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Diplomacy In The Middle East Keeps Oil And Markets Steady

Oil picked up fast on Friday, gaining $5 a barrel to touch $91 in London before slipping back slightly. What’s holding it here is the major diplomatic efforts by the United States and others to restrain Israel from launching a ground attack on Gaza

By Govindraj Ethiraj
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Diplomacy Middle East Oil Market
On today’s episode, financial journalist Govindraj Ethiraj talks to Karan Taurani, senior vice president and media and internet analyst at Elara Capital. We also feature an excerpt from the recent Weekend Edition featuring Jacob L. Shapiro, Partner & Director of Geopolitical Analysis, Cognitive Investments.

Our Top Reports For Today

  • [00:00] Stories Of The Day 
  • [01:00] High intensity diplomacy in the middle east to prevent escalation of war keeps oil and markets steady.
  • [03:06] The Russians want Chinese yuan for oil they are selling to India.
  • [11:24] Record Bollywood collections at the box office, could the momentum continue ?
  • [20:02] The India opportunity in a post globalised, multi polar world and what India must do with Jacob L Shapiro

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Diplomacy Steadies Oil and The Markets

Remember, when oil was projected to touch $100 very soon and surely this calendar year, there was no war in the middle east or military tensions anywhere in the world,  apart from of course the Russia and Ukraine war.

What prompted firms like Goldman Sachs just three weeks ago to project oil at $100 was, one, it had already gone up 30% or so at the time to breach $95 a barrel and second, the impact of supply cuts by Saudi Arabia and Russia.

But what has happened instead is that demand projections have turned weaker so in some ways turning the argument on its head.

Oil shot up on Friday though, up $5 a barrel to touch $91. On Monday it was around the same levels

After shrugging off the outbreak of the Hamas-Israel war, oil picked up fast on Friday, gaining $5 a barrel to touch $91 in London before slipping back slightly.

What’s holding it here is the major diplomatic efforts by the United States and others to restrain Israel from launching a ground attack on Gaza. President Joe Biden is also expected to make a trip to Israel this week, reports suggest.

“Traders are really struggling to figure out how to trade this,” said Amrita Sen, co-founder and director of research at consultant Energy Aspects, told Bloomberg, adding as the larger market is already factoring, there are no direct supply losses. 

The International Energy Agency said last week that the recent pullback in prices from the highs of late September reflected an erosion in demand, especially in the US, where data suggest seasonally weak gasoline consumption, according to Bloomberg.

Moreover, Saudi Arabia and its OPEC+ allies, having slashed crude output this year to prop up prices, are left with a healthy reserve of spare production capacity to weather any shocks.

The broader takeaway at this point at least seems to be that while supply controls can impact prices as it has in the past, demand or the potential of it, which in this case is the lack of it, is playing a stronger role in keeping prices down.

Russian Oil And Yuan

Meanwhile, you might recall discussions, including on The Core Report on the internationalisation of the rupee, or the desire to move towards a global economy where the INR plays a pivotal role.

It has been also pointed out that while it is a good desire and objective to have, getting there will take time and lots of effort.

A fresh hint of why a rupee as the reserve currency is still far away or that there are other claimants to this coveted spot came after it emerged that Russian crude oil exporters to India want to be paid in Chinese yuan, or more of it.

This is apparently something the Indian government does not like which in turn has led to at least seven cargoes being held up, Reuters is reporting.

India is the top importer of Russian seaborne oil this year, with refineries buying crude sold at a discount after some western nations suspended imports from Moscow over its invasion of Ukraine.

Reuters reported in July that Indian refiners began using yuan to pay for some oil from Russian sellers, while continuing to use dollars and dirhams to settle most of their Russian oil purchases.

And, based on comments from officials at affected refiners, payment for at least seven cargoes is still pending. Some payments for recent cargoes delivered to at least two state refiners have been pending since the last week of September.

"It is not banned and if a private firm has yuan to settle its trade, the government will not stop it, but it will neither encourage nor facilitate such trade," said a ministry official.

Refining sources said traders have been ready to strike deals in dirhams, but Russian sellers have held out for yuan, also a reminder to India and the world at large of the utility of the yuan in trade, particularly for Russia at this time when many other avenues are blocked.

State-run Indian Oil Corp, the country's top refiner, has used yuan and other currencies to pay for Russian oil, Reuters reported previously.

Private Indian refiners have continued to pay in yuan and other currencies for Russian oil imports, sources said, with most Indian purchases of Russian oil paid in dirham.

Two refining sources said settlement in yuan increases their costs, as rupees first need to be converted to Hong Kong dollars and then yuan, a process that costs 2-3% more than settling in dirham.

While Indian state refiners would prefer to use rupees to pay for Russian oil after the country's central bank last year announced a mechanism to settle foreign trade in rupees, Russia is less keen to accept rupees given as the bilateral trade balance is tilted in Moscow's favour.

Markets And Corporate News

Oil has held steady as we discussed and stock markets have oscillated in tight margins. The BSE Sensex ended at 66,167 levels, down 116 points, while the Nifty50 was down 19 points at 19,732. 

The rupee stayed weak, falling  to 83.28 against the U.S. dollar on Monday, marking its lowest level in one year against the greenback. 

The Reserve Bank of India has been selling US dollars to keep the rupee from falling more sharply. 

HDFC Bank, the banking behemoth created from the merger of HDFC and HDFC Bank has reported a 51% jump in net profits the second quarter of the current financial year (Q2FY24) to Rs 15,796 crore year on year. 

Total income of the bank stood at Rs 78,406 crore in Q2, up 69 per cent y-o-y.

The bank's net revenue grew by 33.1 per cent to Rs 38,093 crore for the quarter ended September 30, 2023 and net interest income (NII) for the Q2FY24 grew by 30 per cent to Rs 27,385 crore. 

If you were looking for broader signs of economic activity or pickup, domestic retail loans grew by 112 per cent, commercial and rural banking loans grew by 29.5 per cent and corporate and other wholesale loans (excluding non-individual loans of eHDFC Ltd of approximately Rs 1,02,800 crore) grew by 7.9 per cent. 

Notice Upon Notice

The notices are now flying thick and fast. The Delta Group, owner of casinos has received a fresh notice in one of its subsidiaries, from the Government or specifically the DIrectorate General of GST Intelligence, Kolkata  to pay up an alleged shortfall in the payment of Goods and Services Tax (GST) to the tune of ₹6,384 crore, as per a regulatory filing made by the casino chain operator on October 14.

This comes nearly three weeks after parent Delta Corp had received tax shortfall notices amounting to ₹16,822 crore.

In all, the company is facing tax demands worth Rs 23,000 crore and more.

Shares of Delta Corp fell over 12% to hit a 52-week low on Monday after it received another goods and services tax demand notice.

The demand, including interest and penalty for the period from July 2017 to March 2022, is based on the gross bet value of all games played at the casinos during the relevant period. The stock is down close to 40% on a year to date. 

Delta Corp, however, claimed in an exchange filing where it revealed the notices that the amount demanded are “inter alia based on the gross bet value of all games played during the relevant period."

“Demand of GST on gross bet value, rather than gross rake amount, has been an industry issue and various representations have already been made to the government at an industry level in relation to this issue," it added.

So Delta is confident of seeing this through or must present such a front.

The question that of course I have always wondered is what is the social-political thinking on this subject.

It could always be argued that the attraction of tax revenues, particularly in small states like Goa where many of Delta’s casinos float on a river, is greater than the moral hazard of having people blow up their savings or earnings.

This debate is of course not unique to India and happens with what I would think is greater intensity in developed countries as well.

The question is if the industry or investors who invest in the online version of gambling games is reading the room.

I would like to think that most politicians represent middle class India in values. This is a social and economic construct which frowns upon any form of vice as being harmful to families or children or both.

Many of the gaming companies sidestepped the moral wall so to speak by positioning themselves as tech companies, raising billions of dollars of capital and then crying foul about job losses when the Government started shooting off tax notices.

Remember, the Government is only asking for taxes, albeit high levels, to be paid and is not shutting them down, for lets say, creating distortions in society or ruining youngsters' lives. 

Also remember tech-enabled, app based gaming is infinitely frictionless compared to travelling to Goa and then speed boating to a casino on a river. That’s time and lots of money. 

The Government wants to uniformly tax both. As it perhaps should and increase the deterrence because that is what most voters as family members would want. All this could of course change because the courts take a different view and everyone falls in line.

But the fact that gambling fundamentally is a vice will not change, regardless of which tech-shaped veil you drape over it. Not in the eyes of hundreds of millions of Indian families. 

Bollywood is Going Strong

Moving on from gambling to other forms of family-friendly entertainment, the last July-September year has been a blockbuster quarter for Bollywood, quite literally.

A spate of successful films like Gadar2, Jawan, DreamGirl2, preceded by several other hits has led to some Rs 1,720 crore of collections, going by reports in The Economic Times, as compared to Rs 1,579 crore in the previous quarter.

Very broadly speaking, 70% of the industry’s revenues come from theatrical or cinema releases while 30% comes from OTT or your streaming services like Netflix, Amazon Prime, Sony and Apple.

The numbers have to be seen in this context. Which is that precisely 3-4 months ago, the movie industry was preparing for one of its worst years ever. And then a series of Hollywood blockbusters followed by Bollywood blockbusters saved it, at least for now.

The largest multiplex operator PVR Inox whose fortunes swing by the week oftentimes is now launching a scheme whereby you can pay Rs 699 and watch 10 movies in a month on weekdays. 

There are some caveats here and there but it is an interesting experiment to bring people to the movies and its launch at this time now suggests either a move in desperation or one of confidence stemming from recent successes and that a little push at this point could go much further to bring back audiences to the silver screen.

Incidentally, theatre occupancy averages just around 20% during the week and doubles to around 40% over weekends. So there are lots of empty seats going.

I reached out to Karan Taurani, senior vice president and media and internet analyst at Elara Capital and began by asking him how the box office was doing right now in his estimation and what lay ahead.


The New Multipolar World And Opportunities

India can clearly benefit from the changing global order, Jacob Shapiro, partner and director of Geopolitical Analysis at Cognitive Investments told me over the weekend in The Core Report’s Weekend edition.

According to him, India has inherent strengths by virtue of its skilled human capital, to be able to become a viable manufacturing alternative to China. “So even if you assume the worst possible government policy from India, I think that India has enough inherent strengths just by virtue of where it is, by the virtue of its human capital, how many people it has, how young they are, how ambitious and skilled and interested in the world they are. Just that billion plus Indian people coming online and wanting to be able to do all these things, that is going to move India in the right direction.” Shapiro said.

He also said which other countries he was betting on and which industries excited him within that.


Before I go, interesting news from the United States, where the highest  highest mortgage rates in 23 years are dragging down home sales to their lowest levels since the subprime crisis period, says the WSJ.

Sales of previously owned homes in 2023 are expected to dwindle to a rate not seen since at least 2011, when the U.S. population was smaller and the country was still recovering from one of the worst housing crises ever, according to many economist forecasts.

Total number of existing home sales in 2023 would stand around 4.1 million, the smallest number since about 2008, the year of the Lehman Brothers led banking and financial collapse, WSJ reported.

That’s it from me. Have a great day.