Daily Sources 7/22

1. DO COAL STOCKS INDICATE GLOBAL RECOVERY?; WTO SAYS GLOBAL TRADE TO CONTRACT 10% IN 2009

Thomas MacLeod yesterday at Seeking Alpha deduced from the performance of global coal ETF KOL, the US DOW Coal Index, and the global steel ETF SLX that energy consumption globally is up and thus is the global economy beginning a rebound.

"The commodity that we believe is more representative of pure changes in economic fundamentals is coal. It is difficult to manipulate, its supply is not so affected by political or natural events and it is comparatively difficult and expensive to store, which effectively weeds out speculators.

Moreover, coal is a genuine industrial commodity with over half of the world’s electricity generation being powered by coal fired power stations. It is integral in the production of steel and can be converted to produce crude and other industrial chemicals.

In order to analyze the behavior of coal we look at the movement of coal stocks relative to major market stock indices. This eliminates the impact of stock market movements so we can ascertain the movement due to changing expectations of coal demand and supply. In essence, outperformance of coal stocks suggests global economic expansion."

Of course, the performance of coal stocks does not represent a one-to-one ratio to consumption. The latest data on coal volumes shipped by train, for example, still shows 8% down year over year, which suggests that in North America, anyway, it is difficult to deduce a rebound on the basis of coal volumes. Meanwhile, Jonathan Lynn and Kazunori Takada at Reuters reports that the WTO has forecast that world trade will shrink by 10% in 2009.

"The WTO said however the contraction appeared to be slowing.

'Our figures showed that Asian countries may be leading a recovery in global trade,' [Director General Pascal] Lamy told a news conference in Singapore, where he was attending a two-day Asia Pacific Economic Cooperation (APEC) trade meeting."

2. IMF SAYS CHINA COULD STAND MORE STIMULUS IN CONTRAST TO WORLD BANK ASSESSMENT, CHINA INDICATING THAT IT WILL USE ITS FOREIGN CURRENCY RESERVES TO FUND CHINESE FIRM EXPANSION OVERSEAS, IN PARTICULAR RESOURCE PLAYS, CHINESE OIL IMPORTS IN JUNE WAY UP IN CONTRAST TO OFFICIAL COMMENT THAT STOCKPILING OVER

Timothy R Homan at the Bloomberg reports that the IMF has indicated in its first executive-level review of China in three years that there is scope for more fiscal stimulus in that country.

"The IMF’s assessment is a clash with the World Bank, the international development-aid agency also based in Washington, which last month advised China to delay until 2010 any additional stimulus. It also comes as China is already recording an acceleration in its expansion, and as its central bank takes steps to avert bubbles in stock and property markets."

In the April G-20 meeting in London, the Obama administration secured from the IMF a pledge to open up the selection process for the executive directorship of the organization in return for opening up the process for the head of the World Bank, traditionally an American. Some expect China to win the top spot when the next head of the World Bank is selected, but in order for Beijing to have had a real shot, it needed to open up the country to official review from the international financial institutions again. Meanwhile, Brad Setser has some remarks on the recent report that China intends to use its reserves to support the overseas acquisitions of Chinese firms.

"That of course is China’s right. China clearly has more reserves than it really needs, and thus can take some risks with its reserves.

But it also has consequences. If Chinese firms are explicitly backed by China;s reserves, it gets harder to argue that their expansion reflects a purely commercial calculus. China’s government presumably will deploy its assets to pursue China’s strategic as well as its commercial goals.

In some sense it is surprising that China has decided to be so explicit about its new desire to use its reserves to support Chinese state firms. China’s government could have achieved the same result by quietly putting more foreign currency on deposit in the state banks, and having the state banks lend those funds out to firms looking to expand abroad."

Kate MacKenzie at FT Energy Source notes,

"In an interview published in state-controlled media, the chairman of China Development Bank said Chinese outbound investment would accelerate but should focus on resource-rich developing economies.

'Everyone is saying we should go to the western markets to scoop up [underpriced assets],' said Chen Yuan. 'I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.'"

Meanwhile, Platts notes that Chinese apparent oil demand is up in June. I have reconfigured their data into a barrels per day format:



3. GERMAN ROLE AT ECB MAY BE ESPECIALLY PROBLEMATIC FOR COORDINATING GLOBAL RECOVERY, ECB ARGUES THAT ITALY'S ADOPTION OF THE EURO HAS CUSHIONED THE COUNTRY'S ECONOMY FROM ITS POLITICAL INSTABILITY

Jörg Bibow at the New America Foundation has an interesting piece on the German role in determining monetary policy for Europe and why it is presenting a serious obstacle to an effective global response to the financial crisis. Key excerpts:

"Within German 'stability culture' the Bundesbank's part was to enforce discipline, both budgetary discipline and wage discipline. The result was not only low inflation, but inflation lower than inflation of Germany's trading partners. And that is an important factor within any system of pegged nominal exchange rates: over time a country with relatively low inflation gains in competitiveness which is boosting its export performance. Stability policy worked well under the Bretton Woods regime, establishing both Germany's export-oriented growth strategy and the Bundesbank's claim to fame as inflation fighter."

"Exporting the German model to Europe through the Maastricht regime meant inflation would be low across Europe, while all countries would try to balance their budgets at the same time. When German stability policy was jointly applied across Europe in the early 1990s, the predictable result was domestic demand stagnation and rising unemployment. Even by 1996 it looked as though EMU was not going to fly because stagnation kept budget deficits above the 3% ceiling across the continent. Luckily, the US 'new economy' boom and strong US dollar came to the rescue, and eleven countries qualified in the spring of 1998 to launch the euro in January 1999. In other words, laboring under the Maastricht constraints, Europe failed to generate sufficient homemade demand growth, but benevolent external forces allowed the euro to get off the ground just on time."

"What does all this mean for the collective action problem which, as I said at the start, the world is facing today? Recovery from the ongoing global crisis requires everyone to pay their dues and pull their weight. Built into the German model is a strategy to rely on the recoveries of others to sponsor one's own. The German model has become the European model (pace the U.K). ECB president Jean-Claude Trichet said as much in 2004 when Euroland was last hoping for external sponsors of recovery: 'Growth starts with exports, then passes on to investment and then to consumption. That is the normal sequence for Europe in this phase of the cycle.' (FT 22 April 2004). The trouble is that Europe's economy is as large as America's or even larger, and the German model wholly unsuitable for a large economy. In addition, Europe has its hands full with its own homemade crises, crises which are largely the consequence of the German model as well. Recent statements made by key German policymakers clearly indicate that enlightenment is not a realistic prospect."

Bibow makes the especially uncharitable comment that perhaps Berlin needs to relearn the lessons of the Great Depression, but there he clearly misses the point. Perhaps Belin needs to unlearn the lesson, which clearly has as its main pivot the notion that hyperinflation led to the political instability which eventually ushered in the NAZIs to political ascendancy. That (nastiness) aside, the piece is worth reading. Meanwhile, the European Central Bank has published a working paper by Marcel Fratzscher and Livio Stracca which argues that the adoption of the euro has insulated Italy from its political instability.

"The paper focuses on political events in Italy over the past 35 years and asks whether the adoption of the euro in 1999 has helped insulate Italy’s financial markets from the adverse consequences of its traditionally unstable political system. We find that important political events have exerted a statistically and economically significant effect on Italy’s financial markets throughout the 1970s, 1980s and 1990s. The introduction of the euro appears to have indeed played a major role in insulating financial markets from such adverse shocks."

(I am obliged for both of these pieces to Eurointelligence.)

4. NETHERLANDS THREATENING TO BLOCK ICELAND ACCESSION TO THE EU IF IT DOES NOT COMPENSATE DUTCH SAVERS ON LOSSES

NRC Handelsblad reports that Dutch Foreign Minister Maxime Verhagen is threatening to block Iceland's bid to join the European Union, unless Reykjavik meets its obligations to compensate Dutch savers.

"According to the agreement Iceland has to repay €1.3 billion to the Netherlands and €2.3 billion to the UK. The British and Dutch governments spent that money to compensate savers for the €20,000 the Icelandic government had guaranteed for those saving with Icelandic banks. The Icelandic government agreed to repay those damages in the form of a loan, but parliament could block that deal, as some members of the Althing have threatened to do.

'A solution to the problems surrounding Icesave could speed up the handling of the Icelandic application for EU membership," Verhagen said. He added it is "absolutely necessary' that Iceland approves the agreement to 'show that Iceland takes EU guidelines seriously.'"

5. GEORGIA SEEKING AMERICAN ARMS

Philip P Pan at the Washington Post reports that Georgian President Mikheil Saakashvili yesterday indicated in an interview that Tblisi is seeking a weapons deal with the United States.

"In a wide-ranging interview, Saakashvili said that discussions about a weapons deal remained at 'very early stages' but that he planned to press Biden to speed up delivery of antiaircraft and antitank systems, saying such weaponry was 'purely defensive' and 'would make any hotheads think twice about further military adventures.'

'I think the decision to help us is there,' he added, noting recent meetings between Georgian and US defense officials. 'It's a matter of speeding up the process. . . . We want the country to still be around when those things start to arrive here. That's ultimately what's right now at stake.'

The United States has been working to train and modernize the Georgian military for more than a decade, but Russia has warned strongly against new arms shipments to the former Soviet republic, which it routed in a brief war last year."

6. PAKISTANI SUPREME COURT ASKS FOR MUSHARRAF REPRESENTATION ON CASE CONSIDERING WHETHER EMERGENCY MEASURES IN 2007 WERE CONSTITUTIONAL, ISLAMABAD OBJECTS TO CAMPAIGN IN AFGHANISTAN, GERMAN INVOLVEMENT HEATS UP, PAKISTAN ASKS FOR ADDITIONAL INTEL SUPPORT FROM US AND WARNS THAT DEAL WITH INDIA COULD START ARMS RACE

BBC News reports that Pakistan's Supreme Court has decided that former President Musharraf should be represented in a case before it over whether or not the emergency rule imposed in November 2007 was constitutional.

"'This is the first time in Pakistani history that the court has taken cognizance of such action. In the past, the courts have tended to condone military takeovers,' a former chief justice of Pakistan, Saeeduzzaman Siddiqui, told Dawn News TV.

The BBC's Ilyas Khan in Islamabad says that the court apparently issued the notice to Mr Musharraf following the refusal on Tuesday by the attorney-general, who represents the government, to defend the former president's position in the case."

Meanwhile, Eric Schmitt and Jane Perlez at the New York Times report that Pakistan is objecting to expanded combat plans in Afghanistan.

"Pakistani officials have told the Obama administration that the Marines fighting the Taliban in southern Afghanistan will force militants across the border into Pakistan, with the potential to further inflame the troubled province of Baluchistan, according to Pakistani intelligence officials.

Pakistan does not have enough troops to deploy to Baluchistan to take on the Taliban without denuding its border with its archenemy, India, the officials said. Dialogue with the Taliban, not more fighting, is in Pakistan’s national interest, they said."

Matthias Gebauer and Shoib Najafizada at Der Spiegel report on German forces increasing involvement in the fighting in Afghanistan:

"The Bundeswehr is supporting the Afghans with around 300 members of the Quick Reaction Force (QRF). Their primary role is to help secure the area around the fighting and provide reconnaissance.
...
[T]he Bundeswehr has also become considerably more assertive. For the first time, Marder tanks--which have heavy firepower and were only recently relocated from Mazar-e-Sharif to Kunduz--have been deployed.
...
According to SPIEGEL ONLINE sources, missiles are also being fired by German fighter jets in northern Afghanistan for the first time. Following a first deployment of fighter jets on June 15 in northern Afghanistan by the ISAF international security force, most supplied by the United States, Afghan forces requested so-called 'air support' for a second time on Sunday.

Such air support had long been considered taboo in northern Afghanistan."

Meanwhile, Joshua Partlow at the Washington Post reports that Pakistani Prime Minister Yusuf Raza Gilani today has called on the US to provide real-time intelligence and other military support for the Pakistani effort against the Taliban, without relying on attacks from US drones. Both American national papers mention that Islamabad is concerned about the recent end use monitoring deal made with India, suggesting that it could spark an arms race.

7. KURDISTAN COMMISSIONS NEW REFINERY

Eric Watkins at the Oil & Gas Journal reports that Kurdistan has commissioned a new refinery near Arbil which will originally process 20 kb/d, ramping up to 40 kb/d by the end of the year. The refinery is one of several planned for the area, with plans to have total throughput capacity of about 200 kb/d. "Refinery director Baz Karim said the new facility is operated by private Kurdish investors Kar Group, and will process crude from the Khurmala Dome oil field ... ."

8. IRANIAN CONSERVATIVES RESPOND TO RAFSANJANI LETTER, LOTR TELLS AHMADINEJAD THAT HE NEEDS TO WITHDRAW SON IN LAW AS VP PICK

The best round up on recent maneuvering between elites in the aftermath of the Iranian elections is at Juan Cole's Informed Comment. The Leader of the Revolution has warned against further civil disobedience on Monday and includes an excerpt of his speech as translated by the Open Source Center. A representative of the LOTR at the Revolutionary Guards has indicated that support for the LOTR has foiled the plots of outsiders--Cole includes an excerpt from his speech as translated by the OSC. He also includes an excerpt of conservative cleric Ayatollah Mohammad Yazdi's recent charges that Rafsanjani has undermined the revolution as translated by the OSC. Press TV--an English-language state media organ of Iran--on Tuesday reported that the LOTR has told Ahmadinejad that he must undo the selection of his son-in-law as Vice President.

9. HAGUE RULES ON NORTH-SOUTH SUDAN BORDER

Stephanie McCrummen at the Washington Post reports that the Hague has issued a ruling on the disputed south-north border in the Sudan, striking a compromise.

"The ruling by the Permanent Court of Arbitration awards control of a lucrative Chinese-run oil field in the region of Abyei to the Sudanese government but defines the region's boundaries in a way that is politically beneficial to the south.

Officials from the south and President Omar Hassan al-Bashir's ruling party quickly promised to respect the ruling, which analysts called a major test of the fragile 2005 peace deal that ended the bloody north-south civil war, one of Africa's longest-running conflicts.

'Both parties have agreed to accept the boundaries,' said Majok Guandong, Sudan's ambassador in Nairobi. 'We think there will be no maneuvering by either side.'"

The ruling leaves a smaller working oil field in the territory of the south and defines the territory as being mostly populated with the Ngok Dinka, a nomadic tribe which identifies itself with the south and will likely vote to join it in the referendum on independence from Khartoum in 2011.

10. NIGERIA SAYS NIGER DELTA UNREST CUTTING OFF 1 MB/D IN SUPPLY

Platts reports that Nigeria's Oil Minister Rilwanu Lukman yesterday told the media that the country is losing approximately 1 mb/d in production due to continuing strife in the Niger Delta.

"Lukman told leaders of the ruling People's Democratic Party in Abuja that Nigeria's oil production had dropped to between 1.4 million and 1.5 mb/d, well below its assigned OPEC quota and far off from the 2009 budget benchmark of 2.29 mb/d, according to a Thisday newspaper report Wednesday.

'We have production capacity of 2.3 mb/d but because of problems in the Niger Delta, we cannot meet our target. This year's budget is based on having 2.2 mb/d. So, we are short of a million barrels,' the minister was quoted as saying.

'Our target is 4 million barrels in 2010, presently we have 37 billion barrels in our reserve. The target for next year's production is 4 mb/d,' Lukman said."

11. BRAZIL TO SELL DOLLAR DENOMINATED BONDS, SIGNS NUCLEAR ENERGY MOU WITH MOSCOW

After all the hoopla about the replacement of the dollar as the reserve currency, Andre Soliani and Carla Simoes at Bloomberg report that Brazilian Treasury Secretary Arno Augustin has said that Brasilia plans to sell dollar denominated bonds on the overseas credit markets shortly.

"The country will tap the market more than once before yearend and look to sell securities maturing in more than 10 years, Augustin ... said in an interview with Bloomberg Television in Brasilia today.

'We will certainly issue foreign bonds more than once in the second half, seeking to lengthen the debt’s profile and create conditions' for companies to sell bonds, Augustin said. There is investor demand for bonds maturing in 30 years, he said.

Brazil plans to tap international credit markets as speculation the global recession is easing fuels demand for higher-yielding assets."

As a counterpoint, today the Latin American Herald Tribune notes that Russian media yesterday reported that Russia and Brazil have signed a MOU on nuclear energy cooperation.

"The pact calls for the development of uranium prospecting technology and the design of new reactors, as well as the design and construction of nuclear research reactors.

The agreement opens the way for the production of radioisotopes for use in agriculture and the pharmaceutical industry, as well as the training of nuclear energy experts.

Russia and Brazil agreed to create a working group for atomic research and development projects."

12. US PLANS TO INCREASE PRESENCE IN COLOMBIAN MILITARY BASES ROILING NEIGHBORS

Simon Romero at the New York Times reports that a plan to increase the American presence at three military bases in Colombia is drawing the ire Bogota's neighbors.

"Venezuela, Ecuador and Nicaragua, which are members of a leftist political alliance that is led by President Hugo Chávez of Venezuela and backed by his nation’s oil revenues, have all criticized the plan, saying it would broaden the military reach of the United States in the Andes and the Caribbean at a time when they are still wary of American influence in the region.

Despite a slight improvement in Venezuela’s relations with the United States in recent months, Mr. Chávez has been especially vocal in lashing out at the plan. Speaking on state television here Monday night, he put Venezuela’s diplomatic ties with Colombia under review, calling the plan a platform for 'new aggression against us.'

Colombia’s foreign minister, Jaime Bermúdez, on Tuesday defended the negotiations, which are expected to produce an agreement in August, asking neighboring countries not to interfere in Colombia’s affairs. 'We never expressed our opinion in what our neighbors do,' he said, pointing to Mr. Chávez’s attempts to strengthen ties with non-Western nations. 'Not even when the Russian presence became known in Venezuelan waters, or with relations with China,' he added."

13. EIA SAYS COMMERCIAL CRUDE STOCKS DOWN, GASOLINE AND DISTILLATE UP--REGULAR GASOLINE PRICES DOWN, REFINERY UTILIZATION DOWN

The EIA reports that commercial crude oil stocks were drawn down by 1.8 million barrels in the week ended July 17 to 342.7 million barrels. Inventories are still above the five year historical range for this time of year. The draw down was smaller than the 2.1 million barrel fall expected as per the median expectation of analysts in a Bloomberg survey. Bloomberg also notes:

"In contrast to the Energy Department supply report, the American Petroleum Institute said late yesterday that stockpiles rose 3.1 million barrels last week, the first gain since April."

Gasoline stocks grew by 800,000 barrels and are now at the top of the five year historical range for this time of year. Distillate stocks grew by 1.2 million barrels and there are 32.4 million barrels more distillate in storage than there was this time last year, about 25.3% more. Refining utilization fell to 85.84% from 87.87% in the week previous. The national average price of regular gasoline fell to $2.463/gallon in the week ended July 20, just below the range where driving demand begins to fall in response to the price.

Daily Sources 7/14

1. CHINA CALLS ON ERDOGAN TO WITHDRAW REMARKS ON UIGHURS, ONLY GULF STATE TO PUBLICLY CRITICIZE BEIJING IS IRAN

China Daily, a state owned newspaper, published an editorial today entitled "Don't Twist Facts" which states that Turkish Prime Minister Recep Tayyip Erdogan would be "well advised" to withdraw his statement saying that the events in Xinjiang amount to "a kind of genocide." The piece notes that China's one child policy applies only to Han Chinese and not to ethnic minorities, arguing that the immigration policy in the region cannot, therefore, be seen as colonization or a drowning out of the ethnic Uighurs in a sea of Han. It concludes:

"Mr Erdogan's remarks, which constitute interference in China's internal affairs, are the last thing the Uighur and Han Chinese would find helpful when they are looking forward to lasting peace."

Josef Federman at the Associated Press reports that much of the Arab Muslim world has remained mute on the question of the Uighurs, but that senior official in (Persian) Iran criticized Beijing openly:

"Iran has been one of the few Muslim countries to speak out on the crackdown. On Sunday, the official IRNA news agency reported that Foreign Minister Manouchehr Mottaki had discussed the ethnic clashes in a phone conversation with his Chinese counterpart and 'reflected concerns among Islamic countries.'

High-ranking clerics also condemned the crackdown and urged the government to complain to China.

'Silence and indifference toward such oppressions on the people is an unforgivable vice,' said Grand Ayatollah Youssef Saanei, a major religious figure who has criticized his own government's violent response to mass protests over the disputed June 12 election."

Iran has a very close relationship with Beijing, it's original oil sales to the country were conducted with a military organization solely incorporated to conduct the exchanges.

2. CHINA'S PROPERTY INDEX CLIMBS 0.61%

Xinhua reports that China's national property climate index rose 0.61% to 96.55 last month per an announcement by the National Bureau of Statistics.

"Real estate investment nationwide rose by 9.9% in the first half from the same period last year, and the growth rate was 3.1 percentage points higher than the January-May level, said NBS."

3. CHINA SURPASSES US AS WORLD'S LARGEST MARKET FOR WIND POWER

Keith Bradsher at the New York Times reports that China surpasses the US this year as the world's largest market for wind energy,

"now building 6 wind farms with a capacity of 10,000 to 20,000 megawatts apiece, using extensive low-interest loans from state-owned banks."

In May, Joerg Wuttke, president of the European Union Chamber of Commerce in China, accused Beijing of deliberately locking out foreign corporations from stimulus-related projects, specifically addressing a package of wind turbine orders worth €5 billion (~ $6.98 billion)--see Daily Sources 5/28 #3.

4. MÜNCHAU'S ANALYSIS OF THE GERMAN HIGH COURT'S RULING ON THE LISBON TREATY--THOSE IN MONETARY UNION SHOULD BE AFRAID

Wolfgang Münchau had an opinion piece in yesterday's Financial Times which examines the consequences of Germany's recent high court ruling on the Lisbon Treaty--see Daily Sources 6/30 #2. He makes three main points about the ruling:

"First, Germany’s constitutional court takes a clear stance on sovereignty. Ultimate authority always has to rest in a single place--and that is the member state for now. If you wanted to transfer sovereignty to the EU, you would have to dump your national constitution and adopt a European version in its place. As this is not going to happen, the court, in effect, ruled that all sovereignty in the EU is national. Power may be shared, but sovereignty may not."

"Second, the court does not recognize the European parliament as a genuine legislature, representing the will of a single European people, but as a representative body of member states. ... As a result, Germany will be able to ratify the Lisbon treaty only after a change in a domestic power-sharing law."

"Third, and perhaps most important, the court has given an explicit opinion on the question of European integration. Where does it end? The answer is: right here. The court said member states must have sovereignty in the following areas: criminal law, police, military operations, fiscal policy, social policy, education, culture, media, and relations with religious groups. In other words, European integration ends with the Lisbon treaty."

He concludes that anyone in a monetary union with Germany ought, therefore, to be worried. Well worth reading.

5. ITALY CALLS FOR EUROPEAN OIL FUTURES MARKET & GLOBAL REGS

Lorenzo Totaro at Bloomberg reports that the Italian Electricity and Gas Authority Chairman Alessandro Ortis said in a presentation in Rome today that a European oil market should be established in order to quell price volatility. He argued that the situation requires "A real, regulated European oil bourse open to selected operators" which would trade "long or very long term products, with delivery within Europe and guaranteed by a reliable central European counterpart." Ortis also joined the chorus of politicos who blame "speculation" for the price volatility, calling for global "governance agreements and international rules."

6. RELIANCE WANTS TO SELL DIRECTLY INTO US AS PROSPECTS OF LIFTING SUBSIDIES ON GASOLINE IN INDIA GET BETTER

Rakteem Katakey at Bloomberg reports that Reliance is seeking to sell petroleum products directly into the US--minus an intermediary.

"Reliance is currently selling fuel through Hess Corp. ... . Mumbai-based Reliance has leased storage space from Hess, [an anonymous company executive] said, without giving capacity details."

In April, Platts reported that in March Reliance had taken 1.3 million barrels of clean storage from Hess in the New York Harbor area--see Daily Sources 4/13. (The reason given for Reliance exporting in the story is extremely misleading--the Jamnagar refinery was always slated to be an export refinery--excess refining capacity is a strategy endorsed by New Delhi, though Reliance is private, and based on precedents set in Singapore and South Korea.) In June, Reliance halted exports of gasoline to Iran under pressure from the US, perhaps this (odd) story is more about that--see Daily Sources 6/4 #8--and the following. Vandana Hari at The Barrel reports that the Congress Party, having won a larger share of the vote in the recent elections, may press ahead with the liberalization of gasoline prices. Diesel is unlikely to be fully de-subsidized because of its role in agriculture and power generation, but it appears there is some likelihood that gasoline prices will become completely deregulated and unsubsidized.

"LPG and kerosene subsidies look likely to be left undisturbed for now. While kerosene is used by the poorest for cooking and home lighting, the consumers of LPG do not necessarily need state help to pay the market price of a cylinder. LPG could be taken down the same route as gasoil, with government help kicking in when prices cross a pain threshold.

As fuel price liberalization eases the subsidy burden of state-owned refiners and marketers Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., as well as their upstream peers Oil and Natural Gas Corp. and GAIL, it would free up cash for their business growth and expansion."

There have been several stories recently about how Chinese state corporations have been making successful bids for overseas resources, often beating out competing Indian bids.

7. PAKISTAN LIFTS RESTRICTIONS ON PEOPLE RETURNING TO THE SWAT VALLEY

Izaz Mohmand at Reuters reports that Pakistan has lifted restriction on displaced people returning to the Swat Valley.

8. PHOTOS OF A DRY EUPHRATES, SECURITY TIGHTENED AROUND CHRISTIAN CHURCHES ON LAST WEEK'S SPREE OF ATTACKS

The New York Times carries a photo essay by Moises Saman of the ongoing agricultural crisis in Iraq as the country watches its rivers go dry as Turkey and Syria withhold water via dam projects at their source--see Daily Sources 6/8 #10. The accompanying story has the following anecdote:

"The Sunni areas upriver seem to have enough water, Mr Joda [a man who resides near Karbala] observed, a comment heavy with implication."

That said,

"Recently, the Water Ministry announced that Turkey had doubled the water flow into the Euphrates, salvaging the planting phase of the rice season in some areas."

Meanwhile, Nada Bakri at the Washington Post reports that security has been tightened around Christian churches in Baghdad and the northern province of Nineveh after a string of attacks last week.

"Iraq's Christians were the target of Islamist extremists after the U.S.-led invasion of Iraq in 2003 that toppled Saddam Hussein. Many have fled the country despite improved security. But fears of renewed attacks have mounted. In past weeks, devastating bombings also have struck Iraq's Turkmen and Shabak minorities in the north, which remains one of Iraq's most diverse regions."

9. RAFSANJANI TO MAKE FRIDAY'S WEEKLY KEYNOTE SERMON

Borzou Daragahi at the LA Times reports that Ayatollah Ali Akbar Hashemi Rafsanjani will deliver the nation's weekly keynote religious sermon, after having stayed away--for reasons which are the source of much speculation--for two months. Mousavi and Khatami will reportedly also attend the sermon.

"News of the return of reformists and moderates to the official Friday prayer ceremony could serve as a challenge to hard-liners, led by supreme leader Ali Khamenei, on their home turf. Alternately, it could be a sign that the two sides have brokered a truce in their continuing political conflict."

Iason Athanasiadis at the Christian Science Monitor reports that reformists are organizing to flood the prayer hall. (For some reason the CSM site appears to be down for me completely, here is an abstract at Iranian.com.) (h/t Juan Cole at informed comment.)

10. OPEC SAYS FUNDAMENTALS UNLIKELY TO PUT UPWARD PRESSURE ON PRICE IN 2010

OPEC published its monthly report today, which I have not had time to read, but which Platts reports it forecasts that fundamentals are unlikely to push oil prices up significantly in 2010.

"Although OPEC sees world oil demand growing by 500 kb/d in 2010, it expects this to be satisfied by non-OPEC producers and sees demand for its own crude falling by 400 kb/d next year on top of the 2.3 mb/d drop in demand between 2008 and 2009.

With current crude production--estimated at 28.44 mb/d in June--more than 300 kb/d than the 28.1 mb/d projected 2010 call on OPEC crude, the cartel will have food for thought at its next meeting, scheduled for September 9 in Vienna."

11. BRAZILIAN RETAIL SALES CLIMB FOR SECOND STRAIGHT MONTH, UNEMPLOYMENT DECLINES

Joshua Goodman and Andre Soliani at Bloomberg report that Brazil's retail sales rose by 0.8% in May from April and 4% from a year previous, according to the national statistics agency. April's year on year sales increase was revised upward to 7.1%.

"Unemployment fell for the second straight month in May, to 8.8%, while companies added jobs for the fourth month, cementing expectations that the economic recovery gained pace in the second quarter."

(Apparently in this case unemployment is not a lagging indicator.) Analysts see the rebound in sales as evidence that consumer demand is driving the Brazilian recovery.

12. US RETAIL SALES UP 0.6% IN JUNE FROM MAY, MOSTLY ON GASOLINE PRICES, THOUGH SALES OF AUTOS AND PARTS UP TOO; ZUCKERMAN PESSIMISTIC ON ECONOMY GIVEN UNEMPLOYMENT PICTURE

Shobhana Chandra at Bloomberg reports that retail sales rose 0.6% in June from May, the largest gain since January.

"Excluding autos and gas, purchases dropped for a fourth consecutive month. The Labor Department’s producer-price index gained 1.8%, twice as much as anticipated."

Sales at auto dealers and parts shops grew by 2.3%. Gasoline and diesel prices represent the largest share of the gain. However, the EIA yesterday reported that the average price of gasoline nationally fell 8¢ to $2.528/gallon in the week ended July 13 per Platts, just inside the price range ($2.50-3.00/gallon where driving starts to fall off). On the other hand, Mortimer Zuckerman has an opinion piece in the Wall Street Journal today where he argues that the economy is worse than we think, mostly because the average length of unemployment has grown sharply.

"Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook."

Worth reading in full.

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 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 5/18

1. GLOBAL HOUSING BUBBLE STILL LOOKS UNPOPPED

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



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

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

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

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

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

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

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

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

3. EU ENERGY COMMISSIONER GIVES CREDENCE TO PEAK OIL THEORY

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

6. THE PLA ORDERED TO ESCHEW HEDONISM

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

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

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

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

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

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

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

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

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

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

8. INDIAN ELECTIONS STRENGTHEN THE MODERATE CONGRESS PARTY

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

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

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

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

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

9. US SENATE TOLD PAKISTAN RAPIDLY ADDING TO NUCLEAR ARSENAL

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

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

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

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

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

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

Worth reading in full.

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

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

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

12. CONFLICT IN NIGERIA CONTINUES TO HEAT UP

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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



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

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

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

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

17. OBAMA ADMINISTRATION TO PROPOSE NEW NATIONAL CAFE STANDARDS

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

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

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

18. INDUSTRIAL REVOLUTION CAUSED BY CHEAP ENERGY, EXPENSIVE LABOR

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

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

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