Daily Sources 8/9

1. SOUTHEAST ASIA BUYING WEAPONS AT BREAKNECK RATE

Jon Ponfret at the Washington Post reports that a recent publication by the Stockholm International Peace Research Institute shows that concerns over China's rise has pushed countries in Southeast Asia to almost double their weapons purchases from 2005 to 2009.

"The buying spree is set to continue, with reports that Vietnam has agreed to pay $2.4 billion for six Russian Kilo-class submarines and a dozen Su-30MKK jet fighters equipped for maritime warfare. This is in addition to Australia's stated commitment to buy or build nine more submarines and bolster its air force with 100 U.S.-built F-35s. Malaysia has also paid more than $1 billion for two diesel submarines from France, and Indonesia has recently announced that it, too, will acquire new submarines."

2. CHINA TO CLOSE 2,000 ENERGY INEFFICIENT FACTORIES

Keith Bradsher at the New York Times reports that China will close 2,087 steel mills, cement works and other energy-intensive factories by September 30 in order to try and increase its energy efficiency.

3. CHINA MAKES NO PUBLIC COMMENT ON SEIZURE OF ITS FISHERMEN

Brian Spegele at China Real Time reports that China has still made no public statement regarding the seizure of three fishermen by North Korea, allegedly for fishing in the North Korean exclusive economic zone.

4. HUGO CHAVEZ TO MEET NEW COLOMBIAN PRESIDENT TO TRY AND DAMP DOWN TENSIONS

Christopher Toothaker at the Associated Press reports that Hugo Chavez will meet the new Colombian president--Juan Manuel Santos--will meet in Colombia to discuss how to reduce tensions between the two countries.

5. PRESIDENT MEDVEDEV ARRIVES IN ABKHAZIA ON SUNDAY

CNN reports that Russian President Medvedev arrived Sunday in Abkhazia where he will meet with his counterpart, Sergey Bagapsh.

6. FORMER PRESIDENT OF MEXICO FOX CALLS FOR THE LEGALIZATION OF DRUGS

Jonathan J. Levin and Jens Erik Gould at Bloomberg report that the former President of Mexico, Vicente Fox, has called on the country to legalize drugs as a way of tamping down drug cartel violence.

8. COMPANIES ARE SEEKING LICENSES TO BUILD 22 NEW REACTORS

Chuck McCutcheon at the Christian Science Monitor reports that companies in the US are seeking licenses from the US Nuclear Regulatory Commission to build and operate 22 new reactors. A Gallup poll in March found that 62% of Americans now favor nuclear power.

9. US INCOMES FELL BY 1.8% IN 2009

Phil Izzo at Real Time Economics reports that US incomes fell by an average of 1.8% in 2009. The article includes a sortable chart of income growth by city.

10. KRUGMAN NOTES THAT CRITICAL INFRASTRUCTURE IN THE US IS BEING ALLOWED TO FALL INTO DISREPAIR

Paul Krugman at the New York Times reports that localities are letting their roads go to gravel, turning off the lights, and pushing through big cutbacks in education funding while the rest of the world is in the process of building up their infrastructure. A good read.

Daily Sources 7/7

1. CHINA'S US TREASURY HOLDINGS UP $5 BILLION IN APRIL

Bloomberg reports that China's State Administration of Foreign Exchange urged markets to not consider changes in US treasuries political statements. It further indicated that gold is not likely to become a major part of its reserves holdings because of its volatility and lack of interest payments. Some think this is just Beijing talking its book so it can buy further gold at depressed prices. Last year Beijing doubled its gold holdings.

2. FREE EXCHANGE HOSTS A NEAT INTERACTIVE MAP OF THE EU



3. NEW POLISH PRESIDENT AN EUROPEANIST

Greg Scoblete at Real Clear World reports that the new Polish President is a committed Europeanist as opposed to his predecessor, who was a committed Atlanticist.

4. US RHETORIC IN GEORGIA DESIGNED TO CALM FEARS IN T'BLISI

Mary Beth Sheridan at the Washington Post reports that in her visit to Georgia, Secretary Clinton indicated the US's opposition to Russia's "invasion and occupation" of Georgia. Prime Minister Putin took issue with the characterization of the Secretary of State, calling the Russian troop presence an effort to liberate the Abkhazians and South Ossetians.

5. DRILLING IN GREENLAND'S ARCTIC WATERS BEGAN LAST WEEK

Kate MacKenzie at FT Energy Source reports that deep water drilling in Greenland's Arctic waters began last week. And so the race for Arctic natural resources begins.



6. AUSTRALIA KEEPS BENCHMARK RATE AT 4.5%

Jacob Greber at Bloomberg reports that Central bank Governor Glenn Stevens yesterday left the benchmark cash rate at 4.5% for a second month. Australia's central bank had raised interest rates six times since October when it stood at a low of 3%. Inflation is expected to increase to more than 3% in the coming months.

7. INDIA DEPLOYS TROOPS IN KASHMIR IN EFFORT TO SUPPRESS UNREST

Lydia Polgreen at the New York Times reports that the Indian Army has deployed troops in Kashmir in an effort to calm the region after large street protests resulted in paramilitary units firing into the crowds.

8. RUMORS THAT MUBARAK'S HEALTH IS IN SERIOUS DECLINE

Michael Collins Dunn at the MEI Editor's Blog reports that Ha'aretz has picked up a rumor from a London-based daily that Mubarak's trip to France was for medical reasons. The story is that Mubarak's health is in serious decline and that his son is in line for succession.

9. OBAMA EXPECTS NETANYAHU TO BEGIN TALKS WITH PALESTINIANS BEFORE MORATORIUM ON NEW SETTLEMENT BUILDING EXPIRES IN SEPTEMBER

Sheryl Gay Stolberg and Mark Landler at the New York Times report.

10. BANK CARD DELINQUENCIES FALL BELOW 4%; SERVICE SECTOR NOT ADDING JOBS QUICKLY ENOUGH

In a good sign for the economy, Darrell A. Hughes at Real Time Economics reports that bank credit-card delinquencies dropped below 4% for the first time in eight years.

[ABA Chief Economist James] Chessen said the anticipated slow growth is unlikely to cause delinquencies to rise significantly, but there could be some impact. 'Until we get a sustained level of new jobs in this economy, we’re not going to see delinquencies fall to very low levels,' he said.

In the meantime, Phil Izzo at Real Time Economics reports that the Institute for Supply Management subindex for employment fell below 50, indicating a fall in employment.


11. THE EIA REPORTS THAT CRUDE STORAGE IS DOWN 2 MILLION BARRELS, STILL 12.9 MILLION MORE IN STORAGE THAN LAST YEAR

The EIA reports that crude stocks fell to 363.1 million barrels, down 2 million from last week, up 12.9 million from last year. Gasoline stocks rose by half a million while diesel stocks rose 2.5 million. Average US gasoline prices rose by 1.4 cents to 275.7 cents the week ended June 28. In the week ended June 25, refinery capacity utilization stood at 88.4%, down 1% from the week previous.

Daily Sources 8/4

1. IEA WARNS THAT $70 OIL COULD UNDERMINE ECONOMIC RECOVERY

Kate Mackenzie at the Financial Times reports that the IEA's chief economist, Fatih Birol, told the newspaper in an interview that oil prices above $70/b would likely undermine any economic recovery.

"'If we go one step further, if we see prices go much higher than that, we may see it slow down and strangle economic recovery,' he said of oil prices on Friday, when the European benchmark was around $70."

2. CHINA MAY CHANGE RULES TO MAKE SUBORDINATED BONDS INELIGIBLE AS CAPITAL, WHICH SHOULD REDUCE THE VOLUME OF CREDIT

Wang Ming and Rose Yu at the Wall Street Journal report that the China Banking Regulatory Commission

"may deem subordinated bonds issued by a bank ineligible as capital if those bonds are held by another bank, the person said. The banking regulator estimates about half the subordinated bonds in circulation are held by other banks.

The amount that banks in China can lend is governed by technical capital ratios -- the more capital, the more room to lend. A big way banks have raised capital is by selling yuan-denominated subordinated bonds, or debt instruments that offer investors less protection in the event an issuer can't repay but also a higher yield than regular bonds."

"Analysts said any curb on how subordinated debt can be used would likely slow lending, because it would limit the appetite of the market's biggest investors, which are banks.

'If the regulator excludes cross-held subordinated bonds from being classified as part of banks' capital, banks will have to try to sell their bonds to nonbanking investors,' said Guo Tianyong, the director of the Finance Research Center at Beijing's Central University of Finance and Economics. That will be difficult, Mr Guo said, and 'as a result, banks will slow the pace of subordinated-bond issues, which would eventually lead to a slowdown in credit growth.'

She Minhua, an analyst at Haitong Securities, said, 'Changing the rules would effectively cause a further decline in banks' capital adequacy ratios, so the fastest way for them to maintain a healthy ratio would be to cut loans.'"

3. CHINESE SEABORNE OIL IMPORTS UP 26% IN JULY YOY

Bloomberg reports that preliminary data from the Chinese Ministry of Transportation indicates that Chinese seaborne imports grew by 26% in July from a year previous.

"Chinese ports unloaded about 16.27 million metric tons, or 3.8 million barrels a day, of imported crude last month ... ."

4. NORTH KOREA RELEASES US JOURNALISTS DURING FORMER POTUS VISIT

Heejin Koo at Bloomberg reports that North Korean leader Kim Jong Il pardoned and ordered the release of two American journalists who had been arrested after allegedly crossing into North Korean territory.

"By seeking an amnesty, the US appears to be conceding that the two reporters broke North Korea’s laws, Paik [Hak Soon, a researcher on North Korean issues at Sejong Institute] said.

'The visit indicates that the US and North Korea are willing to resolve this matter through dialogue,' he said. 'We’ll have to see if this expands to the nuclear issue.'"

"The former president and the North Korean leader 'had an exhaustive conversation' and a 'wide-ranging exchange of views on the matters of common concern,' [the] Korean Central News Agency said without giving further details. The country’s National Defense Commission hosted Clinton at a dinner in his honor, the agency said."

Pyongyang has been long seeking direct bilateral talks with the US regarding its disputes with the international community.

5. AUSTRALIAN CENTRAL BANK LEAVES BENCHMARK INTEREST RATE UNCHANGED AT 3%, RETAIL SALES ARE DOWN 1.4% IN JUNE FROM MAY

EcPulse reports that the Reserve Bank of Australia decided today to maintain their benchmark interest rate at 3%.

"[Reserve Bank Governor] Stevens said in his statement that the world economy started to show clear signs of stability, thanks for the global stimulus plans set by governments around the world that led to an improving outlook for the world economy. He added that the US economy reached a turning point, while the economy in the euro zone is still weak."

Meanwhile, Jacob Greber at Bloomberg reports that Australian retail sales fell by 1.4% in June from May.

"Today’s report suggests the impact from A$12 billion ($10 billion) in government cash handouts to households is waning after consumer spending helped Australia avoid a recession in the first quarter. Still, the economy may expand in the second quarter after retail sales rose 2% in the three months through June. Economists forecast a 1.3% gain.

'We still have retail sales at a very strong levels,' said Ben Dinte, an economist at Macquarie Group Ltd. in Sydney. 'With the strengthening consumer sentiment, we should see retail sales hold up.'

The quarterly retail sales figure accounts for as much as 25% of Australia’s gross domestic product, Dinte added."

6. RUSSIA AND TURKEY TO SIGN PACT TO BUILD OIL PIPELINE WHICH WOULD BYPASS THE BOSPHORUS

Ali Berat Meric and Stephen Bierman at Bloomberg report that Russia and Turkey will sign an accord to build a pipeline to send oil to the Mediterranean bypassing the Strait of Bosphorus.

"OAO Gazprom, Russia’s largest company, and Turkey’s Calik Holding AS will sign an accord to build a pipeline between the northeastern port of Samsun and a terminal at Ceyhan on Turkey’s Mediterranean coast, Russian Energy Minister Sergei Shmatko told reporters in Ankara today before a visit by Russian Prime Minister Vladimir Putin later this week."

7. GERMAN BIRTH RATE MAY HAVE DECLINED

Der Spiegel reports that a report released yesterday by Eurostat indicates that

"for every thousand inhabitants in Germany, only 8.2 children were born in 2008. Which indicates a decrease of 0.1% in the German birth rate and makes Germany the only EU member in which the crude birth rate did not increase between 2007 and 2008."

8. HILLARY CLINTON EXPRESSES CONCERN REGARDING HIKERS ARRESTED NEAR IRANIAN BORDER

Nada Bakri at the Washington Post reports that yesterday Secretary of State Hillary Clinton expressed concern about the welfare of three American hikers who were arrested after entering an area near the Iranian border. Of course, the incident will be used by elements in Tehran as evidence that the recent elections unrest is the result of foreign meddling.

9. MEXICO MAY INTRODUCE FUEL EFFICIENCY STANDARDS

Robert Campbell at Reuters reported yesterday that the head of the Mexican National Ecology Institute, Adrian Fernandez, said in an interview that Mexico is planning to introduce fuel efficiency standards for all new cars sold in the country.

"The government is currently studying which type of standards to impose but it is leaning towards a plan that would be similar to proposed fuel efficiency rules in California or other parts of the United States, ... Fernandez said in an interview.

'The standard will cut gasoline imports by as much as a new refinery.'"

Imprecise, but it would have a significant effect.

10. VENEZUELA TO NATIONALIZE COFFEE COMPANIES, LAUNCHES INVESTIGATION INTO SWEDISH ARMS FOUND IN FARC CAMP

Steven Bodzin and Daniel Cancel at Bloomberg report that Venezuelan President Hugo Chávez said today on state television that he was considering nationalizing two coffee companies after having seized their processing plants yesterday. He said,

"We’ve intervened in these big companies. Now we are conducting a study to expropriate them. They will become property of the nation."

Meanwhile, the Associated Press reports that Caracas has indicated it has launched a probe into how arms purchased from Sweden ended up in the hands of FARC guerrillas in Colombia.

"Justice Minister Tareck El Aissami said authorities had launched 'an internal investigation ... to determine the origin and destination of these weapons,' referring to Swedish-made AT-4 launchers that Colombia says were found in a cache belonging to guerrillas.

El Aissami gave no indication, however, that Chavez's administration was easing its stance toward Colombia amid a diplomatic fight that erupted last week after Colombian President Alvaro Uribe complained the weapons had been acquired by the Revolutionary Armed Forces of Colombia ... ."

12. RUSSIA SIGNS ACCORD WITH NICARAGUA TO EXPLORE FOR OIL AND GAS

Eric Watkins at the Oil & Gas Journal reports that the Nicaraguan government has signed accords with a Russian consortium allowing for oil and gas exploration and production in the country.

"'The concessions include the Caribbean and Pacific, both offshore and on land,' said Francisco Lopez, president of the Nicaraguan Petroleum Enterprise. He said a technical board would be installed to analyze implementation of the agreement.

Russia’s Deputy Prime Minister Igor Sechin said the proposed exploration in Nicaragua would be carried out by the Russian National Oil Consortium, created on Oct. 8, 2008, and comprising Rosneft, Gazprom, Lukoil, TNK-BP, and Surgutneftegaz."

13. ANTIGUA AND BARBUDA NAMES HIGHEST PEAK ON ISLANDS "MOUNT OBAMA"

Nika Kentish at the Associated Press reports that the Antiguan Prime Minister, Baldwin Spencer, today renamed the highest mountain in Antigua and Barbuda "Mount Obama." He said at the dedication ceremony:

"This great political achievement by Barack Obama resonated with me in a way that I felt compelled to do something symbolic and inspiring. As an emancipated people linked to our common ancestral heritage and a history of dehumanizing enslavement, we need to at all times celebrate our heroes and leaders who through their actions inspire us to do great and noble things."

14. HAVIV ARGUES 'SHADOW INVENTORY' LOOMS OVER US HOUSING MARKET

Julie Haviv at Reuters reports that so-called "shadow inventory" is hanging over the US home market.

"'The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg,' said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington.

According to Zillow's latest Homeowner Confidence Survey, 12% of homeowners said they would be 'very likely' to put their home on the market in the next 12 months if they saw signs of a real estate market turnaround, 8% said 'likely,' while 12 percent said 'somewhat likely.'

The survey of 2,123 adults aged 18 and older, of whom 1,357 are homeowners, was conducted online.

Survey results could translate into around 20 million homeowners trying to sell their homes, a startling number given that the Census bureau indicates there are 93 million US houses, condos and co-ops, Humphries said."

15. HURRICANE SEASON UNDERWAY IN US, GAO STUDY FINDS REFINERY OUTAGES HAVE VERY SMALL AFFECT UPON PRICE

Jesse's Café Américain notes that the hurricane season is underway, and that the peak is usually in mid-September. He notes that "Hurricanes offer a tempting opportunity for energy 'investment.'" I would note, however, that insofar as a legitimate reason for hedging goes, hurricanes are certainly one--and those who want to hedge will need counterparties. Meanwhile, Michael Giberson at Knowledge Problem has the fascinating news that the Government Accountability Office has released a report showing that refinery outages generally have a very small affect upon prices. The report, which I have not had time to read, can be found here.

16. WAL-MART LAST WEEK ISSUED $1.1 BILLION IN SAMURAI BONDS

In a story I missed last week, Lisa Twaronite at MarketWatch reported that Wal-Mart issued US$1.1 billion in yen-denominated bonds (¥100 billion).

"The market for samurai bonds--yen-denominated bonds issued by foreign institutions in Japan--evaporated in the global credit storm. But including Wal-Mart's offering, samurai issuances in July are expected to exceed 200 billion yen--the largest amount since June 2008, Japanese business daily Nikkei reported Wednesday."

Apparently the market is drowning in dollars. (h/t Chuck Butler's Daily Pfenning.)

Daily Sources 7/13

I chose an awfully big week to take a break from this! Back to the regularly scheduled programming, though new obligations will likely mean that posting will soon become much more infrequent and Daily Sources will either become simple links or be discontinued altogether.

1. CHINA UNVEILS ADDITIONAL ANTI-CORRUPTION MEASURES, XINJIANG REPORTEDLY CALMING DOWN AFTER WEEK OF VIOLENCE

Carlos Tejada at China Journal reports that the Chinese Communist Party unveiled new anti-corruption measures Sunday, calling for public leaders and executives at state owned companies to be ousted if major accidents or abuse happens during their watch due to negligence. Tejada observes:

"The new rules are the latest of a recent spate of efforts to rein in what even national leaders acknowledge is a serious problem. Chinese officials in recent weeks have put a bounty on corruption and cracked down on military officials with a taste for the luxurious.

The fear, observers say: Reports or actual cases of corruption and incompetence could cause even more unrest.

Conduct by local officials sparked occasional public clashes even in good times, before China’s juggernaut economy slowed. And times are especially sensitive now because of the upcoming 60th anniversary of the founding of the People’s Republic of China on Oct. 1, which is intended to be a grand celebration of Communist Party rule."

Meanwhile, Gordon Fairclough reports that Urumqi in Xinjiang seems to be calming down after the violence last week:

"The regional government over the weekend updated its casualty figures, saying 184 people were killed in last week's violence--137 of them Han Chinese and 46 Uighurs. One member of another Muslim minority, the Hui, also died. More than 1,600 people were injured, the government said.

After attacks by Uighurs on Han Chinese, some Han Chinese armed themselves and sought revenge. The government said to quell the violence it flooded the city with 20,000 security personnel and has spent days urging people not to take the law into their own hands."

2. ASO CALLS FOR GENERAL ELECTIONS NEXT MONTH, JAPANESE ELECTRICITY GENERATION DOWN 5.6% YOY IN JUNE

Blaine Harden at the Washington Post reports that Japanese Prime Minister Taro Aso has called for general elections next month. Meanwhile, Megumi Yamanaka at Bloomberg reports that Japanese electricity generation declined for the eleventh straight month in June, falling 5.6% from a year previous.

3. KIM JONG-IL RUMORED TO SUFFER FROM PANCREATIC CANCER

Choe Sang-Hun at the New York Times writes that the South Korean media is reporting the rumor that the North Korean leader Kim Jong-il, is suffering from pancreatic cancer.

4. NABUCCO PROJECT SIGNING IN ANKARA TODAY

Der Spiegel reports that the prime ministers of Austria, Bulgaria, Hungary, Romania and Turkey have met in Ankara today to formally sign on to the Nabucco pipeline project.

"The European Union is backing Nabucco and EU Commission President Jose Manuel Barroso, who was at the ceremony, described the project as of 'crucial importance for the EU's and Turkey's energy security.'

He voiced his confidence in the viability of the project, saying 'I believe this pipeline is now inevitable rather than just probable.'"

Ed Crooks at FT Energy Source has a decent breakdown on the sourcing issues facing the pipeline and this fantastic graphic:



Rob Verdonck and Steve Bryant at Bloomberg note:

"Turkey wants Iran to join Nabucco, Erdogan said at the signing ceremony. Iran is able to supply Europe with 31 billion cubic meters of natural gas a year via the link, the Oil Ministry’s Shana news agency said today.

'We don’t believe today that Iran should be a part' of Nabucco, [Richard] Morningstar [US envoy for Caspian energy matters] said.

Iraq will aim to supply 15 billion cubic meters of gas to the pipe, Iraqi Prime Minister Nuri al-Maliki said at today’s ceremony, according to an aide."

"The five governments partnered in Nabucco can bid for up to 50% of the gas flowing through the route, Turkish Energy Minister Taner Yildiz said at a press conference today. He declined to comment on how much of the gas Turkey might request."

5. LLOYD'S BANKING GROUP EXPECTED TO POST LOSSES OF £6.3 BILLION IN 1H

Iain Dey and John Waples at the London Times report that Lloyd's Banking Group will post its numbers in three weeks and is likely, according to UBS analysts, to announce losses of £6.3 billion on its loans to commercial property, businesses and mortgage holders for the first half.

"The writeoffs for the first six months of the year would match the losses recorded by Lloyds TSB and HBOS in 2008, as they consummated their disastrous merger. The expected bad debt charge is almost twice what Lloyds paid for HBOS when they came together under the government’s watch last autumn. Total writeoffs for this year at Lloyds could exceed £20 billion."

(h/t Yves Smith at naked capitalism.)

6. GERMAN ECONOMICS MINISTRY ESTIMATES GDP GROWTH WAS 0% IN 2Q

Der Spiegel reports that the Economy Ministry in Berlin's internal report concluded that GDP growth for the second quarter was 0%--meaning that the recession is over.

"If confirmed, the data could allow the German government to revise its current predictions of minus 6% growth for 2009 and forecast a smaller contraction."

7. ITALIAN PARLIAMENT MANDATES RE-NUCLEARIZATION

Dan Yurman at the energy collective reports that Italy's parliament passed a law last week which officially puts the country back on the path of nuclear power, mandating that sties be identified in the next six months for new nuclear power plants.

"Energy Minister Scajola isn’t kidding when he says Italy needs to build at least eight-to-ten new nuclear power plants (10-12 GWe) to significantly reduce its dependence on imported oil and natural gas. However, the country also needs to avoid building more coal-fired power plants. One of the earliest options may be to buy a 12% share in a new Areva 1,600 MW EPR being built in France."

In February, Rome signed a nuclear power cooperation pact with France-- see Daily Sources 2/24 #2. In October 2008, Scajola indicated that Italian electricity prices were 80% above France's--which sources about 80% of its electricity generation from nuclear--and 30% above the European average. He noted that the cost of phasing out nuclear had come to €50 billion-see Daily Sources 10/17 #3.

8. RAINFALL RECOVERING IN INDIA

Yi Tian at Bloomberg reports that the rainfall deficit in India for the week ended July 8 narrowed to 8% from 29% the week earlier on stronger monsoons. Indian oil refiners had been worried that the low rainfall was causing diesel consumption to remain flat in a general environment of falling oil demand, and that it would grow as farmers turned to the fuel for pumping, digging, and electricity generation--see Daily Sources 7/1 #4.

9. PAKISTAN SEEKING $15 BILLION IN E&P INVESTMENT OVER NEXT 5 YRS

Khalid Qayum and Khaleeq Ahmed at Bloomberg reports that Pakistan is seeking $15 billion in investment in oil exploration and development over the next five years. Islamabad is reportedly offering generous returns as it tries to offset its import requirement, and will focus its licensing on blocks offshore its southern coast, as onshore exploration has been hampered by security concerns.

"Pakistan wants to boost domestic fuel production to reduce its oil import bill and meet energy demand, which is growing 5% annually. Gas production of 4.1 billion cubic feet a day meets about 60% of demand.

The government will try to improve security for explorers as it also seeks to attract investment in new fields in the country, ... [Asim] Hussain [adviser to the prime minister on the oil industry] ... said in [an] interview on July 10."

10. THE ROOTS OF THE PARADOX IN IRAN'S CONSTITUTION, REZAI CALLS FOR RECONCILIATION AMONGST CONSERVATIVE IRRITATION WITH AHMADINEJAD, TEHRAN SEEKING CHINESE INVESTMENT IN REFINERY EXPANSIONS

Jonathan Lyons has a post on informed comment which provides an analysis of how Khomeini's ideology of the rule of the best qualified cleric presented problems to the regime at the start of the 1979 revolution:

"Among the most influential of opponents to Khomeini’s revolutionary project of placing his new republic under the direct leadership of a senior cleric – in this case, himself--were his fellow grand ayatollahs, men who had attained the highest levels of religious learning and popular support and acclaim. And the most important among them was Grand Ayatollah Seyyed Mohammad Kazem Shariat-Madari, based in Tabriz, in Iran’s Azeri region.

Shariat-Madari, then the leading ayatollah resident in Iran, was adament: the clergy should not exercise political power as this could only lead to religious tyranny. The grand ayatollah had sided with the revolution against the shah, but he was not prepared to see the clerics in government. This was, of course, in perfect keeping with Shi’ite political theory: the clerics had united to defeat the pro-Western shah as a threat to the Muslim faithful; but their work was now done and it was time to withdraw and leave the dirty work of governance to others.

Khomeini was furious and he unleashed his militant supporters on his rival in December 1979, provoking pitched battles in the streets of Tabriz. Once the 'political mullahs' backing Khomeini were in control, the leader of the revolution undertook a punitive measure that no imperial shah had ever dared: he engineered the stripping of Shariat-Madari’s clerical rank and privileges.

In traditional practice, the rank of Grand Ayatollah--formally, the marja-e taqlid, or a source of emulation for others to follow--requires both the respect of one’s fellow clerics and the acclaim of believers, each of whom paid their religious taxes to support the ayatollah and his religious mission.

In fact, Iranian clerics often point to this system as an indigenous democratic institution, and it certainly gives the grand ayatollahs a huge measure of independence from the autocratic state and from one another while recognizing the importance of popular support and public opinion. What’s more, believers are free to choose their own marja, and even to switch their allegience as they see fit. Khomeini, himself a marja, trampled this system in the name of revolutionary expediency."

(Very much worth reading.) Robert F. Worth at the New York Times reports that opposition candidate Mohsen Rezai--and former chief of the Revolutionary Guards--issued a statement on his website yesterday

"in which he called for reconciliation and spoke about the danger of 'imprisoning' the legacy of the Islamic Revolution in divisive and shortsighted politics. The statement was posted on his Web site.

Although his message was largely nonpartisan, Mr. Rezai hinted that the government response after the election had been unfair, and he urged protesters to continue their work in legal and nonviolent channels."

"Other conservative figures have made gestures in recent days indicating their displeasure with the government’s tactics or their desire for more forgiving policies. On Saturday, Ayatollah Reza Ostadi, a senior member of a conservative clerical group, delivered a stinging criticism of a cleric who had organized a rally supporting Mr. Ahmadinejad, the Mehr news agency reported."

Meanwhile, Chen Aizhu at Reuters reports that Iran is seeking investment from China in its refinery expansion plans designed to eliminate its dependence on gasoline imports by 2012. (This is kind of old news, but there are some new developments/details:)

" An official with National Iranian Oil Company's (NIOC) Beijing office said last week's forum, chaired by Iran's deputy petroleum minister, Shahnazi Zadeh, was to be followed by detailed discussions with Chinese firms. He did not elaborate.

Hossein Noghrekar Shirazi, NIOC's refining head, was quoted by a Chinese newspaper as saying that Chinese investors would enjoy policy sweeteners such as a 5% discount in raw materials purchased in Iran and 8-year tax break for investments made in its free trade zones."

11. CANBERRA SUMMONS CHINESE AMBASSADOR FOR INFORMATION ON RIO TINTO EXECUTIVE CHARGES

Rachel Pannett and Alex Wilson at the Wall Street Journal reports that Canberra has summoned the acting Chinese ambassador to Australia for further details on the detention of a Rio Tinto employee on espionage charges.

"The Australian government, and in particular the Mandarin-speaking Prime Minister Kevin Rudd who is a former China diplomat, are under mounting pressure from opposition lawmakers to intervene at a higher level.

'This is the third time that [the Department of Foreign Affairs and Trade] has spoken to the acting ambassador since last Monday,' Mr. Smith said, adding that Australian officials are seeking similar information in Beijing.

Despite this, Australia's Finance Minister Lindsay Tanner said the government won't be changing its process for assessing foreign investment in Australia despite China's detention of Mr. Hu."

12. NIGERIA RELEASES HEAD OF MEND

Dulue Mbachu at Bloomberg reports that Abuja released the head of MEND today.

"The Movement for the Emancipation of the Niger Delta, or MEND, made the release of Okah one of its conditions for ending its armed rebellion."

Meanwhile, Jacques Lhuillery reports that international oil companies are nervous about the proposed tax changes in Nigeria on oil and gas, arguing that new oil and gas production projects will likely fall by 50% on the reduced returns.

"The petroleum industry Bill, which went through its second reading and debate in the senate last week, is intended to overhaul the regulatory and operational systems of the industry, the lifeline of the West African powerhouse.

It plans to transform the existing joint ventures between the transnational oil firms and the state Nigeria's National Petroleum Company (NNPC), and turn NNPC into an autonomous and internationally profitable entity.

It also wants to improve on tax collection--decoupling oil from gas taxes as well as develop a system responsive to fluctuations in oil prices so as to capture on any windfall profits.

According to leader of the Senate Teslim Folarin, the Bill is designed to 'simplify the collection of oil revenue through shifting emphasis to easily collectible revenue as royalties and rents'."

(h/t Kate MacKenzie at FT Energy Source.)

13. HONDURAS DOESN'T EXPECT MUCH DISRUPTION DUE TO CHAVEZ'S EMBARGO OF PRODUCTS EXPORTS

Evidently, Chavez didn't just stop exports of crude to Honduras (which were zero) but also of petroleum products. Honduras is a member of Petrocaribe and as such received products at discounted rates and under very easy financial terms. Robert Mayer at Platts reported Friday that Tegucigalpa doesn't expect too much disruption as a result of the cut off.

"The effect, however, will be negligible, a source with the Honduran government said Friday, as the Petrocaribe shipments constituted a small fraction of the overall supply for the local operations of Shell, Chevron and Dippsa.

'We're using (Petrocaribe refined products) as a top-off, so we're in good shape,' a source with Dippsa-Puma said Friday."

(Puma Energy is a vertically integrated oil company active globally, but which was formed to develop an independent network of oil products storage and distribution facilities in Latin America and is owned by Trafigura, a major oil--and other commodities--trading company incorporated in the Netherlands, but whose headquarters are located in Switzerland.)

14. HOME MORTGAGE MONTHLY FORECLOSURE RATES UP 8% ON THE YEAR, ROBERT REICH ARGUES THAT THE RECESSION IS NOT LIKELY TO END AS LONG AS CONSUMERS ARE STRUGGLING WITH HUGE NET WORTH DECLINES

Rebecca Wilder at News N Economics on Sunday picked up on the story by the LA Times that 26% of home mortgage defaults are strategic and 22% of homeowners are straddled with negative equity and notes that monthly foreclosure rates are 8% higher than they were last year. She plots a graph showing the monthly foreclosure rate of single family homes by state--



--and comments:

"Going forward, though, the monthly foreclosure rate is likely to grow in some economies, like those seen in Connecticut and Hawaii, as recessionary pressures of rising unemployment and falling income pass through to the housing market."

Wilder's blog is always worth a look. Robert Reich comments on the prospects for recovery in a consumer based economy facing steep falls in net worth:

"Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water--owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting."

15. SAN JOAQUIN VALLEY HAS LOST 60 MILLION ACRE FEET OF GROUNDWATER SINCE 1961, LEGISLATION INTRODUCED WHICH WOULD MAKE IOU'S LEGAL TENDER FOR OBLIGATIONS TO STATE, IN EFFECT A STATE CURRENCY

Matt Weiser at the Sacramento Bee reports that California's San Joaquin Valley has lost 60 million acre feet of groundwater since 1961, according to a new federal study.

"The Central Valley is America's largest farming region; it's also the single-largest zone of groundwater pumping. About 20% of groundwater pumped in America comes from under the Central Valley, said Claudia Faunt, the study's project chief.

In the Sacramento Valley, the study found groundwater levels have remained stable. Virtually all of the groundwater loss has occurred in the San Joaquin Valley, where aquifer levels have dropped nearly 400 feet since 1961, she said."

California is the only state in the union which does not regulate groundwater use. The USGS chose the Central Valley because it is so critical to the country's food supply. A must read. Meanwhile, Mark Thoma at Economist's View notes that the Californian assembly on Friday introduced legislation which would make the IOUs with which it is currently paying its employees with legal tender for all taxes and other fees owed to the state. Thoma notes that that is tantamount to the establishment of a state currency. He quotes from Marshall Auerback's post on the subject:

"It will be interesting to see what the exchange rate is between California IOU and US currency--the IOUs do offer a yield, so should be less than par by design. I wonder if NY is next."

Daily Sources 6/5

1. BUNDESBANK FORECASTS GERMAN GDP TO CONTRACT BY 6.2% IN 2009

Der Spiegel reports that the Bundesbank expects the German economy to contract by 6.2% in 2009. The bank expects downward pressure on the economy to end by the close of 2009, but only forecasts GDP growth of 0.0% for 2010.

"The low point of the recession could be reached this summer, the forecast noted. Still, Bundesbank President Axel Weber said it was too early to breathe a sigh relief. The report added that unemployment will continue to rise in the coming quarters, and by mid-2010, the number of jobless is expected to be 1 million people greater than it was this spring--reaching a total of around 4.4 million unemployed persons, or 10.5%."

2. DUTCH EUROPEAN PARLIAMENT ELECTIONS BIG WINNER FOR ANTI-ISLAMIST 'PARTY FOR FREEDOM'

Der Spiegel reports that preliminary data on the Dutch European Parliament elections show Geert Wilders' "Party for Freedom" would get four of 25 Dutch seats in the legislature, making it the second largest Dutch party represented in Brussels.

"Wilders, who has become popular in the Netherlands running on an anti-Islam and anti-political establishment platform, promised voters he would be tough on immigration and criticized Turkey's bid to join the EU. 'Should Turkey as an Islamic country be able to join the European Union? We are the only party in Holland that says, it is an Islamic country, so no, not in 10 years, not in a million years,' Wilders said."

3. RUSSIA TO CONSIDER SETTLING CHINESE TRADE IN LOCAL CURRENCIES, GAZPROM AND E.ON FINALIZE ASSET SWAP DEAL

Lyubov Pronina at Bloomberg reports that Russian President Medvedev has joined Brazil and Malaysia in the number of countries considering settling international trade with China in their respective domestic currencies. Meanwhile, Nadia Rodova and Anna Shiryaevskaya at Platts report that Gazprom and Germany's E.ON Ruhrgas have signed an asset swap agreement with E.ON receiving 25% of Severneftegazprom, a Gazprom subsidiary developing the Yuzhno-Russkoye oil and
gas field.

"Following the deal Gazprom will own 50% plus six ordinary registered shares of Severneftegazprom; Germany's BASF will own 25% minus three ordinary registered shares and three preferred shares without voting rights; and E.ON will own 25% minus three ordinary registered shares and three preferred shares without voting rights, Gazprom said.

In turn, the agreement gives Gazprom will take E.ON Ruhrgas' 49% stake in Gerosgaz, which owns 2.93% of Gazprom.

'By implementing this asset exchange transaction, Gazprom and E.ON have once again demonstrated a successful development of long-term Russian-German cooperation in the energy sphere,' [Gazprom CEO] Alexei Miller said in a statement."

The Yuzhno-Russkoye oil and gas field is thought to have 856.2 billion cubic meters of gas and 20.35 million metric tons (~148.6 million barrels) of oil and gas condensate reserves.

4. RIO TINTO BOARD REJECTS CHINALCO BID

David Barboza and Michael Wines at the New York Times report that in a meeting in London Thursday, the board of Rio Tinto rejected an offer of $19.5 billion by the Aluminum Corp. of China, or Chinalco, to take a 15% stake in the company. Chinalco's currently has a 9.3% share of the company. Political opposition to the deal in Australia began early on. In the middle of May, Chinalco revised its offer down from a 18.5% stake to 15--see Daily Sources 5/21 #2.

"Chinalco said it regretted the decision and had worked hard to try to revise the deal to reflect changed market conditions, as well as the response from shareholders and regulators.

'As a result, we are very disappointed with this outcome,' Chinalco’s president, Xiong Weiping, said in a statement."

Rio Tinto will combine its iron ore assets in Australia with those of BHP Billiton.

5. CHINESE MALE-FEMALE RATIO DRIVING UP 'BRIDE PRICES', INCREASINGLY A TARGET OF CONS

Mei Fong at the Wall Street Journal reports that the male-female ratio (120-100) in China has pushed up the dowries--or "bride price"--of potential brides so much that they have become the target of con artists.

"While there are no nationwide statistics, wedding scams have occurred before, but usually isolated cases. Mr. Tang, Xin'an's Communist Party secretary [Xin'an is a village of 14,000 in Shaanxi province], says he has never before seen such clusters of cases. Most of the 11 families involved lost an average of 40,000 yuan (~ $5,862 or roughly GDP per capita in purchasing power parity terms). Officials consider these to be fraud cases. So if caught, the women could serve jail time, according to police."

The story provides more anecdotal evidence for the case made by Shang-Jin Wei of Columbia University and Xiaobo Zhang of IFPRI that the one child policy in China has made the society even more one of saving than in the past--see Daily Sources 5/28 #2.

6. GLOBOVISIÓN PRES TO BE CHARGED WITH 'USURY'

Fabiola Sanchez at the Associated Press reports that Venezuelan prosecutors have charged the president of Globovisión, the sole opposition television station remaining in the country, Guillermo Zuloaga, of "usury."

"Trade Minister Eduardo Saman accused Zuloaga of keeping the cars off the market while waiting for their price to rise--involving a possible violation of foreign exchange rules that give importers access to dollars only if they aren't used to gain a 'disproportionate advantage' over rivals.

It was not clear if Zuloaga received dollars that way from the government, but importers who violate those terms can be prosecuted under Venezuelan usury law."

Last week Hugo Chávez said that the Supreme Court, attorney general, and telecommunications chief should take action against "poisonous media" or resign. Meanwhile, Platts reports that PdVSA said in a statement that it had taken over 45% of all private oil services companies operations in the country since nationalizations began again two weeks ago. "So far, around 76 companies have been nationalized, including the local units of Williams International."

7. CHILE TO COMMISSION LNG GASIFICATION PLANT BY END OF MONTH, EXXON SIGNS CONTRACTS TO BUILD LNG EXPORT FACILITY IN PAPUA NEW GUINEA

SAI reports that Chile will commission its 2.5 million tonne/year LNG-10 million cubic meter natural gas liquefaction plant in Quintero at the end of the month.

"The first vessel carrying LNG to Chile from Atlantic LNG’s facilities in Trinidad & Tobago is due to arrive at the plant owned by Chilean energy company ENAP, Endesa Chile, Metrogas and BG Group before the end of June."

Meanwhile, Russell Gold at Environmental Capital reports that Exxon Mobil has signed two construction contracts in the last 24 hours which lay the groundwork for building an LNG export facility in Papua New Guinea.

"Exxon didn’t cut its capital expenditures program during the oil-price drop, but it’s still noteworthy when they push a couple big high-cost projects ahead. And while Exxon didn’t really slow its spending, others did. But projects are looking more financially robust now because costs are falling. The big energy consultant IHS/CERA updated its upstream operating cost index today: it’s down 8% from six months ago. Meanwhile, capital costs are down 9%.

The question haunting oil circles is whether enough new investment will be undertaken to head off a major supply crunch in coming years as demand for black gold grows in Asia and elsewhere. The McKinsey Quarterly, a publication from the consulting group, recently warned that the 'tight demand–supply balance seen at the end of 2007 could return sooner than many observers might have anticipated' as oil companies--state owned and publicly traded--ease up on capital spending."

All of which may be true, but even if there is a supply shortfall does duly develop in 2010, that shouldn't have the effect of pushing up price on oil for delivery next month.

8. NEW U.S. EMISSIONS REGULATIONS PUSHING CANADIAN OIL SANDS PRODUCERS TOWARD ASIAN MARKET

Gary Park at Platts reported (on May 13) that Canadian oil sands operators are looking for Asian participation as the US Congress considers legislation which could limit the purchase of fuels produced by large carbon emitting processes. There are three key competing pipeline plans for taking oil sands products to the Pacific--Enbridge's 525 kb/d Northern Gateway pipeline, Kinder Morgan's 400 kb/d expansion to its 300 kb/d Trans Mountain pipeline and Kinder Morgan's 400 kb/d Northern Leg Expansion to Kitimat.



As Park reports:

"There has been no more public display of those problems than the roller-coaster efforts since 2005 by Canadian pipeline giant Enbridge to open the door to Asia through its 525 kb/d Northern Gateway pipeline, with 80% of volumes targeted for Asia and the rest for California, although the California option may disappear if the state bans fuels derived from 'dirty oil,' such as oil sands.

The initial plan involved a memorandum of understanding with PetroChina to aggregate 200 kb/d of oil sands production in return for a possible 49% equity stake in the C$5.2 billion venture.

It came to an acrimonious end in mid-2007, with PetroChina refusing to extend its MOU with Enbridge and accusing the Canadian government and producers of not doing enough to support Northern Gateway and allow energy trade between Canada and China.

Enbridge CEO Pat Daniel refused to abandon an idea that had already cost about C$100 million to develop a regulatory application.

'We decided enough of this fun ... we need to have customer support,' he said.

So he embarked on frequent selling trips to Asia, pointedly excluding China, shifting his focus to potential customers in South Korea, Japan, Taiwan and Singapore.

In the process, Enbridge secured financial commitments from unidentified producers and refiners to carry the proposal through Canada's National Energy Board and pay for the initial development costs.

Daniel said Northern Gateway is now a 'broad-based, industry-wide initiative ... we offered 50% of the equity to those companies supporting the project and we've had very good uptake on that.'"

Well worth reading in full. Perhaps the story can be said to put the recent report by the Council on Foreign Relations explaining that the "well-to-wheel" carbon footprint of developing bitumen deposits is "only" 17% more than conventional oil in context--see Daily Sources 5/22 #8.

9. ICAP SHIPPING SAYS 7 SUPERTANKERS USED AS STORAGE TO UNLOAD

Alaric Nightingale at Bloomberg reports that Simon Chattrabhuti, a London-based analyst at ICAP Shipping, in an email note today said that a notice of redelivery had been issued for seven supertankers currently being used for oil storage. In late May, Frontline Ltd. estimated that as many as 60 supertankers had been chartered for oil storage.

10. SOVEREIGN DEBT ISSUES TO CLIMB PRECIPITOUSLY, MAY EXPOSE COUNTRIES FAVORING SHORT-TERM DEBT TO "ROLL-OVER" RISK

Gillian Tett at the Financial Times notes that the projected amount of debt to be issued by OECD countries this year is at $12 trillion, up from $9 trillion in 2008.

"So deep in the bowels of western [Debt Management Offices, or DMOs], some officials are now scanning the calendar and wondering how they can organize all those looming debt sales. Most governments hold auctions on particular days of the week and there are only 52 weeks in the year.

Thus, even if the DMOs cancel their summer holidays--which some will--it may be tough to schedule all these looming sales. No wonder some western government officials are starting to mumble about the risk of 'auction fatigue', or the chance that investors get so overwhelmed with these sales that they go on strike. Nor is it little surprise that some western government officials are quietly debating whether they can can dramatically expand the size of individual auctions, to get these bonds sold, without creating a market glut, or panic.

Thus far, thankfully, there is little sign of any such panic."

"[T]he average US maturity in late 2007, was just 4.7 years and will almost certainly decline further. This year, the OECD projects that no less than 70% of US issuance will be short term. That leaves the treasury market now exposed to a mild version of the same problem that plagued conduits or structured investment vehicles that relied on short-term funding in the commercial paper market: namely 'rollover risk'."

Tett also notes that a number of European countries have average debt maturities of less than five years, including Norway and Hungary. A must read.

11. U.S. UNEMPLOYMENT CLIMBS TO 9.4%, FALL IN TEMP EMPLOYMENT SLOWS, BUT 12 MO MOVING TREND STILL DOWNWARD

Peter S Goodman and Jack Healy at the New York Times report that the US lost another 345,000 jobs in May, pushing the headline unemployment rate to 9.4%.

"[W]age growth has been stagnating even as gasoline and medical costs rise, putting pressure on household finances. Wages were 3.1% higher in May than a year ago, but that growth slowed drastically this year. In April and May, average hourly wages grew just 0.1%, to a seasonally adjusted $18.54, from $18.52, according to the Labor Department. Wages for manufacturing workers fell 0.1%."

The broader U-6 unemployment rate, which includes "marginally attached" workers, rose to 16.4%. Barry Ritholtz at the Big Picture notes that the fall in temporary help has flattened out, though the year over year loss for May is of 26.9%.



Jesse's Café Américain plots a chart of the 12 month moving averages of job growth from the middle of '04:



Jesse comments: "We will get a little more optimistic when the longer term trend turns higher."

12. REGIONAL FED PREZES GETTING NERVOUS ABOUT POTENTIAL INFLATION, TRADERS SEE 67% CHANCE FOMC WILL RAISE FED FUNDS RATE IN NOV MEETING

Sudeep Reddy at Real Time Economics reports that there are signs that some Federal Reserve policy makers are becoming nervous about the potential for inflation. Atlanta Fed President Dennis Lockhart recently told Market News that the central bank must be "anticipatory" and shouldn't wait too long to tighten monetary policy. Earlier this week, Kansas City Fed President Thomas Hoenig warned of "significant" inflationary pressures.

"Mr. Lockhart has suggested that the Fed eventually could start raising rates--he says it’s not time yet--while maintaining an expansionary policy through other programs. The Federal Open Market Committee’s most recent policy statement said the federal funds rate is likely to remain at 'exceptionally low levels ... for an extended period.' The FOMC may soon be discussing what constitutes an extended period."

Susanne Walker and Dakin Campbell at Bloomberg report that US treasuries fell, driving two year yields to an eight month high, on speculation that the FOMC will raise rates later this year.

"Traders see a 67% chance the Fed will raise its target rate for overnight loans between banks at its November policy meeting. The bets increased from 25% a week ago, according to futures traded on the Chicago Board of Trade. 88% of traders see no change in the rate at the central bank’s meeting this month."

Daily Sources 5/21

1. MOODY'S DOWNGRADES JAPAN'S CREDIT PROFILE

On the grim economic news from Japan yesterday, Scott Peterson at Japan Economy Watch reports that Moody's has downgraded the country's credit profile to Aa2 from AAA. Peterson comments:

"[The Japanese government's] net debt number is likely to exceed 100% of GDP in 2009. Moody's noted that very little of this debt is held by non-Japanese. Of course, one of the primary causes of this is the fact that much of this debt was issued at extremely low interest rates. So it was relatively unattractive to foreign investors. Japan's government debt amounts to the country's citizens avoiding taxation now with the expectation that the country's future productivity will be great enough support repayment of the debt in the future without ruinous taxation levels."

2. CHINALCO WILL ACCEPT SMALLER SHARE IN RIO TINTO TO SMOOTH DEAL

Brett Foley and Rebecca Keenan at Bloomberg report that Chinalco has indicated that it would accept a smaller share in Rio Tinto in an effort to overcome Australian government opposition to it proposed $19.5 billion investment in the company. Chinalco is reportedly open to reducing its proposed stake to 15%, and letting Rio sell convertible bonds to other potential shareholders.

"'There is one thing they want and that is a meaningful interest in the company,' said Ric Ronge, who helps manage the equivalent of $775 million, including Rio shares, at Pengana Capital Ltd. in Melbourne. 'Everything will be done to ensure that the deal does go through.'"

I suspect that a substantial amount of Chinese interest in taking a share in commodities corporations worldwide is based on the desire for better data.

3. RUSSIA WILL NOT ATTEND MAY OPEC MEETING, EXPENSIVE RUBLE ON EXPENSIVE OIL UNDERMINES NON-ENERGY BASED CORPORATIONS, RUSSIAN NUCLEAR RENAISSANCE WELL UNDERWAY

Mark Sweetman at Bloomberg writes that RIA Novosti quoted Russian Deputy Prime Minister Igor Sechin as saying Russia was unlikely to send a delegation to the May 28 OPEC meeting in Vienna. Meanwhile, Emma O’Brien at Bloomberg reports that Roland Nash, chief strategist at Renaissance Capital, has pointed out that the 15% rebound in the ruble-dollar exchange rate is undermining the competitiveness of non-energy businesses in the country.

"'They need to create a domestic capital market that’s able to absorb the excess value created by the commodity-producing sector,' Nash said. 'Russia needs huge investment in its infrastructure but at the moment all the money goes offshore into things like US Treasuries.'"

Meanwhile, Der Spiegel reports on the progress of the nuclear renaissance in Russia, whose nuclear energy chief, Sergei Kirienko, agreed to a "strategic alliance" with Peter Löscher, the CEO of German electronics giant Siemens.

"It is hard to believe, but German energy policy is up for debate in Russian classrooms. The students at Kuochkina's school pay rapt attention to a multimedia show in which a virtual professor praises the electricity generated by nuclear power. At the end of the film, a growing orange tree appears on the screen, symbolizing the growth of the Russian nuclear industry. The message is clear: Things are going uphill fast.

Nuclear power is back in vogue in Russia, as if the meltdown at the Chernobyl nuclear power plant had never happened. The giant country has plans to build 26 new domestic reactors by 2030, and 20 more abroad."

4. MORE DONOR MONEY FOR REFUGEES FROM SWAT VALLEY CONFLICT

Kamran Haider at Reuters reports that Minister of State for Finance Hina Rabbani Khar told journalists that "donors" had pledged $114 million to aid those displaced by the fighting in Swat Valley on top of the $110 million promised by the US as announced yesterday.

"That sum would go toward a flash appeal that the United Nations will launch on Friday in a bid to raise up to $600 million, she said."

5. TALIBAN IN UNCONFIRMED REPORTS ON NEGOTIATIONS WITH U.S. PUT EMPHASIS ON TIMETABLE FOR NATO WITHDRAWAL

Dexter Filkins at the New York Times reports that leaders of the Taliban and other forces fighting the NATO-Afghan coalition are negotiating with middlemen terms for a potential peace agreement, with a focus on a timetable for a pull out.

"The discussions have so far produced no agreements, since the insurgents appear to be insisting that any deal include an American promise to pull out — at the very time that the Obama administration is sending more combat troops to help reverse the deteriorating situation on the battlefield. Indeed, with 20,000 additional troops on the way, American commanders seem determined to inflict greater pain on the Taliban first, to push them into negotiations and extract better terms. And most of the initial demands are nonstarters for the Americans in any case.

Even so, the talks are significant because they suggest how a political settlement may be able to end the eight-year-old war, and how such negotiations may proceed. They also raise the prospect of potentially difficult decisions by President Hamid Karzai and President Obama, who may have to consider making deals with groups like the Taliban that are anathema to many Americans, and other leaders with brutal and bloody pasts. Some of the leaders in the current talks have been involved with Al Qaeda.

While the talks have been under way for months, they have accelerated since Mr. Obama took office and have produced more specific demands, the Afghan intermediaries said."

"'America cannot win this war, and the Taliban cannot win this war,' Mullah Abdul Salaam Zaeef, a former Taliban ambassador and one of the intermediaries, said in an interview. 'I have delivered this message to the Taliban.'

The talks under way now appear to be directed not at individual bands of antigovernment insurgents--the strategy suggested by President Obama--but at the leaders of the large movements.

American officials insist they are not participating in any talks."

A must read.

6. TURKEY NOT MAKING GOOD ON PROMISE TO DOUBLE QUOTA OF WATER FOR IRAQ FROM TIGRIS AND EUPHRATES, IRAQI FARMERS LEAVING FOR THE CITIES, IRAQI PARLIAMENTARIANS CALLING FOR OIL MINISTER'S RESIGNATION

AFP reports that experts are predicting an "agricultural disaster" in Iraq if Turkey continues to withhold waters from the Tigris and Euphrates, the sources of which are in Anatolia.

"The reserves of all Iraqi dams at the beginning of May totalled 11 billion cubic metres (388 billion cubic feet) of water, compared to over 40 billion three years ago, although rain has not been below normal levels this winter."

Iraqi agriculture depends on water from the two rivers for 90% of its irrigation farming.

"Turkish President Abdullah Gul promised in March to double the quota of water allocated to Iraq, during a historic visit to Baghdad, the first by a Turkish head of state in 33 years.

But the promise was not kept, according to Abdullah, who notes that the only bilateral treaty on water sharing came in 1946 when Iraq was hit by fears of flooding."

Prof. Juan Cole argued at the time of the promise that it was in return for the crackdown on Kurdish Workers Party guerrillas operating in Iraq just beyond the Turkish border--see Daily Sources 3/26 #14. The Kurdish Regional Government may be considered by Ankara the real negotiating party in terms of that conflict as of now. The water situation in the rivers gets worse further downstream. Ghassan Awad and Amer Hameed at Xinhua on May 6 reported that Iraqi farmers are migrating to the cities as the agricultural situation has deteriorated steadily since 1980 when Iraq was an agricultural exporter.

"Water shortage, high levels of salinization and desertification are affecting the once glorious agriculture sector in a country which currently imports almost 3 billion US dollars of food commodities annually, according to officials of the agriculture and water resources ministries.

Iraqi marketplaces are replete with fruit, vegetables and seeds imported in low prices especially from neighboring countries like Syria and Iran, a sign reflecting the agriculture deterioration and the consequent farmers immigration to cities."

(h/t Juan Cole at Informed Comment.) Meanwhile, Gina Chon at the Wall Street Journal reports that Iraqi parliamentarians are openly calling for the resignation of oil minister Hussein al-Shahristani. The parliament's energy committee has issued a summons for him to testify regarding the failures of the ministry, see Daily Sources 5/18 #4--but no date for the testimony has been scheduled as of yet. Helpful graph of Iraqi oil production since 2003 from the WSJ:



7. SEC CLINTON SAYS U.S. WANTS NO MORE SETTLEMENT CONSTRUCTION FROM ISRAEL, FORMER AIPAC EXECUTIVES CRITIQUE THE ORGANIZATION'S TAKE ON IRAN, ITALIAN FM ABRUPTLY CANCELS IRAN TRIP ON MISSILE TEST

Herb Keinon and Hilary Leila Kreiger at the Jerusalem Post report that Secretary of State Hillary Clinton told al-Jazeera that "We want to see a stop to settlement construction, additions, natural growth--any kind of settlement activity" following Israeli Prime Minister Binyamin Netanyahu's visit to the US.

"Senior officials in Netanyahu's office said the exact terms of a freeze would have to be worked out, since there had been a number of unwritten understandings on this matter with the previous administration.

For instance, Israel has been working on the assumption that, with tacit agreement from the US, it may build inside the lines of existing settlements in the large settlement blocs that it believes it will retain under any future diplomatic agreement.

It was telling that during his two-day visit to Washington, which concluded on Tuesday, Netanyahu made no commitments on settlements, despite the primacy the Obama administration has placed on the issue.

According to former US ambassador to Israel Martin Indyk, writing on The Daily Beast Web site, 'Netanyahu was completely silent on the settlements freeze in public; in private, I'm told, he said it would be difficult to do.'"

Worth reading in full. In the meantime, Daniel Luban at LobeLog reports that AIPAC's former top Iran analyst, Keith Weissman, was interviewed in the Jerusalem Post by former AIPAC chief lobbyist Douglas Bloomfield in which:

"Weissman said Israel’s worries about Iran getting a nuclear weapon are understandable, but despite some of the rhetoric coming out of Teheran, the Iranian leaders 'are not fanatics and they’re not suicidal. They know that Israel could make Iran glow for many years.'
...
Trying to separate the issues, even refusing to endorse the two-state approach, 'is part of the sophistry of people like [Binyamin] Netanyahu who want to avoid confronting the peace process,' he said. 'Iran’s ability to screw around in the Israel-Arab arena would be severely impaired by pressing ahead on the Palestinian and Syrian tracks instead of looking for excuses not to.'"

Also well worth reading in full. Meanwhile, Guy Dinmore at the Financial Times reported yesterday that the Italian foreign minister, Franco Frattini, abruptly canceled a trip to Iran.

"Italy’s foreign ministry said it called off the two-day trip because Mr Ahmadi-Nejad, who is campaigning for re-election next month, wanted to meet Mr Frattini in the city of Semnan where the Iranian president had just announced the successful launch of a medium-range missile capable of hitting Israel.

The Italian delegation was about to leave Rome but had not boarded its plane when the decision was made to cancel, one person present told the FT.

Mr Frattini, who would have been the most senior European government official to visit Iran since Mr Ahmadi-Nejad was elected in 2005, expressed his regret over a 'lost opportunity' to discuss Iran’s role in stabilizing Afghanistan and Pakistan."

Dinmore reports that the UK secretary of state called to try and dissuade Frattini from the trip on the news of the launch.

"European allies had expressed dismay that Italy was about to break with EU policy of shunning high-level contacts with Iran over its nuclear program."

8. OBAMA ENDORSES US-UAE NUCLEAR ACCORD

On the news yesterday that the US-UAE nuclear accord was under pressure after Congress was shown video of a member of the confederation's aristocracy beating a merchant, Jay Solomon at the Wall Street Journal reports that President Barack Obama gave official backing to the agreement under which the US would share nuclear technology to enable the construction of nuclear power plants there.

"The Obama administration touts the UAE agreement as a model for the peaceful development of nuclear power internationally. Abu Dhabi has agreed to extensive United Nations inspections of its nuclear facilities and says it will buy nuclear fuel from international suppliers.

The UAE has renounced its right to enrich uranium or reprocess plutonium, which minimizes the risk of nuclear materials being diverted for military purposes, according to US officials."

US officials have said on the record that they regard the issue of the video and the nuclear agreement to be separate issues.

9. NIGERIAN OIL MINISTER SAYS CONFLICT HAS SHUT IN OVER 1 MB/D CRUDE PRODUCTION

Platts reports that Nigerian oil minister Odein Ajumogobia told local papers today that over one million barrels a day of crude oil production has been shut in by the conflict with rebel groups.

"'The irony of it is that onshore is the cheapest to produce and therefore, the return on that investment is greater, but that is where we have most of the shut-ins,' the minister said."

A senior official with the Nigerian National Petroleum Corporation said yesterday that the country was producing 1.7 mb/d, somewhat under its OPEC quota of 1.74 mb/d.

10. SHIPPING EXPERT FORECASTS THAT HALF OF LISTED SHIPPING COMPANIES WILL GO UNDER IN NEXT 12 MONTHS, DEEMED "ALARMIST" BY SOME


Tony Gray and Rajesh Joshi at Lloyd's List report that Paul Slater, chairman and chief executive of First International, predicted that the next 12 months will be especially difficult for the three main shipping sectors--containerships, dry bulk and tankers--as their market valuations have halved and their cash reserves erode.

"'I feel that more than half of the public shipping companies will go into either bankruptcy or administration within 12 months,' Mr Slater said.

'For me to say that I think that these companies will run out of cash within a 12-month period is not an outrageous statement given the fact that where the markets are today is far worse than at the end of the 1990s.'"

Other experts responded to the forecast by calling it "alarmist." Worth reading in full.

11. ASIAN GDP CONTRACTIONS SHARP ON EXPORT DECLINES, REPORTS ON GLOBAL DISINFLATION

Rebecca Wilder's weekly summary of global economic data at News N Economics plots the GDP contractions due to the collapse in exports of five Asian economies:



She also notes that disinflationary pressures--deflationary in some--are strong across a wide spectrum of economies. Well worth a look.

12. MEXICAN GDP CONTRACTS AT ANNUALIZED RATE OF 21.5% IN Q1

Bob Davis at the Wall Street Journal reports that yesterday Mexico reported that its economy had shrunk by an annualized rate of 21.5% in the first quarter.

13. TOTAL NORTH AMERICAN RAIL TRAFFIC FOR YEAR ENDED MAY 16 DOWN 18.3%

Atlantic Systems Inc.'s weekly Railfax report is out, total rail traffic (in 13 week rolling averages for the US, Canada, and Mexico) is down about 20% year over year:



Total rail traffic for the year ended May 16, year over year, is down 18.3%, a bit lower than total rail traffic for the year ended May 9 of 18.1%. Cargo down the most are metals--down 47.2%--and autos, down 50.4%. The volume of coal transported by rail is down 8.2%.

14. MIDWESTERN FARMLAND VALUES DECLINING

Jeff Wilson at Bloomberg reports that Federal Reserve Bank of Chicago survey released today shows that the value of farmland in five midwestern states fell by 6% in the three months to April 1 on corn and soybean price declines from last year.

15. MIT UPDATES 2003 STUDY ON POTENTIAL ROLE OF NUCLEAR POWER IN U.S. ENERGY MIX, NEW TECHNICAL ANALYSIS SAYS OIL TO GO PAST $70/B

Keith Johnson at Environmental Capital reports that MIT has updated its 2003 study on the role nuclear power could play in the US energy mix going forward.

"Building nuclear plants is still a lot more expensive than building coal- or gas-fired plants, and nuclear-generated electricity is still more expensive than either fossil-fuel option: 8.8 cents a kilowatt for nuclear versus 6.2 cents for coal and 6.5 cents for gas, MIT figures.

There are two ways around that cost gap. A hefty price on carbon emissions of $25 a ton would narrow—though not close—the gap. If Congress passes a cap-and-trade bill to tackle climate change, there will be a price on carbon, though it won’t initially be anywhere near $25 a ton."

Nat Gas, on a BTU basis, traded (on NYMEX July contract over July contract) at a $38.27/b discount to oil. NYMEX oil July over ICE monthly gas contract for July, sells at a $36.29/b premium on a BTU basis to gas. Brent July over ICE nat gas July sells at a $34.84/b premium to gas on a BTU basis.

This appears to be due to a) large stockpiles of gas, b) large new supply of gas, and c) staggering industrial production declines globally ... and most importantly in exporting nations.

A 0.3 cent premium to coal seems a reasonable price to pay for lower emissions. Course, more demand = higher price, so the premium will grow--but the carbon taxes under consideration would certainly make natural gas more economic than coal for some time.

My suspicion is that $100/b oil or more will kill any export-based recovery--and thus industrial production recovery--but it's hard to say. (Obviously I haven't had time to read the MIT study, but it can be found here.) On the question of oil price, Mark Shenk at Bloomberg reports that Veronique Lashinski, a senior research analyst for Newedge USA LLC in Chicago, wrote in a client note that technical analysis indicates that having broke through the $60/b level, crude prices are to head to $73/b. This follows the analysis in early May by Jordan Kotick that crude may jump to $71.55/b if the June contract breaks through $56.10/b--see Daily Sources May 5/5 #5. Paul Horsnell, also at Barclays, also suggested on May 14 that inventories would start falling, meaning that it was a question of when, not if, prices go to $70/b--see Daily Sources 5/15 #9. This also followed the analysis by JBC Energy on May 5 that traders holding crude in storage in tankers offshore would start unloading them. Storage has indeed come down--though the inventories are so high, and demand so low, it still seems that fundamentals would argue for a lower price. Goldman Sachs in late April forecast that all available crude storage would be full by June. (These last two also at Daily Sources 5/5 #5.)

16. LARGE & DENSE CITIES PER CAPITA ENERGY CONSUMPTION SMALLER THAN SMALL CITIES IN SAME RATIO AS LARGE ANIMALS PER CELL CONSUMPTION IS LESS THAN SMALL ANIMALS

Finally, Free exchange has a fascinating post mentioning Steven Strogatz muse that naturally occurring mathematical phenomena may explain how much energy cities consume:

"For instance, if one city is 10 times as populous as another one, does it need 10 times as many gas stations? No. Bigger cities have more gas stations than smaller ones (of course), but not nearly in direct proportion to their size. The number of gas stations grows only in proportion to the 0.77 power of population. The crucial thing is that 0.77 is less than 1. This implies that the bigger a city is, the fewer gas stations it has per person. Put simply, bigger cities enjoy economies of scale. In this sense, bigger is greener."

"Now comes the spooky part. The same law is true for living things. That is, if you mentally replace cities by organisms and city size by body weight, the mathematical pattern remains the same.
...
[C]onsider the elephant or the mouse as an intact animal, a functioning agglomeration of billions of cells. Then, on a pound for pound basis, the cells of an elephant consume far less energy than those of a mouse. The relevant law of metabolism, called Kleiber’s law, states that the metabolic needs of a mammal grow in proportion to its body weight raised to the 0.74 power."

Social organisms, we are.

Daily Sources 4/9

1. Hiroko Tabuchi at the New York Times reports that Prime Minister Taro Aso has submitted a ¥15.4 trillion (~$154.4 billion) stimulus plan to the Parliament for approval. ¥15.4 trillion represents about 3% of Japanese GDP. Mr. Aso introduced the plan by saying:

"The world is at a turning point, where only countries that can turn adversity into opportunity will thrive. Japan is at its most crucial crossroads in 100 years."

2. Jason Dean at China Journal reports that Beijing has announced--via the China Daily--that it is sending a purchasing junket to France. Ties between the two countries had been frayed by rhetorical support for Tibet from France. The purchasing junket comes a week after the joint communique hosted by the Chinese Foreign Ministry's website affirming that "... France refuses to support any kind of 'Tibet independence'"--see Daily Sources 4/1 #5.

3. David Jolly at the New York Times reports that the Bank of England left its benchmark interest rate at 0.5%. In its previous meeting, the bank's Monetary Policy Committee had committed to buy £75 billion (~$110 billion) of government and company bonds, or engage in "quantitative easing." In its statement today the bank pledged to complete the expenditure within two months' time.

"The committee noted that since its previous meeting a total of just over £26 billion of asset purchases had been made and that it would take a further two months to complete that program."

4. Shell published a press release on its website yesterday which announced that in a meeting with Gazprom CEO Alexei Miller in Moscow, Shell CEO Jeroen Van der Veer signed an agreement to import Russian LNG from Sakhalin on the Russian Pacific coast.

"Deliveries to Gazprom and Shell begin in 2009 and will last until 2028, totaling 1 mtpa each to Gazprom and Shell at plateau. The agreements also include a new pipeline gas agreement for the delivery of an equivalent volume of gas to Shell in Europe. Through this 20-year agreement Shell will be able to strengthen the diversification and flexibility of its supply portfolio and its marketing position in the European gas market."

Jonty Rushforth at Platts reports that Asian spot LNG cargoes are hovering below $4.50/MMBtu as the number of takers remains slim.

"Sellers were offering cargoes throughout the region, but the only national buyers left were from China and India, with the former said to be looking for a single May cargo after earlier taking an April cargo, industry sources said."

Generally UK National Balancing Point futures were selling at a premium to Platt's May Japan Korea marker of between $0.10 and $0.50/MMBtu. Eric Watkins at the Oil & Gas Journal reports that Indonesia has sold only 3 cargoes of 18 originally bound for Japan, Taiwan, and South Korea.

"PT Pertamina vice-president Hari Yulianto said the global financial crisis had resulted in falling demand for gas in the three countries and that they hoped to sell their LNG to buyers in Europe and other Asian countries.

Hari said if the three countries failed to sell the LNG, Indonesia's domestic market could have the opportunity for a larger supply of gas—a point agreed on by other officials."

Indeed, Indonesia's contract with Japan for LNG deliveries signed February significantly reduced the supply made available on the back of the policy decision to divert the gas to domestic industry--see Daily Sources 2/13 #10.

5. Matt Robinson and Margarita Antidze at Reuters report that at least 60,000 Georgians rallied in Tblisi today to call for the resignation of Mikhail Saakashvili. Opposition leaders have pledged to rally every day from now on until the President resigns. "The West ... is watching for a possible repeat of a November 2007 crackdown, when police firing teargas and rubber bullets dispersed the last major demonstrations against Saakashvili." Clifford Levy at the New York Times reports that Saakashvili has said in response to the protests:

"No matter how our positions and views may differ, we have one motherland, we need unity for the sake of this motherland. We need to accomplish our struggle for eventual liberation of Georgia and for eventual establishment of a democratic, free, European state."

Last night Stratfor sent out an email "red alert" which pointed out that all 17 opposition parties have agreed to join in on the protests, noting,

"If the movement does inspire such a large turnout [as many as 100,000], it would be equivalent to the number of protesters that hit the streets at the height of the Rose Revolution, which toppled the previous government and brought Saakashvili into power in the first place.
...
The April 9 protests are the point at which all sides will try to gain--and maintain--momentum. The 2003 Rose Revolution took months to build up to, but the upcoming protests are the starting point for both the opposition and Russia--and opposition movements in Georgia have not seen this much support and organization since the 2003 revolution. April 9 will reveal whether or not things are about to get shaken up, if not completely transformed, in Georgia."

Though Stratfor's analysis somehow ignores the rather pertinent fact that what many Georgians are upset about is that Saakashvili apparently decided to risk the independence of his nation by launching an attack on secessionist regions on the bet that Moscow would lose the ensuing public relations battle and thus the regions because of the incipient US elections (and suspiciously timed in such a way as they could be construed to be in support of a particular candidate who happened to lose, perhaps losing the amicable feeling of the new POTUS and his party), I agree that the protests are worth watching as is the response of Saakashvili.

6. Ladane Nasseri and Jonathan Tirone at Bloomberg report that President Ahmadinejad formally opened Iran's first nuclear fuel plant in the Isfahan province today.

"The formal opening of the Isfahan plant indicates that the country is pushing ahead with its nuclear research reactor in Arak, which the United Nations Security Council has demanded stopped. Uranium pellets like the ones produced in Isfahan will feed the Arak reactor after its completion, producing plutonium as a by-product."

Meanwhile, Paul Richter at the Los Angeles Times reports that the United States has decided for the first time to become party to the group negotiations with Iran over their nuclear program. The other negotiating parties, known as the P-5, are Germany, China, Russia, Britain, and France.

"Some European officials have been advocating an approach called 'freeze for freeze,' under which the Iranians would agree to not expand their uranium enrichment, and the West would agree to not add additional diplomatic and economic sanctions, while the parties weighed broader negotiations."

Gregor Peter Schmitz at Der Spiegel conducted an interview of the former US Undersecretary of State for Political Affairs, Nicholas Burns, who was the Bush Administration's top Iran negotiator. Key excerpts:

SPIEGEL ONLINE: The Obama administration has begun to reach out to the regime in Tehran. Are they making progress?

Burns: We will have to wait and see how that develops. So far, not much has happened. The Iranians have not yet really responded to the American overtures and it does not surprise me. They have very many viewpoints competing within the government in Teheran and they have their presidential elections coming up in June. But I fully support what the Obama administration has done so far: Obama's video message to the Iranian people that went above the heads of the Ayatollahs, the very public invitation to the Iranian leadership to the Afghanistan conference in The Hague. Those are the right things to be doing. The President is communicating to Tehran: We are open to talks.

SPIEGEL ONLINE: ... Was it a mistake of the Bush administration not to start a similar outreach effort earlier?

Burns: ... [I]n hindsight I wish we had challenged Iran more in the past by doing more of the things that Obama is doing now. I am impressed by Obama's diplomatic dexterity.
...

SPIEGEL ONLINE: European nations -- including Germany -- are also reluctant to support even tougher sanctions. Our trade relations with Iran are significant.

Burns: The European nations need to make the same sacrifices we Americans have made by cutting our trade relationship with Iran. We need to have a unified approach."

Worth reading in full. Meanwhile, Joanna Lillis at EurasiaNet reports that Astana has offered a potential solution to the question of Tehran having access to the full nuclear fuel cycle--Kazakhstan would host a global nuclear fuel bank.

"Media reports say Kazakhstani leaders have been promoting their plan behind closed doors in Washington in recent weeks, and that US officials are seriously mulling the possibility. To advance the process, Kazakhstani Senate Speaker Kasymzhomart Tokayev on April 7 invited US President Barack Obama to visit Astana. The two met briefly on the sidelines of the Alliance of Civilizations forum in Istanbul. 'The speaker underlined that Kazakhstan remains committed to the policy of the non-proliferation of nuclear weapons and related material, as the results of recent talks in Astana with Iranian President Mahmoud Ahmadinejad testify in particular,' the Senate press service said.

Astana is set to assume the chairmanship of the Organization for Security and Cooperation in Europe in 2010. Developing the nuclear fuel bank initiative would reinforce Astana’s aim to position itself as an honest broker that serves as a bridge between East and West."

7. Haris Zamir at Platts reports that the Pakistani cabinet has approved the import of 750,000-1,000,000 Mcf/d of Iranian natural gas via the proposed Iran-Pakistan-India pipeline, but has yet to agree upon a price for the gas. President Zadari indicated that Islamabad was ready to move ahead without a firm commitment from New Delhi, saying:

"Transferring Iranian gas to Pakistan is very important for us and Islamabad will exert every effort to obtain gas from Iran without paying attention to any obstacles."

That said, the primary obstacle all along has been ... the price of the gas. However, Tehran just now might be feeling a bit more anxious to offer an attractive deal to Islamabad, given the speed with which the US and Moscow appear to be aligning some interests.

8. Maher Chmaytelli at Bloomberg reports that Algerian Oil Minister Chakib Khelil told Algerie Presse Service that:

"If prices stay where they are, at about $50, or even drop a little, it will be a good thing because we should not forget that the global economy is shrinking."

9. Andres Oppenheimer at the Miami Herald reports that US officials indicated Tuesday that there will be no one on one meeting between Presidents Obama and Chávez at the Americas Summit in Trinidad and Tobago next week. The POTUS is not expected to meet one on one with any counterpart at the summit, but only in group meetings.

"Obama's planned group meetings outside the summit's agenda in Trinidad's capital of Port of Spain are likely to be with Caribbean leaders, Central American leaders and a third group made up of heads of state of South America and Mexico, including Chávez."

10. Julie Cart at the Los Angeles Times reports that Australia is experiencing such dramatic climatic changes that some are touting it as a harbinger of what global warming promises the rest of the world.

"Like scenes from a modern Dust Bowl, mile after mile of desiccated fields lie fallow, rows of shriveled trees that once bore peaches and pears are now abandoned orchards, and small businesses are shuttered, fronted by for-sale signs. The dingy brown of the landscape rearranges in a cloud of dust with every hot wind that blows.

Farmers who once grew 60% of the nation's produce are walking off their land or selling their water rights to the state and federal government. With rainfall in the region at lower than 50% of average for more than a decade, Australia is witnessing the collapse of its agricultural sector and the nation's ability to feed itself."

Well worth reading in full. Obviously, the issue has particular resonance in California, where most of the agriculture is based on irrigation farming. (h/t Keith Johnson at Environmental Capital.)

11. The Associated Press reports that the Labor Department announced today that "new jobless claims fell to a seasonally adjusted 654,000, down from a revised 674,000 the previous week."

"But the total number of laid-off Americans receiving unemployment rose to 5.84 million, from 5.75 million. That was the most on records dating from 1967 and higher than analysts expected."

12. Stephanie Rosenbloom at the New York Times reports that US retailers reported a decline in sales for March, with sales for the overall retailing industry falling 1.8% from February. "Industry analysts estimated that for the overall retail industry, March sales will be down 0.4 to 1% compared with the period a year ago." Phil Izzo at Real Time Economics has posted a chart of individual retailer results which more or less indicate that discount retailers did relatively well in March while everyone else suffered badly.