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Fracking Is Winning

“No one can set the price of oil. It’s up to Allah,” said Saudi Arabian Oil Minister Ali al-Naimi in May. But less devout people believe that Saudi Arabia has been trying very hard to set the price of oil – and to set it low. Moreover, it has been remarkably successful, because last week the price of oil was in the mid $40s per barrel, down from just over $100 last May. But Riyadh is not achieving its objective.

Saudi Arabia, like any oil producer, likes a high price for its oil, but since it is very rich and has huge reserves it thinks long-term. Watching American oil production almost double in the past seven years, mainly thanks to the rapid rise of fracking, the Saudis could see that they risked losing their role as the “swing producer” who can raise or lower the oil price just by cutting or increasing its own production.

The only way Saudi Arabia could keep that role was to drive the American frackers out of business. Production costs are secret in the oil world, but the Saudis assumed that the injection of water, sand and chemicals into shale rock at high pressure makes hydraulic fracturing – fracking – very expensive.

So the Saudi strategy is to keep its own production high in order to push the the oil price down. If the price stays low enough for long enough, high-cost producers like the frackers will have to close down. Then, once the competition had been eliminated, Saudi Arabia jacks the price back up by cutting its own production, and the glory days return.

In the meantime Saudi Arabia is losing income too, of course, and oil revenues account for 90 percent of the national budget. It can live on savings for a while, but it needs a fairly quick win.

It would be politically unwise to cut the lavish government spending that keeps the Saudi population happy, and the government is also involved in an expensive war in Yemen. The missing income has mostly been replaced by withdrawals from the country’s huge foreign reserves, estimated a year ago at $700 billion – but those reserves have fallen by $65 billion in the past year.

The Saudis don’t want to run those reserves down too far: without them, it could not afford to play the role of “swing producer”, and would lose most of its diplomatic clout. So last week, for the first time in eight years, Saudi Arabia started selling government bonds, planning to raise $27 billion by the end of the year. The strain is starting to show.

The strain of this attritional battle is also showing in the United States, where various shale oil producers have cancelled or postponed new drilling projects. But the shale producers have consolidated into bigger companies and increased the efficiency of their production processes, and US oil production is actually continuing to grow this year. It is now at about 90 percent of Saudi production.

The brutal fact is that the Saudis are losing this battle. When the US was the biggest producer of oil, before about 1970, it was the swing producer. Within a few years, it will have overtaken Saudi oil production and will be the swing producer again. And there is nothing Riyadh can do about it.

The Saudis made two mistakes. The first was to overestimate the cost of US shale oil production, and assume that any price below about $80 per barrel would make it unprofitable. There are some shale oil plays for which this is true, but the costs vary wildly, according to the local geology, and can be as low as $20 per barrel. Most shale oil is profitable at $60 per barrel, and that proportion is rising rapidly as consolidation proceeds and efficiency rises.

Their other, bigger mistake was to believe that victory was possible at all. When you stop production from a conventional oil well, there is a large permanent loss of flow when you restart production. The pores in the oil-bearing rock clog up, and that permanently reduces the “bottom-hole” pressure that forces the oil to the surface.

Stopping production at a shale-oil site incurs no such loss, since the producers create the pressure themselves. Uncap it, and the flow resumes as before.

So even if the Saudis succeeded in forcing most of the shale-oil sites to close, the shale producers would just turn the flow on again as soon as Saudi Arabia declared victory and cut production to get the price of oil back up.

It will take a little more time to the Saudis to acknowledge their mistake, and they may not even be able to get the price back up to where they need it by cutting production. American production will continue to rise, and Iranian oil will probably also be coming back on the market in a big way by next year.

The Saudis will stay rich, but they will have to cut their spending and they will suffer a permanent loss of influence. Their only consolation will be that Iran, which they see as their greatest enemy, won’t be able to use its oil to buy influence either.
To shrten to 725 words, omit paragraphs 7 and 8. (“The Saudis…production”)

North Korea’s Nukes

Early this month North Korea claimed to have launched a ballistic missile from a submerged submarine. Yesterday it announced that it can now make nuclear warheads small enough to fit on a missile. If both those claims are true, then it can now deliver a nuclear weapon on the United States, at least in theory, but there is always some doubt about North Korean claims.

While a defence official in Pyongyang said on Wednesday that the country’s nuclear programme has “long been in the full-fledged stage of miniaturisation,” some Western defence experts think the North Koreans have not really mastered the art yet. But General Curtis M. Scaparrotti, the senior US military commander in South Korea, thinks otherwise.

“I believe (the North Koreans) have the capability to have miniaturized the device at this point, and they have the technology to potentially actually deliver what they say they have,” Scaparrotti said last October. But to be sure that the miniaturised weapon actually works on a ballistic missile, North Korea would have to test-fire it to see if it survives the heat and vibration of re-entering the atmosphere in working order. It has not yet done that.

Others think that the footage of the submarine launch may have been faked. The missile emerges from the sea, sure enough, with the Maximum Leader looking proudly on, but Kim Jong-un was obviously photoshopped in, and in one shot there seems to be a barge floating on the surface near the missile’s exit point. However, let us assume for a moment that both claims are true – because they will be sooner or later.

What does North Korea intend to do with its nuclear weapons? And why is it trying so urgently to persuade its enemies that they are ready to use now?

The rational and conventional answer to the first question is that Pyongyang’s nukes are solely intended to deter the United States from using nuclear weapons on North Korea. The United States has long-standing military alliances with both South Korea and Japan, and it has never said that it would abstain from using nuclear weapons if there were a war between North Korea and its neighbours.

In this rational world, having enough nuclear weapons to deter the United States from going nuclear would give North Korea a major advantage in the event of a ground war in the Korean peninsula. Its army is much bigger than the South Korean and US ground forces facing it, and it might even manage to overrun South Korea in a non-nuclear war. Or at least, it may believe it could.

How many North Korean nuclear weapons would be enough to deter the United States from using its own nukes, in this context? A dozen would probably do it, and Prof. Siegfried Hecker of Stanford University, a former director of the Los Alamos National Laboratory, thinks that North Korea probably now has that many, “half likely fuelled by plutonium and half by highly enriched uranium.”

But rationality has not been the outstanding feature of politics in North Korea recently. In the past three years Supreme Leader Kim Jong-un has purged most of the men who worked closely with his father, Kim Jong-il, and many have been executed. Whole families have been murdered, including some with links by blood or marriage to Kim’s own.

The crimes imputed to the victims and the methods of killing also grow increasingly bizarre. South Korea’s National Intelligence Service reported recently that North Korea’s defence minister, General Hyon Yong Chol, was executed last month for falling asleep during a meeting where Kim Jong-un was present.

Again according to the NIS, the weapon used to execute General Hyon was a ZSU23-4, a Russian-made tracked anti-aircraft vehicle. It mounts four linked autocannons that fire 23 mm shells at the rate of 3,400 rounds per minute. If that report is true, it would have been hard to find enough of Hyon to bury.

The impression this all creates of political chaos and utter uncertainty in the North Korean capital may be misleading. The old Soviet regime was never more monolithically stable than at the height of Stalin’s purges in 1936-38. But at the moment Kim’s regime certainly LOOKS unstable when viewed from the outside. There are no safe assumptions, including assumptions about the rationality of the leadership.

So we cannot just assume that North Korea’s nukes are purely defensive, or that Kim Jong-un, after 28 years of living in a gilded cage and three and a half years of absolute power, has been adequately instructed in the theories of nuclear deterrence that have become orthodox in older nuclear-weapons states. Nor is anybody in the North Korean military hierarchy going to try to instruct him now, if he is ignorant in such matters.

The simple truth is that the rest of the world doesn’t know what is happening in North Korea at the moment. The mystery has deepened with the abrupt last-minute cancellation of United Nations Secretary-General Ban Ki-moon’s scheduled visit to North Korea. We’ll have to wait to find out what’s really going on – but meantime military forces all over north-eastern Asia are undoubtedly on high alert.
To shorten to 725 words, omit pragraphs 10, 11 and 12. (“The crimes…leadership”)

Yemen: Another Civil War

The last American troops have been pulled out of Yemen after al-Qaeda fighters stormed a city near their base last Friday. Houthi rebels who had already overrun most of the country have now entered Aden, the last stronghold of President Abdrabbuh Mansour Hadi. And on Wednesday Hadi boarded a helicopter and departed for parts unknown.

The US State Department spokesman put the best possible face on the withdrawal of American troops, saying that “due to the deteriorating security situation in Yemen, the US government has temporarily relocated its remaining personnel out of Yemen.” He even said that the US continued to support the “political transition” in Yemen. But there is no “political transition.” There is a four-sided civil war (although one side is about to collapse).

Why would anybody be surprised? There has been no 25-year period since the 7th century AD when there was not a civil war of one sort or another in Yemen. (They are often many-sided wars, and the impression that it was less turbulent before the 7th century may just be due to poor record-keeping.) But this time it’s actually frightening the neighbours.

Yemen’s current turmoil started in 2011, when the dictator who had ruled the country for 33 years, President Ali Abdullah Saleh, was forced out by non-violent democratic protesters (and some tribal militias who backed them). Saleh’s deputy, Abdrabbuh Mansour Hadi, took over and even won an election in 2012, but he never managed to establish his authority over the deeply divided country.

Hadi had the backing of the United States and most of the Arab Gulf states (including Yemen’s big northern neighbour, Saudi Arabia) because he was willing to fight the Islamist extremists who had seized much of southern and eastern Yemen. But his main preoccupation was actually the Houthis, a tribal militia based in largely Shia northern Yemen.

Angry at the status that the north was being offered in a proposed new federal constitution, the Houthis came south in force and seized Sanaa last September. In February, after months of house arrest, Hadi fled to the southern port of Aden, his home town and Yemen’s second city, and declared that the capital instead. So the Houthis came south after him.

Meanwhile Saleh, the former president, returned from exile and made an alliance with the Houthis – despite the fact that he had launched six major offensives against them back when he was president. That’s what radicalised the Houthis in the first place, but they needed some national figure on their side as they moved deeper into the south, and Saleh is at least a Shia. He will have to do. Clear so far? Good.

The third contender for power is al-Qaeda in the Arabian Peninsula (AQAP), whose forces are only a half-hour’s drive from Aden. As its fighters closed in on Aden last week, AQAP seized the town next to the airbase where the American forces were living, and Washington ordered its troops out. But the Houthis got into the city of Aden first, and it is not yet clear whether AQAP will try to take it from them.

Finally, we mustn’t forget the fighters of ISIS (Islamic State), who announced their presence in the country last month. Their sole operation of note so far has been suicide attacks on two Shia mosques in Sanaa on Sunday that killed 137 people. But as Sunni fanatics in a country that is currently being overrun by its Shia minority, ISIS will not lack for recruits. So the war will continue with three sides: Hadi goes out, and ISIS comes in.

In conventional terms, Yemen doesn’t matter much. It has a lot of people (25 million), but it is the poorest country in the Arab world. Its oil has almost run out, and its water is going fast. You could argue that its geographical position is “strategic” – at the entrance to the Red Sea, commanding the approach to the Suez Canal – but it’s hard to see any Yemeni government getting the kind of military forces it would need to close that waterway.

What worries people is the possibility that the jihadis (either al-Qaeda or ISIS) could come out of this on top. They are certainly not there yet, but many Sunnis will see them as the best chance to break the hold of the Shias who, despite their internal quarrels, have collectively dominated the country for so long. In fact, al-Qaeda and ISIS are now the last organised Sunni forces facing the Houthis.

Shias are only one-third of Yemen’s population and the resentment runs deep. The Houthi troops now occupy almost three-quarters of the country’s densely populated areas, but it would be an exaggeration to say that they actually control all that territory. They are spread very thinly, and if they start to lose they could be rolled up very quickly by the jihadis.

That could turn Yemen into a terrorist-ruled “Islamic State” with five times the population of the one that sprang into existence last July on both sides of the Syrian-Iraqi border. The odds are against it, but after that “July surprise” nobody is ruling it out.
To shorten to 700 words, omit paragraphs 3, 7 and 11. (“Why…neighbours”; “Meanwhile…good”; and “In conventional…waterway”)

Bibi’s Back

Midway through the election campaign Israel’s leading satirical TV show, Eretz Nehederet, came up with a new take on the man who has dominated the country’s politics for the past twenty years. Binyamin “Bibi” Netanyahu, it suggested, was cursed as a child to be Israel’s prime minister for eternity. His only chance to break the spell was to become its worst-ever leader.

Well, if that was his strategy, he has failed again. Despite having run a government that delivered too few jobs, stagnant wages, a rapidly rising cost of living, and a full-blown housing crisis – it now costs the average Israeli 148 months’ salary to buy a home, compared to 66 months for the average American – Israelis voted him back into power in Tuesday’s election.

Only a week ago, he was running behind in the polls, but a massive last-minute scare campaign turned it around. On polling day, Netanyahu even put a video clip on his Facebook page in which he warned that “the rule of the right is in danger. The (Israeli) Arabs are moving in droves to the polling stations. Left-wing organisations are bringing them there in buses.” And who was paying for those buses? “American money,” explained Bibi’s campaign team.

Israel’s voting system of strict proportional representation has never given a single party a majority of the Knesset’s 120 seats in any election in the state’s 67-year history. Netanyahu’s Likud Party won 30 seats, while its nearest rival, the centre-left Zionist Union, got only 24. But that gives Likud the first chance to form a coalition with the required 61 seats, and there are enough smaller right-wing parties to make up the numbers.

Bibi is back for up to five more years, which would make him the longest-serving prime minister in Israeli history. But turning the tide had a price, and Israel has not yet begun to pay it.

Netanyahu won mainly by cannibalising the vote of the parties to Likud’s right, but that strategy required him to say some things out loud that he had previously conveyed to his hard-right admirers only by nods and winks. The most dramatic shift came just one day before the election, when he finally said plainly that he would never allow the creation of a Palestinian state.

“I think that anyone who moves to establish a Palestinian state and evacuate (Israeli-occupied Palestinian) territory gives territory away to radical Islamist attacks against Israel,” he said. Does that mean that a Palestinian state would not be permitted if he were re-elected, asked the interviewer. “Indeed,” Netanyahu replied.

This will come as a vast surprise to practically nobody. Netanyahu’s entire political career has been dedicated to sabotaging the 1993 Oslo Accords (which envisaged Israeli and Palestinian states living side-by-side in peace) and planting so many Jewish settlers on the Israeli-occupied territories that a separate Palestinian state becomes physically impossible.

He largely destroyed the Oslo agreement in his first term as prime minister in 1996-99 (the creation of a Palestinian state was scheduled for 1998). Almost 10 percent of Israel’s Jews now live in the occupied Palestinian territories (east Jerusalem and the West Bank) that would make up a Palestinian state. But to keep his American allies and his European supporters happy, he never actually said he would not allow an independent Palestine.

Netanyahu finally spoke the truth on Monday because that’s what the settlers and their supporters wanted to hear, and he needed those votes in order to survive politically. But it destroyed the myth, useful to the United States and the European Union, that there is some surviving “peace process” that must be protected by keeping the Israelis happy. The “peace process” is dead, dead, dead. Has been for years. There is no “two-state solution” on the table.

This makes it a lot harder for the US to veto resolutions critical of Israel at the United Nations, as it has done 51 times since 1972. Without the cover of peace talks, these vetoes become votes for perpetual Israeli rule over the Palestinian people. And it will accelerate the broader erosion of the old pro-Israel reflexes of people in Europe and the US who needed the reassurance that some day, somehow, there would be a just peace settlement.

Netanyahu made matters considerably worse during the campaign by openly showing his contempt for President Barack Obama. His panic-mongering speech to the US Congress, painting Obama’s quest for a nuclear deal with Iran as a naive surrender to Iran’s alleged desire for nuclear weapons, was an unprecedented foreign intervention in the US political process. It will not be forgiven or forgotten by Obama.

His election promise to speed up Jewish settlement in the Palestinian territories (which is illegal under international law) was another nail in the coffin of peace negotiations. Still, it did help to get Netanyahu re-elected, and for him that’s all that counts.

He still truly believes that only he understands the real and existential dangers facing Israel, and has the will to do something about them. Except that all he ever really does is kick those dangers down the road a bit. Unable to believe that a peaceful settlement is possible or even desirable, he condemns his country to perpetual conflict and growing isolation.
To shorten to 725 words, omit paragraphs 4 and 12. (“Israel’s…numbers”; and “Netanyahu…Obama”)