Charlotte Street Partners



Ice-free geopolitics

Written by Javier Maquieira, senior associate 
Edited by David Gaffney, senior partner
23 February 2022

Good morning,

As is often the case with Vladimir Putin, there’s more to the Ukraine crisis than meets the eye. Climate change, for example, can prove a useful tool for Russia in its conflict with the west over the Ukrainian border.
Although the Kremlin is not a public denier of the climate crisis, it is certainly dragging its feet, particularly considering Russia’s position as the world’s fourth largest CO2 emitter. In fact, last December the Russian government vetoed a United Nations resolution to call climate change a threat to world peace and security.
As the European Union’s main supplier of crude oil and natural gas, Moscow understands that the more global warming destroys the Arctic, the more cash it can make from the gas and oil it extracts from it, transports across an ice-free ocean, and sells to the EU in large quantities.
According to the latest UN analysis, Russia’s energy strategy includes plans to increase gas production by 35% by 2035. This can only be achieved by securing access to hydrocarbon deposits in the Arctic, where ice volume is currently decreasing, on average, by 35% in winter and 75% in summer, due to global warming.
Last year, freight transport on the so-called Northern Sea Route (NSR), which links the Barents Sea to the Bering Strait via the Arctic, set an all-time record: ships carried 35 million tonnes of cargo – 350% more than just five years ago. Leading the way in maritime traffic were oil and gas tankers, the key cargoes being liquefied natural gas from the Novatek project and oil from the Gazprom project, according to Russia’s NSR public council.
While the Kremlin’s goal to reach 80 million tonnes by 2024 and 110 million tonnes by 2030 does nothing but discredit Russia’s emission reduction plans and ‘climate neutrality’ pledge, the fact remains that the EU still depends heavily on Russia for energy. The bloc imports around 400 billion cubic metres of natural gas per year. Of this, more than 152 billion cubic metres come from Russia, accounting for 40%. Germany alone bought 66% of the gas it used in 2020 from Russia.
As the crisis in Ukraine unfolds and sanctions against Russia are unveiled, the decision by the German chancellor, Olaf Scholz, to halt the process of certifying the Nord Stream 2 gas pipeline from Russia has carried most weight, thus far. The move is particularly significant given Berlin’s long-standing resistance to pulling the plug on the project, despite strong pressure from the United States and some European countries to do so before now.
Scholz’s announcement was welcomed by many, not least the Ukrainian foreign minister, Dmytro Kuleb, who called it the “morally, politically and practically correct step in the current circumstances”. On the other hand, Russia’s former president and current deputy chair of the security council, Dmitry Medvedev, poked fun at the decision to halt certification of the pipeline, saying “Europeans are very soon going to pay 2,000 euros for 1,000 cubic meters of natural gas!”
Moscow’s geostrategic ambitions mean drilling in the Arctic in search of gas and oil to transport through an increasingly ice-free sea is still high on the Kremlin’s agenda. For western allies, there is another reason to fight climate change.


The US president, Joe Biden, has announced the first round of US sanctions against Russia in response to Vladimir Putin’s military actions in Ukraine. The penalties will target Russia’s financial institutions, sovereign debt, and elite families. Biden is also deploying US forces and equipment to Nato allies Estonia, Latvia, and Lithuania to help fortify those countries’ defences.
A new UN report involving more than 50 international researchers has found that wildfires that have devastated California, Australia, and Siberia will become 50% more common by the end of the century. The escalating climate emergency and land-use change are driving a global increase in extreme wildfires, with a 14% increase predicted by 2030 and a 30% increase by 2050, according to the report, which calls for a radical change in public spending on wildfires.
The first minister of Scotland, Nicola Sturgeon, told the Scottish parliament yesterday that legal Covid-19 restrictions, including the wearing of face coverings, will end on 21 March as part of the Scottish government’s updated strategic framework. Although people will still be advised to wear masks in shops and on public transport, all legal restrictions on people and businesses will end as part of an effort to “return to a normal way of life”, with the country’s vaccine passport scheme expected to end on 28 February.

Business and economy

Crude oil prices reached more than $99 a barrel at one point yesterday in response to Vladimir Putin’s decision to recognise the independence of two breakaway regions in eastern Ukraine. Prices later slipped back after markets viewed the west’s initial sanctions response as weak. However, with Brent crude ending the day 1.6% higher at just under $97 a barrel, the RAC said motorists would quickly be paying 150p a litre for unleaded petrol and 154p a litre for diesel.
Experts have warned that the imposition of tougher sanctions on Russia could further deepen the cost of living crisis in Britain, pushing energy bills and inflation to new peaks and keeping prices higher for longer. According to analysts, an escalation of measures that reduce the flow of vital commodities such as oil and gas could have a major destabilising impact on the world economy and put European consumers already hit by unprecedented jumps in energy costs under further strain. 
Boots will begin selling single Covid tests for £5.99 from today, despite free kits being available via the NHS in England until 1 April. The pharmacy said the earlier launch date was to prepare both supply chains and customers ahead of the end of free testing, which was announced on Tuesday as part of the UK government’s “living with Covid” plan, along with the end of self-isolation rules and payments.

Columns of note

The Financial Times’ editorial board argues that US and European allies should not hesitate in implementing the punitive economic sanctions they have threatened to impose on Russia over the conflict in Ukraine. Holding back now in the hope of deterring more severe aggression, they argue, is misguided. Faced with a Russian leader whose goals appear even more reckless and threatening than in 2014, the authors conclude that the west will have to go much further to convince Putin of its collective resolve. (£)
In The Times, David Smith writes that removing coronavirus restrictions won’t be a game changer for the economy. In his view, the continued prevalence of Covid will mean that the all-important behavioural response to Covid is likely to remain risk averse. For a while, Smith concludes, even a mild sniffle will provide an excuse to follow government guidance and stay at home. (£)


What happened yesterday?

London stocks closed in a mixed state at the close on Tuesday, as western countries started implementing sanctions on Russia amid escalating tensions over Ukraine. The FTSE 100 ended the session up 0.13% at 7,494.21 and the FTSE 250 was down 0.49% at 20,993.33. Meanwhile, sterling was weaker both against the dollar by 0.04% at $1.36 and versus the euro by 0.36% at €1.20.
Across the pond, Wall Street’s benchmark S&P 500 ended the day down one per cent to its lowest closing level since late 2021, while the technology-heavy Nasdaq Composite fell 1.2%.
In company news:
Smith & Nephew added 7.51% after the medical equipment manufacturing company reported higher full-year profits and announced the appointment of a new chief executive.
Intercontinental Hotels Group gained 4.21% after the hospitality company said annual profits more than doubled on the back of a strong final quarter in the US and China, as economies recovered from the Covid pandemic.
Antofagasta managed gains of 0.68% after the Chilean miner posted growth in full-year profit and revenue thanks to higher copper and molybdenum prices.
HSBC reversed earlier losses to rise 0.04% after the bank said annual profit more than doubled as lower bad debts more than made up for reduced revenue.

What’s happening today?

Final results
Rio Tinto
Irish Residenti
Capital & Counties
Georgia Capital

Gooch & Housego
Inc&gwth Vct
Rws Hldgs
Blencowe Resou.

Oilex Limited (OEX)

Intl economic announcements
(07:00) GFK Consumer Confidence (GER)
(15:30) Crude Oil Inventories (US)
(12:00) MBA Mortgage Applications (US)

Source: Financial Times

did you know

Bamboo are the fastest growing plants in the world. Some species can grow 91cm a day. (Source: @8fact)

Parliamentary highlights

House of Commons

Oral questions
Women and Equalities (including Topical Questions)
Prime Minister
Ten Minute Rule Motion
Energy Pricing (Off Gas Grid Households)
Opposition Day Debate
Opposition day (13th allotted day) Debate on a motion in the name of the Official
Support for levelling up rural communities in Cumbria

House of Lords 

Oral questions
When the Type 45 destroyers will have completed the Power Improvement Project (PIP) upgrade
Plans by Russian forces to hold naval military exercises 150 miles off the south-west coast of Ireland
Effects of COVID-19 on school children in the most deprived communities
Refugees (Family Reunion) Bill – committee stage
Age Assurance (Minimum Standards) Bill – committee stage
Elections Bill — second reading
Orders and regulations
Passenger, Crew and Service Information (Civil Penalties) (Amendment) Regulations 2022 – motion to approve
Passenger, Crew and Service Information (Civil Penalties) (Amendment) Regulations 2022 – motion to regret

Scottish parliament 

Portfolio Questions
Justice and veterans
Finance and the economy
Scottish Conservative and Unionist Party Debate
Net Zero, Energy and Transport
Approval of SSIs (if required)
Members’ Business
S6M-02984 Karen Adam: Celebrating LGBT History Month

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