Philippa Kaur

Few teenagers dream of becoming a chief financial officer (cfo) when they grow up. If things are going well, ceos take the credit (and a fatter slice of the spoils) instead. cfos seldom make the news and, when they do, it is usually preceded by a crisis. Corporate historians and markets alike judge finance chiefs by their ability to juggle the competing demands of capital structure, investor returns and investment. The imperfect scorecard for this game is the balance-sheet, the statement of what a firm owns and owes. Today’s topsy-turvy economic conditions, with soaring inflation and subsiding gdp growth, make managing it far trickier.Since the financial crisis, historically low interest rates have allowed firms to borrow cheaply and plentifully. High profits have been returned to shareholders instead of being used to boost investment. Now the rules are changing. A new economic chapter has begun, marked by squeezed profits and higher borrowing costs. Less than half of big American firms in the s&p 500 index that reported their latest quarterly results last week beat expectations on sales and earnings. On July 19th the share price of Lockheed Martin slid after the aerospace firm announced an earnings miss and a downward revision to its guidance. The same day a similar fate befell Johnson & Johnson, the world’s biggest drugmaker. Wall Street analysts are busily revising down forecasts of future profits. At the same time, new debt issuance has slowed and yields on American corporate bonds rated bbb, the lowest and most frequent investment-grade rating, have risen to 5.1%, up from an average of 2.4% in 2021. All this turns the calculus for what firms should save, spend or return to shareholders on its head.Start with capital structure, a company’s mix of debt and equity. Prudent cfos have at least one eye permanently fixed on this. Firms must constantly weigh the advantages of debt over equity (interest payments are typically tax deductible; dividends owed to the holders of a firm’s equity are not) with the risk of financial distress (it is less advisable to anger creditors than shareholders). A decade of cheap credit has sent firms on a borrowing binge. The size of the market for American investment-grade corporate bonds has tripled, to nearly $5trn. Average indebtedness for members of an index of investment-grade bonds (excluding those issued by financial firms) compiled by Bloomberg, a financial-data firm, has risen to three times earnings before interest, tax, depreciation and amortisation (ebitda), from 1.6 times in 2010. Corporate America is increasingly funded by debt, especially if you exclude cash-rich technology giants (see chart 1). As central banks raise interest rates, the cost of borrowing is rising for the first time in years, and sharply. Even so, big businesses’ cfos remain relaxed about debt, with good reason. Companies had a golden opportunity to fortify their balance-sheets during the covid-19 pandemic, riding a wave of huge issuance at low interest rates. Many grabbed it, locking in low coupons on a record $1trn-plus of investment-grade bonds in 2020. Most firms are still finding it easy to pay interest on those borrowings. At the end of the first quarter of 2022, firms in the Bloomberg bond index had ebitda equal to 15.4 times their interest payments, compared with 11.5 times in 2018. With the maturity of corporate debt pushed into the future thanks to all the pandemic fundraising, and with interest payments still within the bounds of comfort, corporate profits would need to take a huge hammering before cfos begin to lose sleep over debt. According to a survey of American cfos conducted in May and June by Duke University and the Federal Reserve Banks of Richmond and Atlanta, tighter monetary policy ranks eighth on the list of respondents’ worries, behind a litany of operational challenges, from labour shortages to cost pressures. These worries—and levels of corporate sentiment at their lowest levels since the early innings of the pandemic—have not stopped companies from forking money over to shareholders. s&p 500 firms paid out a record $141bn in dividends to investors in the second quarter of 2022, compared with $119bn in the same period in pre-pandemic 2019. That was on top of buying back $281bn-worth of their own shares in the three months before, continuing an explosive growth in share buy-backs (see chart 2). So long as markets remain stormy and investors seek safe harbour in “yield” or “value” stocks with high capital returns, bosses will be reluctant to ditch dividends or buy-backs. All told, big American firms may spend $1trn this year on their own stock. For some companies, this is a no-brainer. The largest technology firms, which executed more than 25% of American buy-backs in the first quarter of 2022, remain flush with cash. Apple alone spent more than $92bn repurchasing shares in the 12 months to March. But less deep-pocketed companies have also been lavishing money on their shareholders. In 2021 more than 80 members of the s&p 500 spent more on dividends and buy-backs than their free cashflow (money left over after operating expenses and capital spending are accounted for). As borrowing gets pricier, growth slows and margins are crimped, their cfos may need to make their capital-returns plans stingier.If the current run of blockbuster shareholder returns is to end, however, the biggest culprit will almost certainly be higher investment. The share of operating cashflows reinvested by American firms in new capital expenditure and research and development has declined during the last decade to 27%, from over 40% in 2009. Firms, investors and governments are all expecting it to rise as businesses meet the demands of the post-pandemic world.In the short term, companies are spending more today to shield themselves from supply-chain chaos tomorrow. The inventories of the largest 3,000 firms globally, excluding real-estate firms, increased from 5.2% to 6.2% of global gdp between 2019 and 2021. This creates additional cash headwinds as working capital (calculated by subtracting what firms owe suppliers from the value of their inventories plus what they are owed by customers) is increased. Companies are also investing for the future. Capital spending for s&p 500 firms rose by 20% in the first quarter of 2022, year on year. Mentions of “reshoring” and “onshoring” have spiked in earnings calls, amid a deepening rift between the West and China, on whose supply chains Western firms have come to depend. Ambitious pledges to cut greenhouse-gas emissions will require energy firms, which are among the most generous with shareholder payouts, to increase their capital spending dramatically. The total bill will be huge: Goldman Sachs, a bank, estimates that $2.8trn of additional “green capex” is needed each year over the next decade.Finance chiefs who dust off their corporate-finance textbooks will be reminded that returning capital to shareholders and investing it are two sides of the same coin: capital which cannot be invested at a rate exceeding the cost of capital should be returned to shareholders, who ought to be able to put it to better use elsewhere. Dividends and share buy-backs are not, on this view, backward-looking celebrations of high profits. They are a forward-looking pursuit of shareholder value. Refocusing from capital returns to investment, while keeping a beady eye on profits and interest rates, will nevertheless require cfos to show off some exquisite juggling skills. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

The meeting has been going on for almost an hour already, but the end is now in sight. The vast majority of attendees have already got the cursor lined up over the “leave” button; freedom, or at least a five-minute break, is a click away. And then whoever is chairing asks a simple but terrible question: “Does anyone have anything they want to add?” Listen to this story. Enjoy more audio and podcasts on More

The meeting has been going on for almost an hour already, but the end is now in sight. The vast majority of attendees have already got the cursor lined up over the “leave” button; freedom, or at least a five-minute break, is a click away. And then whoever is chairing asks a simple but terrible question: “Does anyone have anything they want to add?” Cue almost unendurable suspense. If the chairman’s voice is the next you hear, it’s all over bar the ritual waving at the camera. But if any of your other treasured colleagues speak up, your plan for a nice cup of tea is destroyed. The silence stretches for a period of seconds. Almost safe. “There is just one thing,” says Lauren from procurement, oblivious to the tiny dreams she has dashed and the fleeting hatred she has aroused. For most people, the workplace is not a stage for high drama. Careers are punctuated by only a few defining moments, from the interview for the top job to the m&a deal that upends an industry. Although some companies and departments are marked by bullying and burnout, more fortunate employees experience suspense through a series of micro-dramas. Some small moments of great tension happen often enough that they are almost tropes. The pandemic has created many of these moments. A big Zoom call is under way, with lots of people on the line. Everyone is muted, save the speaker and one unfortunate soul, who has managed to unmute themselves. A lot of rustling can be heard. A family conversation is going on, a small slice of domestic life being broadcast inadvertently into the workplace. It’s almost too much bear. What if they have a blazing row? What if someone says out loud what everyone is thinking about the speaker? The horror of mild public embarrassment looms, and it is stomach-churning. “Jesus, this is unbearable,” you say to yourself, and realise you are also unmuted. Email can also evoke emotion. There is panic, after you send a message to the wrong person and frantically scramble to hit “undo” or “delete”. There is dread, when an email arrives from the person who is reliably wrong about everything and you know that opening it will mean conflict and wasted time. And there is mortification on behalf of other people, when an all-staff missive from the chief executive goes out about a new initiative and someone hits “reply all” on their message oleaginously congratulating the boss on their utter brilliance. Presenting is a low-stakes, high-tension act. “I’m going to share my screen,” you say, and press the button that promises just that. The presenting icon circles and circles, and you wonder if it will ever stop. Then you pick the wrong tab to share and everyone can see your calendar, including the entries marked “Job interview”. Then you share your whole screen and suddenly infinite, ever-smaller versions of yourself appear. It is a similar story in the real world. The clicker doesn’t work, so you hopefully press it a few times and the deck suddenly jumps forward to the slide that gives away your unexpected strategy recommendation. The offline world offers other moments of diminutive drama. Entering and exiting meetings while they are still going on is stressless in a virtual environment; in the real world, you have to negotiate your way past colleagues and whisper apologies. The working lunch is not a problem online: camera off, microphone off, nosh away. In person you must choose items that can be eaten quickly, efficiently and silently. Eating crisps during an in-person presentation sounds like setting off a firework display in a monastery. Taking a bite of some sandwiches risks a carnivorous version of the magician’s handkerchief trick, as you find yourself slowly pulling an entire side of beef into your mouth in one go. If you do not recognise any of these miniature dramas, one possible explanation is that you are already the boss: life is generally a lot less tense if you have ludicrous amounts of self-belief and get to set the rules. But for many employees, as well as almost everyone in Britain, this is what suspense looks like, not remotely dangerous but teeming with the possibility of awkwardness. If you and someone else have started making a point at the same time, do you keep going and hope that he gives way? What conversation can you start and finish in the time it takes for the lift to go five floors? And so on. The workplace can be a place of planet-changing ideas and epic rivalries. Day by day, it is a theatre of mild agitation. For exclusive insight and reading recommendations from our correspondents in America, sign up to Checks and Balance, our weekly newsletter.Read more from Bartleby, our columnist on management and work:Reading corporate culture from the outside (Jul 9th)Beach reads for business folk (Jul 2nd)Why managers deserve more understanding (Jun 25th) More

Andre de ruyter is used to having his weekends ruined. The ceo of Eskom, South Africa’s state-owned electric utility, was recently interrupted by a call telling him that locomotives carrying coal to a huge power station had stopped running. Thieves had stolen the overhead cables. He had to find working diesel trains—not an easy task, since fuel is often pilfered, too. “When people ask why isn’t Eskom turning around,” says Mr de Ruyter, “it’s because the chief executive is spending his Sundays trying to find locomotives.”Eskom is a cause and a symbol of South Africa’s problems. Its woes have deep roots. After white rule ended in 1994 Eskom expanded access to electricity. But supply failed to keep up with rising demand. Two giant plants were belatedly given the go-ahead in 2007 but one is unfinished and the other faulty. Money has been diverted from maintaining the existing fleet, which is run harder than it should be. Skilled engineers have retired or left for jobs abroad. “Load-shedding”, as rolling blackouts are locally known, has entered common parlance. South Africans have suffered more of them since January than in any preceding full year.Then there is corruption. Under Jacob Zuma, president from 2009 to 2018, Eskom contracts worth almost 15bn rand ($1.4bn) were given to cronies, many of them to businesses linked to the Indian-born Gupta brothers, according to a recent judge-led inquiry. Today crime is less systemic, but still present. Coal, diesel and cable theft has increased since Russia’s invasion of Ukraine raised commodity prices. Procurement fraud remains rife. An audit of one power plant discovered 1.3bn rand of unaccounted-for purchases. Another inspection uncovered that welders’ knee-guards worth around 75 rand were being bought for 80,000 rand a pop. “They were not diamond studded,” notes Mr de Ruyter. Having taken the helm in early 2020 after a stint as boss of a packaging firm, Mr de Ruyter wants to transform Eskom from a Soviet-style monolith to a 21st-century company. The ruling African National Congress (anc), with a penchant for dirigiste policies and a lackadaisical approach to crime, is standing in his way. Mr de Ruyter has made some progress, starting with bringing a degree of stability. Before his appointment Eskom had gone through ten ceos in six years. Thanks to greater discipline and cost-cutting measures, such as not replacing some retiring staff, the net loss in the latest financial year, which ended in March, is expected to have fallen from around 20bn rand in each of the previous three years to less than 10bn rand. He is trying to chip away at the mountain of total debt, which peaked at nearly 640bn rand in 2020 but has since come down to around 400bn (though servicing it still requires occasional government bail-outs). More strategically, Mr de Ruyter argues that Eskom must be restructured. Rather than generate, transmit and distribute electricity in an anachronistic, “vertically-integrated” way, Mr de Ruyter wants the company broken up and subjected to market forces, becoming a platform for private-sector generation and distribution. That, and a predictable tariff regime, would attract private capital to build renewable-energy infrastructure needed over the next decade to replace South Africa’s ageing coal-power fleet, which generates 84% of the country’s electricity. Mr de Ruyter points out that South Africa’s miners and manufacturers fear that large import markets may start to charge levies on South African products because they are so carbon-intensive. A failure to decarbonise would also be bad for Eskom, he adds. The company stands to benefit royally from the $8.5bn in assistance for decarbonisation offered to South Africa last year by rich-country governments. As a bonus, it is harder to steal sun and wind than coal and diesel.Although Mr Zuma’s successor, Cyril Ramaphosa, sometimes says he supports Mr de Ruyter’s reforms, his government has thwarted them. Fearing a voter backlash, the anc keeps bills below cost and lets many South Africans get away with not paying them at all—municipalities’ arrears to Eskom add up to around 46bn rand. The energy department, run by Gwede Mantashe, a communist and former union leader who wants to protect coal-mining jobs, has blocked the procurement of renewable power. An illegal strike was concluded earlier this month after the government gave Eskom workers a 7% pay rise. The import-substitution policies of the industry department, also headed by a communist, mean that Eskom struggles to buy solar panels for pilot projects. Pravin Gordhan, the minister who oversees state-owned firms, and yet another communist, has dawdled over appointing board members, leaving Mr de Ruyter short of the support he needs to enact his plan. Opponents of his reforms from within the anc have accused him, without evidence, of racism. Does he ever think he should have turned the job down? “Three times every day before lunch,” he jokes. And perhaps four times on a Sunday. ■For exclusive insight and reading recommendations from our correspondents in America, sign up to Checks and Balance, our weekly newsletter. More

Founded in 1763 by Frederick the Great, Königliche Porzellan-Manufaktur still uses traditional methods to make its high-end porcelain. As in the past, kpm vases and cups are blasted with heat in furnaces: first at 1,000°C, then at 1,400°C. Hardly the cutting edge of German manufacturing—but emblematic. kpm’s fortunes are, like those of German industry as a whole, tied to the availability of cheap natural gas. Its four ovens consume almost as much of the stuff in a year as 100 single-family homes. Those fortunes now look imperilled. Industry accounts for 37% of Germany’s gas consumption, a third more than the eu average—not counting the gas-fired electricity it gets from the grid (see chart). Until recently, Germany got over half its gas imports from Russia. As happens every summer, on July 11th the main conduit for the stuff, Nord Stream 1, was shut down for maintenance. It may remain inactive after the planned restart date of July 21st. Russia’s autocrat, Vladimir Putin, is threatening to starve Europe of the fuel as punishment for Western sanctions imposed after his troops invaded Ukraine. Many eu countries are vulnerable. But Germany has the most to lose. With just months before a winter spike in demand for heating, Germany is bracing for all eventualities. Smaller firms such as kpm are working overtime to fill warehouses so they have something to sell if their gas is turned off. Giants like basf, the world’s largest chemicals company, have drawn up complex contingency plans. The government is pushing through laws making it easier to spread the pain of higher gas prices and bail out fragile gas distributors. Regulators are assessing which businesses can lose access to gas without upsetting supply chains. Consumers are snapping up firewood and electric heaters, which are sold out in parts of Germany. With a dash of luck—a mild winter and no more supply interruptions, such as the recent fire at a liquefied natural gas (lng) plant in Texas—Germany should avoid rationing this year. Russian gas is already down to 35% of total imports. A longer-term problem is harder to solve: how to adapt the country’s industry for a future without cheap Russian supplies, which the eu wants to wean itself away from. Germany has done just about everything it could to get into this pickle. Fearful of another Chernobyl or Fukushima, it mothballed its nuclear reactors. It simultaneously powered down coal-burning plants to slow global warming. Political neglect cost it an early lead in renewable energy. And all the while the country’s political and business leaders promoted natural gas as a form of “bridge” energy, to be phased out in favour of wind, solar and other greener sources. In typical corporatist fashion, Germany’s big parties, industry bigwigs and trade unions collectively decided that cheap Russian gas was great industrial policy, too, notes Rüdiger Bachmann of the University of Notre Dame. This has allowed titans like basf to churn out basic chemicals, such as acetylene and ammonia, which in turn fuelled the Mittelstand’s manufacturing powerhouses; industry still makes up 27% of gdp, compared with about 17% in Britain and France. But it has made the economy a gas-guzzler. basf’s flagship factory in Ludwigshafen, Germany’s biggest single consumer of gas, inhaled 37 terawatt-hours-worth last year—half as much again as the whole of Denmark. The company’s boss, Martin Brudermüller, warned in April that “Russian gas deliveries have been the basis for the competitiveness of our industry.” If they disappeared overnight, this could trigger “the most severe economic crisis since the end of the second world war”. For a sense of how things might unfold, start in Ludwigshafen. Though it resembles an agglomeration of plants, the facility is in fact a highly optimised Verbund (combine) held together by nearly 2,850km of pipes. If gas pressure in that network falls below half its normal level, nothing can be done except shut it all down. The effect would quickly ripple through the economy. Most manufacturers use a Ludwigshafen chemical: fertiliser needs ammonia; toothpaste and chewing gum contain methanol; nappies use polymers; cars, Germany’s best-known export, are test-tubes on wheels. Elsewhere steelmakers and other metal-bashers, Germany’s second-biggest industrial users of gas after chemicals firms, would grind to a halt. Capital would be destroyed: once molten zinc used to galvanise steel solidifies in its vast tanks, it would be too costly to melt again. The same is true of glass melters. German industry thus has little room to save more gas without suffering serious damage. Industrial firms can afford to trim use by 8% within a year and the chemical sector by 4%, estimates the German Association of Energy and Water Industries, a lobby group. If businesses are forced to cut much more, it would markedly slow Germany’s economy. The Bundesbank, the country’s central bank, foresees a painful contraction of gdp in the event of gas rationing: 2% in the fourth quarter, relative to a non-rationing scenario, and more than 8% in the first quarter of 2023.Germany’s newish government is desperate to avert this scenario. It will do “whatever it takes” to keep the country’s energy market from collapsing, in the words of Robert Habeck, Germany’s minister for economy and climate. Some of his ideas are popular but counterproductive—the loans and subsidies already being doled out to firms hurting from high energy costs could encourage consumption. Although coal plants also produce district heating, reactivating them while resisting nuclear power, which is climate-friendlier but despised by his Green Party, seems environmentally nonsensical. Girding for the worst, on July 5th Mr Habeck presented parliament with a package of bills aimed to give it more tools to react. The legislation will probably be first used to save Uniper, Germany’s biggest distributor, which provides gas to hundreds of municipal utilities and whose collapse could trigger a cascade of bankruptcies. Uniper is currently getting only 40% of its contracted Russian gas and must cover the shortfall in the spot market at much higher prices. It is losing €35m ($35m) a day, according to Bernstein, a research firm.To encourage companies to dig deeper for gas savings, the government is expected to launch an auction mechanism in late summer. This will allow firms to bid for how much they are willing to curb gas use and at what price. A survey by the Association of German Chambers of Commerce and Industry, another lobby group, found that this could reduce demand by about 3%—not a lot but available quickly and helpful at the margin.If in winter gas is still in short supply, Mr Habeck will declare the third stage of the three-tier emergency plan. The Federal Network Agency will then decide which firms must reduce gas consumption and by how much. To make an informed decision, the regulatory body has collected data from 2,500 large firms and is feeding them into a computer model. There will be no hard-and-fast rules, but likely criteria include whether curtailment would destroy capital stock and how critical a firm’s output is to a supply chain. basf would probably get at least 50% of its usual supply; as a maker of luxury goods, kpm may have to close its doors for some time.Forecasters disagree on the odds of rationing. An analysis by a group of German economics-research outfits puts those of a big mismatch between supply and demand by early 2023 at one in five. Gas-storage tanks have filled up faster than expected thanks to a mild spring, more lng and some reductions in demand. By July 12th they had reached nearly 65% of capacity and could get to 90% by November, the government’s goal, even if Nord Stream 1 stays shut. Others are less sanguine. Most of the Federal Network Agency’s latest scenarios predict that gas will completely or nearly run out by early 2023.In the next few months the government will seek a middle ground between hobbling German business and angering households, which in the eu are exempt from any rationing, with higher bills. Rather than allowing utilities to pass through price increases, it is likely to introduce some nationwide levy to spread the pain. In the longer term, German industry must shake off what Claudia Kemfert of the German Institute for Economic Research, a think-tank, calls the gas-fuelled “illusion of competitiveness”. That means doubling down on renewables and technologies that do away with gas. As much as Germany’s industrial stalwarts hate to talk about rationing, they love to flaunt investments in alternatives. basf has bought part of the world’s biggest offshore wind farm off the Dutch coast to replace the gas that powers its steam crackers, where hydrocarbons are split into smaller molecules. The glass industry vows to build hybrid melters, to be heated by a mix of electricity, gas and, one day, green hydrogen. Steelmakers are keen on hydrogen, too, including as a feedstock.Simply swapping out gas will not do. Germany’s industrial web will have to unbundle at least a bit, jettison its most energy-intensive parts and focus on green innovation. Instead of making the same basic chemicals with renewable energy, basf could move from selling, say, fertiliser to offering fertilising services, helping farmers use less chemicals more efficiently. This sort of thing requires clever digitisation and data, currently not a German forte. But it would play to basf’s—and Germany’s—strengths in Verbund-building. ■For exclusive insight and reading recommendations from our correspondents in America, sign up to Checks and Balance, our weekly newsletter. More

Igor sechin is easy to caricature. The boss of Rosneft, Russia’s state-owned oil giant, is a burly man with close-cropped hair whose pastime is making sausages, reputedly out of deer he himself has killed. He is one of President Vladimir Putin’s most trusted henchmen. Since 2014, when Russia annexed Crimea, he has been blacklisted by America and this year, after Russia’s invasion of Ukraine, the European Union put him on its sanctions list, too.But he is no run-of-the-mill oligarch. The eu calls him “one of the most powerful members of the Russian political elite”. As a Rosneft man through and through, he has stood up strongly for the country’s oil-and-gas industry, which accounts for about 45% of the national budget. And he has a nose for geopolitics, which helps Rosneft shape and fund Mr Putin’s despotic adventurism. That is why it is worth watching state-controlled Rosneft and its boss to assess their response to the withdrawal of Western oil companies from Russia. On the one hand, the company faces reduced access to Western markets and has lost investment and expertise to help it develop oil- and gasfields in inhospitable parts of the country. On the other, it has benefited from a strategy masterminded long ago by Mr Sechin to pivot towards buoyant markets in China and India. The outcome will help determine whether the world is likely to split into two rival oil blocs. The West’s response to Russia’s assault on Ukraine has hit Rosneft hard. Though high oil prices enabled it to pay a record annual dividend recently, an oil embargo has throttled its access to European buyers. Since February it has borne the lion’s share of Russia’s drop in oil output. Firms that once cosied up to it now treat it as a pariah. bp, a supermajor, has written off its near-20% stake. ExxonMobil, another giant, is trying to pull out of the Sakhalin-1 oil-and-gas joint venture in Russia’s far east. Rosneft’s relationship with Western oil traders, who used to talk of a “pissing match” to win access to its treasure trove of crude shipments, has floundered. On July 13th a big trading firm, Trafigura, said it had unwound its 10% stake in Vostok Oil, a Rosneft megaproject in the tundra that Mr Sechin believes could sustain Russia for decades. Pariah status affects Rosneft in subtler ways, too. Many of Russia’s oilfields are ageing and require sophisticated techniques to squeeze out hard-to-recover crude at a reasonable cost. In the past the firm has had strong relationships with Western oilfield experts like Schlumberger, but these have pulled out of Russia. Moreover, sanctions have sent Rosneft’s non-Russian board members and senior executives scurrying for safety, leaving a dearth of expertise in their absence. Yet if anyone has seen this coming, it is Mr Sechin. Balancing Russia’s dependence on Western oil markets with business in the east, especially China, has been part of his strategy since Mr Putin first handed him control of Rosneft in 2004. From the outset, says James Henderson of the Oxford Institute for Energy Studies, a think-tank, Mr Sechin saw China’s commercial and strategic importance. He struck big oil-supply agreements with China National Petroleum Corporation (cnpc), Rosneft’s state-owned Chinese counterpart, in exchange for vast prepayments and financing from China that helped turn the Russian firm into one of the world’s largest listed oil companies. The payments helped Rosneft finance the takeover of the main oil-producing assets of Yukos, a Russian oil firm whose boss fell foul of Mr Putin in 2003, as well as tnk-bp, another rival Rosneft bought for $55bn in 2013. In February, during Mr Putin’s pre-war meeting with Xi Jinping, China’s president, Rosneft signed another oil deal to supply crude to cnpc worth a whopping $80bn over ten years. Mr Sechin’s India strategy has been quieter but also, as it turns out, shrewd. Rosneft used its part ownership of Nayara Energy, an Indian refiner, to gain a toehold in one of the world’s fastest growing consumer markets. Indian refiners processed heavy crudes that Rosneft once brokered from sanctions-hit Venezuela, a staunch Russian ally in America’s backyard. Now the refiners are reportedly keen to take discounted oil directly from Rosneft. After the initial blow from sanctions, such relationships have enabled Russia swiftly to shift its oil exports east, eclipsing Saudi Arabia in May as the biggest supplier to China and raising oil sales to India from almost nothing to about 1m barrels a day—albeit at steeply discounted prices. Its resilience has caught many forecasters, including the International Energy Agency, by surprise. Where there’s a well there’s a wayIn order to keep its performance up, Rosneft has to keep pumping and drilling. Yet its need for Western firms like Schlumberger to help it do that may be overstated. Matthew Hale of Rystad Energy, a consultancy, says the vast majority of Russian oil development is in onshore fields that, despite the cold, are easy to exploit. Last year Russian oilfield companies provided four-fifths of the services needed to support these investments. He says the ability of Russian firms to replace Western partners in complex projects is more open to question. That may delay their launch. But for the time being, Rosneft can continue to produce oil fairly freely. It is not in the clear, though. If oil prices sink, its ability to drill wells profitably will be reduced. Constraints on Western capital, know-how and equipment may confound its attempts to develop big offshore liquefied-natural-gas projects in Russia’s frozen far east, which it had once set its heart upon. Without access to Western financing, it becomes even more dependent on China, which always strikes a hard bargain. And next year a full eu embargo on Russian oil will come into effect. That said, the emerging eastern bloc should worry the West. Not only is an energy axis involving Russia, China and India a challenge for Western oil firms, it is also a threat to the climate—as Mr Sechin’s plans to develop Vostok suggest. He probably doesn’t give a sausage for such considerations, though. ■For exclusive insight and reading recommendations from our correspondents in America, sign up to Checks and Balance, our weekly newsletter.Read more from Schumpeter, our columnist on global business:What does the future hold for Reliance, India’s biggest firm? (Jul 9th)Mars Inc gets the purpose v profit balance right (Jun 30th)In EY’s split, fortune may favour the dull (Jun 23rd) More

Our new weekly newsletter, the Bottom Line, offers readers a panoramic sweep of the fast-changing world of tech and business. As technological shifts, geopolitics and inflation cause tumult and opportunities like never before, the Bottom Line helps you distinguish signal from noise with The Economist’s trademark global viewpoint, focus on the biggest themes and rigour. Delivered on Saturday morning, the newsletter pinpoints the key developments of the past week—and provides a weekend-friendly guide to the next one. Each edition will contain exclusive commentary from our global editors, from Silicon Valley to Shanghai. The Bottom Line also includes a selection of The Economist’s must-reads for you to browse during the weekend, including interviews and trend-spotting on the frontiers of innovation. And our team in London puts together a guide to the key global events of the coming week, from China’s delicate gdp figures to Tim Cook’s ability to deliver metronomic earnings.As a subscriber you will have the opportunity to interact with our reporters and editors. If you already have thoughts about the newsletter you would like to share, you can drop us a line here: [email protected]The Bottom Line: Sign up to our business and technology newsletter, delivered weekly.See the full range of The Economist’s newsletters to receive even more exclusive commentary in your inbox each week. More

Elon musk’s acquisition of Twitter was to be one of the biggest buy-outs in corporate history. Now it threatens to become one of the ugliest disputes. Twitter is expected to file a lawsuit against Mr Musk this week in a Delaware court, suing him for pulling out of the $44bn deal. Meanwhile the world’s richest man—and the holder of Twitter’s sixth-most-followed account—has taken to the internet to engage in battle by meme.The argument may play out over many months. But whoever prevails in court, Twitter has bigger problems to reckon with. Though it is one of the world’s most talked-about social networks, it has failed to turn that clout into a successful business. Whoever ends up owning the app is likely to press its managers for change.When Twitter’s sale was agreed on in April, Mr Musk’s bid of $54.20 per share looked cheap to some—including Twitter’s board, which at first wasn’t interested. No sooner had the deal been struck than tech markets crashed. On July 11th Twitter shares were trading at under $33, having shed another 10% in value as some investors who had clung on to the hope that Mr Musk would go through with his purchase (despite weeks of evidence to the contrary) threw in the towel. Though Mr Musk claims he wants to cancel the deal because Twitter has more spam accounts than it told him, many detect a simple case of buyer’s remorse.For that reason Twitter probably has the upper hand in court. If the judge takes its side, Mr Musk faces a break-up fee of $1bn, as specified in the contract. He would probably consider that a victory. The judge could go as far as ordering the sale to go ahead at the agreed price. There is precedent: in 2001 the same Delaware court ordered Tyson Foods (a firm dealing in real birds rather than digital ones) to complete its purchase of ibp, a beef packer. That deal, though, was worth less than a tenth as much as the Twitter purchase. And no one is sure what would happen if Mr Musk simply defied an order to complete the acquisition. The dispute may yet be settled out of court, with Mr Musk paying a break-up fee greater than $1bn or buying the company for less than the price he agreed.However the saga ends, Twitter’s bosses will face the same puzzle they have wrestled with for years: how to turn their influential product into a more profitable one. Part of the problem is a failure to attract new users—and not of the bot variety against which Mr Musk has, self-servingly but not wholly unreasonably, railed. While Facebook, founded just two years before Twitter, has soared to 1.9bn daily users, Twitter has reached just 230m and is still growing only slowly. Younger upstarts, notably TikTok, have lapped it. Behind that stagnation in users lies a stagnating product. Whereas Facebook and other social apps have continually evolved, Twitter today is a similar experience to when it launched. It had a chance to innovate when it bought Vine, an app which popularised short video four years before any TikTok dance numbers ever saw the light of day, but allowed it to wither. It tried to copy Snapchat’s and Instagram’s disappearing posts with “Fleets”, but the idea flopped and was killed off last year.Lately Twitter has been bolder, with some success. “Spaces”, a live-audio feature, has proved popular enough to largely kill off Clubhouse, the briefly fashionable app that inspired it. And it has pushed into longer-form content with the acquisition of Revue, a Substack-esque paid-newsletter platform.Monetising these and other innovations is the next task, which may prove harder. Over the years Twitter’s revenue growth has been even more disappointing than its growth in users. This year Twitter will account for about 0.9% of worldwide digital ad spending, estimates eMarketer, a research firm. Facebook and its sister company Instagram will account for 21.5%; even TikTok, just five years old, will take a slice worth 1.9%.With the ad market looking vulnerable to the weakening global economy, the company is looking to diversify its sources of revenue, nearly 90% of which come from advertising. It has launched Twitter Blue, a subscription option that gives users some modest benefits (an “undo tweet” button, an easier reading view and a few other tweaks) for $2.99 a month. Mr Musk said he wanted to go further on subscriptions, tweeting in April that Twitter Blue users should have an ad-free experience.Yet an ad-free Twitter would have to cost substantially more than the $2.99 charged for Twitter Blue if it were to bring in as much money as ads currently do. Although Twitter’s annual reports do not break out average revenue per user, they show that the American market last year contributed $2.8bn in revenue, and that in America it had 38m users. That suggests that American users bring in upwards of $6 a month each in ad revenue, on average. And unlike other subscription businesses which can eschew mass audiences in favour of a smaller, subscription-paying one, Twitter needs a large number of users to produce its buzzy content.In its nine years as a public company Twitter has struggled to solve these problems. Private ownership by someone with a high appetite for risk looked for a while as if it might enable the kind of shake-up that Twitter seems to need. Instead the ongoing Musk affair looks like being yet another distraction from the task in hand. ■ More