The Russia-Ukraine war has reshaped global trade and forged new alliances
The vast majority of policymakers in Westminster, let alone elsewhere around the UK, have never heard of the Shanghai Cooperation Organisation, the geopolitical grouping currently holding its summit at Tianjin, but hear me out on why we should all be paying considerable attention to it.
Because the more attention you pay to this grouping of 10 Eurasian states – most notably China, Russia and India – the more you start to realise that the long-term consequences of the war in Ukraine might well reach far beyond Europe’s borders, changing the contours of the world as we know it.
The best place to begin with this is in February 2022, when Russia invaded Ukraine. Back then, there were a few important hallmarks in the global economy. The amount of goods exported to Russia by the G7 – the equivalent grouping of rich, industrialised nations – was about the same as China’s exports. Europe was busily sucking in most Russian oil.
But roll on to today and G7 exports to Russia have gone to nearly zero (a consequence of sanctions). Russian assets, including government bonds previously owned by the Russian central bank, have been confiscated and their fate wrangled over. But Chinese exports to Russia, far from falling or even flatlining, have risen sharply. Exports of Chinese transportation equipment are up nearly 500%. Meanwhile, India has gone from importing next to no Russian oil to relying on the country for the majority of its crude imports.
Indeed, so much oil is India now importing from Russia that the US has said it will impose “secondary tariffs” on India, doubling the level of tariffs paid on Indian goods imported into America to 50% – one of the highest levels in the world.
The upshot of Ukraine, in other words, isn’t just misery and war in Europe. It’s a sharp divergence in economic strategies around the world. Some countries – notably the members of the Shanghai Cooperation Organisation – have doubled down on their economic relationship with Russia. Others have forsworn Russian business.
And in so doing, many of those Asian nations have begun to envisage something they had never quite imagined before: an economic future that doesn’t depend on the American financial infrastructure. Once upon a time, Asian nations were the biggest buyers of American government debt, in part to provide them with the dollars they needed to buy crude oil, which is generally denominated in the US currency. But since the invasion of Ukraine, Russia has begun to sell its oil without denominating it in dollars.
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At the same time, many Asian nations have reduced their purchases of US debt. Indeed, part of the explanation for the recent rise in US and UK government bond yields is that there is simply less demand for them from foreign investors than there used to be. The world is changing – and the foundations of what we used to call globalisation are shifting.
The penultimate reason to pay attention to the Shanghai Cooperation Organisation is that while once upon a time its members accounted for a small fraction of global economic output, today that fraction is on the rise. Indeed, if you adjust economic output to account for purchasing power, the share of global GDP accounted for by the nations meeting in Tianjin is close to overtaking the share of GDP accounted for by the world’s advanced nations.
And the final thing to note – something that would have seemed completely implausible only a few years ago – is that China and India, once sworn rivals, are edging closer to an economic rapprochement. With India now facing swingeing tariffs from the US, New Delhi sees little downside in a rare trip to China, to cement relations with Beijing. This is a seismic moment in geopolitics. For a long time, the world’s two most populous nations were at loggerheads. Now they are increasingly moving in lockstep with each other.
That is a consequence few would have guessed at when Russia invaded Ukraine. Yet it could be of enormous importance for geopolitics in future decades.
Thames Water’s largest group of creditors is to offer an additional £1bn-plus sweetener in a bid to persuade Ofwat and the government to pursue a rescue deal with them that would head off the nationalisation of Britain’s biggest water utility.
Sky News has learnt that the senior creditors, which account for roughly £13bn of Thames Water‘s top-ranking debt, will propose this month that they inject hundreds of millions of pounds of new equity and write off a substantial additional portion of their existing capital.
In total, the extra equity and debt haircut are understood to total roughly £1.25bn, although the precise split between them was unclear on Monday evening.
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The numbers were still subject to being finalised as part of a comprehensive plan to be submitted to Ofwat, according to people close to the process.
Thames Water has about 16 million customers and serves about a quarter of the UK population.
The creditor group, which includes funds such as Elliott Management and Silver Point Capital, is racing to secure backing for a deal that would avoid seeing their investments effectively wiped out in a special administration regime (SAR).
Sky News revealed last month that Steve Reed, the environment secretary, had authorised the appointment of FTI Consulting, a City restructuring firm, to advise on contingency planning for a SAR.
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Last month: Is Thames a step closer to nationalisation?
On Monday, The Times reported that Rachel Reeves, the chancellor, had reaffirmed the government’s desire to see a “market-based solution” to the crisis at Thames Water.
The company’s main group of creditors had already offered £3bn of new equity and roughly £2bn of debt financing, which, alongside other elements, represented a roughly 20pc haircut on their existing exposure to Thames Water.
On Tuesday, the creditors are expected to set out further details of their operational plans for the company, in an attempt to allay concerns that they are insufficiently experienced to take on the task of running the UK’s biggest water company.
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