Europe Carbon Fraud, Iran Fertilizer Squeeze, AI Bond Boom

Energy markets ran on three storylines today. A long running scandal over Chinese carbon credits sold into Europe got a new chapter. The Iran war kept squeezing oil, gas, and now sulphur. And the AI buildout kept pulling capital into long dated bonds. Each thread has different drivers but they share one feature: rules and prices that worked last cycle are starting to fail.

Empty projects, real credits

Bloomberg reporters and BloombergNEF analysts visited sites in central China that were supposed to host carbon capture projects. At several locations they found nothing. In one case a project that claimed close to 120,000 tons of avoided CO2e was still under construction, with no capture equipment installed. Filings had been logged with authorities in Austria, Poland, and Luxembourg between 2021 and 2023.

The bigger picture is uglier. German authorities reviewed 45 carbon offset projects sold into the country’s upstream emissions reduction (UER) scheme and called them “suspicious.” Two thirds had their credits withdrawn. 30 invalidated projects had claimed 2.1 million tons of CO2 savings, roughly the annual emissions of half a million cars. The buyer list reads like an oil major roll call: BP, Shell, TotalEnergies, ExxonMobil, OMV, MOL, Vitol, EDF, and the German subsidiary of Rosneft.

None of those companies face penalties. The credits were bought in “good faith,” which is how the system was designed to work. The fraud probe against employees at the European verification bodies closed in January for lack of evidence. The companies running the projects cannot be prosecuted under German criminal law. The credits are voided. Nobody pays.

The investigation found similar patterns in at least nine European countries beyond Germany, with around 500,000 tons of suspect credits sold elsewhere. The implication is plain. If carbon markets cannot tell whether a project exists, the price of a ton of CO2 carries no useful information. That weakens compliance schemes, voluntary markets, and the upcoming UN country to country trading mechanism scheduled for this year.

Iran war reaches the field

Energy stress is moving past oil and gas. Fertiliser groups are cutting production because sulphur supplies are tight, and sulphur is tight because the Iran war is disrupting refining flows. Phosphate output drops with it. Farmers in poorer countries are already cutting how much they apply per hectare, which lowers yields next season. The cost shows up months later in grain prices and food inflation.

Meanwhile two LNG tankers and a crude carrier crossed the Strait of Hormuz over the weekend without incident. Markets read those passages as a sign the chokepoint stays open under the current rules of engagement. Traders are pricing a swift end to the war. That is one scenario. The harder one is a second inflation wave driven by a longer fight, where energy, fertiliser, and food chain costs reset higher and central banks lose the cover to cut.

Exxon bets on capture, with friction

ExxonMobil is pushing to build the largest carbon capture business in the world, with multi billion dollar investments concentrated on the US Gulf Coast. The technical thesis is straightforward. CO2 from refineries, chemical plants, and natural gas processing gets piped to underground storage. The economics rely on the section 45Q tax credit and on industrial offtakers paying for capacity.

The friction is local. Communities along the Gulf are pushing back on pipeline routes, pore space rights, and the long term liability of stored CO2. A storage system that needs to hold for centuries leans heavily on monitoring and on whoever inherits the obligation. The same trust problem that hit Chinese offset projects scales here, just with concrete tanks and permits instead of drone footage.

Tech borrows what oil used to borrow

US tech giants are issuing record amounts of investment grade debt to fund AI data centre buildouts. The bond market is taking it. Capex cycles that used to define oil supermajors, telecoms, and utilities now define Microsoft, Alphabet, Meta, Amazon, and a smaller cluster of hyperscalers. SpaceX is part of the same flow at a different scale.

The catch is duration. Data centres take three to five years to come online. GPUs depreciate in three. Power contracts span twenty. A debt stack tuned to long lived assets sits on top of compute that turns over fast. If utilisation forecasts drift below plan, those bonds reprice. The European Central Bank has summoned banks to a meeting on flaws that the latest AI models expose in risk and credit systems. Supervisors clearly see the same mismatch on the lending side.

What to watch

• Whether the EU tightens audit rules for offset projects before the UN country to country mechanism goes live. Without independent verification, the new system imports the old failure modes.
• Sulphur and phosphate prices over the next sixty days. A sustained spike feeds into food inflation with a six month lag, hitting emerging market central banks first.
• The spread between hyperscaler bond yields and treasuries. If it widens fast, the AI capex narrative changes from “tap the market” to “ration capital.”

Three stories, one common thread. Verification systems built for a slower, simpler world are creaking under the load. Carbon credits trusted a paper trail. Fertiliser supply trusted a Persian Gulf that stayed boring. AI bond stacks trust a utilisation curve nobody has actually seen yet. Each leans on assumptions the next quarter will keep testing.