Author: OilPrice.com

The implications for the oil industry from the ongoing Gulf of Mexico oil spill are already taking shape, with the administration calling for a Challenger-style investigation and rewriting the playbook for oil & gas leasing and the issuance of safety and environmental permits for offshore drilling.

It’s less clear how the spill might affect other aspects of energy, beyond boosting the public’s interest in pursuing clean energy options. However, it would be ironic if a problem perceived to have arisen because of a “cozy relationship” between oil companies and regulators resulted in an even cozier relationship between the government and the ethanol industry that depends on it for both financial support and the rules that mandate the use of its product.

Yet that’s exactly what could happen as the administration decides whether to increase the allowable percentage of ethanol in gasoline.

Perhaps you’ve seen the new ads from Growth Energy, an ethanol trade association: “No beaches have been closed due to spills”, with the word “ethanol” fading slowly into view. Then there’s “We won’t have to wait millions of years to replenish our reserves,” and other statements emphasizing ethanol’s employment and energy security benefits. It’s a clever campaign, and well-timed. On one level, using more ethanol in gasoline seems an obvious response to concerns about our dependence on oil. For all its many shortcomings, ethanol remains the most successful oil substitute in the US market, thanks to the combination of a $0.45 per gallon blenders’ tax credit and the steady ratcheting-up of the annual federal renewable fuels standard. Ethanol currently displaces the equivalent of approximately 500,000 barrels per day of gasoline that would otherwise be imported or refined here from imported crude oil. The problem is that the market penetration of ethanol is rapidly approaching the 10% blending limit that has been approved as safe for use in engines that haven’t been modified to run on higher-percentage ethanol blends, such as E85. And because E85 has so far failed dismally to take off–accounting for just 0.01% of US gasoline sales in 2008, based on EPA’s analysis–any additional ethanol would have to be squeezed into ordinary gasoline, at least in the near term.

Our proximity to this threshold, referred to as the “blend wall”, is determined by two factors, in addition to the federally-mandated ethanol blending volume: total US gasoline sales and US ethanol output. Last year Americans bought just under 138 billion gallons of gasoline (including the ethanol blended into it), a reduction of about 3% from the 2007 peak. Without further growth in demand, 10% of that would be 13.8 billion gallons per year (gpy). According to the Renewable Fuels Association, another ethanol trade association, the capacity of existing US ethanol facilities plus those under construction already totals 14.7 billion gpy. In other words, once all the ethanol plants now being built are finished, the industry could supply more than 10% of US gasoline demand without breaking a sweat. But without either a higher blending limit in gasoline or a sudden, unexpected surge in E85 sales, any additional ethanol beyond that level would have no home in the US fuels market. Nor is it obvious that corn ethanol exports represent a viable long-term outlet. Left unresolved, this is a guaranteed train-wreck.

Under the circumstances, it’s natural for the ethanol industry to ask its patron for help, in the form of a request for a waiver to blend more than 10% ethanol into each gallon of gas. Last winter, the Environmental Protection Agency told Growth Energy that it was studying their request and would respond by mid-2010. That deadline is nearly upon us, and with more oil spilling into the Gulf of Mexico every day, the pressure on EPA to agree must be mounting. This can’t be an easy call to make, especially with the auto makers citing test results indicating that ethanol blends above 10% could harm some car engines. Saying no would call into question the nation’s entire long-term renewable fuels strategy, at a time when green jobs and green energy are being widely promoted as the key to a new, more competitive economy. Yet granting that request, either as a favor to the ethanol industry or as a hasty response to the Gulf Coast oil spill would be a mistake that could have serious repercussions, both for consumers and for the administration making such a call. Stay tuned.

This is a guest post by Geoffrey Styles from Energy Tribune.

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The financial world is coming unglued again. Greece has pushed the E.U. to the brink. Global stock markets are tumbling.

And yet, at the same time at least one economic indicator is soaring. The Baltic Dry Index.

Today, the BDI jumped nearly 9%. The largest daily jump in at least the last six months.

In fact, the index is up 40% since the end of April. A jump that has roughly coincided with the recent decline in global stock markets.

The BDI tracks global shipping rates. A rising index generally means more trade, as goods are sailed around the world.

So what’s going on? Are nations buying and selling more, even as the economy tailspins?

Digging a little deeper, the recent rise in the BDI is attributable mostly to a jump in rates for one particular ship type. Capesize.

Capesize vessels are amongst the largest in the world. Typically with capacity over 150,000 long tons of deadweight. (Back in the day, such ships were too large to sail through the Panama Canal. Therefore, they had to transit the Cape of Good Hope or Cape Horn. Thus the name.)

Interestingly, capesize vessels are the “weapon of choice” when it comes to transporting metal ores. This category also includes oil tankers.

Could the jump in Capesize rates be signaling more metals and oil floating globally? And if so, is this due to buyers hungry for product, or sellers desperate to unload?

This is a guest post by Dave Forest at oilprice.com

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As the United States edges closer to issuing a fresh round of sanctions against Iran, foreign investors so far unmoved by international pressure will end up doing business with a Revolutionary Guard that makes even local firms nervous, an analyst warns.

The Islamic Revolutionary Guard Corps, known as the IRGC or Revolutionary Guard, is a military branch set up after the 1979 revolution to protect the regime and has become more ingrained in the Iranian economy particularly under President Mahmoud Ahmadinejad’s administration.

In recent weeks, the Revolutionary Guard has declared that it can assume control of the energy industry if Westerners flee under the crush of coming U.S. sanctions. Over the last two-and-a-half decades, the powerful force has gradually moved into sectors like construction, energy and telecommunications, said Alex Vatanka, a scholar at the Washington-based Middle East Institute.

Given Iran’s oil and gas reserves and the country’s reliance on revenues from crude exports, “it’s very logical for the IRGC’s economic arm” to seek an even stronger footing in the energy sector as U.S. and United Nations financial penalties against firms operating in Iran pick up steam, Vatanka told OilPrice.com.

The IRGC has the “political muscle to push political contracts” through, but it is questionable whether the group is best-suited to coordinate these efforts on a domestic level, he said. “We know their intentions in the Iranian oil industry, and [local firms are] very often hesitant when they see IRGC involvement,” he noted.

Foreign companies would be “equally, if not more hesitant, to deal with the IRGC” because the organization is at the forefront of any U.S. government or U.N. attempt to apply new sanctions, he said.

“So it really just raises the stakes for any foreign participant in these projects,” Vatanka said.

The overriding challenge is whether a firm, domestic or otherwise, can ever have a “fair struggle with the IRGC, if I can put it this way,” Vatanka explained. “They are politically so powerful that they can nullify, change terms and take the credit for anything that’s done positively and claim it to be their own. And if you stand up to them, they would basically label you against the Islamic Revolution.”

He said questions also linger about the kind of revenue-sharing the Revolutionary Guard would offer international companies.

And whether the Revolutionary Guard can even fulfill Iran’s “very big intentions” in the gas sector remains to be seen, Vatanka said, noting “there’s no evidence to suggest that they have, in any way or shape, invested technologically in energy. If it was about missiles, it would have been a totally different matter.”

In March, Iranian Oil Minister Masoud Mirkazemi said the Islamic regime is seeking a $200 billion investment in oil, gas and refinery industries over the next five years.

Iran has only waning pools of oil but may become a “huge provider of natural gas on a global scale,” Vatanka said.

Iran holds the world’s third-largest proven oil reserves and the world’s second-largest natural gas reserves, according to the U.S. Energy Information Administration. This includes the South Pars gas field, the “largest natural gas deposit in the world, which Iran shares with the state of Qatar,” added Vatanka.

The Iranian oil industry has traditionally been aligned with “pragmatic conservatives,” he added, but there has been a shift toward “principalists, the people around Ahmadinejad,” particularly in “this pivotal” sector of the Iranian economy.

In April, Ahmad Ghalebani took over as head of the National Iranian Oil Co. from oil-industry veteran Seifollah Jashnsaz, according to Iranian press reports. Like the Iranian oil minister, Ghalebani does not hail from the oil industry, the reports state.

Regardless of the typical rhetoric emanating from Iran, the country has always had a “pretty well-oiled bureaucracy,” but these “relatively new faces and voices” have spurred more uncertainty for foreign firms, Vatanka said.

Iran has pressured a number of firms to honor previous agreements or pull out of the country entirely. Iran recently gave a two-week ultimatum to Royal-Dutch Shell and Repsol of Spain to forge ahead with their involvement in projects related to the South Pars gas field or be replaced by local firms.

Around the same time, the regime also announced that it is awarding major gas contracts to Chinese, Malaysian and Indian firms for South Pars instead of Western firms widely regarded as frontrunners, according to Iranian news reports.

India is not likely to give up its investments in Iran “without considerable pressure” from the U.N., noted Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies, a Washington-based think tank. Not only does India have business interests in the country, Iran provides it with “over 400,000 barrels of oil a day,” Ebel told OilPrice.com.

At the moment, India has proposed resuming talks with Iran on importing gas through a pipeline passing through Pakistan, according to Indian press reports.

China, which has a big interest in Iran as an oil supplier, is unlikely to be fully supportive of the United States and the U.N., Ebel said. About 430,000 barrels of oil move from Iran to China every day, he added. China, India and Japan probably account for half of all Iranian oil exports, Ebel noted.

On the weekend, the head of Brazil’s energy regulator was reported as saying that his country could assist Iran with equipment and engineering if Iran offered drills to help Brazil in the exploration of deep-water oil.

Despite these holdouts, many firms have already caved into pressure and abandoned some of their investments as talk of sanctions builds, said Ebel.

Russia’s Lukoil has stopped gas sales to Iran, while India’s Reliance Industries will not renew a contract to import crude oil from Iran this year.

China and Japan are cutting crude-oil imports from Iran. Vitol, Glencore and  Trafigura have all stopped their gas supplies to the country.  And Shell also stopped selling gas to the regime.

At a congressional hearing last week, the U.S. Homeland Security and Governmental Affairs Committee issued international firms a stark warning: “Either do business with Iran’s $250 billion-a-year economy, or do business with America’s $13-trillion economy, but you cannot do business with both.”

The proposed U.S. legislation is known as the Iran Refined Petroleum Sanctions Act and will be tougher on firms than its predecessor, the Iran Sanctions Act. The revised law will pursue financial institutions and firms that do business in Iran’s energy sector or help the regime build its refining capacity.

The Government Accountability Office, an arm of Congress, released a report during the hearing that found that seven of 41 companies previously identified as doing business with Iran received combined payments of nearly $880 million from the Defense Department. This includes $319 million to Repsol and $312 million to Total of France for the purchase of fuel.

Ultimately, the relationship between Iran and the international community will be tough to walk away from, Vatanka of the Middle East Institute told OilPrice.com. While Iran still needs Western technology to expand its energy industry, he said, large companies seeking growing markets will be hard-pressed to “totally look away and abandon Iran for good.”

This article was written by Fawzia Sheikh for Oilprice.com

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(DISCLAIMER: This guest post comes courtesy of OilPrice.com. BusinessInsider has not independently verified any of the report)

In an exclusive for Oilprice.com, the Wayne Madsen Report (WMR) has learned from Federal Emergency Management Agency (FEMA) and U.S. Army Corps of Engineers sources that U.S. Navy submarines deployed to the Gulf of Mexico and Atlantic Ocean off the Florida coast have detected what amounts to a frozen oil blob from the oil geyser at the destroyed Deep Horizon off-shore oil rig south of Louisiana.

The Navy submarines have trained video cameras on the moving blob, which remains frozen at depths of between 3,000 to 4,000 feet. Because the oil blob is heavier than water, it remains frozen at current depths.

FEMA and Corps of Engineers employees are upset that the White House and the Pentagon remain tight-lipped and in cover-up mode about the images of the massive and fast-moving frozen coagulated oil blob that is being imaged by Navy submarines that are tracking its movement. The sources point out that BP and the White House conspired to withhold videos from BP-contracted submersibles that showed the oil geyser that was spewing oil from the chasm underneath the datum of the Deep Horizon at rates far exceeding originally reported amounts. We have learned that it was largely WMR’s scoop on the existence of the BP videos that forced the company and its White House patrons to finally agree to the release of the video footage.

The White House is officially stating that it does not know where the officially reported 10 miles long by 3 miles wide “plume” is actually located or in what direction it is heading. However, WMR’s sources claim the White House is getting real-time reports from Navy submarines as to the blob’s location. We have learned that the blob is transiting the Florida Straits between Florida and Cuba, propelled by the Gulf’s Loop Current, and that parts of it that is encountering warmer waters are breaking off into smaller tar balls that are now washing ashore in the environmentally-sensitive Florida Keys and Dry Tortugas.

Corps of Engineers and FEMA officials are also livid about the cover-up of the extent of the oil damage being promulgated by the National Oceanic and Atmospheric Administration (NOAA) and its marine research vessel in the Gulf, RV Pelican. NOAA stands accused by the aforementioned agencies of acting as a virtual public relations arm for BP. NOAA is a component of the business-oriented Department of Commerce.

Similarly, the Coast Guard, which takes its orders from the cover-up operatives at the Homeland Security Department, is denying the tar balls washing up on the Florida Keys are from the oil mass. WMR has been told the Coast Guard is lying in order to protect the Obama administration, which has thoroughly failed in its response to the disaster. The White House’s only concern is trying to limit political damage to its image in the electorally-important state of Florida while the Pentagon has spent between $25 and $30 billion on oil spill operations in the Gulf and the Atlantic to date.
 
WMR sources also report that the oil mass has resulted in dead zones in the Gulf of Mexico that have cut off oxygen and killed massive numbers of marine creatures and plant life. Seafood wholesalers from the Gulf Coast to New Jersey and New York have been told that the supply of shrimp, oysters, and other seafood from the Gulf is severely in short supply and that they can expect a possible total cut-off as the situation worsens. The shortage will also affect the supply of seafood, especially shrimp, to national seafood restaurant chains like Red Lobster and Long John Silver’s.

There is also evidence that BP, Halliburton, and Transocean sank a drill to a depth of 35,000 feet at the Deep Horizon site some six months ago without the required permits from the federal government. WMR has learned from U.S. government sources that the drilling at 35,000 feet caused a major catastrophic event that required the firms’ oil rig personnel to quickly pull up the drill and close the drill hole.

However, the Deep Horizon re-sank the drill some six months after the unspecified “catastrophe,” resulting in another, more destructive chain of events following the explosion that destroyed the rig, killing eleven workers. When the Deep Horizon blew up, WMR has been told it also “blew down,” cracking the the sub-seabed pipe that may have been re-drilled to a depth of between 25,000 to 30,000 feet, again, without a government permit.

Government sources also report that BP is intent on recovering as much oil as possible from the undersea geyser rather than simply plugging and capping the well, which would then place it off-limits to further drilling. The Corps of Engineers reports that BP is playing a game with Obama, convincing him of the feasibility of “shooting junk” into the subterranean pipe, which would stop up the pipe with a manufactured chemical compound called “MUD.” However, WMR has been informed that BP actually intends to shoot cement into the pipe in an attempt to cap the well with the later intention of digging a trench for side drilling from the pipe to recover as much oil as possible. The technology that would be employed by BP is the same technology that was used by Kuwait to conduct slant drilling of Iraq’s Rumallah oil field — an event that helped trigger Iraq’s invasion of Kuwait.

Corps of Engineers and FEMA sources also give a failing grade to both Homeland Security Secretary Janet Napolitano, who stands accused of being woefully incompetent in handling the disaster, and Interior Secretary Ken Salazar. Government sources say both secretaries should immediately step down or be fired.

This is a guest post by The Wayne Madsen Report from Oilprice.com.

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It’s been almost a month since the sirens of the Deep Water Horizon oil rig in the Gulf of Mexico lacerated the night with tortured warnings of impending doom. Chief electronic technician Mike Williams, who nearly perished in the catastrophe, recounted in excruciating detail on CBS’s 60 Minutes on May 16 the horror of that night and the appalling negligence that contributed to the worst human-made disaster in recorded history.

Essentially what Williams tells us is that the Deep Water drilling operation was under unparalleled pressure to drill faster and deeper, cutting corners and defying essential aspects of the industry’s well established drilling protocol. We can argue about whether BP and other oil giants are ramping up drilling due to the end of cheap and abundant oil on this planet or simply because of greed and a voracious obsession with profits. To engage in that kind of debate, however, is to ignore the most fundamental issue at the root of this disaster. Corporate culture, media, politicians, and the misguided American public are all failing to grasp the issue, and I suggest, are behaving like enablers responding to an addict’s fatal overdose, as well as failing to recognize the extent to which they themselves are addicts.

Let me clarify: The addict is the oblivious citizen of industrial civilization who delusionally demands that he/she must at all costs maintain a lifestyle made possible by cheap hydrocarbon energy. That citizen overdosed on April 20, 2010 and may have taken the planet to their grave with them.

Now let me count the ways in which this cataclysmic oil spill is very much like a fatal drug overdose. In order to fully understand the analogy, it’s necessary to grasp the extent to which the culture of industrial civilization is addictive. What makes it addictive?

Quite simply, an uncompromising—yes relentless insistence on maintaining the lifestyle to which it has become addicted, and like the addict, willing to do whatever it takes to do so, despite voluminous evidence to the contrary. This includes evidence that the addiction itself will ultimately and invariably prove fatal for the addict, for the addict has little interest in rational, scientific research. He is obsessed with only one thing: lifestyle. It doesn’t matter what it costs him or anyone else. Life is all about the next fix, period. The fix could be a possession, a person, or a position in life.

So when the addict, the culture of empire, overdoses and takes everyone and everything with him, he can use the defense mechanism of blame. It wasn’t my lifestyle that caused this, he says, but the corporation that pumped the oil. Furthermore, it was the administration’s fault for not adopting tougher regulation. While these factors may have entered into the equation, they are not the fundamental issue. Focus on blame works beautifully for awhile to distract attention from the devastation caused by the addict. But eventually, it wears thin.

Another favorite distracting tactic of the addict is “Look how I’m trying to fix it.” He mobilizes his enablers to convince the world that something is being done to reverse the repercussions of his latest shitstorm. First we’ll try a dome structure to cover the oil leak and capture the oil. Or if that doesn’t work, we’ll blast garbage into the leak. Or if that doesn’t work, we’ll use a siphoning tube. In fact, even as I write this article, BP is proclaiming that it has “turned a corner” in the oil spill. This should reassure all the oil addicts, facilitating their craving and assuaging any embarrassing traces of guilt. It’s all better now; this temporary nightmare is going to go away. Ya see, human ingenuity, especially of the corporate kind, will solve all problems and clean up all messes created by the addict.

Then there’s my favorite addict appeasement approach: alternative energy. Don’t worry, says the enabler. We’ll get wind or solar or something online for you as soon as we can so that your lifestyle won’t miss a beat. Yes, that may take fifty years, but meanwhile, we’ll think of something to keep it going for you because this is America, and the lights never permanently go out here.

Before the addict experiences a fatal overdose and ravages everyone and everything around him, there is always the choice to end the addiction and enter treatment. Treatment involves withdrawal from the substance, then taking a long, exhaustive, meticulous look inside oneself to confront the demon of the addiction. Much support is necessary; the addict cannot make the journey alone.

The Transition Handbook frames our dependence on hydrocarbon energy in terms of an addiction. We can blame, rationalize, project, deny—we can employ whatever defense mechanism we choose from humanity’s vast repertoire of them, but like the hard core addict, the human race is committing suicide. It is willing to kill every form of life in the oceans, cause the extinction of every species on earth, pollute every cubic inch of breathable air, poison every drop of water on the planet, and yes, enable an unfathomable cataclysm such as we are witnessing in the Gulf of Mexico at this moment, in order to perpetuate the lifestyle to which it feels entitled. Like all addictions, this one is both irrational and insane.

Every person who has chosen to research Peak Oil, climate change, global economic meltdown, species extinction, and population overshoot is not unlike an addict who has some moment of clarity in which he can actually choose to walk to the nearest rehab facility and fall on his face screaming for help. None of us can do that investigative work without the massive support of other “cheap energy addicts in recovery”. None of us can do it without a spiritual as well as a logistical recovery program which all authentic recovery absolutely requires.

Like the recovering addict there will be moments of terror about what the future holds, and the greater the devastation we have created, such as the largest oil spill in the history of the world, the more daunting the future will feel. Like the recovery of the addict, our recovery will require rigorous honesty and a commitment to finding meaning and purpose, not in the substance, which is killing us and the planet, but in a different kind of lifestyle. This will be a lifestyle of simplicity, cooperation, and deep connection with nature and our fellow humans. It may mean alterations in our behavior that feel like sacrifices until we realize that the joy, meaning, and contentment they bring us are what we wanted all along.

Therefore, as we witness the spread of the most devastating and widespread oil slick in history; as we see the photos of oil saturated wildlife and watch frantic fisherman in despair because they have lost their livelihood; as we watch enablers blaming and scrambling to fix the un-fixable, let us do as they say in Twelve Step programs, and take a searching and fearless moral (and energy) inventory of our lives and notice where we are in our recovery from addiction to cheap and abundant fossil fuels. Richard Heinberg’s book The Party’s Over documents how brief in the history of the human race the party was, how much fun it was, and of course, how lethal it was and is. So while the enablers are blaming and fixing, it behooves all of us to ask of ourselves the toughest question of all: What are we doing to recover?

This is a guest post from Carolyn Baker.

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The Energy Information Administration just released their Annual Energy Outlook for 2010: Annual Energy Outlook 2010

It is about 220 pages long, and therefore I haven’t had a chance to read it thoroughly. But in my skimming of it so far, there are a few interesting items to note. One of the things I was most curious about was whether they would show this scary graph that appeared in the 2009 Annual Energy Outlook:

Let that sink in for a just a minute. What that says is that global production in 2030 is forecast to be 43 million barrels, demand is forecast to be 105 million barrels, and we really don’t have any idea how we are going to cover 62 million barrels per day of demand by 2030. We are going to need a lot of oil to cover the depletion, so it is up to “unidentified projects” – or we will deal with huge shortages.

Certainly there will be plenty of projects that haven’t been identified that will contribute to supply. But the key question is “Will those be enough?” This is especially true in light of the current mess in the Gulf of Mexico, because a lot of that new oil was expected to come from offshore. But as I originally predicted, I think this blowout in the gulf really slows things down. A relevant news story on that theme from today:

BP Disaster Strands Billions of Barrels of Offshore U.S. Crude

A regulatory crackdown on offshore oil drilling after the fatal rig explosion in the Gulf of Mexico will delay development of U.S. deposits with billions of barrels of crude and may spawn industry job cuts.

“This oil spill was a disaster for the industry,” said Gianna Bern, president of Brookshire Advisory & Research in Flossmoor, Illinois, and a former BP crude trader. “It will ratchet up public debate on deep-water drilling by a couple of notches and put a lot of projects conceivably on the back burner.”

So this would seem to make last year’s graph even more ominous. But alas, so far I have not found that graph in this year’s report. In fact, for the most part this year’s report is pretty upbeat about future prospects. It suggests that CTL, GTL, and BTL will start to make significant contributions to global fuel supplies. It also suggests that in the U.S. high oil prices will finally make oil shale economical. This of course repeats the 100-year-old mantra about oil shale being just around the corner.

The report suggests that the 2022 cellulosic ethanol mandate will not be met “because economic and technological factors prevent cellulosic biofuel production from providing the credits that would be needed to meet the requirement.” They do forecast that by 2035 we will have figured it out and that “ultimately surpasses the RFS requirement as higher oil prices and lower production costs improve their competitiveness.”

Let me say that I have a lot of respect for the EIA, and use them extensively for data. I know they put a lot of hard work into this report. However, some of their predictions have become a running joke. If you want to have some fun reading, go back and look at some of their historical predictions from say, 2001. For instance, I always get a kick out of this graph, which makes an annual appearance:

It is always the same story. Sure, production has fallen in the U.S. for the past 35+ years, but starting next year things are going to turn around. You can see this same graph in every recent Energy Outlook. Then production falls for another year, and they move the line forward and forecast that the next year will be the turnaround year.

One other graph of note concerns their projections for growth of CTL, BTL, and oil shale.

I agree with them that there will be growth in CTL and BTL as conventional oil depletes, but I am still skeptical about whether oil can be produced from shale with a positive energy balance.

Anyway, lots of material to sort through, but I mainly wanted to call attention to the report so people can begin to digest it.

This is a guest by Robert Rapier from R Squared Energy Blog.

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(This is a guest post by Dave Forest from oilprice.com.)

Metals investors globally were cheered this week by good news from Aluminum Corp. of China (A.K.A. Chalco).

The aluminum giant swung back into profitability for the first time in a year during the first quarter. Chalco enjoyed net income of 627 million yuan ($92 million) for the past quarter, as compared with a loss of 1.9 billion yuan ($280 million) in Q1 2009.

Good times appear to be back for the company. Chalco’s plants ran at more than 90% of capacity in Q1, buoyed by rising aluminum prices in Shanghai (and around the world).

This is exactly what the Chinese government wants to see.

In the wake of the financial crisis, one of the biggest stories for the metals was buying of copper, aluminum and iron ore by state-run Chinese firms. At the time, this buying spree was attributed to China’s “insatiable thirst” for metals, needed to fuel rampant infrastructure development in the country.

But reading between the lines, there appeared to be a different explanation for the buying.

In several speeches early in 2009, Chinese government officials talked about the importance of raising domestic metals prices. The reason? Staving off unemployment.

Many of the large Chinese metals producers run at very high operating costs. In fact, just this week Citigroup commented that Chalco’s attempts at cost reduction over the past year have been largely ineffective, and that the company “could face more pressure with higher coal prices and potential power tariff adjustments.”

Because of the high op costs, Chinese producers need high metals prices in order to stay profitable. When prices fell late in 2008, Beijing worried that low prices would put high-cost producers out of business.

Widespread shut-downs mean unemployment. Something the Chinese government fears. Revolutions are born when workers become discontented.

Keeping metals companies in business was a top priority. And that meant getting metals prices up. Many of the comments from Beijing early in 2009 suggest this was the primary goal of metals stockpiling. Securing supplies for infrastructure building was secondary. (A fact becoming glaringly apparent, with most of the stockpiled metal still sitting in storage. Very little building appears to be happening.)

Fast-forward a year and the government is finally getting what it wanted. Producers like Chalco are making money again. Operations are running at full capacity, with managers even eying expansions. All good for employment.
The question now is: will metals buying by the Chinese state drop off? With the mission accomplished, can Beijing afford to relax in the metals markets?

And what effect would this have on prices? Speculators and buyers from around the world have stepped into the metals markets over the past year, taking some of the pressure off Beijing to be the “buyer of last resort”.

If the Chinese government does back off, it will be up to these players to support the market. We’ll see how deep their pockets are.

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Oil prices plunged on Friday after the U.S. Securities and Exchange Commission charged Goldman Sachs with fraud in its marketing of certain subprime mortgage securities, amid a general sell-off in financial and commodity markets.

 The allegations against one of the biggest market makers in virtually every markets dampened speculation heading into the weekend. Much like the volcanic eruption in Iceland spewed a cloud of dust over northern Europe that grounded all air travel, the SEC charge cast a pall over financial markets.

 The May contract for West Texas Intermediate, which expires next week, settled down $2.27 or 2.7% at $83.24 after briefly dipping below $83 in the wake of the SEC announcement. The benchmark contract settled at $84.92 a week earlier.

 Goldman Sachs had no immediate comment. Prices had been drifting lower in equities and other markets prior to the announcement, but fell sharply afterwards, led by a plunge of more than 10% in Goldman shares.

Some analysts speculated that prices could rebound on Monday once the dust has settled, but market participants remained uncertain about the long-term impact of the SEC charge on Goldman’s business and on that of other major banks.

 In the past, Goldman has rejected charges of misleading investors when it sold securities that it subsequently shorted in its own trading, asserting that that is the role of a market maker. Goldman is one of the biggest participants in the energy futures markets.

 Oil prices started the week soft, but firmed up after Wednesday’s inventory report from the U.S. Energy Information Administration, which showed a small decline in crude inventories after 10 successive weeks of increases.

An unexpected decline in April consumer sentiment reported on Friday, however, led to new doubts about the strength of the economic recovery and depressed prices. The market had been expecting a reading of 75 after 73.6 in the previous month, but instead the index came in at 69.5.

 The inventory report on Wednesday pushed oil prices up 2.1%, to $85.84. But the monthly outlook from OPEC released the same day actually revised its forecast for 2010 demand for OPEC oil downward by 135,000 barrels a day from the previous month, to 28.8 million barrels a day. The group’s expectation for the overall growth in oil consumption also trails that of other analysts.

By. Darrell Delamaide for Oilprice.com who offer detailed analysis on Crude oil, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

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(This is a guest post by Dr. John CK Daly at Oilprice.com.)

The extraordinary events of last week in Kyrgyzstan, which saw the overthrow of President Kurmanbek Bakiyev’s administration by a popular uprising and its replacement by a provisional government have been portrayed by many in the “Beltway-istan” (Washington DC) as the latest tussle betwixt Russia and the U.S. in the ‘Great Game” for influence in the post-Soviet space.

The truth is considerably more complex, however, and like a set of Russian matruishka nesting dolls, the further one digs, the more the complex realities of the situation emerge. While Moscow and Washington’s rivalry for influence with the interim leader, 59-year-old former diplomat Rosa Otambaeyva’s administration is indeed paramount, there are other players watching the debacle, from local superpowers China and India to neighboring “Stans” Tajikistan, Kazakhstan and Uzbekistan.  Any final disposition of the problems emerging from the “Tulip Revolution – Part Two” will have to include consideration of these factors beyond the U.S.-Russian struggle for influence in the post-Soviet space.

NO APPARENT FUNDAMENTALIST INVOLVMENT IN DISTURBANCES

Perhaps the biggest surprise and source of relief to both regional onlookers and the U.S. and Russia in particular is that the demonstrations which erupted in Talas on 6 April and quickly spread to the capital, Bishkek, and other cities has been the absence of Islamic militant involvement in the disturbances despite the fact that Kyrgyzstan has suffered from militant actions for years. Locally-based fundamentalist groups include elements of the Islamic Movement of Uzbekistan (IMU), and the Hizb ut-Tahrir (Party of Liberation – HuT) movement, which seeks to establish a Central Asian Islamic caliphate, have had a long-term and growing presence there. However, unlike the 2004 “color revolutions” in Ukraine and Georgia, which were relatively nonviolent, the events last week in Kyrgyzstan were accompanied by a tragic loss of life. According to the provisional government’s security chief Keneshbek Dushebaev, more than 80 died in the unrest, while the number of wounded exceeded 400. At a 10 April ceremony burying the dead from the disturbances, Otunbayeva said that 7 April would be commemorated in the future as an official Day of Remembrance.

FINANCIAL CAUSES OF THE UNREST

If there is a surprise in last week’s events, perhaps it is that they were so long in coming. Nineteen years after the collapse of the USSR, 40 percent of the Kyrgyz population lives below the poverty line, with unemployment at a staggering 18 percent, the world’s 16th highest rating, along with a 10 percent inflation rate. The dire economic situation has forced many Kyrgyz to seek work outside the country, most notably in the Russian Federation; in 2007, 27 percent of its GDP, $322 million, was sent as remittances from Kyrgyz working abroad; In the fourth quarter of 2008 Kyrgyz banks reported remittances dropping almost by half, while in the third quarter of last year funds sent back from overseas by Kyrgyz émigrés had recovered slightly to $283 million. After the March 2005 Tulip Revolution, many Kyrgyz expected life to improve under Bakiyev, but soon he fell out with his allies as his regime drifted into cronyism, graft and authoritarianism, and many of today’s opposition leaders were originally in his government.

Worsening the financial situation, the global recession saw Russian Prime Minister Vladimir Putin In December 2008 argue that Russia’s migrant quota should be cut by up to 50 percent of the total of 3.9 million legally registered guest workers to protect Russian jobs.

RIGGED ELECTIONS AND NEPOTISM

In July 2009, an election that was harshly criticized by opposition figures and international monitors as undemocratic returned Bakiyev to power with a landslide 89 percent of the vote. Having won another five year term Bakiyev increasingly turned the country into his personal fiefdom, increasingly concentrating power in his hands. Last year Kyrgyzstan’s Foreign, Interior, Defense and National Security Service ministries were subordinated to the president and last November Otunbaeva, then a leader in the opposition Social Democrat Party and now leader of the provisional government observed, “Right now, in the (Kyrgyz governmental) White House there are five Bakiyevs working in the upper echelons of power, and that is not even mentioning the many relatives who have occupied every floor of the White House.”

In a telling international rebuke to his increasingly autocratic style, on 3 April U.N. Secretary-General Ban Ki-moon said during a speech to the Kyrgyz Parliament, “For the United Nations, the protection of human rights is a bedrock principle if a country is to prosper. Quite frankly, ladies and gentlemen, recent events have been troubling, including the past few days. I repeat: all human rights must be protected, including free speech and freedom of the media.”

ALL IN THE FAMILY

Cronyism and corruption also clouded the picture; Kyrgyzstan is now amongst the top 20 in the world for the latter. Bakiyev’s son Maksim, a part owner of the British Blackpool Football Club, in November last year was appointed to head Kyrgyzstan’s Central Agency for Development, Investment and Innovation, which gathered the country’s economic crown jewels under its umbrella, including recently becoming the main shareholder in the country’s Kyrgyzalten gold concern, whose Kumtor mine, The Kumtor gold mine, run by Canada’s Centerra Gold, contributes 10 percent of GDP accounts for 40 percent of the country’s industrial production and 10 percent of the nation’s GDP. Rumors swirled around Bishkek that Maksim was appointed to groom him for the 2014 presidential elections, as Bakiyev stated that intends to step down from office in 2014 commenting only that “he intends to hand over power to trustworthy hands.”

Maksim was scheduled on 8 April in Washington to present “Kyrgyzstan: Creating an Innovation-Focused Economy” at the “Kyrgyz Opportunities Forum II: Creating an Innovation-Focused Economy” economic forum, co-hosted by the U.S. Department of Commerce and the Kyrgyz-North America Trade Council. The presenters promised, “How will you benefit by attending?” by promising, “Meet Kyrgyz/U.S. government officials,” “ Understand the market direction, investment climate and opportunities in Kyrgyzstan” and “Discuss the financing and legal issues with the officials from U.S. government financing agencies, aid organizations and advisory firms.” The proposed “Who should attend?” client list included “ Investors, including banks, private equity concerns, infrastructure developers; mining companies; energy companies (especially hydroelectric/renewable, power grid); construction companies; technical assistance contractors (US AID, EBRD, ADB, World Bank); and advisors (accounting/consulting and law firms).”

Needless to say, the event was suspended, and the U.S. Embassy in Kyrgyzstan and the State Department in Washington refused to comment on Maxim’s whereabouts even though on 9 April Deputy Secretary of State Philip J. Crowley said that State Department personnel still planned to meet Kyrgyz Foreign Minister Kadyrbek Sarbayev and Maksim.

U.S. officials likewise are declining to say if they will cooperate with Kyrgyzstan’s provisional government, if Otumbayeva’s administration seeks Maksim’s extradition.

According to a Voice of America 12 April report, Assistant Secretary of State for South and Central Asian Affairs Robert Blake, being sent to Bishkek, stated that Maskim has since left the country and that he had no contact with U.S. officials. The next day Latvia’s rus.DELFI.lv website reported that Maksim Bakiyev is now in Latvia, where he co-owns several businesses. Maksim’s arrival was reported in the Latvian media to have been agreed with state authorities, including the Ministry of Foreign Affairs. Foreign Minister Maris Riekstins neither confirmed nor denied the report, saying only that the consular authorities of Latvia did not grant a visa to Bakiyev but that he can stay in Latvia, if his visa he was issued by another Schengen country. Bakiyev is a business partner of Latvian banker Valery Belokon, with whom he co-owns the “Maval aktivi” Ltd.. Additionally, Bakiyev is the sole owner of “Who is Who,” formerly owned by Belokon and is also deputy chairman of the board of “Kimmels Riga” joint stock company.

RISING PRICES FOR AN IMPOVERISHED PEOPLE

While in late 2009 Bakiyev sharply increased taxes for small and medium businesses, resentment against the Bakiyev regime began to simmer when on 1 January it imposed new tariffs on telecoms, electricity and hot water, effectively doubling prices on electricity and increasing heating costs by an eye-watering 500-1,000 percent. Otumbayeva remarked that the country’s leading telecoms firm had been sold to an offshore company in the Canary Islands, belonging to a friend of Maksim, adding, “We had an absolutely scandalous situation where Kyrgyzstan had become a family-run regime.” The graft and price rises combined with the shuttering of Internet sites, the Stan TV internet portal and bans on protests and arrests of opposition leaders to bring the populace onto the streets. In retrospect, the main question is what took so long.

THE U.S. – BUSINESS AS USUAL – SAVE THE MANAS TRANSIT CENTER

In February U.S. special envoy Richard Holbrooke visited Kyrgyzstan, seeking assurances on Manas Transit Center. The following month, on 17 March United States Central Command head General David Petraeus met Bakiyev in Bishkek to discuss bilateral cooperation and the situation in Afghanistan. Always pushing the envelope for increased military privileges, the visit came the day after the Obama administration had confirmed the provision of $5.5 million to the Bakiyev regime for the construction of a counter-terrorism training center in southern Kyrgyzstan, which would provide the Pentagon with its second military outpost in the country. The project dovetailed nicely with Bakiyev’s anxieties about fundamentalism emanating from Afghanistan. The terrorist center would complement the U.S. Manas Transit Center airbase, 20 miles outside the capital, established in late 2001, which had proven, despite rising controversy, increasingly important to the Pentagon’s Operation Enduring Freedom in Afghanistan.

RUSSIA – FIRST TO ASSIST THE REVOLUTION

Russian Prime Minister Vladimir Putin spoke on the phone on April 8 with Roza Otunbaeva, becoming the first known foreign leader to call her once she claimed to be in charge and Kremlin spokesman Dmitrii Peskov stated that Russia stood ready to offer humanitarian aid to Kyrgyzstan. More prudently Russia dispatched two battalions of totaling paratroopers to its Kant air base outside Bishkek, ostensibly to assure the safety of Russian citizens stationed there.

Russia was the first country to recognize the new regime amid speculation that it continues to press for the closure of Manas Transit Center. Russia certainly shed no tears over Bakiyev’s fate, as last year he infuriated the Russian government by reneging on a quid pro quo pledge to close Manas despite having earlier received $2.15 billion in Russian loan pledges.

On 8 April Almazbek Atambayev, the provisional government’s acting minister for economic affairs, was dispatched to Moscow to negotiate a reduction in fuel tariffs and other economic aid. Russia has already moved to render fiscal assistance, According to the National Bank’s Acting Chairman Zair Chokoev, on 10 April the next tranche of Russia’s $300 million credit to Kyrgyzstan of the $2.15 billion loan was transferred to Kyrgyz National Bank accounts.

In perhaps the most telling sign of Russia’s new ascendancy and surely the element certain to unsettle Washington, Russian Federation Council defense and security committee head Viktor Ozerov said that Moscow might consider sending peacekeepers to Kyrgyzstan if asked, perhaps as part of an OSCE or UN mission. Because Kyrgyzstan along with Russia are also part of both the Shanghai Cooperation Organization (SCO) and the Collective Security Treaty Organization (CSTO), Russian peacekeepers could be dispatched there as part of either a SCO or CSTO mission as well.

U.S. – SLEEPWALKING WITH FINGERS CROSSED

In late 2001 the U.S. had established an air base at Manas international airport 20 miles from Bishkek to support its military operations in Afghanistan. Cozying up to the presidential administration Washington quickly allowed the administration of President Askar Akayev and its cronies to take over the lucrative refueling and provisioning rights for the bases, paying inflated prices for landing rights and fuel provided by companies under the presidential family’s control.

Akayev’s troubles with Washington began when a bilateral agreement between Russia and Kyrgyzstan signed on 22 September 2003 established a Russian military airbase at Kant near Bishkek.

In March 2005 Kyrgyzstan’s so-called Tulip Revolution, triggered by allegations of government meddling in parliamentary elections and given momentum by popular anger over endemic poverty, corruption and cronyism, succeeded in ousting Akayev, who had led the country since independence.

But the unpalatable truth is, even as Washington delivered homilies on human rights and democracy, the contracts for the US military base became a direct source of corruption, with first Akayev’s and then Bakiyev’s families profiting, by owning the companies with exclusive rights to refuel NATO aircraft.

Washington’s initial response to the recent unrest was limited to general statements from the State Department. On 7 April as the unrest broke out U.S. Assistant Secretary of State for Public Affairs P.J. Crowley told journalists, “We have concerns about issues, you know, intimidation by the government, corruption within the government. We want to see Kyrgyzstan evolve, just as we do other countries in — in the region. But, that said, there is a sitting government. We work closely with that government. We are allied with that government in terms of its support, you know, for international operations in — in Afghanistan.”

At the same time flights at Manas Transit Center were halted for 12 hours, but not before an eyewitnesses reported that Bakiyev’s Air Force Jet No. 1 took off from Manas Transit Center, an image few Kyrgyz are likely to forget anytime soon as rumors swept Bishkek that Bakiyev’s family had been under the protection of the Americans at Manus after fleeing the capital.

Jala-Abad, in the Ferghana valley, to which Bakiyev has fled, is among Central Asia’s most volatile regions. Split between Uzbekistan, Kyrgyzstan and Tajikistan, it is home to different ethnicities and is seen as a HuT hotbed of Islamic extremists pursuing a single Islamic caliphate state. Bakyev, a southerner from the poorer part of the country, is playing upon divisions between the more prosperous northern regions, closer to Russia, and the predominantly rural southern regions.

On 10 April the US military in Kyrgyzstan, giving no explanation, indefinitely suspended all troop flights from the Manas airbase, stranding 1,300 U.S. troops there.  According to U.S. Central Command spokesman Maj John Redfield troop flights would resume once conditions in Kyrgyzstan allow, with the U.S. in the interim transporting all forces to Afghanistan via Kuwait. Flights were subsequently resumed on 12 April.

THE ZERO-SUM GAME

Kyrgyzstan is the only country in the world hosting both U.S. and Russian bases. While both sides vie for position with the new administration and the Western press in particular focuses on the Manas Transit Base and the proposed new anti-terrorist center, the Russian picture is also rather more complex than reported by the press.

In October 2003 during Akayev’s regime the Russian Federation established its airbase at Kant near Bishkek, ostensibly to provide immediate air support for CSTO ground units. The Kant airbase, less than one quarter the size of the Manas Transit Center, was Russia’s first foreign military facility established since 1991, and less than 30 miles away from Manas.

Kant was not the whole story.

Dating from the Soviet era, the Soviet/Russian Navy operated an extensive facility at eastern Lake Issyk-Kul’s eastern end, where submarine and torpedo technology was evaluated. Among the projects tested there was the super-cavitating VA-111 Shkval torpedo, designed originally to sink U.S. carriers, with a speed in excess of 200 knots. In March 2008 the Kyrgyz press reported that 2,140 acres surrounding the Karabulan peninsula on Issyk-Kul would be leased for an indefinite period to the Russian Federation Navy, which is planning to establish new naval testing facilities as part of the 2007 bilateral Agreement on Friendship, Cooperation, Mutual Help, and Protection of Secret Materials, under 2hose terms the Kremlin would pay and annual lease rent of $4.5 million.

Bakiyev in early 2009 ignited a bidding war between Moscow and Washington for access to Kyrgyz space. In February Russia promised its $2.15 billion in loans; five months later, Bakiyev announced his new deal over Manas Transit Center with Washington, effectively earning money from both sides.

And now? On 13 April U.S. Defense Secretary Robert Gates said that the U.S. has other options to its air base in Kyrgyzstan, noting that Washington explored alternatives last year when it was negotiating a deal to use the base with the Kyrgyz government, but that those alternatives are “more expensive and more challenging.”

It remains to be seen, given the ineptitude of Washington’s Kyrgyz policies, how “expensive” those options might be. For the moment, Moscow has trumped the U.S., purveyor of democratic values, by aiding the provisional government at a critical time when it overthrew an authoritarian regime allied to Washington, which despite its rhetoric remained consistently committed to muting its human rights agenda in return for quiescent ongoing access to its airbase.

The next few days will be interesting indeed.

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It’s finally happening. Gas producers are starting to crack.

With the natural gas to oil price ratio running at a nearly-unprecedented 21-to-1 ($86.80 per barrel for crude versus $4.12 per mcf for gas), gas producers are throwing in the towel. And switching over to the “dark side”. Oil exploration.

Up until now, many die-hard gas producers had been sticking to their guns and continuing to drill gas plays. Particularly shale gas, where producers claimed economics are still attractive. Even at current depressed gas prices.

But times are changing. Last week reports emerged that gas-major Chesapeake Energy has leased 700,000 acres in the Rocky Mountains. The aim? Drilling for oil.

Chesapeake CEO Aubrey McClendon was quoted as saying bluntly, “The economics just compel you to look for oil rather than natural gas right now.”

Elsewhere, other gas producers are making similar moves.

Last week, Texas-focused gas producer SandRidge Energy announced a $1.5 billion dollar takeover of oil producer Arena Resources. This comes after SandRidge CEO Tom Ward recently admitted to analysts at a major energy conference that producers can make “10 times the money” drilling oil wells as opposed to natural gas.

Even shale plays are taking on a “wet” flavor. The Eagle Ford shale has become the darling play in America, with most analysts acknowledging its superior economics. The reason? Largely, the liquids that generally come along with gas from Eagle Ford wells. Which fetch oil-like prices (or better).

As gas producers continue to seek oil entry opportunities, there will be steady upward pressure on prices for oil assets (which have already appreciated significantly this year).

There may also come opportunities in purchasing unloved gas properties. But only for those companies with the foresight and financial fortitude to hold on for the months or years until prices turn.

By Dave Forest for Oilprice.com who offer detailed analysis on Crude oil, Geopolitics, Gold and most other Commodities,. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

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he March 29, 2010, martyr-bombings in the two Moscow Metro stations served as a reminder of the escalating and evolving jihadist surge into Russia’s soft underbelly.

 

The bombing took place at peak rush hour. The first martyr-bomber detonated herself at 7:56am in the Lubyanka station which serves the Kremlin’s bureaucracy. The second martyr-bomber detonated herself at 8:37am in the Park Kulturi station, a connection and transfer station from the Ring Line leading to Moscow’s center. Both martyr-bombers detonated themselves inside train cars just as the doors were opened to let passengers in and out. At the time of writing, the death toll stands at 39 fatalities and more than 70 wounded.

 

The Moscow bombing was a classic Chechen “Black Widow” operation carried out by young women from the Northern Caucasus. The term “Black Widows” was coined by the Russian security authorities in the mid-1990s after the Chechen jihadist leadership identified the first female martyr-bombers as widows and relatives of martyred mujahedin out to avenge their blood. As with previous “Black Widow” operations during the first half of the decade, the jihadist commanders were apprehensive about the possibility that the would-be martyr-bomber would change her mind at the last minute.

 

A couple of such changes of heart did happen during the first half of this decade, providing the Kremlin with tremendous intelligence gains. Therefore, the jihadists developed a system of female chaperons who escort the would-be martyrs to the spot of detonation to make sure they could not abandon their mission. They leave the would-be martyrs only a few minutes before detonation. The Metro CCTV recorded the presence of, and hovering by, such chaperons in both Metro stations.

 

The CCTV recordings also enabled the Russian security forces to already locate the bus driver in the line between Chechnya and Moscow who took the four women (the two would-be martyr bombers and their chaperons) and a male who seemed to be in charge (and might have also been caught in the CCTV).

 

The waist-bombs worn by the two martyr bombers were of a modern design. This type of bomb was perfected in recent years by the jihadists in Iraq and subsequently in  operations in Afghanistan-Pakistan. These waist-bombs are smaller and lighter than earlier generations of vest-bombs and thus easier to conceal.

 

The bomb at the Lubyanka station had only 4kg of high-explosives and the bomb at the Park Kulturi station had 2kg. At the same time, these waist-bombs are more lethal in crowded places because of more concentrated directional explosions and a better distribution of shrapnel. Initial forensic evidence suggests that both bombs also had secondary-fuses which could be activated by cell-phones; probably a fall-back method in case the “Black Widows” hesitate at the last minute.

 

The mere fact that the female martyr-bombers were wearing this kind of waist-bombs is in itself a strong indication of direct connection between the perpetrators in Moscow and the jihadist training facilities along the Durand Line in Afghanistan-Pakistan. Indeed, Pakistani senior intelligence officials concur that the Moscow bombings “were most likely planned and executed by people trained in Pakistan’s tribal areas”.

 

The mere occurrence of terrorist strikes in Moscow need not come as a surprise.

 

These were anticipated for a long time. Given the evolving security regime within the jihadist movement, it was only a question of time before a jihadist team would strike out at the heart of Russia. Moscow has always been the jihadists’ preferable objective.

 

The imminence of jihadist strikes at the heart of Russia has been the result of a confluence of two major developments: (1) The rejuvenation and escalation of the training and preparation infrastructure along the Durand Line in Afghanistan-Pakistan; and (2) The expansion of the jihadist Jamaat system in the North Caucasus due to the reopening of supply and support lines via Georgia.

 

The training infrastructure in the Afghanistan-Pakistan border area was restored in the Autumn of 2007 to the point that prolonged and sophisticated courses can now take place without interruption. The main courses are provided to would-be commanders, expert-trainers and organizers from the West. These include a growing number of Western converts (West Europeans, Americans and Russians) who retain their original identity papers and looks for easy travel in the West. This effort is under the personal command of Ilyas Kashmiri, the top Pakistani-Punjabi commander whose 313 Brigade, also known as the Lashkar al-Zil or “Army of the Shadows”, is the primary strike force of the jihadist movement.

 

The actual training, handling. and control of all foreign fighters is in the hands of a small group of veteran Arab commanders, all of whom are reported to have operated in Europe for many years. The three key commanders involved in anti-Russia operations are Abu-Hanifah who commands the Turkish Kurds, Bosnians and Chechens (a generic name for all mujahedin from the Caucasus); Abu-Akash who commands the Uzbeks, Tajiks and other Central Asians; and Abu-Nasir who commands the Uighurs and Pakistanis.

 

Most of the jihadists in these groups arrive from or via Turkey. The jihadists maintain identity clearing facilities within Turkey’s large Chechen and Uzbek communities. Since mid-2009, a growing number of mujahedin have been able to travel via Iran.

 

In the last couple of years, the upper-most jihadist leadership has been emphasizing the global importance of the Emirate of the Caucasus. The jihadist leadership has resolved to exploit the separatist struggles throughout the North Caucasus — popularly known as the war in Chechnya — as the rallying point and springboard for a broader strategic jihad against Russia and the states of Central Asia.

 

The jihadist master-plan envisages a pincer offensive launched from the Caucasus and Afghanistan-Pakistan, converging at the heart of Central Asia and then surging northwards into the heart of Russia. The declared objective of this master-plan is the establishment of the Islamic Emirate of Khorasan which encompasses the Central Asian republics, the northern parts of Afghanistan, Pakistan, and Iran. Moreover, the upper-most jihadist leadership is convinced that victory in the Caucasus and Khorasan would then create conducive conditions for Islam’s triumph in the “end-of-time battles” in the Middle East.

 

With the US-led West disengaging and withdrawing from Afghanistan, Pakistan, and the Middle East, the upper-most jihadist leadership is convinced time is most opportune for launching this grand strategic surge. Hence, the escalation of jihadist operations throughout the heart of Asia and Russia.

 

In practical terms, the jihadist surge in the Caucasus would have far more difficult to implement had it not been for the renewal of support by the Government of Georgia. Tbilisi seeks to exploit jihadist terrorism in order to hit Russian pipelines in the hope of ensnaring the US into actively supporting a new confrontation with Russia.

In early December 2009, Tbilisi organized a high-level meeting of jihadist commanders from the Middle East and Western Europe in order “to coordinate activities on Russia’s southern flank”. In Tbilisi, Deputy Minister of Internal Affairs Lordkipanadze was the host and coordinator. The meeting was attended by several Georgian senior officials who stressed that Pres. Mikhail Saakashvili himself knew and approved of the undertaking. The meeting addressed the launch of both “military operations” in southern Russia and ideological warfare.

 

The jihadists of the North Caucasus — including the Arab commanders in their midst — came out of the meeting convinced that Tbilisi was most interested in the spread of terrorism. The meeting was attended by, among others, Makhmud Muhammad Shabaan, an Egyptian senior commander who is also known as Seif al-Islam and who has been involved in Caucasus affairs since 1992. He took copious notes. According to Shabaan’s notes, the Georgian Government wanted the jihadists to conduct “acts of sabotage to blow up railway tracks, electricity lines and energy pipelines” in southern Russia in order to divert pipeline construction back to Georgian territory. Georgian intelligence promised to facilitate the arrival in the Caucasus of numerous senior jihadists by providing Georgian passports.

 

Georgia agreed to facilitate the secure transfer of jihadists for training and indoctrination in Islamist madrassas in Turkey, and their clandestine return to Russia. Tbilisi also promised to provide logistical support including the reopening of bases in northern Georgia. Russian intelligence was not oblivious of the meeting. Seif al-Islam and two senior aides were target-killed on February 4, 2010. The Russians retrieved a lot of documents in the process. Moscow signaled its displeasure shortly afterwards when the presidents of Russia and Abkhazia signed a 50-year agreement on a Russian military base in order to “protect Abkhazia’s sovereignty and security, including against international terrorist groups”.

 

The new jihadist focus on the Emirate of the Caucasus emboldened Chechen jihadist leader Dokka Umarov to threaten in mid-January 2010 to unleash a new wave of terrorism at the heart of Russia. He declared that “the Brigade of Martyrs, Riyad-us-Saliheen, has been really recreated and is in action”, and would spearhead the coming jihad. “The Martyrs’ Brigade is replenished with the best among the best of the mujahedin and if the Russians do not understand that the war will come to their streets that the war will come to their homes, so it is worse for them.”

 

Umarov stressed there was no substitute to a marked escalation in the fighting throughout Russia because “the Islamic ummah can be liberated from the slavery of infidels only with weapons by means of the jihad”. He reiterated that “the zone of military operations will be extended to the territory of Russia” and that “blood will no longer be limited to our cities and towns” in the North Caucasus. “The war is coming to their cities,” Umarov declared. “If the Russians think that war only happens on television, somewhere far away in the Caucasus, where it can’t reach them, then InshAllah, we plan to show them that the war will return to their homes.”

 

In mid-February 2010, Umarov formally declared the launch of a strategic offensive against Russia. He announced that the Caucasian Mujahedin under his command “will [soon] liberate the Krasnodar Territory, Astrakhan and the Volga lands”.

 

Operationally, the key to the new jihadist offensive would be the jamaats — literally societies — prevailing in the North Caucasus. The jamaats are minuscule jihadist cells which operate clandestinely. The Islamist-jihadist movement is now seeking only a few dedicated zealots as the core of the jamaats. After all, it takes only a few martyr-terrorists to inflict massive carnage. Not seeking popular support and recognition, the Islamist-jihadist jamaats could operate clandestinely and in great secrecy, thus constituting a major challenge to the Russian security forces.

 

With the frustration of the jihadists in the jamaats growing, and their self-radicalization intensifying in their self-imposed isolation from society, so grows their readiness to inflict substantial carnage on society as a manifestation of their own wrath.

 

Cognizant of the looming threat, Russian intelligence intensified operations against the jihadist elite in the North Caucasus. Starting early March, the Russians had a series of impressive successes in target-killing several key jihadist commanders, both Arabs and Caucasians.

 

On March 2, 2010, Russian security services located and target killed Said Buryatsky in the Ekazhevo village in the suburbs of Nazran, Ingushetia. The Russian security services located Buryatsky and his group of guards in a house that served as a bomb making factory for regional operations. The Russians assaulted the building, killing Buryatsky and six mujahedin, and capturing a few wounded mujahedin. The killing of Said Buryatsky — real name Alexander Tikhomirov — was a major achievement.

 

Buryatsky was a convert from the east Siberian Buryatia region. For many years, he “trained for jihad” in Egypt under the auspices of the militant wing of the Muslim Brotherhood. Upon his return to the North Caucasus about five years ago, he emerged as a fiery imam and most influential ideologue of the jihadist movement. He was the ideologist behind the revived Riyad-us-Saliheen.

 

In this capacity, Buryatsky identified, recruited and indoctrinated several groups of would-be martyr-bombers. Most important is a group of 30 young women smuggled to Turkey for intense training and indoctrination as the core of the new generation of “Black Widows”.

 

A gifted and charismatic imam, Buryatsky also issued numerous jihadist manifestos which had tremendous influence in the jamaat movement. Since 2005, Buryatsky authored the statements taking responsibility for more than 15 terrorist strikes including the August 2009 martyr-bombing of a police headquarters in Ingushetia which killed more than 20 and injured some 140, and the November 2009 bomb attack on the Nevsky Express Moscow-to-St Petersburg train which killed 26 people.

 

Although Buryatsky was said to have yearned for his own martyrdom in jihad in all his sermons and manifestos, his death leaves a gaping hole in the ideological foundations of the jihadist movement in the Caucasus.

 

On March 17, 2010, the Russian security forces located and killed six senior mujahedin commanders close to Umarov — three of them Arab — in the village of Khazhi-Yurt in Chechnya’s Vedeno district. One of the commanders was the Arab mujahed Abu-Khaled, then in charge of providing the personal security for Dokka Umarov and his inner-circle. Fearful of penetration by Russian intelligence, the jihadist leaders in the North Caucasus rely on Arab bodyguards provided by the upper-most jihadist leadership in Afghanistan-Pakistan. Two other Arab bodyguards — known only as Muhammad and Yassir — were killed. The Russians were operating on information that Umarov himself was to show up for a meeting with Chechen commanders in preparations for escalation in the Grozny area. Apparently, Umarov changed his mind at the last minute and did not show up. However, the Russian source was reliable. Acting on this information, the Russians were able to track down Salmbek Akhmadov, the emir of the jihadist forces in Grozny. He immediately escaped to a safe-house in Makhachkala, Dagestan.

 

On March 21, 2010, Russian special forces stormed the house and target-killed Akhmadov.

 

On March 24, 2010,Russian security forces cornered Emir Sayfullah — real name Anzor Astemirov — in Nalchik, in Kabardino-Balkaria. When he refused to stop, he was shot in a brief fire-fight. Sayfullah was the emir of the jihadist forces of the United Vilayat of Kabarda, Balkaria, and Karachai. Sayfullah studied theology in Saudi Arabia before assuming a command position with the jihad. His religious-theological influence spread throughout the North Caucasus.

 

In 2008, Umarov named him Head of the sharia court of the self-proclaimed Caucasus Emirate, the third-most-senior position in the jihadist hierarchy. Indeed, the communique about Emir Sayfullah’s martyrdom published by the “headquarters of the armed forces of the United Vilayat of Kabarda, Balkaria and Karachai” emphasized that “the Circassian peoples have not had a military commander who enjoyed such respect and authority” since the Caucasus wars of the 19th Century.

 

On the night of March 27-28, 2010, Russian security forces raided a few jihadist hideouts in Ufa, Oktyabrsky city and the Chelyabinsk region, in Bashkiria (or Bashkortostan Republic). They were seeking the jihadist leaders in Bashkiria. Several firefights erupted and the mujahedin suffered numerous casualties. However the senior leaders succeeded to escape. The next day, the security forces succeeded to locate the safe-house in the Chelyabinsk region and surrounded it with massive forces.

 

Bashir Pliyev, known as the “Emir of Bashkiria”, and eight members of the local Uighur Bulagaar Jamaat group surrendered without fight. An ethnic Ingush, Pliev joined the jihad while serving as a mole in the Russian Police. After he was suspected in 2005, he escaped and joined Shamil Basayev’s Riyad-us-Saliheen. He was very close to Basayev and served as his driver and guard on several operations. In 2006, Pliev was sent to Bashkiria to organize and train the local jihadist jamaats.

 

The aggregate impact of this chain of target-killings and captures of jihadist commanders is the realization among the jihadist senior leaders that the Russian security services must have discovered ways to identify them and strike at the heart of the jamaat system. Hence, there is a growing pressure on the jihadist jamaats to carry out operations already in the pipeline before their assets are exposed and neutralized by the Russian security forces. By late March 2010, only seven of the 30 “Black Widows” who Buryatsky had indoctrinated and trained were known to be dead. Then, two detonated themselves in Moscow on March 29, 2010, and two more detonated themselves in Kizlyar, Dagestan, on the morning of March 31, 2010.

 

Hence, of this “Black Widows” group alone there are 19 unaccounted for would-be martyr-bombers. As there are numerous other would-be martyrs trained and indoctrinated by Buryatsky and several other sheikhs and emirs in other jamaats, the threat of spectacular terrorism at the heart of Russia, as well as in the North Caucasus, is far from over.

 

Russia is therefore facing a long and painful struggle.

 

Despite the impressive successes of the Russian security forces, the jamaat system remains extremely difficult to identify and penetrate because of its inherent character and structure. There should be no doubt that there are numerous jamaat cells throughout Russia, not just the North Caucasus, that are still intact and yearning for jihad. Moreover, with the jihadist training and sponsorship system in the “emirate” of Khorasan now functioning, Kashmiri, Abu-Hanifah, and their Arab colleagues have resumed the training and dispatch of new networks and cells into Central Asia, the Caucasus, and the heart of Russia.

 

The recent reactivation of the communication routes and safe-havens in Georgia enables the jihadist leadership to sustain the escalation of jihad in and via the “emirate of the Caucasus”. Kashmiri and Abu-Hanifah are putting emphasis on dispatching to Russia combat-hardened expert terrorists, mainly Chechens, Arabs, and Turks. These expert terrorists will serve as organizers, trainers and commanders of locally recruited and indoctrinated jihadists throughout the North Caucasus in order to expedite their anticipated strategic surge. This way, the jihadist leadership is maximizing the effectiveness and value of each and every expert terrorist they succeed in installing at the heart of their enemy’s lands.

 

Hence, there developed a race between the jihadist movement and the Russian security forces. Ultimately, the Russians will win this race. However, until then, there will be a growing number of increasingly painful terrorist strikes at the heart of Moscow and elsewhere in Russia.

 

On March 31, 2010, Dokka Umarov finally claimed in a statement responsibility for the Moscow bombing. “As you all know, on March 29, two special operations were carried out to destroy the infidels and send a greeting to the FSB.” He added that the Moscow bombings “had been organized under my personal order”. As in previous such statements, Umarov insisted that the bombings were “a retaliation and a retribution” for Russian massacres of Chechen innocent civilians. He stressed that the Moscow bombings were the first in a series of strikes which would soon be carried out in several Russian cities.

 

There would be new and painful retaliations against the Russians “who send their gangs to the Caucasus and support their security services, who carry out massacres”. Umarov concluded by reminding that he had already promised the people of Russia that they would no more “idly watch the war in the Caucasus on their TV sets, watch it quietly, with no reaction to excesses and crimes committed by their gangs, which are being sent to the Caucasus under the leadership of Putin. Therefore the war will come to your streets, and you will feel it with your own lives and skins.”

 

Umarov is serious, and the Kremlin is cognizant.

 

Source: http://www.oilprice.com/article-the-moscow-bombing-an-inevitable-victory-for-moscow-but-a-hard-struggle-ahead-250.html

 

Analysis By Yossef Bodansky for Oilprice.com who offer detailed analysis on Crude Oil, Geopolitics, Gold and most other commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

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The strategic framework and the correlation of forces in the Gulf of Guinea — one of the most significant and growing energy resource regions of the world — is changing rapidly. A new era in security arrangements for the region is beginning.

The region is moving from an area of low technology defense and security systems, and minimal command and control at national levels, to one of growing sophistication, higher mobility, and the potential for military confrontation.

The five-year, $250-million Equatorial Guinea maritime security program – essentially the build-up of an integrated naval and air capability – announced on February 24, 2010, signaled the start of a re-defined strategic architecture in West Africa. It has brought a coherent military-security framework into life, highlighting issues which are vital to the welfare of the regional states in a way in which some earlier boundary disputes were not.

Given the strategic maxim that military planning must be based to a large degree on the capabilities, rather than the stated intent, of neighboring or competing states, the move by Equatorial Guinea serves as a focus for response and activities by regional strategic planners. Capabilities take years to develop; intent can change in moments. This means that Equatorial Guinea’s neighbours must address changing realities.

Gen. Ashfaq Kayani, Pakistan’s Chief of Army Staff, is fond of saying that it takes 30 years to develop an army up to corps level, whereas political realities can change a nation’s intent overnight. This means that defense planners must develop capabilities over the long term to be ready for any rapidly-emerging eventuality. In the Gulf of Guinea context, the Equatorial Guinea Government of Pres. Brig.-Gen. (rtd.) Teodoro Obiang Nguema Mbasogo, has, in fact, been quietly shaping its defense capabilities over the past few years, particularly as its offshore energy assets come on stream and produce revenue surpluses. This has given Equatorial Guinea profoundly more wealth than, say, two decades ago. As well, the offshore Equatorial Guinea oil and gas producing areas are often contestable — or at least close enough to cause friction — with neighbors (Gabon, Nigeria, Cameroon).

Equatorial Guinea, too, has often had a fractious relationship with its major neighbor, Nigeria, even though Malabo has depended on Abuja for subsidies and even military training and security coverage.

Equatorial Guinea’s contract with the MPRI subsidiary of the US defense corporation, L3, made public in late February 2010 (but actually shaping up well before that), highlights the reality that Equatorial Guinea intends to be a major player in Gulf of Guinea security; that it has the capacity to influence sea lane security to and from Nigeria and Cameroon; and that it will not be a passive participant in the region. A number of incidents have occurred in recent years to indicate that Equatorial Guinea forces – components of the Guardia Nacional de Guinea Ecuatorial (GNGE) – will take aggressive action with regard to what they feel might be penetrations or violations of Equatorial Guinea’s sovereign space or economic zone.

Part of this activist stance is based on the reality that there is – or has been – no cohesive and professional command and control structure in place in Equatorial Guinea, other than personal links between arbitrarily-ranked colleagues of Pres. Obiang, all of who are ethnic Fang, as is the President. The ranking of the Minister of Defense, Antonio Mba Nguema, and the Vice-Minister of Defense, Anthonio Ndong, as a lieutenant-generals, for example, is arbitrary when the total manpower strength of the GNGE is only in the neighborhood of 3,500, including a significant number of foreign nationals in key slots (such as aircrew and maintenance). The rank of lieutenant-general implies command of a corps-sized unit, or an Army, with numbers in the region of 20,000 or more.

The substance of the latest agreement with MPRI/L3, however, is significant, especially as MPRI – which is undertaking the latest Equatorial Guinea military expansion – had been called in, at the insistence of the then US Administration of Pres. Bill Clinton, in 2000 to “democratize” and “professionalize” the Nigerian Army, even while it was working on a contract initiated with Equatorial Guinea in 1998 to help train the Equatorial Guinea military. The MPRI training package with the Nigerian Army did not go well, especially as the Nigerian Army had just emerged from successfully fighting a range of wars and peacekeeping operations in Africa with few resources and yet remarkable success.

[Lt.-Gen. Victor Leo Malu, the Nigerian Chief of Army Staff, questioned MPRI’s plan to reduce the size of the Nigerian military from 100,000 to 50,000, and MPRI’s need to have access to sensitive military information. GIS/Defense & Foreign Affairs has first-hand knowledge that the then-Nigerian Government of Pres. Olusegun Obasanjo was warned at the time, by external advisors, that MPRI had questionable capabilities and motives, as well as ill-suited background, for training the Nigerian Army, and the Nigerian Government was warned as well of MPRI’s legally questionable rôle in providing actual combat operational command to Croatian forces engaged in ethnic cleansing in the Krajina area of what is now Croatia, during the Yugoslav break-up in the 1990s. Nonetheless, Pres. Obasanjo, unwilling to alienate the Clinton Administration, dismissed Gen. Malu rather than resist the MPRI demands.]

Now, however, MRPI is engaged in helping a state which has, arguably, potential concerns with Nigeria, making it difficult for MPRI to re-engage in Nigeria, even if the Nigerian Army was so inclined.

But the new MPRI/L3 initiative with Equatorial Guinea is – as its title suggests – maritime-oriented. Even though the MRPI contract with Equatorial Guinea was announced in March 2010, the company was recruiting for former US military personnel in December 2009 to meet the contract. It sought personnel in security, search and rescue, detainee processing, information technology, logistics/maintenance, and administration, with hirings to begin in “the early months of 2010”. Experience in maritime security, with a background of employment in the US Navy or Coast Guard was desired, along with some trainer skills.

L3’s announcement on February 24, 2010, was that MPRI had been awarded a $58-million firm-fixed-price task order with the Government of Equatorial Guinea to establish a Maritime Security Enhancement Program (MSEP). This task order was the first part of a multi-year contract, with a potential value of approximately $250-million. The MSEP was designed to provide nationwide coastal surveillance coverage for Equatorial Guinea.

Jim Jackson, general manager for MPRI’s International Group, noted: “This important contract award represents a strategic opportunity to contribute not only to the vital maritime security of Equatorial Guinea, but also provides a thoughtful approach toward establishing long-term stability for the entire region.”

The MSEP contract envisions completion of a surveillance site network and operations centers in Equatorial Guinea within three years. This would be followed up by two years of sustainment and maintenance support for an estimated contract total of five years.

In fact, the emphasis of the contract – given the hiring pattern – implies a greater emphasis on physical security, rather than merely the integrated surveillance system, although that is clearly part of the program. GIS/Defense & Foreign Affairs sources in Malabo said that new Equatorial Guinea program would include AIS (automatic identification system), radar, and command and control. The program could expand to include L3’s Raytheon/Beech King Air-based aerial surveillance systems, as well as light patrol vessels. MPRI was also to train oil workers in anti-piracy tactics as part of the contract.

Significantly, the new Government of Nigeria under Acting Pres. Goodluck Jonathan is known to have begun looking at an integrated national surveillance and response system, linked through a command and control function with all the Armed Services, the Intelligence Community (IC), Police and Customs. The concept had been proposed a year earlier, but the Government of Pres. Umaru Musa Yar’Adua was even then becoming paralyzed politically for a number of reasons.

Equatorial Guinea, Nigeria, Gabon, and São Tomé and Príncipé all recognize that they have common security threats, quite apart from any potential friction between them, and with other neighbors such as Cameroon (with which Nigeria recently concluded a difficult dispute over the sovereignty of the Bakassi Peninsula).

Freedom Onuoha, a research fellow at the African Centre for Strategic Research and Studies at the National Defence College in Abuja, writing in African Security Review, Vol. 17, No. 3, published by the South Africa-based Institute for Security Studies in 2008, cited a “recent study commissioned by Royal Dutch/Shell” as saying that between 100-million and 250-million barrels of oil was stolen each year by bunkerers or vandals, putting the cost, at an average US$60 a barrel, at around US$15-billion a year. This was, he said, in addition to other costs to the Nigerian State due to oil pipeline sabotage, and other related activities. As well, the Nigerian Government Inter-agency Maritime Security Task Force on Acts of Illegality in Nigerian Waters (IAMSTAF) was told on December 5, 2008, by President of the Nigerian Trawler Owners Association (NITOA), Mrs Margaret Orakwusi, that the rising spate of piracy, sea robberies, poaching, bunkering, and other illegal operations in Nigeria’s territorial waters and seas (with the exception of illegal oil bunkering in the Niger Delta region) have cost the country more than N25-billion in less than four years. Mrs Orakwusi told the task force that the country’s fishing industry had witnessed at least 293 documented sea robberies and pirate attacks between 2003 and 2008, which she said had culminated in loss of lives and destruction of vessels and trawlers.

Significantly, and without any increase in budget, the Nigerian Navy literally “bootstrapped” its way back into a reasonable operational capability over recent years, rebuilding ships which had been thought to have been beyond salvage. As a result, and without fanfare, the Nigerian Navy has re-emerged as a factor in the Gulf of Guinea region.

Nigeria, however, faces a far greater challenge than Equatorial Guinea. Its coastline and offshore facilities are in a far more complex situation than those of Equatorial Guinea, and the volume of facilities, pipelines, and traffic are far greater. Moreover, Nigeria continues to address a militant, armed opposition force – MEND: the Movement for the Emancipation of the Niger Delta – which has fractured into a number of groups in the oil- and gas-producing Niger Delta region. Acting Pres. Jonathan, as a former Governor of Bayelsa state, one of the major energy-producing Niger Delta states, is highly aware that the legacy of his brief Administration (until the April 2010 Presidential elections) must be to address and bring under control the Niger Delta crisis.

Whereas the Equatorial Guinea forces have been growing, commensurate with the financial surpluses generated by energy exports, the Nigerian Defence Forces have faced growing constraints. Former Pres. Olusegun Obasanjo, although once a military head-of-state in Nigeria and a former Army general, had, as an elected President, fully embraced the US Clinton Administration’s view that the Nigerian military should be suppressed and kept on a reduced budget. Even so, the Nigerian Armed Forces, as with the Navy’s example, were able to adapt to the situation.

The new security paradigm, however, implies that the Nigerian Government will now be forced to act rapidly if it is to contain its own security concerns and also retain its dominance of the Gulf of Guinea. The Nigerian National Security Advisor during the Obasanjo Administration, Lt.-Gen. (rtd.) Aliyu Mohammed Gusau (who is now back in that role with the Jonathan Administration) successfully draft the framework for a Gulf of Guinea Commission to begin developing offshore security modalities from the immediate Gulf of Guinea region down to Angola and South Africa.

Abuja may now need to revive that, while it also deals with its own approach to development a strategic asset protection program to safeguard pipelines, installations, sea routes, and so on. This will be significantly larger in scale and in conceptual thinking than the Equatorial Guinea approach.

But, as noted above, Equatorial Guinea has expanded its military capabilities considerably in recent years, relying heavily on foreign contractors and mercenary military personnel. During the past decade, the Guardia Nacional de Guinea Ecuatorial (GNGE)’s Naval Division has obtained two lightly-armed (Typhoon G mounting of an Oerlikon 20mm cannon with electro-optical guidance) 24.8m (LOA) Shaldag Mk.II fast patrol vessels (acquired 2005) from Israel Shipyards Ltd.; the Air Wing has obtained at least two new Enstrom 480B Guardian turbine helicopters which are used on maritime duties (delivered 2007); the Air Wing has also acquired a steady supply (now totaling six) of Ukraine-surplus Mil Mi-24V Hind helicopter gunships (deliveries in 2001, 2004, and 2007), and at least one Mil Mi-172 utility helicopter; the Air Wing has also obtained four Su-25 strike aircraft variants (two Su-39s, Su-25TM second generation variants, transferred from Ukraine and possibly carrying Kopyo (Russian: Spear) radar for air-engagement combat, along with RVV-AE/R-77 air-to-air missiles, and Kh-31 and Kh-35 anti-shipping missiles), along with two Su-25UB trainers. The Air Wing also obtained one Antonov An-32 twin-turboprop VIP transport, which was lost, with all hands, in April 2008; it has two Czech Aero L-39 advanced jet trainer/strike aircraft, and possibly one An-26 transport aircraft. The Presidential flight has one Agusta A109 VIP helicopter, a Dassault Falcon 50 and/or a Falcon 900, a Yak-40 executive jet, and the one Mi-172 helicopter, and an Embraer ERJ145EP executive jet. Virtually all of these rely on foreign aircrew and maintenance personnel, and mostly operate from Malabo airfield, where the bulk of the Air Wing operates.

One helicopter, at least, is based at the airfield at Bata, the northernmost of the two major towns on the mainland coast.

Much of the Equatorial Guinea hydrocarbon wealth has been derived from fields around Bioko Island, the seat of Government and the capital, Malabo. However, the mainland region — until recently fairly neglected apart from its timber resources — borders at the Atlantic on areas claimed by Cameroon and Gabon. A dispute between Cameroon and Equatorial Guinea over an island off the mouth of the Ntem River in Cameroon remains unresolved. A dispute with Gabon over sovereignty over the Gabon-occupied Mbane area and its associated islands is under United Nations mediation. The potential for disputes over rights to the coastal waters remains high, and could lead to confrontation in the oil and gas producing Corisco Bay area.

Equatorial Guinea faces a significant geographic challenge to its limited, albeit growing, maritime and air forces. It is a challenge which can only be met through the application of tight coordination and high technology. As well, it will require significant support from Equatorial Guinea’s very limited policy planning and diplomatic resources. Indeed, the lack of forward-looking planning and diplomatic resources makes the likelihood of clashes over disputed areas and assets more likely, particularly if accidental or provocative cross-border movements by neighbors stimulate reaction by Equatorial Guinea forces.

[Significantly, Bioko, the main island territory of Equatorial Guinea, and Río Muni, the mainland territory, were never historically a single country. Spain, which was the colonial power controlling both territories, brought the two areas under a single administration, as two provinces, in 1956. The United Nations asked Spain, in 1963, to grant independence to the provinces, and this was done in 1968. At the time, Spain did not wish to give separate independence to each of the two provinces, because Madrid was in the throes of attempting to push Britain into handing Gibraltar over to Spanish control. To have allowed self-determination in Bioko and Río Muni separately was perceived to have opened the door to Britain allowing the Gibraltans to entertain a separate vote on whether to opt for Spain or opt for sovereign independence. The Fang population, which now controls Equatorial Guinea, is from Río Muni, and has gradually subordinated and reduced the Bioko population, comprised mostly of Bubi ethnicity. Some Fang migration to Bioko began in 1924, when a labor shortage caused the Catholic Church to indent workers from the mainland for cocoa production. The Fang migrants proved unsuitable, but a significant Fang population remained on Bioko.]

Nigeria, by contrast, has a more concentrated area of concern around the Niger Delta, but still has a large exclusive economic zone (EEZ) to monitor — as does Equatorial Guinea and Cameroon — with regard to illegal fisheries. But the Nigerian situation has greater challenges because of the complexity of the onshore energy assets, including pipelines, coupled with an historical pattern of ethnic and political differences, both within the Niger Delta region and with regard to the Delta states’ relationship with the Nigerian Federation.

Nigeria, unlike Equatorial Guinea, has developed a defense and security framework over five decades of independence and a century of modern military structures as a component of the British military system. The current dynamic, however, has been characterized by rising capabilities and ambitions by the Equatorial Guinea forces, and severely constrained capabilities in the Nigerian Armed Forces due to budgetary constraints and Continent-wide military responsibilities in peacekeeping.

Nigeria has, in the past decade, begun a process of using technology in its civil sector – particularly telecommunications – to leapfrog moribund and paralyzed structures. Nigeria’s revived approach to integrated, national-level real-time security intelligence coupled to command and control would, if it is adopted, help re-assert Abuja’s strategic leadership in the region. Despite its population size — at around 150-million – Nigeria has, like most sub-Saharan African states, devoted relatively little of its GDP to defense.

The following comparative statistics [derived from World Bank and GIS/Defense & Foreign Affairs archives] — while not entirely like-for-like — are significant in helping shape a balanced view of the region:

Cameroon: Population est. (2008) 18.9-million; GDP (2008) $23.4-billion; Defense expenditure (2001) $211.1-million.

Equatorial Guinea: Population est. (2008) 660,000; GDP (2008) $18.53-billion; Defense expenditure (2004) est. $126.2-million.

Gabon: Population est. (2008) 1.45-million; GDP (2008) $14.43-billion. Defense expenditure (1996) $91-million.

Nigeria: Population est. (2008) 151.32-million; GDP (2008) $212.08-billion; Defense expenditure (2007) $979.3-million.

São Tomé and Príncipé: Population est. (2008) 160,000; GDP (2008) $170-million; Defense expenditure (2004) est. $126.2-million.

These are static snapshots, and do not reflect the dynamics of the region, the respective economic potential versus overhead responsibilities of each society, or the relative inertia of each government, but they do indicate latent capability to some extent. What is emerging, because of the evolving discovery and exploitation of hydrocarbon deposits in the region, is a more strategically mobile and competitive framework. Many of the old boundary issues, as well as the prospect for the movement of societies as a result of wealth opportunities (not evenly distributed), mean that stability can no longer be guaranteed.

A more competitive regional environment, in which very tangible economic resources such as hydrocarbon deposits are at stake, coupled with growing wealth, will demand the kind of increasing reliance on technological solutions to security challenges which are now beginning to emerge.

Analysis from GIS sources in Malabo and elsewhere in the region.

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(This post by Dr. John CK Daly appeared on Oilprice.com.)

The tragic news of the 29 March twin suicide bombings of two Moscow Metro stations during the morning rush hour has produced outrage worldwide, with the Kremlin quickly adding that the attacks were carried out by the Caucasus Mujaheddin, a northern Caucasus-based militant Islamist guerrilla group that claimed responsibility for the bombing of a Moscow to St. Petersburg express train last November.

The grim death toll can be seen as yet another statistic in the Kremlin’s ongoing war with Chechnya separatists that erupted in December 1994.   Underneath and driving the savagery of the last 16 years is a resource that few commentators note – oil.

The two female suicide bombers were caught by closed circuit television (CCTV) cameras boarding the metro at Yugo-Zapadnaya station in the far southwest of the city in the early morning, assisted onto the train by two other women. According to the CCTV videos, the quartet seemed to be between 18 and 20; two of them were clearly of Slavic appearance.

The first bomber blew herself up at Lubyanka metro station at 7.56am. H er bomb, equivalent to about four kilograms of TNT, exploded at the height of rush hour and killed at least 25 people inside a train that had just pulled into the Lubyanka station.  The explosive used was believed to be hexogen (RDX); the device was filled with iron scrap and screws for shrapnel. There has been to speculation that the second bomb, detonated at the Park Kultury station, was in fact supposed to have been detonated at the Oktyabrskaya station, next to the Ministry of the Interior.

Kremlin experts lost no time in asserting that the incident had implications far beyond Russia, claiming that the Caucasus Mujaheddin receives inspiration and financial support from unnamed networks both in the East and the West.  As the death toll mounts, the bombings represent Moscow’s worst terrorist attack since February 2004, when a suicide bombing killed at least 39 people and wounded more than 100 on a metro train.

What is certain at the moment is that the carnage will continue, as last month Chechen rebel leader Doku Umarov, fighting for an Islamic emirate embracing the northern Cacuasus, vowed to take the conflict to Russian cities, noting in an interview on an Islamist website, “Blood will no longer be limited to our  cities and towns. The war is coming to their cities.”

The attacks are a direct assault on Russian President Vladimir Putin, former KGB operative. The Lubyanka bombing is highly symbolic, as it is the subway stop for the employees of the KGB’s successor organization, the FSB, a two-minute walk from Red Square. London Royal United Services Institute analyst Jonathan Eyal observed, “This is a direct affront to Vladimir Putin, whose entire rise to power was built on his pledge to crush the enemies of Russia … It’s an affront to his muscular image.”

Few today remember that Putin’s first job when appointed Prime Minister on 9 August 1999 by Russian President Boris Yeltsin was to build an oil pipeline bypassing Chechyna, as Transneft, Russia’s pipeline monopoly, controlled the Baku-Novorossiisk line, the sole export route for Azerbaijani “early” oil exports, which crossed 95 miles of Chechen territory, a region which had been at war with the Kremlin since 1994.  Following Putin’s appointment Yeltsin held a council of war over Dagestan and Putin made a rash promise that he could end a crisis caused by the incursion of 2,000 rebels from Chechnya into Dagestan in “a week and a half or two weeks.”

Work began on the bypass line on 26 October. The conflict combined with other issues reduced Azeri exports via Baku-Novorossiisk in early 2000 to an average of only 10,000 barrels per day (bpd.)  In April 2000 construction finished on the $140 million, 204-mile Baku-Novorossiisk bypass via Dagestan to Tikhoretsk.  The bypass had a potential capacity of 120,000 bpd, but by then Azerbaijan already had other plans, having worked with neighboring Georgia to develop an alternative pipeline route to Georgia’s Black Sea port of Supsa, completely outside of Russian control.  When Yeltsin resigned on 31 December 1999 Putin became acting President and has continued to lead the Russian state ever since, initially as President and since 2008 as Prime Minister.

Putin has made it a centerpiece of his policy to resolve Chechnya for once and for all, but as the Moscow bombings so, eleven years after his accession to power, Chechnya continues to roil Russia.  The issues go back to the 1991 December collapse of the USSR.  When the first Chechen war erupted in 1994, many observers were baffled as to why Moscow, which had peacefully let the Soviet Union implode, was so determined to hang on to Chechnya, a small poor mountainous region in the Caucasus measuring only 30 by 70 miles.

But oil greased the equation from the outset.  The post-Soviet development of the Caspian’s vast reserve of oil and natural gas quickly became Russia’s fixation, with an ever increasing importance as the rest of the post-Soviet economy withered. Energy was the one export that the Russian Federation could still produce that was guaranteed an international market, and its importance has only risen with time.

In May 2007 the U.S. Energy Information Administration projected that by 2015 Caspian basin energy production could reach 4.3 million bpd, concluding that in addition to the region’s proven reserves of 17-49 billion barrels, comparable to Qatar at the lower estimate and Libya on the high end, the region could contain an additional hydrocarbon reserves up to 235 billion barrels of oil, roughly equivalent to a quarter of the Middle East’s total proven reserves.  Nor is oil the only energy deposit there.  The Caspian’s potential natural gas reserves are as large as the region’s proven gas reserves and could yield another potential 328 trillion cubic feet of gas.

Russia was determined to hang on to as much of this largesse as possible.  An independent Chechnya could not only lead to a loss of revenue from the republic’s modest oil production (of such quality that Chechen oil was used to light lamps in the Vatican) and ruin plans to extract transit fees for Azeri “early oil,” but lead to a significant potential loss of Caspian reserves once the sea’s waters and seabed were divided.

The demise of the USSR opened up a can of worms over the Caspian’s legal status, however. The Caspian is the world’s largest inland body of water, with a surface area of 143,000 square miles, its status regulated under the USSR-Persia Treaty of 26 February 1921  and the 25 March 1940 USSR-Iran Treaty.  In place of the USSR and Iran there were now five Caspian littoral states – Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan and wrangling began immediately over the Caspian’s division.  The 1982 U.N. Convention on the Law of the Sea (UNCLOS) defines the Caspian as “a special inner sea.”

Two opposing positions quickly developed – Russia insisted that the Caspian’s waters and seabed should be divided according to coastal length, while Iran held out for an equitable 20 percent division for each of the five littoral states.  Under the Russian formula, Azerbaijan, with 259.1 miles of coastline, would receive 15.2 percent of the Caspian’s waters and seabed, Iran with 319.1 miles of coast – 18.7 percent.  Kazakhstan, with 526.4 miles of coastline, would receive the largest share, 30.8 percent of the Caspian, leaving Russia with its 315 miles of shore 18.5 percent of the Caspian and Turkmenistan’s 285.4 miles of coast giving it a 16.8 percent share.  Azerbaijan and Kazakhstan soon supported the Kremlin’s stance, while Turkmenistan under its mercurial, megalomaniacal leader Sapamurat Niyazov wavered between Moscow and Tehran.

The two Chechen wars threatened to tear Moscow’s proposal apart.  After the first Chechen war erupted in 1994 and began to spill over into neighboring Dagestan, a number of the more militant Chechen guerrillas like Shamil Basayev eventually declared their intention to create a unitary northern Caucasian Chechen-Dagestani Muslim state.  Chechnya and Dagestan were poorer than the rest of Russia, and Dagestan, though home to a mosaic of ethnic groups, was predominantly Muslim.  While the August 1996 Khasavyurt Accord led to a truce ending the first Chechen war, it would be shattered three years later.

Much had changed in the interim, including U.S. penetration of Azerbaijan’s and Kazakhstan’s energy sectors.  As reported by EC-TACIS, for the period 1994-1999 the main sources of foreign direct investment in Azerbaijan were the United States with 28 percent, followed by Britain with 15 percent.  FDI in Azerbaijan exploded from only $30 million in 1994 to $827 million in 1999, about 17 percent of Azerbaijan’s GDP, with approximately 90 percent of FDI concentrated in the country’s hydrocarbons sector, while Kazakhstan FDI accounted for $1.6 billion in the same period. Russia was clearly losing the battle to develop Caspian energy, and an independent Chechen-Dagestani state would make Moscow’s position untenable and hence had to be stopped at any cost.
In justifying his 1999 incursion in Dagestan Basayev said, “Our Muslim brothers from Dagestan have asked us for help, and it is our duty to help them,” adding, “Our first and foremost task here is to help protect our Muslim brothers from being exterminated by both the Russians and the puppet government of Dagestan.”  Dagestan, with its 249 miles of Caspian coast if independent in conjunction with Chechnya, would pare Russia’s Caspian shoreline nearly back to the Volga delta, leaving it a paltry 66 miles of coastline and shrink its offshore share under Moscow’s own formula by four-fifths, from 18.5 to 3.92 percent of a region of which Dick Cheney observed the year before Putin’s appointment, “I can’t think of a time when we’ve had a region emerge as suddenly to become as strategically significant as the Caspian.”

Upping the ante, in 1998 Bassayev publicly joined the Wahhabi movement even though Chechen President Aslan Maskhadov, although a Muslim, had no intention of turning his nation into a strict Islamic state.

After Basayev in 1999 launched guerilla raids into the neighboring Russian republic of Dagestan which Putin vowed to crush, Maskhadov was forced to finally condemn Bassayev by name but still he did not move to arrest or prosecute him.  The raids into Dagestan were followed the next month by series of explosions that hit four apartment blocks in the Russian cities of Buynaksk, Moscow and Volgodonsk, killing 293 people and injuring 651, which prompted Putin’s government to invade Chechnya for a second time.

It was war that took no quarter.  Basayev determined to take his war into the heart of Russia, declaring all Russians fair game because “They pay taxes.  They give approval in word and in deed. They are all responsible.”  Among the atrocities perpetuated by Basayev was the June 1995 armed takeover of a hospital in the southern Russian town of Budyonnovsk, with 1,500 people held hostage, 166 of whom died when Russian troops stormed the building, and the September 2004 seizure of a school in Beslan, in the southern Russian republic of North Ossetia, where Basayev’s men took some 1,000 adults and children hostage.  After Russian security forces stormed the school more than 330 people, half of them children, died. Basayev’s fighters also took their terror campaign to Moscow; in October 2002 taking 700 people hostage in Moscow’s Dubrovka theater.  In the ensuing attack by Russian special forces 129 hostages and 41 guerrillas were killed.
Maskhadov, the last legitimate president of the Chechen Republic of Ichkeria, elected in an internationally monitored election in 1997, was killed on 8 March 2005 in a village just outside the capital Grozny and Basayev was killed on 10 July 2006.  Even journalists were not immune – Anna Politkovskaya, who fearlessly covered the Chechen conflict, was murdered outside her home in Moscow in October 2006.  Russia only ended its counter-terrorism operation and pulled out the bulk of its army from Chechnya in April 2009.

In the wake of the Moscow Metro bombings President Dmitri Medvedev pledged to step up security in Moscow and intensify security in the turbulent northern Caucasus, telling his constituents, “We will continue the operation against terrorists without hesitation and to the end…It is necessary to tighten what we do, to look at the problem on a national scale, not only relating to a certain populated area but on a national scale.  Obviously, what we have done before is not enough.”  As if echoing Medvedev’s words, there have been a half a dozen bombings in Dagestan this month alone.

In perhaps the most ominous legacy of the Chechen conflict, on 23 November 1995 Basayev directed a Russian television news crew to a 32-kilogram package of cesium-137 buried in Izmailovsky Park in eastern Moscow, while after the 2002 Moscow theater siege Ahmed Zakayev stated that Chechen militants would seize a nuclear facility.  It is the stuff to give security specialists nightmares worldwide.

The effect of the Moscow Metro bombings rippled across the world; in New York, municipal and Metropolitan Transit authority (MTA) officials intensified security, doubling patrols of the subway system and sending New York Police Department’s heavily armed Hercules units toting machine guns to several transit hubs, including Penn Station and Grand Central Terminal.  City officials said that a similar response occurred after both the 9/11 and after the 2005 attacks on London’s transit system.

More than 100,000 people have been killed in 15 years of conflict in Chechnya – with Medvedev labeling the plotters “beasts” and vowing to “find and destroy them all,” the only certainty is that the bloodshed will continue.  Russia will not leave the northern Caucasus because of the Caspian’s future oil prospects, which will leave the region a bleeding militant Islamic sore on Russia’s southern flanks.  Russian military officials said last week that there were up to 500 terrorist groups operating in the northern Caucasus, so Medvedev’s revenge squads will be busy.

And the division of the Caspian’s offshore waters?  As far away as a final peace in the north Caucasus.

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• Dual-Blast Suicide Bombing Kills At Least 37 On The Moscow Subway

(This post by Dave Forest appeared on OilPrice.com.)

Gold investors have long-believed the mainstream is close at hand.

One of the major arguments from gold bulls over the last ten years has been that bullion prices will rise as gold becomes recognized amongst a wider range of investors as a legitimate option for protecting wealth.

This “mainstreaming” has been sped lately by a number of investment instruments allowing buyers to own physical gold without the hassle of storing the metal. Most notably, exchange-traded funds (ETFs).

ETFs have become an important force in the gold market. And now it appears they may be doing same for platinum.

2010 saw the launch of the first ETFs holding physical platinum, in both the U.S. and Japan. Giving investors an easy way to own “the other precious metal”.

And investors have lately been giving these funds a lot of love. While investment flows into gold and silver ETFs have turned negative over the last few weeks, money continues to flow into platinum funds.

The result being that open interest in platinum on global exchanges is running at record highs. On Monday, open interest in NYMEX platinum jumped nearly 5% to over 38,500 contracts. Open interest has been rising steadily since the beginning of March.

Adding up ETF holdings of platinum (running near 935,000 ounces), plus open interest on the NYMEX and TOCOM exchanges, platinum long positions are at an all-time record.

This buying has been good for platinum prices. The metal has risen 7% since late February, from US$1,500 per ounce to over $1,600.

But this is a situation that needs careful monitoring. ETFs and other mainstream investments can be a double-edged sword. It’s great when investors are piling in and driving up prices. But the price can go the other way equally quickly if the winds of sentiment change and holders start selling.

One thing is certain. More ETF investing will mean more volatility. This is already showing up in the palladium market, which also saw new ETFs introduced recently.

Palladium open interest on the NYMEX spiked in late February. Then plunged 10% in early March. But over the last two weeks, buying has once again surged.

Getting these metals in front of a wider audience has potential to create a lot of buying. Just beware of the trade going the other way.

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• Faber: Can’t You See? The Gold Standard Is Already Happening
• Gartman: Gold Will Remain Strong No Matter Who’s Selling It Off

The picture below is worth a thousand words. And $50 trillion.

This was just released by the Bank of Japan as part of their new “flow of funds” reporting. Basically, it outlines the composition of Japanese household assets versus counterpart households in America.

The major point of note is the discrepancy in savings versus equity investments. Recently, there has been speculation that Japan is not saving as much as it used to. This is a critical issue for the Japanese economy.

Japan is an ultra-low interest rate nation. It has to be. The Japanese government ran up the largest public debt in the world (around $8.5 trillion) trying to bail the country out of the financial doldrums it suffered over the last two decades. (America’s total debt is larger, but a significant portion is held by government institutions.)

That debt must be financed. Under most circumstances, the interest payments involved would be crushing.

But Japan has so far dodged that bullet by selling government bonds almost entirely to domestic investors. Investors willing to buy even at ridiculously low interest rates. Helping the government keep its debt service payments minimal.

Japanese citizens have been able to buy these bonds en masse because of the nation’s high savings rate. Households had a lot of cash and needed somewhere to park it.

A decline in savings could be catastrophic for the nation. If domestic investors no longer have enough to finance the government debt, Japan could be forced to look to foreign investors. Who will almost certainly demand higher interest rates. Potentially triggering a debt crisis.

But the figure above suggests savings are still going strong in Japan. Currency and deposits make up over 55% of assets for Japanese households. Compared to just 14.3% in America.

This represents about $8.9 trillion in savings that could potentially be mobilized to support the Japanese government debt.

Americans by contrast, hold a far greater amount of their wealth in the stock market. U.S. households have over 30% of their assets in shares and equities. As opposed to just 6.6% in Japan.

Americans are certainly beginning to save more. U.S. savings are up by $1 trillion since the financial crisis broke in 2008. Today, assets in currency and deposits for U.S. households total a not-insignificant $6.4 trillion.

But in terms of the ratio of savings to government debt, Japan is still far ahead. Japanese household savings are over 100% of outstanding government debt. With the American government now sitting $12.7 trillion in the red, household savings are only at 50% of debt.

It seems that Japan is still winning the “vault wars”, for the moment.

Dave Forest
[email protected]
www.piercepoints.com
Copyright 2009 Resource Publishers Inc.

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One of the most valuable things a mining company can have is expertise.

Exploring for, delineating, and mining ore bodies is an extremely tough business. The success rates for going from a discovery through to positive feasibility through to first production (and actually making money on this process) are right of the decimal point.

To paraphrase Thomas Edison, there are literally thousands of ways to not come up with an economic mine.

A lot of people are learning this the hard way.

With metals having become one of the hottest sectors on the planet this year, new players are entering the business by the score.

On my recent visit to Toronto I heard about Korean conglomerates with mandates to get into mining ASAP.

Talking with a friend in the uranium business this week, he noted that a number of major mining companies have been showing up, look to enter (or in some cases re-enter) the uranium space by acquiring or joint venturing projects.

I also had a sit-down last week with a large investment fund run by several Fortune-magazine caliber names who believe that gold is going to be the winning investment of the coming decade.

This is a lot of financial and corporate firepower being brought to bear on the mineral industry. But there’s one thing many newcomers lack. Experience.

Companies that got into mining over the last few years are starting to realize just how difficult this business is. In South America, a number of major deposits purchased by overseas firms as an entry into copper and gold are sitting idle. Because their new owners lack the geological, engineering and project management skills to move the projects forward.

Those companies are realizing they need help. From people who know the mining business.

And those groups are now seeking out help. Doing deals with experienced firms not only to gain access to specific projects, but also to tap into the operational expertise of companies that are tops in the business.

This week, for example, it emerged that Aluminum Corp. of China (better known as Chalco) is in advanced talks with Rio Tinto on a number of strategic partnerships.

This is a good deal for Rio, as Chalco brings considerable cash and political clout to the table. And a great deal for Chalco, giving them access to the brain trust of the world’s second-largest public mining company, a group with a proven track record of developing projects.

Going forward, those teams with mining know-how are going to be a hot commodity. Knowledge is one thing that’s even harder to find than a major mineral deposit.

Dave Forest
[email protected]
www.piercepoints.com
Copyright 2009 Resource Publishers Inc.

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Nigeria’s controversial oil industry bill is expected to eventually pass but the government may find it tough to later shift gears as international oil firms targeted under the legislation scale back their investments.

 

The Nigerian parliament is debating the Petroleum Industry Bill, an attempt at oil-sector reform in which Abuja can negotiate “downward” a foreign firm’s share of profits and impose higher royalties and taxes, said Peter Pham, director of the Africa Project at the New York-based National Committee on American Foreign Policy and an associate professor at James Madison University in Harrisonburg, Virginia.

 

Despite potentially spending billions of dollars, a firm not seen as “fully exploiting” an oil block may risk having it turned over to a Nigerian upstart instead, Pham added.

 

While it is theoretically possible to alter the oil law in the future, “as a matter of practical politics” it will be tough, he argued. Even if the bill passes in the coming days, it will be at least 18 months before a new parliament revisits the law, “assuming it wants to,” he noted.

 

By that time, international oil companies will have been “scared off,” as blocks are revoked and given to Nigerians “loath” to surrender them, he said.

 

“In short, undoing damage would be difficult because there will be new entrenched interests with a stake in the new status quo.”

Others are not so sure.

 

Backers of the hotly-debated bill will eventually see production and investment fall, perhaps by $3 billion annually, which might prompt them to “change the laws a bit and bring more people in,” argued Sebastian Spio-Garbrah, a New York-based analyst covering Africa at the Eurasia Group, a research and consulting firm.

 

At the moment, the country is “just not in the mood for being reasonable” and wants to “own” the industry, which has been dominated by names like Chevron and Total, Spio-Garbrah told OilPrice.com. While local firms may lack the “technology of the Exxons,” he noted, the “Pollyannish” government believes Nigerian firms can perhaps later hire oil-services companies to help out.

 

The country’s oil industry needs to be deregulated because the Nigerian National Petroleum Corp. is “clearly inefficient,” Pham said. But gaining political support for restructuring the state monopoly has meant adding other financial measures to the bill targeting international petroleum giants that will jeopardize future foreign investment, he cautioned.

 

The country was already hurting, as militant activity in the Niger Delta forced production off shore. The government instituted an amnesty program last year for fighters willing to change their ways that brought some normality to the region.

 

President Umaru Yar’Adua’s illness, however, kept him out of the country for months, a situation prompting Vice President Good Luck Jonathan to become the interim leader. In part due to the crisis created by this “political vacuum,” the promised social development and funding under the amnesty have not come about, Pham noted.

 

For now there is an “uneasy quiet in the Delta,” he added, and oil companies are reluctant to return in case violence sparks again.

 

Nigeria’s share of global production, moreover, has been “off a third” in the last half-decade alone, he said, adding that last year about $8 billion was invested in Angola’s deep-water resources — “more than twice as much” as in nearby Nigeria.

 

Now the oil leader in sub-Saharan Africa, Angola will have achieved double its neighbor’s production by 2020, he said, quoting industry estimates.

 

Western oil companies are still interested in the country despite the uproar over the petroleum bill. The Nigerian division of U.S. energy company Chevron announced plans to invest $3 billion in several gas projects in the country, according to media reports last month. Reports also signaled that Total wants to invest $20 billion in oil and gas exploration.

 

Pham, however, would “really question whether Total would put $20 billion

into Nigeria.”

 

To a certain extent, operating in Nigeria under the new law will mean the oil majors will have to “grin and bear it,” he added. It’s likely they will adopt a  business model not as traditionally “forward-thinking” as in the past and “try to extract what they can while they can,” he said. It’s doubtful, he added, that firms will pour money into exploration if their position in five or 10 years is uncertain.

 

Western oil money may seek out a market like Angola, which can offer a “business model that’s fairly reliable,” Pham told OilPrice.com. China may then figure more prominently in Nigeria, while local firms, many politically connected, will step up, he said.

 

Vice President Jonathan has been the “real mover” on the bill in recent months, and as a result, the bill’s been “bogged down in that ambiguity,” with no indication of what Yar’Adua may think, he said.

 

“Yar’Adua could die tomorrow, Jonathan could be assassinated the next day, and these reforms would come in some fashion,” Spio-Garbrah of the Eurasia Group stressed. The bill will pass because structural forces, irrespective of whether Jonathan becomes president, are pushing for this change, he argued.

 

In the end, claiming a “bigger slice for the nation” will be politically popular among the political class, which stands to gain in the short term from revamping the oil sector, Pham said. The “average Nigerian on the street,” by comparison, will feel greater pain, as fewer oil revenues trickle down in future years.

 

Source: http://www.oilprice.com/article-damage-done-by-nigerias-contentious-oil-bill-may-be-tough-to-undo.html

By Fawzia Sheikh

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The China Containerized Freight Index has bee-lined upward in 2010. The index tracks shipping prices for goods sailing from China to 11 different regions around the world.

Between January 15 and February 26, the index rose 17%. During the same period, the Baltic Dry Index (which tracks average shipping prices globally) fell 18%.

As I mentioned, these numbers suggest a big increase in goods being shipping from China relative to the rest of the world. With anecdotal evidence that at least some of the exports were metals.

The fear being that Chinese metals stockpiles are being drawn down and re-exported. Potentially weighing on global prices.

But the upward pressure on shipping prices relented a little this past week. The China Containerized index fell 3%. The first decline since December 18. And the largest since early in 2009.

Here’s the interesting thing. Most of last week’s decline was due to falling rates on just two of the CCFI sub-indexes. Eastern and Western U.S.

Rates for shipments from China to Eastern U.S. fell 13%. Rates for the Western U.S. plunged 12.3%.

As the charts below show, the U.S. routes have been a major contributor to rising Chinese shipping rates. That trend may now be reversing.

What’s the explanation for the rise and fall? Many businesses in the west have recently been re-stocking inventories drawn down through 2009. Last year, with the financial crisis looming, businesses were uncertain whether to build up new inventory. Managers didn’t know if there would be a market for the products.

But with the world economy seemingly in recovery in 2010, businesses have been restocking. Undoubtedly contributing to the rise in shipping.

This has created a quick-glut of demand for many products, including metals. Almost certainly providing a boost to prices.

But this lift is temporary. By many reports, re-stocking is almost complete at most businesses. Perhaps explaining why shipping rates started to fall last week.

The key will be to see what market prices settle at without the upward influence of inventory building. And whether companies can actually sell the inventories they have built this time around.

Some price drivers are forever. And some come and go. It’s important to recognize the difference.

Dave Forest
[email protected]
www.piercepoints.com
Copyright 2009 Resource Publishers Inc.

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See Also:

• How The Fed Took The Oil Market Hostage And Has Never Let Go
• How China And Oil Exporters Will Gouge The World With Current Account Surpluses Over The Next Five Years
• Here’s Why Peak Demand For Oil Is Still Very Far Away

(This guest post previously appeared at OilPrice.com)

On September 1, 2009, Libya lavishly celebrated the 40 years in power of its leader Colonel Muammar Gaddafi. Once qualified as the mad dog of the Middle East by President Ronald Reagan, Gaddafi has demonstrated a sheer ability to make of his once pariah country of 6 million people, one of the most assiduously courted both by countries and companies. Libya is the perfect example of Realpolitik at work where pragmatism prevails to promote commercial and national interests. The September 2009 Staff Report from International Monetary Fund summarizes the situation well: “the ongoing normalization of diplomatic relations with the U.S. and the European Union since 2007 continues to contribute to foreign investor’s interest, particularly in the hydrocarbon, banking, and infrastructure sectors.”

Back in the Concert of Nations

After recognizing in 2003 its responsibility in the bombing of the PanAm flight over Lockerbie and offering US$2.7 billion in compensation to the victims’ families, the United Nations Security Council lifted sanctions against Libya. Shortly thereafter Libya renounced to its weapons of mass destruction program. In 2006 the United States restored full diplomatic ties with Libya. These events opened the floodgates for foreign companies to explore business opportunities in Libya without the fear of incurring severe penalties.

In January 2008, Libya became for two years a non-permanent member of the United Nations’ Security Council and in February 2009 Gaddafi was elected Chairman of the 53 members African Union. On September 23, 2009 Gaddafi addressed for the first time in his 40 years as ruler of Libya the General Assembly of the United Nations.

What is at Stake?

Many countries are tripping over each other to get a piece of the Libyan energy cake, oftentimes putting their leaders at odd with their public opinion. The stakes are high, notably for European countries that are eager to secure a southern route for their energy supply as the Eastern route has proven to be unreliable.

According to the US Energy Information Agency Libya holds the largest proven oil reserves in Africa, followed by Nigeria and Algeria.  As of January 1, 2009, total proven oil reserves stood at 43.7 billion barrels – up from 41.5bn barrels in 2008 – and proven natural gas reserves are estimated at 54.4 trillion cubic feet. Dr. Shukri Ghanem, President of the National Oil Corporation (NOP), recalls that Libya use to produce 3.7 million barrels per day in 1970 and states that it was planned to raise the production to 3 million barrels per day by 2012 “but this now will take longer for a number of reasons taking into consideration the international economic situation” and 2015 or 2016 seem to be more realistic targets.

Occidental Petroleum, ExxonMobil, Marathon, ConocoPhillips, Hess, Royal Dutch Shell, Petrobras, Verenex, Nippon Oil, Gazprom, and Repsol are among the many companies positioning themselves in oil & gas exploration, production and transportation, field development and improvement, refinery upgrades, etc. in order to assist Libya meet its ambitious objectives.

Libya also enjoys vast quantities of gas: its proven natural gas reserves as of January 1, 2009 were estimated to be over 1.54 trillion cubic meters and the fourth largest in Africa. No less than 11 billion cubic meters/year of natural gas transit from Libya’s gas field to Italy via the underwater Greenstream Pipeline.

This said, the intense activity in the oil & gas sector should not be a distraction from paying attention to other developments, notably in the banking sector, which has shown a noteworthy transformation.

To be or not to be in unpredictable Libya?

Undoubtedly Gaddafi’s bravado, shocking statements and unpredictable actions are an aggravation for the West. They are also a distraction from the mutual benefits to be gained from greater trade exchanges. His recent call in February 2010 for holy war against Switzerland and his statement that “any Muslim in any part of the world who works with Switzerland is an apostate, is against Muhammad, God and the Koran” are concerning. One should note the analogy with what happened to Denmark in 2005 and the calls to boycott Danish products after the controversial depiction of prophet Mohammad in the Danish press. The use of religion as a federating tool to go after Western countries is unsettling, though Libya’s calls to unite for certain causes are often dismissed by the Muslim world.

Gaddafi’s closing of Nestlé’s and ABB’s offices and the freezing of all visas for citizens of the Schengen Area, which affects 25 countries, is highly disruptive to business as many foreign businessmen and managers are unable to get back to Libya. These events serve as a dire reminder that nothing is set in stone and that decisions can be adopted against foreign interests irrespective of their damaging impact on Libya’s economy and image. Gaddafi’s wrath originated with the arrest of his son Hannibal by the Swiss police in July 2008 for allegedly assaulting his servants, which escalated with the arrest of two Swiss citizens for overstaying their visas followed by Switzerland banning 188 Libyans from entering its territory, Gaddafi included.

Once again Gaddafi masterfully toys with Western nations, knowing very well that their appetite for Libyan natural resources will tame their calls for greater freedom, democracy and openness.  Sanctioning 24 countries for the actions of Switzerland is also a very smart dividing strategy as it is doubtful that countries that have high stakes in Libya such as Italy will stand by Switzerland side. Also, the hope that Gaddafi will one day leave power leads many countries to keep a low profile and not shake the tree too hard in order to be in the starting blocks once the power transition happens. This is all wishful thinking: if we look at Cuba, everyone has been waiting for the departure of Fidel Castro who is very well alive… and so is his brother. Gaddafi is only 69 years old and his father is said to have been well over 90 years old when he died in 1985… Similarly, some see one of Gaddafi’s sons as a potential heir and read in his statements the possibility of a new era. Similar hopes were fostered when Bashar al-Assad took over at the death of his father in Syria in 2000 but change has not been overwhelming ever since.

Ultimately, the decision to be active or not in Libya is a judgment call and many countries have decided that the potential of the country far outweighs the risks, even more so as the negative attention of the Western public opinion is never sustained long enough to be a source of concern. Oil revenues and public expenditures will remain the two main GDP growth factors in Libya and real GDP growth is estimated by The World Bank’s 2009 MENA Economic Developments and Prospects Report to reach 2.9% in 2009 and 4.8% in 2010.

This article was written by Philip H. de Leon for The OSINT Group
The OSINT Group offers its unique open source intelligence (“OSINT”) expertise as an outside support team for international clients in the energy, finance, defense and intelligence sectors.  Please visit our site at www.TheOSINTGroup.com for more details.

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• How Iraq’s Oil Revolution Will Cripple Iran
• Lies, Damn Lies, And Government Oil Statistics

(This guest post originally appeared at OilPrice.com)

 

The elections in Iraq on March 7, 2010, are likely to serve as an important indicator of the prospects for a resolution of the long-running dispute over the administration of the ethnically mixed and resource-rich province of Kirkuk in the north of the country.

 

The Iraqi Kurds have repeatedly called for Kirkuk to be transferred to the control of the semi-autonomous Kurdistan Regional Government (KRG), which already administers three provinces in the predominantly Kurdish north of Iraq. The other ethnic groups in Iraq – including the Arab-dominated government in Baghdad – are equally insistent that Kirkuk should remain under central control and that any oil or gas revenues should be divided between the entire population of the country rather than all going to the KRG.

 

The failure to resolve the issue of the eventual status of Kirkuk threatens not only prospects for permanent political stability in Iraq but also hopes of extracting the province’s huge reserves and building new oil and gas pipelines from Kirkuk to Turkey, and from there to energy-hungry Western markets.

 

“We are very interested in the oil and gas reserves in Kirkuk. Who wouldn’t be?” said one executive from a leading European energy company. “We would like to invest in the region, perhaps even become involved in building one of the pipelines. But we can’t do anything unless this issue is resolved. At the moment, the risk of political instability is just too great.”

 

The Iraqi Kurds have long maintained that, historically, Kirkuk is a Kurdish province but that it was subjected to a process of Arabization under former Iraqi President Saddam Hussein, who deported a significant proportion of its indigenous Kurds and replaced them with ethnic Arabs. No one doubts that such a campaign was launched, although the scale of the deportations is hotly disputed. 

 

Since the US-led invasion and occupation of Iraq in 2003, the KRG has assumed de facto control of education and security in Kirkuk. Other ethnic groups have accused the KRG of resettling hundreds of thousands of ethnic Kurds in the province, including not only those who were originally from Kirkuk but also a large number of Kurds from other areas. They claim that the KRG’s ultimate aim is to change the demographic balance in the province in the run-up to a constitutionally required – but long overdue – referendum on the status of Kirkuk.  They fear that, if a referendum results in a vote for union with the KRG, the Iraqi Kurds will attempt to use the revenue from the province’s oil and gas reserves as the economic foundations for their long-held dream of an independent Kurdish state.  It is a prospect which alarms not only the Iraqi government in Baghdad but also several of the country’s neighbors. Syria, Iran and – particularly – Turkey all worry that the creation of an independent Kurdish state in northern Iraq will further fuel secessionist tendencies amongst their own already restive Kurdish minorities.

 

The evidence on the ground in Kirkuk suggests that there is some truth to the allegations of demographic manipulation. In September 2009, local officials in Kirkuk estimated that the population of the province stood at 1.4 million, up from 850,000 at the time of the US invasion in March 2003. More significantly, the voter registry in Kirkuk has increased from 400,000 in 2004 to 900,000 for the March 7 elections. A dispute between Kurds and other ethnic groups over how many seats to allocate to Kirkuk to accommodate this huge increase in voters resulted in the entire election being put back two months after originally being scheduled for January 2010. 

 

Although a compromise was eventually agreed, the real test is likely to come after the election itself. As happened at the last Iraqi general election, the two main Kurdish parties – the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK) – are running on a joint ticket, the so-called Kurdistani Alliance, together with five minor parties. However, this time they will face a challenge from a new party called “Goran” (meaning “Change”), which is dominated by former members of the PUK who had become exasperated by the widespread corruption and misuse of resources in the three provinces under the KRG’s control.

 

In the July 2009 elections for the KRG, Goran picked up 23.5 percent of the vote. It is also expected to perform well in Kirkuk on March 7, 2010.  But Goran has already declared that, however much it may be opposed to the KDP/PUK in other areas, it is in complete agreement with them on iconic issues such as the transfer or Kirkuk to KRG control. As a result, the predominance of ethnic Kurds in Kirkuk means that the main hope for those opposed to the transfer of Kirkuk to the KRG is that voters break with the pattern of previous elections in Iraq and vote across ethnic lines.  If the Kurdish parties fail to win an overwhelming majority in the province, then it will be much more difficult for them to push for the inclusion of Kirkuk in the territory administered by the KRG and they may be more prepared to reach a compromise with other ethnic groups on the division of revenue from Kirkuk’s oil and gas.  But, for the moment at least, the signs are that the Kurds of Kirkuk will again vote along ethnic lines – which is likely to encourage the Iraq Kurds to renew their calls for a referendum and the eventual transfer of both the province and its oil and gas to the KRG.

 

Even if the Kurdish parties sweep Kirkuk, there is still no indication that any of the other ethnic groups in Iraq or the central government in Baghdad is prepared to allow the KRG to take over Kirkuk. Consequently, the most likely outcome of the March 7 general election in Kirkuk appears to be an increase in political tensions; and, as long as the standoff remains unresolved, energy companies are likely to continue to be reluctant to make substantial investments in extracting the province’s hydrocarbons and transferring them to Western markets.

This article written by Gareth Jenkins for Oilprice.com

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