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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”

Terrorism 101

There was a time, as recently as 25 years ago, when military staff colleges around the world taught a reasonably effective doctrine for dealing with terrorism. Then it was forgotten, but we need it back. It would be especially useful in dealing with the terrorist state that has recently emerged in northern Iraq and eastern Syria.

The doctrine was painfully worked out back in the decades of the 1960s, 70s and 80s, when terrorism was one of the world’s biggest problems. Most of the time, the strategy worked, whether the threat was the urban terrorists who plagued most Latin American countries and a number of big developed countries, or the rural guerillas who fought the government in many African and Asian countries.

The key insight was this: Terrorist movements always want you to over-react, SO DON’T DO IT. The terrorists usually lack the popular support to overpower their opponent by force, so they employ a kind of political jiu-jitsu: they try to use the adversary’s own strength against him. Most domestic terrorism, and almost all international terrorism, is aimed at provoking a big, stupid, self-defeating response from the target government.

The Red Army Faction terrorists, for example, hoped that their attacks would provoke West Germany’s democratic government into severe repression. This was known, in the works of philosopher Herbert Marcuse, as “unmasking the repressive tolerance of the liberal bourgeoisie” – and once the West German government had dropped its mask, the RAF terrorists believed, the outraged workers would rise up in their millions and overthrow it.

But we never found out if the workers would actually do that, because the West German government refused to panic. It just tracked down the terrorists and killed or arrested them. It used violence, but only in legal, limited and precisely targeted ways. The same approach ended the terrorist campaigns in Italy (the Red Brigades), Canada (the Quebec Liberation Front), Japan (the Japanese Red Army) and the United States (the Weathermen).

In Latin America, by contrast, the “urban terrorists” did succeed in the first stage of their strategy. Their attacks drove the military in Argentina, Brazil and a number of other countries to seize power and create brutally repressive regimes. But even this did not cause the population to revolt, as the terrorists had expected.

Instead, “the people” kept their heads down while the military regimes destroyed the revolutionaries (together with many innocent bystanders). Extreme repression can also eventually succeed as a counter-strategy to terrorism, but it imposes a terrible cost on the population.
International terrorism has a somewhat better record of success, mainly because these terrorists are not actually trying to overthrow the government they attack. They are merely trying to trick that foreign government into using massive violence against the countries where they really do want to take power. The attacks of the foreigners will outrage and radicalise the local population, who will then give their support to the local revolutionaries.

The most successful operation of this kind was 9/11, a low-cost attack that incited the United States to invade two entire countries in the region where the revolutionaries of al-Qaeda hoped to replace the local governments with Islamist regimes. The local population has been duly radicalised, especially in the Sunni-majority parts of Iraq, and thirteen years later an “Islamic Caliphate” has taken power in the northern and western parts of that country.

Osama bin Laden would have condemned the extreme cruelty that the new Islamist state has adopted as its modus operandi, but in essence it is the fulfilment of the grand strategy that he worked out after the Russians left Afghanistan a quarter-century ago. He could not have predicted that the strategy’s greatest success would be in Iraq, for he had no allies or followers there before the US invasion, but he would still take credit for it.

So now that Osama bin Laden’s vision has finally taken concrete shape, how should we deal with it? (“We” in this case is practically every regime in the Arab world, most of the other Muslim countries, and all of the NATO countries, with Russia and China in supporting roles). ISIS’s behaviour is abominable, but is there any better option than simply bombing it from a great height?

Rule one in the old anti-terrorism doctrine was DON’T OVERREACT, and it still applies. That means as little bombing as possible, and only of strictly military targets. Preferably, it would mean no bombing at all except in specific areas where ISIS troops are on the offensive.

It means not letting yourself be lured into more extreme action by the public beheading of innocent hostages and the other atrocities that ISIS stages to attract a certain kind of recruit. Indeed, it means not launching a major ground offensive against ISIS (for which the troops are not available anyway), and waiting for events to take their course within the ‘Islamic State’.

Regimes as radical and violent as this one rarely survive for long. The revolution will eat its children, as so many have before, and it will happen a lot more quickly if they don’t have a huge foreign military threat to hold them together.
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To shorten to 725 words, omit paragraphs 6, 7 and 10.  (“In Latin…population”; and “Osama…it”)

A Few Differences Between 1939 and Now

The Ukrainian army is in retreat on every front. Since Russian regular army units came to the aid of the hard-pressed pro-Russian rebels in Ukraine’s two easternmost provinces a week ago, the tide of battle has turned decisively.

The two big rebel-held cities, Donetsk and Luhansk, are no longer besieged by Ukrainian forces. Luhansk airport fell to a Russian tank attack on Monday, Donetsk airport will also be captured soon, and the port city of Mariupol, back under government control since May, may be in Russian hands by the weekend.

Meanwhile, those of us further from the scene are being bombarded with dodgy historical analogies. This week is the 75th anniversary of the outbreak of the Second World War in 1939, so it’s a good time to see if these analogies really stand up to scrutiny.

The first analogy is that Russia’s long-ruling president, Vladimir Putin, is another Adolf Hitler, committed to expanding Russia’s borders back out to the old Soviet frontiers, or maybe even further. Stop him now or it will be harder and more expensive to stop him later on – and anybody who disagrees is an “appeaser”.

It’s true that Putin has long referred to the collapse of the Soviet Union in 1991 as the greatest geopolitical disaster of the 20th century. He recently called for immediate talks on the “statehood” of the southeastern Ukrainian provinces that have fallen partly into the hands of the pro-Russians rebels. This would mean the further dismantling of Ukraine, after the Russian annexation of Crimea last March.

Estonia, Latvia and Lithuania, which used to be part of the old Russian and Soviet empires, are terrified by the implications of Putin’s recent actions for their own independence (they also have Russian-speaking minorities). Even Kazakhstan, far to the east, is getting worried, as Putin says that it is “part of the larger Russian world…I am confident that’s the way things are going to be.”

There are echoes in Putin’s project of Hitler’s first priority after he took power in Germany in 1933, which was to recover all the German-speaking eastern territories that had been stripped away from the fatherland after the First World War. But Hitler’s second, bigger project was the destruction of the “Jewish-Bolshevik” Soviet Union, which would have required a very big war (though he never intended to fight a “world war”).

Putin has no second project. He cannot embark on a Hitler-stye campaign of conquest, given Russia’s relatively modest economic and human resources. In any case the other former Soviet possessions in the west, the Baltic states, are already NATO members with solid defence guarantees.

Until the Ukrainian crisis blew up, Putin hadn’t even done much to regain the old Soviet frontiers during fifteen years in power. He’s still not talking about taking back the rest of Ukraine, so there’s no need to nip his plan for world conquest in the bud. He doesn’t have one.

This leads to the second big difference between 1939 and now. Back then Britain and France issued an unconditional guarantee that they would go to war if Hitler attacked Poland. Even though they actually had no military ability to help Poland, they felt they had to draw a line in the sand. Whereas NATO has not offered to defend Ukraine militarily no matter what Russia does: it is basically a local issue.

Those are the realities. Ukraine enjoys great sympathy in the West, but nobody will risk a nuclear war by committing NATO forces to save Donetsk and Luhansk. So if Kiev cannot stop the Russian/rebel offensive in the east, and there’s no foreign help coming, what should it do?

The first thing is to freeze the front lines by accepting a ceasefire – which seems still to be on offer. With every passing day Ukraine is losing more territory, and it won’t get it back for decades (if ever).

Russia will settle for a freeze, because Putin’s real goal, if he can no longer directly control the government in Kiev, is to paralyse the country by putting a cuckoo in the nest: creating a permanently dissenting, pro-Russian entity as part of the Ukrainian state. The way Ukraine can avoid that fate is by hardening the borders around the rebel-held territories as much and as fast as possible.

Let the rebels run  the occupied parts of Donetsk and Luhansk (Kiev has no choice in that), but DON’T integrate them into some rejigged federal state where they would hold a veto. And DON’T recognise their legitimacy if they declare independence or join Russia either. Treat them as another Crimea, in other words.

Leave the Russians the task of pouring huge, ongoing subsidies into what is really an immense open-air industrial museum, and concentrate instead on making an economic and political success of the rest of Ukraine – which would still have 90 percent of the population.

And wait. Wait for corruption to dwindle and prosperity to grow in Ukraine, as it probably will when the country gets closer to the European Union. Wait for Putin to grow old and/or for Russia to get distracted by events elsewhere. And don’t get any more people killed when further fighting will just lose you more territory.
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To shorten to 725 words, omit paragraphs 2, 5 and 6.  (“The two…weekend”; and “It’s true…be”)

Ukraine End Game?

As the Russian-backed rebels abandoned almost all their positions in eastern Ukraine apart from the two regional capital cities, Donetsk and Luhansk, the various players made predictable statements.

Newly elected Ukrainian President Petro Poroshenko said cautiously that this could be “the beginning of the turning point in the fight against militants.” Don’t make promises that you are not sure you can keep.

The new defence minister, Lieutenant-General Valeriy Heletey, boldly promised the Ukrainian parliament that “There will be a victory parade… in Ukraine’s Sevastopol.” But that would require the Ukraine to take back the southern province of Crimea, which Russia seized and annexed in March, so it is a promise that will never be kept. Crimea is gone.

Pavel Gubarev, the self-proclaimed governor of the Donetsk People’s Republic, told a rally in the city that “We will begin a real partisan war around the whole perimeter of Donetsk. We will drown these wretches (the Ukrainian army) in blood.” That is standard morale-raising rhetoric in the wake of a military collapse – or, as the rebels prefer to call it, a “tactical retreat.”

But Igor Strelkov, the military commander of the rebels in Donetsk province, made a truly revealing comment. Pleading for Russian military intervention on 3 July, five days before his paramilitary forces abandoned Sloviansk, Kramatorsk and other rebel strongholds in the north of the province, Strelkov warned Moscow that his troops were “losing the will to fight.”

A military commander will never admit such a thing in public unless his situation is truly desperate. How desperate became clear on Tuesday when Strelkov’s troops all headed south for the relative safety of Donetsk city.

The Ukrainian army had been shelling them in Sloviansk, but there was no major Ukrainian offensive. The rebel fighters just started pulling out of the city, and those in other rebel-held northern towns followed suit. Strelkov (who is actually a Russian citizen named Igor Girkin) was left scrambling to explain what was happening in terms that made military sense, and he did the best he could.

This may be telling President Poroshenko what he most wants to know, which is whether or not this week’s events really constitute a “turning point” in the military conflict in eastern Ukraine. The answer appears to be “yes”: the morale of Strelkov’s troops (many of whom are Russian “volunteers”) is cracking as they realise that the motherland is really not going to send its own army into eastern Ukraine to help them out.

There never was mass support for the pro-Russian “revolution” in Donetsk and Luhansk provinces in April. Most people there speak Russian, and they were worried about where the real revolution in Kiev was taking the country even before Russian propaganda started telling them that “fascists” had seized control of the country and wanted to kill them. But they didn’t actually want to join Russia.

When the real revolution began in Kiev late last year, huge crowds of unarmed civilians stayed on Independence Square day and night for months. Only in the final few days did former president Viktor Yanukovych order his police to start shooting, and only then did firearms also appear in the crowd. Things happened very differently in the east.

There were no huge crowds when pro-Russian rebels seized power in the east, no lengthy occupations of public squares by unarmed civilians, certainly no violence by government forces. Heavily armed groups of masked men just appeared in the streets and took over, declaring that they were creating revolutionary regimes to save the people from the “fascists” in Kiev.

Civilians in the east were sufficiently worried about the intentions of the new government in Kiev that they did not come out in the streets to oppose this armed take-over, but they never came out in large numbers to support it either. This was more evident than ever on Wednesday, when Pavel Gubarev was promising to defend the “whole perimeter” of the city and drown the Ukrainian army in blood.

Donetsk has almost two million inhabitants. The crowd at Gubarev’s rally was a couple of thousand at most. Donetsk will not become a new Stalingrad.

So, at the risk of tempting fate, a prediction: the fighting in eastern Ukraine will not go on for months more, and there will be no heroic rebel last stand in Donetsk or Luhansk. The Ukrainian army is already encircling both cities, but it will not launch a major assault on them either. It will just keep the pressure up, and the rebel forces will quickly melt away.

The Russian “volunteers” will be allowed to go home, and local men who fought alongside them will be amnestied unless they committed some horrendous crime. Civilian refugees (no more than 3 percent of the local population) will be back in their homes quite soon.

Western countries will repair their relations with Moscow as fast as possible, since they do not want a new Cold War. But Ukrainians will not forget that Russia seized Crimea and sponsored an armed separatist rebellion in their eastern provinces. President Vladimir Putin has managed to turn Russia’s biggest European neighbour into a permanent enemy.
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To shorten to 725 words, omit paragraphs 3, 10 and 15. (“The new…gone”; “When…April”; and “The Russian…soon”)