Francis Fukuyama on Iran and Rule of Law

Francis Fukuyama has an op ed in today's Wall Street Journal which argues that the Constitution of revolutionary Iran provides avenues for the development of a more integrated state:

"Compared to Section Eight [of the Constitution], the references in the Iranian Constitution to God and religion as the sources of law are much less problematic. They could, under the right circumstances, be the basis for Iran’s eventual evolution into a moderate, law-governed country.

The rule of law was originally rooted in religion in all societies where it came to prevail, including the West. The great economist Friedrich Hayek noted that law should be prior to legislation. That is, the law should reflect a broad social consensus on the rules of justice. In Europe, it was the church that originally defined the law and acted as its custodian. European monarchs respected the rule of law because it was written by an authority higher and more legitimate than themselves.

Something similar happened in the pre-modern Middle East. There was a functional separation of church and state. The ulama were legal scholars and custodians of Shariah law while the sultans exercised political authority. The sultans conceded they were not the ultimate source of law but had to live within rules established by Muslim case law. There was no democracy, but there was something resembling a rule of law."

I agree with much of his analysis. Indeed, I made similar observations early last year in my post Law and Revolution in Iran, though of course Fukuyama's prose is much easier on the ears.

Daily Sources 7/24

1. XINJIANG AUTHORITIES TO "HELP" DEFENDANTS BY ASSURING THEM THAT THEIR COUNSEL IS OF THEIR ETHNICITY, BUT NOT ESPECIALLY QUALIFIED TO REPRESENT CRIMINAL DEFENDANTS

Sky Canaves at China Journal reports that Xinjiang authorities plan to provide all Uighur defendants with legal representation free-of-cost. Further, they will use Uighur lawyers after providing them with quick legal training in criminal defense. It seems rather unusual to think that a lawyer could be quickly retrained into an entirely new specialty, but that appears to be the plan. Canaves notes that when human rights lawyers offered their services free in the aftermath of the recent troubles in Tibet, they were prevented from taking the cases and some subsequently lost their licenses to practice. Indeed, several human rights lawyers based in Beijing this year have yet to receive the renewal of their licenses to practice. These are capital cases. If those lawyers chosen are chosen for their ethnicity as opposed to their ability in the relevant field of law--and if those lawyers particularly interested in defending people suspected of having had their human rights abused are banned from practicing in general--it hardly seems like much of a benefit, but I suppose they will identify more closely with their (mostly) defenseless clients.

2. EICHENGREEN ARGUES CHINESE IMPORTS BEST WAY OUT OF GLOBAL CRISIS

Barry Eichengreen says increased Chinese imports is the best road out of the current financial crisis.

"China can purchase more industrial machinery, transport equipment, and steelmaking material, which are among its leading imports from the US. Directing spending toward imports of capital equipment would avoid overheating China’s own markets, boost the economy’s productive capacity (and thus its ability to grow in the future), and support demand for US, European, and Japanese products just when such support is needed most.

This strategy is not without risks. Allowing the renminbi to appreciate as a way of encouraging imports may also discourage exports, the traditional motor of Chinese growth. And lowering administrative barriers to imports might redirect more spending toward foreign goods than the authorities intend. But these are risks worth taking if China is serious about assuming a global leadership role."

Worth reading.

3. CHINA TO RAISE $2 BILLION FOR FINANCIAL BUSINESS EXPANSION IN AFRICA

Terence Poon and Aaron Back at the Wall Street Journal report that the China Development Bank has plans to raise $2 billion by November of this year for the China-Africa Development Fund. The funds will be used to finance the expansion of financial business ties to Africa.

4. SHANGHAI ADOPTS TWO CHILD POLICY IN ATTEMPT TO DEAL WITH AGING POPULATION

Sky Canaves at China Journal also notes that the city of Shanghai, faced with an aging population, has embarked upon a policy designed to encourage families to have two children.

"For several years, officials at various levels across the country have touted the possibility of allowing couples made up of people who grew up as only children to have two kids to have two kids. Such policies are gaining impetus as the first generation of women born under the one-child policy is now at the peak of its childbearing years. In 2004, Shanghai revised its family planning rules to specify the types of couples who would be eligible to have more than one child."

Evidently no one wants to use productivity gains to cover the costs of an inverted population pyramid just quite yet, meaning, I suspect, that the gains have been overstated (and not just in China).

5. CHINA MAY BE SET TO BECOME LARGEST CONSUMER OF GOLD

Sophie Leung at Bloomberg reports that China is set to overtake India as the world's largest consumer of gold, according to the World Gold Council.

"Jewelry demand in China expanded in the first quarter while dropping in India, Marcus Grubb, a managing director at the London-based council, said today at a conference in Hong Kong. Chinese gold demand will keep rising, he said."

"Total demand from India in the first quarter fell 83 percent to 17.7 metric tons, from 107.2 tons a year earlier, according to figures from the World Gold Council. Purchases in China rose 1.8 percent to 105.2 tons from 103.3 tons. Total Chinese demand for gold was six times that of India in the first quarter, the council said in May."

In the beginning of May, the Financial Times reported that some analysts were arguing that Beijing had embarked upon a policy of increasing the share of its reserves held in gold bullion as a diversification measure--see Daily Sources 5/7 #2.

6. BUITER CALLS BS ON CHINA, INDIA, BRAZIL, SOUTH AFRICA, AND AFRICAN UNION'S CALL FOR THE DEVELOPED WORLD TO PAY FOR CARBON EMISSIONS CUTS

Willem Buiter makes the rather important point that China and India received a great deal of benefit, directly and indirectly, from industrialism, though it was developed in the West. It is not clear that the West today should suffer for the poor policy choices of medieval to twentieth century China. Thus, the argument that the West should be responsible for the cost of carbon emission reductions in the developing world can be described as disingenuous--though it will have a lot of appeal to, well, the vast majority of people in the world. True, but the costs of inaction, should predictions be true, will fall just as generally upon the developing countries as it will on the rich. Very much worth reading, IMO.

7. UK 2Q GDP DOWN 0.2% FROM 1Q, DOWN 5.2% YOY

Laurence Norman at the Wall Street Journal reports that the UK Office for National Statistics announced today that UK GDP in the second quarter fell 0.8% from the first and was down 5.2% on the year.

"Output dropped 2.4% in the first quarter and was down 4.9% on the year. ... In the first half of the year, output fell 3.2%. The government had forecast a GDP decline of 3.5% for the whole year."

8. SPANISH UNEMPLOYMENT TO CLIMB TO 22% IN 2010 PER CITIBANK REPORT

Ed Harrison notes at naked capitalism that a recent report by Citigroup expects unemployment in Spain to climb to 22% in 2010 after having just hit 17.9%. He translates a Spanish article on the report:

"In the opinion of the experts at the company, the recovery will reach Spain later than elsewhere in Europe because of the extent of deleveraging facing the Spanish economy. Therefore, there remains a substantial possibility that unemployment will continue to rise, after the withdrawal of the effects of fiscal measures taken by the Government."

9. RUSSIA WILL SANCTION COMPANIES SELLING OFFENSIVE ARMS TO GEORGIA, PUTIN INDICATES MOSCOW IS READY TO PROTECT DOMESTIC STEEL INDUSTRY

Ellen Barry at the New York Times reports that:

"Dmitri O Rogozin, Russia’s envoy to NATO, said on Friday that Russian President Dmitri A Medvedev had issued a decree that would impose sanctions on any manufacturer who sells offensive weapons to Georgia, 'wherever he is, in the Arctic or Antarctic region or in the United States.'"

Meanwhile, Maria Kolesnikova and Ilya Khrennikov at Bloomberg report that in an address in Magnitogorsk, Prime Minister Vladimir Putin indicated that Moscow is prepared to protect the Russian steel industry.

"Metals companies in Russia may receive preferential treatment in supplying so-called natural monopolies, Putin said, using a phrase employed in the country to refer to state-controlled companies such as natural-gas provider OAO Gazprom.

'We could consider passing a special law on this,' he said."

10. ECUADOR SIGNS DEAL TO PROVIDE CHINE 3 MILLION BARRELS OF CRUDE A MONTH

Eduardo Garcia at Reuters reports that Ecuador has signed a deal to export 3 million barrels of crude oil a month (~ 100 kb/d) to China. Quito will receive a $1 billion advance payment in the first week of August.

11. FED CREATES INVESTORS ADVISORY COMMITTEE MADE UP ALMOST ENTIRELY OF REPRESENTATIVES OF BIG SPECULATIVE CAPITAL

Jesse's Café Américain links to the Federal Reserve Bank's press release announcing the establishment of an investors advisory committee, which will have no policy-making power, but a lot of extra access to decision-makers at the Fed. Jesse makes the point that no member of this committee meant to represent the interests of investors could plausibly represent most investors, but rather big capital. At least Goldman Sachs isn't on the list.

Daily Sources 7/15

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

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

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

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

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

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

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

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

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

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

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

3. EUROPEAN CASH FOR CLUNKERS PLAN MAY BE REVERSING DIESELIZATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

6. BULGARIA TO GET SPUR FROM THE ITGI PIPELINE

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

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

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

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

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

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

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

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

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

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

8. MEND ANNOUNCES CEASEFIRE, QUICKLY THREATENS TO END IT

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

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

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

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

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

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

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

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

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

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

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

Daily Sources 6/17

1. JAPAN TO FINANCE CLEAN ENERGY EXPORTS

Keith Johnson at Environmental Capital notes that Japan plans to underwrite the switch of other countries to clean energy, but only if they use Japanese technology. Johnson quotes from a report from Bloomberg:

"Japan plans to offer loans to power producers in the US and Australia that buy so-called clean coal generators from Japanese manufacturers, according to a government document obtained by Bloomberg News. Funding from state-owned Japan Bank for International Cooperation would help drive sales of the plants that cost about $3.1 billion apiece, said a senior trade ministry official involved in producing the 113-page draft plan, due to be released today."

2. RUSSIA & CHINA RELEASE JOINT STATEMENT EXPRESSING CONCERN RE: NORTH KOREA

Steve Gutterman at the Associated Press reports that Chinese President Hu Jintao and Russia's Dmitry Medvedev issued a joint statement today after meeting in Moscow:

"expressed serious concern in connection with the situation on the Korean peninsula."

"Hu and Medvedev called for the 'swiftest renewal' of the talks involving their countries as well as North and South Korea, Japan and the United States, which broke down months ago.

The statement included no new initiatives on the mounting problem and used language that appeared aimed at avoiding raise North Korea's ire further."

3. US EXPLORING RUSSIAN PARTICIPATION IN MISSILE SHIELD SCHEME

Walter Pincus at the Washington Post reports that Deputy Defense Secretary William J. Lynn III told Congress yesterday that the US is considering ways to incorporate Russia into a missile defense system for Europe.

"Lynn said that a radar installation in Armavir in southern Russia 'would provide helpful early-warning detection in the case of an Iranian ballistic missile attack.' [Lt. Gen. Patrick] O'Reilly [director of the Missile Defense Agency] told the panel that he had visited a Russian radar facility at Gabala, Azerbaijan, and that both Russian radars would be helpful in monitoring Iranian missile tests. The data gained 'would significantly help our development of our missile defenses,' O'Reilly added.

Overall, Lynn said, 'the involvement of Russian assets, particularly Russian radars, would enhance the capability of that kind of European-based system.'

He also suggested another potential advantage of including Moscow in the effort: 'A US-Russian collaboration would have an additional benefit of a diplomatic signaling to the Iranians that this is an unacceptable course for them to pursue and that they will face a concerted international front, should they proceed down that path.'"

Confirmation, as far as I'm concerned, that the Obama administration is putting the squeeze on Iran by pursuing a "reboot" in relations with Moscow.

4. BRIC SUMMIT ENDS WITH JOINT STATEMENT CALLING FOR LARGER SAY IN INTERNATIONAL FINANCIAL SYSTEM, RUSSIA AND CHINA AGREE TO EXPLORE MORE SETTLEMENT IN DOMESTIC CURRENCIES IN BILATERAL TRADE, BUT GAZPROM ANNOUNCES GAS PIPELINE TO CHINA DELAYED BY NO AGREEMENT ON PRICE, AND LUKOIL VP CALLS FOR MOSCOW TO JOIN OPEC

Andrew Osborne at the Wall Street Journal reports that the BRIC countries released a joint statement following their summit yesterday in Ekaterinburg saying:

"The emerging and developing economies must have greater voice and representation in international financial institutions. There is a strong need for a stable, predictable and more diversified international monetary system."

Meanwhile, Lyubov Pronina and Alex Nicholson at Bloomberg report that following their bilateral meeting in Moscow of President Hu Jintao said that they agreed to expand the use of the yuan and ruble in settling bilateral trade between the two countries. Medvedev told reporters:

"We agreed to take further steps in this direction, including, perhaps, by adjusting contracts and laws that already exist."

However, Vladimir Soldatkin at Reuters reports that Gazprom deputy chief executive Alexander Ananenkov told a news conference that construction on natural gas pipelines to China have been delayed, as "it still cannot reach a pricing deal with Beijing." Further differences in perceived interests between Russia and China were illustrated by the comments by Lukoil VP Leonid Fedun made in an interview with the Kommersant newspaper reported in Reuters,

"Russia should join OpEC and move to direct contracts. Then we will jointly control 51% of world output and we can dictate the price by directive."

5. ACCESS TO CHINESE STIMULUS PROGRAM MONIES REQUIRES PREFERENCE FOR CHINESE FIRMS

Ian Johnson at the Wall Street Journal reports that a recent directive issued by various central government agencies, including from the National Reform and Development Commission, seems to require that projects receiving stimulus-mandated funds give preference to Chinese companies.

"The notice, dated May 26 but only posted on the commission's Web site this month, is part of a broader buy-local push in recent months by authorities, who have quietly been indicating that most of the two-year four trillion yuan ($588 billion) in stimulus spending will be aimed at Chinese companies.

'Apart from engineering goods or service that cannot be obtained under reasonable business conditions inside China, domestic products should be purchased for the government investment program,' according to the official notice."

6. LACK OF INDEPENDENT JUDICIARY IN CHINA LEAVES JUSTICE SYSTEM MORE VULNERABLE TO MOB RULE

Sky Canaves at China Journal notes that the lack of an independent judiciary in China works both ways:

"But nowadays, courts also seem to take guidance from below.

Deng Yujiao, a young hotel worker charged with killing a local official (who she alleged tried to rape her), was set free yesterday after a brief trial and the murder charges against her dismissed, a result that is being cited as a 'significant victory of the Chinese Internet users and Chinese democracy.'

The unofficial precedents for the outcome of Deng’s case can be seen in a couple of other cases from last year that pitted the small guy against perceived official privilege. Xu Ting, a young migrant worker who took advantage of a faulty ATM to withdraw a load of cash and then ran away, was tried and sentenced to life in prison. But Internet users noted that officials charged with corruption involving similar sums (175,000 yuan) would face much lighter penalties, sparking a media outcry that resulted in a retrial and a much shorter sentence of five years for Xu."

The problem of course is that the law is supposed to act as a barrier to mob rule, not to simply preside over judgments made by rumor and innuendo.

7. IN CENTRAL ASIA FINANCIAL CRISIS MAY DRIVE IMMIGRATION

Erica Alini at Real Time Economics notes that in a recent report by the Central Asia-Caucasus institute, "anecdotal evidence suggests that since the world economy nose-dived last fall, 'a higher number of young men bought one-way tickets to Russian cities in November 2008 through January 2009.'"

"Russia is a prime destination for migrant laborers from Uzbekistan, Kyrgyzstan, and Tajikistan, where remittances account for between 8% and nearly 50% of the national income. Thus, as the Russian economy started contracting amidst the economic downturn last year, Central Asia felt the pinch.

When the downturn poked the Russian housing bubble, Central Asian migrants were hit particularly hard because many of them work in construction, Willem Van Eeghen, a migration expert at the World Bank, said.

By December 2008 remittances were down by nearly half in Tajikistan and Kyrgyzstan, according Ms. Marat.

Uncharacteristically, though, the plunge in remittances seems to be pushing even more Tajiks, Kyrgyzs and Uzbeks toward Russia. That’s because many of them seem to think that home offers no prospect, even as things get tough abroad. "

8. SOUTH KOREAN LNG IMPORTS DOWN 41% YOY

Jonty Rushforth at Platts reports that South Korean LNG imports are down 41% year on year in May to 1.26 million metric tons from 2.13 million metric tons.

"They were also down 28.6% from April this year, when the country imported 1.76 million mt."

Not a green shoot.

9. NIGERIAN NIGER DELTA MILITANT TO ACCEPT AMNESTY OFFER

The BBC reports that one of Nigeria's militant leaders of the Niger Delta, Ateke Tom, has accepted, with provisions, the offer of the President to extend amnesty to those militants who lay down their weapons.

"'If the government is sincere, we are ready to lay down our arms,' Mr Tom told the BBC's Network Africa program.

'If the government is not sincere, we will not lay down our arms and the struggle will continue.'

President Yar'Adua first made the offer of an amnesty several weeks ago.

'It will be a great pleasure for me to personally accept the first militant leader to take advantage of the amnesty,' he said."

11. IEA CHIEF ECONOMIST SUGGESTS THAT $70/B OIL LIKELY TO TRANSLATE INTO INTEREST RATE HIKES ON INFLATION, BUT CPI DOWN 1.3% IN MAY YOY

Eurointelligence reports that Fatih Birol, the chief economist at the IEA, suggested that $70/b oil will lead to inflationary pressures, which will force central banks to raise their benchmark interest rates and undermine any nascent recovery. In the meantime, Brian Blackstone at the Wall Street Journal reports that the Labor Department announced that the consumer price index rose 0.1% in May from April; core CPI, which excludes both energy and food prices, also rose from May by 0.1%.

"Consumer prices fell 1.3% compared to one year ago, the largest 12-month decline since April 1950. That's way below the 2% annual rate of inflation that most Fed officials think is consistent with their dual mandate of price stability and maximum employment.

Earlier this month, San Francisco Fed President Janet Yellen said that after once favoring 1.5% as an inflation objective, 'I think if I now had to write down a number, I'd probably write 2%.'"

Sarah-Jane Belfield at Platts reports that demand for jet fuel in April fell month over month by 1.67% to 1.418 billion gallons, per the Bureau of Transportation Statistics. The drop from a year previous was 6.96%. Not a green shoot.

12. EIA ANNOUNCES CRUDE STOCKS DOWN, BUT REFINERY UTILIZATION FLAT, ARE STOCKS AT SEA SIMPLY BEING RESTOCKED?

The EIA reported that commercial crude stocks fell by 3.9 million barrels in the week ended June 12 to 357.7 million barrels--well above the historical range for this time of year, but well down from previous highs. Gasoline stocks, on the other hand, built by 3.4 million barrels, and are just below the historical range for this time of year. Distillate stocks grew by 300,000 barrels, and remain at levels well above the historical range. Izabella Kaminska at FT Alphaville asks whether or not floating oil storage has been restocked, and not unloaded due to a shrinking contango.

"This certainly would explain the larger than expected crude draw in the face of unchanged refinery utilization, and only a small rise in imports."

13. DOE DECIDES ON COMPANIES TO RECEIVE $18.5 BILLION IN FEDERAL LOAN GUARANTEES TO BUILD FIRST NEW NUCLEAR REACTORS IN THE US IN 30 YEARS

Keith Johnson at Environmental Capital reports that the Department of Energy has settled on the first companies which will receive $18.5 billion in federal loan guarantees to help build four new nuclear reactors--the first to be built in the US in three decades. The winners are UniStar Nuclear Energy, NRG Energy Inc., Scana Corp and Southern Co.

"As the WSJ notes, 'Foreign partners that might be able to contribute loans or equity were also considered a plus.' For instance, UniStar hopes to get the French government to kick in $10 billion; NRG wants the Japanese government to underwrite one-third of its costs.

The $18.5 billion in loan guarantees is a small fraction of the $122 billion that nuclear companies had applied for."

Iranian Election cont. -- Why the ideas matter

"Man is by nature a political animal." - Aristotle, Politics
-- meaning, in part, that he is a social animal. What creates social cohesion?
"Evils draw men together." - Aristotle, Rhetoric

"The true mark of success in Iran will be an election that follows due process. Politicians come and go--but a healthy, functioning and fair legal system is the people's long-term guarantee for greater human rights." – Shirin Ebadi, Iran’s Human Rights Test Washington Post, 11 June 2009

Stratfor has a decent insta-analysis on the Leader of the Revolution's [LOTR] Ayatollah Khamenei's decision to call on the Guardian Council to investigate the complaints made by the opposition candidates that the election count was falsified.

"There is precedence for such intervention by the Supreme Leader. In 2004, when the Guardian Council rejected the applications of 3,600 out of nearly 8,200 people seeking candidacy in Iran’s upcoming parliamentary elections in a blow to Khatami’s presidency, Khatami used the same language as Mousavi and his supporters are using today, calling the move a 'silent coup d’etat' by the state. Khatami and then speaker of the Majlis (Iranian Parliament) Karroubi demanded a full review of the candidate screening, and the Supreme Leader responded by ordering the Council to look into the matter and reconsider some of its decisions."

Although this is the case, there may be another reason the Guardian Council has been chosen--additional legitimacy. I say this because Iran's constitution suggests that the proper venue of inquiry into such matters would be the Judiciary, led by Ayatollah Mahmoud Hashemi Shahroudi, who is appointed by the LOTR and has already ruled the election valid.

Article 156
The judiciary is an independent power, the protector of the rights of the individual and society, responsible for the implementation of justice, and entrusted with the following duties:
1. investigating and passing judgment on grievances, violations of rights, and complaints; the resolving of litigation; the settling of disputes; and the taking of all necessary decisions and measures in probate matters as the law may determine;
2. restoring public rights and promoting justice and legitimate freedoms;
3. supervising the proper enforcement of laws; ... †

Perhaps the most proper institution for examining the validity could be the National Inspectorate General, though I do not have access to the legislation which established its powers:

"Article 174
In accordance with the right of the judiciary to supervise the proper conducting of affairs and the correct implementation of laws by the administrative organs of the government, an organization will be constituted under the supervision of the head of the judiciary branch to be known as the National General Inspectorate. The powers and duties of this organization will be determined by law."

Either way, election fraud, or the perception of it, does much to undermine the regime--and just now entrusting the head of the Judiciary with the job would probably be viewed as stacking the deck. Although half of the Guardian Council is appointed directly by the LOTR, the other half is nominated by the Majlis and as such is at least somewhat representative.

And the importance of representation to the Islamic Republic of Iran can be understated. It is worth remembering that the broad participation of the population was heralded by none other than the head of the Judiciary himself, who said on the 13th per Tehran Times:

"[The people's] participation shows the unity between the people and the system, and the people’s belief in the revolution after 30 years."

The LOTR said,

"Thank God, the people’s enthusiasm to take part in the election is very great."

Speaker of the Majlis Ali Larijani said,

"The people’s participation is due to their awareness and shows the people’s strong loyalty to the revolution."

Interior Minister Sadeq Mahsouli said,

"The enemies of our nation sought to reduce the participation of the people by spreading rumors that the election would not be fair. However, through their enthusiastic participation in the election, the people showed that they have complete trust in the election (process)."

And, obviously, the opposition--members of the establishment themselves--were looking to the turnout as a mandate. Mir-Hossein Mousavi said

"The unity which has been created among the people provides a golden opportunity for us, and we should not regard it as a threat."

Ayatollah Rafsanjani himself said,

"In my opinion, this election is one of the country’s most fateful elections."

And the government is by law a Republic:

"Article 6
In the Islamic Republic of Iran, the affairs of the country must be administered on the basis of public opinion expressed by the means of elections, including the election of the President, the representatives of the Islamic Consultative Assembly, and the members of councils, or by means of referenda in matters specified in other articles of this Constitution."

If the LOTR allows the results to be honored without a thorough and convincing report demonstrating that the numbers were not, in fact, cooked, then the regime loses its Constitutional basis.

Why would the LOTR, basically given nearly total power by Constitution, allow himself to be seen as a party to stealing an election and thus throwing out the basis of his rule?

It's the same question I posed a few days ago. I don't know the answer, but I suspect that a real and thorough effort will be made to legitimize this election--and should that prove impossible, the Guardian Council will rule it invalid. If that does not take place, then I suspect that we have indeed seen a coup, where the establishment has been overturned by a coalition of hard right forces.

I would add that should that prove the case, the legitimacy of the government will likely continue to be challenged unless the powers that be can truly convince a sizable plurality of the security forces and people in general to murder their countrymen with impunity. There has been footage of security forces shooting into the crowds, but that does not mean that sufficient people have been convinced to act like jackboots in defense of a totally new government structure.

Some analysts believe that the Iranian Constitution is but a farce, a shadow play behind which the real maneuvering of the political elite hides. But I suspect that the promises made in the Constitution, though compromised by the political facts on the ground in some ways, may prove to be similar to the American Declaration of Independence, which has no true legal standing, but the ideas behind which--specifically that all men are created equal--ended up leading the country to civil war, and overturning some of those compromises.

Indeed, if this is, and I believe it is, a battle between competing members of the establishment, it may resemble a civil war more so than a revolution. After all, President Ahmadinejad has Constitutional responsibilities that inform his rhetoric against corruption:

"Article 49
The government has the responsibility of confiscating all wealth accumulated through usury, usurpation, bribery, embezzlement, theft, gambling, misuse of endowments, misuse of government contracts and transactions, the sale of uncultivated lands and other resources subject to public ownership, the operation of centers of corruption, and other illicit means and sources, and restoring it to its legitimate owner; and if no such owner can be identified, it must be entrusted to the public treasury. This rule must be executed by the government with due care, after investigation and furnishing necessary evidence in accordance with the law of Islam."

And the fact that the color of the protesters is green, though it is meant to allude to the color revolutions, also happens to be the color of Islam may indicate that what the people are out in the street demonstrating for is not for a revolution, but for the implementation of the revolution ... for realizing the promise of the Constitution. Indeed, that is the key message of Shirin Ebadi's piece in the Washington Post excerpted from above--that she believes that the Constitution properly executed provides for the human rights of the people. Peruse, for example, the following rights enumerated by Iran's Constitution:

"Article 19
All people of Iran, whatever the ethnic group or tribe to which they belong, enjoy equal rights; and color, race, language, and the like, do not bestow any privilege.

Article 23
The investigation of individuals' beliefs is forbidden, and no one may be molested or taken to task simply for holding a certain belief.

Article 26
Political parties, societies, political and craft associations, and Islamic or recognized minority religious associations may be freely brought into being, provided that no violation is involved of the principles of independence, freedom, national unity, Islamic standards, and the foundations of the Islamic Republic. No person may be prevented from joining, or compelled to join, one of the above.

Article 27
Unarmed assemblies and marches may be freely organized, provided that no violation of the foundations of Islam is involved.

Article 32
No person may be arrested except according to and in the manner laid down in the law. If someone is detained, the subject matter of the charge, with reasons (for bringing it), must immediately be communicated and explained in writing to the accused. Within at most 24 hours the file on the case and preliminary documentation must be referred to the competent legal authority. Legal procedures must be initiated as early as possible. Anyone infringing this principle will be punished in accordance with the law.

Article 34
To ask for justice is the unquestioned right of every individual Everyone may refer to the competent courts in search of justice. All members of the nation are entitled to have recourse to such courts within their reach. No one may be prevented from recourse to any court to which the law entitles him to refer

Article 35
In all courts, both parties to the claim are entitled to select a lawyer for themselves. If they do not have the capacity to do this, the means of a lawyer being appointed to act for them must be made available to them.

Article 36
A sentence to punishment and its execution must only be by the decision of a competent court, and by virtue of law

Article 37
Innocence is the basic principle No person is considered legally guilty, except in cases where his guilt is established in a competent court."

And as Borzou Daragahi at the Los Angeles Times reports a protester said: "Your rights are something you take,not something you're given." (The LA Times tends to have the best big paper reporting on Iran.)

That said, every revolutionary and military thinker knows that a key step in any revolution or establishing dominance an area is to hold broadcasting, TV and radio, as well as the key transportation hubs and any armories. Times have changed from the times when you could just occupy the broadcasting towers and train station ... information dissemination has become decentralized. It is not easy to control communications in the internet age.

Not that folks aren't trying. For example, try going to Tehranbureau.com ... note that it's running off a changed address and looks awful different. I am of the understanding that internet attacks have similarly taken place against government web pages. James Cowie at renesys blog has a breakdown on service disruptions in the communications infrastructure:

"There's no question that something large happened in the Iranian telecom space, and that the timing aligns with the close of voting and the emerging controversy. Iran typically has a fairly high baseline level of sporadic route instability, due to the country's highly centralized incumbent transit through DCI (Data Communications Iran, AS12880) and DCI's somewhat peripheral connectivity to the main east-west conduits for data. Even so, we started seeing spikes of route instability (changes in the paths to Iranian IP space) starting around 08:05 UTC on Saturday (just after noon in Tehran) that were significantly larger than normally expected. These bursts affected as many as 400 prefixes (blocks of IP addresses)--the majority of Iran's Internet presence."

So it does look like this political contest could spiral out of control. And you may think my quotes from Aristotle at the top are a tad precious, but Aristotle is well-known to all senior Islamic clerics, because he forms the basis of discussion of the most important Islamic philosophers in the history of that religion. Indeed, if I understand correctly, all must learn formal Aristotelean logic. And both sides know that the ideas incorporated in their Constitution are enough to spawn a revolution. It already has.

I would hypothesize that both sides would decide that allowing an all out confrontation to emerge would not be in their interests, as both have extensive interests in the prevailing system. Thus my suspicion that we will see a real investigation and real concessions regarding the election, perhaps a recall, but you never know--perhaps the genie has left the bottle.

More footage of protests:





From Twitpic:



Tehranbureau is live blogging from Iran here.

The National Iranian American Council is also hosting translations of twitter, email, facebook, etc. accounts from Iran.

Nico Pitney at the Huffington Post is live blogging about the events.

Andrew Sullivan is as well at the Atlantic.

† I am using the translation of the IRI's Constitution hosted by the Tehran law firm--Dr. Alexander Aghayan & Associates, Inc.--here.

UPDATE: More footage via Michael Totten's blog (h/t T. Greer at the Scholar's Stage, who also had some awful nice words to say about my own efforts.)





as Totten notes, folks so far appear to be facing down threats from the security forces ... & on that note:

Daily Sources 6/9

1. PAKISTANI ARMY JOINS POSSE EFFORTS TO PUNISH TALIBAN, TALIBAN RESPONDS BY KILLING MORE PAKISTANIS

Griff Witte at the Washington Post reports that a truck bomb exploded outside a hotel at the provincial capital of Pakistan's North-West Frontier Province, Peshawar, killing 11 people and wounding at least 50.



Alamgir Bitani at Reuters reports that the Pakistani army is coordinating attacks with the citizen's militias:

"[O]n Tuesday, the army came to the help of a pro-government militia fighting the Taliban in a northwestern district after outrage over a suspected Taliban bomb attack at a mosque last week that killed about 40 people.

The villagers' action is the latest in a series of examples of people turning on the Taliban in recent weeks, underscoring the shift in public opinion away from the Islamists.

Army helicopters had attacked militants surrounded by militia fighters in a village in the Upper Dir district, senior police officer Rahim Gul told Reuters by telephone.

Gul said more people were joining the militia and it was making advances after heavy clashes. Paramilitary soldiers set up mortars on high ground above the village. About 25 militants were killed in the fighting, police and the military said."

2. HERITAGE TO AQUIRE TURKEY'S GENEL ENERJI, KNOC, SINOPEC, CNPC, CNOOC ALL MAY BE BIDDING FOR ADDAX--IS ANKARA EDGING TOWARDS COOPERATING WITH THE KRG AS OPPOSED TO BAGHDAD--IS TEHRAN WORRIED ABOUT THIS POTENTIAL?

Ben Lando at the Iraq Oil Report writes that Canada's Heritage Oil is likely to acquire Turkey’s Genel Enerji, which has a 44% share in a joint venture with Addax, the Taq Taq Operating Co. (TTOPCO).

"If shareholders approve, Heritage will purchase Genel for about $2.5 billion in stock, forming the new company HeritaGE Oil.

Genel is spread throughout the KRG, beyond its 44% stake in TTOPCO. It owns a 25% share in DNO’s Tawke project--the other field to begin exports earlier this month--as well as 40% in the Norwegian firm’s Dohuk project. It owns 40% and 20%, respectively, in two other young projects in the KRG.

And, it has a 25% stake in Heritage’s Miran project."

KRG's Minister of Natural Resources Ashti Hawrami has estimated that the field has recoverable reserves of one billion barrels. Miran is thought to have a 2.3-4.2 billion barrels of recoverable oil--see Daily Sources 5/6 #4. Tawke is thought to have total volumes of oil in place are ranging from 0.9 to 1.9 billion barrels, with an estimate of 1.3 billion barrels in place, and total recoverable oil from 150 million barrels to 370 million barrels, as of 2007. Genel Enerji is a subsidiary of Çukurova Holdings Group, a Turkish conglomerate which has roots dating back to the foundation of the Turkish Republic in 1923 with interests in automotive, paper, chemicals, textiles, telecommunications, construction, banking, insurance, media and services to maritime transportation and information technology services. It has foreign operations in Azerbaijan, Spain, Germany, Switzerland, the Netherlands, Northern Cyprus, the UAE, Moldova, Georgia, Kazakhstan, Qatar, and Ukraine as well as Iraq. Çukurova's business dealings in Iraq date back to 1979, when it worked on water projects for the Hussein government. Ed Crooks and William Macnamara at the Financial Times report that Korea National Oil Corp. (KNOC) is considering a takeover or asset deal with Addax, a partner in the TTOPO joint venture with several interests in Africa. As Lando reports, SK Energy, a South Korean refining firm, was cut off from Iraq's crude supply when it joined a consortium of South Korean firms operating in Kurdish Iraq. It left the consortium, and now is receiving crude as normal. Sinopec, CNPC, and CNOOC are also reportedly considering some sort of participation with or acquisition of Addax, but their participation could jeopardize their potential participation in bidding via Baghdad. For example, Sinopec and CNPC are in a joint bid agreement with Shell for developing the Kirkuk oil field.

However, the KRG effectively presented Baghdad with a fait accompli when it said that oil would begin to flow through the Kirkuk pipeline to Turkey on June 1 from these fields, given that they control the fields and part of the pipeline--see Daily Sources 5/12 #8--and so the oil has begun to flow. In the middle of May, Austria's OMV, Hungary's MOL and UAE-based Crescent Petroleum and Dana Gas entered a partnership to invest as much as $8 billion into the Kurdish Autonomous Region--see Daily Sources 5/18 #4. Russia's Putin-connected Surgutneftgas has recently purchased a 21.2% stake of MOL from OMV and Gazprom signed a deal in March with MOL to establish a 1.3 billion cubic meter natural gas storage facility in Hungary, nearer to Gazprom's potential market than western Ukraine--see Daily Sources 3/18 #4. Of course, no one wants to upset Baghdad, but the KRG is manifestly capable of providing security for operations, and Baghdad is not.

Add to the mix the recent reporting by Delphine Strauss posted at FT Energy Source that Turkey appears to have resurrected the demand that 15% of any gas being sent through Anatolia by the potential Nabucco pipeline be reserved for Turkish consumption.

"Turkey’s ongoing bilateral negotiations over the price and quantity of the gas it buys from Azerbaijan will certainly influence its stance on Nabucco--which could soften if it secures its own share of gas to be pumped from Azerbaijan’s Shah Deniz field.

But analysts say the stubborn negotiating tactics are less about supply concerns and more about Turkey’s ambition of becoming an energy hub, not just a transit country. Turkey is already able to re-export gas it buys from Azerbaijan and is seeking the same right from Russia.

Mr Morningstar puts it differently, saying 'Turkey does have to satisfy internal gas demand but it also has a strategic vision--I believe it wants to play a major role in the Caucasus and Central Asia and this project is a way to do it.'"

Of course, in the middle of May Gazprom's Alexei Miller told Bloomberg TV that the company stood ready to purchase all of the gas from the second phase of the development of the Shah Deniz field--see Daily Sources 5/15 #7.



Clearly Iraq could eventually provide feedstock for Nabucco, but just now only the Kurdish Regional Authority appears ready to provide the relative security required for such a project to really begin. Further, Iran has lately suggested that it's Pars Pipeline could obviate Turkey altogether, going through Iraq to the Syrian Mediterranean Coast--which would make sense, perhaps pressure Anakara, but most likely go directly through KRG-controlled territory, also obviating Baghdad.



Without saying it's gonna happen, it does strike me as ironically possible that Ankara could be considering the KRG a better partner in terms of its goal of regional energy hub than Baghdad. I can't imagine, for example, that folks in Ankara were especially thrilled with the news reported by the Associated Press' Hamza Hendawi and Qassim Abdul-Zahra today that there are negotiations ongoing between al-Maliki's Dawa Party and the Supreme Iraqi Islamic Council to reform the so-called United Iraqi Alliance. The UAE's participation in the Kurdish Autonomous Region [KAR] may well also be designed to off-set the so-called "Shia Crescent." Moscow now may be part of the natural gas troika with Iran and Qatar--see Daily Sources 10/24 #2--but they are still competitors. The fact that MOL--and by extension Surgutneftgas and Gazprom--is also getting involved in the KAR underscores the potential calculation on the part of Ankara that one key bit of leverage they might like to have, vis-a-vis, getting closer to EU acceptance, would likely be being a larger node in their energy supply picture. I further would not be surprised if US diplomats quietly made this point to folks in Ankara, and pointed out how helpful good relations with the KRG might be in terms of Ankara's long-term goals.

Hell, even Tehran's talk of having begun construction of the Pars Pipeline without having actually figured out where it will eventually go--see Daily Sources 6/4 #6--though the first assumption is Turkey, may be an attempt to try and secure a more secure role in European energy supply via supplying Nabucco, pace what Baghdad, even a Shi'a Baghdad, thinks. All speculation, I guess, but interesting speculation.

3. ISRAELI MINISTER URGES SANCTIONS ON U.S.--BOOK SAYS ATTACK ON THE 1967 USS LIBERTY WAS DONE WITH KNOWLEDGE THAT IT WAS AMERICAN

In a fascinating bit of news, Gil Hoffman and Hilary Leila Krieger at the Jerusalem Post report that Likud Minister-without-Portfolio, Yossi Peled, wrote a letter proposing sanctions on the US to the Israeli cabinet this Sunday! Apparently Peled believes that the Obama Administration has an activist agenda which does not mesh with Israel.

"[T]he minister suggests reconsidering military and civilian purchases from the US, selling sensitive equipment that the Washington opposes distributing internationally, and allowing other countries that compete with the US to get involved with the peace process and be given a foothold for their military forces and intelligence agencies.

Peled said that shifting military acquisition to America's competition would make Israel less dependent on the US. For instance, he suggested buying planes from the France-based Airbus firm instead of the American Boeing."

(h/t Michael Collins Dunn at MEI Editor's Blog.) And, Jeff Stein at Spy Talk reports that a new book by James Scott, The Attack on the Liberty: The Untold Story of Israel's Deadly 1967 Assault on a US Spy Ship, alleges that Israeli pilots which were involved in the attack on the US spy ship were told "two times" that the ship was American after radioing the hull number back to air control.

"'There clearly were individuals inside Israel's chain of command who knew this was an American ship in time to prevent the fatal torpedo boat attack that left more than two dozen of the Liberty's sailors dead," Scott says.

Yet the Israelis informed Johnson administration officials that they were innocent--and outraged by such suggestions.

That prompted the State Department's number two official, Nicholas B. Katzenbach, to summon Israel's ambassador Abraham Harman, Scott writes.

'The secret memo of the meeting,' Scott writes, 'declassified 33 years later, records Katzenbach telling the Israeli ambassador' that Tel Aviv's initial protest 'contains some statements they might find hard to live with if the text some day became public.'"

At the time the Johnson Administration was a bit too preoccupied with the Vietnam War and pushing forward the civil rights movement to want to focus on the attack.

4. CHINA DRIVING UPTICK IN BALTIC DRY INDEX / IRON ORE RATES, DOES BEIJING'S BINGE COMMODITIES PURCHASES POLICY UNDERMINE LIKELIEST SOURCE OF RECOVERY?; CHINESE STIMULUS MAY FORCE LOCAL GOVTS INTO BANKRUPTCY; CHINESE SUPREME COURTS INSTRUCTS LOWER COURTS TO COOPERATE WITH AUTHORITIES TO CATCH MASS INCIDENTS BEFORE THEY HAPPEN

Maritime Global Net reported yesterday that Thailand-based Precious Shipping has said that the current rise in the Baltic Dry Index is unsustainable, given binge iron ore purchases in China. The post quotes Precious Shipping as arguing that the:

"rise in iron ore imports is despite the fact that steel production in China in the first four months of 2009 has been roughly at the same levels as we had seen in 2008. An explanation for these increased iron ore imports could be the fact that domestically produced iron ore in China is of a rather poor quality and quite expensive when compared to spot imported prices. Another explanation could be that of speculators getting into the import market to try and get hold of 'cheap' iron ire that would possibly be required under the Chinese government's US$586bn stimulus plan. And a third could be the impending conclusion of the iron ore contract price negotiations."

In any case, the company expects iron ore cargoes to level off. (h/t Yves Smith at naked capitalism.) In the meantime, Michelle Wiese Bockmann at Lloyd's List reports that Chinese steelmakers have accepted contracts on iron ore (from Rio Tinto) at a 33% discount to last year's prices, apparently abandoning allegedly holding out for a 40% discount. Dow Jones reports that the Chinese Ministry of Transport estimated that 3.26 mb/d of crude were delivered to China via seaports in May, up 5.1% from the same month last year.

"However, seaborne imports fell 9.8% from April, according to calculations by Dow Jones Newswires, which may indicate crude demand is slowing from the high levels recorded earlier this year."

On June 1, Zhang Guobao, the director of China's National Energy Administration, told reporters that crude storage facilities in the country had been completely filled--see Daily Sources 6/1 #2. A few days later, journalists were taken to heretofore secret strategic petroleum reserves by the State Council Information Office, apparently to show them that the tanks were indeed full to the brim--see Daily Sources 6/4 #2. All of which followed a report by Sanford Bernstein which used satellite images to deduce that about 400 kb/d of oil was being added to China's SPRs--see Daily Sources 5/22 #2. I wonder to what extent Beijing's central planners' decision to green light large purchases of commodities as the complex's prices have collapsed is based on an effort to provide some economic support to the commodity producing nations, with which Beijing wants a good long-term relationship looking forward. On the other hand, I wonder whether the decision to purchase counter-cyclically may support commodity producing nations while simultaneously undermining the main potential source of recovery: it's export market, or the developed world. Michael Pettis at China Financial Markets wonders whether the stimulus package will bankrupt China's local governments, quoting from Australian paper the Age:

"Beijing will have to jam on the economic brakes to save cities from bankrupting themselves, says a top Chinese adviser. He Fan, an assistant director at the Chinese Academy of Social Sciences who frequently advises top leaders, says as much as two-thirds of Beijing’s 4 trillion yuan ($A773 billion) stimulus program will be spent by local governments, financed mainly by state-owned banks.

'Some local governments will virtually go bankrupt,' Professor He told BusinessDay. 'Previously, local governments got all their money from selling land. This is not sustainable. Some areas have already sold quotas from the next 30 years.' A number of large cities are thought to be at risk, including Kunming and Hangzhou, with their funding problems exacerbated by a slump in real estate sales."

Of the monies already committed to the stimulus, the great majority has come from the central government, while local governments have reportedly lollygagged. In any case, the Professor He notes that the lending institutions can apply for a bailout if their loans go bad--and pretty much expect one--given that they were asked to make the loans by Beijing. Meanwhile, Xie Chuanjiao at China Daily reports that the Supreme People's Court has released guidelines to local courts which requires them to cooperate closely with authorities to reduce "mass incidents."

"'The courts will focus on dealing with a sharp increase in mass incidents especially in the mediation of demonstrations. If there is any trend seen in "mass petitions", the courts should also work closely with local administrative departments,' the document said.

Judicial departments should 'establish an early warning mechanism' and direct their resources in line with law enforcement, the SPC said."

Worth reading in full. In late May, apparently as a warning and part of an effort to anticipate and ward off incendiary cases, Beijing bgean denying license renewals to law firms which practice human rights law in the country--see Daily Sources 5/28 #1.

5. SEOUL PLACES FINANCIAL SANCTIONS ON 3 NORTH KOREAN COMPANIES NOT OPERATING IN SOUTH KOREA

Choe Sang-Hun at the New York Times reports that Seoul has imposed its first financial sanctions on North Korea.

"On Tuesday, the Ministry of Strategy and Finance in Seoul said that it has banned trading with three North Korean firms--Korea Mining Development Trading Corporation, Tanchon Commercial Bank, and Korea Ryongbong General Corporation--and will freeze their assets. But officials said that these firms have no trading with South Korea or assets in the South."

6. JATROPHA TREE WATER GUZZLER

Phil McKenna at MIT Technology Review reports that a recent study done by researchers at the University of Twente, in the Netherlands, shows that the jatropha tree

"requires five times as much water per unit of energy as sugarcane and corn, and nearly ten times as much as sugar beet--the most water-efficient biofuel crop, according to the same study."

Jatropha had been touted as a potential solution because it does relatively well in arid situations. But, according to the research, the Jatropha only really thrives in extremely wet conditions.

"The team calculated that jatropha requires an average of 20,000 liters of water for every liter of biodiesel produced in India, Indonesia, Nicaragua, Brazil, and Guatemala--the only countries for which jatropha production figures were available. For all the other crops, the researchers used much more comprehensive--and thus truly global--data from the Food and Agriculture Organization of the United Nations. Soybeans and rapeseed, the two other biodiesel crops considered in the study, were next highest in terms of water consumption, each requiring roughly 14,000 liters of water per liter of fuel."

India has bet heavily on the jatropha, and apparently the Energy and Resources Institute (TERI)--an Indian research group--began a $9.4 million project to produce genetically altered jatropha with a higher oil content. Protests have taken place in parts of India over government plans to reclassify lands for the seeding of jatropha; unrest over reduced food crop yields due to biodiesel programs via the jatropha tree have also broken out in the Philippines and Myanmar--see Daily Sources 5/6 #6.

7. AVERAGE US HOURS PER WORK WEEK TO 1964 LOW, MEANS NEW HIRING UNLIKELY ANY TIME SOON, POSSIBLY MEANS HOUSING MARKET GOT A LONG WAY TO GO TO RECOVER

Jeff Frankel, a member of the National Bureau of Economic Research's Business Cycle Dating Committee, on his blog argues that the labor market has yet to signal a turnaround, contra much of the reporting last week. Frankel explains why average hours worked is a better indicator of direction, in his estimation, than jobs added or lost:

"I like to look at the rate of change of total hours worked in the economy. Total hours worked is equal to the total number of workers employed multiplied by the average length of the workweek for the average worker. The length of the workweek tends to respond at turning points faster than does the number of jobs. When demand is slowing, firms tend to cut back on overtime, and then switch to part-time workers or in some cases cut workers back to partial workweeks, before they lay them off. Conversely, when demand is rising, firms tend to end furloughs, and if necessary ask workers to work overtime, before they hire new workers. (The hours worked measure improved in April 1991 and November 2001 which on other grounds were eventually declared to mark the ends of their respective recessions.) The phenomenon is called 'labor hoarding' and it is attributable to the costs of finding, hiring and training new workers and the costs in terms of severance pay and morale when firing workers."

By that metric the latest data from the Bureau of Labor Statistics is not so encouraging as the length of the average workweek fell to it's lowest since 1964.



Worth reading in full. Barbara Kiviat at the Curious Capitalist adds the observation that the number of temporary layoffs is low, while the number of people who are involuntarily working part time is "uncharacteristically" high. Thus,

"When sales pick back up, businesses don't have to go out and hire more people--they simply return their workers to full-time schedules.

Put those two things together, and you've got an economic recovery without a particular jump in job growth. The implication, according to the economists: 'a longer and slower recovery path for the unemployment rate.'"

Mark Thoma at Economist's View links to a graph from a report from the Atlanta Fed by Melinda Pitts and Menbere Shiferaw which raised some animal spirits on the job data front:



Note that the only sector hiring since the beginning of 2008 has been the government and that manufacturing has been shedding jobs from the beginning of the data set at the start of '07.

Daily Sources 6/4

1. BANKS OF CANADA, ENGLAND, AND EUROPE MAINTAIN BENCHMARK INTEREST RATES, B.O.E. AND E.C.B. REITERATE INTENTION TO ENGAGE IN SOME Q.E., SPEECH BY GERMAN F.M.--AND S.D.P. CHANCELLOR CANDIDATE--INDICATES INTEREST IN CHANGING THE STRUCTURE OF THE EUROPEAN MONETARY UNION

Daniel Kruger and Chris Fournier at Bloomberg report that the Bank of Canada today decided to leave its benchmark interest rate unchanged at 0.25%.

"The Bank of Canada ... said the 'unprecedentedly rapid rise' in the currency could 'fully offset' recent improvements in financial markets and consumer confidence and prolong the recession.

'The bank is confirming that the rise in the currency isn’t backed up by the fundamentals,' said John Curran, a Toronto-based senior vice president at CanadianForex Ltd., an online foreign-exchange dealing firm. 'While we do see some 'green shoots," for the economy to strengthen we can’t have the Canadian dollar as strong as it’s been in recent weeks. Once everyone gets a chance to digest this, you’ll see some US dollar strength."

Meanwhile, Jennifer Ryan at Bloomberg reports that the Bank of England also left its benchmark interest rate unchanged at 0.5 today, and reiterated its intention to purchase £125 billion (~$205 billion) in government and corporate bonds.

"While the bank’s decision last month was unanimous, some policy makers did favor spending the full authorized total of 150 billion pounds and the panel said it will seek permission to print even more money than the maximum if needed. Minutes of today’s decision will be published on June 17."

And Gabi Thesing and Christian Vits at Bloomberg report that the European Central Bank [ECB] also left its benchmark interest rate unchanged today at 1%.

"Asked if the bank will expand its bond plan, [ECB President Jean-Claude] Trichet replied: 'We have decided to embark on a 60 billion-euro purchase of covered bonds, full stop.'"

Meanwhile, Daniela Schwarzer at Eurozone Watch reports that German Foreign Secretary Frank-Walter Steinmeier in a speech yesterday at Budapest suggested that the current structure for the European monetary union ought, under the current circumstances, be rearranged, Schwarzer's analysis:

"# He explicitly acknowledges the problem of divergent economic developments in the EMU. This fact has been on the table for a few years now. As early as 2005, data on the first years of EMU pointed to these problems, and the trend of cyclical and structural divergence has even been acknowledged by the ECB in pursuing its monetary policy for an increasingly heterogeneous Eurozone economy. But Germany (which itself has been diverging from EMU average for instance in the years of its sever economic slump 2003/4 and subsequently recorded a very strong current account surplus) had so far not picked up this issue politically. It is hence the first time that a German member of government says what the current developments are: a possible threat to the existence of the EMU.
# In order to tackle this problem, Steinmeier suggests stronger policy coordination. In other words: the Lisbon Agenda is not sufficient an instrument to cope with divergence and asymmetric shocks in the EMU. This is no surprise to most economic analysts of EMU (even not in the German administration), but a new political statement from Berlin.
# He explicitly names wage, social and tax policies as an object for closer coordination in the EMU and speeks out strongly against tax and wage dumping. Again, this should be no surprise from a social democrat before two important elections dates - but it is a clear departure from the Berlin mainstream. For instance regarding the commonly held view that due to the 'Tarifautonomie' (i.e. the fact that social partners negotiate wages (more or less) independently in Germany) nothing can be done in the field of wage policy anyway. What Steinmeier may in fact mean is that some countries should be pushed towards giving up certain systems (e.g. wages indexed on inflation as is the case in Spain), which reinforce cyclical divergences in the EMU.
# He also requests a stronger coordination of fiscal stimulus in the current crisis--rightly so, but in direct opposition to the position held by the Chancellor and the Finance Minister."

Worth reading in full.

2. REPORTERS TAKEN TO CHINESE S.P.R.S

Denis McMahon at China Journal reports that he was taken on a reporting trip to Zhenhai and Zhoushan, two SPRs located south of Shanghai, arranged by the State Council Information Office.

"On the face of it, the visit was seemingly a massive step forward in transparency for the Chinese government. But, while staring at 50 identical 100,000 cubic meter (~ 630,000 barrel) tanks neatly formed into rows is certainly impressive, it doesn’t really tell much about the state of China’s reserves. And while the officials we met were friendly and open, the key policy questions of where the oil comes from, how they bought it and under what conditions the reserves may be tapped were deferred to more senior officials--who weren’t there.

While the reporters may have been a little unsure as to what they were getting out of the experience, Beijing clearly knew exactly what it was doing from the unity of message coming from the National Energy Bureau officials traveling with us: The reserves are full."

It seems that Beijing is signaling it would like a lower price, no?

3. MALAYSIA CONSIDERING SETTLING TRADE WITH CHINA IN LOCAL CURRENCIES

Shai Oster at the Wall Street Journal reports that Malaysian Prime Minister Najib Abdul Razak told the media after meeting with China's premier, Wen Jiabao, on Wednesday that:

"We can consider whether we can use local currencies to facilitate trade financing between our two countries. ... What worries us is that the [US] deficit is being financed by printing more money. That is what is happening. The Treasury in the United States is printing more notes."

The notion being to replace trade settlements in dollars with the ringgit and yuan. In May Bloomberg reported that Brazil's foreign minister told the media in Beijing that Brazil and China were considering a plan to settle in local currencies--see Daily Sources 5/20 #4.

4. VIETNAMESE NAVAL STRATEGY VS. CHINA TO MIRROR CHINA'S NAVAL STRATEGY VS. U.S., MALAYSIAN SHIPS MAY HAVE ENTERED OIL RICH AREA DISPUTED WITH INDONESIA

Feng at Information Dissemination comments on Vietnam's recent decision to purchase six project 636 kilo submarines for $1.8 billion. (Kilo class is the NATO designation for diesel-electric submarines made in Russia. Wikipedia states that the project 636 submarines are thought to be one of the quietest diesel-electric submarines in the the world.) Feng believes that the submarine purchase was made in an attempt to be able to project force into the China South Sea, and in particular, to the Spratly Islands, control over which is disputed by all the nearby nations, mostly because it is thought that oil and gas reserves lie under them.



Feng points out that the navies of countries further away from Vietnam, like, say, Australia, present a different challenge for the People's Liberation Army Navy [PLAN] than Vietnam, simply because Vietnamese ships would be operating mostly in areas over which the Chinese would be able to assert air superiority. Thus:

"[Vietnam is] actually adopting the same strategy that PLAN [has] supposedly [adopted to counter the capabilities of the US Navy]. Basically, Vietnam is [buying] a lot [of] small, fast ships equipped with long range missiles (and nothing else much ...) [and] quiet submarines."

Of course, Hanoi cannot make purchases on the scale that Beijing can, but it is presented with more or less the same dilemma facing Beijing when considering what it should do in case of a confrontation with the US. Interesting observation. Meanwhile, AFP reports that Malaysia's deputy prime minister Muhyiddin Yassin called for calm amidst reports that Malaysian warships had entered waters off northeastern Borneo also claimed by Indonesia, saying:

"We want to avoid any form of provocation that can cause unpleasantness. We must handle the matter with caution."

"International borders in the area off Borneo island have yet to be determined, with each country claiming the area as its own.

Malaysia claims the area based on a 1979 maritime chart, while Indonesia bases its claims on the 1982 UN Convention on the Law of the Sea (UNCLOS), which states the area belongs to Indonesia.

Muhyiddin said the Malaysian security forces patrolling the Ambalat waters had performed their duties responsibly and in accordance with regulations."

The head of Malaysia's military, Abdul Aziz Zainal, told the media that ships had not entered the Ambalat region, and that he would be in Jakarta Tuesday to discuss the matter.

5. OBAMA'S SPEAKS AT CAIRO TODAY

The New York Times carried the full text of President Obama's much anticipated speech in Cairo today. Key excerpts:

"Islam has always been a part of America's story. The first nation to recognize my country was Morocco. In signing the Treaty of Tripoli in 1796, our second President John Adams wrote, 'The United States has in itself no character of enmity against the laws, religion or tranquility of Muslims.'"

"Just as Muslims do not fit a crude stereotype, America is not the crude stereotype of a self-interested empire. The United States has been one of the greatest sources of progress that the world has ever known. We were born out of revolution against an empire. We were founded upon the ideal that all are created equal, and we have shed blood and struggled for centuries to give meaning to those words – within our borders, and around the world. We are shaped by every culture, drawn from every end of the Earth, and dedicated to a simple concept: E pluribus unum: 'Out of many, one.'"

"Make no mistake: we do not want to keep our troops in Afghanistan. We seek no military bases there. It is agonizing for America to lose our young men and women. It is costly and politically difficult to continue this conflict. We would gladly bring every single one of our troops home if we could be confident that there were not violent extremists in Afghanistan and Pakistan determined to kill as many Americans as they possibly can. But that is not yet the case."

"

The sooner the extremists are isolated and unwelcome in Muslim communities, the sooner we will all be safer."

"Around the world, the Jewish people were persecuted for centuries, and anti-Semitism in Europe culminated in an unprecedented Holocaust. Tomorrow, I will visit Buchenwald, which was part of a network of camps where Jews were enslaved, tortured, shot and gassed to death by the Third Reich. Six million Jews were killed--more than the entire Jewish population of Israel today. Denying that fact is baseless, ignorant, and hateful. Threatening Israel with destruction--or repeating vile stereotypes about Jews--is deeply wrong, and only serves to evoke in the minds of Israelis this most painful of memories while preventing the peace that the people of this region deserve.

On the other hand, it is also undeniable that the Palestinian people--Muslims and Christians--have suffered in pursuit of a homeland. For more than sixty years they have endured the pain of dislocation. Many wait in refugee camps in the West Bank, Gaza, and neighboring lands for a life of peace and security that they have never been able to lead. They endure the daily humiliations--large and small--that come with occupation. So let there be no doubt: the situation for the Palestinian people is intolerable. America will not turn our backs on the legitimate Palestinian aspiration for dignity, opportunity, and a state of their own.

For decades, there has been a stalemate: two peoples with legitimate aspirations, each with a painful history that makes compromise elusive. It is easy to point fingers--for Palestinians to point to the displacement brought by Israel's founding, and for Israelis to point to the constant hostility and attacks throughout its history from within its borders as well as beyond. But if we see this conflict only from one side or the other, then we will be blind to the truth: the only resolution is for the aspirations of both sides to be met through two states, where Israelis and Palestinians each live in peace and security.

That is in Israel's interest, Palestine's interest, America's interest, and the world's interest."

"Palestinians must abandon violence. Resistance through violence and killing is wrong and does not succeed. For centuries, black people in America suffered the lash of the whip as slaves and the humiliation of segregation. But it was not violence that won full and equal rights. It was a peaceful and determined insistence upon the ideals at the center of America's founding. This same story can be told by people from South Africa to South Asia; from Eastern Europe to Indonesia."

"At the same time, Israelis must acknowledge that just as Israel's right to exist cannot be denied, neither can Palestine's. The United States does not accept the legitimacy of continued Israeli settlements."

"And we will welcome all elected, peaceful governments--provided they govern with respect for all their people.

This last point is important because there are some who advocate for democracy only when they are out of power; once in power, they are ruthless in suppressing the rights of others."

A bit later in the speech, President Obama seems to echo yesterday's op ed in the Wall Street Journal by the prince of Dubai which argued that education was key to winning hearts and minds in the Middle East--see Daily Sources 6/3 #8.

"Many Gulf States have enjoyed great wealth as a consequence of oil, and some are beginning to focus it on broader development. But all of us must recognize that education and innovation will be the currency of the 21st century, and in too many Muslim communities there remains underinvestment in these areas. I am emphasizing such investments within my country. And while America in the past has focused on oil and gas in this part of the world, we now seek a broader engagement.

On education, we will expand exchange programs, and increase scholarships, like the one that brought my father to America, while encouraging more Americans to study in Muslim communities. And we will match promising Muslim students with internships in America; invest in on-line learning for teachers and children around the world; and create a new online network, so a teenager in Kansas can communicate instantly with a teenager in Cairo."

The speech is best read in full.

6. IRAN'S L.O.T.R. DISMISSES CAIRO SPEECH IN ADVANCE, IRAN ANNOUNCES CONSTRUCTION ON PARS PIPELINE BEGINS, WITHOUT HAVING DECIDED ON FINAL PATH

Thomas Erdbrink and William Branigin at the Washington Post report that Iran's Leader of the Revolution [LOTR] Ayatollah Ali Khamenei said:

"People of the Middle East, the Muslim region and North Africa--people of these regions--hate America from the bottom of their heart"

shortly before President Obama's speech in Cairo. LOTR Khamenei said that "beautiful speeches" would not reverse this feeling. Meanwhile, PressTV reports that construction on the Pars (or Persian) Pipeline has begun, but that Ahmad Noorani, the head of economic affairs at the Iranian embassy in Turkey, suggested:

"Another route could go through Iraq and Syria and then go through the Mediterranean to Greece and Italy."

(h/t reader Geoff.)

7. HOLBROOKE SAYS ADMINISTRATION HAS ASKED CONGRESS FOR ADDITIONAL $200 MILLION IN AID FOR PAKISTANIS DISPLACED BY FIGHTING WITH TALIBAN

Karen DeYoung at the Washington Post reports that Richard Holbrooke, special representative for Afghanistan and Pakistan, said at a press conference with Pakistani President Asif Ali Zadari in Islamabad yesterday that President Obama had asked Congress for an additional $200 million in aid for those displaced by the fighting with the Taliban.

"[W]ithin hours of his arrival, Holbrooke said the 'dramatic increase' in aid was 'symbolic of our commitment and support.'

Holbrooke emphasized that his hastily arranged three-day visit was 'at the personal instruction of President Obama' and reflected White House concern about Pakistanis fleeing heavy fighting in the Swat Valley and surrounding regions northwest of Islamabad, the capital."

The trip is also an outgrowth of concern that the central government will not reestablish control in areas where the extremists have been flushed out, failing to provide for security and services, making it a simple matter for the Taliban to return once the offensive has ended.

8. RELIANCE TO HALT GASOLINE EXPORTS TO IRAN ON U.S. SANCTION FEARS

Dev Chatterjee & Piyush Pandey at the Economic Times reports that Reliance has decided to stop exports of petroleum products to Iran in an effort to stave off restrictions on sales of products to the US market.

"Reliance was exporting 2% of its total output, worth around $280 million, from its two refineries in Jamnagar to Iran. A top RIL official, who requested anonymity, confirmed that the gasoline exports to Iran were stopped last month. However, he refused to elaborate on this issue.
...
RIL exports petroleum products worth $14 billion annually, of which around 5% is exporting to the US."

As of late, the UAE has been providing Iran with about 80% of its product imports.

9. ETHIOPIAN SOMALI SECESSIONISTS WARN AWAY OIL PROSPECTORS

Barry Malone at Reuters yesterday reported that the Ogaden National Liberation Front (ONLF)--or secessionists from the ethnically Somali Ogaden region--have emailed a warning to oil companies not to operate in that area of Ethiopia.



The email statement said:

"In order to accommodate these immoral and gluttonous rushes for oil in Ogaden, Ethiopia killed, raped and illegally detained thousands of Ogaden civilian and imposed economic and aid blockade at a time of when there was a full-blown drought in the Ogaden.

ONLF has persistently warned these unscrupulous multinational companies and their governments ... the ONLF has been left no alternative but to take all measures necessary to protect the inalienable rights of the Ogaden people."

10. O.A.S. VOTES TO LIFT BAN ON CUBA, BUT CUBA MUST ENGAGE IN DIALOGUE IN ORDER TO RE-ENTER ORGANIZATION

Mary Beth Sheridan at the Washington Post reports that the Organization of American States [OAS] voted to lift its 47 year old suspension of Cuba. The language of the resolution doesn't seem to explicitly require anything specific of Havana, outside of initiating a process of dialogue which itself must be in conformity with the practices, purposes, and principles of the OAS.The press release includes the actual language of the resolution (in Spanish only).

"RESUELVE:

1. Que la Resolución VI adoptada el 31 de enero de 1962 en la Octava Reunión de Consulta de Ministros de Relaciones Exteriores, mediante la cual se excluyó al Gobierno de Cuba de su participación en el Sistema Interamericano, queda sin efecto en la Organización de los Estados Americanos.

2. Que la participación de Cuba en la OEA será el resultado de un proceso de diálogo iniciado a solicitud del Gobierno de Cuba y de conformidad con las prácticas, los propósitos y principios de la OEA."

More or less:

"RESOLVED:

1. That Resolution VI adopted on January 31, 1962, in the Eighth Consultative Meeting of External Relations Ministers, by which the government of Cuba was excluded from participating in the Inter-American System, is hereby repealed in the Organization of the United States.

2. That the participation of Cuba in the OAS will be a result of a process of dialogue initiated at the request of the government of Cuba and in conformity with the practices, purposes, and principles of the OAS."

(Course, I wouldn't rely on my Spanish for this, but it does seem that only the dialogue itself must be conducted with the principles in mind, and that the sticking point is whether the dialogue would be initiated--or even participated in--by Havana.) Sheridan reports that Dan Restrepo, who is head of Western Hemisphere affairs at the White House, argued that the language was stronger that it might appear given the preamble which emphasize democracy and respect for human rights as part of the OAS's fundamental principles.

11. MEXICAN DRUG GANGS MOVING TO HONDURAS--MAY BE ASSISTED BY CROSS-SPECIAL FORCES TIES

Ken Ellingwood at the Los Angeles Times reports that the drug war in Mexico has spilled over into Guatemala, as gangs have found the environment easier to operate in there.

"During the last year and a half, the Zetas have carved a bloody trail across Guatemala's northern and eastern provinces. More than 6,000 people were slain in Guatemala in 2008. Police say most of the killings were linked to the drug trade.

As the recent blood bath shows, the violence is now threatening the capital, deep in the interior.

Authorities say Mexican drug gangs, primarily the Zetas and rivals from the state of Sinaloa, are ramping up operations in Central America to evade increased marine patrols near Mexico as they relay drug shipments to the United States and Europe."

The Zetas are a gang that was formed by former members of the Mexican special forces in the 1990s.

"Guatemalan police commanders say their 20,000 officers cannot match the firepower of the Mexican traffickers, who have made growing use in Mexico of military-type arms, such as 40-millimeter grenades and .50-caliber rifles capable of piercing armor.

Recent seizures in Guatemala have yielded similar weapons. 'These are things we have seen only in photos of Iraq and the Gulf,' said Larios, the police commander. 'Not in Guatemala.'

But devising a response is complicated by Guatemala's troubled past. The memory of the army's brutal conduct during the civil war means that it would be politically dicey for Guatemalan leaders to respond by mobilizing the military, as Calderon has done in Mexico."

Further, the Zetas have reportedly received assistance from former Guatemalan special forces known as the Kaibiles--named for a Mayan leader who evaded capture by conquistadors led by Pedro de Alvarado in the 16th century. Mexican special forces received training from the Kaibiles in the 1990s, as well as from Brazilian special forces, and the US Army. Analysts are worried that the drug war may spill into Honduras as well.



The best English-language coverage of the drug war's effects on Latin America is in the Los Angeles Times. A must read.

12. GLOBAL AIR PASSENGER TRAFFIC DOWN 7.5% IN 1ST 4 MOS., FREIGHT TRAFFIC DOWN 22%

Eileen Ng at the Associated Press reports that the International Air Transport Association recently announced that global passenger demand fell 7.5% in January-April from the same period a year ago while cargo demand fell 22%.

"IATA Director-General Giovanni Bisignani said airlines are facing an 'emergency situation' and should be given greater commercial freedom to serve global markets and consolidate."

Bisignani said that Asian carriers, which represent 44% of the global air cargo market, will be hit hardest by the crisis.

13. PENSIONS GETTING HIT GLOBALLY

Leo Kolivakis at Pension Pulse gives a rough summary of major difficulties facing major pensions globally, as pensions find themselves unable to meet their obligations given the current crisis. "Pension tension" is being seen in the US, Canada, and throughout Europe, including at the European Central Bank. His list is well worth considering, as well as his comment:

"The global pension crisis is really a crisis of modern day capitalism. If we don't figure out a long-term solution to this crisis, we risk having a new class of elderly poor who were cheated out of their pensions."

14. GEORGETOWN UNIVERSITY MAY LEAD NEW GENEVA CONVENTION PROTOCOL EFFORT

Jeff Stein at Spy Talk reports that Georgetown University's new Center on National Security and the Law's legal scholars have been pushing for a new international agreement to update the Geneva Convention to address terrorism and stateless armies. The center was until recently led by Neal Katyal, who joined the Obama Administration to become the Principal Deputy Solicitor General.

"'Soon,' [Matthew] Gerke, [a fellow at the center who worked for three and a half years in the Pentagon and in Iraq on rule of law issues,] said, the Center on National Security and the Law hopes to 'roll out' a campaign for a new Geneva Convention, hopefully boosted by an American figure with international stature.

Its first step would be to mount a new push for Senate ratification of the 'Additional Protocol No. 2, Relating to the Protection of Victims of Non-International Armed Conflicts.'"

In 1977, the Carter administration signed two additional protocols to the Geneva Convention which had provided rules for handling non-state combatants, but the Senate refused to ratify the treaty, "as it has ever since." Worth reading.

15. LOW SULFUR BUNKER FUEL REQUIREMENTS MAY ADD 4 MB/D NEW DIESEL DEMAND TO MARKET--ROUGHLY 10 MB/D ADDITIONAL CRUDE DEMAND

John Kingston at the Barrel reports on the interesting observation about the incoming low sulfur specifications for shipping use by Carlos Cuervo, SVP for supply and trading at World Fuel Services, who argues that low sulfur product from the bottom of the barrel, or low sulfur fuel, will start seeing considerable more demand starting next year. However, after 2015:

"It won't be even lower-sulfur bunker fuel that will allow shipowners to meet the requirements, Cuervo said. Instead, it will be marine diesel. There just simply won't be enough low-sulfur bottoms, of 0.5% sulfur by 2020, to meet the needs of shipowners. Diesel will fill the gap."

Cuervo estimates that the move to diesel by shipowners driven by the incoming low sulfur requirements will mean for an additional 4 mb/d of demand for diesel globally.

"As he noted, given that an efficient refinery can produce about 40% diesel, it's as if we need another 10 mb/d of crude supply to make 4 mb/d of diesel."

It's an interesting concern ... just now refiners would probably welcome additional diesel demand, given the size of inventories here in the US. But, in the run up of prices from 2007-8, some argue that the price of crude was chasing the diesel crack, and that could get real steep given a recovery in the global economy. Kingston notes there hasn't been a lot of interest so far in setting up refineries to produce low sulfur bunker fuel--

"They generally have viewed fuel oil the way Dracula views sunrise. 'How are you going to put a lot of money into something you've been trying to get rid of?' [Cuervo] said."

Worth reading in full.

16. NORTH AMERICAN RAIL TRAFFIC DOWN

Atlantic Systems Inc.'s Railfax report is out, showing that total North American rail traffic for the week ended May 30 was down 24.7% from the comparable week a year earlier. ASI plots the percent change in total North American rail traffic year over year for the week ended May 30, in 13 week rolling averages:



Coal volumes transported by train for the year ended May 30 was down 9.5% from the year previous.

17. INITIAL JOBLESS CLAIMS DOWN SLIGHTLY LAST WEEK, ANALYSTS EXPECT HEADLINE UNEMPLOYMENT TO HIT 9.2%

The Associated Press reports that the Labor Department released data today showing initial jobless claims fell slightly last week to a seasonally-adjusted 621,000 from the previous week's revised total of 625,000.

"The total jobless benefit rolls fell by 15,000 to 6.7 million, the first drop since early January. Continuing claims had set record highs every week since the week ending Jan. 24. The continuing claims data lag initial claims by one week.

Still, the number of initial claims remains stubbornly high, above the 605,000 level reached five weeks ago. That was the lowest level in 14 weeks.

The four-week average of claims, which smoothes out fluctuations, rose by 4,000 to 631,250."

Analysts expect unemployment to rise to 9.2%.