Robert M. Cutler on Energy and Eurasiatag:www.robertcutler.org,2010:/blog//12010-09-30T13:36:13ZMovable Type 3.33Kazakhstan continues economic recoverytag:www.robertcutler.org,2010:/blog//1.4232010-09-30T13:30:45Z2010-09-30T13:36:13ZCurrency devaluation and banking reforms appear to have set Kazakhstan strongly on the road to recovery. A ministerial shake-up, which appears more rational than President Nursultan Nazarbaev's usual reorganizations, and higher oil export duties next year, should help to maintain the economy's strength
Kazakhstan's economy has responded strongly to the return of international demand for its energy, mining and manufacturing exports, growing at an 8% rate during the first half from the equivalent period in 2009. That is helping to fuel optimism that Astana looks like weathering the global financial crisis in much better shape than many other countries.
First published in Asia Times Online, 1 October 2010.]]>
Turkmenistan signals Nabucco intentionstag:www.robertcutler.org,2010:/blog//1.4222010-09-23T11:45:00Z2010-09-29T14:47:59Z
Tectonic shift under way in Turkmen gas, 28 May 2010; also Nabucco spurs Caspian projects, 4 June 2010.)
The CCP is part of the western branch of the Soviet-era Central Asia-Center (CAC) pipeline, which itself is more a spidery network than a pipeline, running through Uzbekistan and Kazakhstan into Russia. In December 2007, Turkmenistan, Kazakhstan and Russia signed an agreement to refurbish and reconstruct the CCP, with each country responsible for carrying out the works on its own territory; however, none of that ever happened.
Berdimuhamedow's words raise the possibility that Turkmenistan may reconstruct its own segment of the CCP, running along the coastline in the country's northwest, to connect it up to the East-West Pipeline. But why would it do so? Energy relations with Russia are at low ebb, and with Kazakhstan President Nursultan Nazarbaev's criticism of Europe for dragging its feet on Nabucco it seems unlikely that Kazakhstan has done any work on its own segment of the CCP for export of gas to Russia. (For background, see Nazarbaev faults Europe on Nabucco, 29 July 2010),
The answer is the following. As is well known, there continues to be a territorial disagreement between Turkmenistan and Azerbaijan over the principle by which to delimit national offshore sectors for undersea resources, and this has impeded the former's gas from transmission into the latter's infrastructure that could take it to European consumers. (See Another trans-Caspian pipedream, 24 October 2007; and The Caspian boils again, 31 July 2009.)
Although it would be possible to agree terms to construct a trans-Caspian gas pipeline between those two countries in the absence of agreement over that territorial question, another eventual possibility has been to build a pipeline from an offshore Turkmenistani field now under exploration so as to intersect an undersea Kazakhstan-Azerbaijan pipeline that will take gas from Kazakhstan's offshore Kashagan deposit under the sea to its western shore. That gas is projected to fill an onshore pipeline to be constructed by Kazakhstan along its seacoast from Eskene to Aqtau, whence an undersea pipeline could be constructed to Azerbaijan. (For details, see: Baku gas price deal moves Nabucco forward, 7 May 2010; and Nabucco ink starts to flow, 16 July 2009.)
Thus Berdimuhamedow implicitly evokes the possibility that onshore gas from Turkmenistan (through the East-West Pipeline) may transit a refurbished and reconstructed CCP, not for export to Russia through Kazakhstan but rather for export overland to Kazakhstan. That gas would then reach Aqtau and take a left turn to join (or even precede, since Kashagan development and Eskene-Aqtau pipeline construction will take some time) Kazakhstani gas in an undersea Kazakhstan-Azerbaijan pipeline towards a European destination.
He implicitly evoked this possibility in his original announcement of the projected length of the East-West pipeline. The distance between his two estimates of its length is 200 kilometers: approximately the distance from the East-West Pipeline's western terminus proper to the Kazakhstan border itself. To say that the East-West Pipeline will be "laid along the coast of the Caspian Sea" is to say that the Turkmenistani segment of the CCP will be explicitly considered as an extension of the East-West Pipeline itself.
Such a route would help to justify and kickstart the Eskene-Aqtau gas pipeline, in turn facilitating implementation of Kashagan development. The cost-effectiveness of liquefied natural gas and compressed natural gas technologies is also being studied.
A further indication of Turkmenistan's intent to dedicate the East-West Pipeline for export to Europe comes from information reported earlier this month by the Indian Express newspaper, that Ashgabad has informed the Technical Working Group on the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline that gas for this project will not come from Dauletabad as previously planned but rather from the South Yolotan-Osman supergiant field that is already also supplying China via a pipeline transiting Uzbekistan and Kazakhstan. (For background, see Gas pipeline gigantism, 17 July 2008.)
Despite the planned extension of the Turkmenistan-Iran gas pipeline to Dauletabad on the Turkmenistan side, there is not enough demand by Iran to account for such a switch. The only reasonable conclusion is that Berdimuhamedow sees Dauletabad gas going to Europe through the East-West Pipeline.
Turkmenistan has been exporting gas to northeastern Iran for years, although during the Turkmenbashi era (that is, the presidency of Saparmurat Niyazov, who died in December 2006), sales targets were rarely met for a variety of administrative and industrial reasons. Since Berdimuhamedow came to power, the gas trade has been regularized and apparently put on a more systematic footing, to such a degree that earlier this year a pipeline extension was opened with a view towards increasing gas exports from the current reported level of 8 bcm/y to 20 bcm/y. The existing pipeline, which opened in 1997 runs from Koropeje to Sarakhs.
There has been some misunderstanding of this project even in the specialized international commentary and analysis. It is not a new pipeline that is involved. Rather, the existing pipeline from Koropeje in Turkmenistan to Kordkuy in Iran will have additional compressor stations installed in order to increase its carrying capacity. On the Turkmenistan side, the existing pipeline will be extended to the Dauletabad field to provide for increased quantities, and it will be extended to Khangiran on the Iranian side to provide for increased processing capacity. The construction involved in extending the pipeline Iranian side is projected to take up to two years to execute.
The figure of 20 bcm/y that has more than once appeared in Western commentaries and analyses appears to be based on the supposition that this is a new (parallel) pipeline. It is not; it is an extension of an existing pipeline. In fact, the figure available in the specialized industry press for the capacity of the "new" pipeline is up to 14 bcm/y.
Since actual recent exports through the Korpeje-Kordkuy pipeline are reported in the range of about 6 bcm/y (despite a theoretical maximum capacity of 8 bcm/y), adding that figure to the potential exports of a "new" pipeline, if one existed, could account for the figure of 20 bcm/y. But as this clarification should make clear, that is not the case; moreover, it will take at least two years for the expanded volume to reach planned capacity. In the event, for technical reasons, the total annual export is likely to be closer to 12 bcm/y than 14 bcm/y; and that will take several years to accomplish, assuming the Iran is successful in its intention to extend the pipeline on its own side.
Construction of the East-West Pipeline will contribute to the ongoing unification of Turkmenistan's gas supply system, which has been under way, generally unremarked, for some time. Yet the consequences are considerable. In particular: with the additional planned construction of a connection between Dauletabad and the new South Yolotan-Osman field, it will become possible for Turkmenistan, merely by opening and closing the proper valves, to switch export quantities and export directions among north (Kazakhstan, Russia), south (Iran, Afghanistan, Pakistan, India), east (Uzbekistan, Kazakhstan, China), and west (Azerbaijan, Georgia, Turkey, Europe).
First published in Asia Times Online, 23 September 2010.]]>
Sri Lankan economy powers ontag:www.robertcutler.org,2010:/blog//1.4212010-09-17T11:41:00Z2010-09-23T11:56:48ZWhatever doubts Sri Lanka's local and overseas investors had about constitutional amendments reinforcing President Mahinda Rajapaksa's already appreciable powers, they did not show up in the stock market in the week since parliament approved the changes....
Whatever doubts Sri Lanka's local and overseas investors had about constitutional amendments reinforcing President Mahinda Rajapaksa's already appreciable powers, they did not show up in the stock market in the week since parliament approved the changes.
Daily Times,/em>. Consequently, he said, the IMF would release another US$200 million of a $2.6 billion stand-by arrangement approved in mid-2009. That fourth tranche would bring the total amount lent so far up to $1.2 billion.
The IMF report released last month added, however, that concern remains over difficulties in reducing the budget deficit, which reached 9.9% in 2009. The hope is to reduce this to 8% in the current year and then continue decreasing it until it reaches a "sustainable" level of 5%.
The IMF loan eased concerns over current-account balances and the financing of external debt and so signaled to foreign investors the international community's belief that economic reforms and liberalization would continue.
The Standard & Poor's rating company raised the long-term foreign-currency rating to B+ from B ahead of a $1 billion bond sale, and also its local-currency rating from B+ to BB-. Both upgrades were given "stable-outlook" prognoses but are still several levels below investment grade.
Sri Lanka has hired Bank of America, HSBC and Royal Bank of Scotland Group to arrange meetings with credit investors starting this week and lasting about 10 days, Bloomberg News reported.
The bond issue will increase the island nation's foreign reserves to $6.8 billion, as international investor confidence has increased following the IMF's package approved last year, itself following by two months the end of the long conflict with the Tamil Tiger rebels.
The already impressive rate of economic growth may be expected to increase further in 2011 and 2012 if reconstruction efforts get seriously underway and foreign direct investment continues to show confidence. Faster growth will be necessary to increase revenue to met budget deficit targets. The regime will have to balance lower taxes for investment promotion against that goal. Tourism has also increased significantly since the end of the civil war.
Yet the president's increase and consolidation of his the powers of his office, along with moves to establish what looks like a dynasty, have foreign investors already nervous. The president is himself minister of finance and minister of defense and holds two other portfolios besides.
His brother Gotabaya is in charge of all military and intelligence services, and his brother Basil heads the Economic Development Ministry and is in charge of investment promotion. The British newspaper The Guardian estimated that "[w]ith dozens more relatives in prominent positions, the net result is that the Rajapaksas control an estimated 70 percent of the national budget". In addition, earlier this year the president's son Namal made his political debut by winning a seat in parliament.
All this is why Forbes magazine is cautioning that "sentiment on the Sri Lankan economy may be beginning to turn", although there are increasing economic relations with such countries as Iran and China, which are not known for concerns over authoritarianism.
The stock market indeed looks due for a rest sometime soon. It is up phenomenally by over one-third in just the past two months, and by one-quarter since the cabinet approved the amendments at the end of the last month before they were submitted to parliament.
This cannot go on forever. Volatility is also to be expected in both directions. In three trading days near the beginning of August, the index plunged nearly 7%, ironically in response to the exchange's imposition of a 10% limit on daily stock moves.
First published in Asia Times Online, 23 September 2010.]]>
Turkish strength fragile in referendum run-uptag:www.robertcutler.org,2010:/blog//1.4122010-09-09T13:37:15Z2010-09-09T13:41:49ZHopes for a "yes" vote in this weekend's constitutional referendum in Turkey have helped drive up share prices, but with Prime Minister Recep Tayyip Erdogan's popularity slipping along with business confidence, optimism is fragile. The International Monetary Fund, meanwhile, is indicating its own doubts about the future.
The Turkish government's hopes for a victory in this weekend's closely fought referendum on changes to the constitution are being strengthened by an economic performance that in the first six months was possibly second only to China, after expansion of nearly 12% in the first quarter.
Today's Zaman reported. In 2007, 63% of respondents described his impact as positive and 33% as negative, the report said.
Economic growth is expected to moderate during the second half and into next year because the first three months of 2009 were especially poor for Turkey, as for most other countries, and the so-called "base effect" is a statistical artifact that is beginning to wear off. The country's sovereign credit rating, which has risen since the beginning of 2010, making borrowing less expensive, is unlikely to change.
Already, expansion of industrial production has slowed to 8.6% year-on-year in July, down from the 10.2% June figure and near half the monthly average of 15% in the January-July period this year. The country's most important industrial exports, as a percent of the total, are in the automotive sector, followed by machinery (13%), transportation, and iron and steel products.
The European Union is Turkey's most important export destination, and anemic growth there is helping to darken an already barely positive outlook. In August, Turkey's Purchasing Managers Index (PMI) for industry fell to 51.3 from 52.8 in July. A level above 50 signifies expectations of economic growth, and under 50 contraction.
Even so, shares on the Istanbul Stock Exchange (ISE), as measured by the bellwether ISE100 index, have continued to hold at around 60,000 after strengthening, with considerable volatility, from around 45,000 a year ago. Consumption, investment and government spending are all up strongly.
Volume has been less enthusiastic so far in the third quarter of the year than in the first half, and short-term technical indicators are ambivalent. As it has usually done, the ISE 100 continues slightly to outperform its sister ISE 30 index (used for derivatives trading) but, reverting to the usual pattern, it is no longer outperforming the Dow Jones Turkey Titans 20 (which focuses on the most widely traded and most liquid issues) as it did earlier in the year.
Despite reports of polls indicating that a referendum "yes" vote will be in the 55% range, the most reliable surveys show a statistical dead heat, with both the "yes" and "no" votes at about 45%, with the remainder undecided.
The recent run-up in the ISE 100, from about 58,200 on August 25, reflects hopes that a "yes" victory will convince the ruling Justice and Development Party (AKP) that it does not need to engage in excessive spending and economic pump-priming prior to next year's parliamentary elections, scheduled for July but which could be brought forward.
Supposedly, a "yes" victory in the constitutional referendum would give the AKP confidence in those elections, making pork-barrel largesse unnecessary. Economic observers fear such spending would unbalance the current growth, driving inflation and the government budget deficit.
On Wednesday, the International Monetary Fund (IMF) said Turkey should urgently pass "fiscal rule" legislation intended to govern spending, reduce the budget deficit and debt-to-gross domestic product ratio, otherwise the government risks weakening its credibility on fiscal discipline.
The IMF said in its Article IV Consultation report on Turkey that fiscal rule, postponed by the government last month until after the 2011 election, would introduce needed enhancements to transparency and public financial management.
However, as Emre Deliveli, a columnist for the Hurriyet newspaper and other publications, has observed in his widely respected syndicated blog, it is more likely that the government will undertake such spending regardless of whether it wins the referendum. "The longer-term consequences of such a policy," he points out, "would be disastrous, not only for the country's fiscal stance but also for inflation and monetary policy."
As for the Istanbul stock market, in the near term we may see a case of "up on rumor, down on news". No one except the Islamicist newspapers backing Erdogan seems to anticipate a resounding "yes" victory.
A "no" vote, according to Deliveli, is not "priced in" to current market levels, but he remarks that a narrow "yes" win could also have a negative short-term effect. "In any case," he writes, "the relative expensiveness of Turkish assets means that there is limited upwards potential, even in the case of a strong 'yes' victory."
A "no" would surprise most observers who have lately made bets in the market but in the longer run could be the best guarantee of political stability, because it could possibly motivate Erdogan, in power since March 2003, to moderate autocratic tendencies that have come to the fore and which have been widely remarked on.
There is no guarantee that the AKP will win the parliamentary elections, and he knows it. A coalition government, or even an alternation of parties in power, could actually be the best guarantor of the political stability necessary for continued economic confidence both inside and especially outside the country.
First published by Asia Times Online, 9 September 2010]]>
Copper Tells the Storytag:www.robertcutler.org,2010:/blog//1.4112010-09-09T13:31:18Z2010-09-09T13:36:33ZThe world price of copper both reflects and drives the hopes and fears of economic recovery and disaster....
The world price of copper both reflects and drives the hopes and fears of economic recovery and disaster.
The price of copper in China
Chinese buying was the main propulsion behind the price rises in copper and other base metals up until late 2008, when copper fell to $1.25 near the end of the year. Chinese industry then decreased production and consumed existing supplies. After that process, in early 2009, base metals prices jumped back on renewed Chinese buying. China was in fact expected to provide close to half of growth in global demand for industrial metals in 2009. However, poor demand in economic sectors ranging from construction to the automotive industry led to declines largely across the board.
Global stockpiles of copper declined throughout 2009 as Chinese demand increased, but (since copper like many other commodities is priced in US dollars) part of the increase in the metal's price also reflected the US dollar's weakness at the time. All commodities felt the effects of the dollar's problems but copper saw particular gains.
China is motivated also to acquire warehouse stocks of metal supplies beyond its immediate needs in the current demand cycle. Anthony Harrington, a Contributing Editor to Bloomsbury's QFinance and twice honored as UK Financial Journalist of the Year, told ISN Security Watch that "inventories in the London Metals Exchange (LME) monitored warehouses were still falling,” presumably due to Chinese purchases for their own warehouses. “By way of contrast, [the price of] aluminum has dropped … after BNP Paribas warned of a significant global aluminum surplus in 2010.”
According to Harrington, Chinese demand for copper has "at least two major sources: one is its desire to secure sufficient commodity stocks to continue its astonishing rate of growth, while the other is its desire to invest its mounting dollar surpluses in something other than US Treasuries."
Omens of the future
Since copper prices have strengthened in recent months, it is important to determine whether this is due to increased ‘real’ demand or to stockpiling. Last month, Chinese officials were forecasting annualized growth of 10 percent in the second half of 2010 and 11 percent for the full year. Harrington points out that this was taken as an optimistic sign for the markets even though US economic performance has been sluggish at best. However, despite the improvement in Chinese economic figures, expert consensus is recently coming down on the side of stockpiling.
That would mean slackening demand in months to come, with a fall-off in prices that could reverberate into weakness on the equity exchanges for the stock prices of producing companies. Indeed, Harrington notes, "Chinese officials … will not want to bid the price up against themselves, so [they will] sit on their hands and wait for the price to quiet down" since although "bulk buying on the scale that China has gone in for might start at advantageous prices for the buyer, [nevertheless] subsequent purchases will see the price moving upwards."
So significant is the metal that when state-owned Chinalco (Aluminum Corporation of China) offered $19.5 billion in early 2009 to double its stake in the world-class Australian mining company Rio Tinto from 9 percent to 18 percent, the move was seen in Australia as a threat to the country's economic autonomy. The government did not object when Rio Tinto instead found an arrangement with BHP Billiton.
Copper prices, stock markets and the financial crisis
Because of copper's significance for industrial activity, stock markets watch the world price. Higher prices are taken to mean higher demand, which is in turn taken to mean increased economic activity in the future. Especially today, in the new financial environment of increased share-price volatility around the world, stock markets also sometimes overreact to the swings in world copper prices.
Likewise because of China's importance as an importer and consumer, world stock markets are also sensitive to indicators of Chinese economic activity. "There is absolutely no doubt," Harrington says, "that if China were to announce that its economy was expected to miss, say, an 8 percent growth rate for 2010, that would have huge implications for a crash in global equity prices, and not just on mining stocks. However, the chances of this look remote" at the present time.
Macroeconomic fundamentals offer little support for copper or other base metals. Steel companies helped lead the recent Chinese stock market advance but copper imports and therefore prices are at potential risk if demand from other countries does not increase to pick up the slack.
India's consumption will be an important driver of global prices over the longer term, and Indian companies such as Hindalco and Sterlite are significant producers in their own right. The degree to which that is so, however, depends in part upon further electrification of the Indian countryside, to which there remain numerous bureaucratic obstacles.
First published by ISN Security Watch, 9 September 2010.]]>
Malaysia reaps reform benefitstag:www.robertcutler.org,2010:/blog//1.3972010-09-03T10:17:21Z2010-09-03T10:24:41ZEconomic reforms instituted by Najib Razak after he took over as Malaysian prime minister less than 18 months ago appear to be paying off. The stock market is driving ahead, exports of oil and electronics have soared, and domestic spending is on the rise. If there is a downside, it isn't showing yet.
When Najib Razak took over as Malaysia's prime minister at the beginning of April last year, following the election victory of the United Malays National Organization (UMNO), the country's main stock exchange index KLCI stood at 901.
First published by Asia Times Online, 3 September 2010.]]>
Turkmenistan Confirms Export Shift Away From Russiatag:www.robertcutler.org,2010:/blog//1.3982010-09-02T03:38:09Z2010-09-04T08:31:35ZIn mid-August, BP Azerbaijan announced that oil from Turkmenistan is now entering the BTC in Azerbaijan and will constitute between four and five percent of its present throughput of 800,000 barrels per day (bpd), which is being upgraded to 1.2 million bpd with a view towards eventual inclusion of oil from Kazakhstan’s offshore Tengiz field. These practical steps of cooperation...
In mid-August, BP Azerbaijan announced that oil from Turkmenistan is now entering the BTC in Azerbaijan and will constitute between four and five percent of its present throughput of 800,000 barrels per day (bpd), which is being upgraded to 1.2 million bpd with a view towards eventual inclusion of oil from Kazakhstan’s offshore Tengiz field. These practical steps of cooperation with Azerbaijan, combined with the mid-August announcement in Ashgabad of new directions in Turkmenistan’s gas export policy, point the way towards a European direction for future Turkmenistani production, not forgetting China and the possibility of South Asia, while Iran is given only marginal reference and Russia is ignored.
BACKGROUND
The ongoing energy debacle between Russia and Turkmenistan followed the April 2009 visit of Turkmenistan’s president Gurbanguly Berdimuhamedow to Moscow, where he shocked his hosts by declining to sign agreements finalizing arrangements for bilateral cooperation on refurbishing and reconstructing the Turkmenistani segment of the Caspian Coastal Pipeline (CCP, also called “Prikaspiiskii” and sometimes “Pre-Caspian”), which runs through Kazakhstan into Russia.
A trilateral agreement had been signed in 2007, but it had reserved to each of the three participating countries full autonomy and responsibility for carrying out the works on its own national territory. The original negotiations had begun under Berdimuhamedow’s predecessor Saparmurad Niyazov, on the basis of the latter’s original idea. They evolved so as to include important contracts to Russian companies for the work in Turkmenistan, partly in return for which these companies preferred to reserve control over the gas in the pipelines.
One month following Berdimuhamedow’s “April surprise” presented to Moscow, there was an explosion on Turkmenistan’s territory in a pipeline that was taking gas to Russia. Moscow blamed Ashgabad for the allegedly low technical expertise of its engineering personnel; Ashgabad returned the compliment by insisting that the Russian side had closed the valves on its side of the border with only two days’ notice. Proper procedure requires a week: Turkmenistan had been unable to decrease production volume and shut the valves on its side within the two-day interval, so the gas built up and the pipe exploded.
Moscow rejoined that the poor maintenance of Turkmenistan’s pipeline over many years was not its responsibility, but that it would be pleased to persuade its national companies to execute the repair work under certain conditions. In December 2009, an agreement in principle was announced in Ashgabad between presidents Berdimuhamedow and Dimitry Medvedev of Russia, according to which the two countries would cooperate in refurbishing and renovating a separate but related pipeline, the “East-West Pipeline” that crosses the southern region of the country to terminate not far from its Caspian Sea coast.
IMPLICATIONS
In May 2010, however, following a review of more than 70 international replies to a tender offer for that work, Berdimuhamedow announced that Turkmenistan had decided to execute itself the refurbishment and renovation of the East-West Pipeline. This pipeline could have fed the CCP that Russia wanted to help reconstruct, but now the gas that it will carry is free for export in other directions. Whether coincidence or not, the designed capacity for the East-West Pipeline project is 30 billion cubic meters per year (bcm/y), which happens to be the minimum volume required to make an undersea gas pipeline to Azerbaijan a commercial possibility.
Against that background come the new plans announced in mid-August in Ashgabad for further diversification of energy exports. While not failing to mention its existing partner China (to which Turkmenistan opened in January this year the first segment of a planned 40 bcm/y gas pipeline), and with which it is negotiating a US$ 4.1 billion soft loan for follow-on development of the South Yolotan field feeding that pipeline, Turkmenistan announced further diversification plans including unprecedented levels of cooperation with new and old Western partners. Berdimuhamedow announced in particular that bids for exploration and development of offshore resources (specifically, Blocks 9 and 20) would be preferentially considered not just from the United Arab Emirates firm Mudabala but also from three American firms: ConocoPhillips, TX Oil, and Chevron. Other American, British, and French firms are also in talks over offshore concessions. The Italian firm Eni was given an onshore concession: the first Western company to obtain one. (Only one other foreign company has achieved this, and it is Chinese.)
Turkmenistan has acknowledged that the oil it is now sending to Azerbaijan comes from its offshore Cheleken field and is destined for Europe. Separately, a Baku-based expert revealed that Turkmenistan was by mid-August unloading nearly 17,500 bpd, and that this volume would double by early September at the latest. Turkmenistan had bought two tankers from a Russian shipyard for this purpose, with a third soon to be delivered. One may then calculate a volume averaging out to 26,500 bpd, already more than three per cent of BTC’s current (reduced) stated throughput. Azerbaijan’s state oil company SOCAR confirmed increased volumes at the end of last week, giving an equivalent figure of “up to” nearly 45,000 bpd, or four per cent of the to-be-expanded throughput. It also projected a year-end total of over eight million barrels from Turkmenistan. Bearing in mind that these exports started only in mid-year, the figures are in line with the aforementioned official projections.
In May this year, Berdimuhamedow made his first visit to New Delhi, where he discussed concrete possibilities for the realization of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. In September he will hold similar discussions with Afghanistan’s president Hamid Karzai in New York in the margins of the UN General Assembly meeting. In his sensational Ashgabad announcement in August on future export directions, Berdimuhamedow barely mentioned Iran and was entirely silent on Russia.
CONCLUSIONS
Turkmenistan’s practical cooperation with Azerbaijan is most significant in view of the two countries’ well-known territorial dispute in the Caspian Sea that has blocked such cooperation up until now. The fact that the current production is earmarked for Europe, even if it is oil and the quantity is now relatively small, is likewise not negligible. Four decades ago, after all, the process of establishing diplomatic relations between Washington and Beijing was informally inaugurated through a series of ping-pong matches.
Underlining this significance is the fact that two of the companies pre-selected by Ashgabad for offshore gas exploration, ConocoPhillips and Mudabala, have already been cooperating for almost two years with KazMunaiGaz in the exploration and development of the “N” Block (for “Nursultan”) in offshore Kazakhstan, not far from the port of Aqtau. This city is also the planned terminus of a gas pipeline beginning in the country’s northwest at Eskene, where it is projected that associated gas from the offshore Kashagan field in the northern Caspian will be brought onshore.
Although none of the companies mentioned is a stakeholder in the planned Nabucco pipeline, the German firm RWE is such a stake-holder and was granted a concession for exploration and development of gas resources in Turkmenistan’s offshore earlier this year. The ineluctable pattern manifests the progressive establishment of political preconditions for Azerbaijan-Turkmenistan cooperation in gas export to Europe and technical preconditions for an undersea pipeline via Kazakhstan’s offshore, if this is necessary to obviate a settlement of the other two countries’ bilateral territorial disagreement.
First published in Central Asia – Caucasus Analyst, vol. 12, no. 16 (1 September 2010): 10–12.]]>
Indonesia to keep shiningtag:www.robertcutler.org,2010:/blog//1.3962010-08-26T19:51:09Z2010-08-26T20:01:04ZShare values in Indonesia have surged since President Susilo Bambang Yudhoyono's comfortable election victory last summer established a stable environment for increased spending and investment. Rising inflation is one cloud over the market, but one unlikely to dampen confidence.
Jakarta's principal stock market index has more than doubled since President Susilo Bambang Yudhoyono won the July 2009 presidential elections with a margin that made a run-off unnecessary. Yudhoyono's comfortable victory came three months after his Democratic Party coalition won 314 of the 560 seats up for election to the People's Representative Council, the country's legislature. The stage was set for a period of political stability that has encouraged investment by local and overseas companies, including South Korean steel giant POSCO, and consumer spending.
Economic Times. POSCO, South Korea’s largest steelmaker, is only one of the latest to sign an agreement with an Indonesian firm for a new industrial plant (a steel mill in West Java with Krakatau Steel).
Relatively low interest rates are spurring consumption, although with annual inflation reaching a 15-month high of 6.22% in July, up from 5.05% a month earlier, those rates may be increased. Still, companies are plowing profits back into investment.
The only cause for worry would be the increasing unemployment rate, although even this has not worsened as much as feared. About half of the country's total employment remains in the agricultural sector, although it is not clear what proportion of those formally counted in agriculture may migrate seasonally to the cities. The high degree of informal-sector employment is a worry to economists and reformers, but it does provide a cushion of sorts.
At the same time, the country's export structure has the advantage of being more oriented toward Asian economies and therefore less dependent upon the vagaries of the Western consumer resilience. That does not make it immune from following global markets in the wake of periodic financial-crisis downturns, but these tend to be transitory waves of market emotion and not based on fundamental economic realities.
For these and other reasons, it is foreseeable that the Jakarta stock market will continue its stellar performance, other things being equal, even if it suffers the occasional inevitable hiccup. In the short term, for example, it is looking a bit overbought, even if volume has lately been impressive and a number of short-term technical indicators remain favorable. It is attempting to confirm its surmounting of a long-term ascending-tops trend line while it is at the same time at the top of a medium-term ascending-tops trend line.
First published in Asia Times Online.]]>
The Black Sea’s West Coast Weighs In On Caspian Sea Basin Pipelinestag:www.robertcutler.org,2010:/blog//1.3952010-08-19T19:43:26Z2010-09-29T14:47:59ZBulgaria and Romania have over the course of the summer been setting down their markers as regards the Nabucco and South Stream pipeline projects in an on-again, off-again manner. What they finally decide may determine which pipelines from the South Caucasus and Turkey get built where in Southeast Europe. Major investment decisions are also on the line in coming months....
Bulgaria and Romania have over the course of the summer been setting down their markers as regards the Nabucco and South Stream pipeline projects in an on-again, off-again manner. What they finally decide may determine which pipelines from the South Caucasus and Turkey get built where in Southeast Europe. Major investment decisions are also on the line in coming months. It is consequently little exaggeration to say that the next year, if not the next half-year, will set the main lines of the blueprint for Caspian/Black Sea hydrocarbon development for the better part of the oncoming decade.
BACKGROUND
In the beginning of 2008, Bulgaria and Russia signed a preliminary agreement on the South Stream pipeline. In July 2009, parliamentary elections in Bulgaria, the center-right Citizens for European Development party won almost half the seats, and Boyko Borisov became prime minister. He thereupon suspended Bulgaria’s implementation of three Russian-sponsored projects: the South Stream gas pipeline, the Burgas-Alexandropolis oil pipeline, and the Belene nuclear plant. When Borisov said earlier this year that Bulgaria would not participate in South Stream because of environmental issues, Gazprom announced in June that it would study running the pipeline through Romania instead. Borisov subsequently reversed his decision and in mid-July, Bulgaria and Russia signed a road map for a feasibility study of the planned Bulgarian section.
In mid-June, a high-level Romanian delegation travelled to Moscow to hold talks with Gazprom and agreed to a feasibility study for a Romanian segment of South Stream, including a feasibility study for underground gas storage facilities in the country, which will exhaust its own reserves in the next ten to fifteen years. Gazprom vice-president Aleksandr Medvedev paradoxically told the press that this accord did not signify the exclusion of Bulgaria from South Stream. Then in July, Sofia agreed that Nabucco could be built on its territory, without officially excluding South Stream.
Early this month, the Bulgarian minister of economy, energy, and tourism Traicho Traikov began actively to promote the construction of a 256-mile pipeline through Bulgaria. That pipeline would become Nabucco’s first actually constructed leg, and it is planned to use US$260 million from an EU economic recovery fund for the purpose. As for Bulgaria’s own natural gas needs, these are relatively modest. The country has already contracted to receive 1 billion cubic meters per year (bcm/y) from Azerbaijan by compressed natural gas (CNG) technology from the Georgian coast. If the technology works over such a maritime distance (it has never been tried before) in a cost-effective manner, imports are eventually foreseen to increase to 8 bcm/y. Such a quantity would in effect cover all of Bulgaria’s gas import requirements. In addition, British firms have this summer reported discovering gas deposits on Bulgarian territory.
IMPLICATIONS
During this whole period a propaganda war of press leaks has been ongoing over the leading German energy firm RWE’s participation in Nabucco, where RWE was allegedly considering joining the South Stream consortium. Gazprom offered RWE such participation but, after German elite opinion mobilized against the attempt to seduce the company away from the Nabucco project, “clarified” that it had in fact never done so. RWE is also exploring for offshore gas deposits in the Caspian Sea under contract with the Turkmenistani government and has reported detecting deposits. It is set to find a way—whether by pipeline, CNG technology, or liquefaction—to see that gas eventually find its way to the western coast of the Caspian Sea, where it can enter the Azerbaijani pipeline system and make its way to Europe via Nabucco.
Earlier this year, Turkey postponed its investment decision in South Stream until the autumn and set up a bilateral Grand Commission on economic cooperation with Russia presided by prime minister Recep Tayyip Erdogan and president Dmitry Medvedev. (Cynics suggest that Erdogan simply wants more construction contracts for the Sochi Olympics.) The final investment decision for Nabucco, and the Shah Deniz Two development in Azerbaijan’s offshore deposit that will feed it, will also come towards the end of the year: this is why the next six to twelve months are so crucial for the rest of the decade.
Moscow was able to ease the road for Nord Stream’s construction by lobbying Brussels, via Berlin, to have the EU designate the pipeline as a Trans-European Network (TEN). European financial centers took this to represent a political seal of approval, even though many other TEN projects languish for lack of investment. But in consequence, the Baltic Sea littoral countries gave political approval to Nord Stream’s subsea route through territorial waters and exclusive economic zones without obstacle. A similar evolution is what Russia had in mind for South Stream in making its overtures to RWE.
Gazprom’s Italian partner in the South Stream consortium, Eni, is lobbying the Italian government in this regard. The company was successful in convincing Brussels to underwrite the Blue Stream pipeline (also a Gazprom-Eni project) a decade ago when Romano Prodi was president of the European Commission. For the moment, however, the EU is being run by Belgians: Herman Van Rompuy, the incumbent president of the European Council, a new post created by the Treaty of Lisbon; and Yves Leterme, prime minister of Belgium, whose country is president-in-office until the end of the year within the “troika” that forms the EU Council presidency; and the new High Representative for foreign and security policy is a Briton, Catherine Ashton.
CONCLUSIONS
As Central European capital rushes eastward, it is difficult to imagine that the Kremlin is unaware that the successful deployment of both Nord Stream and South Stream would resemble nothing less than a geo-economic equivalent of the double envelopment (“pincer movement”) military maneuver first known to be executed by Hannibal at the Battle of Cannae. This analogy illuminates why the next six to twelve months are especially crucial. It is because the success of the military maneuver depends upon the coordinated simultaneity of the two arms of the pincer surrounding the army being enveloped; and Nord Stream is well under way by now.
It is not even an exaggeration to draw the further analogy that the Russian energy-industrial complex’s forays into East Central Europe—such as Surgutneftegaz’s unsuccessful attempts to acquire control over the Hungarian firm MOL and Gazprom’s successful attempt to turn the Baumgarten gas hub into a 50-50 joint venture with OMV—represent the setting-out of a marker for the meeting of the pincer’s two arms, one from the Baltic Sea through Germany in the north, the other from the Black Sea through the Balkans.
Although there are limits to such analogies (the Nord Stream terminal is on Germany’s Baltic coast), nevertheless Baumgarten enjoys the status of a distribution center for both Nabucco and South Stream. Yet South Stream’s greatest deficiency is that it has not yet even accomplished a feasibility study, whereas Nabucco did so quite some time ago; and while the partners in Nabucco are lined up and is ready to go, South Stream still does not even know where on the western coast of the Black Sea it will make landfall.
First published in Central Asia – Caucasus Analyst, vol. 12, no. 15 (19 August 2010): 13–16.]]>
Golden period ahead for Taiwantag:www.robertcutler.org,2010:/blog//1.3942010-08-19T14:44:19Z2010-08-19T14:57:41ZTaiwan's strengthening trade links with mainland China and the prospects of free-trade agreements being forged between the island and Singapore and Japan are helping to set the local stock market up for a golden decade.
A "golden decade" lies ahead for Taiwan equities, according to CLSA Asia-Pacific Markets in a report published a day after the island's parliament approved an historic trade agreement with the mainland.
Taiwan's ambiguous recovery, April 2, 2009), twice halted the index's progress until the level was finally broken through in the first half of September 2009. It then became the lower bound of the trading range the index has occupied since then.
It was anticipated that signing the ECFA with the mainland would help to lift political obstacles to Taiwan negotiating free-trade agreements with third countries, Singapore and Japan topping the list of prospective partners.
These expectations appear to have been on target, as Chinese officials indicated this month that they would not stand in the way of a bilateral Taiwan-Singapore agreement. The Taiwan and Singapore stock exchanges have led the recent recovery in Asian equities, and the Taiex and Straits Times Index have tracked each other impressively closely for over five years. ]]>
Singapore shows its strengthstag:www.robertcutler.org,2010:/blog//1.3932010-08-13T12:51:04Z2010-08-15T12:55:27ZSingapore's breathtaking economic growth, an annualized 24% compared with the previous three months, is unlikely to continue at the same pace as key trading partners such as the United States and the European Union struggle to maintain recovery momentum, according to the government....
Singapore's breathtaking economic growth, an annualized 24% compared with the previous three months, is unlikely to continue at the same pace as key trading partners such as the United States and the European Union struggle to maintain recovery momentum, according to the government.
Belgium Guides New EU Coursetag:www.robertcutler.org,2010:/blog//1.3922010-08-10T11:23:29Z2010-08-10T13:40:25ZBelgium’s presidency of the European Council will not suffer from domestic Belgian political turmoil; indeed, the EU’s adjustment to the Lisbon Treaty’s new framework will likely be eased the fact that the Council’s new president is Belgian....
Belgium’s presidency of the European Council will not suffer from domestic Belgian political turmoil; indeed, the EU’s adjustment to the Lisbon Treaty’s new framework will likely be eased the fact that the Council’s new president is Belgian.
Continuing Belgian domestic political crisis
Belgium is confronting another round of its domestic political crisis. (See Can Belgium Still Exist?, 17 September 2008.) Over the past two years, the parliament has been unable to legislate the implementation of the Constitutional Court's decision concerning electoral lists. As a result, the irregular legal situation of candidates of French-speaking parties in the unified Brussels-Halle-Vilvoorde (BHV) electoral district around Brussels has not been resolved.
Erstwhile prime minister Yves Leterme (Christian-Democrat Flemish party, CDV) was compelled to resign in December 2008 as a result of perceived irregularities in his government's attempt to resolve the financial crisis around Belgium's important Fortis Bank by selling its assets to the French BNP Paribas. He was succeeded by Herman Van Rompuy (CDV), who resigned late last year after being elected the first permanent President of the European Council: whereupon Leterme, whom Van Rompuy had appointed as foreign minister, once again became prime minister. However, his new government collapsed after the Open Flemish Liberals and Democrats party (Open VLD) withdrew from the governing coalition in April 2010 over the failure to achieve a negotiated solution to the BHV problem.
The current Belgian government is only a caretaker government, but the Belgian presidency of the European Council has been well prepared by experienced diplomats and officials. With the nature of domestic Belgian politics requiring the ability to promote compromise, some observers suggest that this was one element in the choice of Herman Van Rompuy as European President.
New EU institutional framework
One such observer is Alexander von Lingen, formerly principal of the Secretariat of the Presidency of the European Parliament and currently director of the EquipEuropa analysis and training consultancy in Brussels. He explains to ISN Security Watch that even if Van Rompuy is still unfamiliar to the general public, he has nevertheless "demonstrated his mediation skills in the multinational environment of Belgium described as a microcosm of the EU. Not least, he is a convinced European and has demonstrated in the past that he is able to recognize what is at stake both at the European and global levels."
Von Lingen further says that in the new institutional framework, "neither foreign nor security policy in the strict sense falls within the remit of the rotating [troika] presidency."
Indeed, "the only tasks left to the rotating presidency are for its national ministers to preside individual council meetings such as the General Affairs Council," which amounts to "chairing dozens of meetings involving diplomats, the Committee of Permanent Representatives as well as hundreds of preparatory committees for experts, … and also coordinating with the European Parliament for areas of co-decision and with the European Commission for the follow-up," and all within the new institutional framework.
In his view, even if ministers in the new Belgian government (anticipated in autumn) are not experienced in European-level decision-making, nevertheless "there are no [Belgian] political parties that declare themselves eurosceptic."
As a result, Belgium may, "despite its internal chaos, [be] able to concentrate on and conduct the European presidency (the permanent as well as the rotating) as successfully as it has done in the past."
Continuity expected despite continuing crises
Still, Belgium's presidency of the rotating troika is complicated by a third element in addition to the country's own domestic political turmoil and the EU's new institutional structure. That third element is the continuing global economic and financial crisis in Europe, and particularly its impact on the euro zone. (See Stress-Testing European Banks, 4 August 2010; Greek General Strike Turns Tragic, 7 May 2010.)
Von Lingen points out that this continuing crisis has motivated an EU-wide concern with "re-establishing growth by tackling the ongoing global economic crisis with a package of measures to increase the surveillance of financial markets [while] combating the euro crisis and defining the role of the EU in the G20 post-Toronto."
Yet "even if a new government comes to power [in Belgium] during the Belgian presidency [of the EU]," he estimates that the main programmatic direction of the latter "is expected to remain unchanged … [because] in Belgium approving an EU presidency program is almost like approving a national policy program."
That is because such approval on the Belgian national level is the product of "a lengthy negotiation process between the [Belgian] federal state, the country's constituent regions and political parties at the different levels of government."
Von Lingen sums up by concluding that it is "certainly to the advantage of the EU" that "the first permanent President of the European Council is a former Belgian Prime Minister."
First published by ISN Security Watch, 10 August 2010.]]>
Seoul questions recovery staminatag:www.robertcutler.org,2010:/blog//1.3882010-08-06T14:12:31Z2010-08-07T00:24:51ZSouth Korea is showing enviable growth, with industrial output surging and inflation within the government's target range. The dark cloud is doubt that the global economy can continue to recover and absorb made-in-Korea products.
South Korea's recovery from the crisis of 2007-08 was impressive in its speed, but the country's Finance Ministry this month acknowledges that the economy still faces "downside risks" because of a possible slowdown in the economies of its principal trading partners. Consumer prices rose 2.6% in July over July 2009, within the government's target range, and industrial output was up 16.9% year-on-year, after a revised 21.7% increase in May, according to the national statistics office.
South Korea shows recovery skills, 11 September 2009; South Korea back on track, 10 March 2010), as a result both of improved domestic demand, robust corporate investment, and increased exports — up 29.6% in July from a year earlier, beating consensus expectations. Overall economic growth was up 7.2% year-on-year for the second quarter and 7.6% for the first half, with an anticipated rate of 6% for the whole of 2010, even taking into account a generalized slowdown expected throughout Asia and indeed globally.
The stock market in Seoul has been up thanks to the economic recovery and good corporate earnings. In the past two weeks, the Seoul exchange's benchmark KOSPI stock index has tentatively broken upwards through the upper bound of its year-long 1,524-1,752 trading range, which it had occupied since the third week of July 2009. However, it has weakening short-term technical indicators that caution the possibility of a pullback down close to 1,700. That is where the chart finds the lowest of the three trading-range maxima, and the results of a test at that level would be a significant medium-range indicator.
In particular, it would provide a first answer to the question whether the present advance a "throw-over" of limited technical significance or a real advance of sustained momentum. Also, the 50-day moving average is at 1,706 today and rising. (The 200-day moving average is down at 1,665.) At present the KOSPI is looking a bit overbought on only average volume, signifying an absence of real enthusiasm for the recent gains. Journalistic commentary has attributed this week's gains to the announcement by Yu Woo-ik, South Korea's ambassador to Beijing, that the country would probably begin negotiations with China on a free-trade agreement next year. China is Seoul's largest export market.
There is, however, a possible but unconfirmed medium-term support in the KOSPI around 1,770 that could give a first indication whether any oncoming weakness would even test those lower levels. If that level is respected, then it is possible that an extremely modest general uptrend would continue in the medium-term. In the short-term this would be indistinguishable from remaining within a slightly higher than previous trading range, and it would be a bit weak and subject to volatility that could overrun it to the downside.
Contrary to this cautious outlook is the opinion of Barclays Wealth chief investment officer Aaron Gurwitz, who correctly notes that Korean stocks "are undervalued compared with other markets" (at 9.9 times estimated earnings, the lowest in Asia after Pakistan, according to Bloomberg News) and believes that there is "substantial upside" for South Korean equities if there is no double-dip or period of "prolonged malaise" in the global economy. As noted above, however, this is not a small "if".
The South Korean currency, the won, is likely to continue its strength. "The won is gaining support from any positive data in the major economies," said Royal Bank of Canada's Hong Kong-based currency strategist Brian Jackson, as quoted by Bloomberg News. "Intervention is always a possibility if moves happen too quickly, but we expect the won will generally strengthen in the months ahead."
This view contradicts Credit Agricole's Mitul Kotecha, the banks head global foreign-currency strategist, who warned two weeks ago that the won could fall 4.7% against the US dollar by the end of September precisely because of oncoming export weakness, as the country's current-account surplus largely accounts for its strength. This surplus increased to $5.04 billion in June, the largest since June 2009 and up from a revised $3.82 billion in May.
The Credit Agricole research report also notes that the currency is highly dependent upon world market sentiment, as "investors' views on the Korean exports outlook and funding ability can be gauged by flows of portfolio capital to and from the country’s equity markets". The won's decline of 6.1% against the dollar since the beginning of May testifies to its vulnerability to risk aversion, driven by the European debt crisis.
According to the country's Financial Supervisory Service, foreign investors held 29.9% of total market capitalization among South Korea's listed shares as of the end of July, up 0.4% from June. South Korean brokerages, for their part, look to take measures to increase the nascent market for "wrap accounts" (which are fixed-fee individualized accounts for high-wealth individuals), in order to draw domestic investment capital back into the equities market.
First published in Asia Times Online, 6 August 2010.]]>
Stress-Testing European Bankstag:www.robertcutler.org,2010:/blog//1.3892010-08-06T13:55:35Z2010-08-06T14:08:35ZThe results of the bank stress test in Europe have been greeted with widespread skepticism; even though financial markets seem calmer, the system is not yet out of the woods....
The results of the bank stress test in Europe have been greeted with widespread skepticism; even though financial markets seem calmer, the system is not yet out of the woods.
QFinance and twice honored as UK Financial Journalist of the Year, tells ISN Security Watch that even if the stress tests “have not convinced either the press or market commentators,” nevertheless “if their real aim was to calm the markets, they have fulfilled their purpose.”
The manner in which the stress tests were conducted does not account for all the esoteric financial instruments that led to the crisis in 2007-08. Moreover, the absence of a scenario that includes sovereign default (i.e. bankruptcy by a state) could well be considered a significant shortcoming.
Harrington views this criticism, however, as being ill-placed and “pushing stress tests into the realm of catastrophe testing. How impregnable do you want your banks to be?” he asks before continuing: “The point is not to ensure that no bank fails, it is to ensure that there is an orderly procedure for resolving failure.”
And indeed, the creation of a European Financial Stabilization Mechanism (EFSM) with reserves of €750 billion will help those states that cannot help their banks because of their own debt problems.
Not so simple
But it is an open question whether even those reserves will be sufficient if two or three among the countries most at risk — Portugal, Ireland, Italy, Greece, and Spain (the PIIGs) — require simultaneous recourse to the EFSM. It is possible that even that amount could prove insufficient.
Harrington says that “the major unknowns with respect to each bank’s understanding of its own exposure to toxic assets of the residential mortgage-backed securities variety, has faded as an issue.” This does not mean that not all the toxic assets are gone, but “they are now a known quantity even if it is a quantity that each bank is playing very close to its chest.”
At the same time, European policy has begun to tilt more and more, despite initial French opposition, towards a tightening of fiscal policy and ending of the stimulus programs introduced in order to surmount the 2007-08 crisis.
Thus the day the results of the stress test were made public (it had originally been planned to keep them secret), European Central Bank President Jean-Claude Trichet’s op-ed in the 23 July Financial Times argued for terminating the economic stimulus programs and imposing rigorous of austerity measures across the Continent. This represents the German position put forward at the G-8 and G-20 meetings held in Canada at the end of June and opposed by the US administration.
Austerity and the debt crisis
Intentionally or not, such a policy, which would include raising interest rates while assuring the banks of enough capital to keep them on a steady footing, responds directly to the interests of the financial industry.
Harrington remarks that “the European banking system, even in Europe’s strongest economy [Germany], which also happens to be its biggest exporting nation, is not exactly out the woods. However, I do not expect it to implode if Europe plods along in a sluggish, near zero-growth mode.”
“Borrowing cheap and lending dear generates a huge volume of money for banks, even after you factor in the risks of lending in a sluggish economy,” he adds.
Harrington does not agree with those who criticize the euro as being divorced from the ‘real economy.’ Rather, he says, “The euro is quintessentially a trading currency tightly coupled to the real economy. Its weakness is that it is the result of a monetary union unsupported by any fiscal union.” However, he doubts that EU can “conjure up” a fiscal union after the fact to undergird the euro.
The debt crisis and the euro
Consequently, for Harrington, the strength of the euro ultimately depends upon Europe’s productivity and its export strength, as well as on “market jitters over sovereign debt.”
For the moment, however, concerns over sovereign debt cannot be separated from concerns over the banks. This is why the EU decided to save Greece from sovereign default despite emotional declarations in the press that Athens should suffer the consequences of its behavior.
Even for Greece to suspend payments again would “put huge strains on the euro [and] ... also have a massive impact” on important banks “as fears about the PIIGS generally take wing again,” says Harrington.
Moreover, “if instead of asking about financial instruments, you focus instead purely on two varieties of debt, namely commercial property debt and sovereign debt, the problems in combination have a vaguely Armageddon feel about them.”
The sufficiency of the EFSM thus comes again into focus as a crucial linchpin holding the system together.]]>
Nazarbaev faults Europe on Nabuccotag:www.robertcutler.org,2010:/blog//1.3572010-07-28T15:43:31Z2010-09-29T14:47:59ZPresident Nursultan Nazarbaev of Kazakhstan publicly endorsed the Nabucco natural gas pipeline earlier this month, then criticized Europe for putting too much talk into the project and not enough action....
President Nursultan Nazarbaev of Kazakhstan publicly endorsed the Nabucco natural gas pipeline earlier this month, then criticized Europe for putting too much talk into the project and not enough action.
Kommersant, he emphasized the fight against organized crime and the strengthening of Russian democracy and civil society as tasks of Russian foreign policy.
Insofar as the modernization of the economy and production were concerned, he named Germany in the first rank of foreign partners, followed by France, Italy, the rest of the European Union and also the United States. Thus Merkel's delegation included over two dozen German business leaders and scored some successes. The German side had its eyes especially on renovation of the Russian industrial plant, with special attention to the energy sector.
Merkel was also concerned to promote economic ties in China, which is increasingly competitive with German imports of raw materials from Russia as well as exports of finished goods to Russia. China is also highly competitive with Europe for energy exports from Kazakhstan, where it has a strong presence in the sector and for nearly a decade has been building oil and gas pipelines into western China. From there, the resources are transmitted to the central and especially eastern coastal parts of the country to satisfy ever-growing demand.
Nazarbaev's criticism of the EU regarding Nabucco is also applicable to the Kazakhstan-Caspian Transportation System (KCTS) project, which is set to take oil from the huge offshore Kashagan deposit to Eskene, onshore near Tengiz, and on to the port of Kuryk, near Aqtau. From there, it will be shipped across the Caspian Sea to Azerbaijan for insertion into the Baku-Tbilisi-Ceyhan (BTC) pipeline from Azerbaijan to the eastern Mediterranean - the capacity of the pipeline would be increased for the purpose by up to 70% through the use of chemical additives and other technical means - or, alternatively, conveyed to the Black Sea coast for transshipment to Europe. (See Four-way street in Kazakhstan, 18 September 18 2009.)
France signed onto that project last year, a significant development in light of the French company Total's participation in the consortium developing Kashagan as well as in operating BTC pipeline. However, planning construction of this pipeline has hit snags, and it is possible that oil tankers will do the job of taking the crude to Azerbaijan in the beginning. Even that development, however, requires planning of construction facilities and logistical foresight. Initial start-up for the project, in whatever form it acquires, is still set for 2012.
A pipeline across the seabed would be most cost-effective. Some estimates say the tanker transportation will not be cost-effective after 2017. A gas pipeline for associated gas from Kashagan could also run to Azerbaijan, and a pipeline from Turkmenistan could be built to join that pipeline in the Kazakhstan sector of the Caspian Sea, obviating the need for a solution to the dispute with Azerbaijan over the offshore Kyapaz/Serdar deposit that has up until now blocked bilateral cooperation on energy matters between the two countries.
With investment decisions falling due within the next 12 months on a series of projects including Nabucco as well as the competing Russian-sponsored South Stream project, Nazarbaev's public statement should serve to help focus the EU's attention on the crucial window now approaching and threatening to close. Beginning about a year and a half ago, Merkel has been able progressively to increase her margin of maneuver vis-à-vis the German diplomatic tradition, reaching back into the 19th century, of centering its worldview on an entente with Russia. The movement from one coalition partner to another in the wake of the last parliamentary elections has facilitated that development.
If Germany is to have a truly global profile, and assist Europe in finding its place in the future, then it must not restrict its vision to partnership with Russia and Turkey, and instead go beyond them in both the metaphorical and geographical senses.
First published in Asia Times Online, 29 July 2010.]]>