Weekly Risk Outlook

Weekly Risk Outlook
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Petrobras releases audited financials. EU prepares Google antitrust case. US Senate considers new legislation. Eurozone and Greece get ready for Riga meeting. Oil companies and associated government officials meet to discuss pricing strategies. All this in GRI’s Weekly Risk Outlook.

Brazilian Oil Giant Reports Earnings Amid Deepening Political Scandal

On Wednesday, the Brazilian national oil company Petrobras is expected to release 3rd quarter and full-year 2014 audited financial figures.

PWC, the auditor of the firm’s finances, refused to release figures in November over concerns that the ongoing bribery and money-laundering scandal had taken a significant toll on the credibility of the firm.

The “Operation Carwash” scandal, which has seen prominent figures from across the political spectrum placed under investigation or indictment, took another turn last week when Workers’ Party treasurer Joao Vaccari was arrested for accepting illicit payments from Petrobras associates.

The increasingly close connections to President Rousseff have created significant instability, and in many cases paralysis, for Brazil’s political environment.

The political scandal has also weighed on Petrobras stock shares. The value of Petrobras stock has fallen 41% since the beginning of the scandal, and as a large proportion of Brazil’s oil potential lies in expensive, offshore “pre-salt” fields, the investment rate and outlook of the firm were reduced by Moody’s to junk in February.

Proceedings Set to Begin on EU Google Antitrust Case

This week marks the first of a ten-week process in which Google may deliver remarks regarding the EU Commission Competition division’s Wednesday Statement of Objections to Google’s allegedly anti-competitive practices.

From there, the Commission will formally proceed with its investigation, which may end with fines and/or regulatory moves. If the case against Microsoft is any indication, the Google-EU affair will be very drawn out and very expensive (the Microsoft cases cost Microsoft $2.1 billion).

Complaints against Google began reaching the Commission during the Nellie Kroes era (2004-2010) that it was abusing its near-monopoly position by taking advantage of Google-related search results.

Other complaints relating to its Android services may be added to the Commission’s charges.

The Competition Commission has historically been very willing to progress on anti-competitive operations of companies in the EU with its most notable case being when it blocked the merger of two US companies, Honeywell and GE.

The independence of the Competition office has grown considerably since Commissioner Kroes’ significant work, and the division will likely pursue the Google case very aggressively.

U.S. Senate Legislative Storm Continues This Week

The U.S. Congress is not known for acting particularly quickly or decisively, but following last week’s committee vote on a Congressional Iran sanctions oversight bill and the introduction of trade promotion authority legislation, the Senate again appears poised to move quickly on a number of pieces of legislation crossing several policy areas.

In trade policy, the Senate Finance Committee will hold a markup on Thursday of last week’s trade promotion authority bill, where it will likely receive the support of all Committee Republicans and between 5 and 8 Committee Democrats, for a likely tally of 19-23 in favor, 3-7 against.

This bill will allow the President to finally conclude Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP)  negotiations.

The Senate may also take up legislation among a package of legislative bills on a 10-year renewal of the Africa Growth and Opportunity Act (AGOA), which is set to expire in September.

However, criticism from Senators Isakson (R-GA) and Carper (D-DE) that South Africa was unfairly limiting U.S. poultry exports could significantly slowdown the otherwise very bipartisan measure.

Euro Meeting in Riga Could Be Last Shot for Greek Deal

On Friday, the Eurogroup will meet in Latvia to discuss the Greek debt crisis, as well as other Eurozone matters. Markets have become increasingly concerned that a Greek exit from the Eurozone may occur in mid-May, though Greek officials have denied that possibility.

It is becoming increasingly difficult to find an effective solution to Greece’s financial issues that will be amenable to all parties. The German delegation has become further disenchanted with the Greek government’s approach, reflecting rising impatience from German citizens regarding its southern neighbor.

Greece is running out of money, and the IMF has also lost patience with Greece.

President Obama indicated in a press conference with Italian Prime Minister Renzi that Greece would have to make “tough choices” to get out of this situation, and last week IMF Director Christine Lagarde indicated that an advanced economy asking for a delay in debt repayment has not occurred and that she “would not support it.”

Lagarde has faced criticism from developing countries that Greece has received special treatment, a charge she has denied but has likely weighed on her toughening stance.

Ultimately, all major players in this game are facing pressures to harden their stances, making compromise increasingly unlikely.

Friday’s meeting will serve as an indication on which of the players (if any) proves willing to concede.

Energy Conference in Houston Draws Government Officials and Oil Experts 

Running from Monday to Friday, IHS Energy will host its CERAWeek.

The conference will largely focus on the precipitous fall in oil prices over the past six months, and will explore “strategies, risks and opportunities, and costs and supply chain” issues relating to low oil prices.

Panelists at the weeklong event will include the CEOs of ConocoPhillips, ExxonMobil, TOTAL, YPF, ENI, and BP. The conference will also host the Energy secretaries of Mexico, the United States, and Canada, as well as the U.S. Interior Secretary.

Senate Energy Chair Lisa Murkowski is also slated to address participants. Murkowski has placed increasing pressure in her committee and the wider Senate to revoke the 40-year ban on U.S. crude oil exports, which could alter energy dynamics as well as geopolitics in Europe and the Middle East.

The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes. 

The Weekly Risk Outlook is written by GRI analyst Brian Daigle.

Categories: Politics, The Week Ahead

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