Daily Sources 12/5

1. Michelle Ho at Platts reports that Zhang Xiaoqiang, deputy director of the National Development and Reform Commision, said at the China-US Strategic Economic Dialogue in Beijing on Thursday that January 1st would be a good time to introduce a consumption tax on gasoline and diesel. The measure would cut the benchmark prices for domestic petroleum products by about 30% and add a 30%-50% consumption tax.

"Many analysts say the recent decline in crude oil prices presents an opportunity for Beijing to levy the tax as a step toward letting the market
eventually set prices, as consumers will be more amenable to change when oil prices are low."

Fair enough, but another likely consequence would be to put an upper band on consumption generally, as the tax would prevent lower oil products costs from giving the economy a de facto stimulus. John Kemp at Reuters argues--in an analysis worth reading in full--that the move would likely drive Riyadh to try and stabilize prices at a lower range than some in OPEC would like. He suggests that that number is $75/b, the number mooted by King Abdullah last week in the Kuwaiti press. I think, however, that most members of OPEC would be very comfortable with $75/b. Riyadh might be more interested in destroying the economics of alternatives, at this stage, in effect taking out the competition--and $50/b may be what their budget requires in 2009. In a related story, Reuters reports that Riyadh has lifted the prices of its crudes to Asian buyers. The Strategic Economic Dialogue ended today and it looks as if little was decided. Li Yanping and Rebecca Christie at Bloomberg report that the US and China pledged $20 billion to fund trade via import-export banks and to deepen financial ties. The US encouraged China to have its sovereign wealth funds invest here.

2. Justin Stares at Lloyd's List reports that there is growing frustration in the shipping industry with the rising level of contract defaults. Traders are defaulting on futures in which they bet on, instead of hedged against, higher shipping rates. They are claiming that the financial crisis is force majeure. Worth reading in full.

3. Douglas R. Burgess Jr. has an op ed at the New York Times which suggests that, for the purpose of clarifying jurisdiction and rules of engagement over and on pirates, the international community should explicitly make piracy by definition terrorism. He suggests this could be done by giving the International Criminal Court jurisdiction over piracy and terrorism cases. This would also allow states that do not want to burden their domestic courts with international piracy cases to deliver suspects over to the Hague. So far, an interesting proposition, but Burgess also writes

"Recent evidence also indicates that the Somali pirates hand over a part of their millions in ransom money to Al Shabaab, the Somali rebel group that has been linked to Al Qaeda."

Perhaps there is some evidence of this. But there is much more evidence that the Islamic groups in Somalia will put an end to the practice of piracy, which, I suppose, may mean that they advocate one form of terrorism, but not another, though I am even leery of concluding that.

When the Islamic Union of Courts (IUC) grabbed control of Somalia in 2005, they eradicated the practice altogether. The fact that a political movement would include in its name the notion of justice, as in justice meted out by jurists in courts, is an important clue to what their appeal in Somalia--and, in fact, the world--really is. Al-Shabaab translates as "the Youth", but their political platform is not all that different from the IUC insofar as the issue of law and order is concerned, even though they are locked in battle for supremacy in Somalia. For example, on November 21st, al-Shabaab stormed the port of Haradheere in pursuit of the pirates which had hijacked the Sirius Star ... they regarded the seizure especially anathema given that the ships owners were co-religionists. (Daily Sources 11/21 #5)

4. Nidaa Bakhsh at Bloomberg reports that the Paris-based International Energy Agency cut its demand forecast for 2009 again by 170 kb/d to 86.37 mb/d. It also cut its forecast for 2008 demand by another 40 kb/d.

5. Yaakov Katz at the Jerusalem Post reports that the Israeli Defense Force is drawing up options for an attack on Iranian nuclear facilities without US cooperation. A somewhat alarmist title. It makes sense for any armed forces to plan for a wide variety of potential actions, the great majority of which never happen. Still, the drums are still beating for war on Iran, if somewhat more softly these days. I still don't think it's going to happen, nor do I think that Israel is going to attack Iran on their own. Certainly not while the US is still in the Iraqi theater.

6. Clifford J. Levy at the New York Times reports that Aleksy II, the Patriarch of the Russian Orthodox Church, died today in Moscow.

7. Emma O’Brien at Bloomberg reports that Bank Rossi weakened its defense of the ruble enough so that it fell 1% against the bank's target basket of dollars and euros. The bank has widened the trading band by 1% four times since November 11, but it is not clear from the article whether the new relaxation is official policy.

"Bank Rossii sold $2 billion to support the ruble yesterday, taking sales this week to as much as $11.5 billion, according to estimates by Moscow-based MDM Bank. That compares with about $4.4 billion sold last week and $7 billion the week before, MDM said."

8. Marcelo Teixeira at Reuters reports that Petrobras Chief Executive Jose Sergio Gabrielli dismissed concerns that the development of sub-salt reserves were uneconomic with oil below $50/b. The company expects production costs to fall along with everything else in the economic downturn.

9. Tara Patel at Bloomberg reports that a strike by workers at the Fos and Lavera oil terminals at the port of Marseilles has delayed the unloading of cargo and left 35 oil tankers idle off the southern coast of France.

"Vessels stranded by the labor disruption at the Marseille oil terminals include six oil tankers and 16 vessels carrying refined products, [port spokeswoman Claire] Battedou said. The terminals make up Europe’s second-largest oil-import hub."

10. Edward Cody at the New York Times reports that France announced a $33 billion economic stimulus plan yesterday "including cash payments to the poor, a bigger rebate on new-car purchases and a speedup in high-cost public works projects."

11. Helene Cooper reports that foreign policy aides to President-elect Obama is considering making a major foreign-policy speech in a Muslim capital within the first 100 days of taking office. She speculates it would be Cairo.

12. Henry Kissinger has an opinion piece in the Washington Post praising President-elect Obama's foreign policy cabinet selections which provides some helpful advice. "[T]he new national security team encourages the hope that America is moving beyond its divisions to its opportunities." Worth reading in full.

13. Kelly Evans at Real Time Economics reports that the Labor Department data released today shows that unemployment rose to 6.7% in November. The US lost 533,000 jobs last month. Evans also points to the U-6, which adds to the standard unemployment figure "all marginally attached workers, plus total employed part time for economic reasons… plus all marginally attached workers." That number is 12.5%, up from 11.8% in October and 8.4% in November 2007.

14. In even more frustrating news, Science Daily reports that young people between the ages of 11 and 18 just think cars are cool and really just want to drive them, as opposed to public transit, etc.