Monthly Archives: March 2011

The U.S., Oil and the Libyan War

The U.S., Oil & the Libyan War

Dispatches From The Edge

Mar. 24, 2011

Cynicism is not a healthy sentiment, and as the late Molly Ivins pointed out, it absolutely wrecks good journalism. But watching events in the Middle East unfold these days makes it a pretty difficult point of view to avoid.

Let’s take the current U.S bombing of Libya. The rationale behind United Nations Security Council Resolution 1973 is to protect civilians from being beaten, shot up, and generally abused.

But while this applies to Libya, it does not apply to Bahrain, Saudi Arabia, or Yemen, where civilians are also being shot up, beaten, and generally abused. Is this because Moammar Gadhafi is uniquely evil? Crazier and odder, certainly, but being in the “opposition” in any of those countries is not a path to easy retirement. Civil liberties don’t exist, prisons are chock full of political prisoners, and getting whacked if you don’t like the leader is an operational hazard.

So what’s it all about? Okay, here is the cynical joke: “Is it all about oil? Nope. Some of it is about natural gas.”

Too simplistic? Maybe, but consider the following.

1)    In 2009, the U.S. Energy Information Administration predicted that world oil reserves had “peaked” and that over the next several decades supplies would drop and prices would rise. There is some controversy over the study, but there is general agreement that easy-to-get petroleum sources are getting harder and harder to find.

2)    Approximately 65 percent of the world’s remaining oil reserves are in the Middle East, as well as considerable amounts of natural gas. Iran has the second greatest reserves of gas outside of Russia.

3)    The U.S.—with the largest economy in the world—uses around 21 million barrels of oil per day (bpd). Since it produces only 7.5 million bpd domestically, it imports two thirds of its oil. Its major sources are (in descending order) Canada, Mexico, Saudi Arabia, Nigeria, Venezuela, and Iraq.

4)    China—the world’s number two economy—uses about 8 million bpd, a demand that is projected to rise to 11.3 million bpd by 2015. Since it only produces 3.7 million bpd domestically, it too relies on imported oil.  It main suppliers are (in descending order) Saudi Arabia, Iran, Angola, Russia, Oman and Sudan.

It is estimated that, sometime between 2030 and 2050, China will surpass the U.S. and become the world’s number one economy—provided that it can secure enough energy for its growing industrial needs. Insuring access to oil and gas is a major focus of Chinese foreign policy, particularly because Beijing is nervous about how it currently obtains its supplies. Some 80 percent are transported by sea, and all of those routes involve choke points currently controlled by the U.S. The U.S. Fifth Fleet based in Bahrain controls the Hormutz Straits, through which Saudi Arabian, Iranian, and Omanian oil passes. The Fifth also dominates the straits of Bab el-Mandab that control access to the Red Sea and through which Sudan’s oil is shipped into the Indian Ocean. In addition the Malacca Straits between Sumatra and the Malay Peninsula is the major transit point for oil going to China. The U.S. Seventh Fleet controls that choke point.

China’s nervousness over its sea-based oil supplies is one of the major reasons behind Beijing’s crash naval program, its construction of ports in South and Southeast Asia, and its efforts to build land-based pipelines from Russia, Central Asia, and Pakistan.

The Chinese are also trying to cope with the fact that Iran, its second largest supplier of oil and gas, is currently under international sanctions that have reduced production and cut into China’s supplies. Beijing has invested upwards of $120 billion to upgrade Iran’s energy industry, but recently has had to cutback investments because its banks could end up being sanctioned for helping out the Teheran regime.

The Chinese are not the slightest bit cynical about why the U.S. is bombing Libya and not challenging Bahrain and Yemen: Bahrain hosts the U.S. Fifth Fleet, and Yemen’s port of Aden dominates the Red Sea. China can play chess.

As for Libya. The U.S. doesn’t get oil from Libya, but its allies in Europe do. And the current crisis is African Command’s (Africom) coming out party. Up to now the record of the spanking new military formation has been less than impressive. First, no one would host it, because the U.S. military in Africa makes the locals nervous. So it is still based in Germany. Then it coordinated the absolutely disastrous Ethiopian invasion of Somalia that ended up turning most of the country over to the extremist Shabab.

But Libya is a fresh slate for Africom, and that is making the Chinese even more nervous (and explains why they have been so cranky about civilian casualties in Libya). When Africom was in its infancy it war-gamed a military intervention in the Gulf of Guinea in case “civil disturbances: caused any disruptions in oil supplies. Angola, China’s other major African supplier, is in the Gulf of Guinea. It hardly seems like a coincidence that, at the very moment that African oil supplies become important, the U.S. creates a new military formation for the continent. Africom is currently advising and training the military forces of 53 countries in the region.

Okay, so here you are in Beijing. Your industries are clamoring for power. Media in the United States reflect a growing hostility toward you, with headlines in newspapers reading, “The Chinese Tiger Shows Its Claws,” and U.S. politicians routinely blame you for America’s economic problems.  And the U.S. has basically puts its thumb on each one of your oil and gas sources. Nobody is cutting off any supplies at this point, but the implied threat is always there.

In end, it is not so much about oil and gas itself, as the control of energy. Any country that corners energy supplies in the coming decades will be in a powerful position to dictate a whole lot of things to the rest of the world. That’s not cynicism, its cold-blooded calculation. And right now a lot of people in the Middle East are paying the price of the ticket.



Filed under Middle East, Oil

Europe’s Austerity: A Grimm’s Fairy Tale

Europe’s Austerity: A Grimm’s Fairy Tale

Dispatches From The Edge

March 16, 2011

* In the Greek town of Aphidal, people have stopped paying road fees. In Athens, bus and metro riders are refusing to cough up the price of a ticket. On Feb. 23, 250,000 Greek protesters jammed the streets outside the nation’s parliament.

* The Portuguese nominated the protest song “A Luta E’ Alegria” (The Struggle is Joy) for the Eurovision song contest and, when judges ignored it, walked out in protest. They also put 300,000 people into the streets of the country’s major cities on Mar. 12.

* Liverpool bailed from a Conservative-Liberal scheme to supplement government funding with private funding when it found there wasn’t any of either, and the British Toilet Association protested the closure of 1,000 public bathrooms across the country.

In ways big and small, Europeans from Greece to Portugal, from Britain to Bavaria are registering their growing anger with the relentless assault inflicted by government-imposed austerity programs.

Wages, working conditions and pensions that unions successfully fought for over the past half century are threatened by the collapse of banking systems caught up in a decade-long orgy of speculation that the average European neither took part in, nor profited from. Even the so-called “well off” workers of Bavaria, Germany’s industrial juggernaut, have seen their wages, adjusted for inflation, fall 4.5 percent over the past 10 years.

The narrative emanating from EU headquarters in Brussels is that high wages, early retirement, generous benefits, and a “lack of competition” has led to the current crisis that has several countries on the verge of bankruptcy, including Ireland, Greece, Portugal and Spain. Now, claim the “virtuous countries”—Germany, the Netherlands, and Finland—it is time for these spendthrift wastrels to pay the piper or, as German Chancellor Andrea Merkel says, “do their homework.”

It is an interesting story, a sort of Grimm’s fairly tale for the 21st century, but it bears about as much resemblance to the cause of the crisis as Cinderella’s fairy godmother does to the International Monetary Fund (IMF).

While each country has its own particular conditions, there is a common thread that underlines the current crisis. Starting early in the decade, banks and financial houses flooded real estate markets with money, fueling a speculation explosion that inflated an enormous bubble. In climate and culture, Spain and Ireland may be very different places, but housing prices rocketed 500 percent in both countries.

The money was virtually free, with low interest rates on the bank side, and cozy tax deals cut between speculators and politicians on the other. That kept the cash within a small circle of investors. While Bavarian workers were watching their pay fall, German banks were taking in record profits and shoveling yet more capital into the real estate bubbles in Ireland and Spain. The level of debt eventually approached the grotesque. Ireland’s bank debts, if translated into dollars, would be the equal of $10 trillion.

The Wall Street implosion in 2008 sent shock waves around the world and popped bubbles all over Europe. While nations on the periphery of the European Union (EU) tanked first—Iceland, Ireland, Latvia, Romania, Hungry, and Greece, economies at the heart of the EU—Britain, Spain, Italy, and Portugal—were also shaken. According to the Financial Times (FT), total claims by European banks on the Greek, Irish, Italian, Spanish and Portuguese debts alone are $2.4 trillion.

The European Union’s (EU) cure for the crisis is a formula with a long and troubled history, and one that has sowed several decades of falling living standards and frozen economies when it was applied to Latin America some 30 years ago. In simple terms, it is austerity, austerity and more austerity until the bank debts are paid off.

There are similarities between the current European crisis and the 1981 Latin American debt crisis.  “In both cases debts were issued in a currency over which borrowing countries had no control,” says the FT’s John Rathbone. For Latin America it was the dollar, for Europe the Euro. Secondly, there was first a period of easy credit, followed by a worldwide recession.

Bailouts were tied to the so-called “Washington Consensus” that demanded privatization, massive cuts in social services, wage reductions, and government austerity. The results were disastrous. As public health programs were eviscerated, diseases like cholera reappeared. As education budgets were slashed, illiteracy increased. And as public works projects vanished, joblessness went up and wages went down.

“It took several years to realize that deflating wages and shrinking economies were inconsistent with being able to fully pay off debts,” notes Rathbone. And yet the “virtuous” EU countries are applying almost exactly the same formula to the current debt crisis in Europe.

For instance, the EU and the IMF agreed to bail out Ireland’s banks for $114 billion, but only if the Irish cut $4 billion over the next four years, raised payroll taxes 41 percent, cut old age pensions, increased the retirement age, slashed social spending, and privatized many public services. When Ireland recently asked for a reduction in the onerous interest rate for this bailout, the EU agreed to lower it 1 percent and spread out the payments, but only on the condition of yet more austerity measures and an increase in Ireland’s corporate tax rate. The newly elected Fine Gael/Labor government refused.

To pay back its own $152 billion bailout, however, the Greek government took the deal. But the price is more austerity and an agreement to sell off almost $70 billion in government properties, including some islands and many of the Olympic games sites.

But the “deal” will hardly repay the debt. Unemployment in Greece is 15 percent, and as high as 35 percent among the young. Wages have fallen 20 percent, pensions have been cut, and rates for public services hiked. Growth is expected to fall 3.4 percent this year, which means that Greece’s debt burden is projected to increase from 127 percent of GDP to 160 percent of GDP by 2013. “Your debt will continue to increase as long as your growth rate is below the interest rate you are paying,” economist Peter Westaway told the New York Times.

Austerity measures in Portugal and Spain have also cut deeply into the average person’s income and made life measurably harder.  In Spain, more than one in five workers are unemployed, and consumer spending is sharply off, dropping by a third this past holiday season. Portugal is actually in worse shape. It has one of the slowest economic growth rates in Europe, a dead-in-the-water export industry, and a youth unemployment rate of over 30 percent.

In Britain, the Conservative-Liberal government has cut almost $130 billion from the budget and lobbied for what it calls the “Big Society.” The latter is similar to George H.W. Bush’s “thousand points of light” and envisions a world in which private industry and volunteerism replaces government-funded programs. The actual result has been the closure of libraries, senior centers, public pools, youth programs, and public toilets. The cutbacks have been most deeply felt in poorer areas of the country—those that traditionally vote Labor, as cynics are wont to point out—but they have also taken a bite out of the Conservative Party’s heartland, the Midlands.

Conservative voters have organized demonstrations to save libraries in staid communities like Charlbury and to protest turning public woodlands over to private developers. According to retired financial officer Barbara Allison, there are 54 local voluntary organizations that run programs like meals on wheels in Charlbury. “We’re already devoting an awful lot of our time to charity and volunteers,” she told the FT. “Am I not doing enough? Is [Conservative Prime Minister] David Cameron going to volunteer?” In any case, as Labor Party leader Ed Milliband points out, how does Cameron expect people “to volunteer at the local library when it is being shut down?”

U.S. Treasury Secretary Timothy Geithner strongly endorsed the Cameron program last month and said that he “did not see much risk” that the cutbacks would impede growth. But even the IMF warns that the formula of treating debt as the central problem in the middle of an economic recession has drawbacks. This past October an IMF study concluded “the idea that fiscal austerity stimulates economic activity in the short term finds little support in the data.”

But a massive program of privatization does mean enormous windfall profits for private investors and the banks and financial institutions that finance the purchase of everything from soccer fields to national parks. Those profits, in turn, fuel political machines that use money and media to dominate the narrative that greedy pensioners, lay-about teachers, and free loaders are the problem. And austerity is the solution.

But increasingly people are not buying the message, and from Athens to Wisconsin they are taking their reservations to the streets. The crowd in Charlbury was a modest 200, and the tone polite. In Athens the demonstration drew 250,000 and people chanted “Kleftes,” or “thieves.” But the message in both places is much the same: we have had enough.

A bus driver in Athens told Australian journalist Kia Mistilis that his wages had been cut from 1800 Euros ($2500) a month to 1200 Euros ($1660). “There are more cuts coming into effect in the next three months, that’s why the protests are heating up. I am worried that my wages will be cut to 800 Euros ($1110) a month, and if that happens I don’t know how I will survive.”

But he has a plan. “The situation is reaching a climax,” he told Mistilis, “because working people know that the austerity measures go too far, and with the final rollout, they can’t survive. So there is nothing to do but protest,” adding, “You wait until next summer. The situation in Greece will explode.”

It is unlikely that Greece will be alone.



Filed under Europe, FPIF Blogs

Pakistan’s Nukes: The U.S. Connection


Pakistan’s Nukes :The U.S. Connection

Dispatches From The Edge

March 8, 2011


Washington—New American intelligence assessments have concluded that Pakistan has steadily expanded its nuclear arsenal since President Obama came to office…for the Obama administration the assessment poses a direct challenge to a central element of the President’s national security strategy, the reduction of nuclear stockpiles around the world.”—New York Times


The above words, written this past February, were followed by a Times editorial, titled “Pakistan’s Nuclear Folly,” decrying that “the weapons buildup has gotten too little attention,” and calling on Washington to “look for points of leverage” to stop it.


Well, the administration and the Times may be unhappy about Pakistan’s nuclear buildup, but it certainly should not have come as a surprise, nor is there much of a secret to the “points of leverage” that would almost certainly put a stopper on it: scupper the so-called 1-2-3 Agreement between the U.S. and India.


Back in 2003, Douglas Feith, then Under Secretary of Defense for Policy in the Bush Administration, pulled together a meeting of the U.S.-India Defense Policy Group to map out a blueprint for pulling New Delhi into an alliance against China. The code word used during the discussions was “stability,” but as P.R. Chari of the Institute for Peace and Conflict Studies noted, “What they really mean is how to deal with China.”


The Bush administration changed the Clinton Administration’s designation of China as a “strategic partner” to “strategic competitor,” and in its U.S.-China Security Review concluded that Beijing is “in direct competition with us for influence in Asia and beyond” and that in “the worst case this could lead to war.” Another Pentagon document revealed by Jane’s Foreign Report argued that both India and the U.S. were threatened by China, and that “India should emerge as a vital component of US strategy.”


One of the obstacles to that alliance was the Nuclear Non-Proliferation Treaty (NPT), which blocks any country that is not a signer from buying nuclear fuel on the world market. Since neither India nor Pakistan has signed the Treaty, they can’t buy fuel from the 45-member Nuclear Suppliers Group. That has been particularly hard on India because it has few native uranium sources and has to split those between nuclear energy and nuclear weapons. The ban, however, is central to the NPT, and one of the few checks on nuclear proliferation.


But the Bush administration proposed bypassing the NPT with the so-called 1-2-3 Agreement that permitted India to purchase nuclear materials even though New Delhi refused to sign the Treaty. India would agree to use the nuclear fuel only in its civilian plants and open those plants for inspection by the International Atomic Energy Agency (IAEA). But the Agreement also allowed India to divert its own domestic supplies to its weapons program, and those plants would remain off the inspection grid. In short, India would no longer have to choose between nuclear power and nuclear weapons: it could have both.


In July 2008, Pakistan’s then Foreign Minister Khurshid Kusuri predicted that if the 1-2-3 Agreement went through, “The whole Nuclear Non-Proliferation Treaty will unravel,” and, in a letter to the IAEA, Pakistan warned that the pact “threatens to increase the chances of a nuclear arms race in the subcontinent.”


However, neither the Bush administration nor the Obama administration paid any attention to Pakistan’s complaints. The results were predictable.  Pakistan ramped up its nuclear weapons program and may soon pass Britain as the fifth largest nuclear weapons nation in the world.


It also dug in its heels at the 65-nation 2011 Conference on Disarmament in Geneva and blocked a proposal to halt the production of nuclear weapons-making material.  The 1-2-3 Agreement and the push to bring India into the Nuclear Suppliers group, warned Ambassador Zamir Akram, were “undermining the validity and sanctity of the international non-proliferation regime” and would “further destabilize security in South Asia.” The Fissile Material Cut-Off Treaty (FMCT) is a priority for the Obama administration.


Islamabad is not alone in its criticism of the 1-2-3 Agreement or the FMCT. A number of nations are challenging NPT signers, including the U.S., China, Russia, Britain and France, to fulfill Article VI of the NPT that requires the elimination of nuclear weapons. While the U.S. and Russia have reduced their arsenals, both still have thousands of weapons, and the Americans are in the process of modernizing their current warheads.


Pakistan is a far smaller country than India, and would likely face defeat in a conventional conflict. It has already lost three wars to India. Its ace in the hole is nuclear weapons, and some Pakistanis have a distressingly casual view of nuclear war. “You can die crossing the street, or you could die in a nuclear war,” remarked former Pakistan army chief Gen. Mirza Aslem Beg. A BBC poll found that the Pakistani public has an “abysmally low” understanding of the threat.


Many Indians are not much better. Former Indian Defense Minister Georges Fernandes commented that “India can survive a nuclear attack, but Pakistan cannot.” And that same BBC poll found that for most Indians “the terror of a nuclear conflict is hard to imagine.”


Both countries have recently rolled out cruise missiles that are capable of carrying nuclear warheads. The Pakistani Hatf-7, or “Babur,” has a range of almost 500 miles and a speed of 550 miles. It appears to have been copied from the U.S. BGM-109 “Tomahawk,” several of which crashed in Pakistan during 1998 air strikes against Afghanistan. The Indian PJ-10 BrahMos cruise has a shorter range—180 miles—but a top speed of 2100 mph. India and Pakistan also have ballistic missiles capable of striking major cities in both countries.


In its editorial declaiming Pakistan as guilty of “nuclear folly,” the Times pointed out that “Pakistan cannot feed its people [or] educate its children.” Neither can India. As a 2010 United Nations Development Program report discovered, as bad as things are in Pakistan, life expectancy is lower in India, and the gap between rich and poor is greater. In fact, neither country can afford large militaries—Pakistan spends 35 percent of its budget on arms, and India is in the middle of a $40 billion military spending spree—and a nuclear war would not only destroy both countries, but also profoundly affect the entire globe.


Nuclear weapons are always folly, but what is sauce for the goose is sauce for the gander. The U.S. currently spends in excess of $1 trillion a year on all defense and security related items, while our education system is starving, our infrastructure is collapsing, and hunger and illiteracy are spreading.  If the Times wants to ratchet down tensions in South Asia, let it call for dumping the 1-2-3 Agreement and beginning the process called for in Article VI of the Nuclear Non-Proliferation Treaty: “Each of the Parties to the Treaty undertakes to pursue negotiations in good faith on effective measure relating to the cessation of the nuclear arms race at an early date and to nuclear disarmament, and on a Treaty of general and complete disarmament under strict and effective international control.”













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Irish Left Shows Its Claws

Left Shows Its Claws in Irish Vote

Dispatches Fropm The Edge

Feb. 28, 2011

While the media focused on the massacre of the conservative Fianna Fail Party in the recent Irish elections, the real story may be the earthquake on the Left, particularly the success of the new kids on the block, the United Left Alliance (ULA).

In terms of total seats, the big winners in the Feb. 26 vote were the conservative Fine Gael Party that went from 51 to 76 seats, and the Labor party that jumped from 20 to 37 seats. But Sinn Fein more than doubled its seats in the Irish parliament, or Dail, from 6 to 15, and the ULA picked up five seats. For the first time in Irish history, the Left—Labor, Sinn Fein and the ULA—hold a majority of the seats in the country’s largest city, Dublin.

The backdrop for the election was the catastrophic collapse of the Irish housing market, and the subsequent cratering of the economy. Ireland went from “Celtic Tiger” to a European basket case and a jobless rate of 13 percent.  Fianna Fail’s policies of privatization, dismantling economic checks and balances, and encouraging on-the-margins speculation were largely responsible for the economic implosion, and the voters punished them for it. The party that had dominated Irish politics for more than 80 years went from 77 to 19 seats, the worst defeat in its history. Its partners in crime, the Greens, were exterminated.

Most observers expect Fine Gael and Labor to form a coalition that would give them a working majority in the 166-seat Dail, although it may not be a comfortable alliance. Fine Gael’s politics are not all that different than Fianna Fail, although Fine Gael’s leader and presumably new Prime Minister, Enda Kenny, has pledged to try and renegotiate the terms of the $117 billion International Monetary Fund/European Bank (IMF/EB) bailout. The bailouts requires Ireland to cut more than $20 billion from its budget over the next four years, raise taxes on working people, cut social services, and accept a usurious interest rate of 5.8 percent.

The Labor Party has made noises about forcing some of bank bondholders who profited from the speculation binge to pay some of the costs, although European banks are deeply opposed to that. Much will depend on what Kenny can get German Chancellor Andre Merkel to agree to, which most likely means a cut in the interest rate. Even the conservative Irish Business and Employers Confederation are pressing to cut the interest rate.

But pushing the interest rates down is hardly a challenge to the premise behind the bailout: that Ireland’s working people should pay for the speculation binge, an orgy of profit making that they did not partake in.

However, a solid block on the Left could push the debate in the direction of reevaluating that premise, and maybe move Labor in a more left direction. There are some 15 other “independent” voters that might also be lured into a coalition to challenge the bailout, although the ideological range among those independents leans more toward the center-right.

Sinn Fein says it opposes the current bailout, and cuts in social services, but hedges its bets when it talks about who its potential allies might be. The party is socialist in orientation and is closely associated with the Provisional Irish Republican Army. It can take a good deal of credit for bringing peace to Northern Ireland, and those laurels certainly helped it in the Feb. 25 election. But the Irish Republican News of Feb. 26 reports, “Sinn Fein President Gerry Adams has left open the possibility of supporting a minority Fine Gael government.”

If Labor goes into a government with Fine Gael, the resulting coalition would have over 100 votes in the Dail, which is hardly a “minority” government. The remark, then, suggests that Adams is launching a trial balloon:  a Fine Gael/ Sinn Fein coalition that would hold a narrow majority in the Dail.

Such an alliance would not sit well with the ULA, whose program explicitly rules out “any coalition with right wing parties…particularly Fianna Fail and Fine Gael.”  Indeed, the ULA says, “We aim to provide a real alternative to the establishment parties as well as Labor and Sinn Fein.” The three parties in the ULA coalition that put deputies in the Dial are the People Before Profit Alliance, the Socialist Party, and the Workers & Unemployed Action Group.

Newly elected UAL Dial member Joe Higgins, a member of the Socialist Party, said that the coalition’s block  “will work as a coherent, principled opposition,” adding, “there is a need for a new party on the left for working people.” The UAL is not a party yet, but according to Higgins the coalition is discussing how to make that come about.

The ULA has a six-point program that includes:

  • Dumping the IMF/EB deal and ending “the bailout of the banks and developers.”
  • A progressive tax system that “taxes the greedy not the needy.”
  • A social development program to build up the country’s infrastructure and create “hundreds of thousands of jobs.”
  • Reversing the cuts to social services and the privatization of health care.
  • Ending discrimination bases on gender, race, nationality, age, disability or sexual orientation. The coalition supports gay marriage.
  • Protecting the environment.

The ULA also says it wants to form a network of similarly minded parties across Europe, “to fight the attacks on workers, the unemployed and the poor and to fight for a new vision of society.”

Ireland faces rough sledding in the months ahead, though it will hardly be alone. Portugal’s economy is almost as bad, and the IMF and the European Bank is starting to draw up a similar set of draconian bailout policies for Lisbon. If the Irish can come up with a strategy to resist shifting the financial crisis onto the backs of those least able to pay for it, that might be a blueprint for other countries ravaged by debt and economic malaise.

The elections made it clear that the Irish want a change, and the Left has an opportunity to develop “a new vision of society.” Now that would get Irish eyes to smile.


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