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GEOPOLITICAL ISSUES AHEAD:
A Monthly Assessment
Jan. 8, 2008
© 2008 Strategic Forecasting, Inc.
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GEOPOLITICAL ISSUES AHEAD:
A Monthly Assessment
Introduction
The United States is continuing to move toward a solution in Iraq. The National Intelligence
Estimate has defanged the Iranian crisis and the action has moved eastward, to Iran and
Pakistan, where the endgame was always to be found. The Russians continue to take
advantage of American preoccupation with the Islamic world by becoming more aggressive.
But the most important event of the last month, and one that will dominate the next month,
is the emergence of a dollar bloc driven by oil prices.
Until 2007, the greatest pool of liquidity in the world was China. This was the result of the
fact that China was incapable of metabolizing the amount of money it was earning through
exports, primarily to the United States. Normally, this amount of excess cash would drive
inflation, and China had some of that. But the Chinese have postponed the worst of it by
holding the dollars as sovereign wealth. In turn, it reinvested the money in the United
States and linked its own currency to the dollar. This had a number of effects, like
cushioning the decline of the dollar, protecting the competitiveness of Chinese goods and
protecting the yuan from speculative attack. By generally fixing the yuan to the dollar, the
Chinese were simply recognizing their dependency on the United States as a market.
China’s economy required American consumption, and destabilizing the dollar-yuan
relationship threatened that in too many ways. China became part of the Dollar Bloc.
Throughout 2007, a major new force emerged in international financial markets, the
Arabian Gulf. As the price of oil soared, vast amounts of cash poured into economies that
could not metabolize the money. This created a second huge pool of available capital that is
also gravitating to the United States for investment. More important, this is also a dollardenominated pool since oil is traded in dollars. There has, of course, been discussion of
shifting oil prices from the dollar but there are three problems with that. First, long-term
contracts could not readily be converted and the administrative complexity of split currency
transactions could be destabilizing by themselves. Second, the Arabians rode the dollar
down. There is no reason to believe that anyone knows which way the dollar will go in the
future. [The Chinese and Arabians?] could have ridden the dollar down, shifted and
missed the ride up. Finally, their problem is not money but stability. Maintaining the link to
the dollar gives them the stability they want and can manage.
Therefore, an extremely important phenomenon has locked into place. The United States is
the largest economy in the world, constituting almost 30 percent of its [the world’s?]
gross domestic product (GDP). It [the United States?] is now intimately linked to two
huge pools of cash, both dollar-denominated, with foreign investors looking for
opportunities because their own financial systems can’t possibly absorb the money. Each of
these pools is linked to the dollar and neither can shift. Dollar-denominated investments
both stabilize the critical economic player in the world and provide the greatest
opportunities for safe investment.
The subprime crisis has, in our mind, been overplayed by the media. It is nowhere near the
magnitude relative to GDP of the savings and loan meltdown, for example. But it is also
being cushioned by the inflow of Chinese and Arabian money. We see this publicly in the
acquisition by sovereign fund[funds?] of parts of American financial institutions at bargain
prices. But it is also present in thousands of invisible market transactions in which debt and
equity are being bought up by both sources.
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The important part of this to recognize is that the Chinese and Arabians are under
compulsion to invest. They can’t simply hold on to the cash they are accumulating. So noninvesting is not an option. By investing in the United States they both protect their
investments from currency fluctuation and stabilize the currency they essentially use to
drive their economies. American financial institutions, psychologically broadsided by the
subprime issue, are playing a weaker hand than they need to. Others, not stunned by loss
of year-end bonuses, have an opportunity to make deals in two venues that will in due
course start competing.
Other energy producers, like the Russians, Venezuelans and Nigerians, are not experiencing
free cash flow. They need every penny they can get to build their own economies. The
Russians in particular are using this period to reinvest in their energy sector, consolidate
control and acquire assets overseas that synergizes with their strategy. They are also using
the money to back neighbors in the former Soviet Union into a corner.
$100-a-barrel oil is certainly making accommodation among the Iraqis more attractive and
the Russians more confident. We have no idea why the price is at $100 a barrel and no idea
what it will do now. But we can tell you that it has had the strange impact of extending
American reach deep into the Islamic world as well as into China.
The world now has the American economy at its center and two huge pools of money linked
to it on either side, with nowhere else to go. This is unprecedented. There were periods
where there was one pool of money (1970s with petrodollars, Japan in the 1980s and so
on). But there has never been a period with two such pools of money, both still growing and
both essentially extensions of the U.S. economy, tied to the dollar for dear life.
East Asia/Oceania
China
Signs have been intensifying that the Chinese government plans to rein back the power of
the largest players in China’s chaotic energy sector. Plans include implementing new
regulations, cutting credit lines to major state players and setting up a new energy ministry
to consolidate the power of multiple government energy-related entities. A new energy law
will likely be passed during the National People’s Congress in March, but more than that will
be needed for Beijing’s energy initiative to succeed. If successful, it would effectively
translate into a reversal of China’s energy market liberalization. Barriers to implementation
are high, however, and cooperation from specific key government bodies will be crucial.
Meanwhile, the urgent crisis over China’s refined oil products shortage is being contained for
now, through a mix of short-term administrative directives issued by Beijing (e.g., for the
largest state energy players to ramp up short-term refining capacity at the expense of midto long-term refinery maintenance schedules). But if domestic energy demands do not
subside, this temporary measure will unlikely tide China over until another fuel-shortage
crisis hits again -- since it will take more than a year for current investment in oil refinery
capacity expansion to come to fruition.
Central government security measures will also increase in the next quarter, in the final
run-up to the August Olympic games. Petty and organized crime, local government
corruption, worker negligence (e.g., failure to pay wages), all will be cracked down upon
harshly and quickly at the first signs of social unrest. This could smooth pathways for
foreign business operations -- provided they do not get caught in the cross-fire of the crackdown campaigns (e.g., violating rights of labor workers enshrined in the brand new contract
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labor law, speculative real estate investment activity)[this does not make sense to me;
are you describing what the cross-fire might be? it’s unclear.]
South Korea
South Korea’s presidential election brought victory to Grand National Party (GNP) candidate
Lee Myung Bak, former mayor of Seoul. But Lee’s victory brings troubles as well, not the
least of which is the incumbent government’s decision to conduct a special investigation into
fraud allegations against Lee. The next few weeks will see significant political and legal
wrangling over the constitutionality of the probe, tarnishing Lee’s clear majority victory.
Meanwhile, Lee is making the rounds in the current government, preparing for the transition
at the end of February and shaping his team. Lee has pledged to focus on domestic
economics, education and infrastructure development, and the shape of his cabinet will
heavily reflect these concerns. Lee has also taken a moderated stance on North Korea
(compared to many of his GNP counterparts), and the recently re-instated rail links and
meetings on potential investments and joint ventures in shipbuilding between the North and
South will likely continue. Lee also continues to press his plan for a national canal system
linking several of Korea’s primarily west-east flowing rivers into a north-south network that
will link the port of Pusan in the southeast with Seoul and Inchon in the northwest.
Singapore
Singapore continues to pursue its state-funded agenda for experimenting with new clean
technologies. Electronic waste solutions provider Enviro-Hub Holdings is starting to build
Singapore's first commercial plant for the conversion of waste plastics to fuel (initial capital
investment is estimated at $15 million). To date, most investment is being funded mainly by
internal sources. Opportunities may exist for external capital sources as well.
Australia
New Labor Party Prime Minister Kevin Rudd’s ousting of the Liberal Party’s John Howard
signals a tactical but not necessarily geopolitical shift in government. Australia’s relative
stability and prosperity over most of the past decade, and its absorption into the United
State’s long-term Asia/Pacific security regime, is increasingly allowing the country to focus
on less strategic social issues -- such as the environment. Days[A little over a month?] in
office, Rudd has already ratified the Kyoto protocols[Protocol?]. Though we should expect
to see more government action on superficial social and environmental issues, deeper and
more serious strategic issues -- such as whether to sell uranium to Russia or China or both
-- will not necessarily be settled any time soon.
Eurasia
European Union
Slovenia took over the EU presidency Jan. 1, for a six-month term expiring June 30. On its
agenda are three broad topics, each with a very narrow application. The first is global
climate change, which mostly will take the form of creating a successor to the Kyoto
Protocol[? See above]. The second issue is European energy security. Under Slovenia, the
European Union will open a major new import corridor, called Nabucco, which is intended to
bring in natural gas from Central Asia, Iran and Iraq without touching Russian territory. The
project’s formal launch will be only the first step, with the first natural gas transmission,
even in the most optimistic scenario, not expected until 2013.
All this will pale in comparison to Slovenia’s third, and main, agenda item: Kosovo.
Ljubljana fully expects Kosovo to achieve independence under EU tutelage on the Slovenian
watch, and then expects to be responsible for managing the fallout not just in other Balkan
countries but also across the breadth of the former Soviet Union. Russia could retaliate
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against Europe for Kosovar intervention in a variety of ways that include (and are not
limited to) cutting off natural gas and/or oil to Europe, formally ratifying the RussianBelarusian union and deploying the Russian military to the Polish frontier.
Russia
On Jan. 18, the Serbian and Russian governments are supposed to announce whether
Serbia has accepted a Russian proposal to acquire the Balkan nation’s oil and natural gas
monopoly, Nafta Industrija Srbije (NIS). The monopoly owns Serbia’s three refineries, a
number of storage facilities and the distribution network for oil and natural gas products -including most of the gasoline stations in Serbia as well as the transport infrastructure. The
Russian proposal calls for the formation of three independent companies. Gazprom would
own 51 percent of these new entities, while the Serbian government would own 49 percent.
One would build and operate the South Stream line through Serbia, another would build and
operate storage facilities and the third would run NIS. In deciding how to respond to
Gazprom’s offer, politicians in Serbia must choose between geopolitical calculations (e.g.,
locking in Russian strategic interests in Serbia and thus further assuring Moscow’s support
in the Kosovo imbroglio) and long-term economic considerations.
Belarus
The price of Russian natural gas for Belarus increased from $100 to $119 per 1,000 cubic
meters on Jan. 1. An agreement on the price was reached during Russian President Vladimir
Putin’s visit to Minsk on Dec. 14. The Russian president then said that the natural gas price
for Belarus would not exceed the limits specified in a contract between Gazprom and
Beltransgaz, Belarus’ government-controlled oil pipeline company. Under the five-year
contract, signed in Moscow on Dec. 31, 2006, Belarus was to pay $100 for 1,000 cubic
meters in 2007 compared with $46.68 in the previous two and a half years. The price is
expected to gradually increase to the European market level by 2011.
In addition to soaring prices, another problem for Belarus is the fine print in the price deal
with Russia. In three more years, when Belarus is paying European market prices, Gazprom
will own a majority of Beltransgaz. Not only will Belarus be paying three times what it paid
for Russian natural gas in 2005, it will also be losing what it could charge Russia for the
transport of those supplies.
What looks like the end of Russian subsidization of Belarusian natural gas may not be quite
what it seems. In the same week as the price agreement, the Kremlin also extended a $1.5
billion credit to Belarus to help pay for energy. This is not the first credit Russia has given
its small neighbor, and it does not have to be repaid until 2022.
Kazakhstan
Kazakh President Nursultan Nazarbayev will meet [when?] with executives of Eni and the
heads of five other foreign oil companies regarding a dispute over developing the Kashagan
oil field. The meeting has been rumored to be a breakthrough in negotiations in which the
Kazakh government has tried to gain a majority [of what?] for its state-controlled oil
company KazMunaiGaz. Eni CEO [Paolo?] Scaroni has hinted at a possible settlement that
may have foreign oil companies making cash payments -- [totaling?] $3-4 billion -- to the
Kazakh government and selling a portion of their stakes to KazMunaiGaz. This looks to be
the time when Nazarbayev will finally and officially bury its energy crown jewel.
Turkmenistan
Iran said Jan. 2 that it had to cut daily exports of natural gas to Turkey from 20 million
cubic meters to 5 million cubic meters because of freezing weather in the Iranian republic
and a Dec. 31 cutoff of supplies from Turkmenistan. The cutoff from Turkmenistan, which
meets 5 percent of Iran’s natural gas needs (and sends approximately 8 billion cubic meters
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annually to Iran), is said to have been caused by “technical problems,” though Tehran and
Ashgabat currently are quibbling over natural gas prices. This halt is not the first; Iran cut
supplies to Turkey for five days in January 2007 in order to meet domestic needs. Turkey is
the only significant importer of Iranian natural gas, though Iran has lines connecting to
Armenia and Azerbaijan and is holding talks on links to Pakistan and Iraq. Turkmenistan has
been raising prices for its exports across the board -- first with Russia and now with Iran.
Turkmenistan knows it has the upper hand in these supply negotiations, since Russia cannot
meet its own export demand without Turkmen natural gas and Turkmenistan is
northeastern Iran’s sole supplier.
Latin America
Argentina
Argentine President Cristina Kirchner begins the first year of her term in earnest -- she has
little time to waste in a honeymoon period. Argentine inflation is soaring -- rivaled only by
Venezuela’s rate -- and a heat wave passing through the country is stressing the electrical
sector. With shortages looming year round, Kirchner’s government has already enacted an
energy conservation plan, though it is unlikely to prevent scarcity. In the longer term,
Argentina and Uruguay are planning to construct a liquefied natural gas regasification
terminal in Uruguay. The Botnia paper mill in Uruguay remains a sticking point in relations
between the neighbors -- Kirchner cannot[will not -- yes] budge on her country’s position
and Uruguay will not agree to limit the facility.
On the international front, Argentina is calling for new talks with the United Kingdom over
the disputed Falkland Islands. The UK has had sovereignty over the area since a 1982 war,
but Argentina’s demands could reopen the issue and impact oil exploration in the islands.
The most pressing international issue for Argentina is debt repayment. Economy Minister
Martin Lousteau has said Argentina will not renegotiate the terms of its $6.3 billion in
defaulted debt to the Paris Club of creditor nations. Lousteau also said there is no “urgency”
to set repayment terms for the creditors, who rejected a 2005 debt deal to repay only one
of every three dollars borrowed.
Brazil
Brazil’s focus in the coming month will be three-fold -- internal matters, energy and regional
dominance. On the domestic front, President Luiz Inacio "Lula" da Silva has announced
massive investments in infrastructure, including transnational and intrastate highways,
railroads, ports and housing projects. And sometime during the first quarter of 2008,
Brazil’s state oil company Petrobras will begin construction of another section of Gasene, a
gas pipeline running from Cacimbas to Catu. Brazil also is working on numerous
partnerships, including a deal with Uruguay and Argentina to construct a liquefied natural
gas facility, talks with Angolan state oil company Sonangol regarding exploration and
production projects in Brazil and investments of about $1 billion in Bolivia’s natural gas
industry. The Bolivian investment is more of a geopolitical move than an economic one.
Controlling Bolivia’s natural gas sector (natural gas is Bolivia’s primary commodity) will give
Brazil even more regional leverage; it already dominates [the energy sector? No, it
dominates Argentina in general, getting the energy sector control will strengthen
its position further] in Argentina, Bolivia’s other chief customer and Brazil’s long-time
regional rival. Brazil’s focus on leadership in biofuel production remains strong; effective
Jan. 1, new legislation required a 2 percent biofuel mix in automobiles.
Mexico
Mexico’s agriculture sector is protesting the full enactment[does this mean NAFTA has
only been partially in effect for lo this many years? What changes does full
enactment bring? Right – the provisions had been rolled out little by little, but
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now, the last of the limits on more sensitive products – grains, sugar, beans – are
now off] Jan. 1 of the North American Free Trade Agreement between Mexico and the
United States. Mexican farmers are calling for blockades of U.S. grains[what does this
mean, exactly? Do you mean boycott? Or blockade shipments of U.S. grains?
Yes, boycott is right. They want more protection for domestic products.] and
legislators from various political parties are speaking out against trade liberalization for
beans, corn, sugar cane and milk. Some legislators are calling for a renegotiation of the
trade accord. Despite the resistance of the Mexican agricultural sector, trade is unlikely to
be impacted. [Why?] because it’ll be months before any potential renegotiations
are on the table – In January – the time frame for this report – we aren’t gonna
see any drastic political movement on Mexico’s side.
On the energy front, Mexican legislators from the ruling party are busy hammering out a
proposal for a modest reform of Petroleos Mexicanos (Pemex), the giant state oil monopoly.
The proposal is expected to reach Congress by February. Senators have ruled out drastic
changes to allow full foreign investment in the industry, but some senators said the reform
could give Pemex more freedom to team up with foreign state-run companies. The longrunning mining strike at the Cananea copper mine could find some resolution in January,
though details are not expected until after the first week of the month. Mexico’s security
situation remains problematic due mainly to the drug cartels, with 2007 being Mexico’s
deadliest year on record in terms of criminal violence.
Venezuela
Venezuela begins 2008 with a new currency -- the “strong” bolivar. [The so-called
“bolivar fuerte” is essentially a revalued (1 to 1,000) version of the old bolivar?
Right, they cut three zeros off and are calling it a strong bolivar. It does actually
get translated though as the “strong bolivar”, not just kept in Spanish].
Implementation may prove problematic for two reasons: shortages of new bills and coins
and lack of public confidence in the new money. Venezuela has one of the highest rates of
inflation in the region -- topping 22.5 percent in 2007 and showing now signs of stopping.
Price controls may be enacted, though it is unclear when they could come into force.
Venezuela remains, as always, focused on the oil sector -- especially now following the
industry’s shrinking 5.3 percent in 2007. State oil firm Petroleos de Venezuela (PDVSA) has
created joint ventures with several global oil majors to operate refineries, explore and
develop crude and increase production. PDVSA has said it intends to begin working in
January 2008 towards its goal of tripling crude output from its Orinoco projects within five
years. Politically, Chavez will continue trying to solidify his hold on power, especially in the
wake of his failed constitution reform referendum. Purges in the military are likely while the
opposition continues its unification efforts.
Bolivia
Bolivia enters 2008 with political instability at the forefront. After four of the country’s nine
departments declared autonomy from the central government in mid-December, Bolivia has
maintained a tense calm. Some form of dialogue is expected to begin Jan. 7 between the
authorities of the four departments and the central government, but the talks are unlikely to
produce results. The political situation directly impacts the country’s economic future as the
four departments in question own the vast majority of Bolivia’s natural resources, including
the country’s primary export -- natural gas. If civil war were to break out, the natural gas
fields would be the battleground, which would seriously impact production and export.
Meanwhile, Brazil is heavily investing in Bolivian natural gas, gaining leverage over the
country’s chief commodity.
Colombia
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Colombia remains focused on energy, with state oil firm Ecopetrol directing its energies
toward oil exploration, development and production. The country also is planning significant
investments in biofuel production and international sales. Colombia’s security situation
remains troublesome. An attempt to arrange a hostage transfer with rebel group
Revolutionary Armed Forces of Colombia (FARC) did not materialize. President Alvaro Uribe
has said he would agree to some type of a corridor of territory to allow FARC to transport
the hostages to the authorities. Nevertheless, FARC remains unpredictable -- amidst
hostage handover talks the group fired a rocket at an air force transport plane in Neiva -with energy infrastructure a common target.
Ecuador
Ecuador is likely in for a bumpy new year. Engaged in ongoing negotiations for new
contracts, oil companies are still reeling from a 99 percent windfall tax imposed by President
Rafael Correa. It remains to be seen if legal remedies filed against Ecuador regarding the
tax will produce favorable terms for the oil majors. In the mining sector, Ecuador’s Oil and
Mining Minister Galo Chiriboga has said a newly approved windfall tax of 70 percent will be
used as a negotiating tactic in contract talks with mining firms. New mining legislation is
complicating operations in the country; in addition to the windfall tax, the legislation also
imposes taxes on idle land, and it will force firms to pay advance income tax on assets.
Ecuador has said it will deal with mining firms individually to negotiate contracts, so there
may still be more favorable terms available. In a troubling move for business, Correa has
approved a plan to increase the minimum wage for private-sector workers by 17.6 percent
in 2008. This move could exacerbate tensions between the government and domestic as
well as multinational companies.
Peru
Peru’s free trade agreement with the United States has been approved following significant
reforms in the South American nation, including new labor and environmental legislation.
Peru’s government also recently approved legislation that establishes time limits for mining
companies to develop concessions. If companies exceed the five-year limit, they can be
forced to pay penalties relative to the size of their concessions. This eliminates a common
tactic used by mining companies in which they obtain concessions and hold them in hopes
of reselling them at a profit. Energy, too, will be a dominant focus in the coming month
following an announcement by Brazilian state oil giant Petrobras of plans for new projects
and ventures in Peru.
Middle East/South Asia
Turkey/Iraq
The most significant event to take place in the Middle East/South Asia region just before
year’s end was the decision by the Turkish government [when exactly?] to launch limited
airstrikes against Kurdish rebels of the Kurdistan Workers Party (PKK) in northern Iraq
[was this more significant than Bhutto’s assassination?]. These operations were done
in coordination with the U.S. military, which is why the reaction from Iraqi Kurds remains
muted. There also was an eerie silence from the PPK[PKK?], which has been the target of
operations inside Turkey as well.
That silence was broken Jan. 3 when a powerful bomb targeting a military troop transport
exploded near a five-star hotel in the southwestern Turkish city of Diyarbakar, killing five
people and wounding some 70 others. Although it is surprising that other attacks have not
taken place thus far, the Jan. 3 blast may signal the start of a fresh PKK terrorist campaign
in Turkey that could spread to the main metropolitan areas in the country in the months
ahead.
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GCC States
The six Persian Gulf Arab states that are part of the Gulf Cooperation Council (GCC) marked
the new year Jan. 1 with the formation of a common market with a combined value of $715
billion. The move -- still only on paper -- came 26 years after the goal of a common market
was announced when the regional bloc was established in 1981.
Some 35.1 million people live in the GCC states, but only 60 percent of the total population
are nationals while the remaining are foreign expatriate workers. The six member countries
-- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) -- have
a combined area of 1.04 million square miles and between them hold some 484 billion
barrels of oil, representing more than half of the oil reserves of the Organization of
Petroleum Exporting Countries (OPEC). The GCC has also announced an ambitious goal of
achieving a monetary union by 2010.
With the price of oil hitting a $100 per barrel on Jan. 2, the economies of the GCC states
have been growing 7 percent over the course of the last four years -- a rate that is expected
to continue for the foreseeable future. According to the International Monetary Fund, the
GCC bloc's GDP rose from $406 billion in 2003 to $712 billion in 2006 to $790 billion in
2007 and is expected to hit $883 billion in 2008. The UAE, Qatar and Saudi Arabia have
used the excess cash to acquire assets overseas. Gulf money has played a key role in
recapitalising major European and U.S. banks that have lost billions of dollars on
investments linked to the U.S. housing market.
By helping Western financial institutions bail themselves out of the subprime mortgage
crisis, the Gulf states are demonstrating their worth to the United States and its European
allies. Usually it is the other way around, with the West seen as guarantor of the security
and prosperity of GCC countries. There is one downside, however; the move ties the Gulf
countries to the U.S. dollar even as the dollar has weakened.
Libya
Elsewhere, U.S. Secretary of State Condoleezza Rice hosted her Libyan counterpart AbdelRahman Shalqam at the State Department. Rice has said she hopes to pay a visit to the
Libya soon. This is the first trip by a Libyan foreign minister since 1972, and if Rice visits the
North African state before the end of the the Bush administration, it will mark the first visit
by a U.S. secretary of state since since John Foster Dulles’ visit in 1953. Meanwhile, it is
Tripoli’s turn this month to be president of the United Nations Security Council (UNSC). The
catapulting of Libya from international pariah to responsible member of the international
community began with Libya’s decision to relinquish its weapons of mass destruction
program in 2003. Since then, however, energy has become the key driver in the warming of
relations between the once radical Arab state and the West. The visit to Washington and the
UNSC presidency could lead to the forging of additional energy deals between U.S. energy
firms and Libya.
India
The Dec. 27 assassination of top Pakistani opposition leader Benazir Bhutto has provided
Pakistan’s jihadist factions with an opportunity to strengthen and spread throughout the
subcontinent. India, already battling its own Islamist militancy, is fearful of a jihadist
spillover from the Pakistan border, particularly as Islamist militants in India are increasingly
falling under the jihadist umbrella. Though India will not be immediately impacted by the
instability in Pakistan following the Bhutto assassination, it faces a long-term threat of
jihadist attacks spreading to major Indian cities. The northern state of Uttar Pradesh, the
capital New Delhi, the western states of Maharashtra and Gujarat and the southern states of
Andhra Pradesh and Karnataka are more vulnerable to such attacks given the rise of
Islamist militancy in these states.
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In the coming month, however, India will be preoccupied with rising oil prices. With oil
prices peaking at $100 a barrel Jan. 2, India is coming to the realization that it can’t afford
to resist raising fuel prices any longer. By the end of January, a decision on whether India
will actually raise fuel prices will likely be made. State-owned oil firms are losing a
substantial sum of money by being forced to sell fuel at discounted prices in the face of
soaring global crude rates. Raising fuel prices in India, however, is a highly politicized issue
that could easily lead to street riots. And after last month’s loss by the ruling Congress party
to the leading opposition Bharatiya Janata Party in the Gujarat state elections, Congress is
even more hesitant to take any bold actions that could further undermine its political base,
no matter the economic irrationality.
January will also see further talks regarding a proposed $20 billion energy deal between
India’s state-owned Oil and Natural Gas Corporation Videsh (OVL), the country’s largest oil
exploration company, and the UK-based Hinduja group to develop oil and natural gas fields
in Iran. Indian energy firms are most interested in the Farsi block where both oil and natural
gas have been discovered by OVL, Oil India and Indian Oil Corporation. Though Washington
is angry at India for defying the U.S.-led economic blockade against Iran, this deal will not
go beyond mere talk, at least for the near future. Both Iran and India are extracting political
benefits by talking up this energy deal. Iran can show that U.S. pressure won’t stop it from
doing business and India’s Congress party can show domestic opponents that it is
maintaining its non-aligned foreign policy and is not simply a lackey of the United States.
Sub-Saharan Africa
Nigeria
The Nigerian armed forces’ Joint Task Force (JTF) continues to be deployed in the country’s
Niger Delta region. The JTF recently carried out operations in the Port Harcourt area of
Rivers state to try to defeat a Tom Ateke-led faction of the militant group Movement for the
Emancipation of the Niger Delta. Ateke’s faction has been known by two names: Niger Delta
Vigilantes and the Icelanders. Attacks and counterattacks between the JTF and the Ateke
faction can be expected in and around Port Harcourt over the next month. Targets by the
militants will likely include police stations in the Port Harcourt area and oil industry barges
plying the Cawthorne Channel between Port Harcourt and Bonny Island. Nigerian security
personnel are expected to maintain a heavy presence, particularly in the Okirika local
government area near Port Harcourt and at oil facilities throughout the Niger Delta.
Angola
At the end of 2007, the Angolan government announced that parliamentary elections will be
held in the country Sept. 5-6, a move that will be a prelude to possible presidential elections
in 2009. Angola has not held national elections since 1992, when it appeared the ruling
Popular Movement for the Liberation of Angola (MPLA) party would lose to its rival National
Union for the Total Independence of Angola party and the elections were annulled (followed
by civil war). In recent months, the Angolan government has been carrying out voter
registration drives in the capital and in the provinces in preparation for the parliamentary
elections. The MPLA party is not expected to lose the elections (i.e., there is no threat of a
repeat of 1992), and President Eduardo Dos Santos is expected to stand for another term
when presidential elections are held.
South Africa
On Jan. 7, South Africa’s ruling African National Congress (ANC) party will hold[held?] its
first National Executive Committee (NEC) meeting since the party’s leadership convention
Dec. 16-20 in the northern city of Polokwane. At the convention, Jacob Zuma was elected
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party president, defeating Thabo Mbeki. As party president, Zuma will be the ANC’s
candidate in national elections set for December 2009.
The NEC meeting is expected to be[was?] dominated by discussions of corruption charges
filed Dec. 28 against Zuma by the country’s National Prosecuting Authority (NPA). The NPA
has indicated it will seek a trial against Zuma by August. Zuma has stated that he will not
resign unless he is convicted. The result will be governmental paralysis, with the ruling
party under new leadership pushing its agenda on the one hand and the executive branch
under Thabo Mbeki (who remains South Africa’s president until December 2009) trying to
safeguard its agenda on the other.
United States/Canada
The advent of $100-a-barrel oil is bringing a number of policy consequences to the oil
industry in North America. Movement toward a national climate change policy continues
while the higher price has led to increased activism against the industry in Alberta, Canada,
and the U.S. Rocky Mountain West. It has also exacerbated the popular belief that even if
oil companies are not somehow responsible for high prices, they are benefiting mightily
from them. As a result, the entire industry faces a more potent set of policy challenges than
it otherwise would. In the western United States, opposition to increased exploration is
deepening and activists are preparing to launch a significant campaign against traditional
exploration and production activities. Stories of pollution and carbon emissions from Alberta
tar sands operations only strengthen this campaign. Meanwhile, more anti-corporate
antipathy will be raised by increased fuel prices, and we expect the oil industry to be singled
out often by activists.
As part of Earthworks' ongoing development of a code of conduct for oil and gas companies,
the U.S. NGO will continue to publish specific recommendations for best practices in the
industry. It has already outlined its recommendations for minimizing surface disturbance by
advocating the use of directional drilling and highlighting examples of local governments
and states requiring the practice. This month and in coming months it will address a variety
of issues pertaining to water protection, waste disposal, toxic chemicals, air pollution and
noise reduction. Earthworks is also publicizing model county oil and gas regulations its
partner group Oil and Gas Accountability Project prepared in 2003 and 2004 to influence
county government regulations in Colorado and New Mexico. The guidelines are designed to
slow or halt gas and oil exploration in the U.S. Rocky Mountain area and could eventually
impact Canadian tar sands operations, since adherence to the standards would decrease the
profitability of many energy exploration and extraction activities.
Meanwhile, anti-globalization and sustainable development activists will hold a global day of
action Jan. 26 to promote their issues under the general banner of “Another World is
Possible.” The day of action is being held instead of an official World Social Forum meeting
and was announced at the June 2007 U.S. World Social Forum in Atlanta, Ga. The six main
themes of the global day of action are: war, immigrants, globalization, women and gay
rights issues, indigenous sovereignty, environment and climate and Gulf Coast restoration.
While most planned actions appear to be low-key vigils and demonstrations promoting the
general themes and a general leftist ideology, some anti-oil and gas activity can be
expected, especially under the "indigenous sovereignty" and "environment and climate"
banners. Oil and gas infrastructure and corporate offices should be on alert Jan. 26 for
small-scale demonstrations or protests outside their facilities. Such demonstrations, which
we do not expect to be violent, are likely to occur near the most well-known oil and gas
facilities in key areas such as the U.S. Gulf Coast and Alberta tar sands in Canada.
In the U.S. Congress, House Energy and Air Quality Subcommittee Chairman Rick Boucher,
D-Va., and House Energy and Commerce Committee Chairman John Dingell, D-Mich., will
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begin to seriously address climate policy in January. While no bill may be formally taken up
by any committee this month, Dingell, who pledged to introduce a climate bill in early 2008,
will begin drafting legislation. Dingell's legislation will likely be similar to the Climate
Security Act of 2007, which passed out of the Senate Environment and Public Works
Committee in December 2007 and will be taken up by the full Senate in early 2008.
As the U.S. Congress gears up to tackle climate legislation, activists will promote a
nationwide "teach-in," called Focus the Nation, on Jan. 31. Approximately 1,000 colleges
and universities in the United States have signed up to participate. These institutions have
pledged to encourage at least 50 faculty members in any academic discipline to address
climate change that day. Following the teach-in, participants are encouraged to invite local
and national politicians to address the climate change issue either through face-to-face or
virtual roundtable discussions. Participants will also choose five policies to be included in a
Focus the Nation-endorsed agenda that will be sent to politicians as a set of climate change
demands. These demands, which could include promoting biofuels, taxing carbon pollution
or mandating stricter fuel economy standards, will help shape the larger environmental
community's lobbying efforts in Congress.
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