Western efforts to choke Russia’s oil profits are failing as production cuts agreed with Saudi Arabia push the market price towards US$100 a barrel and Russia’s biggest customers—China and India—start paying close to full market price.

Russia is successfully evading the Western effort to impose a price cap of US$60 a barrel on a large share of its oil sales.

The price cap, devised by US Treasury Secretary Janet Yellen and in place since December 2022, demands that Western insurance companies only provide coverage of Russian oil shipments if they can be certified as being sold at no more than the upper limit.

The aim was to curb Russia’s profits while allowing its oil to keep flowing to world markets. An absolute ban on Russian oil sales, as the US imposed on Iran and Venezuela, would have sent the global price rocketing and was, in any case, seen to be impractical with such a large supplier as Russia.

Since Western insurance companies covered around 90% of the world’s shipping, it was expected to be successful. The agreement on the price cap binds all European Union and G7 members, except Japan. Australia is also party to the arrangement. Japan secured an exemption, which was recently extended to the middle of next year, because of its extensive involvement in Russia’s Sakhalin-2 oil and liquefied natural gas project, in which Japanese trading companies have invested and which supplies 10% of Japan’s LNG imports.

Estimates by French trade data consultancy Kpler show that, in August, only 24 million barrels of Russian oil were delivered by ships carrying insurance, while no insurance could be identified for tankers carrying 67 million barrels. The share with identifiable insurance has dropped from 47% to 26% since May.

According to energy pricing company Argus Media, Russian oil was selling for US$87 a barrel on 22 September, only a few dollars short of the North Sea benchmark price of US$94, and far above the level set by the cap. Russia had been forced to accept discounts of as much as US$35 a barrel until April this year.

Yellen acknowledged last weekend that the prices being fetched by Russian oil showed the price cap wasn’t working as hoped. ‘It does point to some reduction in the effectiveness of the price cap,’ she said.

‘Russia has spent a great deal of money and time and effort to provide services for the export of its oil. They have added to their shadow fleet, provided more insurance and that kind of trade is not prohibited by the price cap,’ she said.

The ‘shadow fleet’ Yellen referred to is understood to comprise almost 500 tankers, often with obscure ownership and insurance details that can change monthly. Shipments are sometimes made in small tankers and then transferred to larger vessels in the Mediterranean for the journey to Asia.

Lloyds List analyst Michelle Wiese Bockman says prices for nearly all grades of Russian crude oil and refined products are now between 28% and 50% above the G7 price cap. She said a significant portion of Russia’s oil shipments were still using Western insurance, implying they were complying with the cap.

She suggested that false attestation documentation by the Russian sellers could explain how Russia was exceeding the limit. ‘There’s no suggestion sanctions are being breached by those ships, but I can’t see how so many volumes could be compliant. These documents aren’t publicly available, but would be available to regulators upon request. Perhaps enforcement needs to be stepped up to find out how these deals are being structured so they can remain below the cap.’

A Financial Times investigation found that on the Russia-to-India trade, oil was being loaded at Russia’s Baltic ports at a price below the cap, but was arriving in India at prices US$18 a barrel higher, which is about double the freight cost.

Russia’s most potent counter to the Western price cap is the deal it struck with Saudi Arabia 12 months ago to cut oil production, with combined OPEC and Russian output falling by two million barrels a day. The cut was supposed to expire last month, but Saudi Arabia and Russia recently agreed to extend it to the end of the year.

The International Energy Agency, which represents oil-consuming nations, commented, ‘The Saudi–Russian alliance is proving a formidable challenge for oil markets.’ It predicts demand will rise by 1.5 million barrels a day over the remainder of the year, with most of the increase coming from China, and says supplies will run short.

It’s a seller’s market for oil and this favours Russia getting the prices it wants. Shipping is too fragmented an industry—with its flags of convenience, tax-haven ownerships and a multitude of shippers who can operate from a post office box—to be corralled reliably by the G7 price cap, particularly when the biggest buyers of Russian oil—China, India and Turkey—are not parties to it.

Yellen is a formidable economist. She chaired the US Federal Reserve and the Council of Economic Advisers under President Bill Clinton, and has held significant academic appointments. However, the price cap may have been too clever, overestimating the power of financial regulators to dictate the terms of trade to the oil market.

There have been concerns that Russia may use the tight state of markets to generate a further global energy crisis over the coming northern winter, with suggestions that Russian President Vladimir Putin is keen to make life for US President Joe Biden as uncomfortable as possible in the lead-up to next year’s US election. Russia recently banned the export of diesel and petrol, claiming it faced a domestic shortage, which added to global anxiety about energy supplies.

While an energy crisis may suit Russia, it is not in the interest of Saudi Arabia. The alliance between the two is just one of convenience. The Saudis want to keep the oil price high, but not so elevated that it leads to either a global recession or a fresh surge of US shale oil production. It was only three years ago that a disagreement between Saudi  Arabia and Russia over production cuts in the face of the pandemic descended into an all-out price war which at one point sent the global oil price negative.

Australia has a lot riding on the success of the Chinese authorities in containing the fallout from financially troubled developer Evergrande on China’s property market more generally.

China’s property developers account for an astounding 20% of the entire world’s consumption of steel and copper, according to estimates by British investment bank Liberum.

Windows and other fittings in Chinese buildings use a further 9% of global aluminium, 8% of nickel and 5% of zinc.

So any downturn in the Chinese property market can be expected to have sustained repercussions for commodity producers quite apart from the potential financial fallout from defaulting developers.

As the forest of cranes on the skyline of any Chinese city attests, property development is a large component of China’s overall economic growth.

The real-estate and construction sectors account for an astonishing 29% of China’s GDP, comparable only to the levels in Ireland and Spain ahead of the global financial crisis, according to an assessment by former International Monetary Fund chief economist Kenneth Rogoff and researcher Yuanchen Yang.

This estimate is in line with a 2019 Reserve Bank of Australia paper showing that real estate and associated services are responsible for around a fifth of China’s GDP growth.

China’s authorities have long used their ability to manipulate the property market as a principal lever of economic policy. When there are concerns the economy is overheating, restrictions are imposed on the number of properties a person can own and the amount they’re allowed to borrow.

When the government worries that the economy is slowing, loan-to-valuation limits are eased, mortgage discounts are offered, banks are instructed to lift lending and developers are given fresh tax incentives.

But over the past year, the Chinese property market has become a target in a set of policies unleashed under the overall goal of ‘common prosperity’.

An influential report in the Chinese financial daily Caixin by a prominent economist and deputy director of Yuekai Securities Research Institute, Luo Zhiheng, says there have been profound shifts in China’s development philosophy since the plenary session of the Chinese Communist Party’s central committee last October, which launched the latest five-year plan.

‘These include the shift from growth rate to security; from efficiency to fairness; from early prosperity for some to common prosperity; from capital to labour; and from real estate and finance to science, technology and manufacturing,’ he said.

During most of the past 40 years, China had abundant manpower but a lack of capital, so it made sense to build China’s capital strength. But the problem now is a lack of manpower, while capital is abundant.

‘Hence we are seeing the fiscal and taxation policy adjustments on real estate, the antitrust campaigns in the industrial sector and the intervention in intergenerational education inequality caused by the wealth gap,’ Luo writes.

There have been a series of regulatory moves against the property sector, including measures to stop people using real-estate purchases to get their children into elite schools, pilot programs on property taxes and, with particular impact on property developers, new limits on debt levels and growth. According to one count reported in the China Daily, 320 new regulations affecting the property market have been introduced so far this year, 46 of which came from the ministerial level.

President Xi Jinping has frequently declared that ‘houses are built to be inhabited, not for speculation’. The China Daily report says the reiteration of this edict demonstrates ‘the Chinese leadership’s resolve not to make property a short-term economic stimulus tool but to ensure it functions as a long-term ally of high-quality development’.

The curbs on developers, which precipitated Evergrande’s financial crisis, are the first time that the underpinning of China’s economic growth by property development has been challenged.

But the question is whether the authorities can control what they have unleashed. There has been much discussion in both global and Chinese media about whether Evergrande represents a ‘Lehman moment’, referring to the uncontrolled contagion after US authorities declined to save the investment bank from collapse in 2008, precipitating the global financial crisis.

Evergrande’s obscure accounting practice means no one is certain of the true size of its liabilities, or of the exposure of the non-bank financial institutions and the millions of retail investors they represent.

Although Evergrande’s liabilities are vast—the cited number is in excess of US$300 billion—the Chinese authorities likely have the ability to contain a financial crisis by ordering state banks to take on debts and construction companies to complete unfinished projects while guaranteeing retail investors and the deposits of homebuyers. Bond holders would be expected to take losses.

But it may prove a lot more difficult to stop the housing market from falling. The command-and-control instincts of China’s authorities are ill-suited to the management of markets.

Other property developers—already under pressure from the same new debt restrictions that are bringing Evergrande undone—are being squeezed for funds as both the bond markets and the retail retirement products that form the basis of much of China’s property funding dry up.

Developers worried about the impact of Evergrande’s 1.5 million unfinished apartments on property market confidence are attempting to offload their inventory, but local government authorities are banning them from doing so at discounted prices, with references to ‘malicious price cutting’. Despite discounts, property sales were down 20% in August and steeper falls are expected in September.

It is reminiscent of the 2015 and 2016 turbulence in China’s share markets when the authorities attempted to stop shares from falling by halting trade, only for prices to plunge when the ban was lifted.

The share market accounted for a minuscule proportion of Chinese investment, so the broader economic consequences were limited, but housing is massive. The Rogoff and Yang paper reports that housing accounts for 78% of overall Chinese assets, compared with 35% in the United States.

China has a very high home-ownership rate of around 90%, and owners, particularly in the big cities, have enjoyed huge price increases. Since 2002, prices in the major cities have risen six-fold, or about double the increase of prices in Sydney.

The sector carries high debts, accounting for 28% of all bank lending. The household leverage ratio (debt to income) in China doubled to 60% in just four years to 2018 and has continued rising.

A sharp fall in house prices in China would have far-reaching social, economic and political impacts.

It’s striking that the Chinese government’s effort to bring the real-estate market to heel is one of a series of industry battles it has initiated with the private sector over the past year. Others include the concerted campaign to cut steel production, new emissions curbs on the power industry, regulatory intervention in the technology sector, bans on private education providers, new restrictions on wealth management products and controls on cryptocurrencies, entertainment and gambling. When fighting occurs on so many fronts, there’s a lot of scope for five-year plans to go awry.

Australia has no realistic alternative market to China for a third of its exports and no viable source but China for almost a fifth of its imports.

By contrast, it is only as a supplier of minerals that Australia has any significance to the Chinese economy. As an export market for Chinese businesses, Australia is almost irrelevant, accounting for just 1.9% of their worldwide sales.

The asymmetry in the trade relationship has been laid bare by Beijing’s exercise of economic coercion, with interruptions to Australia’s sales to China of barley, coal, cotton, beef and lobsters and threats to more, including wine, sugar, timber, copper, wool, education and tourism.

The default position of the National Party, as expressed by its leader Michael McCormack in late August, is that the relationship is reciprocal: ‘We need China as much as China needs us.’

Deputy Nationals leader and agriculture minister David Littleproud has urged Australian exporters to exploit Australia’s full range of free trade agreements to diversify their markets.

However, this is not practicable when China is the dominant customer. China accounts for more than a third of global sales for 22 of Australia’s top 30 exports to the nation. Those exports with a dominant Chinese market share were worth $123 billion in 2019, which was 32% of Australia’s total exports.

The impracticability of diversification is most obvious in iron ore. Australia will ship almost 800 million tonnes of iron ore to China this year. The total seaborne market in the rest of the world is only 460 million tonnes and Australia already captures around 100 million tonnes of that. If China didn’t buy our iron ore, there would literally be nowhere else to send it.

An analysis of Australian trade data shows our overwhelming dependence on China for many other exports.

Source: Author’s analysis of Department of Foreign Affairs and Trade data.

Copper exporters, who sell a third of their output to China, have expressed confidence that they would be able to place sales elsewhere. Copper is a widely traded commodity with a liquid market. By contrast, the only option for lobster fishermen in the absence of sales to China is to stop catching lobsters.

China accounts for 31% of Australia’s education exports, earning $12.7 billion. Education is a diverse market, but China represents more than our next four largest foreign markets combined, so its loss could not simply be backfilled.

Australia is not only bound to China by the dependence of our exporters. China is also the dominant supplier of many of our imports. Items in which China has a dominant market share (greater than a third) account for 18% of Australia’s total goods imports.

Source: Author’s analysis of Department of Foreign Affairs and Trade data.

While the large shares for many consumer goods do not look like a strategic vulnerability, the multitude of industrial inputs for which China is the major or sole supplier is.

Iron ore is among a handful of commodities for which China is, as McCormack says, as dependent on us as we are on it. Australia supplies about 70% of China’s iron ore imports and its big eastern steel mills couldn’t operate without them. Australia has also become a vital supplier of as much as half China’s LNG imports.

China’s apparent ban on Australian coal imports is unlikely to be long-lasting. Australia isn’t a pivotal coal supplier for the Chinese power industry, but it is for China’s steel mills, providing an average of 40% of their metallurgical coal and, in the first half of this year amid coronavirus interruptions to other suppliers, as much as 63%.

World Bank data on China’s trade dependence shows that Australia supplies 37% of China’s minerals imports overall. For most agricultural exports, with the exception of wool, Australian sales have ready substitutes. In total, Australia is the source of 4.9% of China’s goods imports.

The classic study of the use of trade as an instrument of power was by the German economist Albert Hirschman, who fled Germany for the United States before World War II. He developed his analysis based on Nazi Germany’s trade with southern and southeastern European nations.

The common feature for those countries was that Germany accounted for a huge share of their trade, but they represented only a tiny share of Germany’s trade. It is through the ability to interrupt trade or financial relations that one country exercises power over another.

Hirschman says the goal is to make it as difficult as possible for the smaller nation to replace the large one as a market or source of supply. That difficulty is a function of how much the smaller nation gains from the trade, the length and painfulness of adjusting to its loss, and the strength of vested interests in the smaller country.

The strategies large nations pursue to induce dependency include fostering vested interests, encouraging a wide gap between the pattern of production for exports and the pattern for home consumption, and importing goods for which there is little demand in other nations. These strategies fit well to China’s trade with Australia.

In a 1979 update to his 1945 work, Hirschman noted that the willingness to inflict deprivation is more easily quantified than the willingness to accept it, which is shaped by political resolve. The failure of 60 years of US sanctions on Cuba to bring the least change in its government policy highlights this.

The Australian government’s position is captured by the comments Prime Minister Scott Morrison made to radio station 2GB in June: ‘[W]e are an open trading nation, mate, but I’m never going to trade our values in response to coercion from wherever it comes.’

Australia’s resistance to Chinese coercion is helped by the relative weakness of the vested interests represented by the National Party. The Nationals had always held the trade portfolio until the precedent was broken by the Abbott government in 2013.

The Nationals had a succession of influential and able leaders throughout the post-war period. Arthur Fadden was treasurer, while John McEwen, Doug Anthony, Tim Fischer, John Anderson and Mark Vaile were all ministers of trade. None would have sat quietly musing on mutual dependence while core markets were threatened.

Gender equality offers a sizeable economic opportunity for any country. A government that hopes to achieve strong growth without tapping into women’s full potential is essentially fighting with one hand tied behind its back.

In fact, new research from the McKinsey Global Institute (MGI) finds that Asia–Pacific economies could boost their collective GDP by $4.5 trillion per year by 2025, just by accelerating progress towards gender equality. That would be the equivalent of adding an economy the combined size of Germany and Austria every year. The opportunity is especially large for India, where GDP would grow by as much as 18%.

Gender equality contributes to growth in three ways. According to MGI, 58% of the gains in the Asia–Pacific region would come from raising the female-to-male ratio of labour-force participation, 17% from increasing women’s work hours, and the remaining 25% from having more women working in higher-productivity sectors.

But equality at work goes hand in hand with gender equality in society. While there have been notable advances in girls’ education and health, women across the region remain subject to traditional attitudes that define their primary role as being in the home. As a result, women often lack access to the financing needed to start or expand a business, and to the training needed for the modern labour market.

To be sure, tackling gender inequality is a complex, long-term challenge that requires broad social engagement. But there are five areas in the Asia–Pacific region where governments, companies and non-governmental organisations could start to make meaningful progress.

The first is women’s participation in higher-quality jobs. While women currently account for half of the region’s population, they contribute just 36% of its GDP. But GDP does not account for the unpaid work that they do in the home, which could conservatively be valued at an additional $3.7 trillion of economic output.

Globally, the value of women’s unpaid work performed is three times higher than that of men, whereas in the Asia–Pacific region, it is four times higher. In some cases, the time that women spend on such tasks may be a personal choice. But true equality of opportunity eludes too many women who want to earn money outside the home.

This problem can be addressed in a number of ways, starting with more flexible workplace policies, affordable childcare, and expanded skills training, particularly in STEM fields (science, technology, engineering and mathematics). Moreover, in countries such as India and Indonesia, investment in infrastructure and transportation can reap dividends by connecting more women to productive work opportunities.

A second priority is to address women’s underrepresentation in business leadership circles. Globally, there are fewer than 40 women for every 100 men in leadership positions (including in politics), and in the Asia–Pacific region, that figure falls to around 25. Though the share of women sitting on company boards across the region did double between 2011 and 2016, from 6% to 13%, it remains far too small.

Breaking the Asia–Pacific region’s glass ceiling will require dismantling several barriers, including cultural expectations that women should prioritise childcare over their careers, a lack of suitable or affordable childcare, unconscious bias in the workplace, and a scarcity of role models and sponsors. But, most critically, too few companies in the region offer flexible working options.

A third priority is to improve women’s access to digital technology, which can open countless economic (and social) doors—including into finance. In fact, women have already begun to thrive in some of the region’s burgeoning digital industries. In Indonesia’s largest online marketplace, women-owned businesses account for 35% of total revenues. And in China, women found 55% of new internet businesses.

Building on these successes will require more training for women in the use of digital technologies. In Asia’s booming internet market, digital technologies could be a double-edged sword: if the gender gap is not closed, women will be left on the sidelines of the technology-driven revolution sweeping the region.

A fourth priority is to change social attitudes about gender roles. The traditional view that women belong in the home is arguably the largest barrier to women’s advancement in both society and the workplace.

The World Values Survey’s findings on this issue between 2010 and 2014 are revealing. Across the Asia–Pacific region, 44% of respondents said that men make better leaders than women. And 70% of Indian respondents—compared to just 21% of Australian respondents—agreed with the statement: ‘When a mother works for pay, the children suffer.’ Leaders in government, business, the media and individual communities need to work together to change such views.

The final priority is to pursue more regional collaboration to achieve gender equality. Public and private initiatives tend to work best when they are tailored to specific communities and countries. But regional partnerships that are established around shared goals could give national and local efforts more momentum.

For example, Asia–Pacific countries could come together to provide more financing for gender-equality initiatives, and to encourage more gender-based investment and budgeting. And, more broadly, governments could do more to share knowledge about which approaches work best.

The Asia–Pacific region is home to some of the world’s fastest-growing and most innovative economies. It is forging an exciting new future, and assuming an ever-greater global role. Yet women are not playing an equal part in this drama, as many leaders have come to realise. Now is the time to accelerate progress toward gender parity, and to women’s power to deliver growth and improve social wellbeing.