Philippa Kaur

TO SAUDI ARABIA, Qatar is little more than a sore thumb sticking out into the Persian Gulf. For decades, the kingdom has looked down on its neighbour as an irritating pipsqueak, with which it has little in common except the desert. Saudi Arabia has traditionally cut more of a dash in global affairs; the vast fields of natural gas that Qatar controls have never provided it the same clout as its rival’s oceans of oil. Saudi Aramco, the kingdom’s crown jewel, has just attained a market value of more than $2.3trn, making it the world’s second-most-valuable listed company after Apple. Alongside it, QatarEnergy, formerly known as Qatar Petroleum, looks like an emir’s plaything. And yet Russia’s war on Ukraine exposes a stark contrast in the attitude of both countries to the world beyond their borders. Their different approach to energy geopolitics could have big repercussions for both East and West.Saudi Arabia undoubtedly believes it is on a roll—and in some ways it is. On March 20th Aramco, the world’s biggest oil exporter, revealed that soaring oil prices had enabled it to more than double net profit to $110bn in 2021, when crude averaged around $70 a barrel. With oil prices now above $100, the bonanza will grow. The company plans to raise capital expenditure to $40bn-50bn this year, up from $32bn in 2021. That will help it towards a goal of expanding oil-production capacity to 13m barrels a day (b/d) by 2027, up from 12m b/d.This stands in contrast to a broad decline in oil investment from the industry as a whole, partly because of pressure to avert climate change. Ironically, the world’s most carbon-emitting company, if you count the pollution from burning its oil, appears to be the giant doing the best out of the energy transition.In the meantime, Saudi Arabia’s assertiveness on energy matters is growing. European leaders such as Emmanuel Macron in France and Boris Johnson in Britain have of late set aside revulsion caused by the murder in 2018 of Jamal Khashoggi, a Saudi journalist who wrote for the Washington Post, and visited Muhammad bin Salman, the crown prince. Mr Johnson pressed him to pump more oil to replace Russia’s war-disrupted barrels—but got nowhere. So far the kingdom has remained staunchly committed to miserly short-term oil-production increases agreed with the OPEC+ cartel, which it and Russia in effect control.If anything, Saudi allegiances now lean more East than West. A few weeks ago Aramco finalised a long-mooted investment in a refining complex in northern China. It will supply most of the 300,000 b/d of crude the complex needs. The kingdom’s rulers are in talks with China to price some of the crude supplies in yuan, the Wall Street Journal has reported. If this happens, that would dent the dominance of the dollar in the oil market and jeopardise a deal dating back to the Nixon era when the Saudis effectively created petrodollars in exchange for American security guarantees. Bloomberg recently reported that India’s Adani Group, owned by one of the country’s wealthiest tycoons, may be considering a range of potential partnerships in Saudi Arabia, including buying a stake in Aramco—a further sign of closer ties with Asia.There are good commercial reasons for Saudi Arabia’s eastward pivot. More than a quarter of its oil exports goes to China. Only 10% goes to Europe, and 7% to America. Still, Prince Muhammad’s regime is unnecessarily antagonising the West by resisting calls to increase output, which it could do without compromising its business. In fact, its resistance seems almost out of spite—and appears to have less to do with commerce and more with the kingdom’s security concerns, including ways to contain Iran and its proxies, which it feels President Joe Biden’s administration ignores. Underscoring such worries, in the past week Yemen’s Houthi rebels struck some Aramco facilities with missiles.Like Aramco, QatarEnergy’s customers are also mostly Asian. But the emirate, one of the world’s biggest exporters of liquefied natural gas (LNG), has a more pragmatic approach to the outside world. It wants strong commercial relations with China—partly to ensure its LNG exports to the Asian giant are not displaced by Russian gas. But that does not prevent it from maintaining strong ties with America. It is loth to put geopolitics ahead of QatarEnergy’s economic interests.Such commercial pragmatism was apparent during the blockade of Qatar by a quartet of Gulf states, including Saudi Arabia and the United Arab Emirates (UAE), in 2017-21, notes Steven Wright of Hamad Bin Khalifa University in Doha. During the stand-off, Qatar kept natural gas flowing through the Dolphin pipeline to the UAE in order to convince the world it was a reliable supplier. It is apparent again in Qatar’s response to Europe’s gas crisis. In the run-up to the war in Ukraine, it too, like Saudi Arabia, declined Western pleas to send Europe more fossil fuels. Its reasons, though, were more commercial than mercenary. Most of its LNG was simply tied up in sacrosanct long-term contracts. Now that it has spotted a new commercial opportunity as Europe seeks to reduce its reliance on Russian gas, QatarEnergy is happily talking with Germany about long-term gas supplies.Dinosaurs in the desertThe biggest contrast between the two energy giants may come amid the energy transition. Aramco is betting that its low-cost and, as crude goes, clean oil has a future for years to come. Like Aramco, QatarEnergy is pouring money into more production—in its case, a $30bn expansion of its natural-gas export capacity.But a decade from now, when electric cars will no longer be burning Aramco’s oil, many of them will still be charged using electricity generated with QatarEnergy’s gas. After that, both energy giants see the future in producing hydrogen. At that point, Qatar’s efforts to keep on good terms with potential customers on both sides of the geopolitical divide will look more commercially prudent than Saudi huffiness. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

“IT MAY NOT be good for America, but it’s damn good for CBS,” said Leslie Moonves, the TV network’s then boss, of Donald Trump’s presidential candidacy in 2016. Ratings soared under Mr Trump, and slumped when he left the stage. Now war has people tuning in again. Since Russia invaded Ukraine, cable-news channels’ audience share in America has nearly doubled, to 12%, reckons Inscape, a data firm—heights last recorded when the Capitol was stormed in January 2021.America’s original Cable News Network hopes to sate this hunger with a new format. CNN+ will launch in America on March 29th, with an international roll-out to follow. For $5.99 a month viewers will enjoy live streams of on-demand news and documentaries, plus interactive features (like the chance to submit questions to interviewees).The launch coincides with upheaval at the 42-year-old network, one of the biggest names in news. CNN’s boss, Jeff Zucker, quit in February over an undisclosed office romance; Chris Licht, an experienced producer, takes over next month. Meanwhile, the merger of CNN’s owner, WarnerMedia, with Discovery, a cable giant, is expected to close in April.The new management prefers to highlight CNN’s hard-news expertise, on display in Ukraine, over the partisan commentary in which it indulged in the Trump years. A neutral brand suits Warner-Discovery’s strategy. Warner plans to bundle CNN+ with its entertainment platform, HBO Max, due to combine with Discovery’s. That bundle cannot afford to repel conservatives. (If it does, CNN’s new owners may sell it.)Nor can CNN+ afford to undermine the cable business. Like all legacy media firms, Warner-Discovery is trying to launch a streaming lifeboat without sinking its cable mothership. So for now, CNN is keeping its main rolling-news channel exclusively on cable, with separate shows for CNN+ aimed at news junkies and documentary fans.Sceptics wonder about the size of the new market. As for cable, it is in decline. Just over half of American homes have it, down from nearly nine out of ten a decade ago. Sport, which along with news is the last reason not to cut the cord, is slowly shifting to streaming. Amazon and Apple, with no cable interests to protect, have begun buying the rights to big matches.Historically less-cabled international markets may provide a glimpse of what comes next. CNN+ customers in Latin America are likely to get the CNN en Español linear channel, for instance, while some European subscribers are expected to get CNN International. CNN+ is a side-bet for the time being. It is also the network’s most likely future home when American cable is severed for good.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Good news and bad news” More

SILICON VALLEY feels like a college reunion these days. As covid-19 restrictions are lifted across America, tech-bros (and the occasional tech-gal) who have not met in person in ages are high-fiving each other all over the place. Firms from Alphabet to Zynga are urging workers back to the office. Venture capitalists are flocking back from second homes by Lake Tahoe or ranches in Wyoming. Foreigners, who during the pandemic became a rarer sight in San Francisco than unicorns, can again be spotted south of Market Street, a popular pasture for startups valued at $1bn or more.The people look the same. Yet the place feels different. Your guest columnist, who is heading to Berlin after spending a total of 12 years, including all of the pandemic, in San Francisco over the past three decades, suspects that many returnees will feel like strangers in a strange land. Not because everyone seems suddenly obsessed with the decentralised “web3” (which they are) or because the valley has peaked (which it hasn’t). Silicon Valley has changed, and not just as a result of the pandemic.When this stand-in Schumpeter moved there in the mid-1990s, even some top venture capitalists drove lumbering clunkers. Now a zippy Tesla is de rigueur (with a Ferrari often sitting in the garage). Similarly, the hub’s business metabolism, which few places could match to begin with, has sped up. In the pandemic job-hopping became even more rampant and rapid. Many firms offer six-figure cash bonuses and pay rises of 25% to retain talent. Promising startups can raise money in days rather than weeks. Last year more than 17,000 venture-capital (VC) deals were cut in America, 40% more than in 2020, according to PitchBook, a data provider.All that money pouring into a limited number of deals helped raise late-stage startups’ median valuation to $115m in 2021, nearly double the level in 2020. Outside investors, including hedge funds such as Tiger Global and Coatue Management that used to invest mainly in public markets, have piled in. These newcomers bring a new philosophy, in which a firm’s performance and its fit in the overall portfolio trump conventional VC considerations such as knowing the founder or understanding the industry.Valuations may already have suffered as a result of rising interest rates. But the cash will not disappear. Non-traditional investors, from private-equity firms to family offices, keep coming. And money isn’t the only accelerant. Tech itself has chivvied things along, too. Zoom makes it easier for people to interview for a new job and for entrepreneurs to pitch to potential investors. In the words of Mike Volpi of Index Ventures, a VC firm, “This has created a much more efficient market.”It has also created a much more global one. In the late 1990s Silicon Valley’s startup uniform of washed-out T-shirt, shorts and hairy legs was (thankfully) confined to the Bay Area. Today’s less off-putting Silicon Valley look—untucked shirt, khaki trousers, white trainers—is the fashion choice of founders everywhere. Less sartorially, whereas as a few years ago a base in the valley was still a must for ambitious entrepreneurs, engineers and investors, now they no longer have to be physically present to get access to capital, talent and know-how. Established tech firms, too, are expanding their geographical footprint. Many are building offices in such places as Austin and New York. A few, including Hewlett Packard Enterprise and Oracle, have relocated their headquarters to Texas. The Brookings Institution, a think-tank, recently estimated that 31% of tech jobs are now offered in “superstar metro areas” such as Silicon Valley, down from 36% before the pandemic.VCs, for their part, have learned they do not need to drive to a startup or smell the founder to make a lucrative deal. Sequoia, a VC stalwart, no longer requires live in-person pitches from entrepreneurs and is perfectly happy with pre-recorded video presentations. More of Sequoia’s fellow VCs on Sand Hill Road, the historic centre of VC-dom in Palo Alto, are eyeing Europe. Venture investments across the Atlantic have shot up from less than $40bn in 2019 to more than $93bn last year—pulling nearly equal with Silicon Valley, according to CBInsights, another data provider. Sequoia—king of the Sand Hill, having wrested the crown from Kleiner Perkins, the dotcom-era lord—recently opened offices in London. Other VC firms are planning European outposts. Plenty already have Asian ones.The Bay Area has lost its “geographical monopoly” in tech, sums up Phil Libin, a serial entrepreneur who runs mmhmm, a video-conferencing firm (whose investors include Sequoia). Mr Libin himself now lives in Bentonville, Arkansas, better known as the home of Walmart than as a tech hub.Some of this dispersion may slow or even reverse. As covid-19 fades into endemicity, even Zoom-hardened venture capitalists would rather interrogate a startup founder over a bottle of a Napa cabernet than over a video call. They may also become more discerning about where to put their capital now that it is becoming costlier. This could favour nearby startups on which it is easier to keep an eye.The valley reforgedWill all this make Silicon Valley more parochial, and less relevant? Don’t bet on it. It is true that the next trillion-dollar company may not come from Silicon Valley, the place, as most of the current crop have done. But the odds are that it will emerge from Silicon Valley, the mindset. Its high-octane venture capitalism and, increasingly, its capitalists and capital have infused technology scenes from Stockholm to Shanghai and São Paulo. That may be bad news for landlords in San Francisco, second-rate entrepreneurs in Mountain View and other rent-seekers who took advantage of the Bay Area’s initial geographical monopoly. For everyone else, be it tech workers south of Market who can at last afford a flat nearby or innovators in Mumbai able to tap Silicon Valley money and expertise, it is a boon. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The silicon state of mind” More

THE FAMILIAR exerts a powerful subliminal appeal. The “name-letter effect” refers to the subconscious bias that people have for the letters in their own name, and for their own initials in particular. They are more likely to choose careers, partners and brands that start with their initials (Joe becomes a joiner, marries Judy and loves Jaffa cakes). A related bias, the “well-travelled-road effect”, describes the tendency of people to ascribe shorter travelling times to familiar routes than is actually the case.A bias towards the familiar shows up at work, too. One such prejudice is about what exactly constitutes work. Being at a desk counts as work, as does looking at a screen above a certain size. Responding to email and being in a meeting are indubitably forms of work. So is any activity that might elicit sympathy if performed on the weekend—typing, taking a phone call from the boss, opening any type of spreadsheet.This prejudice helps to explain worries about “proximity bias”, the risk that white-collar employees who spend lots of time in the office are more likely to advance than remote workers who are less visible. That is because being inside an office building is itself something that counts as work. Pre-pandemic research showed that “passive face-time”—the mere fact of being seen at your desk, without even interacting with anyone—led observers to think of people as dependable and committed.But these familiar forms of work can deceive, for two reasons. The first is that what looks like a Stakhanovite effort may be no such thing. Keyboard-tappers may just be updating their LinkedIn profiles. Attendees at a meeting are often present in body but not in spirit. Even when actual work is being done, it may not be the most productive use of people’s time.The second is that things that look like the opposite of work—loafing about, to use the technical term—can be very useful indeed. Take daydreaming. In most workplaces, staring into space for hours on end is frowned upon; security guards and models can get away with it, but few others. Yet letting the mind wander is not simply part of being human; it can also be a source of creativity, a way to unlock solutions to thorny problems.Albert Einstein’s breakthrough moments often came via thought experiments in which he let his imagination drift. What would it be like to travel as fast as a light beam? What happens if double lightning strikes are observed from different perspectives? Einstein is admittedly a pretty high bar, but zoning out can help mere mortals, too. Research published in 2021 found that tricky work-related problems sparked more daydreaming among professional employees, and that this daydreaming in turn boosted creativity.In similar vein, going for a walk is not just a break from work, but can be a form of it. An experiment from 2014 asked participants to think of creative uses for a common object (a button, say) while sitting down and while walking. Perambulation was associated with big increases in creativity. Being outside generally seems to improve lateral thinking. In another study, hikers who had been yomping away in the wilderness did much better on a problem-solving task than those who had yet to set off.Loafing has clear limits. If you miss a deadline because you were staring soulfully out of the window, you still missed a deadline. Not every problem requires a backpack and a journey into the countryside. If you don’t much like your work in the first place, you are likely to daydream about other things.But time to muse is valuable in virtually every role. To take one example, customer-service representatives can be good sources of ideas on how to improve a company’s products, but they are often rated on how well they adhere to a schedule of fielding calls. Reflection is not part of the routine.The post-pandemic rethink of work is focused on “when” and “where” questions. Firms are experimenting with four-day workweeks as a way to improve retention and avoid burnout. Asynchronous working is a way for individuals to collaborate at times that suit them. Lots of thought is going into how to make a success of hybrid work.The “what is work” question gets much less attention. The bias towards familiar forms of activity is deeply entrenched. But if you see a colleague meandering through the park or examining the ceiling for hours, don’t assume that work isn’t being done. What looks like idleness may be the very moment when serendipity strikes.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Loafing can be work” More

SURFING BETWEEN team-building exercises. Tequila shots in meetings and pot on private jets. Barefoot strolls around New York. Adam Neumann’s quirks have been familiar to readers of newspapers’ business pages since 2019, when WeWork, the workspace provider with tech aspirations that he co-founded, reached a private valuation of $47bn, only to crumble after an abortive initial public offering (IPO). The story of WeWork and its flamboyant boss have now reached a wider audience thanks to “WeCrashed”, a new series which will stream on Apple TV+ from March 18th.Popular culture, whose creators lean left, revels in skewering the perceived greed of capitalism, also through the prism of real-life business figures. The villains change with the times. In the 1990s it was the buy-out barons (“Barbarians at the Gate”). After the financial crisis of 2007-09 it was the investment bankers (notably on stage with “The Lehman Trilogy”) and other financiers (on the silver screen with “The Big Short”). As big tech grew too big for some tastes, the spotlight turned to its misanthropic billionaire bosses (“Steve Jobs”, “The Social Network”).The latest cohort of capitalist anti heroes and -heroines to receive popcultural treatment includes the darlings of Silicon Valley’s startup scene. “The Dropout”, a series streaming on Hulu and Disney+, recounts the rise and fall of Elizabeth Holmes and her fraudulent blood-testing firm. Showtime’s “Super Pumped” dissects the life of Travis Kalanick, Uber’s brilliant but abrasive co-founder. “WeCrashed” belongs to this genre.Mr Neumann and his new-agey wife, Rebekah (“fear is a choice”), are made for TV. Most chief executives have big egos but few can match the sheer scale of the couple’s narcissism (or good looks). Mr Neumann, who grew up in an Israeli kibbutz, once claimed that the elusive Middle East peace treaty would be signed at a WeWork venue. His company’s IPO prospectus promised not merely to offer convenient co-working space but, apparently without irony, to “elevate the world’s consciousness”. Portrayed masterfully by Jared Leto and Anne Hathaway, the on-screen Neumanns are, like many startup founders only more so, both intoxicating and painful to watch. It is suddenly easy to understand why so many investors felt at once besotted and uncomfortable around them.Mr Neumann’s knack for distorting reality—most notably by dressing up a lossmaking office-rental firm as a successful tech giant—is a trait common to many successful founders. It is not the whole story, however. “WeCrashed” also depicts how the reality of Silicon Valley distorted him and his firm. In one scene Son Masayoshi, the messianic boss of SoftBank, a free-spending Japanese tech-investment group that poured billions into WeWork, tells Mr Neumann, “You’re not crazy enough.” A string of other prominent venture capitalists likewise encouraged the company to aim for the stars. So it did.Colourful characters aside, WeWork’s rise and fall makes for compelling TV because it follows the dramatic arc of a Greek tragedy: a protagonist grossly overestimates his abilities; his hubris is punished; order is restored. Except in this case, the punishment is meted out not by mercurial gods but by Mr Neumann’s increasingly impatient VC backers and the public markets, whose scrutiny of his firm’s value-torching business model undid the IPO. As such, “WeCrashed” also traces the arc of capitalism’s capacity for self-correction. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “WeBinged” More

THE CHINESE COMMUNIST PARTY has exhibited a high tolerance for the excruciating pain felt by investors in China’s biggest technology companies. The firms’ sins ranged from throttling smaller competitors and mistreating workers to hooking young minds on video games. After forcing Didi Global to delist from New York, last week regulators in effect scotched the ride-hailing giant’s relisting plans in Hong Kong. On March 14th the Wall Street Journal, a newspaper, reported that they are preparing to slap a record fine on Tencent, an internet Goliath, for alleged anti-money-laundering violations. The next day the Cyberspace Administration of China (CAC), the main internet watchdog, accused Douban, a social-media platform with 200m users, of creating “severe online chaos”, marking it as a target for stricter censorship. This, combined with uncertainty over Russia’s invasion of Ukraine and a rash of covid-19 outbreaks, shaved a third from the indices of Chinese tech stocks in the first two weeks of March, while America’s tech-heavy NASDAQ index remained flat (see chart).Yet the pain of the spiralling tech sell-off, which at its deepest wiped out more than $2trn in overall market value, may be becoming to much to bear even for desensitised party bosses. On March 16th Xinhua, a state news agency, published a report from a meeting of the central government chaired by Liu He, China’s top economic adviser. The agency declared that the “rectification” of large Chinese technology companies would soon come to a close. New regulations should be transparent, Mr Liu was supposed to have urged, and policymakers must be cautious when implementing rules that might hurt the market, according to Xinhua. Moreover, state media reassured readers, the Chinese leadership would stabilise stockmarkets. It may even support overseas listings of Chinese companies, which it has discouraged or, as in Didi’s case, opposed. Mr Liu’s statements are the strongest signal so far that the tech crackdown initiated by President Xi Jinping in late 2020 is coming to an end, says Larry Hu of Macquarie, an investment bank. Markets certainly seem to think so. Hong Kong’s Hang Seng Tech Index soared by 22% on March 16th, a record. The Golden Dragon index, which tracks American-listed Chinese technology firms, jumped by a quarter when trading began. Having lost tens of billions of dollars of market value in recent days, put-upon tech titans such as Tencent and Alibaba, China’s biggest e-emporium, added a lot of them back in just a few hours of trading. The government’s increased sensitivity to market sentiment comes as a relief to many investors, who have watched with unease as leaders in Beijing have become increasingly indifferent to how China and its markets are viewed by the outside world. The latest policy whipsaw nevertheless raises nagging questions about conflicting interests within the party and about the lack of co-ordination between regulators. It is unclear, for example, if Mr Liu’s conciliatory message was intended to signal displeasure with the cac’s recent heavy-handedness, or instead to praise the agency for having done a good job.Regardless of the government’s true motive, its pronouncements may stop the colossal value destruction of the past 18 months or so. Whether they will be enough to reverse it is another matter. Chinese tech stocks remain depressed. Tencent’s market capitalisation swelled by $85bn on the day of Xinhua’s report. But that brought it back to where it was five days earlier, which is still down by more than half from its peak of nearly $1trn in February 2021. Alibaba’s stockmarket value of $250bn is one-third of what it was a year ago. If the Communist Party’s objective was to take Chinese tech down a peg and neutralise a perceived rival power centre, it has succeeded in spades. More

MOST MULTINATIONAL companies can live without Russian customers. Living without Russian commodities would be much harder. On March 15th the European Commission announced new economic constraints on Russia, including a ban on exports of European luxury items and cars—the definition of an essential good is, after all, in the eye of the oligarch. But the announcement also included a ban on steel products from Russia. More such restrictions on Russian exports may come.Companies are struggling to contain the fallout of Russia’s brutal war in Ukraine. The first response of those with business in Russia was to rush for the exit. About 400 have announced their withdrawal from Russia, according to a tally by Jeffrey Sonnenfeld of Yale, cowed by legal and reputational risks. Executives now face a different, bigger challenge. This concerns not their business within Russia but supply chains that extend beyond it, and other knock-on effects. As the war continues, it is creating corporate winners and losers, as well as enormous volatility.There are two factors that make the shock to supply chains particularly difficult for firms to manage. The first is the breadth of commodities produced by Ukraine and Russia. The two countries together supply 26% of the world’s export of wheat, 16% of corn, 30% of barley and about 80% of sunflower oil and sunflower-seed meal. Ukraine provides about half the world’s neon, used to etch microchips. Russia is the world’s third-largest oil producer, second-largest producer of gas and top exporter of nickel, used in car batteries, and palladium, used in car-exhaust systems, not to mention a large exporter of aluminium and iron. Even without formal sanctions on most of Russia’s commodities, Western traders are increasingly trying to avoid them, wary of legal risks.The second complicating factor is the market’s extraordinary swings. The price of Brent crude surged to $128 a barrel on March 8th, then dipped below $100 a week later as China announced new covid-19 restrictions and investors anticipated the interest-rate increase by America’s Federal Reserve on March 16th. The London Metals Exchange halted trading of nickel on March 8th after its price shot past a record $100,000 a tonne. When trading resumed on March 16th, a technical issue prompted the exchange to suspend trading once more.The overall American stockmarket is back roughly to where it was before the invasion. But a few industries benefit from the turmoil, from armsmakers to cable news and the lawyers who help firms comply with sanctions. The biggest winners are commodities firms, especially outside Russia (see chart).A stockmarket index of American frackers, which benefit from high oil prices and European demand for liquefied natural gas, climbed by a fifth between February 23rd to March 10th. It remains 9% above its pre-invasion level, despite the decline in oil prices. Mining firms are, as a group, likewise performing well, buoyed by higher metals prices, as are steelmakers beyond Russia. The share prices of US Steel and Tata Steel, with headquarters in Pittsburgh and Mumbai, respectively, have climbed by 38% and 11% since the eve of the invasion. Bunge and ADM, two big listed traders that specialise in rerouting flows of grain, have outperformed the market, too.The war does not affect all commodities firms equally. Rio Tinto, a big miner, announced on March 10th that it would abandon a joint venture with Rusal, a giant Russian aluminium producer. Rocketing electricity costs resulting from the soaring price of natural gas, 40% of which Europe gets from Russia, have forced some Spanish steelmakers to cut output.Pricey inputs are a more universal problem for sectors further up the value chain. Just as they were preparing to lift off as pandemic travel restrictions are relaxed, airlines got slapped with rocketing fuel costs. Yara International, a Norwegian fertiliser-maker, said on March 9th that the cost of natural gas had prompted it to cut production at two European factories.Carmakers, which have not yet recovered from the pandemic’s disruptions to supply chains, face fresh problems. Volkswagen and BMW, two German giants, have cut production in Europe as they seek out new manufacturers of the harnesses that bundle miles of electrical wires in their cars to replace out-of-action Ukrainian suppliers. Morgan Stanley, a bank, reckons that the 67% jump in nickel prices before trading stopped represents an increase of about $1,000 to the input costs of the average American electric vehicle.Gabriel Adler of Citigroup, another bank, notes that carmakers have so far been successful in passing their costs on to consumers. Indeed, Tesla, America’s electric-car superstar, this month raised prices; Elon Musk, its boss, complained in a tweet about “significant recent inflation pressure in raw materials & logistics”. Such pricing power is enviable. But it has its limits. At some point people will not be willing to absorb the increases.In some cases, consumers are beginning to balk. American food firms have been raising prices for months to offset higher costs of energy, transport and ingredients. However, they have been unable to raise them quickly enough to protect margins. The need to negotiate prices with grocers limits their ability to demand higher ones whenever they desire. And grocers, in turn, are under pressure from shoppers. Robert Moskow of Credit Suisse, one more bank, notes that consumers have in the past year been willing to stomach pricier food. But the war’s impact on commodities prices comes at a moment when their patience is wearing thin, especially in America, where inflation has hit a 40-year high.“Every food company must be getting a little nervous that they are pushing the consumer too far,” says Mr Moskow. As the costs of inputs continue to climb, it looks increasingly likely that companies will be forced to choose between compressing profits and depressing demand. Our recent coverage of the Ukraine crisis can be found here More

WITH UNPRECEDENTED sanctions come unprecedented compliance challenges. Western banks and companies hoping to navigate the morass are, at least, getting some help from the Office of Financial Assets Control (OFAC), which oversees most American measures. It has published answers to 62 “frequently asked questions” about those against Russia. But compliance officers craving clarity can hardly relax. The legalese runs to 13,800 words—and leaves many queries unanswered since guidance is still being fleshed out. Moreover, new sanctions are being added almost daily. And the ones imposed by Britain, the EU and others overlap only partially with America’s.The Western response to Russia’s invasion of Ukraine is without parallel in terms of both the number of countries participating, and the size and interconnectedness of the target’s economy. They have created what Stephen Platt, author of “Criminal Capital”, a book about financial crime, calls “a sanctions-compliance emergency”. This is further fuelling a sanctions-industrial complex that has burgeoned over the past decade. International law firms say they have never had so many inquiries; some have set up round-the-clock hotlines for worried clients. Compliance-tech firms are busier than ever too: software that helps users weed out entities and individuals hit by sanctions is flying off shelves. Global spending on sanctions compliance by banks alone (no reliable figures exist for non-banks) reached a record $50bn or so in 2020, the latest year for which estimates are available. The outlay this year is likely to be well above that.Keeping on top of the new sanctions is no easy task. In America alone they are being issued by four separate agencies: OFAC (financial sanctions), the Commerce Department (export controls), the State Department (visa bans) and the Justice Department (anti-kleptocracy measures). Together, these are “a masterclass of all prior sanctions programmes being imposed all at the same time, utilising elements of those imposed on China, Cuba, Iran, Venezuela and even narco-traffickers,” says Adam M. Smith of Gibson Dunn, a law firm.Banks, which have long been on the financial-crimefighting front line, will find complying tricky but manageable. The challenge is more daunting for non-financial companies, a far greater number of which do business that is covered by the sanctions than was the case with Iran or other past programmes. The Russia sanctions “reach across the corporate spectrum like never before,” says Michael Dawson of WilmerHale, another law firm. Lawyers say calls for help are coming from software firms, manufacturers, consumer-goods sellers and even, in one case, a sports team that recruits players from Russia.One reason for the anxiety is the sweeping export controls implemented by America and 33 “partner countries” which restrict the sale of technology (for things like semiconductors and telecoms), components and whole goods to Russia. These cover not only stuff shipped directly to Russia but parts for products assembled in other countries, such as China, and later exported to Russia. In some cases sanctions kick in if the “controlled content” exceeds 25% of the value of the finished product. They may also apply if the product is manufactured in third countries where the machinery used is itself “the direct product of US-origin software or technology”. This covers technology and widgets made by thousands of Western firms, large and small. Many have homework to do to determine if their products might be caught in the net. Another lawyer says he is getting fretful calls from startups that have outsourced software development to Russian contractors. It may or may not be legal to continue doing so, depending on the circumstances; either way, payments have got more complicated because of sanctions on Russian banks. Many small and middling Western firms are “spectacularly ill equipped” to conduct the required due diligence on business partners, counterparties or supply chains, says Mr Platt.This task is made harder still by Russia’s expertise in obfuscation. Russian moneymen have developed world-beating skills in creating opaque offshore structures to conceal ownership. Their creativity has prompted OFAC to tighten its rules on what constitutes control of a corporate entity.Adding to the anxiety, fines for violations have got bigger, and not only for banks. Firms hit with hefty American penalties in the past decade include Schlumberger, an oil-services group ($259m) and Fokker, an aircraft-parts maker ($51m). The Justice Department’s recent creation of a “KleptoCapture” task force adds to the risks of trading with oligarch-linked firms. Enforcement in Europe has been less vigorous, but that may change. Even Western lawyers, with all the extra billable hours, need to stay on their toes: Britain’s Solicitors Regulation Authority said on March 15th that it will police law firms’ sanctions compliance with spot checks. Our recent coverage of the Ukraine crisis can be found here More