[PRIMER] Shanghai Cooperation Organization (SCO) Summit on September 15-16th (REPOST)

Analysis details (08:32)

OVERVIEW: The Shanghai Cooperation Organisation (SCO) members include China, Russia, India, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Uzbekistan, and Iran (ascended this year). The group accounts for around a third of the world’s land, with exports in the trillions of Dollars. Several themes will be eyed as “anti-West” leaders gather in Uzbekistan, namely the theme of de-dollarisation alongside sideline meetings between Chinese President Xi and Russian President Putin, whilst Iranian bilateral and multilateral talks will also be eyed as its nuclear deal talks with the West have seemingly been less constructive.

AGENDA: An official schedule has not yet been released on the SCO website or the West. NewEurope reports that “Thirty coordinated documents have already been prepared, which are aimed at strengthening the multifaceted interaction of the SCO… the final document that will be issued at the conclusion of the summit and which will reflect the common agreements by all of the SCO countries.”

According to Tass:

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  On September 15th, "Putin is scheduled to meet with foreign leaders in bilateral and multilateral formats, he will talk with the presidents of Kyrgyzstan Sadyr Japarov, Turkmenistan Serdar Berdimuhamedov, Uzbekistan Shavkat Mirziyoyev, Iran Ebrahim Raisi, Pakistani Prime Minister Shahbaz Sharif and Chinese President Xi Jinping. In addition, a trilateral Russia-Mongolia-China summit will be held on September 15 with the participation of heads of state."


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  On September 16th, "the Russian leader will take part in a meeting of the SCO Council of Heads of State in narrow and extended formats. Putin is expected to set out in detail his vision of the tasks facing the organization and propose some measures to improve its activities... The Russian President will hold bilateral meetings with Turkish leader Recep Tayyip Erdogan, Indian Prime Minister Narendra Modi, and Azerbaijani President Ilham Aliyev."

THEMES/MEETINGS TO OBSERVE

DE-DOLLARISATION: The overarching theme of the summit from a market perspective will likely be the process of replacing the USD for trade settlements. Although the theme itself is not surprising and is more of a longer-term setup, it will likely attract attention. In September, a long-term contract was signed for China National Petroleum Corporation (CNPC) payments to Gazprom to be split into CNY and RUB – a 50/50 ratio. According to SGH Macro, China has pressed Saudi and other Gulf countries to follow similar agreements. Citing sources, SGH Macro says “Beijing would be to start trading crude oil and other commodities with RMB quotas, which would be expanded each year until it became the main settlement currency with Riyadh in bilateral trade”, with an initial quota of some USD 15-20bln vs USD 90bln total trade between the two countries last year. Note, in March, WSJ citing sources suggested Saudi is in active talks to price some oil sales in Yuan amid anger with Washington over US’ security commitments to defend the Kingdom.

CHINA-RUSSIA: One of the main focal points of this summit is the touted meeting between Chinese President Xi and Russian President Putin – the first face-to-face between the leaders since Russia’s invasion of Ukraine. Ties between the nations have been warming, with China refusing to condemn Russia for the commencement of the war, whilst Russia has been increasing its exposure to the Yuan via reserves and gas deals in a bid to circumvent western sanctions. From a military perspective, reports via the Kremlin have also suggested Putin has attended large-scale exercises involving Chinese forces and militaries of several Russian-friendly countries, which comes at a time of heightened tensions between China and Taiwan. The two leaders, was expected, reaffirmed their commitment to deepening ties whilst criticising the West (see below). Interfax released an agenda for the sideline meeting, with no timing. Russian presidential aide Ushakov was asked whether any agreements in the energy sector could be signed with China at this meeting. "I think not. This is a meeting within the framework of an international forum." he said. The topic of Ukraine, Taiwan and trade are expected to be discussed. 

The two leaders met on September 15th, President Putin told Chinese President Xi that he is confident that our meeting will give further impetus to deepening the Russia-China partnership, and condemn US provocations with regards to Taiwan. Xi told Putin that China is prepared to work with Russia to instil stability and positive energy into a chaotic world. The most notable comment was Putin suggesting Russia-China trade is to reach new record levels in 2022, and top USD 200bln in the future, via Sputnik - "Last year, trade increased by 35% and exceeded USD 140bln. Over the first seven months of this year, the volume of mutual trade increased by another 25%. I am convinced that by the end of the year, we will reach new record levels, and in the near future, as agreed, we will increase the annual trade turnover to USD 200bln or more," Putin said.

OTHERS

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  IRAN/PARTNERS: The recent optimism on progress regarding the Iran nuclear deal once again proved to have been misplaced. France, Britain and Germany said Iran’s latest responses to the EU raised serious doubts about its intentions to return to the nuclear deal and that Iran’s position is incompatible with international obligations. Iran suggested it expects to hold bilateral and multilateral meetings between President Raisi and some of the SCO member-state presidents. Potential discussions between Iran, Russia, China and India could be of note, particularly from an oil or weapons supply angle and the subsequent impact on relations with the West.


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  RUSSIA-TURKEY: The grain-export agreement (signed by Ukraine, Russia, Turkey, and the UN) will be a topic of discussion between the two presidents, according to reports. Russian President Putin and Turkish President Erdogan are to also discuss deliveries of Russian gas and partial payments in TRY and RUB, according to Sputnik sources.


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  RUSSIA-INDIA :Russian President Vladimir Putin and Indian Prime Minister Narendra Modi will meet on Friday to discuss trade, Russian fertilizer sales, and food supplies, BNN sources say. “There are plans to discuss issues of ‘saturation’ of the Indian market with Russian fertilisers and bilateral food supplies.", according to BNN citing the Kremlin.

16 Sep 2022 - 08:28- Fixed IncomeEconomic Commentary- Source: Newsquawk