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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

28 March 2006

The endangered convert

Richard Cohen has a nice piece in the Washington Post on Abdul Rahman, the Afghan who converted to Christianity and was threatened to be executed as a result: “The groupthink of the Muslim world is frightening. I know there are exceptions -- many exceptions. But still it seems that a man could be killed for his religious beliefs and no one would say anything in protest. It is also frightening to confront how differently we in the West think about such matters and why the word ‘culture’ is not always a mask for bigotry, but an honest statement of how things are. It is sometimes a bridge too far -- the leap that cannot be made. I can embrace an Afghan for his children, his work, even his piety -- all he shares with much of humanity. But when he insists that a convert must die, I am stunned into disbelief: Is this my fellow man?”

Whenever I reflect on radicalism, I am always reminded of the words of Malcolm Kerr, wrote after the Six-Day War: Arab politics “had ceased to be fun. In the good old days most Arabs refused to take themselves seriously and this made it easier to take a relaxed view of the few who possessed intimations of some immortal mission.” The region has become far more serious since. Too serious indeed.

Richard Cohen, “Unfathomable Zealotry,” Washington Post, 28 Mar 06 (link)

27 March 2006

Divorced while asleep

From Al-Jazeera: “A Muslim couple in India have been told by local Islamic leaders that they must separate after the husband ‘divorced’ his wife in his sleep. The Press Trust of India said in a report published on Monday that Sohela Ansari had told friends that her husband Aftab had uttered the word ‘talaq,’ or divorce, three times in his sleep. When local Islamic leaders heard about the incident, they said Aftab's words constituted a divorce under an Islamic procedure known as ‘triple talaq’.” (link)

Senator Schumer in China

In April 2005, Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) proposed legislation to impose a 27.5% tariff on all Chinese goods if, within two years, China had not taken immediate and concrete steps to let its currency float. They withdrew it under pressure from the administration but promised to bring it to the floor some time in the future.

Given that this legislation has been brewing for some time now, it is encouraging to see Senators Schumer and Lindsey finally make it to China (first trip for either). Mr. Schumer said: “I was very frank with the vice premier. I said when I came here I thought the Chinese policy was sort of mercantilist, aimed at accumulating wealth. And now I see that there is an added dimension.” Mr. Graham: “The challenges this country faces are greater than I realized.”

For one, it is good that a “fact-finding” trip takes place a few years after both have been demonizing China for its mercantilism. The New York Times writes, “Maybe the chance to talk face-to-face with Chinese on their home turf is what it took to make Mr. Graham and Mr. Schumer realize that just as trade is a two-way street, so too are sanctions.”

Maybe. But what is more likely is that the two Senators appreciated the complexity of the issue at hand. Americans may focus inadvertently on a rising China, but the Chinese see a massive challenge ahead: how to bring prosperity to the poor hinterland; how to preserve the stability of the communist party and the legitimacy of rule; and how to build institutions that can cope with the explosive growth that China has experienced.

For Senators wanting to make foreign policy, it should not take them a trip to China to realize this elementary fact. But if that’s what it takes, too bad they didn’t go earlier.

Jason Dean, “A Senate Test of Protectionism,” Wall Street Journal, 25 Mar 06; “Mr. Schumer Goes to China,” New York Times, 27 Mar 06


26 March 2006

Sensible anti-Americanism?

Jim Hoagland in the Washington Post: “In radical Islamic propaganda, the United States has graduated from being a mere Great Satan out to undermine Iran's ayatollahs to being depicted as a global monster responsible for virtually every crime and failing since the dawn of modern history. Meet the new Jews: the Americans.”

I sympathize with Hoagland’s observation that America is increasingly seen that way around the world; and I agree with him that this is a skewed and incomplete portrait of America. But I fear that America’s dialogue with the world is skewed by this distorted image: America’s supporters often dismiss their opposition because it assigns to America unreasonable ills. As a result, they overlook whatever legitimate complains others make about America foreign policy.

This is natural: when anger and reason mix (as they do in the discourse over America), anger is usually louder and more likely to provoke a defensive reaction. Polarization edges out policy disagreements—there is an underlying current of anti-Americanism that reflects the world’s anxiety about the buildup of American power, out of proportion both with what the rest of the world is doing and with the reasonable threats to American security; there is worry that America has the ambition to change the world but not the stamina to do so; and there is concern that America involves itself with insufficient attention to detail and locality, and when it finds things too complex, it either resorts to force or backs away.

The point is that there is a reasonable anti-Americanism out there; the perils of the “grand monster” depiction lie not in their inaccuracy but in their tendency to distort or overwhelm the accurate.

Jim Hoagland, “America, the global target,” Washington Post, 26 Mar 06


The intelligent Google user

“Are search engines making today’s students dumber?” asks Edward Tenner in the New York Times. The article is more anecdote than argument, but here is part of the thesis: “In the February newsletter of the American Historical Association, the reference librarian Lynn D. Lampert notes the prevalence of ‘ill-conceived (or often nonexistent) student research practices.’ As another university librarian, Pamela Martin, observed, ‘Google’s simplicity and impressive search prowess trick students into thinking they are good all-around searchers, and when they fail in library searches, they are ashamed as well as confused.’

Having spent a lot of time using both Google and Library searches (and having helped others master their skills in them) I think there are two impediments in searches: either people are not familiar with a program and hence don’t know how to do advance searches, are too timid to toss away a bad search or cannot recognize where along the way their search turned bad; or, the alternative, is that people do not understand how their search results do not match their desired outcome. The former can be overcome with practice, the latter hardly so.

Edward Tenner, “Searching for Dummies,” New York Times, 26 Mar 06 (link)

25 March 2006

War for oil, again

I came across this updated version of the argument that America went into Iraq for oil. This is from Greg Palast, an investigative journalist:

“And what did the USA want Iraq to do with Iraq’s oil? The answer will surprise many of you: and it is uglier, more twisted, devilish and devious than anything imagined by the most conspiracy-addicted blogger. The answer can be found in a 323-page plan for Iraq's oil secretly drafted by the State Department. Our team got a hold of a copy; how, doesn't matter. The key thing is what’s inside this thick Bush diktat: a directive to Iraqis to maintain a state oil company that will ‘enhance its relationship with OPEC.’

Enhance its relationship with OPEC??? How strange: the government of the United States ordering Iraq to support the very OPEC oil cartel which is strangling our nation with outrageously high prices for crude.” Specifically, the system ordered up by the Bush cabal would keep a lid on Iraq's oil production -- limiting Iraq's oil pumping to the tight quota set by Saudi Arabia and the OPEC cartel. There you have it. Yes, Bush went in for the oil -- not to get more of Iraq's oil, but to prevent Iraq producing too much of it.” (link)

Let’s put aside that a 323-page report has been summarized into “enhance its relationship with OPEC.” This article is a shorter version of a video that Greg Palast did for BBC’s Newsnight (link). The video covers more material and offers more nuance than this simplified story. For example, Palast writes that “‘It's about oil,’ Robert Ebel told me.” In fact, Ebel says that people think it’s about oil and that he disagrees. He says the invasion is about getting rid of Saddam Hussein and that the day after is about oil. Not quite the same thing as Palast’s snippet quote.)

I have a general aversion to such arguments. Asking whether America invaded Iraq for its oil is, simply put, the wrong question. Would Iraq have the same strategic importance without oil? No. Did America try to get Iraq’s oil? Well, international oil companies have been having trouble to get to the Middle East for years—the imposition of privatization after an invasion would be unstable and doomed to fail. It also doesn’t explain why other countries, where oil interests are equally powerful and would have profited more than they did under oil-for-food, did not support the war. Would America like it if Iraq’s oil industry approximated Western standards rather than copycat Kuwait’s, Saudi Arabia’s or Iran’s? Yes and there are signs that America’s originally supported group held such ideas (my mind is on Ahmed Chalabi; link).

A casual reading of the region’s oil politics reveals one disturbing truth: the advance of democracy is usually an inhibitor for energy interests, primarily because populist elements in legislatures (acute in Kuwait and Iran) block efforts to bring in international oil companies. The advance of democracy and the advance of “Big Oil” interests have hardly run in parallel. Finally, one suspects that America could have found a cheaper way to Iraq’s oil—oil-for-food maybe?

“War for oil” is a slogan, not an argument.


Political aversion

Sandra Day O’Connor and Roy Romer write in today’s Washington Post: “Fierce global competition prompted President Bush to use the State of the Union address to call for better math and science education, where there's evidence that many schools are falling short. We should be equally troubled by another shortcoming in American schools: Most young people today simply do not have an adequate understanding of how our government and political system work, and they are thus not well prepared to participate as citizens.”

There is something to be said about this. For me, however, the link is different: my occasional aversion to politics comes not from my failing to understand how government works, but from understanding it all too well.

Sandra Day O’Connor and Roy Romer, “Not By Math Alone,” Washington Post, 25 Mar 06 (link)

Inside Saddam’s Iraq

The Pentagon Joint Forces Command released yesterday the report of the Iraqi Perspective Project, meant to illuminate how Saddam Hussein viewed Operation Iraqi Freedom (full text). Foreign Affairs has put on its website an article that is based on that report and that will appear in the May / June 2006 issue (link). It’s an extraordinary look into Saddam Hussein’s Iraq, one that is rightly captured in the Foreign Affairs title: “Saddam’s Delusions.”

24 March 2006

Chirac’s walkout

Jacques Chirac staged a brief walkout from a summit meant to forge a common EU policy on energy after a French businessman spoke in English …

Tells you a lot about what common means in Europe these days. (link)


The American mindset?

I went to a presentation yesterday on the “Minorities of Greece.” The event series allows young aspiring policymakers to give presentations and get feedback from experts. The content of the presentation was interesting but immaterial to the point I want to make, though it suffices to say that the presenter was critical of Greece’s overall handling of minorities (the focus on the Chams who used to live in Greece but are now in Albania), with comments on the duplicity of not criticizing an EU member, potential destabilization in the Balkans and so on.

At the end of the talk, one of those providing feedback said something to the following effect (I paraphrase): “You touched on some big points but you buried them. You could have talked about how this links to the Iraq war and the effort to bring democracy and federalism as a way for minorities to live together; how it affects the accession of Turkey into the EU and the duplicity about the Armenians; how democratic values are endangered at their place of birth; and how if Greece gave compensation it would remove this potential de-stabilizer in the region; and so on.”

I was amused; and scared. Amused because here is one person who has no idea about anything on the topic trying to frame it in four or five different ways that are inapplicable, irrelevant, or both; scared because he is the kind of person making decisions.

Communicating the Iraq war

David Ignatius writes in the Washington Post: “Ask senior military commanders what they think about Bush and they will tell you they love his toughness -- but wish the White House could communicate its Iraq strategy better. Bush has tried. … But it's not working, and the president owes it to the troops, above all, to figure out a better way to communicate.”

The overall column is very interesting and I suggest reading it. I agree with Ignatius and would like add two problems I see with the Iraq communication strategy: first, it seems like the words are the same, and so is the tone. I haven’t looked into it, but I suspect you can find an overall correlation between current speeches and past ones (WMD rationale and all that notwithstanding) without much change over time.

The other defect is the spin. The inability to look at the broader picture and the anger towards those who disagree is particularly depressing. I think there is something to be said about the fact that the media tend to report one thing and others who come from Iraq (including so I have spoken to) say another. But this is a far cry from just lambasting the media for their coverage.

David Ignatius, “Communication Breakdown,” Washington Post, 24 Mar 06 (link)

The civil war in Iraq

Charles Krauthammer writes in today’s Washington Post that the debate over whether Iraq is having a civil war is meaningless since Iraq has been in a civil war for a long time: “those who have decided that because of ‘civil war’ it [a solution] cannot be done have been unreasonably panicked by something that has been with us all along.”

The best comment on the Iraqi civil war came from a Middle East who said (I paraphrase): “the big change is now Sunnis know two can kill. They used to think that if the Americans left, they could declare victory. They are no longer so sure.” It may be odd to hope for a balance of power (or maybe call it a balance of terror) to provide stability. In that sense, Iraq is making progress, not because there is civil war but because the cost-free support for the insurgency and one-sided belief that if the Americans left all would be good seems to be dissipating.

Charles Krauthammer, “Of Course It’s a Civil War,” Washington Post, 24 Mar 06 (link)

23 March 2006

The Israel Lobby

John Mearsheimer (U Chicago) and Stephen Walt (Harvard KSG) just released a study on the influence of the “Israel Lobby” on American foreign policy, with the premise that the Lobby steers America to a consistent and excessive pro-Israel position. The study has caused a thunder around here, and people are already posting rebuttals to it. I was very skeptical when I first heard about it, but then again I am familiar with Mearsheimer’s academic work and he is no dupe. So I read the study.

There are several interesting points, though the authors often stretch their points, especially when they try to settle historical facts that are still much disputed, though this is understandable since their argument is to show that America’s support for Israel does not spring from as clear a set of characteristics as one would think.

But there are two points the authors bring up that deserve more discussion: first, is the level of American support for Israel justified by the national interest? Given that Israel’s survival is no longer at stake, should America support Israel the way it does? And second, does America’s support for Israel distort American policies; particularly does it make it more confrontational towards Iran and Syria (the authors also have a section on Iraq)?

I don’t know the answer to these questions, but I know that there is something to discuss there. This study is bound to be controversial, but that’s no reason to avoid the issue.


21 March 2006

Adonis and the Arab condition

This interview, published on MEMRI, features the Syrian Poet Adonis (text / video). It is short and worth watching; here are some excerpts:

If I look at the Arabs, with all their resources and great capacities, and I compare what they have achieved over the past century with what others have achieved in that period, I would have to say that we Arabs are in a phase of extinction, in the sense that we have no creative presence in the world.

That is our real intellectual crisis. We are facing a new world with ideas that no longer exist, and in a context that is obsolete. We must sever ourselves completely from that context, on all levels, and think of a new Arab identity, a new culture, and a new Arab society.

The Muslims today - forgive me for saying this - with their accepted interpretation [of the religious text] are the first to destroy Islam, whereas those who criticize the Muslims - the non-believers, the infidels, as they call them - are the ones who perceive in Islam the vitality that could adapt it to life. These infidels serve Islam better than the believers.

Gas deal between Russia and China

Russia and China have agreed on a deal for Russia to provide natural gas to China. All the same, “Alexei Miller, head of Russia's gas monopoly Gazprom, told reporters that the timeframe and the scale of the deal had been agreed with China's oil and gas company, CNPC, but he said the financial details were yet to be negotiated” (link). There have been many deals that were agreed upon but never materialized. Meanwhile, I recall this wonderful essay by Selig Harrison, who will provide great insight to anyone interested in the geopolitics of gas in NE Asia (link).

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18 March 2006

The father and the war

There is a remarkable op-ed in today’s Washington Post, written by a father whose son spent two tours in Iraq (and just returned from the second). This is the link to the story.

The French barricades

John Thornhill, editor of the European edition of the Financial Times, has an excellent piece in today’s paper on the recent student riots in France; it’s a great article that should be read in whole, but it will suffice to quote two parts from it:

“Whereas the revolutionaries of ’68 wanted to change the world, those of today want to keep it much the same. Whereas the ’68 generation wanted to challenge their parents’ complacency, those of today want to enjoy the same privileges: secure jobs, short working weeks, early retirement and an enviably high standard of living

Instead, he [Dominique de Villepin] should argue that the students are on the wrong side of the barricades. Rather than condemning his half-hearted reform, they should support him in being far more radical – and egalitarian – and extending flexible labour contracts to everyone in the workforce. That really would shake the students’ parents out of their complacency – and be far more in the spirit of ’68.”

John Thornhill, “French students on wrong side of barricades,” Financial Times, 18 Mar 06

15 March 2006

Afghani oil & gas

This is from a Financial Times article: “Afghanistan’s untapped oil and natural gas reserves may be significantly larger than previously thought, according to the results of a survey by the US Geological Survey (USGS) and the Afghan Ministry of Mining and Industry released in Washington on Tuesday.” The estimated reserves are about 1.5bn barrels of oil and 15.6tr cubic feet of natural gas.

Anyone ready for the conspiracy theory version of the article: “that’s why America is occupying Afghanistan!”

Alexander Kliment, “Afghanistan’s untapped oil and gas underestimated,” Financial Times, 15 Mar 06


14 March 2006

BTC security

This is an interesting article from Defense News on the security of the BTC pipeline (link). Particularly interesting is the last quote from David Cooper, a defense consultant: “Pipelines are nearly possible to protect. But horseback patrols and ground sensors? They need high-resolution earth observation at a minimum … Even with the best of technology, you’ve got to have an entire organizational approach coordinated along the whole thing to secure it.”

13 March 2006

Chavez’s bad and ugly

Hugo Chavez is just too much to keep up with. Now he has changed Venezuela’s flag to add an eight star in honor of his ideological hero, Simon Bolivar, while also changing the horse on the country’s coat of arms to face left instead of right (link). A more serious issue is that Venezuela recently signed a mining deal with Iran, and there are concerns that Venezuela may be supplying uranium for Iran’s nuclear program (link).

Men who are too attractive

This is from Al-Jazeera: “Bangladeshi workers banned from Malaysia because local women find them too attractive are apparently now being smuggled in as students” (link).

12 March 2006

The circular logic on India

Robert Kagan writes in the Washington Post about the nuclear deal with India: “Were Congress somehow to reject the administration's deal in some effort to maintain a consistent principle on nonproliferation, it would have no effect on Iran's decisions. But that futile gesture would have a devastating effect on U.S. relations with India. In our less-than-ideal world, where, we are often told, America needs good friends and allies, that would be a terrible bargain.”

Isn’t that logic great: why should America sign a nuclear deal with India? Because now that America made a deal, it would look bad to reject it …

Robert Kagan, “India is not a precedent,” Washington Post, 12 Mar 06 (link)

11 March 2006

The US-UAE Free Trade Area

This is from Al Jazeera: “The United States and United Arab Emirates have postponed free trade talks, the US Trade Representative's office said on Friday, a day after a Dubai state-owned company said it would give up US port management operations to calm a political furor” (link). The Los Angeles Times reports on the same story: “The United States will resume talks in March on a free-trade pact with the United Arab Emirates despite an uproar over the Bush administration’s approval of a deal to allow a UAE company to operate terminals at six U.S. ports, a U.S. trade official said” (link).

It is needless to say that both reports come from an original Reuters story which resembles the latter more than the former (link). Either way, this is probably the first fallout from the Dubai Ports deal—after all, it was that political charge which created the need for a period to “cool off.” It may turn that the Dubai ports deal will help push the deal forward if only because Capitol Hill will be wary about rejecting a second economics deal with the UAE in such a short period. On the other hand, FTA have been an essential element in America’s Middle East diplomacy—one which, by the way, is helping contain the power of Saudi Arabia. It would be a pity if such a narrow minded definition of the national interests (i.e. not having Arabs running US ports) would undermine other diplomatic initiatives which are far more conducive to the national interest.


A letter on Larry Summers

This is a letter to the editor which appears in the Financial Times:

Sir, I feel compelled to write a reaction to David Allen's letter on the Larry Summers affair (“Leader must behave as decent person,” March 4). What struck me is the comment: “I have no personal experience of the man; but I have, as have many others, heard numerous accounts of his arrogance and bullying - accounts frequent enough to make me feel comfortable with their reliability.” Now, I do not wish to express any personal opinion on Larry Summers' performance as Harvard's president. Rather, I wish to object to publishing such a second-hand personal attack without any basis of evidence.

I think one can best judge a person's true character by how he/she treats what you might call "nobodies" - people so far below them on the power scale that there is no personal gain to be had from being nice to them. I have never forgotten how Larry Summers treated me when I was such a nobody.

In the early 1980s, I was an undergraduate at the Massachusetts Institute of Technology. I was a terrible student (ie, I was an engineering major with little interest in the subject and rarely saw the inside of a classroom). After my junior year, I was determined to stay in Boston for the summer to continue more "interesting" activities. I went looking at job postings and found that an economics professor named Larry Summers was looking for someone to do computer programming. There, at least, was something I could do - even a terrible engineering major knows more about computer programming than an economics major - so I applied for and got the job.

Now, the point of the story is this: after a few months, the blockbuster news broke that the famous Larry Summers had been stolen away from MIT by Harvard. My first thought was, of course, "Oh no, now I'm out of a job." But very soon, I got a phone call that went roughly like this: "Mike, this is Larry Summers. I've decided to go to Harvard. But don't worry. I've found someone else at MIT who will hire you."

Now this is what has always impressed me. Why, in the midst of all the pressure he must have been under at that time, would he have bothered to take the time to find a new job for an undergraduate research assistant?

Michael Keane,
Professor of Economics,
Yale University,
New Haven, CT 06520, US


08 March 2006

Barroso's idea

I thought this was a wonderful photograph of Jose Barroso launching the EU’s Green Paper on Energy Security.


Solana on the EU’s energy security

Javier Solana, the EU high representative for foreign policy, argues in the Financial Times for more dialogue with producer countries; he writes that, “most producers and all consumers have a shared interest in maintaining a stable, transparent framework in which the pricing mechanism can function as freely as possible. This means no unilateral measures and no ‘politicisation’ of energy exports to punish foes or reward friends. What we need is an orderly combination of markets, law and consensual negotiations.”

I have written elsewhere about why I think this overall approach is wrong (“Russia & energy security,” 25 Jan 06): “The more fundamental issue for energy security is whether it is possible to reconcile two competing visions of energy: producers wanting to form political partnerships and exert influence using their natural wealth, and consumers wanting access to that wealth with as few strings attached as possible.”

Mr. Solana recognizes that the EU needs to make its own market much more competitive. But the main  premise of energy security should be to recognize not the promise of markets alone, but their fundamental limitation in dealing with an essentially political issue.

Javier Solana, “Why Europe must act collectively on energy,” Financial Times, 8 Mar 06

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Rationing abundance?

Iran is the world’s fourth and OPEC’s second largest crude oil producer. Its conventional oil and natural gas reserves are both the second largest behind Saudi Arabia and Russia respectively. Yet Iran imports natural gas because it has not invested enough money to make gas production profitable. And today, Iran’s parliament passed a law to ration petrol (Iran has a small refining base and it imports gasoline -- link).

How sad…


Exxon’s aggressive strategy

ExxonMobil has just announced an aggressive strategy; its press release said that, “the company expects to start up more than 20 new global projects in the next three years to produce even more energy to fuel vehicles, light and heat homes, and power businesses around the world” (link). Its new chief executive suggested that “upstream projects, from the Caspian Sea to the deepwater Gulf of Mexico, could over time bring on the equivalent of 2.5 million barrels of new oil a day” (link).

This is interesting for two reasons. First it underlines the link between prices and investment—in a market which is so often presumed to be riddled with imperfections, there are certain sound dynamics at work and ExxonMobil’s plan reveals that. The second is that the presumption among industry experts is that the reason oil companies make so much money is that there are few good investment opportunities out there. Call it the end of easy oil. And also call it inaccessible oil, either for geology, geography or politics. The success of ExxonMobil’s strategy will be a good test case for this hypothesis.


07 March 2006

Nuclear power in Turkey?

This is an interesting story: Turkey’s energy minister, Hilmi Guler, has said that, “the rise in oil prices and the need for multiple sources of energy make our need for nuclear energy an utmost priority” (link). According to the minister, Turkey is considering building up to five atomic energy plants, the first of which would open in 2012. Currently, Turkey imports 90% of its natural gas from Iran and Russia, making the case for diversification rather strong. But while the economic logic for this move is sound, one has to wonder if Turkish leaders are looking at Tehran as much as they are at the energy numbers.


No gas deal before the elections in Ukraine

Ukrainian Prime Minister Yuriy Yekhanurov has said that an agreement with Russia about natural gas supplies will come after the March 26 election (link). This is the agreement that is supposed to settled long-term the dispute over volumes and prices which turned awry in December / January and which was resolved for the first half of 2006.

This postponement is hardly surprising since both sides have an interesting in waiting. Russia can maintain the fear in the mind of Ukrainian voters that its supplies are in jeopardy if it gets too close to the West; also, signing a deal now would accord the Yushchenko government a victory that Moscow would hardly wish to give. Ukraine is probably betting that a victory for the current administration would improve its negotiating position since it would show that Russia’s crass tactics did not pay off and produced a backlash.


06 March 2006

Kuwait discovers gas and more oil

The Kuwaiti oil minister has announced that Kuwait has discovered a field with natural gas and oil reserves (link). The estimates put the reserves at 35 tcf (with about 60 to 70 % recoverable) and the oil reserves 10 to 13 billion barrels. This is important both in that Kuwait does not produce natural gas and also because it underlines the potential to find oil and gas even in areas that are as well explored as Kuwait.


05 March 2006

Ready for China?

Sebastian Mallaby has an excellent article in the Washington Post on the growing tendency to use China as a scapegoat for the economic ills which are afflicting this country. I am reminded of this article by David Lampton in the winter issue of The National Interest which made the sensible observation that while America has tried to integrate China into the web of rules that make up globalization, it will become increasingly necessary for America to make its own adjustments to the new world that China’s rise is creating.

In meeting this adjustment, the furor is Washington does not bode well, especially given how hysterical Americans have become while China is still extremely poor on a per-capita basis (by which I mean: imagine how much more it can grow). Optimists like to point out that America went through the same phase with Japan in the 1980s. But I draw little comfort from that fact—the anger towards Japan subsided because the cold war ended (producing an excessive euphoria) and Japan went into a decade-long recession.

I am afraid the China-bashing is gaining its own momentum and this cannot be good for anyone.

Sebastian Mallaby, “Trade And the China Card,” Washington Post, 6 Mar 06 (link); David M. Lampton, “Paradigm Lost,” The National Interest, Winter 2005/06 (link)


Do oil imports matter?

I have put together this graph which shows the significance of import dependence. It plots the price of oil and US imports as a percentage of total consumption. The graph illustrates that there is no relationship between increased import dependence and prices. In fact, the correlation is negative (-0.59), indicating an inverse relationship whereby lower prices presumably boost demand and hence imports. In that sense, the underlying problem (high prices) and the articulated concern (import dependence) are unrelated.


A near miss in Abqaiq?

Gal Luft, executive director of the Institute for the Analysis of Global Security (link), wrote an op-ed in today’s Washington Post on the attack against the Abqaiq oil facility in Saudi Arabia. He says: “Had the terrorists succeeded in penetrating the guarded facility and detonating their bombs inside, they might have turned the complex into an inferno, releasing toxic chemicals that could have killed and sickened thousands of locals and expatriates, including many Americans, who work and live nearby” (1).

Dr. Luft is both right and wrong. It is true that success would have caused more damage than failure, but it is not true that this was a “near miss.” According to Saudi security adviser Nawaf Obaid, the car which penetrated the outer perimeter of the facility but was still stopped a mile away from the closest facility. Not exactly a near miss.

In a way, the emotional effect of terrorism has caused our imagination of what terrorists can do to outpace the terrorists’ own capabilities. This is a guerilla battle which is not asymmetrical; the success of terrorism depends, in large part, on the indefensibility of a country. But in a war on oil facilities, big guns, expensive radar systems, fast vehicles, trained military personnel, etc. counts. And it seems that the militants are no match for the Saudi security forces yet.

Another important point is the reaction to the attacks. When the militants first brought terrorism to Saudi Arabia (in May 2003), they were condemned because people thought they had gone too far (2). In reaction to this attack, the religious leader of Saudi Arabia issued a religious decree (fatwa) condemning the attacks, making the point that the attackers were threatening the collective wealth of the nation and were also provoking instability in the country that could excuse foreign intervention. This is not exactly the rhetoric that the militants depend upon to win, especially in a county such as Saudi Arabia where everyone’s wealth depends on oil. (The fatwa was read to me in Arabic and I have not found an English translation or link).

Does this mean that we should not fear such attacks? No. In all probability some attacks will take place, though the result will probably be less apocalyptic than is usually assumed. The key is to have appropriate reactions to such attacks. The problem, as Dr. Luft himself acknowledges, is that there is little spare capacity in world markets. But this is changing. Reports by OPEC (link) and even the IEA (link) predict that the call on OPEC (how much OPEC needs to product to balance supply and demand) will most likely remain constant over 2006. This means that increase in world oil markets will be met by non-OPEC supply, and OPEC supply expansion will increase spare capacity (link).

These are, of course, projections. But they underline two important themes: as long as spare capacity is the problem, the solution lies in more spare capacity, not unreasonable calls to reduce dependence for oil. In part this is happening, though the data is not 100% reassuring. The other point is about China—its overseas activities are contributing to a growth in supply which will alleviate pressures on the world oil market and contribute to everyone’s security. America may not like what China is doing, but it cannot demonize the world oil market while, at the same time, condemning China which is aggressive in trying to correct it.

(1) Gal Luft, “An Energy Pearl Harbor?” Washington Post, 5 Mar 06 (link); (2) Crisis Group, “Can Saudi Arabia Reform Itself?” Middle East Report No 28, 14 July 2004;

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04 March 2006

Growth in oil & gas reserves

Two interesting reports highlight the potential growth in oil and gas reserves in the United States. The Department of Energy released a report according to which, “state-of-the-art enhanced oil recovery techniques could significantly increase recoverable oil resources of the United States in the future. According to the findings [of the report], 89 billion barrels or more could eventually be added to the current U.S. proven reserves of 21.4 billion barrels.” The technology in question is mainly carbon sequestration, whereby carbon dioxide is reinjected into a reservoir to improve pressure and enhance the ultimate quantity of oil which can be extracted from a reservoir.

A second report from the energy consulting firm Wood Mackenzie Ltd. said that natural gas reserves in the Rocky Mountain can exceed 130 tcf by 2030 (they currently account for 57.5 tcf at the end of 2004, up from 19 tcf in 1977). This estimate was based on a statistical study of the rate of increase in reserves from 1977 to the present; if the current trend continued, the reserves could increase threefold in less than three decades.

Department of Energy Press Release, “New CO2 Enhanced Recovery Technology Could Greatly Boost U.S. Oil,” 3 Mar 06 (link); “WoodMac sees growth in Rockies gas reserves,” Oil & Gas Journal, 27 Feb 06


Oversupply of crude?

Edmund M. Daukoru, OPEC’s president and Nigeria’s oil minister, recently completed a tour of Washington where he said that “the market is indeed well supplied with crude today.” He said OPEC sees spare capacity at about 2 mbd, compared to other more gloomy estimates—the Energy Information Administration (EIA) claims only Saudi Arabia has spare capacity left and that’s about 1.1 to 1.6 mbd, although other sources put spare capacity for Saudi Arabia slightly higher at 1.5-1.8 mbd. Mr. Daukoru’s point, however, is to highlight that there is a slowdown in demand and that the supply-demand fundamentals are sound. Here is how the Oil & Gas Journal reported Mr. Daukoru’s talk at a luncheon sponsored by the US Energy Association:

“Daukoru said more downstream oil capacity needs to be developed. He noted that some of the integrated oil companies that once absorbed downstream shocks with more-profitable upstream operations have sold refining and marketing holdings to independent companies less able to absorb the jolts. … Noting that current oil prices are still lower in real terms than those of the early 1980s, he said OPEC tries to stabilize the market but has little influence over downstream bottlenecks, intense speculation, geopolitical events, and natural disasters.”

I have created this graph of commercial crude and gasoline stocks to show that there is evidence to suggest that what Mr. Daukoru says may be true. To be sure, this is data drawn from the US market alone, but they do highlight important realities. The first is that the excessive pressure of the two hurricanes, reflected in the dip in the second half of 2005 has eased. There is naturally a seasonal buildup in gasoline stocks, though even before the cyclical trend, there existed already a strong recovery in stocks, at about the level of late 2005. Crude oil stocks have also recovered, and the end of the graph suggests a slight increase in stocks, which could be attributed to both excess supply and downstream bottlenecks (mainly the inability to refine crude).

The two trends taken together suggest that there might be a slight glut, though not enough to drop prices. But as OPEC meets March 8, this is the picture they will be discussing. And it should not come as a surprise if the ministers decide to trim production a little bit.


The data for the graph comes from the EIA (link). Reports of the visit from Xinhuanet (link) and Nick Snow, “Daukoru: OPEC sees spare capacity market overlooks,” Oil & Gas Journal Online, 3 Mar 06. Estimates for spare capacity from EIA can be found here (link), and this paper from CSIS offers a slightly higher spare capacity estimate drawn from the Saudi National Security Net Assessment Project (link)


02 March 2006

America’s India deal

I was asked by two friends, both passionate about non-proliferation and neither a huge fan of George W. Bush, to explain why America would try to enter into a nuclear deal with India (link). Does this not undermine the efforts for non-proliferation, one asked me? And will this not spiral an arms race and antagonize China, asked the other? So let me say why I think America is doing it.

Start with non-proliferation. Skeptics of the deal will say that it undermines non-proliferation efforts and undercuts the West’s moral high ground in dealing with, say, Iran’s nuclear program. I think there are two points to make here—the first is that the Nuclear Non-Proliferation Treaty (NPT) is inherently flawed; by recognizing the duality of the system (nuclear haves and nuclear have-nots), it is prone to rhetorical abuse and feeds on the perception of global injustice. So sticking to the NPT offers little moral high-ground or cover.

The second point is that the NPT is a problematic treaty with glaring holes, particularly as it accords the statutory right to develop nuclear energy and then quit the treaty. The NPT was an effort to freeze things as they were when it was signed (signed in 1968 and entered into force in 1970). It is not unreasonable to adapt the treaty to new realities—India has nuclear weapons and no close attachment to the NPT will make that go away.

But does it not undermine efforts to non-proliferation? Here is how I think the administration views things. Any country recognizes that if it acquires nuclear weapons the world will have to pay attention. The costs that convince countries not to get weapons are associated with the development of weapons (diplomatic pressure and isolation, sanctions, and so on); everyone understands that after a country has acquired weapons, it will be more powerful. In that sense, the acknowledgement of India as a nuclear power does not change the calculus for other countries—they already know that nuclear weapons offer power without having to see India get a nuclear deal. As long as the West works on ensuring the path to nuclear development remains rocky, the cost-benefit calculus remains the same since the benefit lies in geopolitical power (which India has gotten already) rather than a nuclear deal (which India may get).

What about an arms race; and is it not irresponsible to give technology to a country that has developed nuclear weapons and stayed out of the NPT? Will this not fuel anxieties in Pakistan, China, and elsewhere? If I were in the administration’s shoes, I would probably think that there is geopolitical dynamic which has its own momentum; what happens between India, Pakistan and China is almost beyond America’s control (at least in the longer run). The best that America can do is get more leverage by offering nuclear technology and making future American assistance an asset that India will have to continually fight for. It gives America some control where it now has none; and it does so while India is still developing. Could America get the same deal in ten years; in fifteen? Maybe not. The deal also forces Pakistan (maybe China) to do more to court America lest it gravitates too closely towards India.

It’s a dangerous game, I agree. But depending on how pessimistic you are, this may make sense. At least that’s the best sense I can make of the administration’s mindset in striking this deal.

Ukraine’s nuclear alternative?

Ukrainian Prime Minister Yuri Yekhanurov has said that his country should move away from natural gas to nuclear energy (link). The profile I have appended below shows both the country’s heavy reliance on natural gas (44.54%) as well as its potential to develop nuclear energy (13.80% of total primary consumption). But whether it is reassuring that the country which gave us Chernobyl is rediscovering nuclear power is another story altogether. Is this better than being under the Russian shadow? No easy choices there, I guess.

Ukraine consumption profile
Oil: 348,000 bpd (12.18%)
Natural gas: 70.7 bcm (44.54%)
Coal: 39.4 mtoe (27.59%)
Nuclear: 87.1 terawatt-hours (13.80%)
Hydro: 2.7 mtoe (1.89%)
Source: BP Statistical Review of Energy, June 2005