Daily Sources 7/20

1. MORNINGSTAR OUTLINES US COMMITMENT TO EUROPEAN ENERGY SECURITY IN SENATE REMARKS

Richard Morningstar, the US Special Envoy for Eurasian Energy, emphasized the American commitment to European energy security in remarks made before the Senate Foreign Relations Committee on Friday. Key excerpt:

"There are three main components of our Eurasian energy strategy. First, we want to encourage the development of new oil and gas resources and also promote efficiency and conservation in the use of all energy resources. Because there is a world market for oil, new production can meet growing demand anywhere in the world, including in the US. When we are talking about new natural gas production in the Caspian region, it is unlikely that even one molecule of that gas will reach the US, but it is still important because it would add to international gas supply. Additional supply in one place naturally frees up supply in another. And as the market for liquefied natural gas grows, we can start to think about gas moving around markets in much the same way oil does.

Second, we want to assist Europe in its quest for energy security. Taking goods and services together, the EU27 and the US account for the largest bilateral trade relationship in the world. Europe is our partner on any number of global issues. We have an interest in an economically strong Europe. Of course, Europe is composed of many different states and energy security is a more pressing issue to some than to others. Some countries in Europe do not have a diverse energy mix and depend to a great degree on one supplier and one transport route. When that route is disrupted, as we witnessed in January 2009, the consequences can be severe. The populations of Bulgaria and Serbia and others who suffered in the cold can attest to that. So our aim is to encourage the development of multiple energy sources with multiple routes to market. This approach furthers competitive, efficient markets and the best prices for consumers.

Third, we want to help Caspian and Central Asian countries find new routes to market. We want to help foster economic growth and prosperity in these countries. By expanding export routes, they can increase competition for their resources and demand a higher price.

Some people have portrayed our energy policy and Russia’s as the next round in the Great Game in Central Asia. I reject this analogy. Energy security should not be a zero sum game. Zero sum games are too expensive and we need to find areas where we try to cooperate with Russia. In this spirit, on July 6, the White House announced a new binational presidential commission that will cover a host of different issues, including energy."

2. BERLIN CONSIDERS NEW MEANS OF JUMP STARTING CREDIT FLOWS AGAIN

Christian Reiermann, Christian Salewski and Michael Sauga at Der Spiegel report that Berlin, worried that a deepening credit crunch will undermine any recovery in the second half of the year, are considering various plans to restore the flow of credit to the country.

"[Finance Minister Peer] Steinbrück is now pursuing yet another plan. Officials at the Finance Ministry have prepared another version of an emergency financing plan, which calls for the government-owned KfW development bank to take action, instead of the Bundesbank. Before the crisis began, KfW and the banks through which it channels its loans onto the market each bore half the credit risk. In exceptional cases, KfW may assume 80 percent of the risk, while the other bank assumes the remaining 20 percent. In the future, however, KfW's share could be even higher, perhaps even 100 percent, according to the Finance Ministry's latest plans. The Economics Ministry is fashioning similar schemes.

Some plans are even more radical, including the possibility of KfW lending directly to businesses in the future. The funds for the new loans would come from the existing stimulus programs."

3. ADVISORY BOARD TO OUTGOING BULGARIAN GOV'T WARNS OF RUSSIAN INFLUENCE

The European Union Law blog reports that the Financial Times has acquired a report written by a six-member advisory board of Bulgaria's recently ousted Stanishev government, chaired by Dominique de Villepin, a former French prime minister, which argues that Bulgaria is at risk of falling under Russian economic and political influence. The blog quotes from the report:

"If Bulgaria fails in the fulfillment of this objective, different consequences could arise. First, the Bulgarian state could become more vulnerable, encouraging populist movements and planting the seeds of discouragement among Bulgarian civil society.

Second, the efforts undertaken to build up a stronger, more modern and efficient state apparatus could weaken, and so would the trust of the people in the state. Finally, it could undo the ties between the EU and Bulgaria, prompting a shift of Bulgaria towards Russian political and economic interests."

4. US AND INDIA ANNOUNCE END-USE MONITORING AGREEMENT, CITIBANK TO ADVISE ONGC ON GHANA ACQUISITION

Matthew Rosenberg at the Wall Street Journal reports that Secretary of State Hillary Clinton and Indian External Affairs Minister SM Krishna announced an "end-use monitoring" agreement which will facilitate sales of arms from the US to India. Meanwhile, Joseph Chaney and Narayanan Somasundaram at Reuters reports that Indian state oil company ONGC has hired Citigroup to advise it on a bid for Kosmos Energy's stake in the Jubilee oil field offshore Ghana. The deal is reportedly worth around $3 billion.

5. FORMER IRANIAN PRESIDENT CALLS FOR REFERENDUM ON ELECTION LEGITIMACY, SHIRIN EBADI NOTES ANTI-RUSSIAN AND ANTI-CHINESE SLOGANS IN FRIDAY PRAYERS

Robert F Worth at the New York Times reported that former president Mohammad Khatami called for a referendum on the legitimacy of the recent elections.

"Mr Khatami on Sunday praised Mr Rafsanjani’s speech and said a referendum would help achieve Mr Rafsanjani’s goal of restoring trust, reformist Web sites and the BBC’s Persian service reported. He said it should be carried out by an independent body, like the Expediency Council, an arbitration group that is headed by Mr Rafsanjani.

'If the majority of people accept the situation, we also will accept it,' Mr Khatami said, Web sites reported."

"Although some Iranian conservatives have criticized Mr Rafsanjani for his speech on Friday, more have made stinging criticisms of Mr Ahmadinejad over a controversial cabinet appointment made public on the same day. The president named as his first vice president Esfandiar Rahim Mashaei, who angered hard-liners by saying in 2008 that Iranians are 'friends of all people in the world--even Israelis.' Mr Mashaei, whose daughter is married to the president’s son, also angered clerics in 2007 when he attended a ceremony in Turkey in which women performed a traditional dance.

On Saturday, Ayatollah Ahmad Khatami, a prominent conservative, called the appointment of Mr Mashaei 'completely unbelievable' and said to promote him was to 'ridicule the highest religious authorities.'"

Der Spiegel carried an interview with Iranian Nobel prize winning human rights lawyer Shirin Ebadi in which she said the following:

"[The Friday prayers led by Rafsanjani and attended by Mir Hossein Mousavi and Mehdi Karroubi] was bordering on an historic event, not just for Iran, but for the entire Islamist world--because so many people from the protest movement participated in these Friday prayers. The slogans were also important. The crowd for the first time chanted 'Death to China' and 'Death to Russia!,' they attacked the two most important countries that have supported the leadership in Tehran--at the United Nations, for example. The people have seen just who has been on the side of this regime for decades--two countries that themselves massively violate human rights."

Worth reading in full.

6. RENEWED INTEREST IN KURDISH OIL CONCESSIONS, KURDISH MINORITY IN NINEVEH THREATENS SECESSION

William MacNamara at FT Energy Source reports that Gulf Keystone was awarded two Kurdistan oil licenses this weekend at Sheihk Adi and Ber Bahr.

"One of Gulf Keystone’s joint venture partners will be Genel Energy, the Turkish company leading the incipient consolidation of the Iraqi Kurdish concessions through its proposed merger with Heritage Oil."

Geoff King at Platts reports that

"The work programs for both blocks include the drilling of one exploratory well on each block using current, existing and to be acquired data, Gulf Keystone said, and both [production sharing contracts] PSCs are subject to a 20% KRG carry and no third-party back-in rights."

Meanwhile, Jamal al-Badrani at Reuters reports that Kurdish local councilors in a Nineveh--a northern province in Iraq--are boycotting all contact with the Arab governor of the region and threatening to set up their own governing body unless he successfully addresses their concerns about marginalization. Kurdish representatives hold 16 of 37 seats in Nineveh's governing council.

"The Kurds see parts of majority Arab Nineveh as part of their ancient homeland and want them included in Iraq's semi-autonomous region of Kurdistan. They complain that [Governor Atheel] Nujaifi has marginalized them in the provincial council since he was elected in January.

'If no solution is found, we will be forced to form the Nineveh council to run the 16 administrative units,' said Kurdish councilor Derrman Khitari, adding that he would ask the central government to divert part of its Nineveh budget."

"Nujaifi told Reuters he would come down hard on any local councilors who attempt to secede.

"Their demand is illegal and the constitution will not endorse it. It violates the provincial council law. If any local council within these areas violates the constitution, we have the authority to dissolve it and form a new one," he warned.

He said the door was still open to dialogue. A delegation of Shi'ite Arab politicians from the movement of cleric Moqtada al-Sadr is mediating, but have yet to produce results."

7. NIGERIA, NIGER, AND ALGERIA SIGN TRANS-SAHARAN PIPELINE AGREEMENT

The Wall Street Journal reports that the Nigerian national oil company signed an agreement with Algeria and Niger to create a $10 billion trans-Saharan pipeline to ship natural gas to Europe. On September 8, 2008, the European Commission and African Union Commission established an "African-EU energy partnership" and created an informal joint experts group on energy which was to first meet in October of that year--see Daily Sources 9/22 #5. In late February, Total SA indicated that it was interested in participating in any such project--see Daily Sources 2/26 #5. Gazprom announced late last month that it would begin construction of the pipeline late next year after having established a 50-50 JV with the Nigerian national oil company to handle oil, gas, gas processing and transportation projects--see Daily Sources 6/25 #10.



8. GAO REPORT DETERMINES THAT VENEZUELAN STATE SUPPORT FOR FARC MAKING VENEZUELA KEY HUB IN COCAINE TRAFFICKING

Juan Forero at the Washington Post reports that a GAO report commissioned by Sen. Richard Lugar (R-IN) in February 2008 concludes that state aid from Venezuela to FARC has turned Venezuela into a key source of cocaine being trafficked into the United States.

"Since 1996, successive US administrations have considered Venezuela a key drug-trafficking hub, the Government Accountability Office report says. But now, it says, the amount of cocaine flowing into Venezuela from Colombia, Venezuela's neighbor and the world's top producer of the drug, has skyrocketed, going from an estimated 60 metric tons in 2004 to 260 metric tons in 2007. That amounted to 17% of all the cocaine produced in the Andes in 2007."

9. ORTEGA CALLS FOR END TO TERM LIMITS

Reuters reports that Nicaraguan President Daniel Ortega--who accepted the results of elections after serving as the Communist leader of the country from 1979-1990--has called for a change in the law which now prevents presidents from serving two consecutive terms. In a speech yesterday he said,

"Congressman are re-elected all the time. Mayors are not allowed to be re-elected. If we are going to be just and fair, re-election should be allowed for all (public officials)."

Ortega was elected president in 2006--beginning his term in 2007; the next elections are scheduled to be held in late 2011.

10. WSJ STUDY SHOWS COMMERCIAL MORTGAGES BEING CHARGED OFF AT FASTEST RATE IN NEARLY 20 YEARS

Lingling Wei and Maurice Tamman at the Wall Street Journal report that commercial banks have been charging off commercial mortgages at the fastest rate in close to 20 years.

"At that rate, losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009.

The losses by regional banks on their commercial real-estate loans will be among the most watched details as thousands of banks report second-quarter results over the next two weeks. Many of the most troubled banks have heavy exposure to commercial real estate. So far, 57 banks have failed this year.

The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter. The trend continued as a handful of major banks reported second-quarter results, including Goldman Sachs Group Inc, JP Morgan Chase & Co. and Bank of America Corp. Regional banks tend to have higher exposure to commercial real estate than these big financial institutions."

The commercial real estate market represents about 13% of US GDP.

11. PETROLEUM IMPORTS NOW REPRESENT LARGEST SHARE OF THE TRADE DEFICIT

Brad Setser notes that as of May the largest share of the trade deficit is due to petroleum imports.



And comments:

"Discussions about the policies that gave rise to imbalances typically focus on macroeconomic policy choices. That increasingly strikes me as incomplete. Energy policy should enter the calculus too. The US isn’t going to start exporting petrol--not on a net basis--anytime soon. But it certainly could do more to reduce its demand for imported energy."

Daily Sources 7/15

1. PETROCHINA'S REFINING PROFITS AT RECORD ON PRICE LIBERALIZATIONS

Wang Ying at Bloomberg reports that PetroChina increased its refining profits in the first half of 2009 on the back of the revised pricing system which allows refiners to pass on the cost of production to consumers. Gasoline and diesel are, as a result, considerably more expensive in China than they are, say, in the US. I suspect it will go some ways to dampen demand. Meanwhile, Beijing made an example of the former ex-Chairman of Sinopec, Winnie Lee at Platts reports that Chen Tonghai was sentenced to death for bribery, but given a two-year reprieve.

"The court said Chen abused his authority ... to pursue material gains for third parties in areas related to business operation, transfer of land, and contract procurement, according to the Xinhua report.

The two-year reprieve means that Chen's sentence will be commuted to life imprisonment if he commits no further crime while in jail.

Chen resigned from his posts as the head of China Petrochemical Corporation Group and Sinopec Corporation in June 2007."

2. SOUTH KOREAN COURT HEARS PROPERTY RIGHTS CLAIM BY NORTH KOREAN CITIZENS

Su-Hyun Lee at the New York Times reports that a South Korean court has for the first time decided to hear a case brought by North Korean citizens attempting to establish property rights in the south.

"Four North Korean brothers and sisters have sued their late father’s second wife and that couple’s four children in South Korea for a share of an inheritance from the estate of the father, a successful doctor.

The suit claims at least a quarter of the father’s land and other property, worth about $8 million. He left North Korea for the South with his eldest daughter during the 1950-53 Korean War and never returned. In 1959, he reported that his first wife had died and married a South Korean woman, with whom he had four more children. He died in 1987.

Family members in the south, including the sister who came there with the father, asked that only the family name, Yoon, be used, to protect the relatives in the North and the privacy of those in the south."

Although this is the first suit by North Korean citizens to be accepted by a South Korean court, the right of North Koreans to sue in South Korean courts has already been established by rulings of "the Supreme Court and the Constitution"--though I am left unsure as to exactly what kind of complaint was addressed by the courts establishing this in the absence of a North Korean plaintiff. In any case, the smooth handling of the case may well reassure some of the anxieties of both Northerners and Southerners.

3. EUROPEAN CASH FOR CLUNKERS PLAN MAY BE REVERSING DIESELIZATION

Tim Worledge at the Barrel makes the especially interesting observation that Europe's "cash for clunkers" program--designed to slow the steep fall in auto sales--has pushed sales of gasoline-driven cars up above diesel-driven ones.

"According to the European Automobile Manufacturers' Association, ACEA, diesel comprised around 53% of all new car sales in 2007 and 2008, before the scrappage schemes were introduced.

For the first five months of this year, diesel sales fell to 46.3% of the total, apparently marking a reversal in the 20-year 'dieselization' of Europe."

"This threat to diesel's dominance represents a seismic shift.

Bolstered by favorable tax regimes, the growing use of diesel in Europe has done more than any other trend to spur refining investment and shape global trading patterns in the oil market. It has been clear in recent years that Europe is very long gasoline, with the surplus largely shipped to the US, and is short diesel, which it takes from anywhere it can get it.

Within Europe, and further afield, this has spawned massive investment programs as refinery kit designed to meet gasoline demand is re-aligned, augmented and upgraded to produce ever greater volumes of diesel."

"It's the same story in France, regarded as the bastion of diesel and birthplace of the engine's inventor Rudolf. In 2008, diesel sales peaked at a whacking 77.3% of all new cars, but this has now fallen to 71.6%.

Whether this is a blip, a temporary stumble along the road to full European dieselization, remains to be seen, although it's worth noting that even those diesel cars that are being purchased are burning up to 48% less of what is an increasingly bio-blended road fuel."

However, if it does represent a long-term reverse in trend, the window for diesel arbitrage to Europe will mostly be closed, meaning that there will be no outlet for excess diesel supply in the US, which would likely result in another retooling of US capacity back to full gasoline maximization.

4. EUROZONE INDUSTRIAL PRODUCTION UP 0.6% IN MAY MOM, DOWN 17% YOY

Gerrit Wiesmann at the Financial Times reports that eurozone industrial production rose by 0.6% in May from April, though it was still down 17% from May 2008.

"Strong monthly increases reported by Germany, France and Italy in recent days had led economists to expect a bounce of 1% in May. However, these hopes were dashed by output decreases in Spain and some smaller countries."

5. RUSSIAN RAILWAYS RECEIVES $500 MILLION LOAN FROM THE EBRD, LARGEST LOAN IN THE BANK'S HISTORY

Paul Abelsky and Denis Maternovsky at Bloomberg report that OAO Russian Railways has borrowed from the European Bank for Reconstruction and Development $500 million over 10 years in what is the largest loan ever provided by the bank.

"The deal is the London-based development bank’s largest single investment since it was founded in 1991 to fund infrastructure in former communist nations in Europe and central Asia, the EBRD said in a statement today. Moscow-based Russian Railways sold 90 billion rubles ($2.8 billion) of domestic bonds this year, more than any other company in the country, to finance its investment program."

"Russian Railways, the country’s biggest commercial employer, is seeking fresh funds after posting a loss of 17.1 billion rubles ($534 million) in the first quarter. Rail cargo shipments fell an annual 23% in the first half and may drop 19% in the year, Vladimir Yakunin, the company’s chief executive officer, said July 6.

Russian Railways cut annual spending by more than 34%, to 252 billion rubles, this year after the government reduced financial support for the company and domestic demand for its services waned, Yakunin said in an interview published today in the Vedomosti newspaper. Railroads account for about 85% of Russia’s total cargo transport capacity, according to VTB Capital data.

EBRD aims to invest a minimum of $3 billion in Russia this year, President Thomas Mirow said last month at an economic forum in St. Petersburg."

6. BULGARIA TO GET SPUR FROM THE ITGI PIPELINE

Kerin Hope and Theodor Troev at the Financial Times reports that Greek, Bulgarian, and Turkish companies signed an agreement to build a spur from the ITGI pipeline carrying natural gas from Azerbaijan to Turkey and Greece and which is to be extended to Italy. The spur would have a 3-5 bcm/year capacity and is scheduled to be completed by 2012 at a cost of €120 million (~ $167 million).

"The project highlights the new spirit of co-operation between Athens and Sofia. The Balkan neighbors have a history of bilateral disputes, from arguments over sharing water resources to stake-holdings in a proposed cross-border oil pipeline.

Both countries are keen to become regional transit hubs for gas pipelines from central Asia and the Middle East.

Bulgaria signed up on Monday to join Nabucco and, like Greece, is also a partner in the proposed South Stream pipeline to bring Russian gas to the EU under the Black Sea."

Sofia has secured about €45 million in EU grants to fund the project. According to a 2007 Edison press release, ITGI as it stands has a capacity of 11.5 bcm/year of which Italy had been slated to receive, following the completion of the final section also in 2012, 8 bcm/year. According to a story featured on the Azerbaijan Business Center, Gian Luigi Mascia, the Italian Ambassador to Azerbaijan, said in Baku today that

"The gas pipeline is designed only for Azeri gas. Its overall capacity will be up to 14 bcm a year, including 1 bcm to be delivered to Greece, 10 bcm to Italy and 1-3 bcm to Bulgaria."

Bulgaria responded to the Russo-Ukrainian gas transit dispute in January by re-starting a nuclear reactor despite it violating the terms for its accession to the EU--see Daily Sources 1/15 #1.

7. ISRAEL HAVING TOUGHER TIME IN EUROPE, ISREALI WARSHIPS PASS THROUGH SUEZ

Juan Cole has an interesting analysis suggesting that Israel is more on the outs with Europe than usual. He notes that Javier Solana called for the recognition of a "Pelstinian state by the world community by a date certain, regardless of the Israeli position" suggesting that he is more or less Europe's foreign minister. (Much much less, actually, though important, and certainly an interesting development. The analysis contains a goodly share of wishful thinking, on Prof. Cole's part, but it is still interesting and what he records may well be a sign of a sharper move in the European capitals.) Meanwhile, Michael Collins Dunn at the MEI's Editor's Blog notes that two Israeli corvettes (warships slightly smaller than frigates) have been allowed, by Cairo, to pass through the Suez. He notes:

"Warship transits, while guaranteed under the Israeli-Egyptian peace treaty, are rare, given the fact that Israel is concerned about security. As anyone who has seen the canal knows, it is narrow, and warships passing are easily viewed by civilians and others along its banks."

8. MEND ANNOUNCES CEASEFIRE, QUICKLY THREATENS TO END IT

Platts reports that MEND earlier Wednesday announced a ceasefire following the release of its leader--Henry Okah--yesterday, but has since threatened to call it off, accusing the government of using it as an opportunity to ramp up its military presence in the region.

9. VENEZUELAN OIL MINISTER SAYS ALL PDVSA EMPLOYEES MUST JOIN "SOCIALIST COMMITTEES"

Marianna Parraga at Reuters reports that Venezuelan oil minister Rafael Ramirez yesterday told a rally of workers who had been employed by PdVSA following the nationalization of oil services firms operating in the country that

"By now, there should not be a single counter-revolutionary in the heart of our company, our industry. There cannot be a single PdVSA installation where socialist committees do not exist. Whoever is not in a committee will be suspected of conspiring against the revolution."

"Socialist committees are loosely defined political groups often organized by Chávez's Socialist Party."

10. US COMMERCIAL CRUDE STOCKS DOWN, GASOLINE & DISTILLATE STOCKS UP, REFINERY UTILIZATION UP, BUT US INDUSTRIAL PRODUCTION DOWN 0.4% IN JUNE FROM MAY, 13.6% YOY, CONSUMER PRICES UP 0.7% NEARLY ALL ON ENERGY COSTS, WHILE US WAGES, ADJUSTED FOR INFLATION, FALL 1.2%

The EIA today reported that commercial crude stockpiles fell by 2.8 million barrels to 344.5 million barrels in the week ended July 10. The amount is storage is still above the five year historical range for this time of year, but the draw was for more than the 2.1 million barrel draw expected by Wall Street analysts, per a survey by Bloomberg. Gasoline stocks grew by 1.5 million barrels versus analyst expectations of a 875 kb build and are now near the top of the five year historical range for this time of year. Distillate stocks grew by 600 kb versus analyst expectations for a 2 mb build and are still at extremely elevated levels, about 28% more than what was in storage in the comparable week of last year. Overall US refining capacity went up in the week ended July 10 to 87.87% of total operable capacity from 86.8%. However, industrial production in June was down 0.4% from May and 13.6% from June 2008 according to the Fed's index. From the report:

"For the second quarter as a whole, output fell at an annual rate of 11.6%, a more moderate contraction than in the first quarter, when output fell 19.1%. Manufacturing output moved down 0.6% in June, with declines at both durable and nondurable goods producers. Outside of manufacturing, the output of mines fell 0.5% in June, and the output of utilities increased 0.8%. The rate of capacity utilization for total industry declined in June to 68.0%, a level 12.9% points below its average for 1972-2008. Prior to the current recession, the low over the history of this series, which begins in 1967, was 70.9% in December 1982."

Meanwhile, Gerry Shih at the New York Times reports that the Labor Department announced that its consumer price index climbed 0.7% in June from May. The "core" index, which excludes food and energy prices, rose by 2%.

"Compared with a year ago, the Consumer Price Index has fallen 1.4%, the steepest plunge since 1950, as the prolonged downturn takes its toll on demand in the economy. ...

A separate Labor Department report released Wednesday said that American wages, adjusted for inflation, fell by 1.2% in June."

Daily Sources 2/4

1. Keiko Ujikane and Kyoko Shimodoi at Bloomberg report that Makoto Utsumi, a former vice finance minister for Japan, hinted in an interview last week in Tokyo that the G-7 was likely to reinstate calls for the renminbi to trade more freely in their meeting in Rome next week.

"Finance ministers and central bankers from the G-7 nations gather on Feb. 14 in Rome. In April, the group said they 'encourage' further appreciation of the yuan, language that was omitted an from October statement."

2. Eurointelligence reports that the EU has warned the US that it will pursue legal remedies should the buy American provisions of the stimulus bill become law.

3. Eurointelligence reports that Paris has decided to offer unlimited guarantees for exports to China, India and Brazil. The guarantees act as partial or full insurance against payment default on the import contract. Though Eurointelligence has a snarky take on the move, it occurs to me that if letters of credit have become difficult to obtain in the shipping industry (see Daily Sources 1/8 # 20 for a recent indication that this is the case), then these guarantees might represent a reasonable way to resurrect trade being put on hold due soley to tight credit requirements being driven mostly by the liquidity concerns of financial institutions. (Export guarantees were removed for exports to Russia, Nigeria and Morocco.)

4. Edward Hugh has a long post on spiking unemployment and falling consumption in Spain at Fistful of Euros. Courtesy of Hugh:



Hugh provides a slew of data demonstrating that the downturn in Spain will be long and deep, but that Spanish consumers still expect inflation. He concludes that it is likely to enter a deflationary period more intense than was seen in Japan.

"When [Spain’s Economy Secretary David] Vergara was asked about whether falling inflation would make it more likely that the European Central Bank would cut rates at its meeting next week, he replied: 'We are convinced the ECB will take all available data into consideration and act accordingly.' But the point is, if we are entering deflation here, and looking at the rate of contraction in the economy, which I am forecasting will be in the region of 5% of GDP this year, we certainly are. And Spanish deflation is likely to be much deeper than anything Japan has experienced, due to the severity of the contraction, which means that what we should be talking about is not simply a half point, or three quarter point, trimming in the ECB repo rate, what we should be asking for is the immediate introduction of Quantitative Easing, but Spains leaders are a long, long way from accepting this reality, and when they do finally accept it it will, unfortunately be too late to find any kind of rapid exit strategy. The issue is expectations. Spanish people still have inflationary expectations, but this will turn, and expectations will change to the anticipation of price decreases, postponement of consumption, and when we do reach this point it will be the devils own work to get them out of that pit."

Worth reading in full, though quite long.

5. The AP reports that Bulgarian foreign minister Ivailo Kalfin said in a TV interview today that Sofia wants to renegotiate its natural gas contracts with Gazprom to reduce the number of intermediaries which deliver gas to the country to one from three. The interview was given just prior to leaving on a state visit to Moscow led by Bulgarian president Georgi Parvanov.

6. Candace Rondeaux at the Washington Post reports that the Taliban has destroyed an iron bridge near Peshawar, effectively shutting off the main supply line to NATO forces being employed by US quartermasters. Marla Dial at Stratfor has a podcast reporting that US General Craddock said Monday that NATO member states were free to discuss opening supply routes for forces in Afghanistan with Iran. (Registration required.) Prior the primary alternative supply route under discussion was via Russia, through Kazakhstan, to Uzbekistan, and onwards Afghanistan. (see Daily Sources 1/21 #1) Meanwhile, George Friedman, the CEO of Stratfor, has an op ed in the New York Times which frames the geostrategic question of supply in terms of Moscow's probable unwillingness to permit supply through its borders without some sort of assurance that NATO will not expand further in Eastern Europe. What he leaves unanswered is a) why it is in US--or NATO--interests to expand NATO and b) why any such interests trump the clear US and NATO interest in integrating Moscow into its defensive framework. That said, it is interesting that some advocates of rapprochement with Tehran have picked up this meme of Iran being a potentially critical partner in resisting Russian encroachment in Central Asia. I personally think that concern is overblown, given that Russian demographics will undermine, on their own, any truly expansionist policy--though certainly Moscow will try and strengthen its influence in the region. It seems to me that the regional balance of power is being slowly upset from other directions, even if with less bluster, and as a result of historical trends as opposed to policy.

7. Nariman Gizitdinov at Bloomberg reports that Kazakhstan has devalued the tenge by 18%, abandoning attempts to shore up the currency. On February 2, the government agreed to bail out its largest bank--BTA--exchanging 251 billion tenge for 78% of the company's shares. Astana has reportedly offered OAO Sberban, Russia's largest bank, half of its new stake.

8. Eric Watkins at the Oil & Gas Journal reports that in a state visit to Japan, Indonesian Vice-President Jusuf Kalla has reiterated Jakarta's determination to prioritize natural gas for domestic consumption against exports.

"I have spoken to the Japan Bank for International Cooperation (JBIC) that we will help Japan (meet their gas demand) as long as (the transactions) are under a win-win solution," Kalla said.

"We need gas for domestic consumption, but we also need to export gas for foreign exchange reserves," said Kalla who did not detail Indonesia's plans to export gas to Japan this year."

Jakarta wants to utilize gas for domestic power consumption in part due to environmental concerns, but largely due to a desire to export crude oil as opposed to natural gas. Oil is currently a considerable part of its power generation consumption mix, and gas can additionally be used to boost the production of oil fields via reinjection. The shift in priorities had raised alarm bells in Tokyo because they have long depended on natural gas imports from Indonesia for power generation--and because their long term contracts were originally made at what were, for the time, generous contract terms. However, the dilemma may, in part, be resolved over the course of the year by new LNG plants being commissioned, which has caused some to argue that the US will face a natural gas glut. (see Daily Sources 2/2 #11)

9. Peg Mackey and Alex Lawler at Reuters report that an OPEC source told them in an interview that OPEC may well cut another 1 mb/d in the upcoming meeting scheduled for March 15.

10. Grant Smith at Bloomberg reports that Saudi Arabia has raised the price of all crude grades for export in March.

"Saudi Arabia bolstered the cost of its Arab Light crude for US customers by $3/b to a premium of $1/b to the West Texas Intermediate benchmark. For buyers in Asia, it was increased 70 cents to a 25 cent premium to Oman and Dubai crude. In northwest Europe Arab Light was raised $1.70 to a discount of $3.75 against Brent crude."

Prices for Arabian Heavy to US customers were raised the most, by as much as $4.70/b.

11. Juan Cole at Informed Comment posts that according to statements made to the Iraqi Media Center, Prime Minister Nuri al-Maliki said, "The new US Administration has sent messages on its plans to withdraw the US forces ahead of the agreed upon schedule which is something we consider to be good." Meanwhile, Ernesto Londoño at the Washington Post reports that there have been serious allegations of election fraud committed by the Iraqi Islamic Party in Anbar province.



Voter turnout in Anbar was 42%, among the lowest in the country. The Iraqi Islamic Party currently holds 26 of 29 seats in the provincial council.

12. Elzio Barreto at the Reuters reports that Santander, JPMorgan, and HSBC have been hired to manage the sale of 10 year bonds by Petrobras to the international capital markets. On January 28, the CEO of Petrobras asserted that the cost of credit was too steep for the company to, at this stage, issue new bonds, saying "We don't need more funds." (see Daily Sources 1/28 #11)

13. Craig Whitlock at the Washington Post reports that Chancellor Merkel has strongly criticized the Pope's decision to rescind the excommunication of four bishops, given that one is a holocaust denier and doing so gives the impression that denial of the holocaust is tolerable. Merkel told reporters that, "The pope and the Vatican should clarify unambiguously that there can be no denial and that there must be positive relations with the Jewish community overall." Benedict XVI is of German descent.

14. Nick Bunkley at the New York Times reports that new vehicle sales fell by 37% in January. Hyundai and Subaru reported sales increases. Chrysler sales fell by 55%. GM sales fell by 49%; Ford: 40%; Toyota: 32%; Nissan: 30%; and Honda's sales fell by 28%.

"In general, carmakers and analysts expect sales this year of 10 million to 11 million vehicles, down from 13.2 million in 2008. Until last year, automakers had been selling about 17 million vehicles annually for nearly a decade."

For the first time last month, more cars were sold in China than in the US.

15. Phil Izzo at Real Time Economics reports that ADP released data today suggesting that the private sector lost 522,000 jobs in January. The Bureau of Labor Statistics is set to announce its unemployment data on Friday. ADP does not include public sector employment in its numbers, which is some cause of different unemployment projections from the more complete BLS reports.

16. The EIA reported today that crude stocks grew by another whopping 7.2 million barrels to 346.1 million barrels for the week ended January 30, above the historical range, but just a bit below the most recent high in 2006 of 352.6 million barrels. A Bloomberg survey of Wall Street analysts had expectations of a 3 million barrel build. Gasoline stocks built by 300 kb, are near the top of the historical range, and versus analyst expectations of a 800 kb build. Distillate stocks fell by 1.4 million barrels, but are still above the historical range. Linda Rafield at Platts reports that crude stocks at Cushing, Oklahoma, the nominal delivery point for CL contracts, grew by 832 kb to 34.335 mb. Stocks were at 17.88 million barrels above last year's levels. Taken in isolation, the news is very bearish for price.

17. Jim Tankersley at the Los Angeles Times reports that Steven Chu, Secretary of Energy, said in an interview that global warming could have dire consequences for California if it is not arrested. In the worst case scenario, 90% of the Sierra snowcap could disappear, severely cutting the supply of water to Californian cities and farms. Water shortages brought on by global warming would be seen throughout the American West and Upper West according to Dr. Chu. Worth reading in full.

Daily Sources 1/6

1. Jim Lobe reports on his blog that the Nelson Report last night had the story that Dennis Ross will be made the Obama Administration's Special Envoy for Iran. Ross is someone sure to please hard line Israel supporters, and has some connection to the neo-cons. That said, as I have argued in my post on Law and Revolution in Iran, though we should be open to talks with Iran, there is no reason to have anything other than a hardheaded approach to such talks. Nelson also reported that Richard Haas will be Special Envoy for Israel-Arab affairs, Richard Holbrooke will be Special Envoy for India and Pakistan, and Anne Marie Slaughter head of policy planning.

In the meantime, Azadeh Moaveni in the Wall Street Journal reports that the Ahmadinejad regime is using the conflict in Gaza as cover for the intimidation of Shirin Ebadi. This had been going on for a little while before the Israeli incursion, but have become more aggressive since. The focus on Ebadi really illuminates how threatening she is to the legitimacy of the regime. But her struggle will have to compete with images from the Gaza for now, like the Korean footage of a young woman standing in front of Israeli soldiers to prevent them firing assault rifles at crowds of protesting Palestians linked by Juan Cole:



Brave young woman.

2. Elza Turner at Platts reports that traffic through the Suez canal is down "35-50% in December compared to the previous month and the year-ago month." Though I am unsure what the sentence means, precisely, it would seem to indicate that traffic is down substantially. The traffic reduction is down mostly on piracy in the Gulf of Aden and trade finance issues. Rerouting ships around the Cape of Good Hope can increase transit times by as much as 14 days. The amount of time spent at sea keeps a substantial amount of cargo space off the market. The decision last month by a number of shippers to avoid the Suez does seem to have put a bit of a bottom under the market, given the Baltic Dry Index:



But this does not seem to have been sufficient to create much of a recovery in the market, given the heights from which it fell:



If I remember correctly, the success of the super oil tanker--or Ultra Large Crude Carrier (ULCC)--was ensured by the cut off of the Suez Canal, once upon a time. David Osler at Lloyd's List reports that the international coalition of navies off the Somalian coast is having some success. Issues of jurisdiction and the cost of trying the pirates is still an issue, but the shipping industry appears fairly confident the suppression effort will succeed. The piece gives a useful summary for those interested in the topic.

3. The AP reports that an Iranian Revolutionary Guard commander called on the Islamic world to initiate another oil embargo in retaliation for the West's support of Israel in Gaza. There was a similar call last week from parliamentarians in Bahrain.

4. Dave Ernsberger at The Barrel reports that the Lu'an Group in China produced its first transportation fuels from coal in December at a rate of 160,000 mt/year (or 12.8 kb/d). China is the only country outside of South Africa which has a fully up and running coal to liquids plant. The plant is expected to ramp up production to 3 million metric tonnes/year (~ 60 kb/d) between 2012-2015 and to 15 million metric tonnes/year by 2020 (~ 300 kb/d). Given 7.7 mb/d of total oil consumption in China in 2008, 300 kb/d is 3.9% of that. If you believe that China will be consuming 20 mb/d by 2020, 300 kb/d is 1.5% of that. China, South America, and the United States have huge coal reserves, but so far these technologies produce as much or more carbon emissions than coal burning power plants.

5. MSNBC has footage of Chinese laborers who are protesting outside a factory facing down policemen trying to stop the cameramen from filming the scene:

Visit msnbc.com for Breaking News, World News, and News about the Economy

6. Hugo Restall has an opinion piece in the Wall Street Journal Asia which notes that China has made it public that it is in the market for an air craft carrier. Although the carrier would be technologically behind US versions, it would make China the only East-Asian nation with carrier capacity.

"China hesitated for years before declaring its intent to develop carrier capability because of the potential reaction of its neighbors. A Chinese aircraft carrier prowling the neighborhood could be the final straw that causes Southeast Asian nations to band together to protect their claims, or strengthen ties with the U.S. In particular, Vietnam has periodically hinted that it might put aside the past and form an alliance with Washington."

The announcement may have been made because just now it feels in Asia as if American power is ebbing and unreliable. Restall fears it could touch off a regional arms race. That said, a carrier would be useless to Beijing in any effort to reintegrate Taiwan into China by force, which may mean that Beijing is signaling its commitment to peaceful reunification. Worth reading in full. On Saturday, Galrahn posted a piece on Information Dissemination which noted that a story run in the Japanese paper Asahi Shimbun that China intends to build two 50,000- to 60,000-ton conventional propulsion carriers in Shanghai by 2015. Also worth a gander. The upshot is that the move toward carrier capability is likely with an eye to regional concerns, though I am unclear on how, exactly, China means to obtain them.

8. David Jolly and Julia Werdigier at the New York Times reports that in a press conference in Londong Aleksandr I. Medvedev, a deputy chief executive of Gazprom, said, "The flow [of natural gas] to Europe through the Ukraine is now about seven times less than the norm and the situation continues to deteriorate." He said that Gazprom was ready to go to the negotiating table at any time and called upon Europe to "go after Ukraine." Russia has accused Ukraine of siphoning off gas meant for delivery to Europe and has decided to reduce supply through the pipeline by the amount it figures has been siphoned. Philip P. Pan at the Washington Post reports that Bulgaria is preparing to restart a shuttered nuclear reactor as two cities were left without natural gas for heating in freezing weather, given Bulgaria's total dependence on Russian gas delivered via Ukraine. (These ongoing disputes may well yet convince Berlin to do a turnabout on its policy of zero nuclear power.) Of the eastern European nations, Bulgaria historically has been close to Moscow.

Meanwhile, Verena Peternell at Platts reports that petroleum product futures on ICE have climbed substantially on the geopolitical situation in Gaza and the Russo-Ukrainian natural gas dispute.

"The January ICE gasoil futures contract was $36.25 higher on the day at $515/mt, trading above the $500/mt for the first time since December 15, fueled by cold weather across Europe and the gas dispute."

Gasoil is the term in Europe used for heating oil which has very similar characteristics to diesel. $515/mt roughly corresponds to $69.59/b or $1.66/gallon. Front month heating oil is trading at about $1.6263/gallon on NYMEX as I write.

9. Thomas R. Keene and Whitney Kisling at Bloomberg report that Robert Feldman, head of economic research at Morgan Stanley Japan in Tokyo, told Bloomberg TV that he expected the yen to head to 85 to the dollar, perhaps even stronger, by the Summer.

"Feldman said the yen’s real effective exchange rate is not as strong as current market rates may suggest. The rate, a measure of its value against the currencies of 15 of Japan’s trading partners after adjustment for inflation, rose 5.1 percent in December from a month earlier to the highest level since November 2001, the Bank of Japan said today in Tokyo."

10. Reuters reports that eurozone inflation dropped to an annual rate of 1.6% in December, down from 2.1% in November. The European Central Bank target inflation rate is just under 2%.

"'It makes it even more likely for the ECB to cut interest rates further in the next few months, starting in January and going to 1.5 percent in March,' said Holger Schmieding, co-head of Europe economics at Bank of America. 'Next week, the cut will probably be 50 basis points.'"

11. Ambrose Evans-Pritchard at the Telegraph UK argues that central banks everywhere will do everything they can to combat debt deflation, including Germany.

"The geopolitical landscape will look different. Cohesive states with a rule of law and old democracies – the Anglosphere, Holland, France, Scandies – will muddle through. They will start to enjoy a political premium in investor psychology, despite horrendous debts.

Obama's America will shine. The country will reemerge as undisputed top dog, the only one with real demographic, scientific, and strategic depth. As first into the crisis, it will be the first to hit bottom. Those expecting the dollar to collapse will have to wait.

The damage to core Europe will take longer, but run deeper. Belgium will face a break-up scare. Markets will test highdebt states as they try to roll over bonds – €200bn (£191bn) for Italy and €40bn for Greece. Spain's corporate debts will turn bad.

Germany's economy will contract by 3pc as exports collapse, and the delayed effects of the strong euro and tight money feed through."

Evans-Pritchard argues that analysts will be shocked by the depth of the downturn in Asia, the Russia will become more totalitarian in the face of below $50/b oil, and that authoritarian states generally will turn toward repression as their promises of growth falter. In the end, he argues everyone will be convinced that the reflation caused by the central banks is just as dangerous as the deflation they averted. Worth reading in full. David Hale in the Financial Times argues that every country will want to avoid an appreciating currency and thus will be forced to finance the American stimulus and financial stabilization program. He thinks that there will be a flocking to precious metals as investors begin to suspect, as Evans-Pritchard thinks will happen at the end of 2009, that inflation will be the policy choice of hugely indebted nations. Also worth reading in full.

12. Eurotintelligence reports that wage inflation is receding in Spain, the average rate was 4.1% in 2008, and the rate in December was 1.5%.

13. Andrew Sullivan in the Daily Dish links to an interview of General Petreaus in Foreign Policy where they asked whether the conflicts in Afghanistan and Iraq are fundamentally different from earlier wars. He says that the current counter-insurgency operations are different in that

a) the internet is new, and thus control over information distribution is impossible and recruitment prevention complicated,
b) the use of suicide bombing has much increased, and
c) the religious component of these conflicts is much enhanced as compared to earlier counterinsurgency campaigns which mostly faced nationalist opposition.

14. Paul Krugman notes that in a survey conducted by the Wall Street Journal of economists between November 7-10, unemployment will reach 8.1% by the end of 2009 and peak in 2010 at 8.4%. Some time has passed since then. The average prediction for first half consumer inflation was 0%, with the majority of economists predicting slight deflation (between -0.1% and -0.7%). The average of predictions for second half consumer inflation is 1.5%. The average GDP growth expectation for 2009 is 0%, though there is quite a range of expectations. The WSJ survey results can be found here.

15. Kelly Evans at the Wall Street Journal reports that American families are saving again, which is hurting the economy. Calculated Risk reports that credit indicators are showing signs of recovery:

# The yield on 3 month treasuries has increased to 0.08%. I suppose this is an improvement (better than zero).

# The three month LIBOR has decreased to 1.42%. The three-month LIBOR rate peaked (for this cycle) at 4.81875% on Oct. 10. (improved)

# The TED spread is at 1.34, sharply lower. (improved)

# The A2P2 spread has plunged to 1.92%. This peaked at 5.86 after Thanksgiving. (better).

# The two year swap spread from Bloomberg: 77.75. (Improved)

Worth reading in full.

16. David Jolly and Jack Healy at the New York Times report that today:

"The Institute for Supply Management’s services sector index rose to 40.6 in December from 37.3 in November as the sector contracted less slowly. Orders to factories declined 4.6 percent in November, nearly double the 2.5 percent drop economists expected, for a record fourth consecutive month in November, and the National Association of Realtors said that pending home sales fell 4 percent to 82.3 from a downwardly revised October reading of 85.7."

17. Yves Smith reports that over 150 hedge funds are limiting redemptions--or the amount of their investment that investors in the funds can redeem. This includes some of the most renowned, like Citadel, Tudor, and Cerberus. That sure is a nice trick, ain't it? Either way, it would seem to telegraph further forthcoming pain in the securities markets.

Daily Sources 11/24

1. On Friday Anurag Kotoky of Reuters reported that Goldman Sachs' most recent forecast calls for US GDP to fall by 5% in the fourth quarter 2008 and unemployment to grow to 9% by the end of 2009.

2. Real Time Economics reports that home resales fell to a 4.98 million annual rate in October, down 3.1% since September. The medium home price was down 11.3% since October 2007. The post contains the reactions of various economists.

3. Galrahn at Information Dissemination has a post hailing the current international interest in coordinating the naval response to the piracy infesting the Somalian littoral as a success of American international maritime strategy. In short, US maritime strategy calls for building international consensus of maritime issues and using such consensus to enforce rule of law on the seas. By waiting for the international community to clamor for coordinated action before making naval commitments to the region, then, the US has met its international policy goals in terms of piracy. Interesting read.

4. Mark Pittman and Bob Ivry at Bloomberg have an analysis showing that with the bailout of Citibank, the commitment of tax payer funds to rescue the financial industry now tops $7.7 trillion, or more than half the GDP.

"The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis."

5. Philip P. Pan at the Washington Post reports that the Georgian and Polish presidents claim they were shot at as their motorcade approached South Ossetia to inspect a Russian checkpoint. Russian officials deny the accusation.

6. Ben Farey at Bloomberg reports that OPEC President Chakib Khelil told reporters in Vienna today that OPEC has provided the world with an economic stimulus by "accepting an oil price" lower than their "target price" of $85/b. (This is disingenuous, of course, as OPEC has called several emergency meetings and cut production in order to try and stave off the collapse in prices. Moreover, OPEC had refused to publically announce a target price they would defend.)

Khelil also suggested that were OPEC to meet today, production would be cut by 1 million barrels. Khelil also said that there had been 85% compliance with the October cut. Brian Baskin at Dow Jones reports that Lawrence Eagles, head of commodities research at JPMorgan Chase & Co., said Friday that without a "massive" production cut from OPEC, oil was likely to fall to $35/b. He said in a conference call that:

"OPEC needs to cut 3 million barrels a day to compensate for the bleak global economic outlook, which is expected to result next year in the first contraction to oil demand since the early 1980s."

Steven Bodzin and Daniel Cancel at Bloomberg reported yesterday that Venezuelan Energy and Oil Minister Rafael Ramirez told the media that Caracas will call for a 1 million barrel cut in production at OPEC by year end. The Associated Press reports that Iraqi oil exports in October grew to 1.7 million b/d, up from about 1.64 million b/d, an increase of roughly 60 kb/d. Iraq is not bound by any production quota as it recovers from the wars.

7. Ernesto Londoño at the Washington Post reports that the Kurdish regional government took delivery of three planeloads of small arms they had purchased from Bulgaria without seeking approval from Baghdad. Kurdish officials last week were complaining that al-Maliki was in the process of establishing a praetorian guard of sorts. The news of the arms sale is sure to alarm Iran, and, in all probability, Turkey, though Barzani's KRG has been at pains to try and smooth ruffles with Ankara.

8. The Associated Press reports that Saudi Arabia reduced its benchmark interest rate by 1% to 3%. Riyadh also reduced the cash reserves banks are required to hold from 10% to 7% of total deposits and loans.

9. Simon Romero at the New York Times reports that Chavez supporters won the great majority of gubernatorial and municipal elections held in Venezuela this weekend, but the opposition takes comfort in the fact that their victories were in the most populous and economically significant regions.

10. Choe Sang-Hun at the New York Times reports that North Korea has announced it will suspend all trips of the only running rail line between it and South Korea. Pyonyang will ban South Korean tourists from visiting Kaesong, which hosts the Kaesong Industrial Park--the joint economic project of the two countries. Pyonyang will also "'selectively expel' South Koreans working in a joint industrial complex there starting Dec. 1."

11. Rachel Donadio reports that Pope Benedict XVI wrote a letter published by Corriere della Sera on Sunday in which he cast doubt on the notion of an "interfaith dialogue." On the other hand, the Pope emphasized the importance of inter-cultural dialogue: "He called for confronting 'in a public forum the cultural consequences of basic religious decisions.'" Words, and their meanings, are important to theologians, and the Pope's point is not a trivial distinction. Iran's reformist leadership had, some time ago, called for a "dialogue of civilizations." In practice, though, this was mostly an effort to get all parties to express their respect for the cultural differences of their neighbors.

The Pope's call puts this notion on a more pragmatic plain, which is interesting, and reminds me of his--widely criticised--letter last year where he pointed out that possibly the most important Christian religious council had been called to accept, as inspired revelation, translation of the Old and New Testaments. A key criticism of Christianity by Islamic prosyletizers is that the Bible was distorted by the very process of translation. Since the Koran is in its original language, it has not, in their view, been so twisted. In that letter the Pope also pointed out that if Christians were to regard all lands previously controlled by Christians as legitimitely the target of Christian reconquest, most of the world would be considered as such. That is, I understand this new letter primarily as a challenge.

12. Dan Eggen at the Washington Post reports that members of APEC warned President-elect Obama that pulling back from free trade agreements would exacerbate the current global economic situation. APEC also issued a statement similar to that put out after the G20 summit on November 15 which pledges to maintain low trade barriers going forward. Canada specifically warned against the reworking of NAFTA.

13. Marc Lacey at the New York Times reports that many of the people protesting the recent municipal elections in Nicaragua are former Sandinistas. Mary Anastasia O'Grady has an opinion piece at the Wall Street Journal which reports that the Carter Center, the European Union, and the Organization of American States were all denied credentials to observe the election by Managua. Local observers were also prevented from entering polling stations. O'Grady's reportage needs to be taken with a grain of salt, however. For example, she writes that "Mr. Ortega ruled the country from 1979-1990 as a Sandinista dictator." Well, maybe, except you have to admit that the Sandanistas held elections and then abided by the result when they lost. Atypical of dictators.

14. Keith Wallis at Lloyd's List reports that seafarer groups internationally are calling for a boycott of South Korean goods. A very large crude carrier anchored off South Korea was hit by a barge which had partially come off its tow. The captain and chief officer were taken into custody, and even though a South Korean court cleared them of responsibility, prosecutors are still calling for a three year jail term. The two seafarers are of Indian nationality.