The drive for oil independence is not a new one; those who are old enough may remember the oil crises of the 1970's. Back then President Nixon was singing the same tune as Bush when he called for drastic measures to curb America's addiction to foreign oil. Sadly for the Unites States, Nixon's big words never amounted to anything. The same story risks unfolding once again, unless the US undergoes a fundamental political and cultural shift.
America consumes upwards of 50 million barrels of oil per day. Reducing this number does not only require fundamental technological innovation and implementation, but also a whole new cultural mindset. Bioethanol is heralded as the new miracle drug capable of curbing America's addition to foreign oil. Bioethanol is a fuel that can be derived from corn, sugar and other various crops. It is also a significantly cleaner fuel, and in that respect bioethanol can help in the greening of America's oil economy and give a viable boost to the American heartland.
However, as crops become part of a fuel economy, commodity food prices are destined to become evermore interlinked. Besides food prices going up as food crops are turned into bio-fuels, the volatility of the energy market as a whole is going to rub off on the commodity market. This is bad news for consumers and industry alike, not to mention the poor. This in turn will, and already has, affected the self sufficiency of crop production: the USA used to be one of the largest exporters of soy, but has now become of the largest importers thereof. There is a very real threat that ‘fuelification’ of food crops could inherently exacerbate that trend to other crops such as grain, sugar and corn.
As mentioned before, America needs to undergo a cultural revolution in order to change its ways. More specifically, she requires an urban revolution based on the de-suburbanization of the country. The expansion of public transport: metros, buses, trams, and yes, trains. In a nutshell; a European, if not Dutch approach towards tackling transport, the environment and oil dependency. Only then can America begin to curb its addiction to foreign oil.
Sunday, January 28, 2007
#26 Food for Oil: The Greening of America
There was a time when, if you would talk about reducing oil consumption, you would be branded a leftist, tree-hugging liberal. These days, reducing energy consumption is slowly coming to be seen as the patriotic duty of every American. Even President Bush seems to have awakened from his comatose anti-environmentalism when, in his recent State of the Union Address, he said
"We must continue changing the way America generates electric power, by even greater use of clean coal technology, solar and wind energy, and clean, safe nuclear power. We need to press on with battery research for plug-in and hybrid vehicles, and expand the use of clean diesel vehicles and biodiesel fuel. We must continue investing in new methods of producing ethanol, using everything from wood chips to grasses, to agricultural wastes...let us build on the work we've done and reduce gasoline usage in the United States by 20 percent in the next 10 years...America is on the verge of technological breakthroughs that will enable us to live our lives less dependent on oil. And these technologies will help us be better stewards of the environment, and they will help us to confront the serious challenge of global climate change."
Wednesday, January 24, 2007
#25 Are Women Really More Peaceful?
An old theory exists that war and conflict are a product of male genetics. It has long been asserted, for instance, that the male instinct is to compete, while the female policy is to conspire. Therefore, if women were in charge, the world would/should be more likely to attain peace. This theory led me to look at the case of Bangladesh: a predominantly Muslim nation (about 80-85% of the population) where two of the most powerful people happen to be women.
Bangladesh is home to two main political parties: the Awami League (AL) and the Bangladesh Nationalist Party (BNP). The Awami League is led by Sheikh Hasina Wajed, while Begum Khaleda Zia is the BNP honcho. To say the two do not get along is an understatement, yet they actually have a lot in common. Both women became leaders of their respective parties mainly due to nepotism. Khaleda Zia is the widow to the previous BNP leader, while Sheikh Hasina is daughter to the former AL leader and first president of Bangladesh. Both are former prime ministers (Sheikh Hasina from 1996 to 2001 and Khaleda Zia from 1991 to 1996 and then again from 2001 to 2006) and both of their fathers were assassinated. Finally, both leaders are powerful women in a traditionally highly male dominated society.
The rivalry between the two women extends to the two groups of supporters. Every five years during election season it is a safe bet that the two groups of supporters will literally be at each others throats. So too this time around. Since November 2006, about 40 people have died in riots and demonstrations, while millions of dollars of property has been damaged. Interim President Iajuddin Ahmed even felt it necessary to declare a state of emergency and delay the national elections originally scheduled for January 22. This time the trouble started when the AL and her allies announced they would boycott the elections. Sheikh Hasina decided on this measure after Khaleda Zia ended her five-year tenure as prime minister in October and handed power to the interim authority, leaving a number of her cronies in key positions. The AL thus accused interim President Iajuddin of impartiality and favoring Khaleda in the polls, demanding he resign as caretaker president. After weeks of protests, strikes and transport blockades, Iajuddin decided to resign.
Princeton-educated economist, Fakhruddin Ahmed, was appointed chief of the caretaker government on January 12 and immediately announced free and fair elections would be held as soon as possible, after a major crackdown on crime and corruption. Seeing that Bangladesh has been consistently ranked by Transparency International as one of the most corrupt nations every year this century, this is more than just an uphill task.
Either way, the point is that Bangladesh has not become any more quiet, conciliatory or peaceful since Sheikh Hasina and Khaleda Zia began dominating national politics. With an increase in the amounts of female presidents and prime ministers worldwide in countries as diverse as Latvia, New Zeeland, Germany, the Philippines, Liberia, Chile and maybe even the United States in 2008, those who were hoping this might mean a sharp decrease in wars and conflicts will probably find themselves facing a very cold shower. As a firm believer in equal rights, I certainly welcome the increasing participation of women in all levels of society. All I am saying is that this will most probably not translate into a significant shift in global politics, policies, or an increase in the prospect of peace.
Bangladesh is home to two main political parties: the Awami League (AL) and the Bangladesh Nationalist Party (BNP). The Awami League is led by Sheikh Hasina Wajed, while Begum Khaleda Zia is the BNP honcho. To say the two do not get along is an understatement, yet they actually have a lot in common. Both women became leaders of their respective parties mainly due to nepotism. Khaleda Zia is the widow to the previous BNP leader, while Sheikh Hasina is daughter to the former AL leader and first president of Bangladesh. Both are former prime ministers (Sheikh Hasina from 1996 to 2001 and Khaleda Zia from 1991 to 1996 and then again from 2001 to 2006) and both of their fathers were assassinated. Finally, both leaders are powerful women in a traditionally highly male dominated society.
The rivalry between the two women extends to the two groups of supporters. Every five years during election season it is a safe bet that the two groups of supporters will literally be at each others throats. So too this time around. Since November 2006, about 40 people have died in riots and demonstrations, while millions of dollars of property has been damaged. Interim President Iajuddin Ahmed even felt it necessary to declare a state of emergency and delay the national elections originally scheduled for January 22. This time the trouble started when the AL and her allies announced they would boycott the elections. Sheikh Hasina decided on this measure after Khaleda Zia ended her five-year tenure as prime minister in October and handed power to the interim authority, leaving a number of her cronies in key positions. The AL thus accused interim President Iajuddin of impartiality and favoring Khaleda in the polls, demanding he resign as caretaker president. After weeks of protests, strikes and transport blockades, Iajuddin decided to resign.
Princeton-educated economist, Fakhruddin Ahmed, was appointed chief of the caretaker government on January 12 and immediately announced free and fair elections would be held as soon as possible, after a major crackdown on crime and corruption. Seeing that Bangladesh has been consistently ranked by Transparency International as one of the most corrupt nations every year this century, this is more than just an uphill task.
Either way, the point is that Bangladesh has not become any more quiet, conciliatory or peaceful since Sheikh Hasina and Khaleda Zia began dominating national politics. With an increase in the amounts of female presidents and prime ministers worldwide in countries as diverse as Latvia, New Zeeland, Germany, the Philippines, Liberia, Chile and maybe even the United States in 2008, those who were hoping this might mean a sharp decrease in wars and conflicts will probably find themselves facing a very cold shower. As a firm believer in equal rights, I certainly welcome the increasing participation of women in all levels of society. All I am saying is that this will most probably not translate into a significant shift in global politics, policies, or an increase in the prospect of peace.
Monday, January 22, 2007
#24 A Cough Too Far
When we think about China, images of its current success story come to mind: the land of opportunity, near double digit growth, the world's factory, etc. There is, however, another face to China; one that is devastating to the health of not only its own inhabitants, but also for the people residing in neighboring countries.
China has become the worst polluter in the world. It is estimated that there are nearly 400,000 pollution related deaths per year. In addition, China is now believed to be the largest source of non natural emissions of mercury - another toxic substance. With environmental damage costs estimated to be between 8 and 15 percent of GDP, this problem has come to extend beyond being merely a regional issue to becoming of global concern.
The surge of industrialization is much to blame for its impact on the environment. The health of millions of Chinese citizens is affected. The source of much of China's pollution comes from its heavy industrial basis. Coal fired power plants are at the heart of China's industrial machine. Coal based electrical generation is one of the dirtiest forms of electricity generation. With little or no regulation or pollution controls, the air in many of China's industrial areas is beginning to resemble a parking lot at a Lada convention.
Not only the air is poisoned. Another grave problem is the poisoning of much of China's water sources. Industrial toxins such as sulfuric acid, lead, and mercury are poisoning China's ground water supplies. Ground water is to a nation what the placenta is to a baby. The very fact that water consumption is a health hazard should serve as a wake-up call: evidently polluted areas are reporting a 30 fold increase of cancer cases. Even factories have to close due to the lack of safe water. The costs of these shutdowns are calculated at 14 billion of lost output annually.
By not claiming responsibility, China faces fronting the costs of pollution to those that can ill afford. The costs of cancer and respiratory illnesses are far beyond what the Chinese poor can afford. China is not a free society and citizen activism is not encouraged. Activists are threatened with jail terms. Without free press in China, much of the weight of the issue is expected to be stuffed under the carpet.
World leaders need to unite on the issue of pollution. After all, clean air is a global good inhaled by everyone. The problem of China's pollution monster is thus a global one. And for that reason it needs a global solution. Ratifying the Kyoto treaty on CO2 could be a healthy first step to a cleaner and safer mode of industrial production. Not only China, but also the US and Australia must be made aware that the time to act is now, not tomorrow.
China has become the worst polluter in the world. It is estimated that there are nearly 400,000 pollution related deaths per year. In addition, China is now believed to be the largest source of non natural emissions of mercury - another toxic substance. With environmental damage costs estimated to be between 8 and 15 percent of GDP, this problem has come to extend beyond being merely a regional issue to becoming of global concern.
The surge of industrialization is much to blame for its impact on the environment. The health of millions of Chinese citizens is affected. The source of much of China's pollution comes from its heavy industrial basis. Coal fired power plants are at the heart of China's industrial machine. Coal based electrical generation is one of the dirtiest forms of electricity generation. With little or no regulation or pollution controls, the air in many of China's industrial areas is beginning to resemble a parking lot at a Lada convention.
Not only the air is poisoned. Another grave problem is the poisoning of much of China's water sources. Industrial toxins such as sulfuric acid, lead, and mercury are poisoning China's ground water supplies. Ground water is to a nation what the placenta is to a baby. The very fact that water consumption is a health hazard should serve as a wake-up call: evidently polluted areas are reporting a 30 fold increase of cancer cases. Even factories have to close due to the lack of safe water. The costs of these shutdowns are calculated at 14 billion of lost output annually.
By not claiming responsibility, China faces fronting the costs of pollution to those that can ill afford. The costs of cancer and respiratory illnesses are far beyond what the Chinese poor can afford. China is not a free society and citizen activism is not encouraged. Activists are threatened with jail terms. Without free press in China, much of the weight of the issue is expected to be stuffed under the carpet.
World leaders need to unite on the issue of pollution. After all, clean air is a global good inhaled by everyone. The problem of China's pollution monster is thus a global one. And for that reason it needs a global solution. Ratifying the Kyoto treaty on CO2 could be a healthy first step to a cleaner and safer mode of industrial production. Not only China, but also the US and Australia must be made aware that the time to act is now, not tomorrow.
Friday, January 19, 2007
#23 Nukes R Us
Of the known nuclear powers (USA, UK, France, China, Russia, India, Pakistan), five have a permanent seat on the UN Security Council. These five certainly do not represent the sole powers of this era, but when including India and Pakistan, they constitute a very interesting mix. The nuclear powers consist of great nations from the old world, from today's world, from the world of the future, and even from a never has been that probably never will be. The UK and especially France are powers of the past, while the USA is modern day's dominant force. China and India represent the future, whereas Russia is a mix of the old, the present and the future. Finally, Pakistan continues to struggle, with significantly less prospects for regional or global dominance than the others.
Besides these known nuclear powers, there is the particular case of Israel, which follows a policy of nuclear ambiguity. The country has been threatened to the extent that if they really were the dreadful killers that a number of people paint them out to be, they might as well have used the nukes by now. Since they have not, this can mean one of two things: either they don't have them, or, more likely, their possession of nuclear weapons does not form a major threat to global security. With the recent "slip of the tongue" by Prime Minister Olmert during a trip to Germany, a stark warning was sent to countries like Iran that Israel will follow a policy of an eye for an eye if warranted, however.
Another interesting case is North Korea, which claims to have successfully conducted a nuclear test on October 9, 2006. This claim is one of the rare statements originating from Pyong Yang that is actually taken seriously by the rest of the world. Besides the above eight, there are a number of countries who have attempted to acquire nuclear weapons but have failed or given up trying for varying reasons. The most famous examples are Libya and Iraq. There are probably few people who would not agree with the notion that their failure to attain these weapons is a good thing. In the case of Iraq, I am of course not referring to the recent allegations in the buildup to the war there, but rather to their nuclear weapon research program during the 1970s and 1980s (which Israel destroyed in 1981).
There also exists a group of four nations, namely South Africa, Belarus, Kazakhstan and Ukraine, which at one point possessed nuclear weapons but willingly gave them up (Belarus, Kazakhstan and Ukraine transferred the weapons to Russia in 1995 and 1996). Additionally, there are countries such as the Netherlands, Canada, Italy, Japan and Germany, who would be able to produce nuclear weapons in a matter of 1 or 2 years, if not months.
Today's most pressing nuclear case is Iran, which claims to be developing a nuclear program for civilian purposes only, but this is widely viewed around the world with distrust. The fear of a nuclear Iran has set the stage for a possible nuclear arms race in the Middle East that not even Israel was able to bring about. Predominantly Sunni nations such as Saudi Arabia, Jordan and Egypt are apprehensive of Shiite Iran's growing regional influence. Add the nuclear bomb to Iran's arsenal and there might really be something to worry about for these nations. Well aware of this fact, Jordan's King Abdullah II followed Egypt and Saudi Arabia's lead recently in saying that in light of current events, Jordan would be looking to develop a nuclear program “for peaceful purposes." Other states that have expressed a sudden interest in nuclear technology are Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman.
These "peaceful purposes" might sound fine in theory, but in practice it would mean an increase in the plausibility of perhaps the most turbulent region in the world becoming a nuclear arms nest. If the Saudi Royal family or Egypt's President Mubarak and his cronies were to lose power to radical groups such as the Muslim Brotherhood, the attained nuclear know-how could be used for particularly nasty purposes. Ironically enough, if the Mullahs in Iran were to give way to the opposition, the likelihood of a nuclear disaster would probably decrease dramatically.
Iran's nuclear program is thus proving to be not only a serious issue for Israel and the United States, but also for Europe, the Middle East and, yes, even for Islam itself. Iraq has involuntarily positioned itself as the center of this battle between Shia and Sunni Islam, but it appears ready to spread rapidly beyond its borders with increasing sophistication and precariousness.
Besides these known nuclear powers, there is the particular case of Israel, which follows a policy of nuclear ambiguity. The country has been threatened to the extent that if they really were the dreadful killers that a number of people paint them out to be, they might as well have used the nukes by now. Since they have not, this can mean one of two things: either they don't have them, or, more likely, their possession of nuclear weapons does not form a major threat to global security. With the recent "slip of the tongue" by Prime Minister Olmert during a trip to Germany, a stark warning was sent to countries like Iran that Israel will follow a policy of an eye for an eye if warranted, however.
Another interesting case is North Korea, which claims to have successfully conducted a nuclear test on October 9, 2006. This claim is one of the rare statements originating from Pyong Yang that is actually taken seriously by the rest of the world. Besides the above eight, there are a number of countries who have attempted to acquire nuclear weapons but have failed or given up trying for varying reasons. The most famous examples are Libya and Iraq. There are probably few people who would not agree with the notion that their failure to attain these weapons is a good thing. In the case of Iraq, I am of course not referring to the recent allegations in the buildup to the war there, but rather to their nuclear weapon research program during the 1970s and 1980s (which Israel destroyed in 1981).
There also exists a group of four nations, namely South Africa, Belarus, Kazakhstan and Ukraine, which at one point possessed nuclear weapons but willingly gave them up (Belarus, Kazakhstan and Ukraine transferred the weapons to Russia in 1995 and 1996). Additionally, there are countries such as the Netherlands, Canada, Italy, Japan and Germany, who would be able to produce nuclear weapons in a matter of 1 or 2 years, if not months.
Today's most pressing nuclear case is Iran, which claims to be developing a nuclear program for civilian purposes only, but this is widely viewed around the world with distrust. The fear of a nuclear Iran has set the stage for a possible nuclear arms race in the Middle East that not even Israel was able to bring about. Predominantly Sunni nations such as Saudi Arabia, Jordan and Egypt are apprehensive of Shiite Iran's growing regional influence. Add the nuclear bomb to Iran's arsenal and there might really be something to worry about for these nations. Well aware of this fact, Jordan's King Abdullah II followed Egypt and Saudi Arabia's lead recently in saying that in light of current events, Jordan would be looking to develop a nuclear program “for peaceful purposes." Other states that have expressed a sudden interest in nuclear technology are Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman.
These "peaceful purposes" might sound fine in theory, but in practice it would mean an increase in the plausibility of perhaps the most turbulent region in the world becoming a nuclear arms nest. If the Saudi Royal family or Egypt's President Mubarak and his cronies were to lose power to radical groups such as the Muslim Brotherhood, the attained nuclear know-how could be used for particularly nasty purposes. Ironically enough, if the Mullahs in Iran were to give way to the opposition, the likelihood of a nuclear disaster would probably decrease dramatically.
Iran's nuclear program is thus proving to be not only a serious issue for Israel and the United States, but also for Europe, the Middle East and, yes, even for Islam itself. Iraq has involuntarily positioned itself as the center of this battle between Shia and Sunni Islam, but it appears ready to spread rapidly beyond its borders with increasing sophistication and precariousness.
Wednesday, January 17, 2007
#22 The new "Silk Road"
The historical Silk Road is probably somewhere around 2000 years old. From its inception, the Silk Road was the coronary artery for the Roman Empire’s hunger for luxury goods from the East, such as silk, jade and gems. This demand was in fact so large that it drained hefty sums of gold out of Rome, contributing to the bankruptcy of the Roman economy and eventually the downfall of the empire itself.
The heavy trading along the Silk Road fueled an intense cultural and economic boom. Although over time the silk road would disappear (and reappear only to disappear once more) due to the ever changing geo-political and economic landscape, today we are seeing a revival of the silk road, albeit in a different form. According to George Magnus, Senior Economic Advisor to UBS Investment Bank, a new silk road has emerged through the trade of hydrocarbons, petrodollars and consumer goods.
At the heart of this petrodollar economic system lies China; a net consumer of half of the world’s oil. The capital flows along the road are immense and by no means constitute a one way flow towards the dollar surplus oil economies of the Middle East. These very intense petrodollar fueled trade relationships are at the core of the rebirth of a new silk road. In fact, the new Silk Road is nothing more than a catch phrase for the growing and intensifying economic chains between the Middle East and Asia.
In this emerging trade paradigm, Islamic finance is becoming an increasingly important facet of the new Silk Road. Western and Asian companies, as well as governments, are increasingly using Islamic bonds (Sukuk) to tap the deep well of petrodollars in the Middle East. China also seems to be soaking up ever larger amounts of Islamic finance and investment products. It is a convenient way to recycle the petrodollars of the Middle East and ease some of the massive U.S. trade imbalance. Equally important is that China’s large public works is a good match for the requirements of Islamic asset backed financing products.
The historical link is that the USA is starting to find itself in a similar position to the ailing Roman Empire of ancient times. I will mention a number of factors that coincide: slow decline of the American economy as the primal economy (increased economic multi-polarity), high and increasing debt per capita, currency devaluation, addiction to foreign resources and consumer goods. There are also many political similarities: poor leadership on key issues, an over stretched military, new types of enemies, migrant problems, internal political division and polarized religious factions vying for power. In fact, both Rome and the United States attempted to “liberate” Mesopotamia and secure it from Iranian (then Parthian) influence: it was short lived and costly.
Although you could easily write a book about all the similarities between ancient Rome and the United States, one thing is certain; the global economic paradigmatic shift is forcing the old Pax Americana into a slow retreat. And yes indeed, there is a new silk road emerging, based on petrodollars, black gold, and Asian consumer goods. Perhaps it is too simple to blame it all on economics and politics, but I do believe Clinton got it right when he said “It’s the economy, stupid!”
The heavy trading along the Silk Road fueled an intense cultural and economic boom. Although over time the silk road would disappear (and reappear only to disappear once more) due to the ever changing geo-political and economic landscape, today we are seeing a revival of the silk road, albeit in a different form. According to George Magnus, Senior Economic Advisor to UBS Investment Bank, a new silk road has emerged through the trade of hydrocarbons, petrodollars and consumer goods.
At the heart of this petrodollar economic system lies China; a net consumer of half of the world’s oil. The capital flows along the road are immense and by no means constitute a one way flow towards the dollar surplus oil economies of the Middle East. These very intense petrodollar fueled trade relationships are at the core of the rebirth of a new silk road. In fact, the new Silk Road is nothing more than a catch phrase for the growing and intensifying economic chains between the Middle East and Asia.
In this emerging trade paradigm, Islamic finance is becoming an increasingly important facet of the new Silk Road. Western and Asian companies, as well as governments, are increasingly using Islamic bonds (Sukuk) to tap the deep well of petrodollars in the Middle East. China also seems to be soaking up ever larger amounts of Islamic finance and investment products. It is a convenient way to recycle the petrodollars of the Middle East and ease some of the massive U.S. trade imbalance. Equally important is that China’s large public works is a good match for the requirements of Islamic asset backed financing products.
The historical link is that the USA is starting to find itself in a similar position to the ailing Roman Empire of ancient times. I will mention a number of factors that coincide: slow decline of the American economy as the primal economy (increased economic multi-polarity), high and increasing debt per capita, currency devaluation, addiction to foreign resources and consumer goods. There are also many political similarities: poor leadership on key issues, an over stretched military, new types of enemies, migrant problems, internal political division and polarized religious factions vying for power. In fact, both Rome and the United States attempted to “liberate” Mesopotamia and secure it from Iranian (then Parthian) influence: it was short lived and costly.
Although you could easily write a book about all the similarities between ancient Rome and the United States, one thing is certain; the global economic paradigmatic shift is forcing the old Pax Americana into a slow retreat. And yes indeed, there is a new silk road emerging, based on petrodollars, black gold, and Asian consumer goods. Perhaps it is too simple to blame it all on economics and politics, but I do believe Clinton got it right when he said “It’s the economy, stupid!”
Tuesday, January 16, 2007
#21 News from the Delta & Unkosher Oil
No sooner was it known that four members of a notorious militant gang in the Niger Delta, alleged to have been responsible for last year's attack on Mobil Producing Nigeria (a subsidiary of Exxon), have been arrested by men of the State Security Service (SSS), news broke that gunmen in Nigeria's oil region have attacked and killed 12 people including at least four local chiefs.
It appears the attack might in fact not have targeted the oil companies at all this time, but rather is the result of a long-standing chieftaincy vendetta. The chiefs who were killed had been in control in Kula over the past two years, whereas the faction that launched the boat attack are alleged to have been driven out of Kula two years ago. The dispute arose in 2004 when members of the faction challenged the authority of the local chiefs in deciding how to share the money and benefits given by the oil companies. In an apparent bid to re-enter the community, the assailants felt it necessary to dispose of the evil chiefs. As with most things in the Niger Delta, the attacks are directly related to the "blessing" that is oil, which once again highlights the difficulty of instilling anything remotely resembling stability.
Despite the attack not targeting the oil companies, Royal Dutch Shell decided to evacuate staff from two oil installations, leaving "only a skeleton crew" at the two evacuated pipeline hubs, according to Bisi Ojediran, a spokesman for Shell PLC. Production at the sites (approximately 60,000 barrels per day) has not been affected by the attack, however. Nevertheless, the fear that violence will only increase in the run-up to the Nigerian elections in April seems to be manifesting itself.
Besides the many cases of violence and murder, a new report highlights the lack of transparency and corruption that exist in the Nigerian oil sector. A report compiled by the Hart Group - a United Kingdom based audit firm for the Nigerian Extractive Industry Transparency Initiative (NEITI) - found that about 65 million barrels of crude oil could not be accounted for by the Nigerian National Petroleum Corporation (NNPC) between 1999 and 2004. 65 million barrels of crude oil translates into the kind of money that should normally be able to pay off rebels for long enough to create a viable solution to the region's problems.
Whether it be corruption, mafia style tactics, forced nationalization, extremism, or acts of terror, one thing appears to be certain: the terms kosher and oil rarely go hand in hand. Venezuela, Iran, Iraq, Nigeria, Russia, Libya, Angola, and Algeria are prime examples. Ironically, the poorest regions in all of these countries happen to be the ones where the bulk of the oil is situated. Countries like Saudi Arabia, the United Arab Emirates, and Kuwait are exceptions in this respect, but then again I doubt they would want to be associated with a term like "kosher" anyway. Let's just say that although clearly not in the same league as the aforementioned countries, they still aren't exactly Halal. True exceptions are countries like Norway, the USA, and Canada, but of these three only Norway is a significant net exporter (Canada and the USA consume most of their own production). Perhaps Central Asian countries like Kazakhstan and hermit-state Turkmenistan could become shinning examples of kosher oil producers/exporters when they increase production, though this isn't too likely.
It will be interesting to see whether gunmen will attack ethanol producing farms in Brazil any time soon, or whether the end of oil will mean the end of such shenanigans. Sadly, I think we all know that there is no end sabotage, greed, violence, or exploitation.
It appears the attack might in fact not have targeted the oil companies at all this time, but rather is the result of a long-standing chieftaincy vendetta. The chiefs who were killed had been in control in Kula over the past two years, whereas the faction that launched the boat attack are alleged to have been driven out of Kula two years ago. The dispute arose in 2004 when members of the faction challenged the authority of the local chiefs in deciding how to share the money and benefits given by the oil companies. In an apparent bid to re-enter the community, the assailants felt it necessary to dispose of the evil chiefs. As with most things in the Niger Delta, the attacks are directly related to the "blessing" that is oil, which once again highlights the difficulty of instilling anything remotely resembling stability.
Despite the attack not targeting the oil companies, Royal Dutch Shell decided to evacuate staff from two oil installations, leaving "only a skeleton crew" at the two evacuated pipeline hubs, according to Bisi Ojediran, a spokesman for Shell PLC. Production at the sites (approximately 60,000 barrels per day) has not been affected by the attack, however. Nevertheless, the fear that violence will only increase in the run-up to the Nigerian elections in April seems to be manifesting itself.
Besides the many cases of violence and murder, a new report highlights the lack of transparency and corruption that exist in the Nigerian oil sector. A report compiled by the Hart Group - a United Kingdom based audit firm for the Nigerian Extractive Industry Transparency Initiative (NEITI) - found that about 65 million barrels of crude oil could not be accounted for by the Nigerian National Petroleum Corporation (NNPC) between 1999 and 2004. 65 million barrels of crude oil translates into the kind of money that should normally be able to pay off rebels for long enough to create a viable solution to the region's problems.
Whether it be corruption, mafia style tactics, forced nationalization, extremism, or acts of terror, one thing appears to be certain: the terms kosher and oil rarely go hand in hand. Venezuela, Iran, Iraq, Nigeria, Russia, Libya, Angola, and Algeria are prime examples. Ironically, the poorest regions in all of these countries happen to be the ones where the bulk of the oil is situated. Countries like Saudi Arabia, the United Arab Emirates, and Kuwait are exceptions in this respect, but then again I doubt they would want to be associated with a term like "kosher" anyway. Let's just say that although clearly not in the same league as the aforementioned countries, they still aren't exactly Halal. True exceptions are countries like Norway, the USA, and Canada, but of these three only Norway is a significant net exporter (Canada and the USA consume most of their own production). Perhaps Central Asian countries like Kazakhstan and hermit-state Turkmenistan could become shinning examples of kosher oil producers/exporters when they increase production, though this isn't too likely.
It will be interesting to see whether gunmen will attack ethanol producing farms in Brazil any time soon, or whether the end of oil will mean the end of such shenanigans. Sadly, I think we all know that there is no end sabotage, greed, violence, or exploitation.
Sunday, January 14, 2007
#20 Axis of the Deranged
I have never been a big fan of the term "evil" used to describe certain elements in global politics, for it seems so asinine. It's like hearing a child cry "he stole my pencil, he's evil"! At first thought, substituting "evil" with "deranged" might seem equally juvenile, but given the original meaning of the word deranged (to throw into disorder; disarrange), it is rather fitting. If you think about it, throwing into disorder is exactly what Chavez and Ahmadinejad are doing (while the sanity of some of their statements can be put to question as well). The two are without doubt intelligent people, but there have been enough wacky events involving the two characters to allow for the term deranged to be used.
The latest on the two is that Chavez has just won another 6 years in office, while Ahmadinejad and co. continue to laugh in the face of the world. How long Ahmadinejad will be around for depends on the Mullahs (or on an Iranian revolution or international conflict for that matter), but how long Chavez will be in power might come to depend on a new proposal that seeks to allow indefinite reelection of the president of the republic. Chavez has repeatedly stressed that in order for the revolution to succeed, there must be continuity of government and policy, meaning the step of allowing indefinite reelection could be just a prelude to Dictatorship. Since winning the first election back in 1998, Chavez has increasingly dominated all branches of government and his allies now control congress, state offices and the judiciary.
Chavez has also spooked the international investor community by calling for the constitution to be changed to allow the government to take control of the natural gas industry from foreign companies. He has already pledged to increase state control over four key oil production projects in the Orinoco Belt, which are currently operated by firms such as U.S. Exxon Mobil and Chevron, Total of France, and British Petroleum. Besides these four heavy crude upgrading projects, plans were also announced for the state to take control of the country's largest telecommunications company, and its electricity and natural gas sectors.
On a global level, Chavez has become 'best buddies' with a man who calls for a UN member state to be "wiped off the map" and flat out denies the occurrence of one of human's worst tragedies; the Holocaust. Both men are deeply religious, though only recently has Chavez been increasingly alluding to Jesus Christ, whom he called "the greatest socialist of all." Indeed, the two have much in common and were both graciously offered the platform at last years UN General Assembly, where they were welcomed with rapturous applause by an audience that apparently appreciates the use of the word "devil" as a form of name calling.
Ahmadinejad is currently in Caracas, which is his second visit to Venezuela in less than four months. The two have pledged to strengthen their anti-US alliance and have promised to invest in countries "whose governments are making efforts to liberate themselves from the imperialist yoke." The funds will come from a joint USD 2 billion fund intended to finance investments in Venezuela and Iran, but the two leaders announced Saturday (January 13) that the money would also be used for aiding friendly countries (which means countries hostile to the US). During Ahmadinejad's visit to Caracas last September, the two already agreed to establish a joint petrochemical and steel company and a shared firm for the exploration of petroleum. There have also been heavy rumours that Iran had secured Venezuela's uranium for Tehran's nuclear program, but this has been denied by both sides.
After Venezuela, Ahmadinejad will visit newly elected leftist governments in Nicaragua (Daniel Ortega) and Ecuador (Rafael Correa). While in Ecuador, he will also meet with Bolivian President Evo Morales. All three countries fall under the category "friendly" and are likely to be courted by Chavez and Ahmadinejad into joining an anti-US alliance, while being the most likely recipients of Iranian/Venezuelan aid. Other prominent figures that have been conniving with either Chavez or Ahmadinejad include unsavory types such as Libyan President Moammar Gaddafi and Belarussian President Alexander Lukashenko.
The Axis of the Deranged currently consists of two members, but these happen to be very big talkers with the potential to strike hard. They say dogs that bark don't bite. This may be true, but these dogs don't have to bite, as they (especially Ahmadinejad) are masters at finding others to do the biting for them (notably Hezbollah, and more recently it seems Hamas is willing to take orders from Tehran as well). Ignore these puppet masters at your own peril, for they really will throw the world into disorder.
The latest on the two is that Chavez has just won another 6 years in office, while Ahmadinejad and co. continue to laugh in the face of the world. How long Ahmadinejad will be around for depends on the Mullahs (or on an Iranian revolution or international conflict for that matter), but how long Chavez will be in power might come to depend on a new proposal that seeks to allow indefinite reelection of the president of the republic. Chavez has repeatedly stressed that in order for the revolution to succeed, there must be continuity of government and policy, meaning the step of allowing indefinite reelection could be just a prelude to Dictatorship. Since winning the first election back in 1998, Chavez has increasingly dominated all branches of government and his allies now control congress, state offices and the judiciary.
Chavez has also spooked the international investor community by calling for the constitution to be changed to allow the government to take control of the natural gas industry from foreign companies. He has already pledged to increase state control over four key oil production projects in the Orinoco Belt, which are currently operated by firms such as U.S. Exxon Mobil and Chevron, Total of France, and British Petroleum. Besides these four heavy crude upgrading projects, plans were also announced for the state to take control of the country's largest telecommunications company, and its electricity and natural gas sectors.
On a global level, Chavez has become 'best buddies' with a man who calls for a UN member state to be "wiped off the map" and flat out denies the occurrence of one of human's worst tragedies; the Holocaust. Both men are deeply religious, though only recently has Chavez been increasingly alluding to Jesus Christ, whom he called "the greatest socialist of all." Indeed, the two have much in common and were both graciously offered the platform at last years UN General Assembly, where they were welcomed with rapturous applause by an audience that apparently appreciates the use of the word "devil" as a form of name calling.
Ahmadinejad is currently in Caracas, which is his second visit to Venezuela in less than four months. The two have pledged to strengthen their anti-US alliance and have promised to invest in countries "whose governments are making efforts to liberate themselves from the imperialist yoke." The funds will come from a joint USD 2 billion fund intended to finance investments in Venezuela and Iran, but the two leaders announced Saturday (January 13) that the money would also be used for aiding friendly countries (which means countries hostile to the US). During Ahmadinejad's visit to Caracas last September, the two already agreed to establish a joint petrochemical and steel company and a shared firm for the exploration of petroleum. There have also been heavy rumours that Iran had secured Venezuela's uranium for Tehran's nuclear program, but this has been denied by both sides.
After Venezuela, Ahmadinejad will visit newly elected leftist governments in Nicaragua (Daniel Ortega) and Ecuador (Rafael Correa). While in Ecuador, he will also meet with Bolivian President Evo Morales. All three countries fall under the category "friendly" and are likely to be courted by Chavez and Ahmadinejad into joining an anti-US alliance, while being the most likely recipients of Iranian/Venezuelan aid. Other prominent figures that have been conniving with either Chavez or Ahmadinejad include unsavory types such as Libyan President Moammar Gaddafi and Belarussian President Alexander Lukashenko.
The Axis of the Deranged currently consists of two members, but these happen to be very big talkers with the potential to strike hard. They say dogs that bark don't bite. This may be true, but these dogs don't have to bite, as they (especially Ahmadinejad) are masters at finding others to do the biting for them (notably Hezbollah, and more recently it seems Hamas is willing to take orders from Tehran as well). Ignore these puppet masters at your own peril, for they really will throw the world into disorder.
Thursday, January 11, 2007
#19 Technology, Demographics and Lay Trading
After the boom and bust around the turn of the century, it seemed that small discount brokerages would be hard pressed to survive. Many professionals and amateurs alike got burned as the markets retreated after 9/11 and the bursting of the tech bubble. In recent years we are witnessing a clear uptrend in the use and popularity of discount brokerages. "Amateur" investors are once again rushing to the market place and there is some hefty wooing going on to attract those flushed with enough cash.
We are now witness to the rise of a new kind of investor. This new kind of investor is an active trader that has become known as a "day trader." These are mainly amateurs and semi-professionals who play the short term markets in various ways, be it by trading in commodities, currency markets, using leveraged products, futures or options. Often it is a retired professional with some knowledge of financial markets. Then there are also the "early" retirees (late 40's, early 50's) who are using day trading to supplement their income and financially secure their retirement. The new day trader community is a mixed bag of complete amateurs, gamblers and semi-professionals alike.
The recent upswing in US and Global markets has provided ample money making opportunities for this group of day traders, which has lead to an increasing number of amateurs joining their ranks. By sheer word of mouth, the success of Joe the neighbor, who sits at home making "easy" bucks, is a fairy tale concept that is capturing the imagination of many. We could coin a new term for this growing class, namely "lay traders." This is a play on the words "layman" and "trader," put together in the same way that the term "day trader" is. Lay traders are amateur traders who try their luck on short term market fluctuations.
It is true that even aspiring lay traders can make money in bullish markets. But what will happen to these traders when markets turn bearish? The democratization of trading is not going to be a blessing for everyone. In fact, there is a significant risk that these new lay traders could overexpose themselves to risks that their financial situation does not allow for. The smell of easy money is one that has the potential to blind even the most experienced and confident investors. The end of the tech bubble has shown the devastating effect that declining markets can have on traders. Significant financial damage was caused to countless traders who lost their entire savings, sometimes in a matter of months. The threat of losing all they own is a serious reality for today's bullish day traders.
Technology has been a critical aspect with respect to providing near professional real-time trading tools for the aspiring lay trader. The technology transfer from the professional market makers to the amateur trader has the same potential as what blogging offers traditional media. The paradigm in creation has the potential to create a small hurricane in the traditional brokerage and trading community.
However, discount brokerages always expand in boom times, only to sound a hasty retreat when markets go down. The same could very well happen to the growing "lay trading" community. On the other hand, when the market goes down, only the most able and skilled traders will remain, weeding out the amateurs and speculators blinded by easy money. Perhaps this is nothing more than a healthy, Darwinist example of "survival of the fittest." Either way, "laytraders" are here to stay, driven in part by demography, technology as well as a human hunger for more than it can safely devour.
We are now witness to the rise of a new kind of investor. This new kind of investor is an active trader that has become known as a "day trader." These are mainly amateurs and semi-professionals who play the short term markets in various ways, be it by trading in commodities, currency markets, using leveraged products, futures or options. Often it is a retired professional with some knowledge of financial markets. Then there are also the "early" retirees (late 40's, early 50's) who are using day trading to supplement their income and financially secure their retirement. The new day trader community is a mixed bag of complete amateurs, gamblers and semi-professionals alike.
The recent upswing in US and Global markets has provided ample money making opportunities for this group of day traders, which has lead to an increasing number of amateurs joining their ranks. By sheer word of mouth, the success of Joe the neighbor, who sits at home making "easy" bucks, is a fairy tale concept that is capturing the imagination of many. We could coin a new term for this growing class, namely "lay traders." This is a play on the words "layman" and "trader," put together in the same way that the term "day trader" is. Lay traders are amateur traders who try their luck on short term market fluctuations.
It is true that even aspiring lay traders can make money in bullish markets. But what will happen to these traders when markets turn bearish? The democratization of trading is not going to be a blessing for everyone. In fact, there is a significant risk that these new lay traders could overexpose themselves to risks that their financial situation does not allow for. The smell of easy money is one that has the potential to blind even the most experienced and confident investors. The end of the tech bubble has shown the devastating effect that declining markets can have on traders. Significant financial damage was caused to countless traders who lost their entire savings, sometimes in a matter of months. The threat of losing all they own is a serious reality for today's bullish day traders.
Technology has been a critical aspect with respect to providing near professional real-time trading tools for the aspiring lay trader. The technology transfer from the professional market makers to the amateur trader has the same potential as what blogging offers traditional media. The paradigm in creation has the potential to create a small hurricane in the traditional brokerage and trading community.
However, discount brokerages always expand in boom times, only to sound a hasty retreat when markets go down. The same could very well happen to the growing "lay trading" community. On the other hand, when the market goes down, only the most able and skilled traders will remain, weeding out the amateurs and speculators blinded by easy money. Perhaps this is nothing more than a healthy, Darwinist example of "survival of the fittest." Either way, "laytraders" are here to stay, driven in part by demography, technology as well as a human hunger for more than it can safely devour.
Wednesday, January 10, 2007
#18 Spotlight on the Niger Delta
Nigeria is Africa's largest oil producer and the world's sixth largest exporter, but, apart from an oil boom in the 1970s and once again benefiting from high prices on the world market today, any real progress has been undermined by corruption and mismanagement. Nigeria appears to be one of the many countries for which the blessing of natural resources is not so saintly. The main problems stem from the heart of the Nigerian oil industry in the Niger Delta region, where violence, kidnapping, bombings, and oil siphoning are part of every day life.
Besides the many casualties, the effect of the troubles in the region has now been translated into a tangible figure. At the recent Ministerial Budget Briefing, Nigerian Finance Minister, Mrs. Nenadi Usman, announced that in 2006, the nation lost an estimated 570 billion naira (approximately 4.4bn US dollars and 3.5bn euros) in revenue as a direct result of the protracted crisis in the Niger Delta region. Usman also stated that "the result was that crude oil sale fell by 3.2 percent below our projected target while petroleum profit tax fell by 10.9 percent. Since oil accounts for more than 95 percent of the foreign exchange earnings of Nigeria, any disruption is of major concern.
Concern is justified, given the recent warning by a spokesman for the Movement for the Emancipation of the Niger Delta (MEND) in an email message to AFP that "we are resuming with our attacks this month and may even take more hostages." This announcement comes at a time when MEND is holding one Lebanese and three Italian oil workers kidnapped on December 7 in the oil-rich southern Bayelsa State. MEND might have already been true to their word, as news just broke that militants took nine South Korean oil workers hostage at a Daewoo oil facility, also in Bayelsa. Five Chinese telecom workers have also been abducted in Rivers State, but MEND denies any involvement in their seizure. Perhaps China's increased involvement in the continent and the region has made the rebels unsure about what their policy should be toward the Chinese for now. Hopefully this is a sign that the Chinese might be able to play a role in bringing some form normalcy to the Nigerian oil business.
What MEND is seeking is a larger share for southern Nigerians in oil revenues, along with compensation for communities affected by oil pollution. More recent demands are that the Nigerian authorities release former Bayelsa State governor Diepreye Alamieyeseigha, jailed on corruption charges, as well as separatist leader Mujahid Dokubo-Asari (he used to be president of the influential Ijaw Youth Council - the ethnic group which makes up the bulk of the Delta's population) and other detainees from the region. MEND is a relatively new organization (emerging late 2005) of which little is known, but their calls for a larger share of oil wealth and environmental improvement echo the demands made by other groups such as Asari's Niger Delta People's Volunteer Force (NDPVF), the Niger Delta Vigilante (NDV), the Ijaw Youth Movement (IYM) and the Ogoni Movement for the Survival of the Ogoni People (MOSOP). The difference lies in the sophistication shown by MEND and the ease with which they are able to sabotage oil facilities and make good on threats.
Despite the creation in 2000 of the Niger Delta Development Commission, which has the sole mandate of developing the Niger Delta region, poverty and crime remain rife in the area. In 2005, Shell spent around $80m on projects and scholarships aimed at benefiting the local population, but these aid projects have failed for the most part. For some reason or other, the Delta boasts an unfinished hospital building, a fish processing factory that never went into production, and an abandoned artesian well which now flows with contaminated water. This would seem to insinuate that the majority of the militant movements aren't really seeking improved conditions for their people, but are rather criminal organizations active in oil and weapons trade on the black market. Oil is regularly siphoned illegally (though it is often claimed by the militants that they are merely taking what is rightfully theirs) from the pipelines, while kidnappings are becoming increasingly frequent as a means to attain capital.
While these problems have plagued the Delta for years, they intensified in 2006 and, with the Nigerian elections coming up in April, they seem likely to intensify. The wave of attacks on the oil industry in February 2006 led to the shutting down over 600,000 barrels per day in output, highlighting the immense power rebel groups such as MEND have on oil production. On a human scale, the more than 60 foreign oil workers that have been abducted over the past year and the 37 Nigerian troops and dozens of Nigerian workers (and one Briton) that have been killed tell the story. Besides all this, the local population has very valid grievances, as there is no doubting the deterioration in environmental living conditions and the lack of shared wealth. All in all, another pernicious example of a blessing gone sour.
Besides the many casualties, the effect of the troubles in the region has now been translated into a tangible figure. At the recent Ministerial Budget Briefing, Nigerian Finance Minister, Mrs. Nenadi Usman, announced that in 2006, the nation lost an estimated 570 billion naira (approximately 4.4bn US dollars and 3.5bn euros) in revenue as a direct result of the protracted crisis in the Niger Delta region. Usman also stated that "the result was that crude oil sale fell by 3.2 percent below our projected target while petroleum profit tax fell by 10.9 percent. Since oil accounts for more than 95 percent of the foreign exchange earnings of Nigeria, any disruption is of major concern.
Concern is justified, given the recent warning by a spokesman for the Movement for the Emancipation of the Niger Delta (MEND) in an email message to AFP that "we are resuming with our attacks this month and may even take more hostages." This announcement comes at a time when MEND is holding one Lebanese and three Italian oil workers kidnapped on December 7 in the oil-rich southern Bayelsa State. MEND might have already been true to their word, as news just broke that militants took nine South Korean oil workers hostage at a Daewoo oil facility, also in Bayelsa. Five Chinese telecom workers have also been abducted in Rivers State, but MEND denies any involvement in their seizure. Perhaps China's increased involvement in the continent and the region has made the rebels unsure about what their policy should be toward the Chinese for now. Hopefully this is a sign that the Chinese might be able to play a role in bringing some form normalcy to the Nigerian oil business.
What MEND is seeking is a larger share for southern Nigerians in oil revenues, along with compensation for communities affected by oil pollution. More recent demands are that the Nigerian authorities release former Bayelsa State governor Diepreye Alamieyeseigha, jailed on corruption charges, as well as separatist leader Mujahid Dokubo-Asari (he used to be president of the influential Ijaw Youth Council - the ethnic group which makes up the bulk of the Delta's population) and other detainees from the region. MEND is a relatively new organization (emerging late 2005) of which little is known, but their calls for a larger share of oil wealth and environmental improvement echo the demands made by other groups such as Asari's Niger Delta People's Volunteer Force (NDPVF), the Niger Delta Vigilante (NDV), the Ijaw Youth Movement (IYM) and the Ogoni Movement for the Survival of the Ogoni People (MOSOP). The difference lies in the sophistication shown by MEND and the ease with which they are able to sabotage oil facilities and make good on threats.
Despite the creation in 2000 of the Niger Delta Development Commission, which has the sole mandate of developing the Niger Delta region, poverty and crime remain rife in the area. In 2005, Shell spent around $80m on projects and scholarships aimed at benefiting the local population, but these aid projects have failed for the most part. For some reason or other, the Delta boasts an unfinished hospital building, a fish processing factory that never went into production, and an abandoned artesian well which now flows with contaminated water. This would seem to insinuate that the majority of the militant movements aren't really seeking improved conditions for their people, but are rather criminal organizations active in oil and weapons trade on the black market. Oil is regularly siphoned illegally (though it is often claimed by the militants that they are merely taking what is rightfully theirs) from the pipelines, while kidnappings are becoming increasingly frequent as a means to attain capital.
While these problems have plagued the Delta for years, they intensified in 2006 and, with the Nigerian elections coming up in April, they seem likely to intensify. The wave of attacks on the oil industry in February 2006 led to the shutting down over 600,000 barrels per day in output, highlighting the immense power rebel groups such as MEND have on oil production. On a human scale, the more than 60 foreign oil workers that have been abducted over the past year and the 37 Nigerian troops and dozens of Nigerian workers (and one Briton) that have been killed tell the story. Besides all this, the local population has very valid grievances, as there is no doubting the deterioration in environmental living conditions and the lack of shared wealth. All in all, another pernicious example of a blessing gone sour.
Sunday, January 7, 2007
#17 A Spoonful of Sugar Makes the Medicine Go Down
"A Spoonful of Sugar Makes the Medicine Go Down." If Mary Poppins were an economist, this is what she would be saying to the American Economy. She would also have said "do not be fooled by the temporary upswing of the dollar (rebounding back to 1.30 this Friday)." Unfortunately, even fundamentals such as employment cannot change the direction in which the American economy is heading in the long run. The spoonful of sugar is in fact the cheap money supply, which after moderate tightening is still plentiful to sustain investments that reap positive effects to American labor statistics.
Investors were desperate for good news and the results came as a mild surprise. It is even rumored that the fed may not decrease its short term rates. Is this a reason for celebration? No. The market often overreacts to both gloom and positive news. Investors have been warned of a forthcoming recession for many months. The signal by the economic weatherman is hardly a prediction of blue skies for the coming time period. The minute cheap oil is hampered by a cold surge or other disruptions from the world's incurable hot spots; the short honeymoon is surely to end with a migraine.
As economists, we are often trained to treat investor reactions to news with a certain degree of reservation if not pessimism. Economists like to focus on the analysis of indicators such as housing, trade imbalances, GDP, fiscal strength, growth et al. And economists are quite aware of the temporary emotional fickleness of investors who think that a patch of blue sky spells out summer.
I, however, am not afraid to stick out my neck and say that even though the forecasted rain is somewhat postponed, it is definitely not the time to plan a picnic just yet. Furthermore, your best investment right now is an umbrella such that your tasty dollar assets do not get watered down by the rain. The temporary rebound may be the perfect opportunity you need to strategically relocate that picnic basket of yours.
And yes, a spoonful of sugar does make the medicine go down.
Investors were desperate for good news and the results came as a mild surprise. It is even rumored that the fed may not decrease its short term rates. Is this a reason for celebration? No. The market often overreacts to both gloom and positive news. Investors have been warned of a forthcoming recession for many months. The signal by the economic weatherman is hardly a prediction of blue skies for the coming time period. The minute cheap oil is hampered by a cold surge or other disruptions from the world's incurable hot spots; the short honeymoon is surely to end with a migraine.
As economists, we are often trained to treat investor reactions to news with a certain degree of reservation if not pessimism. Economists like to focus on the analysis of indicators such as housing, trade imbalances, GDP, fiscal strength, growth et al. And economists are quite aware of the temporary emotional fickleness of investors who think that a patch of blue sky spells out summer.
I, however, am not afraid to stick out my neck and say that even though the forecasted rain is somewhat postponed, it is definitely not the time to plan a picnic just yet. Furthermore, your best investment right now is an umbrella such that your tasty dollar assets do not get watered down by the rain. The temporary rebound may be the perfect opportunity you need to strategically relocate that picnic basket of yours.
And yes, a spoonful of sugar does make the medicine go down.
#16 Preparation Time
It might be that the recent headlines are just empty rumors, but if they are actually based on true substance, then it seems 2007 might become a year of muscle flexing, it not tangible action. I am talking about two recent headlines: 1. "Israel to nuke Iranian nukes" and 2. "Japan, U.S. upgrading military emergency plan."
The first report comes from the British Sunday Times, who cite "several Israeli military sources" as proclaiming Israel has drawn up secret plans to destroy Iran’s uranium enrichment facilities with tactical nuclear weapons. The strikes concern an enrichment plant in Natanz, a heavy water plant in Arak, and a uranium conversion plant in Isfahan. The first would be targeted using low-yield nuclear bunker busters, while conventional bombs would suffice in destroying the other two.
If true, this is spectacular news. If untrue, it is yet another shoddy attempt by the Sunday Times to grab global headlines. Either way, it is a story that I would rather not have seen published, as it informs the Iranian government of possible action for which they can now prepare themselves. I also personally don't think the Mullahs will be hesitant to continue with their nuclear enrichment plans after hearing this news, thus nullifying any preemptive purpose for leaking it. Despite the fact that the UN Security Council voted unanimously last month to slap sanctions on Iran to try to stop uranium enrichment, the UN has shown itself to be categorically incompetent when dealing with Iran (and a host of other issues for that matter). In that sense it could be the best alternative for Israel to follow through with such a plan; especially if the success of the 1981 air strike against an atomic reactor in Iraq can be emulated. Nevertheless I am vacillating on the matter, as there are so many factors at play when Iran is concerned.
The second headline worth focusing on is the upgrading of the US-Japan joint operation plans for a possible contingency on the Korean Peninsula. In 2002 the two countries signed a conceptual plan code-named "5055" which only mentions basic principles, numbers of necessary facilities and other information in each category of the joint operations. The new joint operational plan calls on Japan to provide logistics support for U.S. troops, including the use of specific ports and hospitals in cases of a military emergency in or around Japan. This will significantly enhance Japan's role in the event of a crisis or war, thereby freeing US resources. This will unconstrain the Americans and provide them with more leeway in dealing with other hotbeds simultaneously (e.g. Iraq and Iran).
If the stories above are all true, then it looks like 2007 is shaping up to be a year of tacit alliances, contingency planning and outright action. I just hope the Iranians will be unable to attain their nuclear ambitions and that the US will attempt direct talks with the North Koreans. Both conflicts should be solved without military intervention, though this seems more plausible in the North Korean case. If action is indeed necessary, then a swift, painless strike as outlined by the Sunday Times is clearly preferable.
The first report comes from the British Sunday Times, who cite "several Israeli military sources" as proclaiming Israel has drawn up secret plans to destroy Iran’s uranium enrichment facilities with tactical nuclear weapons. The strikes concern an enrichment plant in Natanz, a heavy water plant in Arak, and a uranium conversion plant in Isfahan. The first would be targeted using low-yield nuclear bunker busters, while conventional bombs would suffice in destroying the other two.
If true, this is spectacular news. If untrue, it is yet another shoddy attempt by the Sunday Times to grab global headlines. Either way, it is a story that I would rather not have seen published, as it informs the Iranian government of possible action for which they can now prepare themselves. I also personally don't think the Mullahs will be hesitant to continue with their nuclear enrichment plans after hearing this news, thus nullifying any preemptive purpose for leaking it. Despite the fact that the UN Security Council voted unanimously last month to slap sanctions on Iran to try to stop uranium enrichment, the UN has shown itself to be categorically incompetent when dealing with Iran (and a host of other issues for that matter). In that sense it could be the best alternative for Israel to follow through with such a plan; especially if the success of the 1981 air strike against an atomic reactor in Iraq can be emulated. Nevertheless I am vacillating on the matter, as there are so many factors at play when Iran is concerned.
The second headline worth focusing on is the upgrading of the US-Japan joint operation plans for a possible contingency on the Korean Peninsula. In 2002 the two countries signed a conceptual plan code-named "5055" which only mentions basic principles, numbers of necessary facilities and other information in each category of the joint operations. The new joint operational plan calls on Japan to provide logistics support for U.S. troops, including the use of specific ports and hospitals in cases of a military emergency in or around Japan. This will significantly enhance Japan's role in the event of a crisis or war, thereby freeing US resources. This will unconstrain the Americans and provide them with more leeway in dealing with other hotbeds simultaneously (e.g. Iraq and Iran).
If the stories above are all true, then it looks like 2007 is shaping up to be a year of tacit alliances, contingency planning and outright action. I just hope the Iranians will be unable to attain their nuclear ambitions and that the US will attempt direct talks with the North Koreans. Both conflicts should be solved without military intervention, though this seems more plausible in the North Korean case. If action is indeed necessary, then a swift, painless strike as outlined by the Sunday Times is clearly preferable.
Friday, January 5, 2007
#15 Off with a Bang
While fireworks are supposed to be enchanting and entertaining, the kind of fireworks witnessed at the turn of this year are not exactly awe-inspiring. The 30th of December saw a bomb blast in Barajas international airport, while a total of eight bombs went off in Bangkok during New Year's Eve. Sri Lanka suffered a bomb attack of its own and lest we not forget Iraq - though there is nothing new in seeing lethal fireworks there anymore. One thing these blasts all have in common is that they seem to be linked to separatists and a lot of uncertainty surrounds the question of who is behind the deadly shows.
Three people were killed and more than 38 injured in Bangkok by a total of eight explosions. A bomb also exploded in a mosque in Chiang Mai on January 2, but according to the Chiang Mai police, the mosque's janitor confessed to making the bomb himself. As for the Bangkok bombings, nobody claimed responsibility. Prime Minister Surayud Chulanont, however, appears convinced that former Prime Minister Thaksin Shinawatra ordered dissident soldiers and police to plant the bombs and make it seem as though it was done by the Southern insurgency. Thaksin, on the other hand, denies all responsibility, claiming the bombings expose the flawed approach of the military government's new policies in dealing with the Islamic insurgency in the south of the country.
The bomb in Madrid's international airport took place in the terminal's car garage and saw two deaths (both Ecuadorian citizens) and 26 people with slight injuries. The deaths are the first attributed to ETA in three years. An anonymous caller warned of the bomb ahead of time, saying it was planted by the Euskadi Ta Askatasuna (ETA - a Basque separatist movement). Some ETA members have since denied being involved in the blast, creating some confusion on the matter. Nevertheless, it seems likely that despite the ceasefire that was declared in March 2006, ETA is behind the bombing. The question is rather, why now?
At least five people have been killed and 50 injured after a bomb attack on a bus in Sri Lanka, with the blast occurring near Nittambuwa town, 40km north-east of Colombo. While the defence ministry officials have blamed suspected Tamil Tiger rebels for the attack, the Tamil Tigers have denied any involvement. In fact, the Tigers condemned the attack, saying they reject the killing of innocent civilians. The Tamils (who make up almost 9% of the population and are mostly either Hindu or Roman Catholic) want an independent homeland in the north and east of Sri Lanka, where they form the majority. The Sri Lankan government is run mainly by Sinhalese (a mostly Buddhist group that makes up 78% of the population) and strongly opposes these secessionist ideas.
Baghdad is anything but immune to such scenarios of bloodshed, with two bombs exploding at a petrol station in the capital's western Mansour district, killing 13 people and wounding 22. Sadly this incident is just one of countless explosions, but it provides yet another case of New Year's explosions.
Hopefully these out of hand firework shows are not a prelude to further "celebrations" in 2007. In any case, we at the Weekend Economist suggest you all stick to the less fulminating crackers and wish you a Happy New Year!!!
Three people were killed and more than 38 injured in Bangkok by a total of eight explosions. A bomb also exploded in a mosque in Chiang Mai on January 2, but according to the Chiang Mai police, the mosque's janitor confessed to making the bomb himself. As for the Bangkok bombings, nobody claimed responsibility. Prime Minister Surayud Chulanont, however, appears convinced that former Prime Minister Thaksin Shinawatra ordered dissident soldiers and police to plant the bombs and make it seem as though it was done by the Southern insurgency. Thaksin, on the other hand, denies all responsibility, claiming the bombings expose the flawed approach of the military government's new policies in dealing with the Islamic insurgency in the south of the country.
The bomb in Madrid's international airport took place in the terminal's car garage and saw two deaths (both Ecuadorian citizens) and 26 people with slight injuries. The deaths are the first attributed to ETA in three years. An anonymous caller warned of the bomb ahead of time, saying it was planted by the Euskadi Ta Askatasuna (ETA - a Basque separatist movement). Some ETA members have since denied being involved in the blast, creating some confusion on the matter. Nevertheless, it seems likely that despite the ceasefire that was declared in March 2006, ETA is behind the bombing. The question is rather, why now?
At least five people have been killed and 50 injured after a bomb attack on a bus in Sri Lanka, with the blast occurring near Nittambuwa town, 40km north-east of Colombo. While the defence ministry officials have blamed suspected Tamil Tiger rebels for the attack, the Tamil Tigers have denied any involvement. In fact, the Tigers condemned the attack, saying they reject the killing of innocent civilians. The Tamils (who make up almost 9% of the population and are mostly either Hindu or Roman Catholic) want an independent homeland in the north and east of Sri Lanka, where they form the majority. The Sri Lankan government is run mainly by Sinhalese (a mostly Buddhist group that makes up 78% of the population) and strongly opposes these secessionist ideas.
Baghdad is anything but immune to such scenarios of bloodshed, with two bombs exploding at a petrol station in the capital's western Mansour district, killing 13 people and wounding 22. Sadly this incident is just one of countless explosions, but it provides yet another case of New Year's explosions.
Hopefully these out of hand firework shows are not a prelude to further "celebrations" in 2007. In any case, we at the Weekend Economist suggest you all stick to the less fulminating crackers and wish you a Happy New Year!!!
Wednesday, January 3, 2007
#14 Transnistria at the Gates of the EU
The ringing in of the New Year has brought the EU two new members: Romania and Bulgaria. While this in itself provides plenty of space for discussion, a different, more obscure issue will undoubtedly begin to garner more attention in the coming years due to this event. The recent enlargement means that the European Union now borders Moldova; a notoriously impoverished country. While mass immigration to Romania and possibly further into the EU is a possible scenario, it is another issue that merits special attention.
In the East of Moldova, bordering the Ukraine, lies an area called Transnistria (also know as Transdniestr, while the official name is Pridnestróvskaia Moldávskaia Respública, or Pridnestrovie in short). It is a sovereign region that sought to remain a part of the Soviet Union and declared independence on September 2, 1990. Internationally Transnistria is considered part of the Republic of Moldova, although de facto control is exercised by a local separatist administration.
Transnistria has a reputation for being a haven for criminal activity such as smuggling and trading weapons, women, drugs, and counterfeit goods. The European Parliament's delegation to Moldova has even named Transnistria "a black hole in which illegal trade in arms, the trafficking in human beings and the laundering of criminal finance was carried on."
Of the approximately 700,000 inhabitants of Transnistria, almost one seventh is also citizen of Russia. Moldovans, Russians and Ukrainians constitute approximately an equal percentage of the population (around 30% each), only complicating the situation even more. Prior to the Second World War, 8% of Transnistrians were Jewish, but this has dropped to below one fourth of a percent today.
Transnistria is a close ally of Russia and the main reason for the relatively cold relations between Chisinau (the capital of Moldova) and Moscow. It has also caused friction between Russia and the EU, whose views of the status of Transinstria are rather different. On September 17, 2006, a referendum was held in Transnistria. 97.2% voted in favor of 'continued' independence and a free association with Russia, while 95% voted against a possible reunification with Moldova (Tiraspol Times). Voter turnout was 78.6%. The referendum was recognized Russia, but not by the European Union.
Right at the border of Romania, in the south of Moldova, lies another autonomous region known as Gagauzia. The majority of people here are Gagauz; a Turkic people who are predominantly Christian. Fortunately this region is rather peaceful, with the autonomy-granting "Law on the Special Legal Status of Gagauzia" passed by the Moldovan government on December 23, 1994, resolving peacefully the dispute that existed between Gagauzia and Moldova. Indeed, many European human-rights organizations recognize Gagauzia as a successful model for resolving ethnic conflict.
Such a resolution does not seem imminent in Transnistria however, meaning the EU will have to deal with the situation more proactively. This will have to include direct talks with Russia on the matter, which, being EU's main supplier of gas, automatically makes Europe weak kneed. The further East the EU goes, the closer it gets to mother Russia. Let's just hope that the increase in size that the EU gains by expanding eastward will also mean an increase in muscle. While the former Soviet states that are now in the EU were less tacitly influenced by Russia after the collapse of the Soviet Union, it is the territories that are now left between the EU and Russia where Russia's arm is still very strong today. Any move beyond the current EU borders will most certainly provoke a significant Russian response.
Reference
Tiraspol Times, http://www.tiraspoltimes.com/node/216
In the East of Moldova, bordering the Ukraine, lies an area called Transnistria (also know as Transdniestr, while the official name is Pridnestróvskaia Moldávskaia Respública, or Pridnestrovie in short). It is a sovereign region that sought to remain a part of the Soviet Union and declared independence on September 2, 1990. Internationally Transnistria is considered part of the Republic of Moldova, although de facto control is exercised by a local separatist administration.
Transnistria has a reputation for being a haven for criminal activity such as smuggling and trading weapons, women, drugs, and counterfeit goods. The European Parliament's delegation to Moldova has even named Transnistria "a black hole in which illegal trade in arms, the trafficking in human beings and the laundering of criminal finance was carried on."
Of the approximately 700,000 inhabitants of Transnistria, almost one seventh is also citizen of Russia. Moldovans, Russians and Ukrainians constitute approximately an equal percentage of the population (around 30% each), only complicating the situation even more. Prior to the Second World War, 8% of Transnistrians were Jewish, but this has dropped to below one fourth of a percent today.
Transnistria is a close ally of Russia and the main reason for the relatively cold relations between Chisinau (the capital of Moldova) and Moscow. It has also caused friction between Russia and the EU, whose views of the status of Transinstria are rather different. On September 17, 2006, a referendum was held in Transnistria. 97.2% voted in favor of 'continued' independence and a free association with Russia, while 95% voted against a possible reunification with Moldova (Tiraspol Times). Voter turnout was 78.6%. The referendum was recognized Russia, but not by the European Union.
Right at the border of Romania, in the south of Moldova, lies another autonomous region known as Gagauzia. The majority of people here are Gagauz; a Turkic people who are predominantly Christian. Fortunately this region is rather peaceful, with the autonomy-granting "Law on the Special Legal Status of Gagauzia" passed by the Moldovan government on December 23, 1994, resolving peacefully the dispute that existed between Gagauzia and Moldova. Indeed, many European human-rights organizations recognize Gagauzia as a successful model for resolving ethnic conflict.
Such a resolution does not seem imminent in Transnistria however, meaning the EU will have to deal with the situation more proactively. This will have to include direct talks with Russia on the matter, which, being EU's main supplier of gas, automatically makes Europe weak kneed. The further East the EU goes, the closer it gets to mother Russia. Let's just hope that the increase in size that the EU gains by expanding eastward will also mean an increase in muscle. While the former Soviet states that are now in the EU were less tacitly influenced by Russia after the collapse of the Soviet Union, it is the territories that are now left between the EU and Russia where Russia's arm is still very strong today. Any move beyond the current EU borders will most certainly provoke a significant Russian response.
Reference
Tiraspol Times, http://www.tiraspoltimes.com/node/216
For an interesting take on the capital, Tiraspol, visit the following website: http://www.lonelyplanet.com/journeys/feature/tiraspol06.cfm
#13 On Shutting the Kenyan Border
Where there is war, there are inevitably refugees seeking a safe haven in neighbouring countries. This is currently the case in Somalia as well, though the major fighting seems to have ended for now with the apparent defeat by Ethiopia of the Union of Islamic Courts militiamen. Nevertheless, there are still people fleeing the country. One such destination is Kenya. Kenya, however, borders the south of Somalia, which happens to be the part of the country where the Islamists have been pushed back to.
This has created the tricky situation where both genuine refugees and guerilla fighters are attempting to cross the same border. While shutting down the border is perhaps not the most humane action, it seems to be the most logical and effective option when keeping in mind the long term. Somali President Abdillahi Yusuf was thinking exactly that when he recently held talks with Kenyan President Mwai Kibaki at State House, Mombasa, urging Kibaki to prevent fleeing militia from leaving the country.
The two agreed not only to seriously tighten border security, but also to ensure no foreigner is allowed to enter Kenya from Somalia. This was decided after it was found that there are hundreds of foreign fighters near the border, among which an Ethiopian national with a Canadian passport who was the commander of the Ogaden National Liberation Front forces sympathetic to the Islamists. Many Eritreans and some Kenyans are also fighting on behalf of the Islamists, but even militiamen from as far away as Egypt, Chechnya, Afghanistan and Pakistan have been signaled. US marines operating in Lamu have pledged to help the Kenyans guard the border.
By shutting down the Kenyan border, the pursuing Ethiopian forces will find the last remaining UIC fighters all batched up in one area. Due to the superior military power of the Ethiopian forces and the disorientation of the militia, it should be a relatively simple task to round them all up and effectively end any hope they had of staging a counteroffensive. As for the Islamic forces that are already in Kenyan villages, they should be dealt with locally in Kenya and not allowed to re-enter Somalia.
There are two problems left to solve in the Somali conflict: 1. defeating the UIC, 2. building a stable Somalia with an effective central government. By dealing a final blow to the Islamists around Somalia's border with Kenya, one of the two problems will be solved, allowing for complete attention to be on solving the second problem.
This has created the tricky situation where both genuine refugees and guerilla fighters are attempting to cross the same border. While shutting down the border is perhaps not the most humane action, it seems to be the most logical and effective option when keeping in mind the long term. Somali President Abdillahi Yusuf was thinking exactly that when he recently held talks with Kenyan President Mwai Kibaki at State House, Mombasa, urging Kibaki to prevent fleeing militia from leaving the country.
The two agreed not only to seriously tighten border security, but also to ensure no foreigner is allowed to enter Kenya from Somalia. This was decided after it was found that there are hundreds of foreign fighters near the border, among which an Ethiopian national with a Canadian passport who was the commander of the Ogaden National Liberation Front forces sympathetic to the Islamists. Many Eritreans and some Kenyans are also fighting on behalf of the Islamists, but even militiamen from as far away as Egypt, Chechnya, Afghanistan and Pakistan have been signaled. US marines operating in Lamu have pledged to help the Kenyans guard the border.
By shutting down the Kenyan border, the pursuing Ethiopian forces will find the last remaining UIC fighters all batched up in one area. Due to the superior military power of the Ethiopian forces and the disorientation of the militia, it should be a relatively simple task to round them all up and effectively end any hope they had of staging a counteroffensive. As for the Islamic forces that are already in Kenyan villages, they should be dealt with locally in Kenya and not allowed to re-enter Somalia.
There are two problems left to solve in the Somali conflict: 1. defeating the UIC, 2. building a stable Somalia with an effective central government. By dealing a final blow to the Islamists around Somalia's border with Kenya, one of the two problems will be solved, allowing for complete attention to be on solving the second problem.
Tuesday, January 2, 2007
#12 About Dollars, Euros and Uncertain Times
With the Dollar at yet another unprecedented low (1.32 Dollars to the Euro on January 2nd, 2006), we are living in uncertain times. This uncertainty is not necessarily a bad development and for economists it is a very interesting time indeed. For one, we are going back to more fundamental aspects of monetary policy, economic strength et al.
It is very possible that we are witnessing the end of an era known as the dollar era. As the American economy stutters, the rest of the world is feeling the pinch. And this pinch is fueling a growing demand for Euros and Euro based assets and derivatives.
The Dollar originates from the German coin the Thaler, or, according to the Dutch, the Daalder. While the US Dollar has a European heritage, it soon became hegemony when in the post-war world the American Economy blossomed, bloomed and spread over the world. In international trade the Dollar had become the main standard of trade across the world. Practically all commodities are today still traded based on dollars. This means that as people trade on the global market, a Dollar surplus or deficit is created based on trade. This dollar is then, if desired, traded back into a local currency or asset. However, when the basic exchange metric (the Dollar in this case) starts to rapidly depreciate, so does that what you are exchanging if the underlying goods do not equally appreciate.
In these circumstances a lot of activity and volatility quite naturally occur in the exchange and commodity markets. Furthermore, it creates a large demand for hedging for those firms, enterprises or countries with considerable exposure. This hedging activity explains the rise of Euro or Gold assets vis a vis the Dollar.
In the future we must consider several scenarios which include a possible change in the Dollar as the exchange metric. This would be very bad news for America and Dollar based economies, as the change could worsen the anticipated American Economic downturn, which in today’s global economy affects nearly everybody. US demand for foreign goods is set to decrease with further Dollar depreciation, which will also dampen global growth elsewhere.
American consumer markets are an essential motor for the global economy. China has long realized this and has been very willing to provide credit for American consumers. However, with so much excess foreign provided credit, the already “maxed” out credit card consumer is expected to dramatically cut consumption. The end of the American Dollar hegemony is going to be bitter pill not only for Americans but for all of us in the global economy.
As the economic axis begins to swing away from America towards a Eurasian (with the emphasis on Asian) powerhouse, we can expect a vastly different economic and political paradigm to unfold. Maybe it is not such a bad idea to learn Mandarin after all.
It is very possible that we are witnessing the end of an era known as the dollar era. As the American economy stutters, the rest of the world is feeling the pinch. And this pinch is fueling a growing demand for Euros and Euro based assets and derivatives.
The Dollar originates from the German coin the Thaler, or, according to the Dutch, the Daalder. While the US Dollar has a European heritage, it soon became hegemony when in the post-war world the American Economy blossomed, bloomed and spread over the world. In international trade the Dollar had become the main standard of trade across the world. Practically all commodities are today still traded based on dollars. This means that as people trade on the global market, a Dollar surplus or deficit is created based on trade. This dollar is then, if desired, traded back into a local currency or asset. However, when the basic exchange metric (the Dollar in this case) starts to rapidly depreciate, so does that what you are exchanging if the underlying goods do not equally appreciate.
In these circumstances a lot of activity and volatility quite naturally occur in the exchange and commodity markets. Furthermore, it creates a large demand for hedging for those firms, enterprises or countries with considerable exposure. This hedging activity explains the rise of Euro or Gold assets vis a vis the Dollar.
In the future we must consider several scenarios which include a possible change in the Dollar as the exchange metric. This would be very bad news for America and Dollar based economies, as the change could worsen the anticipated American Economic downturn, which in today’s global economy affects nearly everybody. US demand for foreign goods is set to decrease with further Dollar depreciation, which will also dampen global growth elsewhere.
American consumer markets are an essential motor for the global economy. China has long realized this and has been very willing to provide credit for American consumers. However, with so much excess foreign provided credit, the already “maxed” out credit card consumer is expected to dramatically cut consumption. The end of the American Dollar hegemony is going to be bitter pill not only for Americans but for all of us in the global economy.
As the economic axis begins to swing away from America towards a Eurasian (with the emphasis on Asian) powerhouse, we can expect a vastly different economic and political paradigm to unfold. Maybe it is not such a bad idea to learn Mandarin after all.
Monday, January 1, 2007
#11 A New Security Paradigm?
The previous bipolar contestation between East and West was based upon which economic doctrine should prevail. Today’s primal security concern is that of energy resources. In Europe, the recent squabble between Russia and Belarus is threatening to disturb the ease with which Western Europe is able to turn up the thermostat in the (so far) mild winter.
The big change is that Russia seems more interested in earning top dollars for its resources, rather than subsidizing its neighbors and allies. Russia is no longer interested in “giving” its gas resources away cheaply when there are well paying, gas hungry customers around the corner. This could be good news for Europe, as this signals the intent of Gazprom to be more of a business partner rather than a political instrument: although in reality it is clearly both.
According to spokesman Sergei Kupriyanov, Gazprom is not Santa Claus. Isolated and dictatorial Belarus was accustomed to buying gas at a nearly 70% discount relative to market prices (around 46$ per 1000 cubic meters). Gazprom wants around 200$ per 1000 cubic meters. In the newly announced deal, Belarus will now pay around 100$ per 1000 cubic meters, which, looking at current prices, can still be considered a sweet deal.
If the re-pricing had been more aggressive, it would have created more pressure on Belarusian president Alexander Lukashenko by effectively ending a multibillion subsidy. Although the re-pricing is a welcome step in the right direction, it is merely Russia flexing its muscles. However, in the long term these are good signals to shareholders who are not keen on Gazprom being used as a political subsidy agent.
Looking at Western Europe, their dependence on foreign hydrocarbon sources remains a critical issue because, as the Economist put it, “a new hegemony, based on pipelines rather than tanks, is advancing”. As Europe's thirst for Russian resources increases, their independence decreases; and this time there is no “Iron Curtain” to hide behind.
The big change is that Russia seems more interested in earning top dollars for its resources, rather than subsidizing its neighbors and allies. Russia is no longer interested in “giving” its gas resources away cheaply when there are well paying, gas hungry customers around the corner. This could be good news for Europe, as this signals the intent of Gazprom to be more of a business partner rather than a political instrument: although in reality it is clearly both.
According to spokesman Sergei Kupriyanov, Gazprom is not Santa Claus. Isolated and dictatorial Belarus was accustomed to buying gas at a nearly 70% discount relative to market prices (around 46$ per 1000 cubic meters). Gazprom wants around 200$ per 1000 cubic meters. In the newly announced deal, Belarus will now pay around 100$ per 1000 cubic meters, which, looking at current prices, can still be considered a sweet deal.
If the re-pricing had been more aggressive, it would have created more pressure on Belarusian president Alexander Lukashenko by effectively ending a multibillion subsidy. Although the re-pricing is a welcome step in the right direction, it is merely Russia flexing its muscles. However, in the long term these are good signals to shareholders who are not keen on Gazprom being used as a political subsidy agent.
Looking at Western Europe, their dependence on foreign hydrocarbon sources remains a critical issue because, as the Economist put it, “a new hegemony, based on pipelines rather than tanks, is advancing”. As Europe's thirst for Russian resources increases, their independence decreases; and this time there is no “Iron Curtain” to hide behind.
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