Wednesday, December 10, 2014

Will the oil crash be the death of us all?

The recent drop in oil prices has many economists worried about the state of the global market.  On December 10th, crude prices hit their lowest in 5 years. The price for a barrel of oil has dropped 30% in the past three months. OPEC's latest monthly report, issued Friday, only accelerated the trend. Oil prices have not dropped this low in this short a period of time since the finance sector imploded in 2008. The 2008 crash was the expected result of a bubble. Oil peeked at around $150 a barrel before the 2008 crash. The present oil crisis is not merely an expected, if undesirable, effect of capitalism. It is the manifestation of novel economic factors. The U.S. is taking a lot of blame from OPEC. The U.S. is flooding the market with shale oil and gas, while demanding less oil and gas from the world market. This combination of demand-side and supply-side pressures is what makes this oil crash unique.

This CNBC piece discusses which countries will "Win" and "lose" the most from the drop in oil prices. I think mainstream news media needs to dedicate much more time to the geo-political ramifications of the oil crash. This is because oil money is the only thing allowing many oppressive governments around the world to hold up their ends of the social contract they have with their people. The oil-rich monarchies in the Middle East use their oil revenues to give their people free energy and myriad social programs. In exchange for these programs most residents are more than happy to forfeit what Americans would see as civil rights and liberties. If the price of oil stays too low for too long, there will not be enough money to buy the indifference to oppression needed to sustain autocratic rule over an increasingly literate populous. Saudi Arabia, Kuwait and Qatar have enough hard currency reserves to ride out this price drop. This fact explains the Saudi Oil Minister's, statement "why cut production?"  This comment hints at an OPEC gambit to force smaller producers out of business. If this is the case, the cartel is taking a massive risk. The damage to the, relatively stable, commodities backed securities market alone could initiate a negative feedback loop with disastrous consequences. Currency devaluation is another huge concern. As of now, most oil-dependant currencies are being cushioned with various reserves, if the oil slump outlasts the reserves, a global financial panic is likely.

Wednesday, November 26, 2014

A, More Restrained, British Analogue of the Patriot Act

The scale and nature of the controversy over the U.K.'s counterterrorism proposal is fascinating, in light of the acknowledged threat to the Western world caused by Islamist extremism. There are two major points of contention in the proposal. The first is a provision revoking the passport of any British citizen suspected of going to the Middle East for terrorist training. The second provision that has Britons worried would compel internet and cell phone service providers to record and store the electronic lives of suspected terrorists.

Opponents of the proposal see the revocation of one's passport as a violation of human rights and international law. They also perceive the surveillance provision as a violation of civil liberty. The proposed legislation seems very restrained and directed in comparison to similar laws in France and the U.S. The provision allowing for the revocation of one's passport only applies to suspected radicals who return to the U.K. after spending time in nations known to be hotbeds of Islamic terrorism, e.g. Iraq, Syria and Yemen. The provision is aimed at British citizens who have openly expressed sympathy, and in many cases allegiance, to groups like ISIS. It is unrealistic to expect any nation-state to repatriate citizens who claim allegiance to organizations openly advocating violent overthrow of that nation-state. Furthermore, unless one is part of a licensed humanitarian aid organization, there are very few legitimate reasons one would choose to spend their time in war-torn Northern Iraq. The passport control provision may cause some inconveniences for British Muslims returning home from business; religious; or family events through airports in cities like Riyadh and Dubai, as these airports often act as midpoints for those flying to less conventional destinations. However, there is so much legitimate traffic that flows from the Middle East to the U.K. every day that British border security will have no choice but to develop rigorous procedures for screening out potential threats.

One of these proposed procedures is electronic surveillance on suspected radicals. My understanding of the British legal system is, admittedly, very limited. I know that British law enforcement and intelligence services routinely surveil members of criminal or terrorist organizations. The aspect of this new proposal that seems to concern people is that it compels private companies to assist the government in spying on British citizens. I think the concern over the rise of ubiquitous surveillance states in the Western world is fundamentally valid. However, this practice seems little different than a detective asking a judge to subpoena the phone records of a suspected drug trafficker. The British law does not allow for the wholesale collection of every citizen's data for later analysis, as practiced by the American national security apparatus.

Wednesday, November 19, 2014

A Truly Fascinating Portrait of Geopolitical Intrigue

This article gives a complex, nuanced and insightful picture of an international flashpoint. Such depth is seldom seen outside of literature written for international relations professionals. This article is great because it constructs a compelling narrative for the reader, without cherry picking facts for the sake of a good story. The comparison of dour, icy-eyed, Finnish navy captain Markus Aarnio to Sean Connery's character in "The Hunt for Red October" humanizes Aarnio without cheapening the piece as a whole. The brief background portion of the article allows an uninitiated reader to gain a working understanding of the complex relationship between Finland and Russia, without having to do outside research.

Some of the most insightful ideas in the article came directly from the mouth of the Finish prime minister or, at least, his PR team. This, in itself, is worthy of comment.  Usually, politicians give the most ambiguous and inoffensive responses possible, or spout shallow and binarized rhetoric. Prime Minister Stubb does neither. Stubb calls Russia's policy of destabilization followed by intervention a "strategic mistake." Many other public figures would choose to fall back on loaded words like imperialistic or provocative. Stubb doubtless sees Russia's recent actions as both imperialistic and provocative, but it appears as though he sees saber-rattling as counterproductive. Stubb takes another political risk by placing partial blame for the current Russian situation on the West. Stubb seems to think the West put too much effort into trying to make Russia a "normal, liberal market democracy."  In light of the apparent failure of this effort, he calls upon the world to be "principled and pragmatic." This level of restraint is heartening because a nation under direct threat from Russia seems to be calmer and more grounded than more peripherally involved nations, like The U.S.

This article also provides an interesting perspective on the mindset of Vladimir Putin, through the words of two former Finnish ambassadors. Russia is painted as lost, and scrambling for anything to stave off an inevitable collapse.  Russia's reaction to the potential loss of influence in Ukraine was so aggressive because claims of national exceptionalism have to substitute for actual progress in Russia. An unnamed Finnish insider used the phrase, "... the Russian economy is living on borrowed time."  The inefficiency of Russia's whole petroleum infrastructure is greatly reducing output, to the point where many EU nations are considering looking elsewhere for their fuels. The recent drop in oil prices is putting even more pressure on Russia's precarious energy sector.  Finnish leaders are very worried about a Russian economic collapse; they fear a Putin with nothing to lose.  "Putin is no Gorbachev, he is not a guy who is going to give up. He will not go quietly." The insider's words have chilling implications.

Wednesday, November 12, 2014

Putin, You are Beginning to Bore Me

NATO has confirmed the movement of large amounts of Russian troops and military equipment into eastern Ukraine. This is seen as provocative by many world leaders. Russia's overt military buildup threatens the Sept 5th ceasefire. The international security establishment is worried Russia's mobilization will reignite "full-scale fighting in the region."  I don't understand why NATO, and the media, is still acting as if the ceasefire is holding. As of this article's publication, the Ukrainian military had initiated artillery bombardment of Donetsk. Artillery bombardment is the literal opposite of a ceasefire. The article claims that "hundreds of people" have been killed since the imposition of the so-called ceasefire. It seems as though people invested in the success of a ceasefire are just putting off having to admit their failure.

Every party involved, excluding those actually doing the killing, seems to just be going through the diplomatic motions. Russian military officials still insist that Russian troops are not fighting, in spite of the fact that these soldiers are routinely photographed in proximity to military equipment that could only have come directly from the Russian arsenal. The movement of short-range ballistic missiles and complex air defense systems into Ukraine negates any shred of possible deniability the Russians may have thought they still had.

The lack of any concerted global response fills me with profound ire. Russia has been in the process of invading Ukraine for months. Putin has, thus far, invaded at a slow enough pace for NATO to plausibly pretend it isn't an invasion. This overt deployment of heavy military equipment breaks all pretense. NATO, now, has no choice but to treat it as an invasion. The problem for the Ukrainians is: the rest of the world does not have the political will to engage in a full-scale, WWII style, great power conflict right now. Putin knows this, and will take advantage of global war-weariness to acquire as much territory and power as he can before the global community decides it is worth their collective while to intervene.

It is more than a little cliché to compare one's enemy to Hitler. In this case, however, the comparison is not made merely for the sake of rhetorical flourish. Putin's strategy in the Ukraine, and the world's reaction to it, is frighteningly similar to Hitler's prewar annexation of the Sudetenland.

Wednesday, November 5, 2014

Approaching an Undesirable Future

The growing recognition of the climate change problem has led to the understandable, and justifiable, demonization of fossil fuels. Coal is singled out as the worst offender. Coal produces more pollutants during combustion than any petroleum product. Given this rising tide of environmentalism in the Western world, I was surprised to see a headline referring to Australian Prime Minister Tony Abbot's proclamation, "Coal is the future." I was unaware of the precarious Australian energy situation, and assumed this article to be either satire or misattribution. Abbot spoke of coal as, "the future of our prosperity." The tone of Abbot's words suggested an almost complete reliance on coal. Abbot spoke as if coal was the only thing keeping Australia from regressing into a pre-industrial nation.  The speech took place at the opening of a Queensland coal mine, so I assumed Mr. Abbot was doing a fair bit of pandering.

An admittedly cursory Google search revealed that, in fact, 74% of Australia's energy comes from coal. This statistic puts Mr. Abbot's words in a new light. Australia is known for its relatively progressive social policies; therefore, an uneducated American would assume that these values would translate into a focus on green energy. This seems to be a case of necessity subordinating ideology. With no sizable oil reserves, coal is what keeps Australia moving. Efforts are being made to invest in, and implement, green energy solutions. However, Australia needs to keep its lights on in the meantime. The growth of the Australian population in recent decades has cemented coal dependence.

The people of Australia find themselves in quite a vexing dilemma. They are fully aware of the unsustainable nature of their primary energy resource. This awareness, however, does not alleviate their need for an energy supply. The Australian energy sector is sinking a lot of capital into infrastructure, and "energy poverty" is a serious national problem. The quest for a renewable fuel source is secondary to the maintenance of Australian energy security.

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