Putin Says All Infrastructure at Risk After Nord Stream Hit
Comment of the Day

October 12 2022

Commentary by Eoin Treacy

Putin Says All Infrastructure at Risk After Nord Stream Hit

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Russia’s President Vladimir Putin said any energy infrastructure in the world is at risk after the explosions on the Nord Stream gas pipelines.

The attacks were an act of terror that set “the most dangerous precedent,” the Russian president told a Moscow energy forum on Wednesday. “It shows that any critically important object of transport, energy or utilities infrastructure is under threat” irrespective of where it is located or by whom it is managed, he said.

Putin blamed the sabotage on the US, Ukraine and Poland, calling them “beneficiaries” of the blasts that caused major gas leaks in the Baltic Sea. The US and its allies have rejected those allegations and suggest Russia may have been behind the underwater blasts.

The attacks on two strings of Nord Stream and one string of Nord Stream 2 at the end of September have raised concerns over the future of Europe’s gas supplies. Other critical infrastructure in the region has also suffered damage in recent weeks. 

Earlier this month, an act of sabotage halted train services across northern Germany and the government has said it can’t rule out foreign involvement. A pipeline that carries Russian oil through Poland was found to be leaking on Tuesday. Investigations continue, and Poland’s top official in charge of strategic energy infrastructure said he assumed it was an accident.

Eoin Treacy's view

This is a none too subtle threat to expect escalation of attacks on energy infrastructure for as long as the EU is supporting Ukraine’s resistance efforts. The sabotage of Germany’s rail network with specialized interruptions conducted simultaneously at locations 200km apart is a display of Russia’s extraterritorial ability to sow disruption.

For now, these are inconveniences because Russia does not seem to expect European fortitude in the face of an energy crisis to last. Gas is still flowing through Ukraine and Turkey, the Nordstream 2 pipeline was undamaged by the recent explosions. That suggests Russia still holds out hope that Europe will have no choice than to buy from them. To their eyes, this is a measured response. If they continue to lose on the battlefield, the scale of unconventional attacks will escalate.

Turkey continues to control the choke point at the Bosphorus and that strategic position puts it in a strong negotiating position. If European fortitude prevails, Turkey is likely to be a significant beneficiary from increases Russian gas flows.
Despite inflation running rampant, Turkish US Dollar bonds are not accelerating higher. The yield of 10.94% represents a spread of 700 basis points over Treasuries. That’s not yet as wide as in past crises despite the downtrend in the Lira.

An additional wrinkle is the toll rising yields are taking on utilities. Many utilities invested heavily in renewable energy infrastructure over the last decade and expected to have cheap funding to cover the cost for a prolonged period. Now Spanish yields, for example, sit at 3.54% so the yield advantage utilities offer is contracting at the same time as demand is likely to be hit by a continent-wide recession. Additionally, their ability to generate profits is likely to be constrained by windfall taxes to fund energy subsidies.
Spain’s Red Electrica is accelerating lower and the seven-year range is increasingly looking like a Type-3 top.

Siemens Energy continues to trend lower.

The Euro STOXX Utilities Index has rolled over and made a new reaction lows this week.

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