We continue to wonder what is happening in authoritarian Muslim petro-nations outside the Middle East and North Africa. We previously published excerpts of Afghanistan coverage by Muhammad Tahir, Washington correspondent for RFE/RL. With the post below, Muhammad offers his take on Turkmenistan, the natural gas-rich Central Asian republic bordering Iran, Afghanistan and the Caspian Sea. The opinions expressed are his alone, and do not necessarily reflect those of RFE/RL.
Turkmenistan has the brew familiar to observers of recent Middle East events -- obscene volumes of hydrocarbons; a wealthy few and a dirt-poor mass; official corruption ranking among the worst on the planet, according to Transparency International; a delusional and megalomaniacal leader; and an Orwellian sense of reality created by strictly censored state media and a clamp on phone calls and the Internet.
People have not taken to the streets of Ashgabad or any Turkmen city, but the government of President Gurbanguly Berdymukhamedov (pictured above) doesn't seem sure they won't. So there is an absolute blackout on news about the Arab Spring, and stepped-up monitoring of possible rabble-rousers in and out of the country.
In January, a Russian telecoms company named MTS lost a five-year-old contract providing cell phone and Internet service to 80 percent of the Turkmen market, or 2.5 million of the country's 4.5 million inhabitants. Turkmen authorities said the reason was that MTS was profiting too much, and sharing too little with the state in the form of taxes and royalties. But the contract suspension had a knock-on effect, which was to shut off all non-state sources of information and communication in the already heavily censored and monitored country.
The government is worried not only about Turkmen at home. It is also kept awake at night with concern over possible mischief by hundreds of Turkmen living abroad. Reports in Ashgabad are of a government attempt to pressure Turkmen students and workers overseas to return home, and then keep them there. A rumor is circulating that if Turkmen students abroad return home, they run the risk of not being permitted to leave the country again.
The government itself isn't talking about why. But one line of thinking is that these youth might have been influenced by revolutionary ideas, and that they could become further infected the longer they are away from home, and hence run the risk of destabilizing Turkmenistan.
Eric Feferberg AFP/Getty Images
While the petro-states of the Middle East are roiled by the Arab Spring, the Islamic countries of the former Soviet Union are mostly quiescent. The richest of them is Kazakhstan, which today is holding the latest in a two-decade string of rigged presidential elections. President Nursultan Nazarbayev, who will be swept into a new five-year term, isn't talking publicly, but his prime minister, Karim Masimov, has weighed in on how the Kazakhs view Cairo, Tunis, Damascus and so on. "What is the biggest difference between them and us? People in Kazakhstan, the young generation in Kazakhstan, have hope and they have an opportunity to go forward," Masimov told Reuters.
One can quibble with that observation -- it's not possible, for example, to follow one's aspirations freely in the oil industry, where the president's son-in-law, Timur Kulibayev, doesn't appreciate interlopers. Still, Masimov's is a fairly enlightened remark when one considers the lesson that some of the Arab states have learned from Cairo and Tunis, which is to shoot first and not negotiate. On the other side of the Caspian, for example, forces of Azerbaijan President Ilham Aliyev yesterday arrested some 200 protestors seeking his ouster, Eurasianet.org reports.
A limited number of U.S. diplomats in the region are leveraging the Arab Spring to drive home long-expressed U.S. agenda items on democracy. "The Arab Spring is a huge gift to anyone in his region who seeks democratic liberalization," one U.S. diplomat in the region told me. Other U.S. envoys disagree that anything is to be gained, and aren't alluding to the Spring in contacts with the autocrats of the countries in which they work. But I personally think the first envoy makes the most sense.
Kazakhstan is not the one-dimensional portrait that it depicts. In the New York Times, Ellen Barry reports that "there is no restless young elite that wants to take over the government," but perhaps she should interview the millionaire Bulat Abilov or the intellectual Oraz Jandosov. They and other members of the political, business and intellectual elite would like to see genuinely competitive politics, and broader political representation, and are proof that, unlike the popular narrative, there are obvious alternative examples of stable rule in Kazakhstan. One of the most common remarks about Kazakhstan is the crisis to come because there is no obvious successor to Nazarbayev, but I think that is wrong -- because Nazarbayev himself hasn't anointed one does not mean that there are not many, many legitimate successors out there. There will be a struggle when Nazarbayev goes, but I do not expect a dangerous crisis, and certainly not violence. Read on for more on this increasingly important petro-state
Notions can be an indispensible force in the achievement of big leaps in business, science, sports, politics, personal fortune and military conquest. That's how souls among us have taken apart genomes, drilled in ultra-deep water, run the 4-minute mile, put a black man in the White House, earned a billion dollars, and overthrown Mubarak.
Sometimes notions and gigantic personalities combine, and the result can be a determination to go on, and on and on. Such is the case with missile defense. Three decades after Ronald Reagan visited Cheyenne Mountain and got the notion that the United States could shoot down a missile, the United States has spent more than $130 billion to prove the great man correct. In January, for example, the U.S. Missile Defense agency halted deliveries of the core weapon in the American-based system of ground-based interceptor missiles -- a Raytheon-made anti-missile device that failed yet again to hit a target. Yet, a week ago, Defense Secretary Robert Gates was in Moscow, attempting to fulfill one of President Obama's strategic priorities of the year -- getting a missile-defense deal with Russia -- and the Pentagon is asking for $10.6 billion on more development in its next budget.
One matter is the pure indomitability of Reagan's notion. The other is its indomitability in the context of events around the world -- 9/11, the wars in Iraq and Afghanistan, and now the revolutionary fervor in the petro-states of the Middle East. Are we fighting the proverbial last war? "In 1999, 2000, 2001, the Russians were saying, ‘Look you knuckleheads, the real threat is Osama bin Laden and the Taliban.' Then 9/11 happened and they look pretty right," Andrew Kuchins, who runs the Russia and Eurasia Program at the Center for Strategic and International Studies in Washington, told me over the phone.
The question is not whether the Pentagon ultimately will manage to figure out the missile conundrum -- this notion could yet prove itself out. Clay Dillow at Popular Science, for example, reports that Northrop Grumman has achieved a breakthrough with the ability to track a ballistic missile through all phases of flight. Poniblogger at CSIS has some interesting thoughts about missile defense progress.
It is rather whether Western military and security minds ought to be focused on how to adapt to a tectonically different Middle East, including how to secure the world's energy supply. It is whether it's best to continue what's now a 28-year-long effort to engage Russia on missile defense, or to shift the focus to a cooperative policy on energy, arguably a more enduringly strategic problem. It is also what to do about nuclear energy given Fukushima.
The notional has become more real -- the unrest that has roiled the Middle East has reached Saudi Arabia, the foundation of the global oil market. At first, this small protest in the Eastern Province city of Qatif was received calmly by oil traders. But then, at least two protesters and a policeman were shot with rubber bullets in confusing circumstances. On that news, oil traders, who had been bidding down oil prices because it seemed the appropriate casino strategy against negative economic news, decisively reversed themselves, and pushed them back up. Oil prices ended the day yesterday justly slightly down.
Today is a scheduled "Day of Rage" in Saudi Arabia. Organized on the Internet, the protest had been expected to be a likely dud. Now it might be different.
"This has been our biggest fear -- that the unrest infecting the Middle East would surface as violence or bloodshed in Saudi Arabia," Cameron Hanover, an energy hedge fund consultant firm, wrote in an overnight note to clients. "If protests start to create ‘martyrs' in Saudi Arabia, then it could be the beginning of the end."
Here is video of the protest scene:
Henry Kissinger, addressing oil executives at a conference in Houston by live video last night, said that observers expecting the turbulence to result in a breakout of democracy are engaging in "wishful thinking." All that one can say is that protesters have rejected one governing model. "But there is no indication of what the new model will be," he said. "We are in the first act of a five-act drama."
Fayez Nureldine AFP/Getty Images
There's a presumption out there that things look tough in the Middle East, but that soon enough -- maybe by summer -- they will sort themselves out, and becalm the volatile prices of oil and gasoline. Not so, says veteran oil analyst Edward Morse, a student of history who correctly called the 2008 oil bubble while everyone else was still throwing money into the pot. "This is not a one-off disruption," Morse says. Instead, we're in a new age of geopolitical risk that threatens to disrupt the region for a decade or even longer.
As if to reinforce his point, 6,400 miles away in Libya, Col. Moammar Qaddafi has again triggered the all-important Flaming Oil Port Index by having his air force bomb the country's main oil terminal at Es Sider, turning it into a ball of fire. Oil prices shot up.
Given the Libyan uprising, not to mention the trouble in Bahrain, Egypt, Oman, Tunisia and Yemen, even the region's rich petro-states understand the basic math, says Morse -- their demographics (60 percent of the region's population under 25 years old, high unemployment rates, and lopsided income distribution), awakened by the kindling of revolutionary fever, have put all of them in potential jeopardy. "A rapid contagion is spreading," he said. "Even if you think you are relatively safe, this is a new, permanent risk. It will be with us for the next decade," or even two.
Therefore, all the petro-states are going to mimic the recent largesse of Saudi King Abdullah, who distributed $36 billion to his people in the form of higher wages and forgiven loans, and do so on a regular basis. They will also try to figure out how to put all those discontented and often well-educated youth to work.
That's great, but what does that mean for the rest of us? That the break-even point for annual government expenditures in all the states -- meaning the price of oil required to cover regular state obligations like salaries, road repair and defense, plus these new expenses in order to satisfy the restive youth -- has just gone up, says Morse. If they needed $60-a-barrel oil multiplied by the number of barrels they are producing and selling each day to fund the state budget, now they will need much higher prices. Saudi Arabia, Kuwait and other petro-statesmen that previously attempted to keep oil price stamped down to some degree can no longer be counted on to do so. Instead, they will be interested in the kind of price increases we are seeing today. For more Ed Morse, including a video, read on to the jump.
Mohammad Huwais AFP/Getty Images
As we begin another week of turmoil in the Middle East, and countries further afield batten down the hatches in an effort to preclude being next, here are some of the things we don't know:
-- Whether oil prices are going up to $220 a barrel (and $5 at the pump), or down to $70 a barrel and more like $2.50 for a gallon of gasoline in the United States;
-- Whether Saudi Arabia really increased its oil production last week, or if the truth is a bit different;
-- And, finally, whether Russia's gentleman president, Dmitry Medvedev, has been rummaging through Vladimir Putin's archive of paranoid off-the-cuff remarks, and truly does not grasp what is happening around him.
It was Nomura Securities that, in the Goldman Sachs style of hype-as-part-of-corporate-promotion, last week forecast oil prices of $220 a barrel. Nomura predicated its forecast on Algeria devolving into chaos, and shutting down its 1.8 million-barrels-a-day of oil production. Since that would be on top of Libya's current cutoff of around 1 million barrels a day, the combined loss to the market would rub right up against the industry's total spare production capacity of 4 million barrels a day. Hence, prices would rise steeply because at once we would be back to 2008, with almost no margin for error for any other mishap like a hurricane, a Nigerian pipeline explosion -- or more Middle East unrest.
Yet, why the figure $220? Do we go up in fifths now? We side with the cooler-headed Dave Kansas at the Wall Street Journal, who calls Nomura's projection "fraught."
But are we headed as low as $70 a barrel either? That's what Almir Barbassa, the CFO of PetroBras, the Brazilian oil giant, told MarketWatch. For the reason he says that, read on.
Laurent Fievet/ AFP/Getty Images
The Saudis' power to calm: We all know by now that oil prices have soared not specifically because of Libya, but because traders are worried about what happens next. In particular, they are worried about Saudi Arabia -- whether it can truly step up to the plate with big volumes of oil to compensate for a shortfall elsewhere, even if it itself falls victim to the unrest roiling the Middle East. To be more precise, the question on many lips is: Will or will not the Saudis announce an increase in oil production in order to calm roiling global markets? I discuss this topic today on the Brian Lehrer Show at WNYC.
The answer is that they may already have quietly done so.The Oil Daily is reporting today that Saudi Arabia has lifted production to 9 million barrels a day, which if accurate would be about 4 percent, or 400,000 barrels a day, higher than its most recent reported volume. That's a serious uptick in production -- sufficient, one would think, to persuade traders that the kingdom in fact possesses the capacity and will to tamp down market volatility when it's called for. It should be sufficient to lower prices well into the low $90-a-barrel range. It should be, that is, if the Saudis actually tell the market that it has done so. Instead, the Saudis are going around simply asserting that they will step in as soon as they are truly needed.
Is this just the Saudis playing coy? No, writes the Oil Daily: "Saudi Arabia has been quiet about its output hike, most likely because of the political sensitivities in the region and the internal dynamics of OPEC, where members are expected to produce at target levels." In other words, if Saudi Arabia wishes to remain the uber-alpha male in OPEC, it must not be unilateral or bumptious, but navigate the shoals of the cartel with diplomacy.
Okay, I get that. But doesn't that defeat the purpose? If the market doesn't know that you've added the volumes -- which otherwise would be like apologizing to your wife for an egregious mistake by writing it on a piece of paper and putting it in your pocket -- why bother? I suppose there are just things about the Saudis that we are doomed never to grasp.
Speaking of Libya's impact, readers emailed me the nifty charts below. In the first chart, produced by the International Energy Agency, you can see that Ireland is the most exposed country in the world to Libya, which supplies almost a whopping quarter of its oil. Italy is next with about 22 percent reliance on Libya. Indeed, Europe in general is on the hook. As for the United States, it's relatively inoculated -- Libya satisfies just 2-3 percent of its demand.
In this chart, produced by the Russian news agency RIA Novosti, you can see Libya's export reliance. It by far sells the most of its oil to Italy -- almost a third of its export total. Ten percent of its oil goes to China, and 6 percent to the United States.
The fallacy about China's oil companies: One prevailing wisdom about China's global resource grab is that it's all a centrally devised plan. So that when China's oil companies hand out big loans to Brazil, Russia and Kazakhstan in exchange for oil supply and access to fields, they are effectively following Communist Party orders. Not so, says the Paris-based International Energy Agency. In a new report, the IEA says that not only do the China National Petroleum Co., Sinopec and the rest operate autonomously and commercially, but they also have added volume to the world supply of oil and gas. Julie Jiang, who co-wrote the IEA report with Jonathan Sinton, said, "These are far from puppet companies operating under control of the Chinese government, as many have assumed. Their investments in recent years have been driven by a strong commercial interest, not the whim of the state." At the Wall Street Journal, James Areddy called the report "eye-catching."
Out one door, through two more: World power is shifting from west to east, and so is BP's portfolio of assets. Over the last month or so, the British company has announced $15 billion in operational tie-ups and share swaps with Russian and Indian oil companies, including a $7.2 billion deal this week with India's Reliance Industries, headed by Mukesh Ambani, one of the richest men in the world. At the same time, BP is reducing its foothold both in the United States and at home in the United Kingdom. All of this has followed BP's disastrous oil spill in the Gulf of Mexico last year. For BP, the strategy is a bet that, by gambling in Russia and India, it can increase its reserve base by about a third, to some 80 billion barrels of oil and natural gas, according to a Citibank estimate cited by the Financial Times.
Let's look at the bigger picture: Will Wall Street eversee BP the same again after the Gulf of Mexico, and bid up its share price astraders did for almost all the other major oil companies this week? Probably. Butit could be a long time. Production in Russia's Arctic region is a long way off -- perhaps a decade. So for now the value of these deals is largely notional.
Patrick Baz AFP/Getty Images
Trouble has been going on in the Middle East for weeks, so why have oil prices suddenly gone up precipitously today? Mainly because two major presumptions underlying our understanding of the world changed in the last 24 or so hours and in doing so shook up the global economic calculus (for the audio-inclined I discuss this on NPR's Diane Rehm Show today).
First, we have long been accustomed to Saudi Arabia's calming, sonorous voice when events have shaken the world of oil, which as we know is the underpinning of the entire global economy -- no oil equals no economy, no conveniences, and so on. As it has in previous crises since the 1970s, Saudi Arabia has told the world -- do not worry, we will moderate prices, and should there be a loss of oil supply from one or more other countries, we will compensate for it with our own plentiful production capacity. A current corollary of this mantra has been that the kingdom is safe from the turbulence that has struck so many of its neighbors -- its citizens, cosseted by generous government subsidies, are simply too happy to rise up.
Yet yesterday, King Abdullah (on the billboard above) returned home after three months abroad for medical treatment and immediately announced a $36 billion payout to his citizens, including a 15 percent salary increase for public employees, "reprieves for imprisoned debtors and financial aid for students and the unemployed," as the Financial Times reports.
So oil traders can be forgiven if they thought to themselves, "If the Saudis are so immune from unrest, why did King Abdullah, as soon as he touched home soil, move to buy off his people?" The FT headline this morning put it bluntly: "$36 billion Saudi bid to beat unrest."
Result: panic buying on the oil market.
For the second punctured presumption, read on to the jump.
Fayez Nureldine AFP/Getty Images.
We need some balance in the Libyan oil story. Is this north African nation an unmitigated disaster for those elsewhere in the world running an economy or driving a gas-guzzling vehicle? Notwithstanding the turmoil, the answer so far is no.
For good reason, much attention is focused on Libya's oilfields, since they are the whole reason why the United States, Great Britain and a host of oil companies have been courting Col. Moammar Qaddafi since he reopened the country to the outside eight years ago. An as-yet unknown volume of Libya's 1.6 million barrels a day has been shut down. Traders have bid up oil prices above $100 a barrel for the first time since 2008, though that's not very surprising -- what are traders supposed to do with such uncertainty (read: opportunity) staring them in the face? In addition, there's valid concern about the stability of the Middle East's big oil monarchies -- Kuwait, Qatar and Saudi Arabia. As Cameron Hanover, the energy analytical firm, wrote clients in an overnight note: "With unrest all around them, is there any really strong reason to believe that the [United Arab Emirates] or Kuwait or even [Saudi Arabia] itself can remain oases in this swirling, engulfing sandstorm?"
Still, when it comes to oil, things are going surprisingly well in Libya considering the turbulence.
Let's say that Libya's entire oil production shuts down, a process that currently seems under way. Would Saudi Arabia genuinely make up the difference, as its energy minister, Ali al-Naimi (pictured above), has said in Riyadh? The answer is crucial -- everyone from the presidents of the world's leading industrial nations to the CEOs of the Fortune 500 to Wall Street expects Naimi to step up to the plate with Saudi's 4 million barrels a day of excess production capacity should there be an oil shortage. It's not an exaggeration to say that the global economy relies on this presumption.
Yet, not everyone thinks the answer is as pat as the conventional wisdom suggests. For instance, in its overnight note to clients, Cameron Hanover, an energy analysis firm, cast doubt on Saudi Arabia's ability to keep the market supplied:
OPEC, namely Saudi Arabia, pledged to make up any oil lost from Libya, which exports around 1.6 million barrels of oil per day. Of course, that only works as long as Saudi Arabia avoids contagion. And we have not read of contagion ever spreading with greater speed than has been seen these last few weeks. The spread has rivaled the spread of the Black Plague 650 years ago. That very speed may be the factor that has oil markets most on edge.
So now we come to where the rubber hits the road with the turmoil in the Middle East: Just what is the risk of the entire global economy going south, which is what would happen if the Saudis couldn't compensate for a global oil deficit as they have done in the past?
Fayez Nureldine AFP/Getty Images
Oil and gasoline prices -- currently continuing their rise through the roof -- are doing so in their role as a mirror on history. We will never look at the Middle East the same way again -- contrary to what we generally thought, the region's monarchs and dictators are all susceptible to the popular will. What one might call the Susceptibility Index is a relative one -- the globally crucial petrostates of Saudi Arabia, Qatar, and Kuwait seem comparatively secure. Yet, since so many articles of faith have already been punctured -- Mubarak is gone; Qaddafi looks like he will be behind him; the 230-year reign of the al-Khalafis of Bahrain is threatened -- we cannot rely on assurances that these geopolitical big wheels are absolutely secure either. And so oil prices are surging for a second day.
Here's how Helima Croft and Amrita Sen at Barclays Capital sum it up in a note to clients today:
The foundation that has held the region together for the past 30 years has been shaken and the first cracks that appeared in the tectonic plates with the uprising in Tunisia and Egypt is now causing widespread ruptures in the region.
Therefore, the economic models on which the big industrial nations, Wall Street, and the banks are operating will have to be reconfigured to take account of this new risk premium to the global economy. But Croft and Sen go on to say that oil history also shows that one should not fret too much -- markets correct themselves, and the flow of energy that feeds the global economy will probably not be damaged. Read on for their thoughts.
Update: I discuss the big oil picture out of Libya and the Middle East this evening on Marketplace.
Mahmud Hams AFP/Getty Images
Oil prices are going through the roof today, and gasoline prices at the pump will follow, as we get the first regime-rattling news in a major oil-producing state. What's happening is that the sketchy news out of Libya makes the country look like it's on fire - Col. Muammar Qaddafi may be spending his last days in power. And even though no oil supplies have been disrupted, traders are engaging in some casino behavior and bidding up prices to new two-year highs. Here is some video:
Look for more of the same going forward if -- as seems as likely as not -- unrest strikes Saudi Arabia. That is because Saudi is the linchpin of global oil prices, satisfying a full 10 percent of total global demand, and possessing by far the majority of the capacity to produce much more in the case of an emergency -- such as if Libya's 1.6 million barrels a day of oil production abruptly is taken off the global oil market.
We keep hearing that al-Saud rule is safe (and the al-Sabahs of Kuwait, along with the al-Thanis in Qatar). But retaining power is only one metric for oil price stability. The chink in the Saudi armor is its oil-saturated, Shia-dominated Eastern Province. Here is Dharan, the headquarters of Saudi Aramco; the humongous 5-million-barrel-a-day Ghawar oilfield; the 800,000-barrel-a-day Qatif and Abu Safa oilfields; the gigantic Ras Tanura oil port; and the Abqiaq processing center. Because of all this, the king has nailed down every movable part in the province with overlapping protection -- private Aramco security, Interior Ministry forces, the National Guard, and the military, all of them manned largely by Sunni personnel and loyal to the royal family.
Even so, if the Shia population does start protesting, we will see the oil market's version of pandemonium.
Greg Priddy, a global oil analyst at the Eurasia Group, a New York-based political risk firm, tells me that there is "a definite threat of a spillover" of trouble. "I won't be surprised if there is unrest in the Eastern Province," Priddy told me over the weekend.
Hassan Ammar AFP/Getty Images
More on the dictator's playbook: A couple of weeks ago, we suggested a test for dictatorial leadership called the "Dictator's Playbook." When faced with popular unrest, are you statesmanlike, or brutal? As models, we pointed to Georgian President Eduard Shevardnadze's resignation in 2003 (he was not a dictator, but it was clear from protests that people wanted him out), and the 2005 massacre of protestors by Uzbekistan President Islam Karimov. After the comparatively peaceful ouster of the leaders of both Egypt and Tunisia -- the Shevardnadze play -- we have the alternative side of the playbook this week in Bahrain and Libya. Yesterday, forces in Bahrain stormed Pearl Square at 3 a.m., shooting at will and killing five protestors, and Libyan security forces killing perhaps two dozen people protesting the continued rule of Col. Muammar el-Ghaddafi. The clear signs are that we may have seen the extent of imminent regime collapse in the region.
In Iran, one hears the usual calls for the execution of opposition leaders, but interestingly a letter is also circulating in which senior officers in the Revolutionary Guard request a guarantee from superiors that they will not be asked to fire on anti-government protestors. The money call is on the current regime, but this one bears watching.
Bahrain borders Saudi Arabia, the linchpin of the global oil industry, but is trouble possible in the latter? In the Wall Street Journal, Karen Elliott House delivers a take well worth reading on the fragility of the al-Saud family's hold on power. House's view: It is fragile indeed. However, most of the smart analysts believe there is very little chance of a Tunisian-style uprising that could upend the Saud grip on power.
The trouble with pirates: The thing about pirates is that they are inherently working outside the box. If they were always doing what people expected, they wouldn't survive very long. Hence the international strategy adopted to combat Somali pirates was never a long-term one. The Greek-flagged Irene SL, a supertanker carrying 2 million barrels of oil worth some $200 million, discovered that a little over a week ago when it was captured in ostensibly peaceful waters 900 nautical miles from Somalia. The oil was Kuwaiti and headed to the United States.
The world's seafaring countries -- the United States, Europe, China, Russia -- have succeeded in making it difficult for pirates operating around Somalia proper (though as we see in the picture above, Mohamed Garfanji, one of Somalia's top pirate bosses, remains on the loose). So now they have figured out how to venture further out, reports Robert Wright at the Financial Times. Write quotes Lt. Commander Jimmie Adamsson of the European Union's anti-piracy Navfor mission: "It is like squeezing a balloon.If you squeeze a balloon in the Gulf of Aden, it will definitely expand in other directions because we're not there."
What is it like to be hijacked aboard an oil tanker in supposedly safe seas? In 2009, Saudi Arabia paid $3 million to gain release of the Sirius Star, a supertanker with $100 million in oil aboard that was hijacked more than 600 nautical miles from Somalia. Here are two illuminating videos with a British crew member of the Sirius discussing the experience:
Criminalizing cleverness in China: Many times, the definition of opportunity is recognizing what's sitting before your face when almost no one else does. In China, that can be a serious violation of the law, as Xue Feng has discovered in the oil business. Xue, a Chinese-born American who successfully negotiated the purchase of an apparently open oil database for the U.S. consultant firm IHS (which also owns Dan Yergin's outfit, CERA), has lost an appeal of his conviction and eight-year prison sentence for spying. Three Chinese nationals have been imprisoned in the same case.
Oilfield data is regarded as a state secret in large parts of the world -- much of the former Soviet Union and the Middle East, for example. But one is pressed to think of another place that imprisons foreigners for collating and paying for apparently open data. What's the definition of what Xue was doing? Business.
Gas in, coal out, but when? It has seemed clear that the global glut of natural gas will ultimately trigger a demand response in the countries most thirsty for more electric power like Japan and China - they will use much more gas than currently planned, an event that is part of an ongoing shakeup in energy-driven geopolitics. But when exactly will that happen?
Not soon enough as far as Alaska and Russia are concerned. In Alaska, ConocoPhillips and Marathon are closing Kenai, a liquefied natural gas plant on the Cook Inlet that had exported LNG to Japan since the 1960s. I asked Conoco spokesman John Roper why the plant would be closed given rising natural gas demand. He replied in an email that the glut is simply too formidable. "The current market conditions in Asia and our inability to get commercial supply contracts there made the facility no longer economically viable," Roper said. In Russia, the news is that the gigantic Shtokman natural gas field in the Arctic is again being delayed, and now isn't envisioned for startup until the end of the decade. Shtokman has been wholly intended for export.
The Alaska decision bears watching because of what it says about efforts by BP and ExxonMobil to export the gas equivalent of 6 billion barrels of oil from the North Slope. These two companies are leading rival efforts to build a pipeline to ship out the gas, but they have been delayed because of the gas glut in the market-of-choice -- the United States. It's been presumed that if the U.S. market won't work, they can ship the gas by LNG tanker to fast-growing Asia. But at the Alaska Daily News, Tim Bradner wonders whether the Kenai decision signals that the Asian market has fundamentally changed, too.
More likely is that one must maintain a long-term view, and meanwhile economize, economize, economize. Consider news going the opposite direction - Bloomberg reports that demand is so high for LNG that a surplus of tankers is drying up, and doubling freight rates. Exxon has designed its own LNG tankers for this purpose, the Q-Max, which effectively make gas as fungible as oil in terms of the ability to ship it anywhere economically. There is also the sound of what one does not hear -- news of Exxon closing in any of its gigantic and ever-growing LNG supply in Qatar. Whatever trouble Conoco and Russia are having with their future marketing plans, Exxon has the largest LNG project in the world, and is not scaling back.
Roberto Schmidt AFP/Getty Images
Saudi Turnabout on Egypt: When geopolitical chess players observe the uprising in Egypt, they don't see Egypt and Hosni Mubarak, who has now stepped down from power. They see Saudi Arabia and the rest of the big Persian Gulf oil producers, and the question mark of whether they are immune to the Tunisian Contagion, the popular uprising ignited by the ouster of Tunisian President Bine Zine El Abidine Ben Ali (who incidentally received refuge in Saudi Arabia). After all, Saudi Arabia alone produces 10 percent of the world's oil supply, and through its ability to produce a few million barrels a day on top of that singularly influences whether or not oil traders go into panic.
It turns out that the Saudi regime sees the same thing. So in recent days, the kingdom toned down its categorical support for Mubarak's continuation as president, reports Abeer Allam at the Financial Times. Specifically, Allam points out the recently more measured reporting on the Egyptian events on Saudi-owned al-Arabiya TV. Allam quotes one expert close to the Saudi regime: "They do not want to be seen as against the [Egyptian] people."
Meanwhile one wonders at the role of the Egyptian Army in edging Mubarak out. In recent days, Mohamed ElBaradei, the Nobel laureate and former international arms inspector, called on the Army to step in and stave off a situation that he says may otherwise "explode." This was almost certainly an ElBaradei blunder -- one thing a popular uprising does not want is a record of reliance on military force, because, historically speaking, once an army senses it's responsible for a fellow or movement being in power, it cannot resist later issuing reminders of it in the form of requests (read: demands) for more power and privileges.
In Tunisia, Ben Ali left in the face purely of the popular uprising. In Egypt, the uprising in Tahrir Square was the technical cause of Mubarak's abdication. But if it was the Army that ultimately pushed him out -- with the request of the uprising's leaders -- the opposition may come to regret it.
Egypt and oil prices: No sooner did Hosni Mubarak step down then oil prices continued their slide of recent days. Immediately, prices dropped to about $86 a barrel in New York. The price of U.K.-based Brent crude, traded abroad, continued its very strange, unanchored trajectory upward; one presumes that later today European traders will realize that there is still a glut in global oil.
Whatever the case, at least for now we are looking at stable oil prices in the $80-$100 per-barrel range, more toward the lower end. The Paris-based International Energy Agency continues to remind us that global demand continues to rise, so that supplies are becoming tighter. But that is to worry about next year.
Grandiosity on the Silk Road: At Oil and Glory, we keep receiving emails from current and former U.S. diplomats unhappy with our skepticism about a plan to turn Afghanistan and all the surrounding nations including China, the former Soviet Union and South Asia (excluding Iran of course) into one, big, happy Silk Road family. The people suggesting this idea, meaning a spider's web of interconnected electric lines, roads, energy pipelines and other projects, believe possibly rightly that only trade and infrastructure -- a connection with the rest of the world in every direction -- will ultimately bring peace to the region. Their most recent announcement is a two-lane, U.S.-financed highway straight through the militant stronghold of South and North Waziristan in Pakistan's trial belt, abutting Afghanistan, reports Matthew Green at the FT.
Is this region truly ready for expensive infrastructure projects imposed from the outside that they themselves cannot -- according to the people sending me emails -- plan, build or manage themselves? How about some food for thought -- yesterday in the Pakistani city of Quetta, near the Afghan border, Baluch rebels for the second time in a week blew up the biggest natural gas pipeline in the province, leading to the Pakistani gasfields at Sui. Virtually all the trans-Afghan pipeline plans I've seen call for transit through Baluchistan. So do the trans-Afghan road networks. Are these Baluch on board with you?
More food for thought: China meanwhile is again going where the West fears to tread. It has agreed to build $13 billion in railroads in Iran, Reuters reports.
they had spilled electric-car secrets to China. Two of the accused have since filed defamation suits against the company, denying they were doing any such thing. One of the executives said the whole matter must be the result of dirty tricks by rivals in the high-stakes electric-car race. So what is really going on?Spying and batteries: A month ago, Renault filed a criminal complaint against three executives claiming that
In an interview with the Wall Street Journal's Sebastian Moffett and David Pearson, Renault CEO Carlos Ghosn suggests that it comes down not to specific evidence of why the trio had Swiss bank accounts, the proceeds of which were allegedly traced to China. Instead, Ghosn said, there was an unacceptable risk that, given the allegations of an appearance of financial impropriety, he could not gamble that they had divulged secrets, for example, on the cost of Renault's battery.
Ghosn said: "The most interesting information I can have about a competitor is the cost. For a battery, the most important element is the cost per kilowatt. From the cost per kilowatt, I may guess what kind of technology you're developing."
The 800-pound Saudi gorilla: Egypt is a significant country -- when its people took to the streets and shook the regime of President Hosni Mubarak to the bone, observers gave serious thought to the possibility that any Middle East autocracy could be up for grabs. Tunisia's ouster of President Zine el-Abidine Ben Ali led to Egypt, but simply did not send the same fears up the spine of the region's strongmen. Yet as the week ends with Cairo's so-called Day of Departure and the White House caucuses on how to smooth Mubarak's exit, what is truly on the minds of decision-makers? For many of them, it's Saudi Arabia. If unrest spreads there, all bets are off in global markets of all types, and particularly the oil market. Saudi Arabia produces 10 percent of the world's crude and in addition is the main "spare capacity" cushion keeping prices relatively stable. The calmest voices among us point out that Saudi -- and really the rest of the big petrostates in the Persian Gulf -- is a completely different case from Egypt, Jordan, Yemen, and other states under threat from internal discontent. The main difference is the power of the purse -- the Saudi regime has plenty of cash to spread around so that it does not have a gigantic, teaming mass of poor with a long history of deep, festering, and unresolved grievances. If you have not yet seen it, it's worth watching Christiane Amanpour's interviews with both Mubarak and his new vice president and intelligence chief, Omar Suleiman:
Big Oil's fork in the road: How to navigate the uncertain shoals of oil over the next two and three decades? The smartest minds in Big Oil are not sure and at the fork of the road have all taken different paths, write Sheila McNulty and Ed Crooks at the Financial Times. BP has shrunk and gotten into bed with Russia; ExxonMobil and Shell are turning themselves into natural gas companies; Chevron is sticking with the orthodox model of hard-core exploration; and ConocoPhillips has turned away from the Big Oil, grow-as-big-and-burly-as-possible model and sought big returns by being a Medium Oil company. So far, the market has rewarded Conoco the most, pushing up its share price by a third over the last year; Shell is up 26 percent, Chevron by 19 percent, but Exxon's up by just 7 percent. BP is down 12 percent.
Pipeline politics in Europe: One must admire Europe's newfound determination to create another source of natural gas and prevent Russia from exerting undue petropower on the continent. Despite history suggesting a quixotic effort, European Union Energy Commissioner Günther Oettinger has gotten both Azerbaijan and Turkmenistan to agree in principle to supply gas to the long-proposed Nabucco natural gas pipeline. Now, Oettinger is attempting to embarrass the pipeline's European partners into lining up the financing and starting construction of the $11 billion line before the two Caspian Sea republics sign actual commitments to ship their gas volumes, Reuters reports. The Turkmen and Azeris say the Europeans have to move first. The Europeans say the Caspian republics do. History suggests that the Europeans are right to wait -- the Turkmen and the Azeris aren't going to sign anything until Russia informs them that there will be no punishment for doing so. Next stop for Oettinger: Moscow.
The groundhog factor: Punxsutawney Phil, a groundhog from Pennsylvania, had bad news for natural gas producers, but good news for the rest of us -- winter will end early, and spring will be upon us in no time. Why do we bother occupying our time with the thoughts of a rodent? According to Wikipedia, "The Groundhog Day celebration is rooted in a German superstition that says if a hibernating animal casts a shadow on Feb. 2, the Pagan holiday of Imbolc, winter will last another six weeks. If no shadow was seen, legend said spring would come early." In the interest of balance, we offer up Phil and a rival, Woody the Woodchuck, who did see her shadow, indicating six more weeks of winter.
There is no modern autocrat's handbook, no hard-and-fast rules. When their people pour into the streets in opposition, strong leaders behave generally according to personal form, in my own decade and a half of experience living and working in autocratic and military-run countries. For a taste of what that means, consider Georgia's Eduard Shevardnadze and Uzbekistan's Islam Karimov (pictured above). In 2003, demonstrators broke into the Georgian Parliament, and made it clear that violence was the next step in their efforts to remove Shevardnadze as president; he resigned. Two years later, angry protesters gathered in the central square of the Uzbek city of Andijan, among other things demanding Karimov's ouster. That evening, soldiers mowed them down with automatic weapons; several hundred Uzbeks died. Karimov remains president.
Shevardnadze and Karimov are two different people - the former was Mikhail Gorbachev's statesmanlike foreign minister before he went home and took a different turn; Karimov is a vicious and slightly twisted strongman, and pretty much always has been in public life. But that's precisely the point - given broadly similar situations (people in the streets), they responded in alignment with how we have come to know them over the years. No one can be surprised by either of their responses to challenge.
Alexander Zemlianichenko AFP/Getty Images
Lost among the high-profile shake-ups going on in the Middle East -- Egypt, Jordan, Tunisia, Lebanon, Yemen, Sudan -- is a little development 2,500 miles away in the petrostate of Kazakhstan. President Nursultan Nazarbayev yesterday discarded intricately laid plans for a 10-year extension of his rule. If enacted, the plans would "set the wrong guidelines for further generations of politicians," he said.
Nazarbayev is right, but what about his substitute for the extension -- a snap election in a few months that will add five years to his already two decades in office?
We've been discussing how far the ripples of the turmoil in Egypt might be felt. Until now, only Middle East dictatorships have appeared to be at risk. But it's early -- it took awhile in the late 1980s before the Gorbachev-era democracy wave took hold, and long-standing political and commercial walls fell from Latin America, to Asia, to Europe.
Over the weekend, Russell Zanca argued on this blog that the former Soviet Union in particular feels impervious. To that list one might add Iran (pictured above are, from left, Nazarbayev, Turkmenistan's Gurbanguly Berdimuhamedov and Iran's Mahmoud Ahmadinejad). When such uprisings have occurred in their midst in recent years, Russia and Iran have demonized their participants as stooges of Western-inspired "velvet revolutions." Imaginative U.S. diplomats assigned to these countries themselves have conjured up an inflated role in events.
The Middle East turmoil therefore ought to put the kabosh on such thinking: Assassinations and military coups can be organized from the outside, but successful popular uprisings arise from within.
Likewise, the uprisings are both vindication and repudiation for former President George W. Bush. They are vindication of what he said in 2003 -- that "as long as the Middle East remains a place where freedom does not flourish, it will remain a place of stagnation, resentment, and violence ready for export." They are a repudiation of what Bush did in response, which was to invade Iraq: Eight years later, the country remains a case study of the axiom that democracy cannot be imposed from the outside.
Current and former U.S. diplomats tell me that Egypt had little influence on Nazarbayev's decision to backtrack from his planned decade-long term extension. More likely, said one, is that Nazarbayev's motivation was to freeze out rivals with dreams of succeeding him, which the snap election resolves almost as well and perhaps better than the referendum idea. After all, like asking your boss for a 25 percent raise, 10 years can seem like overreach.
Yet even if Nazarbayev had been getting cold feet prior to Egypt, he could not be indifferent to the turmoil in the Middle East. Even if a popular rebellion appears highly unlikely at the moment, much can change: No dictator wants to spend a decade looking over his shoulder. Certainly this thought cannot be far from the minds of autocrats around the world.
Hundreds of thousands of Egyptians are in the streets, Bedouins are threatening the Suez Canal, and one of the West's most reliable Arab allies is on his way out. As a result, oil prices soared last week by ... 23 cents a barrel.
That's right, folks. Oil traders turned Friday into a manic scene of futures buying -- trading on the U.S. side of the Atlantic was at an all-time high, according to Bloomberg -- yet did not push the oil price through $90 a barrel. In the United Kingdom, Brent crude butted up against $100 a barrel, but again did not penetrate the psychological barrier. As of this morning, oil prices are down.
The takeaway: We are again seeing the intersection of so-called "spare capacity" -- how much surplus oil can be produced above and beyond current demand -- and the base desire of oil traders to earn really big money really fast.
A lot of traders did do well on Friday by pushing up the price by 4 percent (which compensated for losses earlier in the week), though they did so by hammering hedge funds that had earlier bet the other direction, Bloomberg reports.
Officially, the world's oil producers have about 6 million barrels a day of spare capacity -- their daily productive ability above and beyond what the market needs. But a lot of observers think the official number is exaggerated - they think spare capacity is more like 4.5 million barrels a day. The belief in the lower number is what is allowing traders sometimes to push up prices in a crisis such as Egypt.
Over at OPEC, there is consternation over prices. In a speech in the United Kingdom, OPEC secretary general Abdalla el-Badri noted that oil inventories are above their five-year average, and repeated a complaint of other OPEC officials in recent years -- in effect, oil traders drive up the price, and OPEC gets the blame. Bloomberg quotes him:
OPEC has consistently said in recent times that prices are disconnected from the physical oil market and are increasingly subject to the paper market. Consequently the market is dominated by financial players, which is misleading when it comes to understanding the behavior of the oil market.
Few oil traders are actually worried about the Suez Canal, through which about 1.8 million barrels a day of oil and oil products flow. Here is a snippet from a note to clients sent by Helima Croft and Amrita Sen of Barclays Capital:
We believe the Canal does not appear to be under immediate threat from the current political crisis in Egypt. Although the industrial city of Suez has witnessed some of the worst violence during the past week, there have been no reported attempts to target ships. Even if Western companies become a major target for the protestors, we believe that shipping traffic through the Canal is unlikely to be seriously imperiled, though some individual ships docked in port might be at risk of attack if the situation deteriorates further. Even in the unlikely event that the there is an attempt by some groups to disrupt shipping traffic, it would not necessarily be easy to accomplish. There are no indications that the protesters in Egypt have yet developed the intent or capabilities to carry out organized attacks on tankers like that seen in the case of the USS Cole.
That final sentence of course refers to the 2000 al-Qaeda attack on a U.S. naval vessel in Yemen.
Instead, we are seeing classic casino behavior. Here is Frank Verrastro, director of the energy at the Center for Security and International Studies in Washington, in an email conversation over the weekend: "Even if no barrels were impacted, the bullish run on oil will use this or any other supply threat to push prices up. "
There has been so much instant punditry over the last several weeks predicting the fall of various Middle East governments that I wondered - if Tunisia is so important, why hasn't it inspired uprisings elsewhere in the tyrannical world as well? Russell Zanca, a long-time Tashkent hand and a professor at Northeastern Illinois University, examines the question in the former Soviet space.
Given the outbreak of Middle East unrest, the Obama administration has warned the region's autocrats against continuing to ignore the popular aspirations of their constituents. Yet while it's been easy to draw a straight line from Tunisia to Egypt, Yemen and perhaps even Algeria, one wonders why the dictators of Eurasian countries such as Belarus, Turkmenistan and Uzbekistan fear no such public protests. Almost the same men have led these republics for 20 years, have brutalized their citizenry, rigged elections, imprisoned and drugged opponents, and left much of their populations in poverty while a slender elite lives lavishly. Yet there is no evidence that any stands a shred of a chance of being thrown out of power by his people.
Ousting stubborn leaders is not a function of how fed up people are, nor how well developed opposition forces are. To be sure, these factors can better the chances of a dictator's demise, but they will not necessarily push him over the edge. Rather, people must have the sense that they can rid their country of the despised one by risking their lives in the streets and staying united.
So why are those conditions not present in former Soviet Eurasia? Last month, it looked as if Belarusian masses were united, and willing to take the big risks with a worthy assortment of capable, committed opposition forces following dubious presidential elections. However, what the Belarusians on the streets obviously underestimated was President Alexander Lukashenko's security forces; they were better united and more committed than the masses, and violently put down street protests, arresting and beating up rival candidates.
In Turkmenistan, people may be dissatisfied with their lot under the Berdymukhamedov dictatorship, but we have seen almost no demonstrations or unrest since independence in 1991. Turkmen dissidents in exile have almost no impact on the folk back home, especially when local access to foreign media is severely limited.
Similarly, it is unlikely that Uzbeks will rebel against President Islam Karimov, who has ruled Uzbekistan since 1990. If Uzbeks think it could be better under a different president, they have not unified under that thought in the numbers necessary to face down the enormous risk of public protests. It is not hard to recall that just six years ago, Karimov's troops shot dead hundreds and possibly thousands of protesters in the city of Andijan. This policy of maximum bloodshed proved extremely effective. Uzbeks have been so terrorized that since then there have been no significant public expressions of discontent.
As a cultural anthropologist, I am often asked if Karimov's continued reign isn't attributable to some aspect of Uzbek culture. For example, there is the idea that Uzbeks are meek by nature, and that their "cult" of respect for elders extends to an unquestioning respect for those holding political power. Even Uzbeks themselves occasionally suggest that people are much more concerned about the need to have something good cooking on the stove, that they steer clear of openly criticizing the regime because they are just too focused on surviving till the next day. While there may be grains of truth to each suggestion, they are just that -- grains of truth.
Modern Uzbek history (from at least the mid-19th century) is replete with Uzbeks offering up their rebellious spirits, overthrowing amirs in the process as well as sacrificing themselves against tsarist and Soviet infidels into the 20th century.
They are not massing in the streets today despite mass anger toward the regime, because the risks simply are too great. Instead, Uzbeks have channeled dissatisfaction, for the time being at least, into a non-confrontational and apolitical path known as labor migration to other countries such as Kazakhstan and Russia. These physical movements entail risks as well, but people don't see them as futile in the way demonstrating would be. After all, protesting on public squares earns one less money than road-building in Moscow's suburbs.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.