Friday, November 21, 2008

Daily Sources 11/21

1. Bill Faries and Shamim Adam at Bloomberg report that the heads of state from the Asia-Pacific Economic Cooperation forum will be meeting this weekend in Lima.
"With talks on a global trade deal stalled, APEC members are unveiling new bilateral agreements this week to sustain growth amid predictions of a prolonged slowdown. Peru and China announced a free trade deal on Nov. 19, while Australia and the U.S. disclosed yesterday they are planning to join a pact with four other nations to lower trade barriers."
The leaders are expected to back the crisis strategy outlined in the November 15 G-20 summit and to look for ways forward on the global trade deal known as the Doha round.

2. Brent Scowcroft and Zbigniew Brzezinski have an op ed in the Washington Post urging President-elect Obama to make the Israeli-Palestinian peace process a priority.
"Resolution of the Palestinian issue would have a positive impact on the region. It would liberate Arab governments to support U.S. leadership in dealing with regional problems, as they did before the Iraq invasion. It would dissipate much of the appeal of Hezbollah and Hamas, dependent as it is on the Palestinians' plight. It would change the region's psychological climate, putting Iran back on the defensive and putting a stop to its swagger.
This weakness [the political weakness of the negotiating parties limits their ability to come to an agreement by themselves] can be overcome by the president speaking out clearly and forcefully about the fundamental principles of the peace process; he also must press the case with steady determination. That initiative should then be followed -- not preceded -- by the appointment of a high-level dignitary to pursue the process on the president's behalf, a process based on the enunciated presidential guidelines. Such a presidential initiative should instantly galvanize support, both domestic and international, and provide great encouragement to the Israeli and Palestinian peoples."
Brzezinski is widely known to be a key foreign policy adviser to Obama. The piece is well-worth reading in full.

3. Gregory Gause has an analysis in the UAE paper The Nation, arguing that should Iran acquire the bomb it will not acquire commensurate influence in the Middle East. He points out that Iran's influence is primarily with non-state actors and that their clout with such organizations is unlikely to increase with the nuclear arms. Furthermore, Iranian hard power gains would probably cause other regional actors to work together to offset any perceived imbalance, and, in fact, are already doing so absent an Iranian bomb. Worth reading in full.

4. The Wall Street Journal editorial board takes issue with Democratic efforts to prevent military ties with Indonesia unless more progress is made on the human rights front in that country.
"[T]his issue is starting to impinge on U.S.-Indonesia ties. In February, Secretary of Defense Robert Gates visited Indonesia, pledging full military support. The State Department canceled joint military exercises with Kopassus [a special forces unit which is the cause of much human rights concern] two months later, under pressure from Senator Leahy. In retaliation, Jakarta has stopped cooperating in U.S. counternarcotics efforts in the region."
Indonesia is an important ally of the United States. It is a state with a moderate Muslim majority--a worldview the US wants to encourage. However, the US Navy is probably the most important protector of Indonesian interests outside of Jakarta itself, given the security requirements of the Straits of Malacca, Lomboc, and Sunda. The US is not in the best position, just now, to lecture other countries on human rights abuses. Still, US-Indonesian ties are strong enough (and important enough) to support encouragement by American Senators for an increased respect for human rights.

5. Keith Wallis at Lloyd's List reports that India is considering plans to send four warships to the Gulf of Aden in an effort to police that sea lane in response to a request from the shipping ministry. New Delhi is already replacing the guided missile frigate which destroyed a pirate "mother ship" Tuesday with a larger Delhi-class destroyer. Although India is reportedly eager to increase its naval presence short-term, it appears to be against a long-term role, favoring instead a UN-mandated operation comprised of existing US and European task forces. In the meantime, as Caroline Alexander and Marianne Stigset at Bloomberg write, Saudi Foreign Minister Prince Saud al-Faisal told reporters in Oslo today that the kingdom would contribute "naval assets" to a NATO fleet on an anti-piracy mission in the region.
"The North Atlantic Treaty Organization has four warships off Somalia. India, Malaysia and Russia have sent warships, and a European Union fleet is expected to reach the zone next month. The U.S. coalition in Afghanistan has a task force there, bringing the total of warships in the area to 15, according to French military spokesman Christophe Prazuck."
David Osler, also at Lloyd's List, reports that the UN's International Maritime Organization hailed yesterday last week's decision by the UN Security Council to toughen economic sanctions against Somalia. However, it is not known whether the Security Council extended resolution 1816, which provides the legal basis for naval intervention off the Somalian littoral and is due to expire next month. A press briefing by the Security Council said that
"Prior to the open meeting, the Security Council voted unanimously to freeze, without delay, the funds and other financial assets of individuals designated as engaging in, or providing support for, acts that threaten the peace, security and stability of Somalia."
In the meantime, Reuters reports that dozens of Somali Islamists stormed the port of Haradheere in pursuit of pirates who had hijacked the Sirius Star.
"'Saudi Arabia is a Muslim country and hijacking its ship is a bigger crime than other ships,' Sheikh Abdirahim Isse Adow, an Islamist spokesman, told Reuters. 'Haradheere is under our control and we shall do something about that ship.'"
The Somali Islamist movement--al Shabaab--pledges to stamp out piracy if they gain power.
"Some analysts, however, say Islamist militants are benefiting from the spoils of piracy and arms shipments facilitated by the sea gangs. Analysts also accuse government figures of collaboration with pirates."
6. The New York Times editorial board is skeptical of efforts to negotiate with the Taliban and calls on the Bush Administration to authorize the 20,000 additional troops military commanders have requested for Afghanistan.

7. Stephen Farrell reports in the New York Times that 10,000 supporters of Moktada al-Sadr convened in Baghdad square today to protest the status of forces agreement being debated in the Iraqi Parliament. The protesters do not believe that the agreement guarantees the eventual exit of US forces. The protest was peaceful. From an ideological perspective, the Iranian support for the agreement, which could be characterized as pragmatic, contrasts strongly with Sadr's opposition, which might be seen as principled.

8. Eric Watkins of the Oil & Gas Journal reported yesterday that Myanmar awarded the right to manage two pipelines which the two countries plan to construct to take gas and oil from the Bay of Bengal to the Chinese province of Yunnan. The oil pipeline would carry crude shipped from the Middle East to Myanmar onward to China, thus avoiding the Strait of Malacca. The gas pipeline would carry natural gas from wells in the Bay of Bengal. I've given a rough idea of the planned path of the pipelines below.

China was recently called upon by Myanmar and Bangladesh to resolve their dispute over gas exploration in the Bay of Bengal. The plan may have some added luster given recent concerns about piracy.

10. PFC Energy gave Reuters a useful estimate of the oil prices required by various OPEC countries to balance their external accounts:

The key is Saudi Arabia, the swing producer--the numbers suggest that it will be likely to defend $50/b.

11. Pratik Parija at Bloomberg reports that the Chairman of Indian national oil company ONGC, R.S. Sharma, told the media that he expected the price of oil to rebound to $100/b in the long term. He was offering the price point as justification for the overseas acquisition of Imperial Energy, Plc, which has exploration and production projects in Siberia and registered reserves of 526 million barrels of oil equivalent. ONGC has been unable to build its reserve base and thus overseas acquisitions have become a part of India's long term energy strategy. Overseas acquisitions have also become a key part of the energy security strategies of China, South Korea, and Japan in recent years. Imperial Energy represents the one key acquisition that India has managed to make in competition for overseas assets with Chinese national oil companies, which has led to some hand wringing in New Delhi. Still, recently the cost of reimbursing the oil companies for sales of subsidized petroleum products inside of India has put serious pressure on the country's finances and some may be questioning the wisdom of pursuing high cost assets in a country with a government so tightly aligned to its own domestic oil industry and the current low-price environment.

12. David Brunnstrom and Christian Lowe at Reuters report that U.S. Assistant Secretary of State Dan Fried indicated today that the US was reluctant to renew NATO dialogue with Moscow.

13. The Wall Street Journal's editorial board reports that the Russian Prosecutor General's office warned media outlets to be careful about how they report on the financial crisis. Andrew Osborn in the Wall Street Journal reports that wage arrears in Russia have jumped to over 4 billion rubles (~ $145 million)--the highest seen in a year. Government data shows that over 300,000 people in Russia are owed back pay.

14. Stephen Bierman and Gianluca Baratti at Bloomberg report that Spanish paper El Economista reported today that Lukoil has offered €28 (~ $35) a share to Criteria Caixacorp SA and Sacyr Vallehermoso SA for a stake of just under 30% in Repsol. The Spanish government had earlier voiced opposition to the notion of Gazprom taking a stake in the company. And some suggested that Spain might follow Sarkozy's suggestion of using sovereign wealth funds to defend national assets in a period where they would be sold cheap. Given the financial support provided to the major oil companies by the Kremlin in recent months, such a purchase might strike some as odd. Beyond that consideration, Bierman and Baratti point out that financing for the deal might be difficult to find.

15. Juan Forero at the Washington Post reports that opposition groups expect to make gains in Sunday's elections for governors and mayors in Venezuela.

16. Platts reports that Petrobras announced today that it has discovered an additional 1.5-2 billion barrels of oil equivalent in subsalt in the Santos Basin. The oil is light, with a reported gravity of 30ÂșAPI.

17. Brian Blackstone at Real Time Economics reports that Federal Reserve Bank of Richmond President Jeffrey Lacker expressed more concern about impending inflation than deflation in prepared remarks to the Tech Council of Maryland. He was skeptical of the theory that there is a causal relationship between a weak economy and a decline in core inflation. (Isn't he taking issue with the notion of supply and demand determining price, then?)
"Once the recovery begins, the temptation is to keep interest rates low until a clear rebound is ensured, Lacker noted. “The risk associated with that path is that inflation may not moderate obediently during the downturn, and may firm with the ensuing recovery,” Lacker said."
Lacker is considered an inflation hawk.

18. Brad Setser at Follow the Money notes that yields on 3 month treasury bills are at nearly zero again. 0.02% to be exact.

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