Thursday, January 08, 2009

The Gazprom Episode

Russia's oil & gas resources not only fills their coffers with money but also adds muscle when it comes to political negotiations. On January 1, the Russian state-run gas company Gazprom closed their pipes that supplies 25% of gas to most of the European countries. This is their argument: The pipes run through Ukraine to other countries. Ukraine has been stealing gas. And going forward they'll have to pay the market value which is $430/cum from their current subsidized $180/cum. This decision comes in the middle of a chilly winter and most of the eastern European nations that heavily depend on this supply to heat their homes, not to mention some of the industries.

Except for island nations, most of the countries today have political issues with their neighbors because of contiguous borders. And there are evergreen discussions to solve them without affecting the daily routine. Responsible nations don't react as sharply as Russia did to seriously undermine the daily affairs of so many dependent countries. One of the reasons is because of the free fall in the price of oil: from $144/barrel in July' 08 to $43 today. Such drops have left Russian foregin reserves in bad shape and Putin is trying to make it up by flexing his negotiating muscle through Gazprom. The other reason is that this cut-off could serve as a warning message to Ukraine for seeking NATO membership. Russia has expressed displeasure at having too many NATO members close to its western border. (Since politically powerful European players like Germany and France too depend on Russian supplies, they turn a blind eye to Ukraine's request for NATO entry.)

Russia is not entirely unjustified in its demand: it has been buying gas from Uzbekistan and Turkmenistan and they have increased their prices. There's also demand for energy from China which contributes to a spike. But cutting off the supply doesn't only grind the gears to a halt, it also has a lot of socio-economic repercussions. Bulgaria, which heavily relies on Russian supply, has about 20 days of energy resources and their economy could cripple if the gas pipes remain locked. Industries are halting production in Hungary and Romania. Many households are bracing to face harsh winter without heat. Although the dependent countries could call Russia & Ukraine 'irresponsible & uncivilized', they also feel the political power of Russia and the effects of antagonizing it.

Twenty years since the end of cold war the west & Russia have only warily shaken hands and have tried to gain geopolitical allies next to their cold enemies. While a bunch of ex-Soviet breakaway countries are now in NATO, Russia signs a multibillion dollar military deal with Venezuela (the largest non-Arab oil supplier). While US bullies by means of shadow confrontation (mostly economic sanctions), Russia bullies like a bully. While Russia is home to a huge number of billionaires and while Moscow is touted as the most expensive place on the planet, the gap between the rich & poor is dizzyingly high. The oil price drop in the eighties is attributed as one of the reasons for the downfall of the Soviet regime. While hard-negotiations like the Gazprom seal may turn out to be in favor of Russia in the short term, it has to understand that it isn't making any friends. Call me idiotically optmistic, I believe we're going to see some viable alternative fuel technologies in 10 years from now and its not coming from Russia. And when the market frenetically switches to them the energy giants are going to find themselves neither with friends nor with any clout.

Monday, January 05, 2009

Economic Peace

Charles Krauthammer writes for the Post:
For Hamas, the only thing more prized than dead Jews are dead Palestinians.
Charles explodes the car bomb at the center of the market (well, my context-equivalent of 'hitting the nail on the head'). Hamas spreads their ammunition and military leaders very well among civilians that it becomes hard for Israelis to isolate and target them. The inevitable civilian casualty is used as a political brownie for the Hamas leaders to send a message to nearby Islamic capitals. In fact, the bigger the number, the better it is for Hamas to paint their horror picture. While the editors of a Pakistani daily write '...amply demonstrate the Jewish state’s unending thirst for Palestinian blood' they make no mention of the 2000+ rocket launches aimed at Israeli civilians in the past two years. While young men from Iran are willing to be suicide bombers to teach the Jewish state a lesson and their leaders funnel arms into Gaza, did any of Hamas' Arab neighbors worry about building the place... building as how it happens in actual development.

Hamas has always been more interested in the destruction of Israel than the construction of Palestine. Well, I'm not even sure if Hamas leaders ever discussed anything about roads, bridges, schools, colleges, hospitals, doctors, social welfare or even a freaking decent TV show. Hamas has done very poorly as a democratically elected party to address the basic necessities of an average person. Most of the money poured in for development has been well spent on buying rockets and digging tunnels to smuggle those rockets. But there weren't any mass rallies protesting the incompetence & corruption of the management like the ones over offensive Danish cartoons. When Israel's foreign minister says they'll retaliate (not instigate), a Hamas leader responds that they'll continue their attacks - which is only going to result in a strong retaliation, which will result in more deaths, which will provide a strong political capital for Hamas leadership to seek sympathy votes among middle-east.

The stated problem revolves around territorial integrity and religion. One can only achieve ceasefire, not peace in the region when the leaders talk at Camp David. You can call it an accord or a treaty, but in a practical sense it's only an extended ceasefire until someone loosens their grip - and in most cases it will be from a Palestinian territory. I believe lasting peace can only be achieved when there is considerable economic growth. The poverty level is crushing, the unemployment rate is unbelievably high and the leaders incite the youth in terms of nationalism, religion and Israeli oppression. That's why young men line up for the suicide bomber squad. If they all had a decent job and were able to feed their families and had a sense of reasonable financial safety that they wouldn't be broke the next day or week or month, their quest for their homeland and eviction of Israelis would only be of theoretical interest - something that's discussed in tea shops and when they get home they'll worry about how to get their kids to colleges.

Geographically extrapolating, the middle-east cannot for long run their show: drill oil, sell oil, subsidize everything and live happily ever after. They have to look at Turkey which wants to be a modern state morphing itself to align with EU. They they have to look at Dubai and start inviting investors and create a conducive environment for real growth. They have to fund state-sponsored schools better than madrasas. They have to include women in building the society. Unless there's a fundamental change in the way Hamas top brass thinks, not of military leadership but of economic leadership, there's going to be conflict around the corner. I'm extremely saddened when I look at the hospitals in Gaza. The death of 530+ which includes a lot of women and children does seem like a disproportional response. But if one of those killed children would have later become a suicide-bomber, I would say Israel proceeded in the right direction.