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Oil: Blind-sided by Technology

“The price of oil will hit its floor and it will rise again,” President Nicolas Maduro assured Venezuelans, whose shaky economy depends critically on a high oil price. “Venezuela will continue with its social plans. Venezuela will move forward.”

No it won’t, and neither will Russia, Iran, or Nigeria. The only major oil exporters that are not in deep trouble are the Arab countries, whose governments have some room for manoeuvre because of low production costs, relatively small populations, and big foreign currency reserves.

Since June the cost of a barrel of Brent crude, the benchmark for world oil prices, has fallen by almost a quarter, from around $110 a barrel (where it was stuck for the past four years) to just above $80 a barrel. Last month, for the first time in decades, Nigeria exported no oil at all to the United States. Even at a big discount, Americans just don’t need it. And the main reason for all that is fracking.

American production has almost doubled in the past five years thanks to the new drilling technologies, and the United States overtook Russia last year to become the world’s largest producer of oil and gas combined. (Saudi Arabia comes a distant third.) With production soaring and world demand for oil stalling due to slow economic growth, a collapse in prices was inevitable. The question is how far they will collapse, and for how long.

The answer is probably not much further, for the moment – but they could easily stay down in the $75-$85 range for a couple of years. The reason for that is that the “swing” producers (mostly Arab), who could theoretically push prices back up by cutting their own production, have clearly decided not to do so.

Their concern is for the long-term power of the OPEC cartel, which used to be strong enough to set the price of oil. That never will be true again unless they can drive the (mainly American) frackers who are causing the over-supply of oil out of business.

Saudi Arabia and its allies are hoping that a prolonged period when the price of a barrel of oil is lower than the cost of getting that barrel out of the ground by fracking will ruin this new industry and bring back the Good Old Days. Dream on.

The Saudi strategy won’t work because some 98 percent of US crude oil and condensates has a break-even price of below $80 per barrel. Indeed, 82 percent of American production would still be turning a profit at $60 per barrel.

Even with its massive foreign currency reserves, Saudi Arabia probably cannot afford to keep the oil price low enough for long enough to break the American frackers. (Its own break-even price for conventional oil is $93 per barrel.) And the Iranians, Nigerians, Venezuelans and Russians, who depend on oil revenues for at least half of their national budgets, will be screaming for higher prices before they face riots in the streets.

So this is not a transient event; it’s a revolution. The Organisation of Petroleum-Exporting Countries (OPEC) came into its own when the United States ceased to be the dominant global producer in the early 1970s. With the re-emergence of the United States as the biggest producer, OPEC’s clout is bound to shrink – so oil prices will probably stay well below $100 a barrel for the foreseeable future.

This will be a great boon for countries that depend heavily on imported oil, like India and China. It may eventually liberate the United States from its compulsion to intervene repeatedly in Middle Eastern disputes that are really none of its business. And it may be a disaster for repressive and/or corrupt regimes in countries like Russia (break-even price $105 per barrel), Nigeria ($119), Venezuela ($121) and Iran ($140).

It also means that worries about “peak oil”, and the underlying calculation that the world had only about forty years’ worth of proven oil reserves left, can be set aside for a while. We are already up to 53 years of reserves, and we are finding new oil faster than we are using existing reserves.

Of course, a broader view of our situation would find little reason for rejoicing in all this. Our global civilisation depends on fossil fuels for 85 percent of its energy, and our annual emissions of carbon dioxide and other greenhouse gases are still rising.

Just another twenty-five years of that will deliver us to the “point of no return”: 450 parts per million of CO2 equivalent in the atmosphere. That would raise the average global temperature by 2 degrees C, and trigger natural sources of warming that it will be impossible for us to turn off again. Runaway warming is not a happy prospect, so it is unseemly to celebrate the news that we have even more oil to burn – and cheaper oil, at that.

On the other hand, it would be entirely appropriate to celebrate the news that other new technologies may open up a better escape route from fossil fuels. Solar power, wind power, nuclear fission, and hydro power all have a role to play in that task, but the Holy Grail for half a century has been fusion power. It may be much closer than we thought.
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To shorten to 725 words, omit paragraphs 11, 12 and 15. (“This will…reserves”; and “On the other…thought”)

Gwynne Dyer is an independent journalist whose articles are published in 45 countries.

THIS ARTICLE MAY ALSO BE USED AS THE FIRST OF A TWO-PART PIECE CALLED “GLOBAL ENERGY: BLIND-SIDED BY TECHNOLOGY”. In that case, this part would be sub-titled “FRACKING”, and the second part “NUCLEAR FUSION”. If you wish to use it that way, but still want the shorter length, THEN OMIT PARAGRAPHS 6, 11 AND 12 from this article..  (“Their…concern”, and “This will…reserves”

Recognising Palestine

It’s a slow process, this business of getting recognised as an independent state, but the Palestinians are making progress. In September of last year, Mahmoud Abbas, the long-overdue-for-an-election president of the Palestinian National Authority, was given permission to sit in the “beige chair”, the one that is reserved for heads of state waiting to go to the podium and address the UN General Assembly.

And now, another Great Leap Forward. On Monday, the British Parliament voted by 274 to 12 to recognise Palestine as a state. It was a private member’s bill, however, and ministers in Prime Minister David Cameron’s cabinet were ordered to abstain. The bill cannot compel Cameron to actually recognise Palestine, a decision which the British Government will only take “at a moment of our choosing and when it can best help bring about peace.”

More hot air and empty symbolism, then, or so it would seem. But the parliamentary vote is better seen as a very large straw in the wind. After half a century when Israel could count on reflexive support from the United States, Canada and the big Western European countries no matter what it did, public opinion in the countries of the European Union is shifting.

Until recently, the only EU members that recognised the State of Palestine were ex-Soviet satellites in Eastern Europe that had done so when they were Communist-ruled. But early this month the newly elected Swedish government declared that it would recognise Palestine, and other parliamentary votes on the question are coming up in Ireland, Denmark, Finland and, most importantly, France.

They will probably all vote yes. As Matthew Gould, UK ambassador to Israel, said on Israeli radio after the vote in London: “I am concerned in the long run about the shift in public opinion in the UK and beyond towards Israel. Israel lost support after this summer’s conflict (in Gaza), and after the series of announcements on (expanding Israeli) settlements (in the West Bank). This parliamentary vote is a sign of the way the wind is blowing.”

Official Israel is busily pretending that this does not matter, but it does, in two ways. One is the diplomatic reality that soon nothing may stand between Palestine and full membership of the United Nations except a lone, naked US veto in the United Nations Security Council, which may have to be repeated on an annual basis.

That will be one consequence of the way the wind is blowing, but much graver for Israel is the reason why it is blowing in that direction: patience with Israeli Prime Minster Binyamin Netanyahu’s perpetual delaying tactics is close to exhausted in most Western electorates. Among the young it has already run out completely.

Most people in Israel believe that Netanyahu has absolutely no intention of allowing the emergence of a genuinely independent Palestinian state in the West Bank and the Gaza Strip, the one-fifth of colonial Palestine that was not already incorporated into Israel at the end of the 1948 war. Indeed, much of his electoral support comes from Israelis who trust him to prevent such an outcome.

Netanyahu can never state his purpose openly, of course, because that would alienate Israel’s supporters abroad, who generally believe that peace can only be achieved by the “two-state solution” that both sides signed up to 22 years ago in the Oslo Accords. Those supporters used to be willing to turn a blind eye to his actions so long as he gave lip-service to the Oslo goals – but that faith is now running on fumes in the British House of Commons.

Sir Richard Ottaway, the chair of the Select Committee on Foreign Affairs and a lifelong supporter of Israel, told the House: “Looking back over the past twenty years, I realise now Israel has been slowly drifting away from world public opinion. The annexation of the 950 acres of the West Bank just a few months ago has outraged me more than anything else in my political life. It has made me look a fool and that is something I deeply resent.”

The erosion of support for Israel has been slower in the United States, where open criticism of Israeli actions in the media is rare and Congress is still (in the crude phrase of Washington insiders) “Israeli-occupied territory.” But it is happening even there – and among the younger generation of Americans the decline has been very steep.

In a Gallup poll conducted last July, in the midst of the most recent Gaza war, more than half of Americans over the age of 50 said that Israel’s actions (which eventually killed over 2,000 Palestinians) were justified. Just a quarter of those between 18 and 29 years old agreed.

In both cases these generations will probably stick to their convictions all of their lives – but generational turnover will ensure that the opinions of the younger group ultimately prevail. It was presumably Israel’s actions and positions over the past ten years that shaped the opinions of the younger Americans. Another ten years like that, and even the United States may have a majority that wants to recognise Palestine.
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To shorten to 725 words, omit paragraphs 3 and 10. (“More…shifting”; and “Sir…resent”)

Bolivia and Brazil

To nobody’s great surprise, Bolivia’s President Evo Morales has won a third 5-year term by a landslide majority. It’s no surprise because Bolivia’s Gross Domestic Product (GDP) has tripled since he took office in 2006. The number of people living in poverty has fallen by a quarter, even the poorest now have the right to a pension, and illiteracy has fallen to zero. Of course he won.

What has happened in Bolivia seems as miraculous as what happened in Brazil, where another left-wing president, Luiz Inacio “Lula” da Silva, took office in 2003. The economy started growing at 5 percent a year, unemployment fell steeply, and some 40 million Brazilians, almost a quarter of the population, were lifted out of poverty. Lula’s former chief of staff and successor as president, Dilma Rousseff, is also likely to win another term in office.

Is there some secret they share? Many other South American economies have been growing fast too, but without the dramatic change in the distribution of income that has happened in Brazil and Bolivia. Even the late Hugo Chavez’s “Bolivarian revolution” in Venezuela, for all its anti-imperialist rhetoric and despite the country’s great oil wealth, has not delivered a comparable transformation in the lives of the poor.

Evo Morales has another claim to fame, too. He comes from the poorest of the poor: “Until I was 14, I had no idea there was such a thing as underwear. I slept in my clothes… (which) my mother only removed for two reasons: to look for lice or to patch an elbow or a knee,” he wrote in his recent autobiography. He spent only a short time in school, and he did not become fluent in Spanish until he was a young adult.

Morales grew up speaking Aymara, one of the languages spoken by Bolivia’s indigenous peoples. They are a two-thirds majority of the country’s population, but in almost 200 years of independence Morales is the first indigenous Bolivian to become president (all previous presidents were drawn from the 15 percent white minority). And his government passed a new constitution in 2009 that entrenches indigenous rights in politics and in law.

So should we hail the arrival of a new and better model for economic growth and social justice? Unfortunately, no. The only economic secret that Lula, Dilma and Evo all share is that if you want the economy to grow, you must not frighten the horses.

The international markets got ready for a meltdown when Lula, a self-taught former trade union leader with a penchant for radical rhetoric, became president of Brazil, but he turned out to be the very soul of fiscal responsibility. And although Morales nationalised a large part of the Bolivian economy – oil, gas, tin and zinc mining and key utilities – he negotiated deals that compensated foreign investors and kept the markets happy.

All the rest of it – things like Morales calling Barack Obama “an imperialist” at the UN General Assembly meeting in New York last month, and Rousseff cancelling a scheduled state visit to the United States last year after Edward Snowden revealed that the US National Security Agency had been spying on her emails – simply doesn’t worry serious investors so long as the numbers come out right and the financial and fiscal environment is predictable.

So Morales has not been punished by the markets for being a “socialist”, and neither has Rousseff. Both still have strong support at home, too. Unlike Morales, Rousseff didn’t get enough votes in the first round of the presidential election earlier this month to avoid a run-off on 26 October, but she will probably win again even though the Brazilian economy is now teetering on the brink of a recession.

Despite all the similarities, however, comparing Brazil and Bolivia is rather like comparing apples and oranges here. Brazil has a very large and diversified internal market (fourth largest car-maker in the world, for example), and has twenty times as many people as Bolivia.  The latter has an economy that is almost totally dependent on the export of commodities, mainly oil, gas and minerals.

Bolivia’s soaring GDP of the past decade, and the modest prosperity it has brought to what was South America’s poorest country, is mostly fairy gold. What goes up usually comes down again eventually, and what drove Bolivia’s GDP up was almost entirely rising commodity prices. When they come down again, so will the GDP, the government’s income, and its ability to support even the sketchiest outline of a welfare state.

In the meantime, Morales has spent the extra money wisely, and it will be very hard for any successor to abandon this kind of “social spending”. He has also made it normal for Bolivia’s indigenous majority to have a big say in policy decisions at the national level, and that too will be almost impossible to roll back. He has even built up big financial reserves to cope with falling commodity prices. But he has not really transformed the economy.
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To shorten to 725 words, omit paragraphs 4 and 5. (“Evo…law”)

Exponential Ebola

Here are two good things about the Ebola virus. It is unlikely to mutate into a version that can spread through the air, as some other viruses have done. And people who have been infected by Ebola cannot pass it on to others during the incubation period (between two and 21 days). Only when they develop detectable symptoms, notably fever, do they become infectious to others, and only by the transfer of bodily fluids.

Here are three bad things about Ebola. The “bodily fluids” that can transmit it include even the tiniest droplet of sweat: just the slightest touch can pass the virus on. The death rate for those who become infected is 70 percent. And the US government’s Centers for Disease Control warned recently that we could have 1.4 million cases of Ebola by January.

Since the number of known cases so far is only around 7,500, that suggests that the number of new cases is doubling approximately every two weeks. This is called exponential growth: not 1, 2, 3, 4, 5, 6… but 1, 2, 4, 8, 16, 32…. If you put one grain of wheat on the first square of a chess-board, two on the second, and keep doubling the grains every square, there are not enough grains of wheat in the world to get you to the 64th square.

Exponential growth always slows down eventually, but the question is when? A vaccine would slow it down, and the British pharmaceutical giant GlaxoSmithKline already has one under development, but it is still in an early stage of testing. Human volunteers are now being given the vaccine to check for unforeseen side effects.

If no serious side-effects are found, the vaccine will then be given to health workers in West Africa. A process that normally takes years is being compressed into mere months, and ten thousand doses of the vaccine are already being produced (for the health workers). But it will be the end of the year before we know if it actually gives a useful degree of protection from the virus.

If it does, then millions of doses would have to be produced and injected into the people of Liberia, Sierra Leone and Guinea, where Ebola is already an epidemic – or tens of millions of doses if the disease has spread by then to more populous countries like Ivory Coast, Ghana or, worst of all, Nigeria, which has 175 million people.

Until and unless a vaccine becomes available in very large quantities, the only way to stop the exponential spread of Ebola in the affected countries is to isolate the victims, a task that is very difficult in mostly rural countries with minimal medical facilities. Liberia with 4.2m people, had only 51 doctors and 978 nurses and midwives at the start of the crisis, and some of those have already died or fled.
You don’t need to find and isolate everybody who gets the disease to break the exponential pattern. Just isolating 75 percent of them as soon as they become infectious would drastically slow the spread. But at the moment, in the three most affected countries, only an estimated 18 percent of the victims are being taken to treatment centres (where, of course, most of them will die).

This is why the most important intervention so far has been the dispatch of 3,000 US troops to Liberia, with the primary job of creating seventeen large tent hospitals and training 500 nurses to work in them. Britain is providing 200 new hospital beds in its former colony of Sierra Leone, with 500 more in the next few months. Cuba has sent 165 health workers, China has sent 60, and France has sent various teams to help its former colony, Guinea.

But with the exception of the American aid to Liberia, it is all woefully inadequate. Nine months after the first case of Ebola was confirmed in Guinea, we are still playing catch-up, and playing it badly. Why is that? Aren’t the developed countries also at risk if the virus continues to spread?

Well, no, or at least their governments don’t think so. Even without a vaccine, they are confident that their health services can find and isolate any infected people quickly and prevent Ebola from becoming an epidemic in their countries. They are probably right, and so they see the limited help they are sending to West Africa as charity rather than a vital self-interest. But they may be wrong.

As Professor Peter Piot, who first identified the Ebola virus in 1976, said in a recent interview with Der Spiegel, “I am more worried about the many people from India who work in trade or industry in West Africa. It would only take one of them to become infected, travel to India during the virus’s incubation period to visit relatives, and then, once he becomes sick, go to a public hospital.

“Doctors and nurses in India often don’t wear protective gloves. They would immediately become infected and spread the virus.” Then you would have Ebola on the loose in a country of more than a billion people, millions of whom travel abroad each year. All hope of confining the disease to Africa and driving it back down to almost nothing, as was done in previous outbreaks, would be gone.
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To shorten to 725 words, omit paragraphs 4, 5 and 6. (“Exponential…people”)