Russia

China and Russia plan to start trading in each other’s currencies as the world’s second-biggest energy consumer and the largest energy supplier seek to diminish the dollar’s role in global trade.

China may start trading its currency against the ruble within weeks, three bankers with knowledge of the matter told Bloomberg, and sent out a document last week allowing lenders to apply for ruble trading licenses, one of them said. Russia’s Micex Stock Exchange is making preparations to trade the ruble against the yuan in an initiative that has the backing of the country’s central bank, Ruben Aganbegyan, the head of the bourse, told reporters at a conference in Moscow today.

“Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency,” Bhanu Baweja, global head of emerging markets fixed income, currency and credit research at UBS AG, said in a phone interview from London. “It makes sense for two large economies to exclude a third, overly dominant economy from their trading equation.”

In the wake of the global financial crisis, which forced the U.S. economy into recession, both China and Russia have called for the dollar’s role in the financial system to be diluted. Volatility in major currencies is putting the global recovery at risk Zhang Ping, the head of China’s National Development and Reform Commission, said last month. President Dmitry Medvedev last year suggested Russia, holder of the world’s third-largest foreign-currency reserves, reduce its holdings of dollar.

Yuan-Ringgit Trading

The People’s Bank of China started yuan trading against the Malaysian ringgit between banks on Aug. 19. It already allows trading of the renminbi versus the dollar, the Hong Kong dollar, Japanese yen and the euro on its interbank market and China’s Foreign Exchange Trading Center provides daily reference rates for these currencies. The yuan is a non-deliverable currency that is managed by the central bank to prevent volatility.

‘Fully Convertible’

The ruble, which Bank Rossii targets against a dollar-euro basket, is a “fully convertible” currency and some Chinese banks have already been allowed to open ruble trading accounts, Russia’s Deputy Finance Minister Dmitry Pankin told reporters in Moscow today. The opening of cross-currency trade between the yuan and the ruble is more important for China, he said. “They are gradually allowing more currency operations with yuan,” he said.

China overtook Germany as Russia’s second-largest trading partner in the first six months of the year, helped by exports of Russian commodities such as aluminum, nickel and oil and gas. Trade between China and Russia jumped 50 percent to $30.7 billion in the first seven months of this year, compared with the same period in 2009, China’s Ministry of Commerce said in a statement on Aug. 21.

The world’s fastest-growing economy is seeking to eliminate the need to convert yuan holdings in to dollars before converting in to rubles to pay for Russian commodities, Baweja said.

Dollar Elimination

“China wants to reduce the volatility in its access to primary goods,” he said. “They want to reduce their dependence on the dollar in trade transactions.”

HSBC Bank (China) Co. and Bank of Communications Co. completed the first yuan-ringgit transactions, according to the Foreign Exchange Trading Center, which is affiliated with the central bank. The central bank was investigating the possibility of offering new currency pairs on the interbank market, including ruble, won and ringgit, an unnamed official at the center said in April.

“Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”

News that Russia will load nuclear fuel rods into an Iranian reactor has touched off a countdown to a point of no return, a deadline by which Israel would have to launch an attack on Iran's Bushehr reactor before it becomes effectively "immune" to any assault, says former Bush administration U.N. Ambassador John R. Bolton.

Once the fuel rods are loaded, Bolton told Fox News on Friday afternoon, "it makes it essentially immune from attack by Israel. Because once the rods are in the reactor an attack on the reactor risks spreading radiation in the air, and perhaps into the water of the Persian Gulf."

Russian Prime Minister Vladimir Putin declared in March that Russia would start the Bushehr reactor this summer. But the announcement from a spokesman for Russia's state atomic agency to Reuters Friday sent international diplomats scrambling to head off a crisis.

The story immediately became front-page news in Israel, which has laid precise plans to carry out an attack on Iran's nuclear facilities while going along with President Obama's plans to use international sanctions and diplomatic persuasion to convince Iran's clerics not to go nuclear.

Bolton made it clear that it is widely assumed that any Israeli attack on the Bushehr reactor must take place before the reactor is loaded with fuel rods.

"If they're going to do it that's the window that they have," Bolton declared. "Otherwise as I said before, once the rods are in the reactor, if you attack the reactor you're going to open it up and radiation will escape at least into the atmosphere and possibly into the waters of the Persian Gulf.

"So most people think that neither Israel nor the United States, come to that, would attack the reactor after it's been fueled."

Bolton cited the 1981 Israeli attack on Saddam Hussein's Osirak reactor outside Baghdad and the September 2007 Israeli attack on a North Korean reactor being built in Syria. Both of those strikes came before fuel rods were loaded into those reactors.

"So if it's going to happen in Bushehr it has to happen before the fuel rods go in," Bolton said.

The conversation that touched off the de facto deadline for Israeli military action was a telephone conversation with wire services involving Sergei Novikov, a spokesman for Rosatom, the Russian Energy State Nuclear Corp.

Novikov said: "The fuel will be loaded on Aug 21. This is the start of the physical launch” of the reactor.

"From that moment the Bushehr plant will be officially considered a nuclear-energy installation," Novikov said, adding that the head of Rosatom, Sergei Kiriyenko, will visit Bushehr Aug. 21 to conduct a ceremony for the event.
According to Bolton, once the reactor is operational, it is only a matter of time before it begins producing plutonium that could be used in a nuclear weapon.

"And in the normal operation of this reactor, in just a fairly short period of time, you could get substantial amounts of plutonium to use as nuclear weapons," Bolton told Fox.

Russia, which is operating under a $1 billion contract with Iran, has spent more than a decade building the reactor. If Russia moves forward with its plan to fuel the reactor, it could be seen as a major setback to the Obama administration's strategy of engaging Russian leaders in order to win their cooperation.

"The U.S. urged them not to send the Iranian's fuel rods," Bolton said. "They did that. The Obama administration has urged them not to insert the fuel rods in the reactors, but as they've just announced that will begin next week. What that does over time is help Iran get another route to nuclear weapons through the plutonium they could reprocess out of the spent fuel rods."

The developments mean Israeli Prime Minister Benjamin Netanyahu soon may face a stark choice: Attack the Bushehr reactor in the next 8 days, or allow it to become operational despite the certainty it would greatly enhance Iran's ability to create nuclear weapons.

Russian leaders have said the Bushehr reactor project is being closely monitored by the International Atomic Energy Agency (IAEA), the UN's nuclear watchdog group. According to Iran's ISNA news agency, IAEA inspectors will be on hand to observe the fuel-rod loading process that is now scheduled to begin Aug. 21.

According to Russian officials, Iran has promised in writing to send all spent fuel rods from Bushehr back to Russia for reprocessing, to ensure they cannot be used for nuclear weapons.

Bolton said the reactor has been "a hole" in American foreign policy for over a decade.

The failure to demand it be shut down began in the Bush years, he said, and continues with the Obama administration "under what I believe is the mistaken theory that Iran is entitled to the peaceful use of nuclear energy."

"I don't think Iran is entitled to that, or I don't think we ought to allow it to happen, because they're manifestly violating any number of obligations under the non-proliferation treaty not to seek nuclear weapons. But this has been a hole in American policy for some number of years, and Iran and Russia are obviously exploiting it," Bolton said.

Russia’s move would put Iran "in a much better position overall," he said, adding, "I think this is a very delicate point, as I say, it closes off to the Israelis one possible target for pre-emptive military action.

Moscow, Russia (CNN) -- A quarter of Russian crops have been lost in the recent drought, leaving many farms on the brink of bankruptcy, Russian President Dmitry Medvedev said Thursday.

The government should prevent increases in the price of grain and fodder, which will eventually affect the prices of food products like flour, bread, meat, and milk, Medvedev said at a government agriculture meeting in the southern Russian region of Rostov.

"Right now, everybody is of course thinking about it -- farmers as well as officials responsible for agriculture," Medvedev said in comments broadcast on Russian state television. "But we also understand that regular people, too, are thinking about what will happen after this extremely tough summer, how it will affect the prices on staples food."

He said government authorities should closely monitor food prices on a daily basis, "otherwise there will always be someone who would want to capitalize on this situation. There are such cases already."

Large parts of Russia have suffered this summer from excessive heat, drought, and a spate of wildfires that have also created stifling smoke and smog. Hundreds have died in the combined disasters.

Alexander Frolov, who heads the Russian meteorological service Roshydromet, said this week that virtually no rain is forecast in Russia this month.

The situation is so bad in some regions that there is "no reason" to start planting winter crops, Frolov said.

Roshydromet forecasts a 30 percent drop in Russia's harvests due to the drought, he said.

Russian Prime Minister Vladimir Putin has already announced a ban on grain exports that will begin August 15 and could last until December 31, based on uncertainty over this year's farm production.

Some regions won't be sowing winter grain at all this year, he said.

A woman digs out potatoes Tuesday in her former garden, ravaged by wildfires that also burned her house, in Verkhnyaya Vereya village, Russia.

The scorching temperatures and dry skies threatening Russia's wheat harvests have also been beating down on Western Europe, which is forecasting lower output of crops from French wheat to Italian tomatoes.

Russia's Agriculture Ministry Tuesday cut its forecast for the country's 2010 grain output to between 70 million and 75 million metric tons, down from earlier estimates of as much as 90 million tons.

Weather forecasts don't see any imminent relief from record Russian temperatures of up to 40 degrees Celsius (104 degrees Fahrenheit). The weather has prompted wildfires that so far have claimed 40 lives, authorities say.

Western Europeans also expect their own markedly dry summer to cut a swath through the production of grain, fruit and vegetables this year. Economists forecast a boost in seasonal food prices, with the German government reporting a 12% to 15% rise in July.

Ben Lloyd-Hughes, a climate scientist at the University of Reading's Walker Institute in England, says pockets of Western Europe also are being affected by drought, but that Southwest Russia, Ukraine and Belarus are hardest hit.

"It is the lowest rainfall and the highest temperatures that the area has seen in the last 30 years or more," he said. "Droughts at this time of year in that region tend to reinforce themselves because the soil dries out, which subsequently makes the drought worse. The weather forecast for the next week is for more sun."

Russia's expected wheat shortfall has sent world prices of the grain soaring. France, Western Europe's biggest wheat producer, also could take a big hit.

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Dutch water authorities have increased inspection of the lowland country's system of dikes, which can sustain damage if they become too dry.

In the U.K., a 60-mile stretch of the Leeds-Liverpool Canal was closed because of low water levels, prohibiting boat traffic.

In the Lincolnshire region of England's East Midlands, farmer Tim Elwess is worried about his crop of beans, wheat and barley. With hay and grazing grass in short supply, sheep breeders are selling their flocks early, he said.

"It's certainly very dry, although not as dry as Suffolk: A friend I have there is pulling his hair out," Mr. Elwess said. "Sugar beets and maize have been badly hit, their winter barley has been ready a month earlier than normal, light land wheat is visually dead; and ungerminated maize seeds are not uncommon."

The unrelenting high-pressure fronts that settled over Northwest Europe in most of June and July have all but killed off production of wind power in Germany. Of the 26,000 megawatts of installed wind capacity in Germany, there was less than 1,000 megawatts being produced at times, according to an RWE Power spokesman.

While European consumers face higher grocery bills, the global impact of the European heat wave will come through the wheat market. The major source of uncertainty is the supply, or lack of it, from the Black Sea region, especially from Russia, Ukraine and Kazakhstan.

Russian President Dmitry Medvedev on Monday declared a state emergency in seven regions, including around Moscow. Some 300 to 400 new blazes are starting every day, said Vladimir Stepanov, head of the Emergency Situations Ministry's crisis center.

A forest fire in the Moscow region has engulfed a navy depot, burning up planes and aviation equipment, according to the investigative committee of the Russian prosecutor's office.

"As far as weather conditions go, unfortunately there won't be any positive dynamics, and this type of weather will persist to the end of the week, leading to a worsening of conditions on the ground," Mr. Stepanov said.

Wildfires raging across central Russia claimed 34 lives and blanketed cities in a smoky haze as drought and record heat cut crop yields, driving wheat prices as much as 19 percent higher last week.

About 156,000 firefighters are battling 693 blazes on more than 120,000 hectares (463 square miles), according to the Emergency Situations Ministry. Since the start of the fire season, 565,737 hectares have been consumed by flames, the ministry said in an e-mailed statement today.

In many regions, including Moscow, July was the hottest month since records began 130 years ago, and the heat wave will last at least through the end of this week, the state Hydrometeorological Center said on its website.

The sweltering summer has hit Russian agriculture, which accounts for 3-4 percent of gross domestic product, according to Aleksandra Evtifyeva, a Moscow-based economist at VTB Capital. Heat and drought have forced the government to declare states of emergency in 27 crop-producing regions.

The drought may reduce Russia’s grain harvest by 23 percent to 75 million metric tons this year, according to the Grain Union. Russian wheat prices increased as much as 19 percent last week, research group SovEcon said.

Russia on Tuesday blasted unilateral European Union sanctions imposed against Iran's energy sector as "unacceptable", saying the move showed a disregard for the UN Security Council.

"We have already said many times that we consider unacceptable the practice of unilateral or collective sanctions measures against Iran, that go beyond the Security Council sanctions regime in operation in the country," the foreign ministry said.

The statement came after EU foreign ministers on Monday formally adopted new sanctions on Iran's key energy sector in a bid to force it to return to talks on its controversial nuclear programme.

Iran is under four sets of UN sanctions over its refusal to heed repeated Security Council ultimatums to suspend uranium enrichment, the most controversial part of its nuclear programme.

Iran says that it is enriching uranium purely for peaceful use, but Western powers are concerned that it intends to develop a nuclear weapon.

Russia said Tuesday that the EU sanctions showed "disregard for the carefully regulated and coordinated provisions of the UN Security Council."

Both the EU and US sanctions "do not promote finding a speedy political and diplomatic resolution of the problem. For us this is obvious," the ministry said.

Russia "categorically rejects" any attempts to use sanctions against companies and individuals from third countries who are "conscientiously carrying out the demands of UN Security Council resolutions," it said.

Russians sweltered Friday in the hottest weather since the Stalin era as droughts caused crop devastation across the country and hundreds drowned in bathing accidents often influenced by alcohol.

Friday was expected to break a record in Moscow, topping 33 degrees Celsius, the highest temperature that day since 1938, according to the state weather centre.

At the weekend, the temperature was forecast by the state weather centre to hit 37 degrees in central Russia.

An emergency drought situation has been declared in 19 of Russia's 83 regions with crops dying on an estimated 9.6 million hectares of fields.

The drought-struck areas were suffering "colossal destruction," Agriculture Minister Yelena Skrynnik said Tuesday at a meeting with President Dmitry Medvedev.

The coldest place on earth in winter, Oimyakon in the Sakha region, was forecast to swelter at 32 degrees centigrade on Friday, the ITAR-TASS news agency reported.

In Moscow, people paddled in fountains to escape the heat and bought record amounts of ice cream.

"Sales of fruit lollies have gone up 10 times," the general director of the Union of Ice Cream Makers, Valery Elkhov, told the RIA Novosti news agency, with Muscovites gobbling 250 tons of ice cream per day.

Commuters in Moscow metro sizzled with temperatures inside some stations topping 29 degrees.

The Kremlin cancelled a weekly ceremonial performance by mounted troops from the presidential regiment, due to fears that the troops and horses would suffer in the heat.

Customers have flocked to buy air conditioners and fans to beat the heat in airless concrete office blocks and apartment buildings.

"The yearly stock of air conditioning systems and fans has already sold out, and we had to order extra," said Nadezhda Kiselyova, a spokeswoman for electronics chain M-Video.

"Over the past four weeks of unusual heat, the sales have been 10 times higher than last year's figures."

Gennady Onishchenko, the head of the state health and safety watchdog, called for Russians to take longer lunchbreaks to evade the midday sun.

"Given the heat, work could be carried out earlier or later while during the hottest hours of the day we can institute a prolonged pause," Onishchenko was quoted by state mouthpiece Rosskiskaya Gazeta as saying on Tuesday.

July could be a record-breaking month for Moscow, with the average temperature more than six degrees Celsius above the norm so far, according to the state weather centre.

The last records were set in 1972 when temperatures soared over 30 degrees for 13 days.

Alexei Lyakhov, the head of the Moscow and Moscow region weather centre, said in televised comments on Friday that temperatures would hit 36 degrees in Moscow on Saturday and no rain was expected over the next five days.

"It's very serious, very unfavourable weather, and I call for everyone to take care," Lyakhov said.