Third oil shock
Matein Khalid

THE two oil shocks of the 1970’s had a seismic impact on the world’s industrial constellation, financial markets, geopolitical alignments and competition for energy resources.
Stagflation in the US, the worst economic recession since the Great Depression, a monetary policy revaluation under the Volcker Fed, twenty per cent inflation and Treasury bill rates, stock market crashes, international banking failures and the sovereign bankruptcy of Latin America, the collapse of British trade unions and American airlines, the emergence of Saudi Arabia as the power broker of the Arab world, the Reagan-Thatcher free market ideologies can all be traced to the 1979 oil shock when Ayatollah Khomeini overthrew the Shah’s regime in Iran. We are now living in one of history’s defining moments, the third oil shock when North Sea Brent and West Texas crude trade at $110. The third oil shock will change the world as we know it, create new realities of geopolitical power and influence. Technology, politics, financial markets, climate change, exploration trends in natural gas and coal, banking systems, the war on terror, central bank monetary policies, commodities prices, business processes and strategies, even social norms will not be immune from the third oil shock. That much, at least, is certain.
The end of the Cold War and the collapse of the USSR left the US as the planet’s sole superpower, with its Washington consensus the dominant economic paradigm enforced by the IMF and the World Bank after the 1998 debt crises in Russia and the Far East. Yet the first decade of the new millennium, the reign of George W Bush in the White House, has not been kind to Pax Americana. The enlargement of the EU, wars in Iraq and Afghanistan, the rise of Islamic fundamentalism in the Middle East, the resurgence of Russia, the Silicon Valley tech bubble bust, 9/11, the failure to contain Iran or crush Hezbollah, Hamas and Al Qaeda terrorism, colossal current account deficits, the Wall Street credit meltdown and the collapse of the US dollar in the foreign exchange markets all demonstrate the decline of American power in the world. The third oil shock will accelerate this trend. Russia, with its $500 billion hard currency reserves and ownership of one fourth of the world’s gas reserves, has stymied Western oil companies’ ambitions to own equity gas. The Kremlin has arm twisted Shell to give up control of its Sakhalin project to Gazprom and used its energy resources as an instrument of foreign policy from Kiev to Berlin, Tashkent to Beijing, Tbilisi to Qom.
Pax Americana in the Middle East also faces grave threats in the future. Iran’s Ayatollahs, also beneficiaries of $110 crude oil, have forged an anti-American, anti-status quo alliance that embraces, Syria, Hezbollah in Lebanon, Gaza in Palestine and Shia militias in Iran. While US allies like Egypt, Saudi Arabia, Jordan and the GCC states have not abandoned Washington’s security umbrella, their economic linkages with China and Russia have become crucial. The US, with its consumption excesses, crippled money centre banks, collapsing dollar, impotent Treasury and current account deficits is hardly a persuasive economic role model for the Arab world. This is a revolutionary U-turn from the early 1990’s when America won the Gulf War, the Soviet Union disappeared into the garbage heap of history, the IMF and Wall Street were the world’s financiers and the dollar was king in the currency markets.
If Clinton or Obama win the White House in November, $110 crude oil can easily persuade America to embrace the new ideas on climate change and energy, as happened with Japan, Taiwan and South Korea after the economic insecurities of the second oil shocks. Washington will use regulations and the tax code to force consumers, utilities and businesses to embrace fuel efficient protocols, meaning the golden age of the gas guzzler SUV and the light truck is living on borrowed time. Detroit’s future may rise in hydrogen cars and diesel trucks. Of course, every oil shock contains the seeds of its own destruction. The US consumer is no less than 20 per cent of the global GDP and the buyer of the last resort for Asia’s exports that define the demand curve for oil and gas. As in 1974 and 1982, economic recession in the West could well mean yet another historic collapse in crude oil prices.
Of course, since the US is no longer the world’s sole economic superpower, China has emerged from behind the Bamboo Curtain and India has abandoned the License Raj, the world’s ability to recycle petrodollar surpluses is that much greater. Yet chronic inflation, fed by soaring prices of gasoline, heating oil, cement, grains and construction equipment, has become the macroeconomic Achilles heel of Russia, the GCC, India, China and the EU. As in the 1970’s higher inflation rates increase political risk for incumbent regimes across the emerging markets because the masses are often the victims, not beneficiaries of inflation. This is the ominous message a capricious electorate delivered to General Musharraf in Pakistan, to Abdullah Badawi in Malaysia, to the South Korean socialist coalition in Seoul. If oil, food, cement and fertiliser prices continue to soar, the Tories will oust New Labour from Downing Street, the Congress-Left Front will lose the next Indian general election, riots and demonstrations could even challenge the dictatorships of the Arab world.
The impact of $110 oil on the GCC will naturally accelerate the region’s economic transformation. Saudi Arabia, Qatar and the UAE will see trade surpluses soar as well as imports, defence spending, remittance flows, central bank and sovereign wealth fund reserves. Algeria, with its large population and chronic unemployment, will find it difficult not to raise food subsidies with its $50 billion petrodollar war chest. Libya has become the newest province of black gold after Colonel Gaddifi’s diplomatic U-turn with Washington, the lifting of UN sanctions and the $2.5 billion settlement for the Pan Am Jumbo jet his intelligence agents destroyed in the skies above Lockerbie, Scotland.
The EU, Turkey, China, India, Taiwan, Japan, South Korea are all significant importers of oil and gas. The impact of $110 crude oil and soaring food prices, Asian trade surpluses will fall, even get wiped out in the decade ahead. Asian export growth could well decelerate, if not collapse, as happened after the 1979 oil shock and global economic recession. This is the SOS flashed by the bear markets that have gripped Asian stock exchanges since October, with the grizzles run amok on Japan’s Nikkei, Hong Kong’s Hang Seng, India’s Sensex and Singapore’s Straits times Index. Vietnam, the darling of Wall Street, has lost half its market value. The Istanbul stock exchange reflects the political time bomb that is $110 crude oil on Turkish politics and the stock market with a $40 billion current account deficit, a military high command whose secular Kemalist values are threatened by the Islamist AKP government of Prime Minister Erdogan, a PKK Kurdish insurrection, Turkey can ill afford another financial crisis and run on the lira. India, with 70 per cent dependence on imported oil, will scramble for Burmese gas even as kerosene, cooking oil and gasoline demand soars. Indian dependence on capricious foreign capital is its Achilles heel in a world where emerging markets risk aversion spikes and Manmohan Singh’s $400 billion infrastructure bonanza is a pipe dream in a world of $110 oil. Pakistan, with its $7 billion current account deficit, faces grave risk from the third oil shock. The 1970’s oil shock doomed ZA Bhutto’s PPP. Will the third oil shock derail his son in law Asif Zardari’s moment of power?

—Khaleej Times

There’s no reason not to talk to Al-Qaeda
Jackie Ashley

IF Jonathan Powell was half as straight-talking inside the Blair tent as he was in his Guardian interview last week, it makes the central mystery of the Iraq war even odder. Here is someone who advocates speaking to terrorists, understands how poor intelligence can be, and admits to errors, who was at Tony Blair’s shoulder for 13 years. He comes across as level-headed and dryly humorous. In saying that Blair could be a “bit of a flippertygibbet” and was neither bold nor radical enough in office — because he feared losing it — Powell also seems to be a man prepared to speak uncomfortable truths. Asking around, the general view is that he did behave just as forthrightly when it was the inner circle. He admires Blair, but he was no passive courtier.
Five years on from the opening salvoes of the Iraq war, and 10 years on from the Good Friday agreement, it’s a perfect time to revisit the strange symmetry between brave, dogged peacemaking in Northern Ireland and catastrophic war-making in the Middle East, which will always define the Blair government. Powell’s testament is only part of the story. We haven’t had a frank reassessment from Blair himself. Perhaps we never will. The layers of self-justification, like scar tissue, are already too thick. Maybe the truths are just too painful to look at clearly. Nor have we had frank, no-holds-barred retrospectives from the rest of Blair’s inner circle. Powell was clearly vital to the peacemaking part of the story. It became personal for him, and he battered away at it. Yet what also emerges from his account is that Blair’s self-belief and brass-necked optimism was the defining factor. The deal was not always inevitable. In a way, if Blair had been better educated about Northern Ireland, better educated about history, he might not have been as bold. The bloody history and entrenched attitudes had scared many wiser men away. But with his grin and faith he kept going.
Put it like that, and the Northern Ireland/Iraq paradox starts to disappear. Boldness? Not knowing too much history, and being ready to ignore cautious advice from experts? Charging ahead, armed with sound bites and timetables? The more one hears about what was really going on inside the Blair camp, the more one realizes that none of the aides or friends did more than briefly deflect Blair’s own instincts — not Powell, not Alastair Campbell, not Peter Mandelson, not Derry Irvine. “Sofa government”, was less about handing Cabinet power to a small, unelected clique, as it seemed at the time: it was a cover for the Blair presidency, something worryingly close to one-man government. Only Gordon Brown, with his rival powerbase at the Treasury, could deflect Blair, and then only because of regular stand-up rows and at great mutual cost.
Back to the Iraq war decision. Britain had in the Foreign Office a priceless source of information and advice about the region. In Robin Cook there had been a foreign secretary who knew his falafels from his onions, and understood the perils — enough so for him to resign from his next Cabinet job. Jack Straw, foreign secretary at the time, admitted later to grave worries. Blair was getting, at the very least, mixed messages about his legal position. His diplomats were telling him the truth about international support. Among Labour dissenters, Liberal Democrats and some Tories, there was an eloquent alternative view being expressed in the Commons, never mind the great demonstrations outside. So why did he not pause? Why did he not properly think about what might happen in Iraq after the invasion? Why did he not have the conversations with George Bush that so many in London and Washington expected him to have? Powell’s testament, as a pro-war adviser, suggests that it was not, really, about a lack of advice or simple ignorance. No, it was about personality and temperament — Blair’s. The very things that brought him success in Northern Ireland, brought him disaster in Iraq. I think the two anniversaries are even more closely connected than that. It was because of the Good Friday agreement that Blair’s self-belief and impatience with facts about history and the dangers of meddling were supercharged. War-making and peacemaking are perhaps not so different, from the perspective of a prime minister. Both require decisive, bold actions. Both mean shutting your ears to the voices of caution.
This hubris meant the wrong lessons were learned from the Balkans. The former Yugoslavia and Iraq were patchworks of peoples, held together for a while by tyrannical central power, when it was convenient for the world order. Pull away the center, and you unleash civil war and ethnic cleansing. Far from Kosovo emboldening Blair, it should have terrified him. In this tale of hubris and nemesis, now emerging in full technicolor through the memoirs of the participants, is there anything we can learn for the future? That it is nobler to make peace than war, certainly. That it is crazy not to listen to all the storehouse of advice and wisdom a government can get its hands on. But most of all, that “never” never means never. Powell’s most provocative argument is that today Britain should be keeping lines open to Hamas and even Al-Qaeda. It was rubbished by No 10; but I wonder if that wasn’t more because of irritation about the messenger. For he is right. There is no moral distinction. Britain was quietly talking to the IRA when it was determined to have a united Ireland, by killing as many people as it took. Al-Qaeda’s united caliphate is a bigger project, and a deeply illiberal one, but it is not logically so different. The Provos had plenty of silent supporters in Britain, just like Al-Qaeda. Then too, for a long time, there seemed nothing to talk about.

—Arab News






Gasoline supplier Sinopec
Wang Jun

HEAVY snow and sleet struck central, south and east China hard in January and into February. The snowstorms severely disrupted transportation and logistics, causing restricted supplies of gasoline in affected areas. China Petrochemical Corp. (Sinopec Group), supplier of two thirds of the nation’s auto fuel and the most important fuel supplier in south China, has exerted all its strength to ensure oil supplies. According to the group, in January Sinopec imported 485,000 tons of refined oil, most of which was supplied to south China. At the same time, it also donated 14 million yuan ($1.96 million) to six affected provinces (autonomous region), including Guizhou, Hunan, Hubei, Jiangxi, Guangxi and Anhui.
The listed company, in which Sinopec Group owns a 75.84-percent stake, China Petroleum and Chemical Corp. (Sinopec Corp.), announced on January 21 that its crude oil output totaled 291.67 million barrels in 2007, up 2.27 percent from 2006. According to un-audited figures released by Sinopec, it also produced 283 billion cubic feet of natural gas in 2007, up 10.33 percent. Sinopec Corp., Asia’s largest oil refiner, processed 155.58 million tons of crude oil in 2007, a year-on-year increase of 6.33 percent. Gasoline output rose 7.35 percent to 24.69 million tons; diesel, up 3.84 percent to 60.08 million tons; kerosene, up 31.02 percent to 8.32 million tons; and light chemical feedstock, up 3.21 percent to 23.47 million tons.
Meanwhile, the group’s output of ethylene, synthetic resins and synthetic rubbers rose by 6.02 percent, 12.08 percent and 19.76 percent, respectively, from 2006. Its total domestic sales of refined oil products rose 6.9 percent to 119.39 million tons in 2007. According to the China Petroleum and Chemical Industry Association, China’s oil output climbed to 186 million tons in 2007, and may increase to 189 million tons this year.
In accomplishing its strategic target to make itself a competitive international integrated petrochemical company, in recent years Sinopec Group has tightened up cooperation with top transnationals such as ExxonMobil, Shell, BASF and BP, introducing international capital, technology and advanced management expertise. Sinopec Group has become the largest chemical company in Asia, the fourth largest oil refiner and the sixth largest ethane producer in the world, and the second largest crude oil producer in China. At the same time, Sinopec Group has strengthened its efforts in joint stock reform, adding quality assets to the listed company and collecting funds via both domestic and international capital markets. In January, Sinopec Corp. declared its intention to acquire equity interests in three oil refineries and 63 petrol stations from its parent Sinopec Group to boost refined oil sales.

(The Daily Mail-Beijing Review Articles Exchange Item)