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The Morrison government might be busy warning the Tsar over Russian threats to invade Ukraine, but Australia’s fossil fuel companies might not be too upset to see a continuation of tensions in Eastern Europe.

Fossil fuel companies like Woodside, Santos, Origin, Chevron, Beach Energy (30% owned by Kerry Stokes’ Seven Group Holdings), Glencore, Whitehaven and a host of small thermal coal miners such as the Chinese-controlled Yancoal Australia, Stanmore Resources, New Hope and Coronado Global Resources are already benefiting from the tensions over Russia’s build-up of forces on the borders of Ukraine, which have forced up energy prices.

As an energy exporter, Russia benefits from the very geopolitical tension it is creating. But so do we. Liquefied natural gas (LNG) is costing around $US25-30 per million British thermal units (BTU). It was below US$20 as recently as August. At the end of 2021, the price of thermal coal exported through Newcastle (tracked by the ICE Newcastle Coal Index) was around $US136 a tonne. The price last week was $US258 a tonne, which is down to the fears about Russia’s actions around Ukraine, the shortage of gas in Europe, and that Russia could cut gas supplies into the European Union and nearby markets.

The Australian Bureau of Statistics’ International Trade in Goods and Services data for December 2021 shows total resources and energy exports were worth $348.9 billion in the 12 months to December, up 29% from 2020. Coal was a major contributor, with exports totalling $23.8 billion in the three months to December 2021 — a massive 156% higher than for the same period to December 2020. LNG was up 148% to $18.3 billion in the three months to December 2021 when compared to the same three months of 2020.

The benefits to tax revenue, however, are limited — as Crikey showed last December, the big fossil fuel companies pay little or no tax, not even the increasingly farcical Petroleum Rent Resource Tax.

But Australia does gain some benefit — higher prices for oil, gas, and thermal coal are helping keep Australia’s terms of trade aloft despite the slide in iron ore prices last year. That means nominal GDP will be higher than expected before the unexpected positive impact of the 50% rise in iron ore prices since last November.

And more than 10 million Australian workers with investments in these companies via superannuation funds also draw some long-term benefit.

Another likely beneficiary is Australia’s big banks.

The surge in energy prices has boosted consumer and business inflation around the world, on top of rising prices caused by supply shortages of key products, such as computer chips of all types, plus shortages of shipping containers. And that’s great news for banks because it has brought forward the normalisation of monetary policy around the world, with the big move coming from the US Federal Reserve in March. Banks here in Australia are pressuring the Reserve Bank of Australia (RBA) and everyone else to think rates will rise from midyear onwards.

Why do banks want rates to rise? Because rate rises will slowly stop the rot in their key profit measure — the net interest margin (NIM), which contracted sharply across the board in 2021 as competition in home lending stepped up and banks started cutting rates to compete. Record low rates generally, though, saw the banks trim deposit rates to ultra-low levels, but the banks were still swamped with around $300 billion in deposits and pre-payments by mortgage holders looking for safety in the COVID pandemic’s first waves.

A series of rate rises will allow banks to quickly lift their variable home rates, giving them much greater capacity to start expanding their NIMs, and thus their profits.

If conflict does erupt in Ukraine, and there’s an even bigger spike in energy prices, the result could be a widespread slowdown, once again delaying the global recovery from the pandemic. But as a net energy exporter, and with China’s continued reliance on both our iron ore and, indirectly, our coal, Australia is well placed to ride out any problems.