Aurelia Butler

The International Energy Agency has called for member countries to adopt “emergency measures” to cut oil demand in the wake of Russia’s invasion of Ukraine, including driving restrictions, lower speed limits and curbs on air travel.Fatih Birol, head of the energy watchdog, on Friday warned that such steps might be necessary because “oil markets are in an emergency situation . . . and it may get worse”. As much as 2.5mn barrels a day of Russian oil exports could cease from next month due to the impact of the war and consumer boycotts of Russian crude, he said. Russia is one of the world’s largest oil producers.The IEA has proposed 10 measures to reduce oil demand by 2.7m b/d within the next four months, which it said would help balance potential loss from the Russian market. “As a result of Russia’s appalling aggression against Ukraine, the world may well be facing its biggest oil supply shock in decades,” Birol said.He urged IEA member countries — which include many of the world’s largest energy consumers such as the US, Japan and Germany — to cut demand now, “to avoid the risk of a crippling oil crunch”.

A 10-point plan to cut oil useActionImpactReduce speed limits on highways by at least 10kphSaves about 290,000 barrels per day of oil use in cars and an additional 140,000 b/d from trucksWork from home up to three days a week where possibleOne day a week saves about 170,000 b/d, three days saves about 500,000 b/dCar-free Sundays in citiesEvery Sunday saves about 380,000 b/d, one Sunday a month saves 95,000 b/dMake the use of public transport cheaper and provide incentives for micromobility, walking and cyclingSaves about 330,000 b/dAlternate private car access to roads in large citiesSaves about 210,000 b/dIncrease car sharing and adopt practices to reduce fuel useSaves about 470,000 b/dPromote efficient driving for freight trucks and delivery of goodsSaves about 320,000 b/dUse high-speed and night trains instead of planes where possibleSaves about 40,000 b/dAvoid business air travel where alternative options existSaves about 260,000 b/dReinforce the adoption of electric and more efficient vehiclesSaves about 100,000 b/dSource: IEA

The measures include cutting speed limits on highways by 10kph, which would save 430,000 b/d, reducing business air travel and taking trains instead of planes where possible.Working from home three days a week would also help cut oil demand, along with making public transport cheaper or even free. Many of the proposals would cut down on driving, including banning private cars from cities on Sundays and limiting private car access to roads in large cities.The IEA was founded in the 1970s to help oil-consuming countries respond to the 1973 oil crisis and monitor global energy markets. But rarely has the body had to resort to the dramatic demand-reduction steps that it outlined on Friday.The price of Brent crude, the international benchmark, soared to $139 a barrel after Russia’s invasion of Ukraine amid supply concerns. On Friday it traded at $107 a barrel.Barbara Pompili, France’s ecological transition minister, said the IEA plan to cut consumption offered “interesting ideas” that could be a road map for countries to reduce their oil dependence. “France and all European countries must get out of their dependence on fossil fuels as soon as possible. It is an absolute necessity for the climate, and also for energy sovereignty,” she said. The IEA will present the recommendations to energy ministers next week as part of its response plan for the current energy crisis. Birol warned that the combination of loss of Russian exports, increased demand during the summer travel season and low storage levels meant the oil market could get even tighter than it was now. “The reason we came up with this report is that oil markets are in an emergency situation, and not only that, it may get worse,” he said. More

The writer is Iran’s minister of finance and economic affairsIn Iran, sanctions, currency fluctuations and high inflation rates have led to subpar economic performance and a negative growth rate in recent years. Other adverse shocks such as the Covid-19 pandemic and natural disasters have further increased the fiscal pressure. Hence, the budget has grown faster than inflation — that for 2021 was about three times that for 2019.I do not yet know what the outcome of Iran’s current nuclear negotiations with the 4 + 1 in Vienna will be. Regardless, we must take a cautious approach to our next budget so as not to upset the administration of the economy. Our government’s strategy was first to stabilise the economy and then to stimulate inclusive growth. In the past few months, part of the first goal was achieved, with point-to-point inflation decreasing on a monthly basis (from a 3.8 per cent increase to 1.6 per cent). The 2022 budget framework, which begins with the Iranian new year on March 21, must continue this strategy.Given the current sanctions-related obstacles to exporting crude oil, the previous government’s strategy in financing the growing budget deficit increased our reliance on the bond market. The repayment and settlement of these debts are the responsibility of the new administration. We have also tried, over our seven months in office, to sell more oil under the existing restrictions (with an increase of 40 per cent) and to raise tax revenues. The recent mushrooming of Iran’s budget was a direct result of an increase in the government’s current expenditure, while its investments in various sectors have declined. This, along with widespread uncertainty over the country’s economy because of the pandemic, has also led to a decline in private sector investment. This in turn has resulted in a negative net investment in recent years, severely undermining future production and household welfare.Against this background, and in response to growing inequality, the new government has sought to change the course of fiscal policy. Our aim is to promote economic growth, price stability and inclusive growth. We also seek institutional reforms to improve financial discipline and reduce spending. As such, our budget for 2022, which is already approved by the parliament, includes a number of structural reforms. We will lower corporate tax rates by 5 per cent and reduce our reliance on bonds. We hope to reduce the budget deficit by increasing the salaries of government employees at rates less than the inflation rate. We also predict increased oil export revenues.Iran’s new budget is designed to promote equitable growth, including by increasing government investment. The public sector must play a more active role in investing in physical capital. Capital asset acquisition declined from 24 per cent in 2012 to 14 per cent in 2021 but, in the new budget, the share of credits for acquiring capital assets has increased by 4 per cent. This is an essential step in strengthening public investment.We also wish to reduce the growth in current expenditure. In the 2021 budget this stood at around 60 per cent. This has been reduced to 38 per cent in the new bill.Finally, we plan to increase tax revenues. Despite the reduction in corporate tax rates, the government has increased its reliance on sustainable tax revenues instead of mainly depending on oil. This has come about through substantial reforms to the tax system as well as by increasing financial transparency to reduce tax evasion and introducing a capital gains tax.Our models suggest that Iran’s new budget will lead to positive medium-term outcomes in variables such as output, investment, employment and inflation. The approach adopted in the 2021 budget is expected to reduce inflation significantly in the next three years. Moreover, total investment and non-oil production will grow more quickly. Needless to say, the government is determined to keep the money supply and monetary base under tight control. This will require significant reforms in the banking sector, as well as in areas outside the government budget (such as pension funds, the national wealth fund and so on). The current negotiations in Vienna could potentially lead to positive economic outcomes for Iran, especially in the banking sector and foreign exchange. We are ready for whatever scenario emerges — pessimistic or otherwise. More

Thinking of retiring? Aren’t we all — a survey out this week suggested that more than 20 per cent of those of us in work are thinking about it. And of course an awful lot of us have already given in to the giving up urge. Numbers out from the Office for National Statistics suggest that close to half a million 50 to 70-year-olds have left the workforce since March 2020 and not returned. Not all of that will have been voluntary, of course, but the most common reason given for it by the leavers is retirement. Three-quarters of those over 60 also said that the shift was being financed by a private pension. Sounds nice, doesn’t it? But I wonder how many of the 500,000 are beginning to consider logging back on to LinkedIn and putting out a few feelers for some work. A toxic mixture of the stock market falling and inflation rising will be making them feel very nervous. A lot of the 60-plus group will have a defined benefit (DB) pension. These are wonderful — you automatically get a percentage of your old salary, inflation-linked, forever. But they aren’t perfect. Public sector pensions will rise by 3.1 per cent from April 2022, in line with the rise in the consumer prices index from September 2020 to September 2021. That would be fine if inflation was going to rise at 3.1 per cent in this year too. It isn’t — even the Bank of England now expects CPI to top out at close to three times that.

Private sector DB pensions often come with a nasty inflation sting in the tail too, in the form of an inflation cap. I have on my desk the details of one scheme (not mine, alas) which stipulates that it will rise at the “lesser of the increase of the retail price index or 2.5 per cent”. Given that RPI (which is always higher than CPI) is going to cruise past double figures this year, holders of this type of pension are going to take a genuinely unpleasant real income hit.That said, the misery of those with DB pensions will be nothing, and I mean nothing, next to that of those with defined contribution (DC) pensions — the stock market-reliant ones the rest of us have. Look at your pension account today (if you dare) and you will almost certainly be 10 per cent down from your peak, or possibly more given that the top holdings in most big global funds — the ones your pension provider will be holding for you — will be heavily weighted to giant US technology companies. The top 10 holdings in Nest, one of the UK’s big pension fund managers, were down an average of 16.9 per cent from the beginning of the year to March 10, for example. Matters may not improve much. NDR, a research group, points out that so-called “misery indices”, which track the sum of CPI inflation growth and unemployment in different countries, are rising, with 87 per cent above their five-year highs. The misery index is a shorthand for just how hard life is for populations — the higher they go the worse life probably feels, and in most cases is. In the UK we are now at 8.72 per cent against a five-year average of 6.28 per cent and a record high of 16.5 per cent in 1990. Historically, rising misery indices — and the stagflation they suggest is coming — have been awful for global equities. Look at the forecasts for returns over the next few years from US fund manager GMO and I’m afraid you will not be much cheered. GMO sees US stocks falling just over 4 per cent annually over the next seven years in real terms and global stocks overall barely budging. If you retired in 2021 because you felt rich after two stunning years of stock market returns this might make you feel a little shell shocked. It also highlights the problem with the UK pension system. It is fantastic in some ways. Auto-enrolment means most people in work for 30 years should end up with a pretty good pot. But it also leaves us at the mercy of markets: a year ago our pension accounts might have been telling us to kick back and take it easy. Now they are telling us the opposite.On to the consolations. First, everyone’s wealth is falling, so in terms of your global wealth ranking nothing much has changed. This is only good news for those of you who think in relative not absolute terms, but it is all I have. Second, your medium-term financial position has not changed as much as you might think: the S&P 500 is still up 10 per cent over the past year and the FTSE 100 is still up 8 per cent. If you were basing your retirement on the prices of a small group of tech stocks in late 2021 you’re in trouble (Netflix is down 42 per cent since). If you weren’t, you probably aren’t. Third, while it may seem as if there is little within the market carnage you can control, there are a few things that you can. You can control the fees you pay: half a percentage point here or there might not seem like much when you are losing 10 per cent in a matter of months, but it adds up over time to make a real difference.

You can also control the extent to which you are diversified. Merrill Lynch has recently produced a report suggested that we redefine the Faangs. Until now the letters have stood for the fastest growing large tech stocks in the US (Facebook, Amazon, Netflix, Google and so on) and all too many fund managers appear to have been under the impression that diversification means holding more than one of them. They should, says Merrill Lynch, now stand for the sectors that have been long neglected but are bounding back into favour — fuels, aerospace, agriculture, nuclear and renewables and gold/metals and minerals. How clever is that? The best of our young don’t go into the City for nothing. All these sectors have done well this year so far, for obvious reasons. But there is every reason to think they will continue to do so in the medium term. If you feel the need to do something you should check that your portfolio includes them. Finally, you can control your non-investment income — to a degree at least. In times of high inflation and volatile markets you need the insurance of having as many sources of income as possible. If you haven’t retired yet, maybe don’t.Merryn Somerset Webb is editor-in-chief of MoneyWeek. The views expressed are personal; [email protected]; Twitter: @MerrynSW More