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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.

30 April 2006

The oil CEO

This is from James K. Glassman at the American Enterprise Institute; it captures nicely the downside of the high-pitched rhetoric in Washington (the same dilemma applies to foreign producers who are both demonized and expected to invest money to expand their supply of oil): “Imagine you're the CEO of an oil company today, listening to Specter talk about a windfall profits tax, the President go on about "addiction" or Frist about "price gouging." Your main job as CEO is to allocate capital, to decide where to put your shareholder's money for the long term. Are you encouraged to make "strong re-investment [of] cash flows" in this environment? I doubt it. Maybe the best idea is to stash the cash in Treasury bills or buy a retail chain or give the money back to investors.” (link)

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Is the IEA the solution?

In the search for creative ideas to our energy crisis, Jim Hoagland argues that the International Energy Agency needs expanding: “The IEA, founded in 1974 as a counter to OPEC, has been allowed to languish since then and has a professional staff of only about 150. But it has the potential to become the effective advocate and coordinator for oil-importing countries that U.S. officials foresaw at its outset. Western leaders urgently need not only to calm their publics about energy supplies but also to begin a long-term program to reduce their vulnerabilities to foreign upheaval and blackmail. Bush and Merkel should put revitalization and redirection of the IEA at the top of their talks, which should cover a lot more than the price of gas.” (link)

Put aside for now that the IEA already covers more than the price of gas; and put aside too that supply cushions (which is what the IEA does) make more sense for oil and gasoline than for any other commodity—coal and nuclear is not usually traded in international markets, and natural gas is hard to store for strategic reserves. Still, what are the merits of strengthening the IEA as an instrument in the West’s energy strategies?

International institutions work best when there is sufficient common ground for cooperation and when the problem is essentially one of coordination. It is not clear that this description fits the energy situation today. Western countries have different preoccupations and concerns—witness the European reaction to the Ukraine crisis. No common approach was forged not because the institutions for doing so were lacking (though they were), but because countries who felt vulnerable to Russian gas did not want to go too far in alienating their Russian suppliers. No institution can bridge such a gap.

The call for institutional creativity and energy diplomacy reflects a conceptual shortfall in consumer countries. Energy pervades all issues, we are told; but there is little systematic attempt to place energy within a broader foreign policy framework. Energy is a tool for policy, a catalyst for relations between producers and consumers; but energy diplomacy often treats energy problems as energy issues, rather than reflections of broader political trends. Does Russian’s gas diplomacy reflect energy policy or is it rooted in Vladimir Putin’s perceptions of the role Russia should have in the world? I trust the latter.

This brings me back to the IEA. Crisis management and research are two things that the IEA does best because an energy institution can best deal with energy issues. Energy diplomacy is political and hence best left to states that can judge the relative goals and tradeoffs of their policies. This is the reason I am pessimistic about the promise of the IEA and why I doubt it is the proper instrument for policy action.

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27 April 2006

Fighting for oil?

“Why does America fight?” asks John B. Judis of The New Republic. Simple answer: “Oil.” The bookends to his article should highlight his thinking:

“It’s not fashionable to say this, but the Iraq war was about oil. Not entirely, but certainly more than it was about weapons of mass destruction or a link to Al Qaeda. The 1991 war with Iraq was also about oil, and if the United States goes to war in the future with Iran or with China, it will likely be about oil.

The United States could follow a different strategy, combining drastic conservation at home with an attempt to work a new international oil agreement that would prevent competition over supplies giving rise to war. Call it green internationalism. But don't expect the Bush administration to undertake either of these steps. And don't, unfortunately, expect a cautious Democratic administration to do so either.”

Put aside the pretentiousness of the article: “it’s not fashionable to say this, but the Iraq war was about oil,” writes Judis, as if offering going out on the limb or a profound truth that is obvious and elusive to us lesser readers. Put aside still the ridiculousness of “green internationalism,” an idea that is vague as it is non-useful. The problem is that Judis explains world through the lens of oil, rather than placing oil within the context of politics.

America’s beef with China, he writes, will be about oil. So is the dispute with Iran; and the nuclear deal with India. But taking oil as the cause for conflict is misguided: why do we think America will fight with China over oil, but not with Japan or Western Europe? This a ridiculous question, you may think, but it goes to show that oil alone is the not the cause of conflict. Would America feel as threatened by Iran if it were ruled by different people? The oil would still be there, but would America fight? Regimes matter and it is more useful to ask under what conditions and against whom a country would fight over oil.

What about the objectives of war? In the worst case, Judis writes, America “can seek privileged access to the world oil supplies and prevent other countries from gaining similar access.” Interesting point, but where is the link to war? And what is privileged access? America’s military posture in the Middle East increased when American corporations, and hence American profits, were expelled from the Middle East. The fear was the Soviet Union and later Iraq. For America, “similar access” has been rather different than taking over or controlling states, much as Judis thinks about the Iraq war.

The idea that America fights for oil is not wrong; just incomplete. And so it deserves a deeper understanding that Judis has given us in this article.

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26 April 2006

Gasoline politics

From the Wall Street Journal:

“A decent portion of the latest run-up in gas prices -- and the entire cause of recent spot shortages -- is the direct result of the energy bill Congress passed last summer. That self-serving legislation handed Congress's friends in the ethanol lobby a mandate that forces drivers to use 7.5 billion gallons annually of that oxygenate by 2012.

At the same time, Congress refused to provide liability protection to the makers of MTBE, a rival oxygenate getting hit with lawsuits. So MTBE makers are leaving the market in a rush, while overstretched ethanol producers (despite their promises) are in no way equipped to compensate for the loss of MTBE in the fuel supply. Ethanol is also difficult to ship and store outside of the Midwest, which is causing supply headaches and spot gas shortages along the East Coast and Texas.

These columns warned Republicans this would happen. As recently as last year, ethanol was selling for $1.45 a gallon. By December it had reached $2 and is now going for $2.77. So refiners are now having to buy both oil and ethanol at sky-high prices. In short, the only market manipulation has been by politicians.”

References:
“Denny Pelosi,” Wall Street Journal, 25 Apr 06

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25 April 2006

Gas Flaring

From the World Bank: “The Global Gas Flaring Reduction partnership estimates that over 150 billion cubic meters of natural gas are being flared and vented annually.  That is the equivalent of the combined annual gas consumption of Germany and France. The public-private partnership of governments, state-owned companies and major international oil companies, which is chaired by Bank, estimates that CO2 emissions from flaring are about 13% of committed emission reductions by developed countries under the Kyoto Protocol for the period 2008-2012.” (link)

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19 April 2006

Think small on energy

The obsession with alternative energy has morphed into an obsession with alternative reality. There is no managed transition to cleaner fuels, just a desire to get there; whatever fuels we use today—oil, gas, coal, nuclear—are all bad. America needs secure energy, we are told, but no plan is good enough—no new LNG terminals, no drilling in ANWR, no nuclear power plants. The universe of renewable and affordable energy is there for us to grasp, if only the government would pass the right laws, laboratories researched the right technologies, OPEC could be broken apart, America could stop importing so much oil, and oil companies ceased to be so greedy.

This narrative is becoming increasingly convincing, particularly among Democrats, though populism against “Big Oil” is party-blind. New Jersey’s two senators, Frank Lautenberg and Robert Menendez, want the president to bring action against OPEC members who belong to the World Trade Organization for inhibiting commerce. The Federal Trade Commission, the same senators say, should “hold the big oil companies accountable for their actions against US consumers.” Senator Charles Schumer (D-NY) wants the FTC to investigate whether refineries are creating an artificial shortage to make profits. And Senator Maria Cantwell (D-WA), along with fifteen other senators, says America needs “a tough law that prevents profiteering in the oil and gas industry.”
There is truth, no doubt, in these concerns—to be in the WTO and maintain quotas in crude oil exports is duplicitous. What is disconcerting, however, is the growing inability to have a realistic discussion about energy. False myths pervade the debate, as does an unrealistic faith about how to escape America’s energy predicament. Energy independence seems to be the consensus, but there is no blueprint to achieve it. And even if energy independence were possible, it would still be a bad idea, serving only to blur productive discussion on energy policy.

At its core, energy independence is a form of energy isolationism. Get things right in America, it whispers, and all will be good. But follow the dreamers’ logic and theirs is a dead-end. Strike out oil and gas, replace it renewable energy, and the Middle East is still a place where America will have interests; it will still need to maintain stability; will it let China or India take the lead; could it risk the global recession that would ensue if a regional war were to break out? American foreign policy in the region has taken forms, mostly unrelated to the precise number of oil barrels consumed. Its foreign policy ends are reflected in its perception of its role in the world; its foreign policy means mirror its faith in the tools of statecraft: diplomacy, coercion, war.

America’s power projection in the Middle East may have been imperfect—September 11 showed that much—but at least it recognized that policy was subject to immutable laws, to inescapable trade-offs. Deplorable as many find the bargain that America made with Saudi Arabia, its premise was that the American economy and way of life would be threatened if Saudi Arabia fell either to the communists or to religious extremists. There was a cost and a benefit, even if the magnitude of both can only be revealed in hindsight.

It is these tradeoffs that contemporary discussions try to avoid. Saudi Arabia and Kuwait need to invest more, they are told; but then the president pledges not to consume their oil. China is blamed for its guzzling demand, yet when it tries to expand the supply of oil by going to places Westerners avoid, it is blamed still for supporting unsavory regimes. Congress mandates ethanol use and then refuses liability protection for MTBE; when the predicted shortfall in gas increases prices, refineries and oil companies are targeted for blame.

Energy policy in this country has suffered from big ideas. A step in the right direction is rejected because it is not a leap; the dream is for all problems to be solved at once or not at all. There is no nuance, no subtlety, no priority. Energy geopolitics is nasty and difficult to deal with as it is. Wishing this wasn’t so makes it no less nasty and slightly more difficult. Stop obsessing about the energy of the future, and let us manage the energy of today. Let’s just do it a little bit better.

References:
Anne Applebaum, “Tilting at Windmills,” Washington Post, 19 Apr 06 (link); Nick Snow, “Democrats press Bush to act as energy prices increase,” Oil & Gas Journal Online, 19 Apr 06; “The Gasoline Follies,” Wall Street Journal, 28 Mar 06

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Impossible energy

Anne Applebaum writes in the Washington Post: “The problem plaguing new energy developments is no longer NIMBYism, the ‘Not-In-My-Back-Yard’ movement. The problem now, as one wind-power executive puts it, is BANANAism: ‘Build Absolutely Nothing Anywhere Near Anything.’ … There's a lot of earnest, even bipartisan talk nowadays about the need for clean, emissions-free energy. But are we really ready, politically, to build any new energy sources at all?”

I find this to be the most accurate assessment of the energy predicament that many Western states in general, and America in particular, face. Opposition to nuclear power is high; oil is perceived to be the devil incarnate, and so are the countries that either produce it or consume it. LNG is regarded as dangerous for security, pipelines dangerous politically (especially in Europe).

Exciting as it may be to believe that a renewable energy source is just around the corner, hoping will not make it so. We need to learn to live better with the energy sources that we have, not with the ones we wished we had.

References:
Anne Applebaum, “Tilting at Windmills,” Washington Post, 19 Apr 06 (link)

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17 April 2006

Katrina in photos

Columbia University announced today this year’s Pulitzer Prize winners. For Breaking News Photography, the Board recognized the Dallas Morning News Staff for their coverage of New Orleans after Katrina hit. It is a chilling collection, and I recommend you go through the twenty or so photos that were given the award (link).

Why Iraq?

Bob Herbert writes in The New York Times: “We were attacked by Osama bin Laden and Al Qaeda. What are we doing in Iraq? … That fear, and the patriotism felt by so many millions of Americans, have been systematically exploited by the administration. The invasion of Iraq was not about terror. It was about oil and schoolboy fantasies of empire and whatever weird oedipal dynamics were at work in the Bush family.”

Herbert is wrong on two counts, I think. The first is that Iraq had nothing to do with September 11. True, there was no direct connection, despite what Dick Cheney asserted time and again, between the September 11 terrorists and Saddam Hussein’s regime. The linkage between Iraq and Al-Qaeda may take years to probe fully, but in the strictest sense, September 11 was not made possible because of Iraq.

The more basic question, however, is whether September 11 was a political or a criminal act. If the answer is criminal, then going after Osama bin Laden would be the primary objective—to capture him and debilitate his terror network. If it were political, then two possibilities arose: the first would attribute this political act to the resentment that many Arabs and Muslims felt towards American foreign policy in the Middle East. Or, the act could be blamed on the political condition of many Arab regimes which have crushed dissent for so long and which maintain an airtight political space within.

It is in these terms that the invasion of Iraq ought to be understood. Criminal as the act may have been, eliminating bin Laden would have offered only temporary comfort. The underlying dynamics in the region were unfavorable to America. It is here that oil factors in: the explanation that September 11 was the product of Arab and Muslim hostility due to American foreign policy could not be accepted in full because an American retreat from the Middle East was not an option. A reorientation was necessary, and Iraq offered the easiest and most valuable target for such a reorientation, offering both the prospect for change and also offering the opportunity to withdraw American troops from Saudi Arabia.


It this logic that brought America to Iraq, and it is not unreasonable. Think what you will about the Iraq War. But when Bush’s critics resort to the most simple-minded explanations for the Iraq War, they are committing an error as basic as that which they accuse their opponents of committing: they are reducing a complex political event into its most reductionist components. And I have to confess that between the Bush motivations for the Iraq War and the accusation that America went in just for oil and “schoolboy fantasies,” I find the Bush view much more sophisticated.


References:
Bob Herbert, “The Fear Factor,” The New York Times, 17 Apr 06

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13 April 2006

Is freedom universal?

“I want you to understand this principle, and it's an important debate and it's worth debating here in this school [SAIS], as to whether or not freedom is universal, whether or not it's a universal right of all men and women. It's an interesting part of the international dialogue today.”

George W. Bush, speech @ Johns Hopkins SAIS, 10 April 2006

I doubt I will take the president’s advice. Freedom is universal, I have no doubt. But I find the question profoundly uninteresting, if not futile. It offers no answers: so what if freedom is universal? All people long to be free—the president is right. But it is unclear what this means for policy; not only because freedom is one desire among many, but because the idea that freedom is universal is a particularly bad starting point for foreign policy.

For a foreign policy centering on democracy promotion, the universality of freedom appears a solid basis. But this misreads the link between democracy and freedom: freedom is not the cornerstone of Western democracies, restraint is. Democracies exist not because of freedom, but as a way to safeguard it. Elections are meant to diffuse power, rather than just allow voters to choose their leaders. Democracy translates the desire for freedom by creating a space in which it is exercised—and this is done mainly through limiting everyone’s freedom.

The difference is not semantic. It raises the question of whether the desire for freedom can create a political order. Freedom is necessary but not sufficient in this view: the ability and willingness to compromise is more important. This is explains the disillusionment that often accompanies the first attempt to democracy—people think they will be free, but they rarely are. Their freedom depends not on their ability to vote (as many think), but on the success of the political system that will emerge from that voting to diffuse power. Their freedom depends on the inability of everyone else to have too much freedom.

Even more important is the misplaced emphasis on freedom for foreign policy: “I think elections are the beginning of the process, not the end,” the president said in that same speech. Elections work better when they express a variety of interests that already exist rather than when they try to produce that variety out of thin air.

The more important critique, however, is that the acceptance of state legitimacy, the cornerstone of realist thinking and the anathema to its critics, is fundamental to relations between states. When a state does not accept another’s legitimacy, there is no basis for cooperation. American policy often falters because it depends on regimes whose legitimacy America challenges; unwilling to punish or overthrow them, American policy is unable either to extract cooperation or to coerce it. Think of Syria or Iran: what agenda can America pursue with these countries when they know that nothing other than regime change will satisfy America—why comply?

It is against this contradiction that America has to conduct its foreign policy. The belief in freedom is noble—but it distorts both the promotion of democracy, which is better achieved when there is a basis upon which society can turn democratic, and it also hinders the advancing of many other fundamental American interests—say Syria allowing jihadis into Iraq, or Iran negotiating seriously over its nuclear program. That’s a high price to pay for not much in return.

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10 April 2006

George W. Bush

President Bush spoke at school today; it was a festive event, with the requisite weekend-long preparations that included security sweeps, a gradual transformation of school space to accommodate the president and a combination of enthusiasm and chatter than should accompany the president’s visit. The event wasn’t remarkable except for the fact that the president was speaking and this, in itself, accords the event a certain gravitas (link to transcript & video).

One thing that stood out and that I liked in the president was his willingness to discuss the long-term issues confronting this country. His wants to talk about Social Security, even though the political merits for doing so are thin; he wants to discuss immigration, even if the debate is overly emerged; and he wants to warn on the dangers on isolationism and protectionism, even though free trade has fewer and fewer friends.

I know you can find all sorts of arguments against the president and his policies—but there is something admirable for someone to be able to transcend politics (perhaps some would say too much so) and speak his mind, even if the articulation is not always the most eloquent. These are debates worth having and the president should keep speaking up.

(Photo from the White House website)

08 April 2006

The Zimbabwe black hole

Two reports on Zimbabwe reveal the extent of misery in the country: “Life in Zimbabwe is shorter than anywhere else in the world, with neither men nor women expected to live until 40, a new UN report says. Zimbabwe’s women have an average life expectancy of 34 years and men on average do not live past 37, it said. The World Health Organisation report said women’s life expectancy had fallen by two years in the last 12 months.” (link)

And another: “The country woke on Saturday to news of an overnight price rise that left bread 60% more expensive than the previous day. The southern African country’s official statistics agency announced that the annual inflation rate - already the highest in the world - was heading towards 1000%. Zimbabwe's main state media tucked the bad news in the middle of bulletins dominated by what critics call ‘useless speeches’ by officials from the government of Robert Mugabe, the president. But the new 913.6% inflation rate still announced itself loudly on the streets of Harare where survival remains a challenge even to citizens well practiced in the art.” (link)

01 April 2006

Death for oil?

From BBC News: “Chinese police have vowed to clamp down on pipeline oil theft, even threatening to impose the death penalty. According to police oil theft cost the industry more than 1bn yuan ($124.6m, £71.8m) and led to 2,877 arrests. Many cases were so serious they had "wrecked" production facilities, senior police officials told reporters. ‘Criminal punishments will be meted out, including the death penalty,’ said Ma Weiya, vice director of the police social security management department.” (link)

Does the word excessive come to mind?

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A nuclear gaffe

This is from All Headline News: “Officials at a German nuclear power station have admitted a grave error; officials have gone on the record saying they have lost the keys to top security areas within their own plant.” (link)