World

The billions in profits announced by TotalEnergies and Shell on Thursday have revived the debate over windfall taxes on the thriving energy giants.

As millions struggle with higher energy bills and inflation, there have been mounting calls for a much bigger tax to be placed on energy companies that have benefitted from price fluctuations.

In Paris, TotalEnergies said surging global oil and gas prices had helped it post a massive jump in profits in the third quarter.

In London meanwhile, British energy giant Shell announced net profit totalling $6.7 billion in the third quarter.

Net profits at TotalEnergies soared 43 percent from the same period last year to $6.6 billion, with record performances for its natural gas and liquefied natural gas (LNG) activities.

The firm has now earned $17.3 billion over the first nine months of the year, more than the $16 billion in profits it posted last year.

Shell’s result Thursday compared with a loss after tax of $447 million in the July-September period last year, the company said. 

Flush with cash from revenue surging to almost $100 billion, Shell said it would buy back shares at a cost of $4 billion.

Both sets of results will fuel raging debate over sizable profits by energy firms due to the spike in prices thanks to the Russian invasion of Ukraine.

– Pressing the giants –

In France, the leftwing opposition is pressing for a windfall tax to help fund measures to protect consumers from energy price hikes.

TotalEnergies has been plagued by strikes in France that have led to petrol shortages at pumps.

“Staff are right to call for a 10-percent wage rise” after TotalEnergies’ latest declared profits, tweeted the France Unbowed (LFI) deputy Thomas Portes.

And Patrick Kanner, head of France’s socialists in the upper house, the Senate, argued that TotalEnergies should play their part in the “national effort to allow the poorest to deal with the inflationary crisis”.

President Emmanuel Macron however reiterated his opposition to such a measure in a prime-time television appearance on Wednesday evening.

In Britain, Greenpeace UK made similar arguments about Shell.

“A proper tax on Shell’s reported Q3… profits as well as the billions made in Q1 and Q2 by all the fossil fuel giants would already have generated enough cash to insulate thousands of homes,” said Greenpeace UK’s senior climate advisor Charlie Kronick.

“Responding to the cost-of-living crisis is well within the government’s control.”

Britain’s new prime minister, Rishi Sunak, unveiled a windfall tax on the profits of British energy companies earlier this year when he was finance minister.

But campaigners say it was far too small.

– One-off bonus –

TotalEnergies reached a pay deal with most unions, but one has held out and two refineries remain on strike despite the government forcing some employees back to work under threat of jail time.

The company has also announced it would pay its workers a bonus, “an exceptional one-month-salary bonus in 2022 to all its employees worldwide” it announced Thursday.

Shareholders too will get 35 to 40 percent of cash flow, and a higher interim quarterly dividend than last year.

French Finance Minister Bruno Le Maire welcomed the company’s bumper profits, saying it would allow TotalEnergies to maintain its current discounted prices at service stations.

“When a French company succeeds, I think all of us should be satisfied with its success and we should all be proud of having a big energy company like Total,” he told BFM Business television.

But France’s Multinationals Observatory argued Thursday that TotalEnergies, which they say pays virtually no tax in France, should really pay between 40 and 65 million dollars tax this year.

While oil and gas prices have recently cooled, they are still much higher than before Russia launched its invasion of Ukraine in February.

The war has not been all a boon for TotalEnergies, which was involved in several gas projects in Russia.

It made a new $3.1 billion impairment charge due to its activities there, following write downs worth $7.6 billion in the first two quarters this year.

Despite slower global growth next year, TotalEnergies said it expects a cut of two million barrels per day by the OPEC oil cartel and its allies to support prices, as well as a European ban on Russian oil imports due to go into effect next month.

The European Central Bank announced another jumbo interest rate hike on Thursday and said further increases would follow to combat soaring inflation, even as its president, Christine Lagarde, acknowledged that a recession was looming.

The ECB’s 25-member governing council repeated last month’s move with another bumper increase of 75 basis points, leaving its three main rates sitting in a range of between 1.5 and 2.25 percent.

“We will have further rate increases in the future,” Lagarde said. “There is still ground to cover.”

The Frankfurt institution is under pressure to rein in record-high inflation, driven by surging food and especially energy prices in the wake of Russia’s war in Ukraine.

Eurozone inflation stood at 9.9 percent in September, nearly five times the ECB’s two-percent target.

Inflation “remains far too high”, Lagarde said.

Like other central banks, the ECB is fighting back with a series of rate hikes intended to dampen demand by making credit more expensive for households and businesses.

But higher borrowing costs also weigh on economic activity, and the outlook for the 19-nation currency club has deteriorated significantly.

“The likelihood of recession (is) looming much more on the horizon,” Lagarde told a press conference, while inflation may not have peaked.

“Obviously we’re concerned, particularly about those who have low income,” she said.

Capital Economics analyst Jack Allen-Reynolds said the pace of future hikes would likely be slower, predicting a 50 basis-point increase at the December meeting.

“If we are right that the forthcoming downturn will be deeper than most expect, policymakers might… become more cautious about tightening policy,” he said.

– Political grumbling –

Moscow’s decision to drastically curb gas supplies to Europe has triggered an energy crisis on the continent, fuelling fears of power shortages and sky-high heating bills this winter. 

As European governments race to unveil multi-billion-euro support measures to help citizens through a cost-of-living squeeze, the ECB’s response has faced criticism.

Italian Prime Minister Giorgia Meloni earlier this week said the aggressive rate hikes created “further difficulties for member states that have elevated public debt”.

French President Emmanuel Macron expressed “concern” that the ECB was “shattering demand” in Europe.

But Lagarde defended the bank’s third rate increase of the year, after a decade of historically low and even negative rates.

“The decision that we made today is the most appropriate in order to restore price stability,” she said, which is “critically important… also for the economy to actually prosper and recover”.

The former French finance minister also cautioned governments against adding to their debt pile, saying support measures should be “temporary and targeted at the most vulnerable”.

In response, Italy’s new Economy Minister Giancarlo Giorgetti struck a more conciliatory tone, voicing confidence in “the ECB’s wisdom to interpret the causes of the recent surge in inflation and to take into account the current slowdown in the European economy”. 

– Excess liquidity –

Also in focus on Thursday were the ECB’s plans to bring other monetary policy levers in line with its inflation-busting efforts, including slimming down its massive balance sheet.

The ECB announced it would tighten the conditions on the latest tranche of super-cheap loans issued to banks during the pandemic, known as TLTRO III, to incentivise earlier repayment.

Lenders are currently able to make an easy profit by parking their excess TLTRO cash at the ECB and pocketing the new, higher deposit rate — not a good look at a time when many consumers and companies are struggling.

Lagarde was also grilled by reporters on how the ECB intends to shrink its five-trillion-euro bond portfolio, after years of hoovering up government and corporate debt to keep credit flowing.

Given the economic uncertainty and the risk of rattling financial markets, analysts believe the start of any “quantitative tightening” — letting the bonds mature or actively selling them — is some way off.

Lagarde said the topic would be discussed in December.

IMF chief Kristalina Georgieva on Thursday said financial pledges for Ukraine by the United States and Europe should be sufficient to get Kyiv through 2023, assuming the war does not intensify.

“Yes, we would go to 2023 with sufficient financial support for Ukraine,” Georgieva told AFP on the sidelines of a conference organised by the European Commission, the EU’s executive arm.

“So when we look into next year, the numbers are significant, but they are not out of context of what has been done up to now,” she added, underlining that the outlook remains highly uncertain.

Ukraine’s financial situation is calamitous because of Russia’s invasion and President Volodymyr Zelensky has appealed to international backers to cover his country’s $38-billion budget hole for 2023.

Western powers insist that keeping the war-ravaged country on its feet is of historic importance, with German Chancellor Olaf Scholz calling for “a new Marshall Plan for the 21st century” at a conference on Ukraine earlier this week. 

– ‘Incredible resilience’ –

But questions linger over whether the Ukrainian economy can survive much longer if Kyiv’s allies don’t move faster.

Georgieva said the United States and EU have each pledged fresh funds to keep the Ukrainian budget afloat next year that should be enough for Ukraine, though the path of the war was unknown.

In a baseline scenario that she stressed was highly unstable, the IMF has put Ukraine’s financial monthly needs for 2023 at three to four billion dollars and possibly five billion dollars if the war’s destruction deepens.

“Where is the money? Well, the EU has committed 18 billion euros ($18 billion). This is a billion and a half a month for next year, the United States has committed $18 billion, 1.5 billion a month,” she said.

“And of course, at the IMF, we are working towards a programme for Ukraine. So based on the incredible resilience of Ukrainian people, the world has stepped up,” she said.

This year there has been $35 billion of international financing pledged, most of which has already been disbursed, Georgieva said.

For critics, any new commitments come with significant question marks. The EU, for example, has yet to fully deliver on the nine billion euros pledged for this year amid squabbling by member states over whether the aid should be in grants or loans.

Aid fatigue is meanwhile rearing its head in Washington where a leading Republican said the United States would no longer write a “blank cheque” to Ukraine after congressional elections on November 8.

“The Ukrainian government has done an amazing job in managing the economy to a point that some parts of it started growing again,” Georgieva said.

She praised the grit shown by Ukrainians in the war that “has made Ukraine a better country”, with deep changes such as accelerated advances in technology.

The Washington-based IMF says the Ukrainian economy will collapse by a staggering 35 percent this year with inflation soaring by 20 percent.

President Joe Biden was traveling to New York on Thursday to tout giant investments in semiconductor manufacturing, part of a final hour bid ahead of midterm elections to persuade Americans that the economic future is bright.

Biden, whose Democrats are forecasted to lose the House of Representatives and possibly also the Senate in the November 8 polls, was leaving the White House for Syracuse, New York, buoyed by new data showing that the overall economy rebounded in the third quarter, staving off fears of recession.

In New York, he will celebrate the pledge by Micron to pour $100 billion over the next two decades into semiconductor factories.

The project is part of a renaissance in high-end manufacturing that has been a cornerstone of Biden’s presidency — and he hopes will ultimately woo a broad section of voters to believe in the Democratic stewardship of the economy.

“For years, regions like central New York and the industrial Midwest have been hollowed out as manufacturing jobs have been shipped overseas. This administration is changing that,” the White House said in a statement.

In an indicator of how difficult the environment is for Democrats less than two weeks before voting day, even longtime stronghold New York is creaking. Governor Kathy Hochul, who will be with Biden in Syracuse, is among those finding herself in an unexpectedly tough race.

With time running out, Biden is leading an intensified campaign to paint Republicans as reckless and readying to slash social spending for the poor.

“The president will deliver remarks that contrast his vision for the economy with that of congressional Republicans, who want to raise costs for working people and put Medicare and Social Security on the chopping block,” the White House said.

Voter anger is largely driven by the highest inflation in four decades. The administration points out that many of the world’s big economies are suffering similar price rises, linked to the post-pandemic disruptions and the invasion of Ukraine by major energy producer Russia.

Biden got some good news before departure.

Gross domestic product rose at an annual rate of 2.6 percent in the July to September period, according to the latest Commerce Department data.

The better-than-expected performance was helped by strong trade, even as housing investment plunged and weaker consumer spending on goods casts a pall on growth as higher prices bite.

“Our economic recovery is continuing to power forward,” said Biden in a statement.

Closing in on his Twitter megadeal, Elon Musk said Thursday his goal is to enable “healthy” debate of ideas and counter the tendency of social media to splinter into partisan “echo chambers.”

The billionaire entrepreneur pursued the deal “because it is important to the future of civilization to have a common digital town square, where a wide range of beliefs can be debated in a healthy manner, without resorting to violence,” Musk tweeted on the eve of a court-imposed deadline to finalize the $44 billion purchase.

The Tesla boss’s on-again, off-again acquisition of the influential website appeared to be entering its final phase after Delaware Judge Kathaleen McCormick paused litigation on October 6 on a Twitter suit against Musk after he previously walked away from the deal.

Since then Musk has reportedly been lining up financing.

While there is always the chance of a last-minute curveball, more signs pointed to the deal’s likely closure.

The New York Stock Exchange posted a pending order to suspend trading in Twitter before Friday’s session.

Shares of Twitter — which vaulted higher after McCormick’s October 6 move — climbed 1.2 percent to $53.97 by 1500 GMT Thursday, not far below the $54.20 purchase price in Musk’s deal.

“We expect Musk and Twitter to officially close the deal by Friday morning with Cinderella finally getting the glass slipper that fits,” said Wedbush analyst Dan Ives. 

“We also believe the overhang on Tesla is now removed with Musk having likely sold stock this week to fund the rest of the Twitter deal.”

“I think on Friday, we’ll get an announcement that says that Elon Musk has purchased Twitter,” University of California, Berkeley law professor Adam Badawi told AFP.

But if the buyout fails to close by the end of the business day, the judge will likely “bring the hammer down” and head quickly to trial, Badawi added.

– ‘Chief Twit’ –

Musk originally agreed to the Twitter acquisition in April, but soon pulled back, saying in July he was canceling the contract because he was misled by Twitter over the number of fake “bot” accounts — allegations rejected by the company.

Twitter in turn sought to prove Musk, who also heads aerospace firm SpaceX, was contriving excuses to walk away simply because he changed his mind.

A trial on Twitter’s suit was scheduled for mid-October, but McCormick’s order gave the parties until 5:00 pm on October 28, 2022 to close the transaction.

Fresh questions about the combination surfaced last week following reports Musk planned deep staff cuts at Twitter and that US President Joe Biden’s administration was weighing a national security review.

But on Wednesday, Musk changed his Twitter profile to “Chief Twit” and posted a video of himself walking into the company’s California headquarters carrying a sink.

The South African-born serial entrepreneur cuts a polarizing figure in American business, with supporters cheering his disruptive spirit and execution prowess at Tesla and detractors criticizing him as a megalomaniac with a potentially dangerous tendency to wade into geopolitical topics in which he lacks expertise, such as the Russia-Ukraine conflict. 

In his latest statement Thursday, Musk said much of the public speculation about his intentions in the deal had been “wrong” as he insisted his goals were noble.

In pursuing Twitter, “I didn’t do it because it would be easy. I didn’t do it to make more money,” Musk said. 

“I did so with humility, recognizing that failure in pursuing this goal, despite our best efforts, is a very real possibility.”

The US economy rebounded in the third quarter, expanding for the first time this year in welcome news for President Joe Biden days ahead of midterm elections, government data showed Thursday.

Economic issues have become a flashpoint in the United States, with decades-high inflation weighing on growth and squeezing households.

Fears of a downturn have intensified in the world’s biggest economy after two quarters of negative growth, commonly viewed as a strong signal that a recession is underway — a trend that would have global consequences and domestic political costs.

But gross domestic product rose at an annual rate of 2.6 percent in the July to September period, according to the latest Commerce Department data.

“Our economic recovery is continuing to power forward,” said Biden in a statement.

But officials need to “make more progress” on bringing down high costs for American households, he added.

On Thursday, mortgage rates surged past seven percent for the first time in two decades, according to the closely watched Freddie Mac survey, piling further pressure on potential homebuyers.

The better-than-expected GDP performance was helped by strong trade, even as housing investment plunged and weaker consumer spending on goods casts a pall on growth as higher prices bite.

Industrial supplies and materials, notably petroleum and products, kept exports robust.

In consumer spending, an increase in services was “partly offset” by a drop in products like motor vehicles and parts, along with food and beverages, data showed.

– ‘Unsustainable’ –

The leap in exports is “unsustainable,” as a strong dollar and weak global growth will pose constraints moving forward, cautioned Ian Shepherdson of Pantheon Macroeconomics.

A fall in imports that helped net trade also marks a reversal of earlier inventory rebuilding, but that is now over, he said.

“We’re relying on better consumption, rising government spending, and… investment to keep GDP in the black,” he added.

Overall, personal consumption expenditures — a key segment of the economy — grew 1.4 percent, slower than before.

The US economy shrank 0.6 percent in the second quarter, according to revised numbers, after a larger decline in the first three months this year.

Biden has insisted that the economy is on the right path, but analysts warn of risks ahead, as households grapple with soaring prices and draw down on their savings.

– Risks ahead –

Republicans have blamed Democrats for worsening price spikes through runaway spending, though inflation is a global issue that presidents have limited power over.

Analysts see a slowdown in growth in the coming quarters, with the possibility of a recession in 2023.

“This will likely be the only positive quarter for the entire year,” said economist Diane Swonk of KPMG in a tweet.

While there is still some momentum in household spending and a rebound in business investment, there is also “ongoing weakness in residential investment,” added Rubeela Farooqi of High Frequency Economics.

There are particular risks to consumption “as households continue to face challenges from high prices and likely slower job growth going forward,” she said in an analysis.

Households have been reeling from decades-high inflation, with prices soaring on supply chain snarls due to Covid-19 lockdowns and fallout from Russia’s invasion of Ukraine, which sent food and energy costs rocketing.

To lower price pressures, the US central bank has embarked on aggressive rate hikes, walking a tightrope as it tries to avoid tipping the economy into a recession.

Already, there are signs of stress, such as a hit to the more interest-sensitive housing sector.

Rates on popular 30-year fixed mortgages have also rocketed to 7.08 percent according to Freddie Mac, as the Federal Reserve’s moves ripple through the economy.

Policymakers are expected to press on with rate increases at a meeting next week, in the face of persistently high prices.

Israel and Lebanon struck a US-brokered maritime border agreement Thursday that opens up lucrative offshore gas fields for the neighbours that remain technically at war. 

US President Joe Biden hailed the “historic” deal that comes as Western powers clamour to open up new energy  production and reduce vulnerability to supply cuts from Russia. 

The agreement was signed separately by Lebanon’s President Michel Aoun in Beirut and by Israel’s Prime Minister Yair Lapid in Jerusalem, and went into effect after the papers were delivered to mediators.

“Both parties took the final steps to bring the agreement into force and submitted the final paperwork to the United Nations in the presence of the United States,” Biden said in a statement.

Israel’s arch-foe, the Lebanese Hezbollah group, said it would end its “exceptional” mobilisation against the country, after threatening to attack Israel for months should it reach for offshore gas reserves at the border before the deal was signed.

“Our mission is complete,” Hezbollah leader Hassan Nasrallah said in a televised speech.

The deal comes as Lebanon hopes to extract itself from what the World Bank calls one of the world’s worst economic crises in modern history, and as Lapid seeks to lock in a major achievement days ahead of a general election on November 1. 

The exchange of letters was held in the southern Lebanese border town of Naqura, in the presence of US mediator Amos Hochstein and UN Special Coordinator for Lebanon Joanna Wronecka, who will now deposit the new maritime coordinates at the UN headquarters in New York.

– Delicate dance –

Biden said that “energy — particularly in the Eastern Mediterranean — should not be a cause for conflict, but a tool for cooperation, stability, security and prosperity.  

“This agreement takes us one step closer to realising a vision for a Middle East that is more secure, integrated and prosperous, delivering benefits for all the people of the region.”

Hours before signing it, Lapid had claimed that Lebanon’s intention to ink the deal amounted to a de-facto recognition of the Jewish state.

“It is not every day that an enemy state recognises the State of Israel, in a written agreement, in front of the entire international community,” he said.

Aoun denied Lapid’s assertion, countering that “demarcating the southern maritime border is technical work that has no political implications”.

The deal comes as political parties in Israel — including Lapid’s centrist Yesh Atid – jockey for position in what will be the fifth general election in less than four years.

Veteran right-winger and longtime premier Benjamin Netanyahu has his sights set on a comeback and he dismissed the maritime deal as an “illegal ploy” early this month.

London-listed Energean on Wednesday said it began producing gas from Karish, an offshore field at the heart of the border agreement, a day after Israel gave the green light. 

Lebanon meanwhile will have full rights to operate and explore the so-called Qana or Sidon reservoir, parts of which falls in Israel’s territorial waters, with the Jewish state receiving some revenues.

– No quick fix –

With demand for gas rising worldwide because of the energy crisis sparked by Russia’s invasion of Ukraine, Lebanon hopes that exploiting the offshore field will help ease its financial and economic crisis.

But analysts caution that it will take time for production to start in Lebanese waters, meaning no quick return for a country that is desperately short of foreign exchange reserves. 

Exploration has so far only been tentative — a 2012 seismic study of a limited offshore area by the British firm Spectrum estimated recoverable gas reserves in Lebanon at 25.4 trillion cubic feet, although authorities in Lebanon have announced higher estimates.

The maritime border deal could not have been signed by Lebanon without the consent of Hezbollah, a powerful Shiite faction backed by Israel’s arch nemesis Iran.

Hezbollah leader Nasrallah said that the deal “is not an international treaty and it is not a recognition of Israel,” while hailing it as a “great victory for Lebanon”.

Israel and Hezbollah fought a 34-day war in 2006 and the Shiite movement is the only faction to have kept its weapons after the end of Lebanon’s 1975-1990 civil war.

On July 2, Israel said it had downed three drones launched by Hezbollah that were headed towards the offshore field of Karish.