Pump and circumstance: is China the new OPEC?

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1:34The Economist

1:40Hello and welcome to The Intelligence from The Economist. I'm Rosie Bloor. And I'm Jason Palmer.

1:50Today on the show, Brazil's strict laws on hate speech and possibly the most important lager in the world.

2:06But first...

2:12The impact of this war continues to ripple across the world. Global oil prices jumped and stocks fell sharply on Monday in Asia. The conflict has so far had a dramatic effect on the price of oil due to fears that the US... Oil prices rose sharply again today, with Iran saying it would take decisive action in response. The Iran war triggered the largest supply shock in the history of oil. When the Strait of Hormuz became unpassable, 14 million barrels of crude a day were trapped inside the Gulf. Yet oil never reached the$150 a barrel many analysts predicted. In an attempt to keep up supply, Abu Dhabi and Riyadh increased the pipeline flow that bypassed the strait.

2:58America and Japan released emergency stocks. But prices would have rocketed further were it not for decisions taken in a more surprising place. Between February and April, China slashed its imports of crude oil by half. Mathieu Favaz is our commodities editor. And to give you an order of magnitude, it's more than 5 % of global demand. So it's a huge amount. It's so huge, in fact, that people think it's probably at$730 of the price of Brent, which is the global oil price benchmark. And why would China do something like that? It didn't do that in the interest of the global citizen. It did it because it was in its interest.

3:47And that's because before the war, China was the single biggest buyer of Gulf oil. And from late April, it stopped receiving cargoes from the Gulf because Hormus was closed. It needed that oil, but it realized it maybe did not need that much. And so by slashing its imports, it brought the price down and also the volumes were smaller. So its import bill was overall smaller than before the war. That's a massive cut in imports. How did it do that? In a few main ways. One thing to know first about China is that it has huge, absolutely massive stocks of oil. China has been building those stockpiles for years across a lot of other commodities too, from copper to grain.

4:29And that's to prepare for a time when a shock might be coming or they might be isolated themselves. In the 12 months to early 2026, it made the stocks even bigger by adding something like 200 million barrels to stocks that were already at around 1 billion barrels. And when the war started, first it stopped adding to the stocks. And because it was buying too much before, that already made a difference to the amount it imported. And then from late April, when the cargo stopped coming from the Gulf, it started drawing from these stocks. One thing to note is these stocks were not necessarily state-owned stocks.

5:06They were commercial stocks owned by profit-seeking divisions of big oil firms. But the biggest oil firms in China are all state-owned, so the distinction is not very clear. The other big lever is that in normal times, China refines much more oil than it consumes. It has the world's largest refining capacity, which means it can refine so much more than it needs. And all the success of oil products is exported to its Asian neighbors. And in March, it announced a ban on these exports. Not a blanket ban, but a pretty comprehensive one. And the effect of that is that it could use some of the crude oil it used before to produce exports for its own purposes.

5:48whether, you know, to make fuel or to make petrochemical products that it needs for its plastics industry, for example. So that's a very powerful second lever that China used to do that. So add these two, and you already have like a big part of the explanation for why it was able to slash its imports in such dramatic fashion. So a big cut in imports and exports. What effect did that have on China's economy? Well, you would have expected quite a big one, right? Because, for example, during COVID-19, oil consumption fell by quite a big amount. and the economy basically crashed. It was a deep recession.

6:22Here, we're not seeing that much of that. I mean, Chinese GDP is still going at 4.3 % in the last quarter, which is good enough. Inflation is under control. Consumer prices are, in fact, pretty weak. Producer prices are not rising as fast as we expected. So the overall macroeconomic impact is pretty limited, which is, again, remarkable. And Chinese demand? And Chinese demand also has fallen by quite a lot. And this is one of the most puzzling aspects of all that. You know, stocks you can understand, export controls you can understand, but domestic demand falling and no impact on the economy is really striking.

7:00And what we've seen, what we're starting to understand, is that there's been quite a big decrease in the use of motor fuels. So commuters, for example, in cities, they've stopped driving to work. Freight operators have switched to gas-powered trucks, electric vehicles. A lot of local governments have postponed or cancelled faster projects to save on diesel. So all that saves on fuel, basically, by probably double digit percent. And then another thing that's less appreciated is that China's massive petrochemical industry, it needs a lot of petrochemical products. And it has apparently managed to do without as much of them as before.

7:41And that's partly because it found new ways to produce these basic ingredients for its plastics, notably from coal and from other petroleum products that it had access to. So it found workarounds, and these workarounds seem to have worked. And the lesson is some of these workarounds, they've been invented during years where China was under pressure from Trump's tariff, for example. There's been a long history of trial and errors that explain why China has been in a position to be more flexible today. So a lot of cuts in activity and workarounds. Is all that sustainable? So China's been able to do it for a few months now.

8:20So it tells you that they can last some distance. And again, that's not like a miracle that's born out of today's necessity. It's a strategy that's been developed over a few years. It's billions in stead-backed investment in renewables, in green transport, that has made the energy system, the transport system much more flexible. So when a shock happens, demand can adapt in a way that we didn't think was possible. It's also because in recent years, there's been this phenomenon in China called involution, whereby there was overcapacity across a lot of industries. And the result from that is that there were stocks, not just in oil and crude oil and oil products, but also things like plastics or synthetic fibers.

9:00But the thing to say is, like all stocks, they're finite. So you're right. At some point, China will run into the problem that it won't be able to draw on buffers. But for now, showing that for a few months at least, it can survive a big shock. Mathieu, you've written about commodities for years. Is it ultimately a good thing that China is able to do this? So that's an excellent question, because typically, when China manages to corner big global markets that we care about, we don't like it so much. And that's because China, as in recent history, used that power to bully other countries. But in this case, it does look like China is on our side.

9:37It's on the side of the oil consumers. Because if you consider the alternative, for four decades, the oil markets have been, I wouldn't say managed, but have been under the influence of OPEC, the Organization for Petroleum Exporting Countries, and their allies, which includes most Gulf states, Russia, Iran. And their goal has been to keep prices high by cutting output. or sometimes they've flooded the market to try and crush the competition. These are all anti-competitive behaviors that we typically don't like so much at The Economist as a liberal newspaper. So we prefer when, like China, they are responsive to market signals.

10:14So if the prices are high, then they start releasing stocks. If prices are low, then they start buying more. That makes the market more efficient. It keeps prices at the right level. It's good for consumers. It encourages investment in new production when it's needed. So overall, it's quite a good thing. Fascinating. Mathieu, thank you very much. Thanks, Rosie.

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11:27Sessions average$21 with insurance and some pay as little as$0 depending on their plan. Visit growtherapy.com slash ACAST today to get started. That's growtherapy.com slash ACAST. growtherapy.com slash ACAST. Availability and coverage vary by state and insurance plan. I'm Jake Stouck, co-founder and CEO of Serval. We built Serval to automate the IT work that slows companies down. Onboarding, password resets, access to applications, my laptop stopped working. While employees wait for help, their real work is put on hold. IT desperately wants to automate this work, and that's why they need Serval.

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12:55Governments are showing more and more willingness to treat racist language as a crime. In recent years in Belgium, South Africa and Spain, landmark jail sentences for racist insults have been handed down. New laws prohibiting hate speech are on the books in Canada, Australia and Singapore. But it seems no country has gone, is going further than Brazil. In the past few years, the number of people prosecuted for racist speech in Brazil has skyrocketed. Ana Lankas is our Brazil bureau chief. But it's not that clear yet that it's doing that much to curb racial inequality or prejudice in the country.

13:33And as the rest of the world considers how to tackle hate speech, Brazil provides some useful lessons.

13:40Okay, for a start, Ana, just talk me through what the actual laws are in Brazil as regards racist speech. So racism in Brazil is banned under the country's constitution. And racism is defined as discrimination against a whole group. So, for example, if an employer says, I don't want to hire people of a certain ethnicity or race. Racist slurs were included under the country's penal code. So the bar for evidence was a little higher and the penalties weren't as high as in the Constitution. Because under the Constitution, it offers no statute of limitations and it's a non-bailable offense, meaning you cannot pay bail to avoid pretrial detention.

14:21What happened in 2021 is that the Supreme Court ruled in one specific case that a racist slur that a woman had said equaled racism. So racist slurs basically were the same thing as the constitutional crime of racism. And in 2023, Brazil's Congress made that law. And that's why you've seen this big increase in prosecutions against racist speech. What's happened in the past year is that several foreign tourists have been arrested for racist speech. And so that means that there's been far more publicity about this recently. So why is it that Brazil has gotten so serious about this? It's mainly an attempt to right a deep historical wrong.

15:05During the 350-odd years of the transatlantic slave trade, around 12 million Africans were trafficked to the Americas. and of those, 5 million disembarked in Brazil. That's more than anywhere else. So just to give you a sense of comparison, only around 400 ,000 people were disembarked in the United States. And Brazil was the last country in the Americas to abolish slavery in 1888 because it was so dependent on slaves for the economy. Slaves worked coffee plantations, they worked sugarcane plantations, They worked tobacco plantations, and they worked in gold and silver and diamond mines. In recent years, there's been a growing Black rights movement.

15:47And this has led most strikingly to far more Brazilians identifying as Black or Brown in the census. So before, most people in Brazil identified as white, even if they weren't white. And today, Black and Brown people make up more than half the population, which makes Brazil the biggest country with Afro-descendant people outside of Africa in the world. It's about 100 million people. And as regards these laws and what they're trying to do, you suggested earlier that they aren't necessarily tackling the structural problems. Yeah, that's right. So when I talked to supporters of these laws, they said it was really important to raise awareness around racist slurs so that people can see what racism looks like and sounds like.

16:30But I think the problem is that it doesn't, like you said, tackle the underlying problems that lead to deep racial inequalities in Brazil. I think Brazil's education system plays a far bigger role. So the gap between test scores of public and private secondary school students is larger in Brazil than anywhere else in Latin America and almost anywhere in the world. Rich Brazilians who tend to be white do everything they can to keep their kids out of the public school system. And poor grades for those who do attend public schools often mean that they can't go to good universities or study subjects that tend to lead to higher paying jobs.

17:06So I'll give you an example. One economist has calculated that differences in the field of study account for around a third of the difference in median earnings between black and white Brazilians. And then finally, even though Brazil's police forces are opening up units specialized in racist speech all over the country, they're still so brutal in ways that disproportionately affect black people. So Brazil's police kill about 6 ,400 people a year. Just to give you an idea, American police kill about a thousand people a year, and it's a much bigger country. And black Brazilians are three and a half times as likely to be killed by the police as white ones are.

17:44So these laws on racist speech are tackling a symptom, not the disease. Yeah, that's my worry, that they're not actually tackling the underlying root cause of inequality and prejudice. And rather than doing so, my fear is that Brazil's very muscular hate speech laws can basically end up undermining free speech. In May 2023, a court in Sao Paulo convicted a comedian, who's called Leonardo Lins, of using hate speech and racist speech. He's basically known for making very distasteful jokes and having a large social media following. And he was sentenced to eight years and three months in a high security prison in order to pay fines that amounted to over$300 ,000.

18:26It took three years for a higher court to overturn that conviction. But that shows you that these laws can give very activist judges a lot of free reign, and it can be too much sometimes. So just to give you an idea, there are over 900 people in Brazil serving sentences for racism and racist speech. And that number is expected to increase significantly as the number of prosecutions rise. I think we can all agree that racist abuse is absolutely vile. But the Brazilian example shows that it's not always a good idea to make it illegal and have extremely harsh penalties. I think other countries, when they think about how to tackle hate speech and racist speech, can maybe learn from Brazil what not to do.

19:11Anna, thanks as ever for your time. Thanks, Jason, for having me.

19:27Do you have the beer Lao? Yes. Can I have one beer Lao? One beer Lao, yes. There is one staple in Laos that can be found in glasses and bottles across the country. Beer Lao. Yeah. The beer probably matters more to its home country than any other beer in the world. Vishnu Padmanabhan is our Asia correspondent. Thank you, that's all. And even in Singapore, where I'm based, it's not yet widely available, but at this Laosian restaurant, customers are noticing the distinct qualities of this beer. They say that beer now is a bit smoother, lighter compared to normal type beers like Leo or Singha. But to them, they feel it's a bit more fruitier.

20:09So you can't really drink too much of it.

20:19Laos is a landmark country in the heart of Southeast Asia. Like its neighbours Vietnam and Cambodia, at one point, it too was under French rule. But since that ended more than seven decades ago, little French influence survives today in Laos. But Beer Laos is one legacy that continues to linger. In 1973, French and Laos businessmen founded a joint venture. This company would produce beer, which today is known as Beer Laos. And today, the company is also called the Laos Brewery Company, which sits in a different joint venture between the state and Danish beer giant, Karlsberg. Beer Laos everywhere in Laos.

21:01To people who have been to Southeast Asia, that won't be that surprising. Across the region, beers are linked to national identity. For example, Tiger Beer is Singapore's champion. There's Singa and Chang in Thailand. There's San Miguel in Philippines. But in Laos, Beer Laos takes on a whole new level of influence. Its branding is emblazoned on everything from t-shirts and billboards. But what has really helped has been Laos's prodigious thirst for beer. Laos is just home to 8 million people, but on a per capita basis, it's the biggest consumer of beer in Asia, more than Japan and South Korea even.

21:36And this has made it the second biggest Asian market for Carlsberg after China. And off this market, Beer Laos accounts for nearly 90 % of the beer consumed.

21:53So why is it so successful? Well, on a recent trip to Laos, I did some investigative reporting. And I found that the answer is simple. It's taste. European malt and hops are combined with locally grown jasmine rice, making a light, faintly sweet lager, often drunk with ice by locals. And this formula has won it international awards. On travel forums, backpackers swear by it. They love the taste and the price. A bottle costs around 20 ,000 kip, which is less than a dollar. In 2024, sales of beer Laos amounted to$600 million. In Laos, that is a lot of money, equivalent to some 3.5 % of the country's GDP.