With stock market investors diverting so much attention to Greece’s potential default on sovereign debt, I decided to share a rather timely commentary analysis from one of Hillbent’s affiliated partners, Stratfor.com.
I think a more substantive geopolitical analysis of Germany’s underlying motivations to support or withdraw from a bailout of Greece may benefit readers more than the myriad emotionally triggered sound bites touted by financial media pundits dependent upon viewer ratings.
After years of profligate spending, Greece is becoming overwhelmed. Barring some sort of large-scale bailout program, a Greek debt default at this point is highly likely. At this moment, European Central Bank liquidity efforts are probably the only thing holding back such a default. But these are a stopgap measure that can hold only until more important economies manage to find their feet. And Europe’s problems extend beyond Greece. Fundamentals are so poor across the board that any number of eurozone states quickly could follow Greece down.
And so the rest of the eurozone is watching and waiting nervously while casting occasional glances in the direction of Berlin in hopes the eurozone’s leader and economy-in-chief will do something to make it all go away. To truly understand the depth of the crisis the Europeans face, one must first understand Germany, the only country that can solve it.
Germany’s Trap
The heart of Germany’s problem is that it is insecure and indefensible given its location in the middle of the North European Plain. No natural barriers separate Germany from the neighbors to its east and west, no mountains, deserts, oceans. Germany thus lacks strategic depth. The North European Plain is the Continent’s highway for commerce and conquest. Germany’s position in the center of the plain gives it plenty of commercial opportunities but also forces it to participate vigorously in conflict as both an instigator and victim.
Germany’s exposure and vulnerability thus make it an extremely active power. It is always under the gun, and so its policies reflect a certain desperate hyperactivity. In times of peace, Germany is competing with everyone economically, while in times of war it is fighting everyone. Its only hope for survival lies in brutal efficiencies, which it achieves in industry and warfare.
Pre-1945, Germany’s national goals were simple: Use diplomacy and economic heft to prevent multifront wars, and when those wars seem unavoidable, initiate them at a time and place of Berlin’s choosing.
“Success” for Germany proved hard to come by, because challenges to Germany’s security do not “simply” end with the conquest of both France and Poland. An overstretched Germany must then occupy countries with populations in excess of its own while searching for a way to deal with Russia on land and the United Kingdom on the sea. A secure position has always proved impossible, and no matter how efficient, Germany always has fallen ultimately.
During the early Cold War years, Germany’s neighbors tried a new approach. In part, the European Union and NATO are attempts by Germany’s neighbors to grant Germany security on the theory that if everyone in the immediate neighborhood is part of the same club, Germany won’t need a Wehrmacht.
There are catches, of course — most notably that even a demilitarized Germany still is Germany. Even after its disastrous defeats in the first half of the 20th century, Germany remains Europe’s largest state in terms of population and economic size; the frantic mindset that drove the Germans so hard before 1948 didn’t simply disappear. Instead of German energies being split between growth and defense, a demilitarized Germany could — indeed, it had to — focus all its power on economic development. The result was modern Germany — one of the richest, most technologically and industrially advanced states in human history.
Germany and Modern Europe
That gives Germany an entirely different sort of power from the kind it enjoyed via a potent Wehrmacht, and this was not a power that went unnoticed or unused.
France under Charles de Gaulle realized it could not play at the Great Power table with the United States and Soviet Union. Even without the damage from the war and occupation, France simply lacked the population, economy and geographic placement to compete. But a divided Germany offered France an opportunity. Much of the economic dynamism of France’s rival remained, but under postwar arrangements, Germany essentially saw itself stripped of any opinion on matters of foreign policy. So de Gaulle’s plan was a simple one: use German economic strength as sort of a booster seat to enhance France’s global stature.
This arrangement lasted for the next 60 years. The Germans paid for EU social stability throughout the Cold War, providing the bulk of payments into the EU system and never once being a net beneficiary of EU largesse. When the Cold War ended, Germany shouldered the entire cost of German reunification while maintaining its payments to the European Union. When the time came for the monetary union to form, the deutschemark formed the euro’s bedrock. Many a deutschmark was spent defending the weaker European currencies during the early days of European exchange-rate mechanisms in the early 1990s. Berlin was repaid for its efforts by many soon-to-be eurozone states that purposely enacted policies devaluing their currencies on the eve of admission so as to lock in a competitive advantage vis-à-vis Germany.
In 2003, the 10-year process of post-Cold War German reunification was completed, and in 2005 Angela Merkel became the first postwar German leader to run a Germany free from the burden of its past sins. Another election in 2009 ended an awkward left-right coalition, and now Germany has a foreign policy neither shackled by internal compromise nor imposed by Germany’s European “partners.”
The Current Crisis
Simply put, Europe faces a financial meltdown.
The crisis is rooted in Europe’s greatest success: the Maastricht Treaty and the monetary union the treaty spawned epitomized by the euro. Everyone participating in the euro won by merging their currencies. Germany received full, direct and currency-risk-free access to the markets of all its euro partners. In the years since, Germany’s brutal efficiency has permitted its exports to increase steadily both as a share of total European consumption and as a share of European exports to the wider world. Conversely, the eurozone’s smaller and/or poorer members gained access to Germany’s low interest rates and high credit rating.
And the last bit is what spawned the current problem.
Most investors assumed that all eurozone economies had the blessing — and if need be, the pocketbook — of the Bundesrepublik. It isn’t difficult to see why. Germany had written large checks for Europe repeatedly in recent memory, including directly intervening in currency markets to prop up its neighbors’ currencies before the euro’s adoption ended the need to coordinate exchange rates. Moreover, an economic union without Germany at its core would have been a pointless exercise.
Investors took a look at the government bonds of Club Med states (a colloquialism for the four European states with a history of relatively spendthrift policies, namely, Portugal, Spain, Italy and Greece), and decided that they liked what they saw so long as those bonds enjoyed the implicit guarantees of the euro. The term in vogue with investors to discuss European states under stress is PIIGS, short for Portugal, Italy, Ireland, Greece and Spain. While Ireland does have a high budget deficit this year, STRATFOR prefers the term Club Med, as we do not see Ireland as part of the problem group. Unlike the other four states, Ireland repeatedly has demonstrated an ability to tame spending, rationalize its budget and grow its economy without financial skullduggery. In fact, the spread between Irish and German bonds narrowed in the early 1980s before Maastricht was even a gleam in the collective European eye, unlike Club Med, whose spreads did not narrow until Maastricht’s negotiation and ratification.
Even though Europe’s troubled economies never actually obeyed Maastricht’s fiscal rules — Athens was even found out to have falsified statistics to qualify for euro membership — the price to these states of borrowing kept dropping. In fact, one could well argue that the reason Club Med never got its fiscal politics in order was precisely because issuing debt under the euro became cheaper. By 2002 the borrowing costs for Club Med had dropped to within a whisker of those of rock-solid Germany. Years of unmitigated credit binging followed.
The 2008-2009 global recession tightened credit and made investors much more sensitive to national macroeconomic indicators, first in emerging markets of Europe and then in the eurozone. Some investors decided actually to read the EU treaty, where they learned that there is in fact no German bailout at the end of the rainbow, and that Article 104 of the Maastricht Treaty (and Article 21 of the Statute establishing the European Central Bank) actually forbids one explicitly. They further discovered that Greece now boasts a budget deficit and national debt that compares unfavorably with other defaulted states of the past such as Argentina.
Investors now are (belatedly) applying due diligence to investment decisions, and the spread on European bonds — the difference between what German borrowers have to pay versus other borrowers — is widening for the first time since Maastricht’s ratification and doing so with a lethal rapidity. Meanwhile, the European Commission is working to reassure investors that panic is unwarranted, but Athens’ efforts to rein in spending do not inspire confidence. Strikes and other forms of political instability already are providing ample evidence that what weak austerity plans are in place may not be implemented, making additional credit downgrades a foregone conclusion.
As the EU’s largest economy and main architect of the European Central Bank, Germany is where the proverbial buck stops. Germany has a choice to make.
The first option, letting the chips fall where they may, must be tempting to Berlin. After being treated as Europe’s slush fund for 60 years, the Germans must be itching simply to let Greece and others fail. Should the markets truly believe that Germany is not going to ride to the rescue, the spread on Greek debt would expand massively. Remember that despite all the problems in recent weeks, Greek debt currently trades at a spread that is only one-eighth the gap of what it was pre-Maastricht — meaning there is a lot of room for things to get worse. With Greece now facing a budget deficit of at least 9.1 percent in 2010 — and given Greek proclivity to fudge statistics the real figure is probably much worse — any sharp increase in debt servicing costs could push Athens over the brink.
From the perspective of German finances, letting Greece fail would be the financially prudent thing to do. The shock of a Greek default undoubtedly would motivate other European states to get their acts together, budget for steeper borrowing costs and ultimately take their futures into their own hands. But Greece would not be the only default. The rest of Club Med is not all that far behind Greece, and budget deficits have exploded across the European Union. Macroeconomic indicators for France and especially Belgium are in only marginally better shape than those of Spain and Italy.
At this point, one could very well say that by some measures the United States is not far behind the eurozone. The difference is the insatiable global appetite for the U.S. dollar, which despite all the conspiracy theories and conventional wisdom of recent years actually increased during the 2008-2009 global recession. Taken with the dollar’s status as the world’s reserve currency and the fact that the United States controls its own monetary policy, Washington has much more room to maneuver than Europe.
Berlin could at this point very well ask why it should care if Greece and Portugal go under. Greece accounts for just 2.6 percent of eurozone gross domestic product. Furthermore, the crisis is not of Berlin’s making. These states all have been coasting on German largesse for years, if not decades, and isn’t it high time that they were forced to sink or swim?
The problem with that logic is that this crisis also is about the future of Europe and Germany’s place in it. Germany knows that the geopolitical writing is on the wall: As powerful as it is, as an individual country (or even partnered with France), Germany does not approach the power of the United States or China and even that of Brazil or Russia further down the line. Berlin feels its relevance on the world stage slipping, something encapsulated by U.S. President Barack Obama’s recent refusal to meet for the traditional EU-U.S. summit. And it feels its economic weight burdened by the incoherence of the eurozone’s political unity and deepening demographic problems.
The only way for Germany to matter is if Europe as a whole matters. If Germany does the economically prudent (and emotionally satisfying) thing and lets Greece fail, it could force some of the rest of the eurozone to shape up and maybe even make the eurozone better off economically in the long run. But this would come at a cost: It would scuttle the euro as a global currency and the European Union as a global player.
Every state to date that has defaulted on its debt and eventually recovered has done so because it controlled its own monetary policy. These states could engage in various (often unorthodox) methods of stimulating their own recovery. Popular methods include, but are hardly limited to, currency devaluations in an attempt to boost exports and printing currency either to pay off debt or fund spending directly. But Greece and the others in the eurozone surrendered their monetary policy to the European Central Bank when they adopted the euro. Unless these states somehow can change decades of bad behavior in a day, the only way out of economic destitution would be for them to leave the eurozone. In essence, letting Greece fail risks hiving off EU states from the euro. Even if the euro — not to mention the EU — survived the shock and humiliation of monetary partition, the concept of a powerful Europe with a political center would vanish. This is especially so given that the strength of the European Union thus far has been measured by the successes of its rehabilitations — most notably of Portugal, Italy, Greece and Spain in the 1980s — where economic-basket case dictatorships and pseudo-democracies transitioned into modern economies.
And this leaves option two: Berlin bails out Athens.
There is no doubt Germany could afford such a bailout, as the Greek economy is only one-tenth of the size of the Germany’s. But the days of no-strings-attached financial assistance from Germany are over. If Germany is going to do this, there will no longer be anything “implied” or “assumed” about German control of the European Central Bank and the eurozone. The control will become reality, and that control will have consequences. For all intents and purposes, Germany will run the fiscal policies of peripheral member states that have proved they are not up to the task of doing so on their own. To accept anything less intrusive would end with Germany becoming responsible for bailing out everyone. After all, who wouldn’t want a condition-free bailout paid for by Germany? And since a euro-wide bailout is beyond Germany’s means, this scenario would end with Germany leading the EU hat-in-hand to the International Monetary Fund for an American/Chinese-funded assistance package. It is possible that the Germans could be gentle and risk such abject humiliation, but it is not likely.
Taking a firmer tack would allow Germany to achieve via the pocketbook what it couldn’t achieve by the sword. But this policy has its own costs. The eurozone as a whole needs to borrow around 2.2 trillion euros in 2010, with Greece needing 53 billion euros simply to make it through the year. Not far behind Greece is Italy, which needs 393 billion euros, Belgium with needs of 89 billion euros and France with needs of yet another 454 billion euros. As such, the premium on Germany is to act — if it is going to act — fast. It needs to get Greece and most likely Portugal wrapped up before crisis of confidence spreads to the really serious countries, where even mighty German’s resources would be overwhelmed.
That is the cost of making Europe “work.” It is also the cost to Germany of leadership that doesn’t come at the end of a gun. So if Germany wants its leadership to mean something outside of Western Europe, it will be forced to pay for that leadership — deeply, repeatedly and very, very soon. But unlike in years past, this time Berlin will want to hold the reins.
(Editor’s Note: STRATFOR is the world leader in global intelligence. Its team of experts collects and analyzes intelligence from every part of the world — offering unparalleled insights through their exclusively published analyses and forecasts. Whether it be on political, economic or military developments, STRATFOR not only provides its members with a better understanding of current issues and events, but invaluable assessments of what lies ahead. Renowned author and futurologist George Friedman founded STRATFOR in 1996. Most recently, he authored the international bestseller, The Next 100 Years. Dr. Friedman is supported by a team of professionals with widespread experience, many of whom are internationally recognized in their own right. Although its headquarters are in Austin, Texas, STRATFOR’s staff is widely distributed throughout the world.)
*Note that Hillbent.com does not officially endorse the commentaries of any contributors and its sole purpose of providing such content is for the convenience of our readers and to further assist their research efforts.
*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.
>>>Geopolitical Feature>>> George Friedman discusses the realities of the U.S.-Iranian relations in their historical and geopolitical contexts which may be much bigger than any sincere efforts by the Obama Administration to re-establish a functional dialogue.
U.S. President Barack Obama released a video offering Iran congratulations on the occasion of Nowruz, the Persian New Year, on Friday. Israeli President Shimon Peres also offered his best wishes, referring to “the noble Iranian people.” The joint initiative was received coldly in Tehran, however. Iran’s supreme leader, Ayatollah Ali Khamenei, said the video did not show that the United States had shifted its hostile attitude toward Iran.
The video is obviously part of Obama’s broader strategy of demonstrating that his administration has shifted U.S. policy, at least to the extent that it is prepared to open discussions with other regimes (with Iran being the hardest and most controversial case). The U.S. strategy is fairly straightforward: Obama is trying to create a new global perception of the United States. Global opinion was that former U.S. President George W. Bush was unwilling to engage with, and listen to, allies or enemies. Obama’s view is that that perception in itself harmed U.S. foreign policy by increasing suspicion of the United States. For Obama, offering New Year’s greetings to Iran is therefore part of a strategy to change the tone of all aspects of U.S. foreign policy.
Getting Peres to offer parallel greetings was undoubtedly intended to demonstrate to the Iranians that the Israelis would not block U.S. initiatives toward Iran. The Israelis probably were willing to go along with the greetings because they don’t expect them to go very far. They also want to show that they were not responsible for their failure, something critical in their relations with the Obama administration.
The Iranian response is also understandable. The United States has made a series of specific demands on Iran, and has worked to impose economic sanctions on Iran when Tehran has not complied. But Iran also has some fairly specific demands of the United States. It might be useful, therefore, to look at the Iranian view of the United States and the world through its eyes.
From the Iranian point of view, the United States has made two fundamental demands of Iran. The first is that Iran halt its military nuclear program. The second, a much broader demand, is that Iran stop engaging in what the United States calls terrorism. This ranges from support for Hezbollah to support for Shiite factions in Iraq. In return, the United States is prepared to call for a suspension of sanctions against Iran.
For Tehran, however, the suspension of sanctions is much too small a price to pay for major strategic concessions. First, the sanctions don’t work very well. Sanctions only work when most powers are prepared to comply with them. Neither the Russians nor the Chinese are prepared to systematically comply with sanctions, so there is little that Iran can afford that it can’t get. Iran’s problem is that it cannot afford much. Its economy is in shambles due more to internal problems than to sanctions. Therefore, in the Iranian point of view, the United States is asking for strategic concessions, yet offering very little in return.
The Nuclear Question
Meanwhile, merely working on a nuclear device — regardless of how close or far Iran really is from having one — provides Iran with a dramatically important strategic lever. The Iranians learned from the North Korean experience that the United States has a nuclear fetish. Having a nuclear program alone was more important to Pyongyang than actually having nuclear weapons. U.S. fears that North Korea might someday have a nuclear device resulted in significant concessions from the United States, Japan and South Korea.
The danger of having such a program is that the United States — or some other country — might attack and destroy the associated facilities. Therefore, the North Koreans created a high level of uncertainty as to just how far along they were on the road to having a nuclear device and as to how urgent the situation was, raising and lowering alarms like a conductor in a symphony. The Iranians are following the same strategy. They are constantly shifting from a conciliatory tone to an aggressive one, keeping the United States and Israel under perpetual psychological pressure. The Iranians are trying to avoid an attack by keeping the intelligence ambiguous. Tehran’s ideal strategy is maintaining maximum ambiguity and anxiety in the West while minimizing the need to strike immediately. Actually obtaining a bomb would increase the danger of an attack in the period between a successful test and the deployment of a deliverable device.
What the Iranians get out of this is exactly what the North Koreans got: disproportionate international attention and a lever on other topics, along with something that could be sacrificed in negotiations. They also have a chance of actually developing a deliverable device in the confusion surrounding its progress. If so, Iran would become invasion- and even harassment-proof thanks to its apparent instability and ideology. From Tehran’s perspective, abandoning its nuclear program without substantial concessions, none of which have materialized as yet, would be irrational. And the Iranians expect a large payoff from all this.
Radical Islamists, Iraq and Afghanistan
This brings us to the Hezbollah/Iraq question, which in fact represents two very different issues. Iraq constitutes the greatest potential strategic threat to Iran. This is as ancient as Babylon and Persia, as modern as the Iran-Iraq war of the 1980s. Iran wants guarantees that Iraq will never threaten it, and that U.S. forces in Iraq will never pose a threat to Iran. Tehran does not want promises alone; it wants a recognized degree of control over the Iraqi government, or at least negative control that would allow it to stop Baghdad from doing things Iran doesn’t want. To achieve this, Iran systematically has built its influence among factions i n Iraq, permitting it to block Iraqi policies that Iran regards as dangerous.
The American demand that Iran stop meddling in Iraqi policies strikes the Iranians as if the United States is planning to use the new Baghdad regime to restore the regional balance of power. In fact, that is very much on Washington’s mind. This is completely unacceptable to Iran, although it might benefit the United States and the region. From the Iranian point of view, a fully neutral Iraq — with its neutrality guaranteed by Iranian influence — is the only acceptable outcome. The Iranians regard the American demand that Iran not meddle in Iraq as directly threatening Iranian national security.
There is then the issue of Iranian support for Hezbollah, Hamas and other radical Islamist groups. Between 1979 and 2001, Iran represented the background of the Islamic challenge to the West: The Shia represented radical Islam. When al Qaeda struck, Iran and the Shia lost this place of honor. Now, al Qaeda has faded and Iran wants to reclaim its place. It can do that by supporting Hezbollah, a radical Shiite group that directly challenges Israel, as well as Hamas — a radical Sunni group — thus showing that Iran speaks for all of Islam, a powerful position in an arena that matters a great deal to Iran and the region. Iran’s support for these groups help s it achieve a very important goal at little risk. Meanwhile, the U.S. demand that Iran end this support is not matched by any meaningful counteroffer or by a significant threat.
Moreover, Tehran dislikes the Obama-Petraeus strategy in Afghanistan. That strategy involves talking with the Taliban, a group that Iran has been hostile toward historically. The chance that the United States might install a Taliban-linked government in Afghanistan represents a threat to Iran second only to the threat posed to it by Iraq.
The Iranians see themselves as having been quite helpful to the United States in both Iraq and Afghanistan, as they helped Washington topple both the Taliban and Saddam Hussein. In 2001, they offered to let U.S. aircraft land in Iran, and assured Washington of the cooperation of pro-Iranian factions in Afghanistan. In Iraq, they provided intelligence and helped keep the Shiite population relatively passive after the invasion in 2003. But Iranians see Washington as having betrayed implicit understandings that in return for these services, the Iranians would enjoy a degree of influence in both countries. And the U.S. opening to the Taliban is the last straw.
Obama’s Greetings in Context
Iran views Obama’s New Year greetings within this context. To them, Obama has not addressed the core issues between the two countries. In fact, apart from videos, Obama’s position on Iran does not appear different from the Bush position. The Iranian leadership does not see why it should respond more favorably to the Obama administration than it did to the Bush administration. Tehran wants to be very sure that Obama understands that the willingness alone to talk is insufficient; some indications of what is to be discussed and what might be offered are necessary.
Many in the U.S. administration believe that the weak Iranian economy might shape the upcoming Iranian presidential election. Undoubtedly, the U.S. greetings were timed to influence the election. Washington has tried to influence internal Iranian politics for decades, constantly searching for reformist elements. The U.S. hope is that someone might be elected in Iran who is so obsessed with the economy that he would trade away strategic and geopolitical interests in return for some sort of economic aid. There are undoubtedly candidates who would be interested in economic aid, but none who are prepared to trade away strategic interests. Nor could they even if they wanted to. The Iran-Iraq war is burned into the popular Iranian consciousness; any candidate who appeared willing to see a strong Iraq would lose the election. American analysts are constantly confusing an Iranian interest in economic aid with a willingness to abandon core interests. But this hasn’t happened, and isn’t happening now.
This is not to say that the Iranians won’t bargain. Beneath the rhetoric, they are practical to the extreme. Indeed, the rhetoric is part of the bargaining. What is not clear is whether Obama is prepared to bargain. What will he give for the things he wants? Economic aid is not enough for Iran, and in any event, the idea of U.S. economic aid for Iran during a time of recession is a non-starter. Is Obama prepared to offer Iran a dominant voice in Iraq and Afghanistan? How insistent is Obama on the Hezbollah and Hamas issue? What will he give if Iran shuts down its nuclear program? It is not clear that Obama has answers to these questions.
Rebuilding the U.S. public image is a reasonable goal for the first 100 days of a presidency. But soon it will be summer, and the openings Obama has made will have to be walked through, with tough bargaining. In the case of Iran — one of the toughest cases of all — it is hard to see how Washington can give Tehran the things it wants because that would make Iran a major regional power. And it is hard to see how Iran could give away the things the Americans are demanding.
Obama indicated that it would take time for his message to generate a positive response from the Iranians. It is more likely that unless the message starts to take on more substance that pleases the Iranians, the response will remain unchanged. The problem wasn’t Bush or Clinton or Reagan, the problem was the reality of Iran and the United States. Only if a third power frightened the Iranians sufficiently — a third power that also threatened the United States — would U.S.-Iranian interests be brought together. But Russia, at least for now, is working very hard to be friendly with Iran.
(Editor’s Note: STRATFOR is the world leader in global intelligence. Its team of experts collects and analyzes intelligence from every part of the world — offering unparalleled insights through their exclusively published analyses and forecasts. Whether it be on political, economic or military developments, STRATFOR not only provides its members with a better understanding of current issues and events, but invaluable assessments of what lies ahead. Renowned author and futurologist George Friedman founded STRATFOR in 1996. Most recently, he authored the international bestseller, The Next 100 Years. Dr. Friedman is supported by a team of professionals with widespread experience, many of whom are internationally recognized in their own right. Although its headquarters are in Austin, Texas, STRATFOR’s staff is widely distributed throughout the world.)
*Note that Hillbent.com does not officially endorse the commentaries of any contributors and its sole purpose of providing such content is for the convenience of our readers and to further assist their research efforts.
*Disclosures:Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.
>>>Geopolitical Feature>>> As always, the stakes in any middle eastern conflict are high and potentially impact more than just the immediate involved parties. In this report, Stratfor’s team analyzes the complex dynamics of the relationships that exists between Hamas and its Arab neighbors, which helps to explain the surprisingly moderate outcry against Israel’s counter-offensive to a barrage of rocket launched assaults.
It’s an interesting read, but we will let you form your own opinion…
Israel is now in the 12th day of carrying out Operation Cast Lead against the Palestinian Islamist movement Hamas in the Gaza Strip, where Hamas has been the de facto ruler ever since it seized control of the territory in a June 2007 coup. The Israeli campaign, whose primary military aim is to neutralize Hamas’ ability to carry out rocket attacks against Israel, has led to the reported deaths of more than 560 Palestinians; the number of wounded is approaching the 3,000 mark.
The reaction from the Arab world has been mixed. On the one hand, a look at the so-called Arab street will reveal an angry scene of chanting protesters, burning flags and embassy attacks in protest of Israel’s actions. The principal Arab regimes, however, have either kept quiet or publicly condemned Hamas for the crisis — while privately often expressing their support for Israel’s bid to weaken the radical Palestinian group.
Despite the much-hyped Arab nationalist solidarity often cited in the name of Palestine, most Arab regimes actually have little love for the Palestinians. While these countries like keeping the Palestinian issue alive for domestic consumption and as a tool to pressure Israel and the West when the need arises, in actuality, they tend to view Palestinian refugees — and more Palestinian radical groups like Hamas — as a threat to the stability of their regimes.
One such Arab country is Saudi Arabia. Given its financial power and its shared religious underpinnings with Hamas, Riyadh traditionally has backed the radical Palestinian group. The kingdom backed a variety of Islamist political forces during the 1960s and 1970s in a bid to undercut secular Nasserite Arab nationalist forces, which threatened Saudi Arabia’s regional status. But 9/11, which stemmed in part from Saudi support for the Taliban and al Qaeda in Afghanistan, opened Riyadh’s eyes to the danger of supporting militant Islamism.
Thus, while Saudi Arabia continued to support many of the same Palestinian groups, it also started whistling a more moderate tune in its domestic and foreign policies. As part of this moderate drive, in 2002 King Abdullah offered Israel a comprehensive peace treaty whereby Arab states would normalize ties with the Jewish state in exchange for an Israeli withdrawal to its 1967 borders. Though Israel rejected the offer, the proposal itself clearly conflicted with Hamas’ manifesto, which calls for Israel’s destruction. The post-9/11 world also created new problems for one of Hamas’ sources of regular funding — wealthy Gulf Arabs — who grew increasingly wary of turning up on the radars of Western security and intelligence agencies as fund transfers from the Gulf came under closer scrutiny.
Meanwhile, Egypt, which regularly mediates Hamas-Israel and Hamas-Fatah matters, thus far has been the most vocal in its opposition to Hamas during the latest Israeli military offensive. Cairo has even gone as far as blaming Hamas for provoking the conflict. Though Egypt’s stance has earned it a number of attacks on its embassies in the Arab world and condemnations in major Arab editorial pages, Cairo has a core strategic interest in ensuring that Hamas remains boxed in. The secular government of Egyptian President Hosni Mubarak is already preparing for a shaky leadership transition, which is bound to be exploited by the country’s largest opposition movement, the Muslim Brotherhood (MB).
The MB, from which Hamas emerged, maintains links with the Hamas leadership. Egypt’s powerful security apparatus has kept the MB in check, but the Egyptian group has steadily built up support among Egypt’s lower and middle classes, which have grown disillusioned with the soaring rate of unemployment and lack of economic prospects in Egypt. The sight of Muslim Brotherhood activists leading protests in Egypt in the name of Hamas is thus quite disconcerting for the Mubarak regime. The Egyptians also are fearful that Gaza could become a haven for Salafist jihadist groups that could collaborate with Egypt’s own jihadist node the longer Gaza remains in disarray under Hamas rule.
Of the Arab states, Jordan has the most to lose from a group like Hamas. More than three-fourths of the Hashemite monarchy’s people claim Palestinian origins. The kingdom itself is a weak, poor state that historically has relied on the United Kingdom, Israel and the United States for its survival. Among all Arab governments, Amman has had the longest and closest relationship with Israel — even before it concluded a formal peace treaty with Israel in 1994. In 1970, Jordan waged war against Fatah when the group posed a threat to the kingdom’s security; it also threw out Hamas in 1999 after fears that the group posed a similar threat to the stability of the kingdom. Like Egypt, Jordan also has a vibrant MB, which has closer ties to Hamas than its Egyptian counterpart. As far as Amman is concerned, therefore, the harder Israel hits Hamas, the better.
Finally, Syria is in a more complex position than these other four Arab states. The Alawite-Baathist regime in Syria has long been a pariah in the Arab world because of its support for Shiite Iran and for their mutual militant proxy in Lebanon, Hezbollah. But ever since the 2006 war between Israel and Hezbollah, theSyrians have been charting a different course, looking for ways to break free from diplomatic isolation and to reach some sort of understanding with the Israelis.
For the Syrians, support for Hamas, Palestinian Islamic Jihad and several other radical Palestinian outfits provides tools of leverage to use in negotiating a settlement with Israel. Any deal between the Syrians and the Israelis would thus involve Damascus sacrificing militant proxies such as Hezbollah and Hamas in return for key concessions in Lebanon — where Syria’s core geopolitical interests lie — and in the disputed Golan Heights. While the Israeli-Syrian peace talks remain in flux, Syria’s lukewarm reaction to the Israeli offensive and restraint (thus far) from criticizing the more moderate Arab regimes’ lack of response suggests Damascus may be looking to exploit the Gaza offensive to improve its relations in the Arab world and reinvigorate its talks with Israel. And the more da mage Israel does to Hamas now, the easier it will be for Damascus to crack down on Hamas should the need arise.
With Saudi Arabia, Egypt, Jordan and Syria taking into account their own interests when dealing with the Palestinians, ironically, the most reliable patron Sunni Hamas has had in recent years is Iran, the Sunni Arab world’s principal Shiite rival. Several key developments have made Hamas’ gradual shift toward Iran possible:
Saudi Arabia’s post-9/11 move into the moderate camp — previously dominated by Egypt and Jordan, two states that have diplomatic relations with Israel.
The collapse of Baathist Iraq and the resulting rise of Shiite power in the region.
The 2004 Iranian parliamentary elections that put Iran’s ultraconservatives in power and the 2005 election of President Mahmoud Ahmadinejad, whose public anti-Israeli views resonated with Hamas at a time when other Arab states had grown more moderate.
The 2006 Palestinian elections, in which Hamas defeated its secular rival, Fatah, by a landslide. When endowed with the responsibility of running an unrecognized government, Hamas floundered between its goals of dominating the Palestinian political landscape and continuing to call for the destruction of Israel and the creation of an Islamist state. The Arab states, particularly Saudi Arabia and Egypt, had hoped that the electoral victory would lead Hamas to moderate its stance, but Iran encouraged Hamas to adhere to its radical agenda. As the West increasingly isolated the Hamas-led government, the group shifted more toward the Iranian position, which more closely meshed with its original mandate.
The 2006 summer military confrontation between Hezbollah and Israel, in which Iranian-backed Hezbollah symbolically defeated the Jewish state. Hezbollah’s ability to withstand the Israeli military onslaught gave confidence to Hamas that it could emulate the Lebanese Shiite movement — which, like Hamas, was both a political party and an armed paramilitary organization. Similar to their reaction to the current Gaza offensive, the principal Arab states condemned Hezbollah for provoking Israel and grew terrified at the outpouring of support for the Shiite militant group from their own populations. Hezbollah-Hamas collaboration in training, arms-procurement and funding intensified, and almost certainly has played a decisive role in equipping Hamas with 122mm BM-21 Grad artillery rockets and larger Iranian-made 240mm Fajr-3 rockets — and potentially even a modest anti-armor capability.
The June 2007 Hamas coup against Fatah in the Gaza Strip, which caused a serious strain in relations between Egypt and Hamas. The resulting blockade on Gaza put Egypt in an extremely uncomfortable position, in which it had to crack down on the Gaza border, thus giving the MB an excuse to rally opposition against Cairo. Egypt was already uncomfortable with Hamas’ electoral victory, but it could not tolerate the group’s emergence as the unchallenged power in Gaza.
Syria’s decision to go public with peace talks with Israel. As soon as it became clear that Syria was getting serious about such negotiations, alarm bells went off within groups like Hamas and Hezbollah, which now had to deal with the fear that Damascus could sell them out at any time as part of a deal with the Israelis.
Hamas’ relations with the Arab states already were souring; its warming relationship with Iran has proved the coup de grace. Mubarak said it best when he recently remarked that the situation in the Gaza Strip “has led to Egypt, in practice, having a border with Iran.” In other words, Hamas has allowed Iranian influence to come far too close for the Arab states’ comfort.
In many ways, the falling-out between Hamas and the Arab regimes is not surprising. The decline of Nasserism in the late 1960s essentially meant the death of Arab nationalism. Even before then, the Arab states put their respective national interests ahead of any devotion to pan-Arab nationalism that would have translated into support for the Palestinian cause. As Islamism gradually came to replace Arab nationalism as a political force throughout the region, the Arab regimes became even more concerned about stability at home, given the very real threat of a religious challenge to their rule. While these states worked to suppress radical Islamist elements that had taken root in their countries, the Arab governments caught wind of Tehran’s attempts to adopt the region’s radical Islamist trend to create a geopolitical space for Iran in the Arab Middle East. As a result, the Arab-Persian struggle became one of the key drivers that has turned the Arab states against Hamas.
For each of these Arab states, Hamas represents a force that could stir the social pot at home — either by creating a backlash against the regimes for their ties to Israel and their perceived failure to aid the Palestinians, or by emboldening democratic Islamist movements in the region that could threaten the stability of both republican regimes and monarchies. With somewhat limited options to contain Iranian expansion in the region, the Arab states ironically are looking to Israel to ensure that Hamas remains boxed in. So, while on the surface it may seem that the entire Arab world is convulsing with anger at Israel’s offensive against Hamas, a closer look reveals that the view from the Arab palace is quite different from the view on the Arab street.
*Disclosures: Hillbent does not provide individualized market advice. The information we publish regards companies in which we believe our readers may be interested and our reports reflect our sincere opinions. Nevertheless, they are not intended to be personalized recommendations to buy, hold, or sell securities. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. Each individual investor should determine their respective appropriate level of risk. It is recommended that you seek personal advice from your professional investment advisor and conduct further independent due diligence research before acting on information published in any of our reports. Most of our information is derived directly from information published by the companies on which we report and/or from other sources we deem to be reliable, without our independent verification.
Therefore, we cannot assure the completeness or accuracy of information contained within these reports and we do not in any way warrant or guarantee the success of any action which you take in reliance on our statements.
Regarding guest commentaries and contributing authors, note that Hillbent.com does not officially endorse the commentaries of any contributors and the sole purpose of providing such content of for the convenience of our readers and to further assist their research efforts.
Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.
>>>Geopolitical Feature>>> Strategic Forecast’s Peter Zeihan sees oil prices remaining at depressed levels for a while and discusses not only the economic, but geopolitical impact, that this event causes.
Falling Fortunes, Rising Hopes And The Price Of Oil
Oil prices have now dipped — albeit only briefly — below US$40 a barrel, a precipitous plunge from their highs of more than US$147 a barrel in July. Just as high oil prices reworked the international economic order, low oil prices are now doing the same. Such a sudden onset of low prices impacts the international system just as severely as recent record highs.
But before we dive into the short-term (that is, up to 12 months) impact of the new price environment, we must state our position in the oil price debate. We have long been perplexed about the onward and upward movement of the oil markets from 2005 to 2008. Certainly, global demand was strong, but a variety of factors such as production figures and growing inventories of crude oil seemed to argue against ever-increasing prices. Some of our friends pointed to the complex world of derivatives and futures trading, which they said had created artificial demand. That may well have been true, but the bottom line is that, based on the fundamentals, the oil numbers did not make a great deal of sense.
Things have clarified a great deal of late. We are now facing an environment in which the United States, Europe and Japan are in recession, while China is, at the very least, expecting to see its growth slow greatly. Demand for crude the world over is sliding sharply even as the Organization of the Petroleum Exporting Countries (OPEC) member states so far seem unable (or, in the case of Saudi Arabia, perhaps unwilling) to make the necessary deep cuts in output that might halt the price slide. The bottom line is that, while the breathtaking speed at which prices have collapsed has caught us somewhat by surprise, the direction and the depth of the plunge has not.
Prices are likely to remain low for some time. Most of the world’s storage facilities — such as the U.S. Strategic Petroleum Reserve — are full to the brim, so large cuts are needed simply to prevent massive oversupply. Yet any OPEC production cuts — the cartel meets Dec. 17 and deep cuts are expected — will take months to have a demonstrable impact, especially in a recessionary environment. And there is the simple issue of scale. The global oil market is a beast: Total demand at present is about 86 million barrels per day. This is not a market that can turn on a dime. A firm fact that flies in the face of conventional wisdom is that oil actually falls far faster than it rises when the fundamentals are out of whack. This has happened on multiple occasions, and not that long ago.
Falls occurred both in the aftermath of the 1990-1991 Persian Gulf War and as a result of the 1997-1998 Asian financial crises that were similar in percentage terms to the present drop. Until the balance between supply and demand is restruck — something not likely until a global economic recovery is well under way — there is no reason to expect a significant price recovery. The journey, of course, is not necessarily a one-way trip. Quirks in everything from weather to shipping to Nigerian riots and Russian military movements can set prices gyrating, but the fundamentals are clearly bearish. It will most likely take several months for the core features of the new reality to change much at all.
(click image to enlarge)
Low oil prices create both winners and losers on the international scene. First, the winners’ list.
Far and away the biggest winner from drastically lower prices is the world’s largest consumer and importer of oil: the United States. The last two years of high prices have spawned a sustained American consumer effort to get by with less oil via a mix of conservation and a shift to better-mileage vehicles. Whether this purchase pattern in automobiles lasts is not at issue. The point is that it has already happened: Many Americans have already shifted to more fuel-efficient vehicles. Just as the 1990s obsession with sport utility vehicles artificially boosted American gasoline demand so long as those automobiles were on the road, so the new fleet of hybrids and smart cars will push demand in the opposite direction for a sustained period.
Overall U.S. oil consumption has plummeted by nearly 9 percent from its peak in August 2007 to November 2008, according to the U.S. Department of Energy. Combining this with the drop in prices since July translates into U.S. energy savings of approximately US$1.95 billion at a price of US$50 a barrel and US$2.1 billion at a price of US$40 a barrel. And that is daily cost savings. In recessionary times, that cash will go a long way to building confidence and stanching the recession.
Next on the list are the major European importers of crude: Germany, Italy and Spain. As a rule, European economies are less energy-intensive than the United States, but by dint of fuel mix and lack of domestic production these three major states are forced to rely on substantial amounts of imported oil. We exclude the other major European economies from this list as they are either major oil producers themselves (the United Kingdom and the Netherlands) or their economies are extremely oil efficient (France, Belgium and Sweden). Don’t get us wrong — the EU states are all quite pleased that oil prices have dialed back. Nevertheless, in terms of relative gain, Germany, Italy and Spain are the real winners. And with Europe facing a recession much deeper and likely longer than that in the United States, the Europeans need every advant age they can get.
India, far removed from Europe culturally and geographically, sports a somewhat similar economic structure in that it boasts (or suffers from, based on your perspective) an industrializing base that is highly dependent on oil imports. Broadly, the Indians are in the same basket as Spain in that they are voracious energy consumers who have seen their demand skyrocket in recent years. Between the Nov. 26 Mumbai attack, upcoming federal elections and the energy price pain from earlier in the year, the government is desperate to pass on the cost savings to the population to shore up its support.
Then there are the East Asian states of South Korea, China and Japan (listed in descending order of how much each one benefits from the price drop). All import massive amounts of crude oil, but we put them at the end of the list of winners because of their financial systems. In East Asia — and particularly in China and Japan — money is not allocated on the basis of rate of return or profitability as it is in the West. Instead, the concern is maximizing employment. It does not matter much in East Asia if one’s business plan is sound; the government will provide cheap loans so long one employs hordes of people. One side effect of this strategy is that firms can get loans for anything, including raw materials they otherwise could not afford — such as oil at US$147 a barrel.
Therefore, high oil prices just do not affect East Asia as badly as they affect the West. Just as the East Asian financial system mutes the impact of high prices, the converse is true as well. In the West, energy consumers are not shielded from high prices, so lower prices immediately translate into more purchasing power, and thus more economic activity. Not so in East Asia, where the same financial shielding that blunts the impact of high prices lessens the benefits of low prices.
The order in which we listed the three Asian giants relates to how much progress they have made in reforming their financial practices. South Korea’s financial system is much closer to the Western model than the Asian model: South Korea hurts more as prices rise, and so will be more relieved as prices fall. China is in the middle in terms of financial practices, but it is also attempting to unwind its system of energy price-fixing as oil costs drop; due to subsidies being reduced, Chinese consumers actually may not be seeing much of a change in retail prices. Finally, Japan will benefit the least because its system is already highly efficient compared to the other two, so the price impact was less in the first place. One barrel of oil consumed in Japan generates approximately US$2,610 of Japanese gross domestic product (GDP), while the comparative figures for Korea and China are US$1,270 and US$1,130 respectively.
In short, the heavily industrialized Asians still benefit, but the impact isn’t as much as one might think at first glance. In fact, the biggest benefit to these states from cheaper energy is indirect — lower prices spur consumption in the West, and then the West purchases more Asian products.
And now, the losers.
Venezuela and Iran top this list by far. Both are led by politicians who have lavished vast amounts of oil income on their populations to secure their respective political positions. But that public approval has come at its own price in terms of economic dislocation (why diversify the economy if strong oil prices bring in loads of cash?), low employment (the energy sector may be capital-intensive, but it certainly is not labor-intensive), and high inflation (high government spending has led to massive consumption and spurred rampant import of foreign goods to satiate that demand).
Of the two states, Venezuela is certainly in the worse position. By some estimates, Venezuela requires oil prices in the vicinity of US$120 a barrel to maintain the social spending to which its population has become accustomed. Iran’s number may be only somewhat lower, but President Mahmoud Ahmadinejad is in the process of at least beginning to bow to economic reality. On Dec. 5, he announced massive cuts in subsidy outlays with the intent of reforging the budget based on a price of only US$30 a barrel.
It is an open question whether the Iranian government — and especially the increasingly unpopular Ahmadinejad — can survive such cuts (if they are indeed made), but at least there is a public realization of the depth of the crisis at the top level of government. In Venezuela, by contrast, the mitigation process has barely begun, and for political reasons it cannot truly be implemented until after a referendum in early 2009 on term limits that could allow Chavez to run for president indefinitely.
Next is Nigeria. In terms of seeing an increase in human misery, Nigeria should probably be at the top of the losers’ list. But the harsh reality is that Nigerians are used to corrupt government, inadequate infrastructure, spotty power supply and all-around poor conditions. Some of the perks of high energy prices undoubtedly will disappear, but none of those perks succeeded in changing Nigeria in the first place.
The real impact on Nigeria will be that the government will have drastically less money available to grease the political wheels that allow it to keep competing regional and personal interests in check. Those funds have been particularly crucial for funneling cash to the country’s oil-rich Niger Delta region, giving local bosses reason not to hire and/or arm militant groups like the Movement for the Emancipation of the Niger Delta to attack oil and natural gas sites. With Abuja having less cash, the oil regions will see a surge in extortion, kidnapping and oil bunkering (i.e., theft). We already have seen attacks ramp up against the country’s natural gas industry: Within the last few days, attacks against supply points have forced operators to take the Bonny Island liquefied natural gas export facility offline. And since Nigeria’s mil itants never really differentiate between the country’s various forms of energy export, oil disruptions are probably just around the corner.
Russia is also in the crosshairs, but not nearly to the same degree as Venezuela, Iran and Nigeria. Russia has four things going for it that the others lack. First, it exports massive amounts of natural gas and metals, giving it additional income streams. (Venezuela and Iran actually import natural gas and have no real alternative to oil income.) Second, Russia never spent its money on its population. Thus, Russians have not become used to massive government support, so there will be no sharp cuts in public spending that will be missed by the populace. Third, Russia has saved nearly every nickel it made in the past eight years, giving it cash reserves worth some US$750 billion. The financial crisis is hitting Russia hard, so at least US$200 billion of that buffer already has been spent, but Russia still remains in a far better position than m ost oil exporters. Fourth and last, the Russians can rely on Deputy Prime Minister and Finance Minister Alexei Kudrin to (somewhat forcefully) keep the books firmly in balance. At his insistence, the government is in the process of refabricating its three-year budget on the basis of oil prices of below US$35 a barrel, down from the original estimate of US$95.
At the end of the losers’ list we have two states that most people would not think of: Mexico and Canada. Both have other sources of economic activity. Canada is a modern service-based economy with a heavy presence of many commodity industries, while Mexico has become a major manufacturing hub. But both are major oil exporters, and have been leading suppliers to the American economy for decades. So both are exposed, but their concerns are more about unforeseen complications rather than the “simple” quantitative impact of lower prices.
Mexico has purchased derivatives contracts that, in essence, insure the price of all its oil exports for 2009. So should prices remain low, Mexico’s actual income will be unchanged. We only include Mexico on the list of losers, therefore, because it’s quite rare in geopolitics that such planning actually works out as planned. Hurricanes and strikes happen. (Mexico also faces the problem of insufficient funds, expertise and technology to counter rapidly declining output, something that will leave it with a lack of oil to sell in the first place — but that is an issue more for 2012 than 2009.)
As for Canada, most of the oil it produces comes from Alberta province, the seat of power of the ruling Conservative Party. Right now, the Canadian government is wobbling like a slowing top. Seeing the Conservatives’ power base take a massive economic hit due to oil prices is not the sort of complication the government needs right now. In the longer term, Alberta recently increased taxes on oil sands projects. Oil sands extraction is among the more capital-intensive and technologically challenging sorts of oil production currently possible. Combine the tax changes with the nature of the subindustry and the recent price drops and there is likely to be precious little investment interest in oil dur ing — at a minimum — 2009.
Most readers will take note of the countries we have chosen not to include on the list of vulnerable states. These include the bulk of the OPEC states — specifically Angola, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates, Qatar and Libya. All of these states count oil as their only meaningful export (except the United Arab Emirates and Qatar, which also export natural gas), so why do we feel such countries are not in the danger zone?
For its part, Angola only became a major producer recently. Nearly all of Angolan oil output is from offshore projects controlled by foreigners — shutting in such production is a very tricky affair for a country that is utterly reliant on foreign technology to operate its only meaningful industry. But the primary reason Angola is not feeling the heat is that most of its income has not been spent but instead has been stashed away due to a lack of the necessary physical and personnel infrastructure needed to leverage the income.
Iraq is in a somewhat similar position as far as finances are concerned. While Iraq has been producing crude for decades, its current government is only a few years old, and its institutions simply cannot allocate the monies involved. Despite massive outlays by both Iraq and Angola, their respective governments simply lack the capacity to spend, and so have stored up cash accounts worth US$26 billion and US$54 billion respectively.
The rest of the Arab oil producers warrant a much simpler explanation: They’ve been fiscally conservative. While all have shared the wealth with their somewhat restive populations, none of them has repeated the mistakes of the 1970s, when they overspent on gaudy buildings and overcommitted themselves to expensive social programs. All have been saving vast amounts of cash, with the Saudis alone probably having more than US$1 trillion socked away. Tiny Kuwait officially has a wealth fund worth more than US$250 billion.
So while none of the Arab oil states are particularly thrilled with the direction — and in particular the speed — oil prices have gone, none of these governments faces a mortal danger at this time. What they are now missing is the ability to make a substantial impact on the world around them. At oil’s height the Gulf Arab oil producers were taking in US$2 billion a day in revenues — far more cash than they could ever hope to metabolize themselves. Bribes are powerful tools of foreign policy, and their income allowed them — particularly Saudi Arabia — to wield outsized influence in Iraq, Syria, Lebanon, and even in Beijing, London and Washington. So while none of these states faces a meltdown from falling prices, there are certainly some hangovers in store for them. It is jus t that they are more political than economic in nature, at least for now.
*Disclosures: Hillbent does not officially endorse the commentaries of any contributors and its sole purpose of providing such content is for the convenience of our readers and to further assist their research efforts.
>>>Geopolitical Analysis>>> Jared Diamond, award winning scholar of ecology, biology and history, discusses why societies collapse and drawns upon the lessons from Greenland’s Norse, Easter Island’s deforestation, and present day Montana. He identifies potential signs for collapse and what can be done to prevent it. Enjoy this thoughtful lecture…
Jared Diamond is also the best-selling author of Guns, Germs and Steel and Collapse: How Societies Choose to Fail or Succeed. For more information, please clink on the following: Full bio and more links
