Daily Sources 5/18

1. GLOBAL HOUSING BUBBLE STILL LOOKS UNPOPPED

On Saturday, Rebecca Wilder at News N Economics took a look at the global housing bubble. She plots a graph of price-rent ratios for Ireland, Spain, the UK, Germany and the US indexed to 1997:



She says she "included the German price-rent ratio to show that housing bubbles are not uniformly the root cause of economic decline." Worth a look.

2. SUPPORT FOR LISBON TREATY IN IRELAND, ITS NEXT BATTLEGROUND, GROWS

Stephen Collins at the Irish Times reports that 52% of respondents in a new survey indicated that they would support the upcoming referendum for the Lisbon Treaty.

"Asked if, in the current crisis, it is better for Ireland to be part of the EU, an overwhelming majority of 79 per cent to 10 per cent say Yes, with a very small number of undecided voters at 11 per cent.

There is a substantial majority in favor of the EU among all social classes, age groups and party supporters.

Not surprisingly, Sinn Féin supporters are easily the most negative about the EU, although a decisive majority are still in favor.

What is surprising is that the most enthusiastic supporters of the EU are Green Party supporters, followed by Fianna Fáil, Fine Gael and Labour in that order."

The largest trend spotted by the survey was a softening of the stance of women toward the treaty, where a significant percentage switched from "No" to "I Don't Know." Dublin registered the largest majority in support of the treaty. (h/t Eurointelligence.)

3. EU ENERGY COMMISSIONER GIVES CREDENCE TO PEAK OIL THEORY

The Oil Drum has reproduced the comments of Andris Piebalgs, the European Energy Commissioner, in which he suggests that he thinks that peak oil analysts may well be right.Key excerpt:

"The world is aware that the production of the existing oil wells is decaying and that new discoveries are more scarce and more expensive. Some experts consider that global oil production may have peaked at [84] million barrels a day. The current economic crisis can make the situation worse. The lower prices that we are enjoying now can be in fact bad news. At this price oil producers have been forced to postpone many necessary investments in new production capacity. These investments take decades to be accomplished. In consequence, if the current economic crisis finished and demand recovers we could be facing huge shortage of supplies that can lead to extremely high prices."

4. BAGHDAD-KRG DISPUTE HEATING UP FURTHER ON KURDISH INDEPENDENT OIL EXPORTS, KRG BECOMES LINKED TO BATTLE BETWEEN THE NABUCCO AND SOUTH STREAM PIPELINE ALTERNATIVES, RUSSIA STRENGTHENS LINKS TO KEY TRANSPORT AND DELIVERY NATIONS--ITALY, AUSTRIA, HUNGARY

Missy Ryan and Mohammed Abbas at Reuters report that Iraqi Prime Minister Nuri al-Maliki said in a televised interview last Thursday that power-sharing pacts that have Sunnis and Kurds a greater say in the affairs of the country need to be pared back. He said,

"In the beginning, consensus was necessary for us. In this last period, we all embraced consensus and everyone took part together. We needed calm between all sides and political actors. But if this continues it will become a problem, a flaw, a catastrophe. The alternative is democracy, and that means majority rule ... From now on I call for an end to that degree of consensus."

The rule of consensus has resulted in minority groups taking posts in senior administrative roles regardless of their share of the national vote. Moves to end the custom would clearly benefit the Shi'a majority in the country. In the meantime, Saifur Rahman at Gulf News reports that Sharjah-based upstream energy explorers Dana Gas and Crescent Petroleum, in conjunction with Austrian energy group OMV and Hungary's MOL have signed a partnership to invest as much as $8 billion in the Kurdish region's energy sector.

"The strategic partnership is expected to boost gas output in Iraq's ... northern Kurdistan province from the current 90 million standard cubic feet of gas per day to a potential 3 billion by 2014 and help meet the growing energy demand in the region and beyond."

Part of the notion touted by OMV and MOL is to find gas supply for the Nabucco pipeline. However, in March Gazprom signed a deal with MOL to establish a 1.3 billion cubic meters storage facility in Hungary--see Daily Sources 3/18 #4. And Euroactive today reports that Russian oil company Surgutneftgas recently took a 21.2% stake in MOL, for €1.4 billion (~ $1.86 billion at the interbank exchange rate of the time.) OMV had launched a failed takeover bid for MOL in 2007, which led to it selling its stake to Surgutneftgas in March. Surgutneftgas is thought to be close to Prime Minister Vladimir Putin.



The Kurdish Regional Government's oil minister, Ashti Hawrami indicated last week that oil from concessions signed without Baghdad's approval will begin to flow through the Iraq-Turkish pipeline and that the only way for Baghdad to put a stop to that would be to shut all exports via that line--see Daily Sources 5/12 #8. In a likely related development, Faleh al-Khayat at Platts reports that Iraq's parliamentary committee has asked the speaker to summon Iraqi oil minister Hussein al-Shahristan to be queried on his failures to move central government oil policy forward.

"The call for a summons came in a statement read out by an official from the speaker's office on Iraq's Al-Sharqiya satellite television channel. The official said the request was signed by 140 of parliament's 275 members."

Shahristani is in open conflict with the Kurdish Regional Government, refusing to grant the legitimacy of 20 oil and gas concessions the region has granted without central government say so. In the meantime, Isabel Gorst at the Financial Times reported Saturday that Berlusconi and Putin signed a deal in Sochi Friday to increase the capacity of the planned South Stream gas pipeline to 63bn cubic meters a year.

"Paolo Scaroni, Eni chief executive, said South Stream would improve Europe's energy security. "What is the meaning of this capacity extension of South Stream? It means 1 billion cubic meters more here will be 1 billion cubic meters less gas crossing Ukraine.""

It is interesting in this context that Iran appears to be arguing at this time for the Pars Pipeline, and now has it moving not through Turkey, but through Iraq and Syria to the Mediterranean, which could potentially thread it through Iraqi Kurdistan. Iran has its own concerns about its Kurdish minority, and has an interest in maintaining strong relations with a Shia-dominated government in Baghdad, so the fact that such a move has even been placed on the table is of some interest.

5. RUSSIAN ANALYSTS SAYING MOSCOW SHOULD FOLLOW THE US AND TURN TO THE FAR EAST

Yevgeny Bendersky at the Compass translates some geopolitical analysis from Russia's Daily Izvestia:

"So whats for Russia in all of this? At present, we stand on the sidelines of the revolutionary transformation of the economic world order. We pray for high oil prices. Why? So that once again we can accumulate dollar reserves and invest in the United States? What for? At the same time, Russia does not belong to any serious economic bloc.

The world will be divided into three main regions: the Americas, Europe and the East, warn the economists. United States will lose some of its power, the leadership will shift towards Asia. That is why America is in a hurry to make friends with China, in order to prevent the creation of a powerful Asian bloc. Where is Russia in the new structure of the world? The East, of course, is closer to us. Already, 96% of Russia's far eastern exports are geared for consumption by the neighboring Asian countries. We need to unite with them--especially in an era of globalization."

6. THE PLA ORDERED TO ESCHEW HEDONISM

Sky Canaves at China Journal reports that the Central Military Commission, the powerful Communist Party organ that controls the People’s Liberation Army, issued a directive over the weekend warning PLA officers against ostentatious displays of wealth. It is only anecdotal, but I have been led to understand that in order to do business in China, you must have contacts with the PLA.

"Today the People’s Liberation Army Daily carried a front-page article ... on the directive, pledging more stringent controls over mid-level and senior military officers, emphasizing accountability and party loyalty."

7. BRAZILIAN PRESIDENT IN BEIJING TO TRY AND MAKE FINANCING DEALS REALITIES

Andre Soliani at Bloomberg reports that Brazil's President, Luiz Inacio Lula da Silva, is in Beijing today where he hopes to make reality financing plans for a variety of projects.

"If Lula’s plans pan out, he’ll return with a $10 billion credit for Petroleo Brasileiro SA, an $800 million loan for the state development bank, and financing for ports and waterways. He expects he’ll be able to open China to Brazilian poultry."

(In February, Petrobras announced it had signed a $10 billion loan agreement with China’s Development bank--see Daily Sources 2/19 #1.)

"China, according to central bank figures, has invested $141.6 million in Brazil since Nov. 12, 2004 when Lula, with Hu beside him, said Brazilians could look forward to $7 billion of Chinese financing.

'Given the potential of both economies, the investments both ways could be much bigger,' China’s ambassador to Brazil, Qiu Xiaoqi, told reporters May 7 in Brasilia when asked why the plans hadn’t materialized.

The biggest Brazilian project announced by the Chinese, a joint venture of Baosteel Group Corp. and Vale to build a $3.6 billion steel-slab plant, was canceled in January.

'The Chinese have made Africa their priority,' said Sandra Rios, coordinator of Brazil-China Observatory, a study group created by Brazil’s Industrial Confederation. 'They expect to have a bigger political influence in that region than in Brazil.'"

8. INDIAN ELECTIONS STRENGTHEN THE MODERATE CONGRESS PARTY

Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics, posts at the Baseline Scenario that the recent elections in India have resulted in a significant victory for the incumbent Congress Party and its allies and defeats for the Communists and the Hindu-nationalist BJP. He comments:

"Going forward, these results augur well for Indian economic policy reform. The Congress will be numerically strong enough not to have to rely on partners for political support and will be able to push through new policy initiatives.

Another likely consequence is that the Nehru family will probably provide India, not immediately but within the next couple of years, with its fourth Prime Minister—Rahul Gandhi, son of Rajiv Gandhi, grandson of Indira Gandhi, and great grandson of India’s first Prime Minister Jawaharlal Nehru.

These results are surprising for two reasons. Indian elections have traditionally been characterized by the phenomenon of anti-incumbency: ruling politicians get routinely thrown out of power. This government is the first in over 40 years that has been re-elected after a full term in office."

Subramanian notes that part of the reason for the Congress Party's success has been that India has been weathering the financial crisis relatively well. Well worth reading in full.

9. US SENATE TOLD PAKISTAN RAPIDLY ADDING TO NUCLEAR ARSENAL

Thom Shanker and David E. Sanger at the New York Times report that a Senate committee Thursday was told that Pakistan is rapidly adding to its arsenal of nuclear weapons. Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, in response to a question of whether or not aid sent to Islamabad might be diverted to nuclear programs said, "Yes."

10. ISRAEL ALLEGEDLY URGED BY OBAMA ADMINISTRATION TO TONE DOWN IRAN RHETORIC

Steve Linde at the Jerusalam Post reports that the US has been urging Israel to tone down its rhetoric on Iran in advance of Prime Minister Benjamin Netanyahu's visit to DC this week.

"This was one of the purposes of a secret trip to Israel three weeks ago by CIA Director Leon Panetta, foreign diplomatic sources said.

Ostensibly, the CIA chief came to share information on Iran's nuclear program with Israeli intelligence officials and find out how serious the new Israeli government was in its stated position that Jerusalem cannot allow Iran to become a nuclear power.

Panetta was hosted by Mossad chief Meir Dagan and intelligence officials, but also met with Netanyahu and Defense Minister Ehud Barak."

Worth reading in full.

11. MALAYSIAN STATE TO SET UP NEW SOVEREIGN WEALTH FUND ON OIL REVENEUS

Netty Ismail at Bloomberg reports that the Malaysian state of Terengganu is planning to organize a sovereign wealth fund of 11 billion ringgit (~$3 billion).

"The Terengganu Investment Authority, the first sovereign wealth fund set up by a Malaysian state, said it will manage the long-term oil revenue of the state, located on the east coast of peninsular Malaysia."

12. CONFLICT IN NIGERIA CONTINUES TO HEAT UP

Platts reports that tensions continue to escalate in Nigeria as MEND threatened in an emailed statement Sunday to shut all waterways to oil industry vessels. In addition,

"MEND claimed Sunday to have blown up two major oil and gas pipelines in the state. Sources told Platts that one belonged to the state-owned Nigerian National Petroleum Corp. and supplied crude to the 110,000 b/d Kaduna refinery, while the other was a gas pipeline operated by Shell that fed natural gas to power plants in the region. The extent of the damage was unclear."

13. AL-SHABAAB OFFENSIVE APPEARS TO BE MAKING HEADWAY AGAINST CENTRAL GOVT IN SOMALIA, ERITREAN SUPPORT ALLEGED

Stephanie McCrummen at the Washington Post reports that al-Shabaab has launched a ten day offensive across the Somali capital in an attempt to topple the Transitional Federal Government under the new President, Sharif Ahmed.

"Momentum has been swinging back and forth between the government and rebels for days, but on Sunday it seemed to be with the rebels, who include several leaders who US officials have said maintain ties to al-Qaeda. In a major blow, they took a key government stronghold, Ahmed's home town of Jowhar, about 50 miles north of the capital, giving them control of major routes to the north."

Apparently as al-Shabaab has scored military successes, fighters who had switched allegiances to Ahmed have switched back again.

"The Somali government and the United States accused Eritrea of supporting the group by flying cargo planes full of AK-47 assault rifles, rocket-propelled grenades and other weapons to a sandy airstrip outside the capital just before the rebel advance began. Eritrea has denied the allegations."

I am unclear on why it would be in the interests of Eritrea to support a hard line Islamist group's ascent in Somalia, given that it is 98% Orthodox Christian and Sunni Muslim (more or less even divided.) It's longstanding enmity with Ethiopia may account for some sympathy for any organization at odds with Addis Ababa, perhaps Asmara believes that al-Shabaab is the only organization capable of truly creating a state which will impose law and order in Somalia. Still, having done so, it seems that al-Shabaab's ties with al-Qaeda would mean that that would simply result in a state which would seek to export instability to the region.

14. RWANDA TELLS SECURITY COUNCIL TO PUT THE KIBOSH ON FOREIGN FINANCING OF REBEL ACTIVITY IN EASTERN CONGO

Anita Powell at the Associated Press reports that Rwandan Foreign Minister Rosemary Museminali told reporters following a meeting of UN Security Council representatives in Rwanda that:

"There are movers and shakers (of the [Hutu opposition group FDLR]) in Europe and the rest of the world. We believe they should be sanctioned, we believe they should be dealt with, if we are to support the peace process in Congo."

Rwandan forces joined the Congolese in a joint military action against rebel Hutu forces in eastern Congo in late January--see Daily Sources 1/23 #9. In that offensive, a rebel Rwandan Powell reports that in 2006 the US imposed sanctions on businessmen and "warlords" who were allegedly financing instability in eastern Congo, near the Rwandan border.



In November, Angola had reportedly sent troops to help Congolese forces combat rebels in the region, but it apparently took the active cooperation of the Rwandan government to make any serious progress--see Daily Sources 11/10 #8.

15. CHAD ENDS AIR STRIKES INTO SUDAN, SUDANESE REBEL APPEARS BEFORE THE ICC

Dany Padire at the Associated Press reports that Chad's interim defense minister, Adoum Younousmi, told the media that N'Djamena had ended air raids against Chadian rebel groups operating out of Sudan Sunday. Younousmi said,

"Our target was not the Sudanese government and less so the general population. Our objective was the Sudanese mercenaries wherever they were to be found, without causing any collateral damage."

The recent air attacks were the first attacks into western Sudan proper, where rebels have allegedly been operating, and whom N'Djamena has alleged Khartoum supports.

"Eastern Chad is a temporary home to about 300,000 refugees who have fled Sudan's Darfur conflict. The region also has camps for 187,000 Chadians displaced by fighting locally and in Darfur."

Younousmi said that the raids had destroyed seven pockets of rebels and that around 100 prisoners had been captured by ground forces operating in conjunction with the air attacks. In the meantime, BCC reports that a former member of the Darfur rebel group, the Justice and Equality Movement (JEM), Bahr Idriss Abu Garda has voluntarily appeared before the International Criminal Court to address charges of crimes against humanity leveled against him. (JEM is an Islamist group fighting the central government.) He is charged with taking part in an attack with killed 12 African Union peacekeepers in northern Darfur.



Mr. Abu Garda has since left JEM to form his own rebel movement, the United Resistance Movement. A spokesman for Mr. Abu Garda has argued that the charges against him are the result of fall out between him and JEM. The President of Sudan, Omar Hassan al-Bashir was charged with war crimes by the ICC in March and promptly expelled aid groups working in the Darfur region in response--see Daily Sources 3/6 #5.

16. NORWEGIAN PARLIAMENTARY VOTE ON CANADIAN OIL SANDS PARTICIPATION PUT OFF

Wojciech Moskwa and Terje Solsvik at Reuters report that the Norwegian government has delayed a parliamentary vote on whether StatOilHydro should withdraw from a $2 billion investment in Canada's oil sands.

"The oil sands issue has put the government in a bind four months before a general election, with political opponents saying state support for the oil sands project was hypocritical given the cabinet's self-professed environmental ambitions."

17. OBAMA ADMINISTRATION TO PROPOSE NEW NATIONAL CAFE STANDARDS

John M. Broder at the New York Times reports that the Obama Administration is set to announce as early as Tuesday new regulations for the emissions and mileage of cars and light trucks which will combine California's new auto-emissions rules with the existing corporate average fuel economy (CAFE) standard to create a single new national standard.

"Under the new standard, the national fleet mileage rule for cars would be roughly 42 miles a gallon in 2016. Light trucks would have to meet a fleet average of slightly more than 26.2 miles a gallon by 2016."

This is a big deal. Transportation accounts for about 60% of US oil consumption.

18. INDUSTRIAL REVOLUTION CAUSED BY CHEAP ENERGY, EXPENSIVE LABOR

In an extremely interesting piece, Robert C. Allen on Friday posted an article asking why the Industrial Revolution took place in England at Vox EU. His answer:

"The famous inventions of the Industrial Revolution were responses to the high wages and cheap energy of the British economy. These inventions also substituted capital and energy for labor."

It was difficult to transfer the technologies to places where either coal was expensive or labor was cheap. A must read. Note, just now many analysts expect the West, and the world, to enter a period where energy is expensive and labor is cheap.