#10 A True Man of Peace

A recently declassified document by the US State Department reveals that Nobel Peace Prize Laureate Yassir Arafat was not always so peace loving (whether he ever was is something I leave up to each of your own individual judgments). On March 1, 1973, Arafat ordered the Black September Organization members who seized the Saudi Arabian embassy in Khartoum, Sudan, to kill the United States ambassador, his deputy, and a Belgian diplomat. At the time there was a diplomatic reception at the Saudi embassy honoring the departing US Deputy Chief of Mission.

It is interesting to note that another Peace Laureate who is today trying increasingly hard to play a part in the Middle East peace process, Jimmy Carter, considered Arafat a "dear friend." One might expect that, given this new information, Carter's legitimacy should now be undermined in the eyes of US government officials. Sadly, this probably won't happen, given the fact that this is not entirely a new story. In fact, Kenneth R. Timmerman reported on this event back in June 25, 2001, but never found many ears that were willing to listen. You can find his report on the following website: http://www.john-loftus.com/welsh1.asp.

Given the fact that it has always been preferred by top officials to see Arafat as a man wanting nothing more than peace, this would be news is really worth little more than a shrug. This is especially so now hat he is no longer among us. I mean, why tamper with a noble (or should I say nobel) martyr? Although Abu Mazen (President of the Palestinian Authority, Mahmoud Abbas) has been accused of funding the Munich massacres, his slate record is virgin-like compared to Arafat's. Not to mention compared to that of any Hamas official. As such, I continue to place my hopes on Abbas, albeit skeptically due to the precariousness of his position.

The actual document from the Department of State can be found here: http://www.state.gov/documents/organization/67584.pdf

#9 Bluff vs Brilliance

The latest news in the conflict in Somalia is that Somali government troops and Ethiopian forces have entered Mogadishu without firing a shot. What's more, interim government Prime Minister Mohamed Ali Gedi was allegedly welcomed to the town of Afgoye on the outskirts of Mogadishu by dozens of clan leaders from the capital. I presume Mr. Gedi has never before felt this powerful. He has only the brilliance of Ethiopian Prime Minister Meles Zenawi to thank.

Zenawi said from the start that the aim was to come in with full force, inflict severe damage, if not total defeat on the Islamist fighters, strengthen Gedi and his government, help build an environment conducive for peace, and get out of there as soon as possible. So far Zenawi has been exceptionally effective and appears to be keeping all his promises. Zenawi's latest pledge: "We are discussing what we need to do to make sure Mogadishu does not descend into chaos. We will not let Mogadishu burn."

The Islamists, meanwhile, are threatening an all out "holy war" against Ethiopia with the help of a possibly large number of foreign Mujahideen. According to Islamic leader Hassan Dahir Aweys, the current retreat to the south is only for tactical reasons. This could signal serious conflict and bloodshed in a few days, but it could also be merely a last ditch effort to save face by bluffing. If the latter is the case, then we should logically presume that brilliance will overcome bluff without all too much trouble.

Once the definitive outcome of the direct conflict is known, it will be time to deal with a possibly much more challenging problem: installing an effective government capable of running the entire nation from the capital of Mogadishu.

#8 To Defend Oneself or not to Defend Oneself, That is the Question

On the evening of the 26th of December, as a result of one of the incessant rocket barrages on Israel emanating from the Gaza Strip, two teenage boys were seriously injured. One, a thirteen year old, is on his deathbed, and the other is in a stable condition. Another of these Qassam rockets struck a strategic installation in the port city of Ashqelon, causing only minor damage but giving rise to tremendous worry regarding the viability of Israeli communities in the vicinity of the border with Gaza. These tragic incidents follow closely the unexpected rapprochement between Israel and the Palestinian presidency which has led to the dismantlement of 27 roadblocks, the easing of security procedures at a number of checkpoints, and the transfer of USD 100 million to the Palestinian Authority through the offices of its Chairman, Mahmoud Abbas. Indeed, there has even been talk of releasing Palestinian prisoners from Israeli jails independent of any release of Gilad Shalit from Gaza, to which he was abducted from Israeli territory by Hamas militants in June.

Now that relations between the Israeli government and Mahmoud Abbas seem to be warming, the latter even calling for renewed peace negotiations, should Israel jeopardize the momentary lull in mutual recriminations by pursuing its assailants? After all, it seems clear that the attackers are not associated with Abbas’s Fatah party, and it is unlikely that they are acting under the aegis of Hamas. Given their operating methods, any attack on the Qassam launching cells, many purporting to be from the Islamic Jihad movement, will eventually result in undesired civilian casualties. These casualties will in turn result in a breakdown in confidence between Israel and its Palestinian partners, forcing an untimely end to any nascent peace process. So is it really in Israel’s best interests to seek out and destroy those responsible for launching rockets at it?

Irrespective of the answer, it looks as though Israeli Prime Minister Ehud Olmert will have no choice but to act. Since Israel and the various Palestinian factions agreed upon a cease fire agreement in November, there have been more Qassam rockets fired at Israel than in the preceding months, when Israeli forces actively sought out and frequently destroyed Qassam launching cells. During the so-called cease fire, nurseries, schools, and private homes have been hit in the Israeli town of Sderot, whose population has become accustomed to the constant wailing of sirens and whose streets are becoming increasingly deserted. On more than one occasion, Qassam rockets have come perilously close to striking sensitive strategic facilities in the port city of Ashqelon, and untold damage has been inflicted upon other smaller border communities. In one incident which made headlines in Israel, Minister of Defense Amir Peretz refrained from hitting a Qassam cell which was known to the Israeli Defense Forces in order to preserve the cease-fire.

This dogmatic adherence to the cease fire, however, has become untenable in the face of public outrage at continuing Qassam attacks. Minister of Defense Peretz is now among the most vociferous in calling for limited but effective defensive action against Qassam rockets. Similarly, other incidents of Palestinian violence have further shifted the public mood towards action, not least of which are the frequent shootings at Israeli targets throughout the West Bank. There are also those within the Israeli polity who believe that the renewed cordiality between Abbas and Israel is purely a ploy by which the former can obtain money and weapons from the latter as he struggles against Hamas for control of the Palestinian territories. If this is true, then Israel has little to lose by defending itself. Even if it is untrue, serious questions persist regarding the extent to which negotiating with Abbas is in any way productive; neither he nor his party are in effective control of the Palestinian government and both were handed a resounding defeat when they lost with quite some margin to Hamas in the Palestinian elections. If Abbas is not in control of the Palestinian territories, if he does not command the support of the larger Palestinian public, and if he has no legitimacy as the ultimate arbiter of any Israeli-Palestinian peace deal, then what does Israel really have to gain by pursuing dialogue with him and making unrequited concessions to the Palestinians?

The answer to that question may lie in a rather straightforward effort on the part of the Israeli government to strengthen Abbas in his conflict with Hamas, but there is no guarantee that such a strategy will prove fruitful. In supporting Abbas, Israel may well be undermining his credibility among Palestinians generally, who will be reinforced in their belief that he is little more than a stooge of Israel and the West. In clinging to the cease fire, Israel’s government is undermining its own credibility before an Israeli public which has turned against Olmert in the wake of the summer war with Hizballah. The primary responsibility of any government is maintaining the security of its own citizens, and Israel will lose little if it pursues a limited campaign against the Qassam rockets which will not include ground forces. Little wonder, then, that Olmert has this very afternoon announced that he will do just that.

- This article was written for and provided to the Weekend Economist by Jonathan Valk

#7 The Empire Strikes Back

The value of an oil firm lies in the value of its "proven" reserves. Determining the size, true value and exploitation costs is at best a murky business. The scandal of 2004, when Shell callously over estimated its reserves, has given past hydrocarbon portfolio holders a sour taste. Turning to Russia, the hunger for sweet crude in the Sakhalin fields is going to be bitter at best for foreign investors.

Shell's majority share was just recently bought out for 7.5 billion dollars, which gives Gazprom a 55% majority share in the mammoth fields. In Russian media the deal is noted as a Christmas gift for Gazprom. Although nothing more than a generous extortion, the deal could actually have been worse for Shell. Nevertheless, there will have to be yet another de-valuation of its reserves and hence, the intrinsic value.

There is some good news on the horizon: the threat of under investment was looming and after much haggling, Russia has now finally agreed to a new 20 billion dollar expansion of the mammoth project. Nonetheless, even when the Sakhalin fields get up and running, it is going to be an expensive money machine at best. The price of oil is an important factor in the overall profitability of the venture. The are certainly going to be some hick-ups along the way, notably in the short term.

The predicted weakness of the American Economy is brewing stormy clouds. The American consumer is already feeling the pinch of "expensive" oil as their purchasing power slides with a weakening dollar. And the front for commodity prices such as oil to be denominated in Euros is gaining momentum. Although this would be a welcome move for oil producers who are seeing their dollar assets slide, American consumers would finally be exposed to the real cost of energy and their inherent inefficient per capita mode of production. Higher prices would lead to a slowing American demand (something we are perhaps already starting experience), adding some downward pressure on the inescapable upward trend.

In the short and medium term there is much to be grumpy about and in the future even more to speculate about. Will this be the last wrestling match in Russia for state control of natural resources, or will the empire strike back yet again?

(Sources: Financial Times, NRC Handelsblad, the Economist, The Moscow Times)

#6 Welcoming the Ethiopian Infidels

Somalia is perhaps best known for the distinctly graphic First Battle of Mogadishu in 1993, which was the basis for the novel and movie Black Hawk Down. By the next year the US had fully disengaged, leaving the country in the chaos that ensued with the ouster of Dictator Mohammed Siad Barre in 1991. After years of civil war fueled by rival clans and a number of declarations of newly-independent states (e.g. Somaliland and Puntland), the UN installed a Transitional National Government, but it has failed to assert any real control.

Recently the Islamic Courts Union (UIC) has managed to more or less unite the country, for better or for worse. The Islamic group has taken control over much of Somalia, including the capital, Mogadishu, bringing a desperately needed sense of order. Let there be no mistake, however: I personally do not support any group that aspires to create a state dictated by Sharia law. A second Taliban playground is not a welcome solution, no matter how much unity it creates in a torn country.

In steps Ethiopia.

Ethiopia is a predominantly Christian nation and a supporter of Somalia's interim government. As such, it is far from being a dear friend of the UIC. With a declaration of "holy war" by the UIC in hand, Ethiopia's Prime Minister Meles Zenawi announced Sunday night that his country had dropped two bombs on Somalia's main airport, while Somali troops, backed by Ethiopian soldiers, captured a key border town (Belet Weyne). According to early reports, there were some celebrations among Somali citizens as government soldiers moved through the town and headed south in pursuit of fleeing Islamic militiamen.

Fighting is expected to continue to escalate, with reports of fierce battles in the main government town of Baidoa and other areas. Fear further exists that Somalia will become a proxy battlefield between Ethiopia (supporting the transitional government) and Eritrea (supporting the Islamists). With regular citings of foreign Islamic fighters and the US desire to stop the UIC, Somalia also looks set to become a key battleground in the War on Terror.

#5 Turkmenistan up for Grabs

Although generating surprisingly few headlines, the death of Turkmenistan's authoritarian president Saparmurat Niyazov is a very big deal. Granted, Commandante Fidel's loss (we believe he is still alive of course, but clearly not in a condition to rule the way we are used to of him) is a more high profile case, but Turkmenistan has much more to offer the world in economic terms.

Turkmenistan is home to the fifth-largest natural gas reserves in the world (proven reserves of 3 TCM) and holds substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored). Niyazov ruled Turkmenistan with an iron fist for 21 years, commanding more than only the post of President of the nation. This has meant that there is now a serious possibility of chaos in the nation as, according to Turkmen law, the president is succeeded by the head of the People's Assembly - a post that was held by Mr Niyazov himself!

A serious possibility is that Russia's long arm will reach deeper into Turkmen affairs, given Russian Foreign Minister Sergei Lavrov's swift response that "We hope a new leadership will act to benefit co-operation with Russia and to benefit the region as a whole." Perhaps all the days, cities, airport and meteorite that were named after Niyazov will now be renamed in the honour of soon to be departing Comrade Putin. The many statues might even suddenly find themselves with blond hair and blue eyes.

But on a more serious note, if Russia does gain more influence in Turkmenistan, this does not bode well for Europe's energy addiction. If, on the other hand, Europe steps in quickly to ensure a swift transition in the country, it might have found itself the perfect alternative to the fix provided by the mafia pushers in Russia. A big plus; Turkmenistan does not need Russia, thanks to her own rich energy resources, and can thus become a loyal ally if Europe plays its cards right...and quick.

See also post #37 Turkmenbashi Lives On

#4 Christmas Everyday

While Christmas has become synonymous to major shopping sprees, it is in fact a time when most economists are all too glad to spend a few days away from their lucid dreams of free market economics. Indeed, the rest of the year provides enough opportunity for thorough analysis. Spend some time on the internet and you may realize that it can be Christmas whenever you want it to be. Technology is changing the rules of the game and with certain goods (namely the digital ones), the very notion of transaction cost or ownership is far to be seen.

With cheap high speed internet, personal storage and computing and an almost virtual absence of governance, we are effectively living in a digital state of nature (see Hobbes). This is consequentially affecting the way we consume and produce goods and services in a profound manner. Well....

"If knowledge is power, then, technology must be empowering"

Just hold on a second, or two: We are no longer living in an information society, but rather a mass-information society. At a growing pace a tidal wave of information is produced that even the world's most advanced computer and record keeping systems have trouble keeping up to. Plus, with digital storage capacity growing exponentially, quantity is prevailing over quality in terms of information. That is if one can even make the distinction because the very notion of information value is subjective.

Now some economic philosophy: Anything too much is not necessarily more valuable. For example, imagine the following; you have a box that is large and hence infinitely unconstrained . This means no matter how large your box (and the stuff within it) it does not get more "valuable" in an infinite environment (especially if other individuals can replicate your situation without excessive cost). You may actually be better off without that infinitely growing box of stuff. This is because you are constrained with finite time to enjoy the contents of your box; not to mention the headache of managing it. To put it in "Burgundian" terms; what is the point in tasting all the world's wines if you can never truly enjoy one. In a world with infinite goods/information, less can certainly be more.

Therefore, if in the past we were accustomed to dealing with information asymmetries, today, and in the future, it will be information overflow. Hence, the value of knowledge is not in knowing, but rather – like with treasure – in where to find it.

Happy Holidays

#3 Africa - China's Training Ground

If the term "failed state" is used to define those states where government is unable to perform its basic duties, then Africa could be considered a "failed continent." Indeed, in the 2006 'Failed States Index' published by the US think-tank, The Fund for Peace, and by US magazine, Foreign Policy, 4 out of the top 5 failed states are located in Africa: 1. Sudan, 2. Democratic Republic of Congo, 3. Ivory Coast, 4. Iraq, 5. Zimbabwe.

Africa, however, is blessed with an impressive endowment of mineral wealth, which has not gone by unnoticed by the risk-loving Chinese. China is eager to snatch its share of Africa's near-global monopolies of platinum (89%) and diamonds (60%) and her significant proportion of the world's cobalt (53%), Zirconium (37%), and gold (28%) reserves (Jonah, 2005). Africa further boasts very sizeable reserves of coal, uranium, copper, nickel, natural gas, and most importantly, oil. While Africa currently accounts for 7% of the global total estimated proved oil reserves (EIA, 1999), the region has the potential to supply 25% of the U.S.'s oil imports by 2015 and already accounts for 30% of China’s imports of oil, according to Forbes. In fact, Angola has recently become China’s largest oil supplier, surpassing Saudi Arabia.

While Africa’s natural wealth is not a new phenomenon, China’s significant investments in the continent is. To highlight the stunning growth of trade between China and Africa, in 1999 the value of trade between the two was $2 billion, which grew to $29.6 billion in 2004 and is expected to reach $50 billion by the end of 2006 (IMF). In some countries, China has set up a near-monopoly in trade, importing 81% of Sudan’s global oil exports and 72.5% of Congo’s global exports in metals, while simultaneously accounting for 14.2% of Sudan’s total global imports and 9.1% of Ghana and Tanzania’s total imports (Kaplinsky, 2006).

The phenomenon of China’s trade in Africa presents the continent with a renewed opportunity to climb out of its current misery and forever shed the stigma of failure. What it also presents, however, is a perfect stage on which China can learn the ways of a global superpower. China is able to build her clout relatively quietly, while the old guard focuses their attention elsewhere. Not only is the Middle Kingdom securing crucial resources to sustain her incredible growth, she is also ‘playing the field’ politically. A similar pattern is emerging in Latin America; where China is slowly becoming a pain for the US, as Latin American countries that are fed up with the Americans for whatever reason now see China as the perfect alternative. Chavez’s open flirting with China is a good example of this. Given Chinese support to such rogue regimes as the Sudanese government and Mugabe in Zimbabwe, increased global Chinese influence is sure to rile the US further.

It is therefore imperative that the US takes note of China’s dealings in Africa, as it is sure to be merely the testing ground for further expansion. The US and the EU should engage with China in Africa, rather than compete directly, as it is impossible to beat the conditions given to African nations by the Chinese (China follows a policy of non-interference in other countries’ internal affairs and thus pays no mind to issues like corruption). China has already provided crucial infrastructure and real estate in exchange for trade deals and has provided loans and given debt relief to countries such as Angola, which was refused loans by the West unless it met certain governance requirements. Such conditions cannot be provided by the USA, EU or Japan, as it would mean a major loss of credibility, giving China a clear advantage. Only by engaging China in Africa can the US continue to exert influence and retain her credibility in the continent. The ultimate question is how to go about doing this. The US has little leverage in regard to China, seeing as the Chinese are supplying most of the credit to the US. The EU remains the largest investor in Africa, while the US is second and China third, suggesting that Europe should play a key role in engaging China.

One way to do this is by asking China to join the African Partnership Forum (a grouping of key African governments, Western development donors and African and international organizations), as suggested by Leni Wild and David Mepham of the IPPR. China should also be involved in other Western forums concerning Africa, while Europe and the US should ask to join existing Chinese forums discussing various issues with their African partners. The EU/China Co-operation Program should also put the issue on her agenda. It should be made clear to China that her image will be seriously tarnished unless corporate governance is incorporated into her dealings in the African continent. The African Union’s commitment to good governance should help in this respect.

In sum, China’s rising influence in Africa is a topic that consists of many branches (many more than have been touched upon above) and should prove to be of great significance in a global context. Other postings on the Weekend Economist will be sure to cover the issue from different angles.

References

EIA (1999) A snapshot of Oil and Gas in Africa Official Energy Statistics from the US Government, Energy Information Administration

Forbes (2006) http://www.forbes.com/business/energy/2006/10/06/energy-african-oil-biz-energy_cx_jc_1009beijing_energy06.html

IMF Direction of Trade Statistics

Jonah (2005) Presentation by Sam Jonah, former President of AngloGold Ashanti, University of South Africa, unpublished.

Kaplinsky R (2006) Winners and losers: China’s trade threats and opportunities for Africa, The New Sinosphere.

#2 Russian Roulette & Big Oil

(Sources: Economist, BBC NEWS, FT & Reuters)

The Sakhalin II Project is one of Royal Dutch Shell's largest undertakings in history. However, the Anglo-Dutch giant was dealt yet another blow by Russian national "strong arm" tactics.

Russia effectively needed a "casus belli" to re-ascertain its grip on its precious oil resources. This, of course, after 80% of the investments had been made by Shell & consortium. Gazprom & Co. knew very well that Shell was in no position to effectively negotiate or walk away for that matter. Gazprom had been inside the deal from day one; this to ensure political protection. However, Shell effectively paid the burglar to watch his house, only to find it held ransom.

To its credit, Shell has had much experience in extracting oil from regions with substantive political risk (i.e. Nigeria). It should have realized, as little red riding hood did, that offering cookies to grandmother Gazprom could mean that it would be eaten by the big bad wolf (Vladimir Putin) or the Russian bear in this case.

Sadly the oil sector in Russia needs quality investment and the Sakhalin drama comes at a bad time. On the other hand, another oil spike could lead to proportionally more investments into alternative energy solutions as political risks begin to outweigh technological risks.

There is a valuable lesson to be learned here. In fact this should serve as a warning to investors with foreign hydrocarbon portfolio exposure. The legacy of authoritarianism still upholds: if you're in need of a fix, do a favor to the boss. Beware of the big bad wolf. Unfortunately we can expect our appetites for oil to be spoiled by more "bad wolves."

Starring Chavez of Venezuela and Morales of Bolivia (not to mention the desert wolves in Iran and Saudi Arabia).

To be continued

#1 Introduction to the Weekend Economist "Quaerere Verum"

Welcome to Weekend Economist "Quaerere Verum!"

The Weekend Economist "Quaerere Verum" is a part of the greater Weekend Economist, which is an interactive space aimed at being both a source of information and a place for discussion on developing stories related to Economics, Business, Technology, Finance and Geo-politics. The Weekend Economist is aimed at global citizens who want to expand their scope and understanding of global affairs, without a necessary background in these disciplines.

The Weekend Economist draws its research from a range of sources, including the Financial Times, Forbes.com, The Economist, Wall Street Journal, BBC News, Financieel Dagblad (Dutch) and various academic publications. Various academic journals and publications are also addressed so as to ensure the quality of the references.

The Editors are Dutch born Jeroen van Bommel, BA/MA, and internationally raised Benjamin Valk, BA/BSc/MScBA.

Jeroen is based in the Netherlands and specializes in Political Economy, Science & Technology and Finance. Jeroen is also currently secretary to the Roosevelt Institute of the Netherlands and the European liaison for policy management on sustainable energy.

Benjamin is currently based in Japan and specializes in international political and business affairs. At the moment he is conducting research at the Graduate School of Asia-Pacific Studies, Waseda University.

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