a basket of safe haven currencies since Trump announced widespread tariffs on 2 April.
Some are even wondering if China could be behind some of this, dumping US government debt as a revenge tactic to hurt a president who has explicitly said he wants bond yields to come down. The country holds $761bn of US government bonds, second only to Japan. If this is the case, then the US-China trade war could rapidly be evolving into a financial war.
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway