Daily Sources 5/4

1. MEXICO TO LOWER SWINE FLU PRECAUTIONS, JAPAN TAKES EFFORTS TO KEEP IT OUT ALTOGETHER, AND RICHARD POSNER ARGUES THAT THE RELATIVELY HIGH PROBABILITY OF SUCH AN EVENT ARGUES FOR A GLOBAL CRISIS FUND

Elisabeth Malkin and Sharon Otterman at the Washington Post report that Mexico will relax its efforts to counter swine flu given that there has been a reduction in the number of cases coming to light and the assessment that it is only slightly more contagious than regular flu.

"Across the country, most factories and offices will reopen on Wednesday, Health Minister José Ángel Córdova said in a news conference. A decision has not yet been made to reopen schools, which have remained shuttered for well over a week."

Meanwhile, Blaine Harden at the Washington Post reports that Tokyo has taken strong measures to try and prevent the swine flu from spreading to the island.

"As long as the threat of a flu pandemic persists, anyone who flies into this country from North America while experiencing any flu-like symptoms or ailments will not be allowed to walk off an airplane and infect the country. Last week, inspectors began boarding every flight from Mexico, Canada and the United States. They take the temperature of about 6,000 passengers a day. Near Tokyo's Narita airport, 500 rooms have been secured by the Health Ministry to quarantine infected passengers."

Meanwhile, Judge Richard Posner estimates on The Becker-Posner Blog that were swine flu to end up being similar to the 1918 influenza pandemic worldwide costs would be around $20 trillion.

"([T]his estimate excludes the narrowly economic costs, but they would probably be lower, in part because thinning out populations can raise per capita incomes, especially if the very young and the very old, and poor people in overpopulated countries, are the principal victims), and if we indulge a further guess that there is a 1% annual probability of such an event, the annual expected cost would be $600 billion."

Judge Posner concludes:

"We need an overall 'catastrophe budget' that would match expenditures to the net expected benefits of particular measures targeted at particular catastrophic threats."

Worth reading in full.

2. CHINESE REAL ESTATE MARKET LOOKS BAD, BUT RETAIL SALES APPEAR TO BE RECOVERING (PARTICULARLY IN RURAL AREAS TARGETED BY THE STIMULUS PROGRAM--AND PARTICULARLY OF GOLD), THE NDRC DECIDES TO SHUTTER ALL SMALL INDEPENDENT REFINERIES BY 2011 AND SETSER NOTES THAT BEIJING'S PURCHASES OF TREASURIES WELL IN EXCESS OF THE VALUE OF US IMPORTS FROM CHINA

Richard Brubaker at All Roads Lead to China noted yesterday that the most recent edition of the JLL Property Market Monitor reported:

"Total prime retail stock in 21 major Chinese cities will grow at a CAGR of 20.2% through the next three years, while retail sales are only projected to grow at 9.2%. The divergence between stock growth and retail sales growth will drive up the national vacancy rate from 7.2% at end 2008 to a projected 13.9% at the end of 2011."

Mr. Brubaker comments that the report outlines the difficulties facing the residential, commercial, and retail sectors, but sees a bright spot in infrastructure. The post includes a link to the full report. (h/t Yves Smith at naked capitalism.) Meanwhile, Xinhua reports that Chinese retail sales climbed 9% year-over-year during the May Day Holiday, which lasted from May 1 - 3.

"The [Chinese Ministry of Commerce] said robust sales were reported for gold, jewelry, home appliances and autos, as retailers launched promotion campaigns.

Sales of gold and other jewelry rose 19.6%, the ministry said, without giving specific figures."

I'm not sure of the cultural context here, but generally large increases in gold sales wouldn't indicate great confidence in the future. Sales of products targeted by stimulus programs grew at about half the rate for gold and jewelry. (h/t Joshua Keating at FP Morning Brief.) Juliana Liu at BBC News has a report which suggests that a considerable portion of the upswing in retail sales is taking place in rural areas, where electronics purchases increased by 70% in March from February.

"But in an effort to get thrifty Chinese to spend more money, Beijing expanded a pilot program to subsidize electronics purchases for farmers in February.

The government pays 13% of the retail price for designated models of refrigerators, washing machines, colour television sets, mobile phones and personal computers."

Meanwhile, the National Reform and Development Commission Sunday announced plans to shut down all refineries operating in the country with crude distillation units with a capacity of 20 kb/d or less by 2011, per Platts.

"The commission will also prevent the development of new refining units under the guise of heavy oil and bitumen processing facilities."

Although over three quarters of Chinese refining capacity is controlled by the state oil firms, there are a large number of independent small refineries of this sort in operation.

"For instance, around 12 of 37 private refineries in eastern Shandong province have less than [20 kb/d] of oil refining capacity each, according to industry sources.

Despite having an overall processing capacity of over 45 million mt/year (900,000 b/d), Shandong's independent refineries get only 1.79 million mt/year of domestic crude allocation from the state oil majors, barely 4% of their total capacity.

Difficulty in securing crude feedstocks for their refining needs has forced Chinese independent refiners to process fuel oil and bitumen instead in order to stay afloat."

Now would be a good time for Beijing to undertake this effort, given a decline in demand, an incoming surplus of refining capacity in the Asian-Pacfic region (though I suspect that China intends to refine as much of its consumption as possible domestically in the long term), and its aim of reducing carbon emissions (given that these topper refineries tend to be unsophisticated and thus especially polluting.)

In the meantime, Brad Setser puts the kibosh on the notion that Beijing has been acting as "a friendly neighborhood grocer" who provides credit so that its customers can purchase his goods.

"China’s rise as a true banker shows up cleanly in the most recent US balance of payments data. The detailed data tables include a table on China. And it turns out China’s $419 billion in purchases of US assets over the last four quarters exceeded the United States $308 billion bilateral balance of payments deficit with China."

Well worth reading in full.

3. JAPAN OFFERS $100 BILLION IN CURRENCY SWAPS TO ASIAN NATIONS STRUGGLING WITH THE CRISIS

Raphael Minder at the Financial Times reports that Tokyo yesterday at the meeting of finance ministers at conference of the Association of South-East Asian Nations in Indonesia that it would offer $100 billion in assistance to Asian countries dealing with the current financial crisis. Specifically, Japan would arrange a ¥6,000bn (~$61.5 billion) bilateral currency swap scheme on top of a $38.4 billion commitment to the Chiang Mai Initiative.

"Kaoru Yosano, the Japanese finance minister, when asked if Japan could afford to deal with its own economic woes while helping fellow Asian strugglers, said the latest offers underlined Tokyo’s firm belief that the crisis required a more concerted international response.

'The financial crisis is not something hitting only a handful of countries ... That is why we believe it is an issue that can only be solved with international co-operation.'"

4. THE SPANISH PROPERTY MARKET IS SERIOUSLY TANKING

Lluías Pellicer at El País reports that the Spanish property market is going through a period of bloodletting, with properties being advertised at discounts of up to 55%. Discounts in Madrid and Barcelona are currently at between 30-35% whereas in Valencia and Andelusia are offering discounts of up to 55%. Even so, the surplus real estate is not coming off the market, with sellers reporting sales of about a third of their inventories. (In Spanish. h/t Eurointelligence.)

5. SOUTH AFRICAN MANUFACTURING DECLINES FOR 12TH STRAIGHT MONTH

Mike Cohen at Bloomberg reports that South African manufacturing declined for the twelfth straight month in April per the latest Investec Purchasing Managers Index, which fell to 35.6 from 36. (A reading below 50 indicates contraction; a reading above 50 indicates expansion.)

"An index measuring new sales orders rose to 33.7 last month from 32.6 in March, while a business activity index advanced to 32.8 from 31.2, Investec said. An employment index fell to 36.2 from 49.2 and an inventory index slumped to 28.7 from 37.1 while a purchasing commitment index declined to 29.9 from 34.3."

South Africa is the largest economy in Africa with nominal GDP estimated to have been about $300 billion in 2008.

6. RUSSIAN CRUDE PRODUCTION UP

Nadia Rodova at Platts reports that the Russian Energy Ministry released data over the weekend showing the oil production had increased 1.3% in April from a year previous, to 40.315 million mt (9.81 million b/d).

"In March, the year-on-year rise of 0.4% was the first in more than a year as crude output registered a fall throughout 2008 as well as the first two months of 2009.

On a month-on-month basis, average daily crude output rose by 0.5% in April from 9.76 mb/d in March."

Crude deliveries to Russian refineries also rose slightly.

7. BUT OPEC SUPPLY DOWN 0.3% IN APRIL, WITH IRAN, ALGERIA, ANGOLA AND NIGERIA UPPING PRODUCTION AS BRAZIL ANNOUNCES ITS ENERGY POLICY GOING FORWARD

Reem Shamseddine at Maktoob reports that Saudi Aramco intends to release 15 oil rigs by the end of the year, citing a large production capacity surplus and falling demand in the global oil market.

"When the kingdom [completes] projects to boost capacity to 12.5 mb/d in June, it would have had spare capacity of 4.5 mb/d. That is more than double the 1.5 to 2.0 mb/d cushion it aims to keep to meet any surprise outages in the global oil supplies."

By the end of 2009, the number of rigs operating in Saudi Arabia would thus fall to 100 from 115. In the meantime, Karyn Peterson and Mark Shenk at Bloomberg report that a survey conducted by the wire service showed that OPEC oil output was cut by 0.3% in April.

"Oil output averaged 27.58 mb/d last month, down 75,000 from March, according to the survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 25.255 mb/d, 410,000 more than their target of 24.845 million."

Saudi Arabia cut output by 25 kb/d, the UAE cut 40 kb/d, and Kuwait cut output by 20 kb/d, according to the survey. Nigeria, Angola, Iran, and Algeria increased output. Meanwhile, Eric Watkins at the Oil & Gas Journal reported Friday that Brazil's Environment Minister Carlos Minc announced at the G8 meeting in Italy--which Brazil attended as an observer--the country's energy policy going forward which would increase the production of renewable transportation fuels (such as ethanol) and increase its petroleum refining capacity primarily to meet domestic demand with an eye to exporting the surplus.

"The Brazilian government said only 1% of the land suitable for agriculture in Brazil is used to grow sugarcane. As a result, the government plans to step up the recovery and use of degraded land to plant sugarcane.

Brazil and the US contribute 70% of the world's ethanol output. The Brazilian government's energy policy aims to produce 23.3 billion liters/year of ethanol and to export five billion liters. For biodiesel, the goal is to reach production of 3.3 billion liters/year by 2010.

Petrobras has three new biodiesel plants and plans to produce 640 million liters/year by 2013. Including ethanol, the company plans to spend $2.8 billion on biofuels up to 2013."

Brazil currently produces 1.9 mb/d of oil, but due to its sub salt finds offshore expects to produce as much as 3.2 mb/d by 2020. The plan thus has Petrobras increasing its refining capacity to 3.1 mb/d by that year.

8. MARK LYNCH ASKS WHY SADR IS IN TURKEY

Mark Lynch at the Abu Aardvark's Middle East Blog wonders what Moqtada al-Sadr is doing in Turkey.

"What does his public appearance portend for the role of the Sadrists in Iraqi politics in the coming period? Is this a bid for prominence in the upcoming national elections? How would a Sadrist political revival affect the escalating tension between Maliki and his Shia rivals such as ISCI? Or is this about security, whether the U.S. withdrawal plan or the recent uptick in attacks on Shia targets? Does Sadr's choice of Turkey as the place to re-emerge send any message about the movement's approach to the ever-hotter Kurdish issue?"

I would add the question of how this will play out in terms of the notion of the Iranian theocratic notion of "rule by the just jurist"--a question I took a stab at early last year in my post on Law and Revolution in Iran. Lynch's post is worth a look.

9. CONFLICT BETWEEN ISLAMABAD AND THE TALIBAN HEATS UP, THE WEST PUBLICLY AFRAID OF IMMINENT COLLAPSE

Kamran Haider at Reuters reported yesterday that the Pakistani military has redoubled its efforts to oust Taliban fighters in Bruner:

"In the Buner valley, 100 km (60 miles) northwest of the Pakistani capital, security forces backed by helicopter gunships and artillery attacked militants in three hamlets on Monday, residents and security officials said.

'There's been heavy firing going on since morning. It's very scary. Troops are using heavy artillery and gunships,' resident Nasir Khan told Reuters by telephone."

Meanwhile, Zarar Khan at the Associated Press reports that the Taliban has resumed armed patrols of the Swat Valley, in apparent violation of the peace deal whereby sharia law would be imposed in the region in return for the Taliban laying down their weapons. The patrols came even as regional authorities announced the creation of a sharia appeals court, which was rejected by a high ranking cleric who protested that he had not been consulted on its makeup.

"As tensions mounted Sunday, the government ordered a curfew for Swat from 9 p.m. to 6 a.m., said Khushal Khan, a top administrator, who confirmed the patrols. He said officials were discussing what to do if the insurgents violate the order."

Susanne Koelbl and Gabor Steingart at Der Spiegel have a useful analysis of the situation where they underscore the increasing alarm with which US foreign policy policymakers are viewing the situation in Pakistan.

"The mood is one of borderline panic in Washington these days when conversation turns to Pakistan. US Secretary of State Hillary Clinton said that the possibly crumbling state poses 'a mortal threat' to the world: 'I think that the Pakistani government is basically abdicating to the Taliban and to the extremists.' These fears were echoed by her special representative to the region, Richard Holbrooke: 'Pakistan is in an emergency situation.' And the 'collapse of the state' is likely to happen within six months, warns David Kilcullen, an influential counter-terrorism advisor to the US military.

On Tuesday of last week the US National Security Council held an unscheduled meeting under the leadership of its chairman, General James Jones. The only topic on the agenda was the situation in Pakistan."

Some Western analysts have concluded that the interests of the West and Pakistan are at cross purposes in the region, which explains Islamabad's apparent reluctance to take on the Islamic militants inside the country.

"A British regional expert with top intelligence agency connections recently told an exclusive circle of members of parliament in London: 'The ally Pakistan does not share our interests.' He said Islamabad 'is antipathic to Karzai's government and to any administration in Afghanistan which is indulgent of Indian influence. Pakistan thus wants the end of Karzai, a pro-Pakistani Pashtun government in Afghanistan and wants the British, the Americans and NATO out of Afghanistan.'"

Though it is very hard to tell from my far remove, I have difficulty with the logic of this argument. While it is true that Islamabad would likely prefer Western forces out of its backyard and certainly does not regard an India-friendly government in Kabul as in its interests, the country would have an incredibly difficult time reigning in centrifugal forces were it to lose the financial support of the West. Indeed, it would likely go bankrupt.

Moreover, I doubt that many policymakers in Islamabad would regard a chaotic Afghanistan as in its interests. Perhaps it considers a Taliban-run Afghanistan as stable and malleable, or at least relatively benign, but I find it hard to see how it would given the ties it has to nascent secessionist movements in the Northwest Frontier, Swat, and Baluchistan--which are directly challenging their putative patrons in military intelligence. Further, the success of the lawyers' movement has, I take it, strengthened the legitimacy of the central government even if the view of the populace regarding the mores of justice is likely much more tolerant of the views of Muslims more draconian than the West, or even elites in Islamabad, are comfortable with.

Either way, though jaw jaw is preferable to war war, the Taliban is refusing a negotiated solution to the problem, wanting to take for itself the monopoly of force in more regions. I cannot see how the elites in Islamabad would, under any conditions, find that an acceptable outcome, though they will likely try negotiations preferable in nearly all scenarios than outright war on a portion of their own population. Before taking military action, it is good sense to see if disputes can be solved politically, if you want to maintain the support of as wide a constituency as possible. But until the Taliban seems more amenable to a real structured and long-term solution I would expect Islamabad to up the pressure on them incrementally. The article is well worth reading in full.

10. MARYLAND AND VIRGINIA, THE DE FACTO HOSTS OF THE CAPITAL, APPEAR TO ANTICIPATE FURTHER REDUCTION IN THE EMBARGO ON CUBA

Fredrick Kunkle at the Washington Post reports that Maryland and Virginia are hustling to take advantage of what they believe will be further reductions of tensions between the US and Cuba.

"Virginia agriculture has already benefited from the relaxation of the 47-year-old trade embargo with Cuba, increasing exports from less than $1 million to $40 million in five years. Maryland has been developing farm trade in Cuba, though so far on a more modest scale. Last year, Maryland spent $6,000 on a trade mission that sewed up a $12.8-million deal on soybeans.

'There's just a lot of excitement,' said Todd P. Haymore, commissioner of the Virginia Department of Agriculture and Consumer Services. 'We feel certain that things are going to happen based on what the Obama administration has already done -- just the fact that we're talking about changing policies in place for 40 years or more.'"

The article gives a pretty good overview of the political state of affairs--worth a look.

11. 'GREAT RECESSION' LIKELY TO INCREASE 'NATURAL RATE' OF UNEMPLOYMENT GOING FORWARD

Matthew Benjamin and Rich Miller at Bloomberg report that the current recession will likely result in a higher "natural rate" of unemployment in the US.

"Fallout from the recession implies a 'markedly higher' natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. 'It was 5.5%; maybe it will be 6.5%, maybe 7%.'

That has implications for policy makers as well as workers. The Obama administration and the Federal Reserve are counting on the jobless rate to fall to a medium-term equilibrium of about 5% as the economy recovers. A natural rate significantly above that would drive up the annual budget deficit--which will top $1 trillion for the first time this year--by reducing tax revenue and pushing up spending on unemployment benefits.

A higher rate would also require the Fed to make a choice: Accept an economy with more Americans permanently out of work, or try to boost employment at the risk of heating up inflation."

A Scylla and Charybdis situation indeed. A must read.

Daily Sources 1/8

1. Ralph Atkins at the Financial Times reports that the European Central Bank does not look set to cut the benchmark interest rate any further.

2. The Bank of England cut its benchmark lending rate by 0.5% to 1.5%. Real Time Economics carries the full text of the bank's statement. Excerpts:

"The world economy appears to be undergoing an unusually sharp and synchronised downturn. Measures of business and consumer confidence have fallen markedly. World trade growth this year is likely to be the weakest for some considerable time.
...
CPI inflation fell to 4.1% in November. Inflation is expected to fall further, reflecting waning contributions from retail energy and food prices and the direct impact of the temporary reduction in Value Added Tax.
...
[T]he Committee judged that, looking through the volatility in inflation associated with the movements in Value Added Tax, there remained a significant risk of undershooting the 2% CPI inflation target in the medium term at the existing level of Bank Rate."

3. Kevin Rudd, the Prime Minister of Australia, has an opinion piece in the Financial Times which argues that the need to coordinate monetary policy and fiscal stimulus internationally is unprecedented.

"The development of a global response to this crisis is a complex task. The good news is that the Group of 20 summits in Washington last November and in London this April will have created a mechanism for effective, co-ordinated action – bringing together for the first time the main developed and developing economies, which represent between them 85 per cent of gross domestic product, 80 per cent of world trade and two-thirds of the world’s population.

In the immediate period ahead, G20 governments will need to work out the quantum of stimulus necessary for 2009 to offset the anticipated contraction in the private economy and the consequential impact on unemployment; to agree on the optimal content of stimulus policies to balance short and long-term economic needs; to co-ordinate the implementation of these measures; and to develop a medium-term exit strategy to ensure that surviving this crisis does not shackle us with long-term inflation."

Well worth reading in full.

4. Jann Bettinga and Oliver Suess at Bloomberg report that Commerzbank will receive a second bailout from Berlin, less than three months after the first. The bank, Germany's second-largest, will receive €10 billion (~$13.7 billion) from the government in return for 25% of its shares, plus one. It received €8.2 billion last November (~$10.4 billion at that time.)

"The capital injection will boost the combined Commerzbank- Dresdner Bank’s core capital ratio, a key measure of solvency, to about 10 percent, Commerzbank said. Germany’s bank-rescue fund, called Soffin, will buy 1.8 billion euros of Commerzbank shares and provide the rest of the money as a loan."

5. Edward Hugh at Fistful of Euros reports that German exports in November fell "12% year on year, while imports fell 5.6% on the month and 0.9% from a year earlier."

"And problems with indutrial output, emplyment and exports are not the only difficulty facing Germany, since a sale of 10-year bunds yesterday lured the least demand in six months as investors began to show increasing nervousness in the face of the coming flood of government securities, raising the prospect of increased borrowing costs across the European economies.

Investors bid a total of 5.2 billion euros for the bonds on offer, illustrating a reluctance to purchase which prompted the Bundesbank to retain some 32 percent of the securities."

The problem of selling sovereign debt will not be unique to Germany, and likely more critical for emerging markets selling US dollar denominated debt. (see Daily Sources 12/31 #9) Hugh's analysis is helpful, as usual.

6. David Yong at Bloomberg reports that Pacific Investment Management Co. (PIMCO) managing director and co-head of emerging-market investment, Curtis Mewbourne, wrote in a note on the company's website that "Default probabilities for countries like Brazil, Korea, Mexico and Singapore remain very low." Yong summarizes the analysis thus:

"Debt sold by countries with large enough financial reserves to stimulate economic growth and access to support from the Federal Reserve’s $120 billion of currency swap lines will outperform ....
...
Pimco is most bullish on countries that have the resources or can borrow to stimulate their economies as exports slump, according to Mewbourne. He highlighted China’s $585 billion stimulus package and Russia’s $186 billion program."

Meanwhile, Lilian Karunungan and Kim Kyoungwha at Bloomberg report that Asian currencies are falling in the face of dropping US demand.

"'The export numbers were shockingly weak,' said Mitul Kotecha, Hong Kong-based head of global currency strategy at Calyon, the investment-banking unit of French bank Credit Agricole SA. 'In an environment where exports are under significant pressure, the authorities will be content to see some depreciation, as long as it’s not a rapid fall.'"

7. Brad Setser at Follow the Money believes that Chinese appetite for US debt has not disappeared but has shifted from a basket of Agencies and US Treasuries to just US Treasuries.

"Looking ahead, China’s official purchases of Treasuries will be function of three things:

1) The pace of China’s reserve growth. That will be determined by the evolution of China’s trade surplus, FDI flows and hot money flows. The World Bank expects China’s current account surplus to rise in dollar terms in 2009; I tend to agree. Oil will not average close to $100 a barrel in 09. The fall in commodity import prices will help to offset a (probably large) fall in exports. The fall in exports implies fewer imported components, and China’s domestic slowdown implies fewer imports too. But FDI inflows will slow and hot money flows clearly have reversed, so overall reserve growth (counting the increase in China’s hidden reserves) should slow.

2) The share of China’s reserves that are held in dollars. That is currently close to 70% best I can tell. I have no idea if China will want to continue to maintain that dollar share even as the US runs huge fiscal deficits. But now that China is pegging tightly to the dollar, I would guess that Europe would put a lot of pressure on China not to sell dollars for euros in a way that drives up the euro. That would be tantamount to driving the RMB down v the euro to support China’s exports to Europe. I consequently don’t expect a big change in the dollar share, but that is a huge assumption.

3) The share of China’s dollar reserves that are invested in Treasuries. That share is currently rising, big time. At some point though China will have brought its Agency portfolio down to an acceptable level and start to worry about the size of its Treasury holdings. So I wouldn’t expect it to rise forever.

Sum it all up and the pace of China’s Treasury purchases should fall from their recent monthly highs in 2009. But that is only because they currently are at such a high level. Even SAFE cannot sustain a close to $70b a month pace of Treasury purchases for all that long. Not unless it really plans to run its Agency portfolio down to zero."

Well worth reading in full. Meanwhile, Tao Wang of UBS argues that the unemployment situation facing China is unlikely to cause civil unrest, suggesting that it is hardly unprecedented.



Wang argues that these job losses are cyclical and not structural as they were in 1998 and that actual unemployment in the early 2000s was in excess of 10% in addition to an estimated 20 million migrant workers returning to the agricultural sector between 1998 and 2002, for lack of jobs elsewhere. He also thinks Beijing is more prepared to face the problem head on now.

Shanghai Stakes reports that vacancy levels for A-level commercial buildings in Shanghai have risen from 5% at the beginning of 2008 to 15.4% now.

"In Pudong, the percentage is as high as 25.6%, up to even 50% in some high-end commercial buildings. The vacancy ratio of commercial office space in Shanghai has been higher than 50% only once before, during the ‘97-‘98 Asian financial crisis.
...
Morgan Stanley has also sought to sell property in Shanghai over the last several months, but has yet to find a buyer."

Meanwhile, Nisha Gopalan at the Deal Journal reports that Hong Kong billionaire Li Ka-shing's charitable foundation sold 2/5s of its entire stake in the Bank of China Wednesday. This is just a few days after UBS sold its stake in the company and as the Royal Bank of Scotland looks set to sell its 4.3% holding. (h/t Sky Canaves at China Journal for these last three items.)

Meanwhile, Li Yanping at Bloomberg reports that Chinese exports probably fell by the most in a decade in December, dropping by 5.3% from a year earlier using the median prediction of a survey of economists carried out by the wire service.

8. Winnie Lee at Platts reports that China's Ministry and Land and Resources said that the country's dependence on oil imports is likely to rise to 60% by 2020. Currently imports account for about 50% of China's oil requirement. The ministry expects the country to consume about 500 million metric tonnes of oil annually by 2020, or 10 mb/d. Of that 300 million metric tonnes will need to be imported, or 6 mb/d.

"To enhance supply security, the country has set a goal of discovering about six oil fields with reserves of 100 million mt and between six and eight gas fields with reserves of 100 Bcm.
During the 2011-2015 period, China is targeting a discovery of another 10 oil fields with reserves of 100 million mt and eight to 10 gas fields with reserves of 100 Bcm, the ministry said in the forecast document."

The story also reports that the Ministry suggests the establishment of strategic oil reserves, by which it is likely meant that the Ministry suggests the establishment of more strategic oil reserves.

9. Shiva Lingam at Platts reports that the strike by India's Oil Sector Officers Association, a union of mid-level oil industry employees, is in its second day and having a significant effect upon petroleum product supply in the country, creating fuel shortages in southern India and for the airlines. Indian Oil Corp. has been forced to shut four out of its seven refineries and military personnel have been sent to "man major oil installations." Production is down 30% at IOC and 50% at Bharat Petroleum Corp. Ltd.--state-owned refiners. This is extremely interesting because India's energy supply security strategy is now fundamentally based on importing more crude than required to produce the domestic petroleum product requirement and then exporting the surplus product. India consumes about 2.5 mb/d of oil, and this strike, if it continues, could have a considerable effect upon global oil prices.

10. Tim Johnston at the Washington Post reports that Kaing Khek Iev, aka Duch--the head of the Khmer Rouge's Tuol Sleng torture center in Phnom Penh, will likely go on trial starting March. Other Khmer Rouge leaders are unlikely to be tried until 2010.

11. Graham Bowley at the New York Times reports that the UN has suspended food shipments to the Gaza strip after a delivery driver was killed in an Israeli attack. Also rockets were fired into northern Israel from Lebanon in response to the Gaza offensive. The UN Security Council is reportedly close to a resolution calling for a cease fire in the strip.

"The break-through was reached after a delegation of high-ranking Arab ministers overcame the reluctance of the United States, Britain and France in calling for the cease-fire, the diplomats said."

Israel welcomed international efforts to secure a "durable" cease fire.

12. The BBC reports that the president of the Vatican Council for Justice and Peace, Cardinal Renato Martino, "accused both sides [in the Gaza conflict] of only thinking of their own interests while innocent people paid the price." In remarks made online, the Cardinal said:

"Defenseless populations are always the ones who pay. ... Look at the conditions in Gaza: more and more, it resembles a big concentration camp."

Relations between the Vatican and Israel have reportedly been strained recently as the Pope has made clear that he wants to beatify Pope Pius XXII. Pius XXII was Pope during WWII and is widely accused of having turned a blind eye to the holocaust. Meanwhile, Sameer N. Yacoub at the Associated Press reports that Muqtada al-Sadr has called for reprisals on US forces in Iraq in response to the Israeli offensive in Gaza. Al-Sadr is a Shi'a Islamist populist which some link to Iran, though the cleric has explicitly rejected the Khomeini vision of "the guardianship of the Islamic jurist." I regard him as a real threat to the legitimacy of the Iranian government, as I have explained in Law and Revolution in Iran. (h/t Informed Comment for both of these stories)

Former US President Jimmy Carter has an opinion piece in the Washington Post entitled, "An Unnecessary War."An important excerpt:

"[In April 2008, w]e knew that the 1.5 million inhabitants of Gaza were being starved, as the U.N. special rapporteur on the right to food had found that acute malnutrition in Gaza was on the same scale as in the poorest nations in the southern Sahara, with more than half of all Palestinian families eating only one meal a day.
...
Palestinian leaders from Gaza were noncommittal on all issues, claiming that rockets were the only way to respond to their imprisonment and to dramatize their humanitarian plight.
...
We were unable to confirm [that a truce had been agreed upon in June] in Jerusalem because of Israel's unwillingness to admit to any negotiations with Hamas, but rocket firing was soon stopped and there was an increase in supplies of food, water, medicine and fuel. Yet the increase was to an average of about 20 percent of normal levels."

Well-worth reading in full.

13. Pamela Constable and Candace Rondeaux at the Washington Post report that Mahmud Ali Durrani, the Pakistani National Security Adviser, was fired by Islamabad after admitting in a CNN interview that the evidence provided seemed to show that all 10 gunmen in the Mumbai attacks had roots in Pakistan. Meanwhile, in an interview with Der Speigel,

"[Foreign Minister Shah Mahmood] Qureshi and Pakistan's intelligence chief, Lt. Gen. Ahmed Shuja Pasha, said Wednesday that the country's security forces are subservient to civilian authority and committed to supporting democratic rule. 'It is completely clear to the army chief and I that this government must succeed,' Pasha said of Zardari's administration. 'I report regularly to the president and take orders from him.'"

The intelligence chief had also said that Pakistan has no desire to fight a war with India, wants cooperation with New Delhi, and views terrorism as the real enemy of both. In Afghanistan, Pakistan's foreign minister unequivocally denied that Pakistani government agencies had been involved in the attacks on Mumbai. Well worth reading in full.

14. David Osler at Lloyd's List reports that the US Navy plans to dedicate a task force--to be known as Combined Task Force 151--to anti-piracy duty in the Gulf of Aden. Initially this should mean that some of the ships in Combined Task Force 150, which is part of "Operation Enduring Freedom" or the invasion of Afghanistan and later anti-terror efforts, will be redeployed to CTF 151. Osler quotes a CTF 150 spokesman as saying,

"The primary role of CTF 150 was not to chase pirates, in a nutshell... There are nations who would prefer to stick with CTF 150 and not step outside those paramaters, and there are other nations who would be happy to step outside those parameters, but cannot."

Keith Wallis, also at Lloyd's List, reports that the Aso Administration is working on legislation to change the Japanese Constitution so as to allow it's armed forces to join the anti-piracy effort off the Somalian littoral. The government plans to submit the language to Parliament by March. (Sadly, you need a subscription to read the entire article, but the big news is linked, or so I imagine, given that I have not subscribed.)

15. David Jolly at the New York Times reports that a tentative solution may have been found to the Russo-Ukrainian gas dispute. Alexei Miller, CEO of Gazprom, has agreed to a proposal whereby the company would begin supplying natural gas via the Ukrainian pipeline infrastructure once EU monitors were in place to independently verify the volumes so as to ensure that Ukraine would not siphon off supply. Naftogaz CEO Oleh Dubyna told Reuters, "Naftogaz guarantees it will pump in full the volumes received, on the condition that Gazprom will guarantee and supply technological gas for Ukraine’s gas transit system to function." A certain amount of gas is required to keep the pipeline compressors functioning. Jolly reports that EU monitors could be in place by Friday. José Manuel Barroso, the president of the European Commission, has said that both Prime Ministers Putin and Tymoshenko have agreed "in principle" to the deal and

"If both Russia and Ukraine behave as they say they are behaving, there should be no problem. So we hope that the Russians put the gas into the Ukrainian network and that the Ukrainians do not interrupt the gas from Russia to the EU."

16. Marianne Stigset at Bloomberg reports that Norway's Petroleum Directorate expects crude output to fall to 110.8 million cubic meters, or 1.9 mb/d, in 2009 from 122.7 million cubic meters, or 2.11 mb/d in 2008. Production is expected to fall to 94.4 million cubic meters in 2013, or roughly 1.63 mb/d.

"Norwegian fields 'have a robust economy at $50 to $70 a barrel of oil,” [Bente] Nyland, [head of the Directorate,] said in an interview. 'Should prices fall below $50, without production costs going down, projects may be postponed.'"

17. Ian James at the Associated Press reports that Citgo announced it would continue its program of donating heating oil to the poor in American urban centers Wednesday, after it was announced that the program would be suspended. (see Daily Sources 1/5 #8) I am certainly pleased to hear that Chavez has decided to use Venezuela's oil wealth to continue his aid program to the American poor, but have to wonder how the Venezuelan poor are taking the news.

18. Alexander Kwiatkowski and Alaric Nightingale at Bloomberg report that Citigroup's Phibro LLC has hired a one million barrel capacity tanker to sit off Scotland as storage in order to capture profits from the current giant contango in the oil futures markets.

19. Paula Dittrick at the Oil & Gas Journal reports that ExxonMobil's recent annual Outlook for Energy: A View to 2030 forecast global energy demand to increase at an annual rate of 1.2% through 2030. Two key findings include:

a) "Transportation, currently responsible for more than half of total oil demand, is expected to expand substantially globally. From 2005-30, demand in developed countries is expected to be relatively stable because efficiency improvements will offset demand from an increasing number of vehicles. In contrast, demand for transportation fuels in developing countries will likely more than double." and
b) Oil, natural gas, and coal will continue to provide about 80% of the world's energy needs through 2030 because of their abundance, affordability, and availability."

I must get myself a copy.

20. In other foreboding news about the global economy, Janet Porter at Lloyd's List reports that the shipping industry is still being bogged down by inability to secure letters of credit.

"A great deal of cargo is stuck on the quayside unable to move, according to Inchcape Shipping Services chief executive Claus Hyldager."

Worth reading in full, though the article isn't entirely convincing as to why banks would be so leery of something as fundamental as a letter of credit.

21. Jon Kamp and Jessica Hodgson at Real Time Economics have another gloomy indicator for the prospects of the global economy, Intel's second warning this quarter that it will have received $8.2 billion in the fourth quarter, a 20% drop from the third.

"'If you’re an individual or a corporation, chances are you’re an Intel customer,' BMO Capital Markets analyst Brian Piccioni said. 'The fact that they’re not doing well is a good indicator of broader economic weakness.' ... The fact that a company with the size and reach of Intel has been unable to predict the scale of its problems or to swerve the worst of the downturn, has prompted broader concern about the rest of the economy."

22. Stephanie Rosenbloom at the New York Times reports that December sales in stores that have been open for at least a year--known in the retail industry as "same-store sales"--were down at an annual rate of 0.9% according to Ken Perkins, president of Retail Metrics. (The story does not make explicit whether this is year over year or from the month previous percentage changes.) Retail chains experienced a 2.7% year over year decline in sales in November.

"Sales in November and December are closely watched because they account for 25 to 40 percent of many retailers’ annual sales, according to the National Retail Federation, an industry group."

23. The AP reported that the Labor Department announced that initial jobless claims fell by 24,000 to the seasonally-adjusted number of 467,000 for the week ended January 3. This was less than most economists had expected. However, the number of people who continued to claim jobless benefits grew 101,000, to 4.61 million--the highest number seen since 1982.

24. Nancy Trejos at the Washington Post writes that the American Bankers Association reported yesterday that delinquencies on auto loans and home equity lines of credit rose to 3.25% and 1.15%, respectively, in the third quarter.

"James Chessen, ABA chief economist, said. 'With one million jobs lost in the first three quarters and 2 1/2 million expected for the year, delinquencies of all types of consumer loans will likely increase in the coming quarters.'"

The Association also found that delinquencies on credit card debt dropped 0.34% to 4.2%, which might be because the credit card companies increased the amount of debt they have simply written off. (see Daily Sources 1/7 #17)

25. Andrew Taylor at the Associated Press reports that the Congressional Budget Office estimates the deficit for the 2009 budget will reach $1.2 trillion.

"The $1.19 trillion 2009 figure shatters the previous record of $455 billion, set only last year. It also represents more than 8 percent of the size of the economy, which is higher than the deficits of the 1980s. The 2009 budget year began last Oct. 1."

The CBO estimate does not price in Obama's stimulus proposals.

Law and Revolution in Iran

Following up on my last blog on the lawyers revolt in Pakistan, I thought it might be interesting to take a look at the theocracy in Iran. Lawyers in that country are using the legal framework of that country to challenge the government's abuses of authority. Why? Given that it is a totalitarian state, what would be the point? I conclude that by taking seriously the rights established by the Constitution in Iran the lawyers are pursuing a threat that could eventually establish a more open and amicable state. And that conclusion suggests an entirely different approach to dealing with Iran than any I have encountered before.

"The law is the will of he who the sherriff will obey." -- Chief Justice Oliver Wendell Holmes, Jr.

"In Islam, the legislative power and competence to establish laws belong exclusively to God Almighty." -- Leader of the Revolution Ruhollah Musawi Khomeini

SHIRIN EBADI

Last week, Shirin Ebadi, nobel laureate, prominent human rights activist and constitutional lawyer in Iran complained that the death threats against her and her family had recently increased in volume and intensity.(1) The very next day the President of Iran, Mahmoud Ahmadinejad, ordered the police to ensure the security of Mrs. Ebadi and get to the bottom of who was behind the trouble.(2) On the same day, the chief of police of Tehran was arrested after being caught at a brothel--this was a man who instigated a crackdown on immodestly dressed women just last year.(3)

Mrs. Ebadi is no friend to the current regime in Iran. She was one of the first female judges in that country and was forced to step down when the revolution took place. She is a prominent activist who has pushed for women's rights in that country as well as taken the cases of many dissidents--and as a result has been imprisoned many times. She is a reformer, who believes that the general principles of universal human rights are compatible with Islamic doctrine. She believes that the current regime has perverted the message of Islam for their own ends.(4)

Why, you might ask, would the revanchiste administration of Iran expend valuable manpower and cash on protecting one of their most prominent opponents? Part of the answer is that it would be extremely embarrassing if one of the most celebrated children of Iran were assassinated. Probably best not to let that happen. But I believe there is something else going on here, a process which has similarities to the ongoing lawyers revolt in Pakistan that I wrote about in my last blog.

LAW AND THE SHIA STATE

The Iranian government is probably unique in that it has so many institutions responsible for the making and interpretation of laws. It is almost certainly unique in that the Constitution provides for a legal authority superior to itself, the Koran--and thereby extends legal authority to people outside the government and even outside the country itself!

As I pointed out in my previous blog, one of the key preoccupations of Islam is the establishment of a rules-based society. The Koran and various other texts are consulted by clerics in order to determine what is permissable in just about every facet of life. Legal decision-making, interpretation, and argument is central to the life of a Muslim cleric.

One of the contentious doctrines of Shi'a jurisprudence is the guardianship of the Islamic Jurists or Velayat-e Faqih.(5) There are various takes on the doctrine, but it dates back to the 19th century and has as one of its doctrinal premises a hadith(6)--a recorded saying of prophet Muhammad which is not in the Koran--which states "the fuqaha [experts in Islamic jurisprudence](7) are the trustees of the prophets."(8)

This doctrine is the very bedrock of the Islamic Republic of Iran. In 1970, Ruhollah Khomenei's book Islamic Government: Guardianship of the Islamic Jurist (Hokumat-e Islami: Velayat-e faqih) was published arguing that the country's ruler should be someone who "surpasses all others in knowledge" of Islamic law and justice.(9)

And that is what was the revolution established in Iran. Chapter VIII, Article 110, of the Constitution ordained that the Leader of the Revolution (aka Supreme Leader)(10) would have very broad powers over pretty much every element of the government.(11)

This sounds totalitarian. And indeed it is.

The Iranian Constitution is modeled in many ways on the constitution of the Fifth Republic of France, which was created under de Gaulle in order to give more power to the executive.(12) It gives some lip service to rights generally established in Western Democracies, but nearly all of these rights are limited by whether or not they are in accordance with Islamic principles. Chapter III, article 40, provides that:

No one is entitled to exercise his rights in a way injurious to others or detrimental to public interests.(13)

Of course, the government decides what is in the public interest and so decides when it is OK to exercise your Constitutionally guaranteed rights.

However, there are some meaningful checks and balances written into the Iranian Constitution--and they all have to do with who gets to decide what is in accordance with Islamic law and custom.

There are no fewer than five institutions within the Iranian government that are charged with determining the law.

One: The Legislature, also known as the Majlis or the Islamic Consultative Assembly, which is democratically-elected and charged with writing the laws of the land.

Two: The "head of the Judiciary," who must be a Mujtahid--or Islamic scholar competent to interpret divine law in practical situations(14)--and is appointed by the Leader of the Revolution for a five year term. He is charged with the appointment of judges, their promotion or demotion, the drafting of judiciary bills, and the organizational structure of the judiciary as a whole. It should be noted that the judiciary is also charged with investigating as well as prosecuting criminal behavior, in conjunction with the Executive. The head of the judiciary also runs the National General Inspectorate, which is charged with ensuring the "correct implementation of laws" by the Administration.(15)

Three: the Supreme Court, which is responsible for overseeing "the correct implementation of the laws by the courts" and "ensuring uniformity of judicial procedure." The Chief Justice of the Iranian Supreme Court is chosen by the head of the judiciary in consultation with the members of the court.(16) One is appointed a member of the Supreme Court by the head of the judiciary--not by the Leader nor the President.

Four: the Guardian Council, which is charged with determining whether any bill passed by the Majlis is compatible "with the criteria of Islam and the Constitution."(17) There are 12 members of the Guardian Council. Six fuqaha, or experts in Islamic jurisprudence, are selected by the Leader of the Revolution. Six are jurists, experts in various spheres of the law, elected by the Majlis, subject to approval by the Head of the Judiciary. Members serve six year terms.

A bill submitted by the Majlis must pass by majority vote of the six religious jurisprudential experts (fuqaha) in the Guardian Council if it is to be deemed compatible with Islam and thus enacted into law. For a bill to be deemed compatible with the Constitution, a majority of all members of the Council is required.(18) Furthermore, all "interpretation" of the Constitution is the sole province of the Guardian Council, where a three-fourths majority is required in order to pass as authoritative.(19) (Moreover, the Guardian Council supervises all elections and referenda, and determines the eligibility of all candidates for elective office.)(20)

Five: the Exigency Council (aka Expediency Discernment Council), which is responsible for resolving any situation where the Guardian Council and Majlis disagree and the Leader of the Revolution feels it necessary to call them in to decide the dispute. The Exigency Council is wholly appointed by the Leader of the Revolution.(21)

There are two other governmental institutions which, I think, must also be considered important authorities determining the law of the land in Iran.

The Leader of the Revolution is responsible for "deliniating the general policies of the government and has the power to summarily dismiss the Head of the Judiciary and the six fuqaha members of the Guardian Council.

The Assembly of Experts is responsible for determining who will be the next Leader of the Revolution and may, given the right circumstances, dismiss him.(22) Theoretically, this could mean that the Assembly oversees the Leader in some way, but there is no evidence of such oversight on public record. Its 86 members are democratically elected to eight year terms, after candidates have been vetted by the Guardian Council.(23)

Depending on how you see it, then, in Iran there are five to seven different governmental authorities empowered to determine the law. None is truly independent of all the others, though the Leader and the Assembly of Experts are nearly completely autonomous.

Although the Leader has a great amount of indirect influence over official legal interpretation, he is not, in fact, directly involved in law making or even its interpretations. All of this work is delegated or in the hands of elected officials. This might seem strange, given the character of the revolutionary constitution.

But in practical terms, at the time of the Revolution, it made no difference. Ayatolla Ruholla Khomeini had pretty much unchallenged authority to interpret the Koran inside Iran itself.

Indeed, Khomeini is the only person in the history of Iran to be referred as an Imam outside of what have been traditionally considered the twelve rightful successors to Muhammad.

Imams in Shi'a belief "are possessed of supernatural knowledge, authority, and freedom from any error and sin."(24)

And this, I think, is the key to the puzzle: the reason Khomeini was comfortable delegating the power to interpret these laws is because he had reason to believe he would remain in complete control of the situation.

His power was safeguarded by the Constitution, and especially in Article 2:

The Islamic Republic is a system based on belief in:
1.the One God (as stated in the phrase "There is no god except Allah"), His exclusive sovereignty and the right to legislate, and the necessity of submission to His commands;
2.Divine revelation and its fundamental role in setting forth the laws;(25)

Khomeini said it all in 1979: "`since I have appointed [the Prime Minister], he must be obeyed.` It was `God's government,` he warned, disobedience against which was a `revolt against God.`"(26)

But the current Leader of the Revolution Ali Khamenei does not weild this religious authority. Far from it. And thus the Constitutional structure does not support his overweening influence over the affairs of the country in the way it did Khomeini.

REVOLUTION AND COMPROMISE

Khomeini's notion of the guardianship of the Islamic jurist is actually fairly controversial in the Shia community. At the time of the Revolution only one other Grand Ayatolla in Iran (out of about 12) held it to be compatible with scripture: Grand Ayatolla Hossein Ali Montazeri.(27)

And Montazeri was Khomeini's original choice as successor to the post of the Leader of the Revolution. In 1983, the Assembly of Experts designated him the official successor. But Montazeri fell out with Khomeini, and in particular criticized the government for the executions carried out after the Revolution as well as Khomeini's death warrant for Salman Rushdie. In 1989, Khomeini denounced Montazeri who thus lost his position as designated successor.(28)

The current Leader of the Revolution--Ayatolla Seyyed Hosseini Khamenei--did not have the religious credentials originally required by the Iranian Constitution for the highest post.(29) He only attained the title of Ayatolla--not Grand Ayatolla--by virtue of being elected Leader.(30) In fact, the Constitution was amended three months before Grand Ayatolla Ruhollah Khomeini's death to no longer require a candidate for the post of Leader of the Revolution be a supreme theological authority.(31) And Khamenei's selection caused some dissention amongst senior clerics who were better qualified from a religious perspective, including, unsurprisingly, Montazeri.(32)

Khamenei was a compromise candidate and his ascention was due to his political perspicacity and not his religious authority. This has created a situation where, at least theoretically, there are many authorities on the Koran who could make actions by the government unconstitutional, merely by ruling them contrary to the Koran. A strange situation to be in indeed.

At this moment, such a ruling from inside the country would likely be met with immediate arrest and character assassination in the state press. Any Ayatolla who in the sanctum of his conscience believes that the state has overstepped the bounds of Islamic Law must, perforce, walk quietly. Khamenei is firmly in charge there.

But there are Grand Ayatollas that live outside of Iran--beyond the long arm of the law, so to speak.

IRAN AND THE OTHER

It bears repeating that Iranians hold the United States responsible for the installation of the Shah and the overthrow of the democratically-elected government of Mohammad Mossadeq in 1953. The Revolution in 1979 was in a way a revolution against the American colonizer, the Shah being seen as a mere proxy for the US.

Moreover, many Iranians believe that the United States was a strong supporter an instigator of the Iran-Iraq War of 1980-88, where the Iranians lost an estimated one million people.(33) In any case, although I can only offer anecdotal evidence of this, to a great extent Iranians blame their historical woes on the pernicious efforts of outsiders--from the Arab invasion of the 7th century to the colonizing efforts of Britain, Russia, and ultimately, in their view, of the United States.

It was an explicit goal of the Revolution in 1979 to rid Iran of just such outside influences. For example, Article 3 of the Iranian Constitution stipulates that "the government of the Islamic Republic of Iran has the duty of directing all its resources to the following goals," goal five is "the complete elimination of imperialism and the prevention of foreign influence" and goal 13 is "the attainment of self-sufficiency in scientific, technological, industrial, agricultural, and military domains, and other similar spheres."(34)

The first two sentences of Article 9 hold that:

"In the Islamic Republic of Iran, the freedom, independence, unity, and territorial integrity of the country are inseparable from one another, and their preservation is the duty of the government and all individual citizens. No individual, group, or authority, has the right to infringe in the slightest way upon the political, cultural, economic, and military independence or the territorial integrity of Iran under the pretext of exercising freedom."(35)

There are no less than 12 articles and sections of the Constitution concerned with eliminating and preventing outside influence.(36) This indicates to me a certain preoccupation with the issue.

I think it is clear that currently Iranians feel that they are in the crosshairs of a powerful outside influence--the United States.
A recent survey by WorldPublicOpinion.org which polled Iranian citizens on a variety of subjects found that 64% of Iranian respondents thought the United States was purposefully trying "to humiliate" the Islamic world. 55% believe that US bases in the Middle East are a threat to Iran. (This number is down from December 2006, when 73% had that perception--perhaps because it is widely perceived that American power has been depleted by our involvement in Iraq.)(37) 71% think it is "definitely" America's goal "to maintain control over the oil resources of the Middle East."(38) 65% of Iranians believe that the United States controls "most" or "nearly all" of the world.(39)

In other words, "the Great Satan" controls most or nearly all of the world. Not an ideal situation.

This might explain the rather high levels of support for the government the survey found in Iran. When asked whether they were satisfied with the direction the country was going in, 65% of Iranians were.(40) 74% of Iranians apparently trust the national government to do "what is right." 64% of Iranians are satisfied with Iran's foreign relations. 63% responded that they thought President Amadinejad had improved Iran's overall national security!(41)

One would be forgiven for having some misgivings about the responses to such highly charged questions in a poll conducted in a country where frank opposition to the government is unsafe. Nonetheless, this is the data we have, and even if you discount a portion of the responses, it does seem that there is widespread support for the government and its policies--much more than any government is likely to require to perpetuate itself.

So while it may be that the Iranian Revolution has betrayed most of its promises, the Iranians may well feel inclined to express strong support for their government as the most capable of resisting foreign domination--and when the meddling of foreigners needs to be dealt with immediately. That would be my guess, in any case.

IRAQ

There has been a lot of ink spilled on how the invasion of Iraq has created a "shi'ite crescent," increasing Iran's influence via their solidarity and credibility with the Shia's of Lebanon, Syria, Iraq, and the Gulf nations.(42) Perhaps this is so, but the influence can potentially go in both directions.

Grand Ayatolla Ali Sistani is the most prominent Shia cleric in Iraq, based in Najaf.(43) Najaf is a particularly important city in terms of Iran for two reasons: it is the home of the Imam Ali Mosque, the third holiest site in Shia Islam, and it is where Ruholla Khomeini spent most of his time in exile from the Shah's regime. It is where he wrote Islamic Government: Authority of the Jurist.(44)

There is a long tradition of dissent in Shi'a Islam, and, Najaf has been at points in its history one of its foci. In fact, Ali Sistani is a much more highly regarded religious authority than the current Leader of the Revolution in Iran, Ali Khamenei. And Grand Ayatolla Ali Sistani is on the record as ruling that the concept of the Guardianship of the Islamic Jurist as it is expressed in Iran is contrary to his understanding of Islam.(45)

Ali Sistani--like most Iraqi clerics--is extremely uncomfortable with the US presence in Iraq and does not want to be associated with the United States in any way.(46) I think it is fair to say that any association with the United States would taint his reputation. Also, as long as the United States is in Iraq, Iran remains a powerful counterbalance to our influence there--something that Sistani likely considers useful.

But this is also tricky business for the Iranians. For example, in the recent fighting between the Mahdi Army and US (and Iraqi government) forces, the Iranians backed the Iraqi government--and by extension the US.(47) The Mahdi Army is led by Muqtada al-Sadr, who is also on record as being against the Iranian expression of the Guardianship of the Islamic Jurist. His version of an Islamic government would to all intents and purposes gut the role of the supreme religious authority.(48) Sadr is the head of an effective military force in Iraq--unlike Sistani--and studying to be an Ayatollah (he is currently just an Hojatoleslam(49), or what the Ali Khamenei's religious rank was just prior to his elevation to Leader.) And though it is much more complicated than that, I see why Iran would be uncomfortable with the rise of another religious authority next door who happened to be in charge of a military organization and explicitly against their form of government.

Ali Sistani would in some ways be more of a concern to me were I in charge of Iran. If Iraq were to stabilize and his influence grew, his interpretations could be seen as a challenge to the constitutionality of the Iranian Constitution itself. There have been unsubstantiated rumors of assassination attempts on Sistani's life. If one were to ask who benefits from such a deed, there are a number of answers, but it ain't the US, and Iran potentially would.

Either way, there are plenty of religious authorities in Iraq, and the view generally held in Najaf is contrary to the Khomeini interpretation of the Guardianship of the Islamic Jurist. They have credibility in Iran. And if the US were to leave Iraq, this credibility could grow. And if the guy the sherriff in Iran will obey ends up being a cleric in Iraq--as in 1979--then the government in Iran has a real problem. After all, there are already significant religious authorities in Iran, like Montazeri, who are against Khomeini's interpretation of the Guardianship of the Islamic Jurist.

REVOLUTION COMPROMISED

And the fact of the credibility of religious authorities in Iraq is a problem for Iran, not just because the Leader of the Revolution has less, but because the Iranian Revolution, like most, cannot make good on its many and various promises.

It promises a lot.

It promises equal rights, regardless of color or sex.(50) The investigation into a person's personal beliefs is forbidden.(51) Freedom of expression is guaranteed.(52) Freedom of association is as well.(53) Social security, free education, and housing are all guaranteed.(54) Innocence is presumed, the right to a fair trial and counsel affirmed, and torture is prohibited by the Iranian Constitution.(55)

There are many more. And as I pointed out above, most of these rights are qualified with exceptions which provide for instances where the law can curtail these privleges. The Iranian government has made good use of those qualifiers. But, there is another important protection in sentence three, Article 9 of the Constitution:

"no authority has the right to abrogate legitimate freedoms, not even by enacting laws and regulations for that purpose, under the pretext of preserving the independence and territorial integrity of the country. "(56)

The Iranian government has arguably done that ... more than once. And this particular article is unalterable under the current Constitution.

PROMISES MATTER

Why would the Byzantine intricacies of Shi'a theology and law make any difference on the ground in Iran?

The history of the US might be a useful guide. Our own revolution declared as self-evident that all men are created equal. Of course, the US Constitution was a compromise which allowed for the slavery of a portion of the human race. And the movement which cried out most bitterly about the contraditions therein was originally and primarily a religious movement, led by Quakers and refreshed by the Great Awakening in the 1830s.(57)

William Garrison, the most celebrated abolitionist of his time, is said to have called the Constitution a "covenant with death and an agreement with hell." Here was his argument in his own words:

"No body of men ever had the right to guarantee the holding of human beings in bondage. Who or what were the framers of our government, that they should dare confirm and authorize such high-handed villany – such a flagrant violation of all the precepts and injunctions of the gospel — such a savage war upon a sixth of our whole population? —They were men, like ourselves – as fallible, as sinful, as weak, as ourselves. By the infamous bargain which they made between themselves, they virtually dethroned the Most High God, and trampled beneath their feet their own solemn and heaven-attested Declaration, that all men are created equal, and endowed by their Creator with certain inalienable rights ...."(58)

It is clear that it was a powerfully effective argument. And, after all, that was a great part of the justification of the Iranian Revolution in the first place, the Shah's compact with us--"the Great Satan." I think they ignore such contradictions at their own risk.

From my distant remove, that is what I think Mrs. Shirin Ebadi and her ilk are up to. They may provide some credibility to the regime by taking their promises seriously, but it is by seriously exploring the contradictions within the Constitution and its application by the government, that dissenters are able to undermine the credibility of the regime itself. Efforts by the regime to reconcile the Constitution with the needs of the day will make for more and more convoluted compromises. It is a slow process. But it is a likely one, and likely inevitable as well.

Just as our Constitution had contradictions that required an eventual shaking out, so does the Constitution of Iran.

WHAT CAN THE US DO?

Proactively? Not much, in my view. Any backing by the US of these efforts in Iran or clerical authorities in Iraq would only undermine the credibility of those we are trying to support. Calls for such efforts are misguided.(59) The US is the third rail of politics in Iran--and probably in Iraq as well. Our favorable ratings throughout the Middle East are--as I pointed out in an earlier blog--very very low. Though we should complain loudly when obvious human rights violations are taking place, we should do as much as possible to maintain a distance from those elements that we believe might produce positive change in Iran.

Furthermore, as long as we are in Iraq and have troops in the Middle East, we are providing the cover that the theocracy in Iran needs to continue as it has. We actually diminish the chances of an outcome of the debate in Iran which is in our interests--and the Middle East generally--by being so directly involved in the affairs of the region simply because we seem threatening.

Obviously, given the energy needs of the US, Europe, India, China, and Japan, American security guarantees are going to be an ongoing concern. But the notion of long-term bases in the region is likely a mistake, given the evolution of the debate there. Germany, Japan, and South Korea were one thing, this is quite another. We would best be served by limiting or getting rid altogether of our military presence in the region.

The exception to this is Afghanistan. We cannot afford to let Afghanistan slip back into chaos or under Taliban control. Interestingly, Iran would likely be a tactical ally in our efforts against the Taliban in Afghanistan. The Administration has denied that there has been any cooperation between Iranian and American special forces in Afghanistan, but members of the Iranian parliament have mentioned it(60), and Shias are not regarded as Muslim by the Taliban.(61) My suspicion is that such cooperation has in fact occured. I also suspect that it is difficult territory for the Iranian leadership, as cooperation with "the Great Satan" seems contrary to the whole meaning of the Revolution--and thus should be encouraged!

It has also been suggested that we ought to engage Iran, and try and bring about a "grand bargain."(62) Much as I respect and admire the various realist luminaries, such as Flynt Leverett, Tom Pickering, and others who support the idea, I suspect pursuing one is not likely to be productive. At each moment when the Iranians and the Americans have sat down to talk about this possibility, one side or the other has backed out. As I wrote above, I believe the Iranians need us as adversaries in order to perpetuate their regime ... and any attempted bargain with the United States exposes an Iranian politician to dangerous criticism in Iran itself. I believe it would make more sense to simply agree to talk to the Iranians when they want to, establish an embassy in Tehran should they ask for one, but pursue a wait and see policy where we would only agree to Iranian proposals if there existed clear advantages to us.

I believe that our embargo of Iran should be carefully reconsidered as well. It is likely that the embargo has a negative effect upon the development of the energy industry in Iran. I do not believe that this is in our best interests, as less oil in tight markets means exponentially higher oil prices. Lifting the embargo on Iranian oil wouldn't make much of a change, but allowing for financing may well end up making their industry more productive, which will bring down the price of oil and natural gas somewhat, over the long term.

Moreover, it is not clear to me that trying to weaken the economy in Iran is likely to produce change in the government there. There is the old example of Cuba, which, though it has been subject to an embargo much more effective than any possible with Iran, has safely perpetuated the communist regime for over 50 years.

I think that the J-curve theory of social revolutions is more likely. First proposed by James Davies in 1972, the J-curve theory of social revolutions argues that it is after first an increase in economic well-being which produces certain expectations, and then a political and economic drop in well-being, widening the gap between expectation and reality, that revolutions occur.(63) I expect that such economic well-being, combined with critical evaluation of the Revolution's promise and an absence of a outsider threat to cover the regime's broken promises is the twist of fate we are waiting on. I do not think that the embargo should just be abandoned unilaterally--we should wait on a good opportunity, where we can wrest some advantage from it. But I think it should be on the table.

(1) Iranian Nobel Laureate Complains of Death Threats, RFE/RL Newsline, Tuesday, April 15, 2008, Volume 12, Number 71
(2) Iran's Ahmadinejad orders police to protect Ebadi, AFP, Tue Apr 15, 9:55 AM ET
3) Chief of police for Tehran was arrested, Iran confirms, by Nazila Fathi, International Herald Tribune, April 16, 2008
(4) The Nobel Foundation's Nobel Peace Prize Biography of Shirin Ebadi
(5) Wikipedia: Ja'fari jurisprudence
(6) For a discussion of the Hadith, see Wikipedia: Hadith. Basically they are stories about Prophet Muhammad which were passed down orally until they were finally put to paper two or three hundred years after his death. In a way there are similar to the Apocrypha of Christianity, except that they are regularly and generally consulted as clarifications of the meaning of the Koran and what is therefore halaal, i.e. kosher or permitted, and haraam, that is, forbidden.
(7) Fuqaha is the plural of Faqih--an expert in Islamic jurisprudence (fiqh), see a discussion of the term at Wikipedia: Faqih and Wikipedia: Fiqh.
(8) Wikipedia: Guardianship of the Islamic Jurists
(9) Wikipedia: Hokumat-e Islami : Velayat-e faqih
(10) Actually in the Constitution the position of the Supreme Leader is referred to as "the Leader of the Revolution" or just plain "Leader." See Wikipedia: Supreme Leader of Iran
(11) from the translation of the Constitution of the Islamic Republic of Iran at International Constitutional Law database hosted by Bern University in Switzerland:

Article 110 [Leadership Duties and Powers]
(1) Following are the duties and powers of the Leadership:
1. Delineation of the general policies of the Islamic Republic of Iran after consultation with the Nation's Exigency Council.
2. Supervision over the proper execution of the general policies of the system.
3. Issuing decrees for national referenda.
4. Assuming supreme command of the Armed Forces.
5. Declaration of war and peace and the mobilization of the Armed Forces.
6. Appointment, dismissal, and resignation of:
a. the religious men on the Guardian Council,
b. the supreme judicial authority of the country,
c. the head of the radio and television network of the Islamic Republic of Iran,
d. the chief of the joint staff,
e. the chief commander of the Islamic Revolution Guards Corps, and
f. the supreme commanders of the Armed Forces.
7. Resolving differences between the three wings of the Armed Forces and regulation of their relations.
8. Resolving the problems which cannot be solved by conventional methods, through the Nation's Exigency Council.
9. Signing the decree formalizing the election of the President of the Republic by the people. The suitability of candidates for the Presidency of the Republic, with respect to the qualifications specified in the Constitution, must be confirmed before elections take place by the Guardian Council, and, in the case of the first term of a President, by the Leadership.
10. Dismissal of the President of the Republic, with due regard for the interests of the country, after the Supreme Court holds him guilty of the violation of his constitutional duties, or after a vote of the Islamic Consultative Assembly testifying to his incompetence on the basis of Article 89.
11. Pardoning or reducing the sentences of convicts, within the framework of Islamic criteria, on a recommendation from the Head of judicial power.

(2) The Leader may delegate part of his duties and powers to another person.

(12) My previous piece on Venezuela points out that the party that first brought Chavez to power was known as the "Fifth Republic Movement"--the kinship between Venezuela and Iran is actually a bit deeper than people usually suspect. (Venezuela, of course, was the country behind the establishment of OPEC.)
(13) English translation of the Constitution of the Islamic Republic of Iran, hosted by Iran online.
(14) Wikipedia: Ijtihad
(15) English translation of the Constitution of the Islamic Republic of Iran, Chapter XI, Articles 156-8, and 174, hosted by Iran online.
(16) English translation of the Constitution of the Islamic Republic of Iran, Chapter XI, Articles 161-4, at International Constitutional Law database hosted by Bern University in Switzerland. (Perhaps due to the amendment of the Constitution in 1989, Iran online's version of the document does not at the moment include Article 163.)
(17) English translation of the Constitution of the Islamic Republic of Iran, Chapter VI, Section 2, Article 94, hosted by Iran online.
(18) Article 96
(19) Article 98 (I do not know how this operates in practice, but it is a tremendous amount of authority, theoretically speaking.)
(20) Article 99
(21) English translation of the Constitution of the Islamic Republic of Iran, Chapter VIII, Article 112
(22) Article 111
(23) Wikipedia: Assembly of Experts
(24) Wikipedia: Imamah
(25) English translation of the Constitution of the Islamic Republic of Iran, Chapter I, Article 1, hosted by Iran online.
(26) Wikipedia: Ruhollah Khomeini
(27) Wikipedia: Ruhollah Khomeini
(28) Wikipedia: Grand Ayatolla Hossein- Ali Montazeri
(29) Reading Khamenei: the World View of Iran's Most Powerful Leader, by Karim Sadjadpour, Carnegie Endowment for International Peace, March 2008, p. 11
(30) Wikipedia: Ali Khamenei
(31) Iran Online: The Leadership
(32) Wikipedia: Ali Khamenei
(33) Wikipedia: Iran-Iraq War
(34) English translation of the Constitution of the Islamic Republic of Iran, Chapter I (General Principles), Article 3, hosted by Iran online.
(35) English translation of the Constitution of the Islamic Republic of Iran, Chapter I (General Principles), Article 9, hosted by Iran online.
(36) The 9 others are: Article 43, section 8, of the Iranian Constitution holds that insofar as the economy goes, it is the duty of the government to [prevent] "foreign economic domination over the country's economy." Cf: English translation of the Constitution of the Islamic Republic of Iran, Chapter IV.
Article 78 holds that "All changes in the boundaries of the country are forbidden;" Article 81: "The granting of concessions to foreigners for the formation of companies or institutions dealing with commerce, industry, agriculture, services or mineral extraction, is absolutely forbidden;" and Article 82 "The employment of foreign experts is forbidden, except in cases of necessity and with the approval of the Islamic Consultative Assembly. Cf: (46) English translation of the Constitution of the Islamic Republic of Iran, Chapter VI, Part 2.
Article 145 stipulates that "No foreigner will be accepted into the Army or security forces of the country." Article 146 "The establishment of any kind of foreign military base in Iran, even for peaceful purposes, is forbidden." Cf: English translation of the Constitution of the Islamic Republic of Iran, Chapter 9, Part 3.
Article 152 states:

"The foreign policy of the Islamic Republic of Iran is based upon the rejection of all forms of domination, both the exertion of it and submission to it, the preservation of the independence of the country in all respects and its territorial integrity, the defence of the rights of all Muslims, non-alignment with respect to the hegemonist superpowers ...."

Article 153 continues with "Any form of agreement resulting in foreign control over the natural resources, economy, army, or culture of the country, as well as other aspects of the national life, is forbidden." English translation of the Constitution of the Islamic Republic of Iran, Chapter X (Foreign Policy), hosted by Iran online.
(37) Public Opinion in Iran, with comparisons to American Public Opinion, A WorldPublicOpinion.org poll, p. 11, April 7, 2008. The poll was conducted in partnership with Search for Common Ground and Knowledge Networks as well as an unnamed polling firm in Iran. (WorldPublicOpinion.org is a program managed by the Program on International Policy Attitudes at the University of Maryland.)
(38) p. 10
(39) p. 11
(40) p. 18
(41) p. 19
(42) see, for example, Vali Nasr's book: The Shia Revival: How Conflicts within Islam Will Shape the Future, W.W. Norton, April 9, 2007, which I have not read, but understand addresses this issue directly. A google search will yield many other examples.
(43) Wikipedia: Grand Ayatollah Ali al-Sistani
(44) Wikipedia: Ruhollah Khomeini
(45) "'Shia Democracy': Myth or Reality?", by Sreeram Chaulia, February 16, 2007, Worldpress.org.
(46) "The Grand Ayatollah Behind the Curtain," by Colbert I. King, The Washington Post, Saturday, October 28, 2006; Page A15.
(47) Informed Comment: Iran Supported al-Maliki against Militias: OSC, by Juan Cole, Sunday, April 13, 2008.
(48) "The Shi‘a in the Arab World," Middle East Report Editorial, Volume 242, Spring 2007.
(49) Wikipedia: Muqtada al-Sadr
(50) Articles 19 and 20
(51) Article 23
(52) Article 24
(53) Articles 26 and 27
(54) Articles 29 - 31
(55) Articles 37, 34, 35 and 38, respectively
(56) Article 9
(57) Wikipedia: Abolitionism
(58) The Liberator Files: The Constitution and a Call for Disunion, a collection of items from Garrison's paper in Boston, The Liberator, the selection quoted was printed in 1832.
(59) See for example Michael McFaul and Abbas Milani's suggestions at a recent Hoover Institution event discussing Ahmadinejad and Iran's Nuclear Program.
(60) "Iran helped overthrow Taliban, candidate says," by Barbara Slavin, USA Today, June 9, 2005
(61) Wikipedia: Taliban
(62) "A grand bargain, or else," by Flynt Leverett, International Herald Tribune, Tuesday, June 20, 2006.
(63) Fragilecologies: Davies J-Curve Revisited, by Michael H. Glantz, 27 June 2003.