Will Low Crude Prices Kill The US Oil Boom?

WASHINGTON – Is the American sensational oil boom going to be killed by low crude prices? Opinions differ. But so far the optimists still dominate the field.

Plenty of oil

Here are the issues. On the positive side, there is plenty of recoverable oil in America. Much more than industry specialists believed there was just a few years ago. But on the negative side most of the new discoveries are in what the energy people call “unconventional oil”. By this they mean oil trapped in shale formations. This oil can be successfully exploited. But, compared to other oil extracted elsewhere in the US, let alone Saudi Arabia, it is much more expensive to obtain it.

Shale industry needs high oil prices

Which is to say that most US energy companies developing shale oil would like to see a crude price at or above $ 90 per barrel. When oil is at $ 100 or above, everybody makes money. Therefore most companies are motivated to invest more in order to expand production and profits. But when oil goes and stays below $ 85, as is the case now, many shale oil companies start getting worried, as their profit margins become thinner, given their high production costs.

That said, according to many industry analysts quoted in a recent WSJ story, (US Boom Can Stand Further Fall In Oil Prices, October 30, 2014), many if not most shale oil producers can stay in business with crude prices as low as $ 60 per barrel, or even $ 50. Some can  make money when oil is at 40.

Of course, this does not mean that all of them will prosper, no matter how low the price the oil. Much depends on the size and financial conditions of the company, how much debt they have, and where they are drilling. Relatively unexplored regions usually entail higher risks, and therefore higher costs. As a rule, small oil companies, and there are many of them in the shale industry, have weaker foundations; and therefore they are more vulnerable when profits are smaller.

Reduced investments

Still, according to many of the experts quoted in the WSJ article, most companies should be alright. Of course, much will depend on how long oil prices will stay so low.

If crude prices do not go up, for sure at least some US producers will go out of business. Or, at the very least, they will reduce their investments in new operations. And this could be a real problem.

Indeed, depending on the length of this rather unusual low prices season, fewer investments may put an end (or at the very least slow down) to what has been a veritable US oil boom. To be clear, America will continue to be a major oil producer. But the expansion of its energy industry will not keep this frenetic pace.

America is in the middle of an oil boom

Consider that America –largely thanks to the ability to develop shale oil– has increased its domestic crude production by about 3 million barrels a day in just a few years. Think of that. Unheard of. Assuming buoyant crude prices and sustained investments, the US is now poised to become the world’s largest oil producer, ahead of Saudi Arabia and Russia, something completely unimaginable just 7 or 8 years ago. 

Huge savings, increased energy security

Of course, the issue here is not about the prestige of being “number one”. The issue is huge savings, and an improved balance of payments, while boosting the US economy. On account of its much increased domestic production, America now imports much less oil. This means billions of dollars not sent to OPEC and other oil exporters. This means US wealth spent at home to pay for US produced oil. This means the development of critical energy related know how that later on can be used to develop new resources in other countries. This means tens of thousands of new energy related jobs created at home.

Last but not least, this means enhanced energy security. The less America depends on far away foreign suppliers for the delivery of this absolutely vital source of energy, the better it is.

Can this continue?

So, all told, can this US oil boom continue? May be yes, provided however that old-fashioned Yankee ingenuity will keep surprising us, finding new and better ways to reduce costs associated with shale oil exploration and production. Much progress has been made in a relatively short period of time.

Please, do not forget that a mere decade ago most experts believed that any type of shale oil production was a non starter because it was just too expensive to get this type of oil out of the ground.

More domestic oil is good for America

The unknown here is whether industry can continue to improve its technologies in order to reduce its costs and stay competitive, even when faced with much lower prices and therefore reduced profit margins.

Only time will tell. But it would certainly be a huge benefit for the American economy and for US national security if this incredible oil boom will continue.


After A Long And Costly War, Ukraine Forced To Admit Defeat

WASHINGTON – It is sad but true that the post-Yanukovych, democratic Ukrainian government had zero chances of winning the conflict against Moscow-backed ethnic Russian rebels fighting for independence in the East of the country.

Ukraine could not win

This was obvious to me months ago, after it became crystal clear that neither the US nor Europe were willing to give any military support to Ukraine, except for “meals ready to eat”, (MREs), blankets and uniforms.

Yes, you cannot win a war just with blankets. And yet, until early September Petro Poroshenko, the new Ukrainian President, was giving pep talks to the troops while dressed in military fatigues.

Again, the war was lost. Nonetheless Ukraine, a semi-bankrupt country now totally dependent on international financial and economic assistance, was stupidly spending huge resources on a Putin-funded conflict that it knew it could not win.

Give up the East

Months ago I suggested that Ukraine, whatever the pain involved, should have acknowledged “the facts” and should have granted de facto independence to the Eastern Provinces controlled by the Moscow-backed rebels. This would have put a stop to the conflict and to the financial bleeding.

De facto partition

Poroshenko did not do this until September, after months of fierce fighting during the Spring and Summer. And now the reality is that the ceasefire has in fact created a new border. As the WSJ put in a recent report, (In Divided Ukraine, a Border Takes Shape, October 29, 2014):

“The de facto division underlines a reality that has been clear since the two sides signed a peace deal in early September: Kiev has given up effective control of rebel-held territory, handing Russia a strong lever to influence its neighbor”.  

Gone for good

Translation: Eastern Ukraine is gone –for good. The sad thing is that the proverbial “writing on the wall” was there, long ago. For understandable (but nonetheless foolish) reasons of patriotism and national pride Poroshenko engaged in a completely useless fight, knowing that he had no help and no support from the West, other than nice words.

Huge costs

As I said, Ukraine is totally broke. I imagine that someone at some point will calculate the cost of this unwinnable war. In doing so, they will also see how these precious funds could have been better used in efforts aimed at modernizing the country’s tottering economy.

The sad outcome of this doomed attempt to preserve territorial integrity is that the land is lost anyway, while Ukraine suffered huge losses, becoming even poorer than it was before all this started.


Lower Oil Prices Are A Mixed Blessing

WASHINGTON – When it comes to falling oil prices, we can definitely have “too much of a good thing“. Sure enough, this is great news for global consumers, and for the transportation sector. Lower oil means lower gasoline, diesel and jet fuel prices.

Mixed picture

In America, however, it is a mixed picture. America consumes about 18 million barrels of oil a day. Despite significantly higher domestic production, (US oil output is up by 56% since 2004), half of what we use is still imported. Lower oil prices translates into a lower bill for what we buy abroad. This is great news.

Shale oil not profitable when crude prices are too low

Still, if you are trying to exploit additional US oil reserves, a sharp decline in global oil prices is not what you want. Most of the untapped US oil is trapped in shale formations. Getting to it is comparatively much more expensive than extracting oil in Saudi Arabia.

Therefore, at least in general, it makes sense to extract oil from shale formations only if global crude prices stay above $ 80. Below $ 80, depending on the region, the geology and other local factors that may affect production costs, it may not make any economic sense to drill, because extracting that oil may be more expensive than what you get paid when you sell it.

End of shale oil?

So, here is the picture. If oil prices keep getting lower, and if the market expects that they will stay low –say, at $ 75 or less per barrel– for an extended period of time, according to many analysts this will be bad news for the domestic shale oil industry. Some drillers will simply stop money-losing operations.

Now, there are many other experts who believe in the endless ingenuity of the American energy industry. They count on more and more innovation coming on line that will further cut shale oil production costs, allowing producers to make money even if the price of oil stays low for a long time.

Shale exploration went on, despite the skeptics

After all, when hydraulic fracturing and horizontal drilling were first introduced, very few believed that they could work. And then it was widely believed that shale wells were not such a good deal because they would produce much less that conventional wells.

Well, most of these assumptions and beliefs have been proven wrong. The shale oil industry managed to become leaner and more efficient. In fact, some experts argue that most producers can stay in business and make money even if oil is at $ 65 or $ 60 a barrel, or even lower than that.

I have no idea. However, the record so far indicates that there is significant technological progress in all aspects of exploration, drilling, water used for fracking, and more.

Oil glut indicates a slow world economy

That said, this significant oil glut at the source of lower prices may be bad news for different reasons. If, as some believe, this sudden oil over supply is due to a structural, as opposed to temporary, fall in demand, this means that a slower world economy needs far less energy.

Bad news from Europe and the BRICS

Indeed, we know that, while America is doing alright, (not great, but alright), Europe’s economy is stagnating, while the BRICS countries are doing poorly. Russia is at zero growth, Brazil’s (short) miracle ended, and China is slowing down.

America needs to export

The American economy depends more and more on a healthy global economy. Whatever the implications of low oil prices for the US domestic energy industry discussed above, a stagnating world economy means less trade and fewer US exports.

If you consider that most large American corporations have higher sales abroad than at home, you get the picture. If Europe does not buy, this means lower profits for Caterpillar, United Technologies, 3M, GE and many others.

Do Most Muslims Subscribe To The Ideology Elaborated By The Muslim Brotherhood?

WASHINGTON – The official, sanitized Western narrative about Islamic terrorism is that Islam is a religion of peace practiced by hundreds of millions of moderate and tolerant people. 

Islam has been hijacked

That said, unfortunately –and we really do not why and how– some strange individuals within the Muslim world “hijacked” Islam and now use it to justify a violent jihad against the West. We should all agree that, although these people call themselves Muslims, clearly their beliefs and their deeds are totally inconsistent with Islam as a religion of peace and tolerance.

Not so

Well, it is just not so. Not by a long shot. Aly Salem, an Egyptian writer living in New York and a Muslim, provides a much different and perhaps more accurate picture in a WSJ op-ed piece, (Let’s Talk About How Islam Has Been Hijacked, October 27, 2014).

The fact is –as Salem explains– that tens of millions of the supposedly pious, peaceful and tolerant Muslims subscribe to the basic teachings of Sayyed Qutb, the famous author of In The Shadow of the Quran, and the acknowledged spiritual father of the Muslim Brotherhood.

Anti-Western sentiment

Qubt’s teachings explain how the decline of modern Muslim societies is mostly due to nefarious Western influences. It is only by going back to basic religious and cultural orthodoxy that Muslim societies will be able to regain their strength and their self-confidence.

As Salem writes in his WSJ piece, “Today, Qutb’s outlook –Islamism– is the dominant political ideology in most Muslim-majority countries…”.

Got that? A basic anti-Western feeling is not embraced by only a few radicals. Just like the jihadists, most Muslims believe that their societies need to go back to their roots, while avoiding or rejecting Western ideas, customs and norms. As Salem continues, “…In many Muslim countries, the population is overwhelmingly in favor of veiling for women, the death penalty for leaving Islam and stoning as punishment for adultery; rabid anti-Semitism is rampant…”

Jihadists inspired by Qutb’s teachings 

Of course, a broadly shared anti-Western sentiment does not imply that most Muslims will actively engage in a violent jihad against America or Europe. But it does mean that the jihadists have taken inspiration and guidance from a recognized and indeed revered body of Muslim scholarship whose pillars are a strong and motivated anti-Western sentiment, and the advocacy of a return to medieval customs.

Well, if this is indeed so, then we have a much bigger problem in our hands. We are not dealing with just a few lunatics who for mysterious reasons concocted a crazy plan aimed at fighting the West.

A culture hostile to the West?

If Salem’s assessment is correct, we are confronted with a deeply rooted and broadly shared Islamic culture that seeks to advance and develop Muslim societies through a regression into medieval customs, while teaching that everything Western is evil.

Again, to be clear, let’s agree that violent jihad is embraced by only a few people within Muslim societies. But the issue is that many of the ideas that inspire the jihadists are part of the mainstream.

In other words, our problem is much bigger than what we are told.

The Economist Gives Good Advice To Europe – Anybody Listening?

WASHINGTON – The respected The Economist magazine dishes out good economic growth advice to Europe, (The World’s Biggest Economic Problem, October 25th 2014). Here are the highlights. Stop Germany’s “austerity fixation”. Severe spending cuts contribute to economic stagnation in under performing countries like Italy and France. 

Less austerity, more reforms

Wise policy-makers should agree to relax austerity a bit. In exchange, the countries that will gain some more breathing room (Italy, Greece, Spain, France and Portugal) should commit to serious reforms that will enhance economic growth.

This is a nice idea. But it is naive to believe that this can happen. Italy and France are still prisoners of outdated ideologies that in practice work against growth. Sure enough, there are some sincere reformers. But they face an enormous, established and entrenched opposition.

Good advice

Of course, as The Economist suggests, it would be good for France and Italy to shed excessive and often stupid regulations, old labor laws that discourage hiring more workers, confiscatory taxation, and a lot more.

Of course, it would be nice if elected leaders could see the light and understand that economic growth requires a pro-growth “eco-system”. There are literally mountains of evidence indicating that if it is too difficult or too expensive to start or grow an enterprise you will have very few of them. Everybody should know that.

More of the same

Still, despite all the empirical evidence about what should and should not be done to create growth and jobs, the hoped for structural reforms are not coming along. Therefore, the notion that you can have a deal whereby in exchange for less austerity the struggling countries will get serious about reforms is wishful thinking.

This is what they will do. With a green light for less austerity, they will free to borrow more in order to finance more public spending that they will re-label as “investments”.

Translation: “Expect more of the same”.

Mega Plan for Infrastructure

By the same token, The Economist suggests that Europe should engage in a Grand Plan aimed at creating/modernizing “Pan-European” infrastructure. This would create jobs across the EU, while improving overall economic productivity. All this could be funded by the European Investment Bank, (EIB), with the help of the European Central Bank, (ECB) that could agree to buy bonds issued to finance these productivity-enhancing mega-projects. There you go: solid projects, easy funding.

This is another wishful thinking marvel. Think about it. First you need an agreed upon and carefully prioritized Grand Plan with the concurrence of 28 countries. Just imagine getting this done.

Then you need agreement among all the obvious and not so obvious stakeholders regarding an implementation schedule. Among them: the EIB, the EU, the ECB, the central and local governments of the countries concerned, (The Economist likes regional infrastructure), and then all the economic interests affected.

And finally you will need to win over all the environmentalists, greens and assorted “Luddites” who are against building anything new, as a matter of principle.

What The Economist suggests is not technically impossible. But it is politically impossible.

Lack of pro-growth political parties

Let’s say again that in many European countries policy debates are shaped mostly by political forces, (the Socialist Party in France, the Partito Democratico in Italy), that (amazingly) continue to believe in watered down but still damaging socialist ideologies.

These beliefs in general place redistribution and egalitarianism ahead of measures that will increase production and wealth creation. Despite the spectacular failure of this approach, hard to sell anything else.

Useless advice

Unless all of this changes, forget about serious (as opposed to cosmetic) plans to create the needed pro-growth “eco-systems”.

I would think that The Economist‘s editorial writers know all this very well. But their essays full of good, practical advice assume a radically different type of audience.


Doctor Who Treated Ebola Patients Got Sick Upon Returning To NYC From Africa

WASHINGTON – Just a few Ebola cases in America exposed huge gaps in the nation’s preparedness to face any serious public health emergency. When news of the out of control Ebola pandemic in Africa spread here in the US, we were told by the top leaders of the Centers for Disease Control, (CDC), that America was ready for anything. “We are the best in the world”. And then came the Dallas Hospital most embarrassing debacle. No system in place, no Ebola protocols, nurses infected. A real disaster.

Ebola in New York

And now we have the New York City variation of bad planning. It turns out that Dr. Craig Spencer, a physician who worked with Ebola patients in Guinea, (with Doctors Without Borders), flew back to New York. After a few days, he fell ill. He has Ebola. No doubt he contracted it while working with very sick people in Guinea.

Now, it would appear that Dr. Spencer, upon returning to the US, checked his temperature every day and tried to avoid having too many contacts with other people. As soon as he got a fever, he called for help, and he was immediately taken to Bellevue Hospital, a first class medical facility.

All under control?

So, all under control? Not really. First of all the news of the first Ebola case in NYC prompted an absurdly high level reaction. There was a news conference featuring Bill de Blasio, the Mayor of New York, and Andrew Cuomo, New York State Governor, plus the city and state top public health officials. Dr. Tom Frieden, the head of the CDC, participated by phone.

The point of the news conference was to reassure New Yorkers. “All under control. No reason to panic”. Really? And you need a joint appearance of the Mayor and the Governor, plus the head of the top Federal public health authority, to say that all is well? Is this the usual routine for announcing any hospital admission in NYC?

No quarantine

All is not well. The Dallas debacle included a nurse (who later became sick with Ebola) who, while under observation, was allowed to take a trip by airplane. And now we have a doctor who treated several Ebola patients in Africa who was free to go around New York, a densely populated city, without any special precautions or restrictions.

This is really, really stupid.

Ebola is a deadly disease. By now we all know this. Common sense should have suggested weeks ago that all health care workers who have been exposed to Ebola in Africa, upon coming or returning to the United States, would have to spend at least 21 days (this is the Ebola incubation period) in quarantine.

Minimize contagion opportunities

In other words, you minimize the opportunities of any contagion by keeping the persons who may have contracted Ebola in seclusion, until you know for sure that they are not sick. If they become sick while you keep them under observation, you take care of them, without endangering the general public.

Well, guess what, now that Dr. Spencer is sick the authorities of both New York and New Jersey have ordered such a quarantine for health care workers who have been exposed to Ebola while working in Africa.

And why not do this before? Because they do not think. Because they are slow, and quite frankly not very smart.

No precautions

Think of the consequences of not taking the elementary precaution of placing in quarantine at risk individuals. Now that Dr. Spencer is sick with Ebola New York public health authorities had to quarantine his girl friend, and a few other people he came into contact with. They had to close down his apartment. They had to notify all his neighbors. Surely these people now are scared. All this is highly disruptive.

And there is also the unknown of other opportunities for contagion. The Doctor took the subway, several times. He went to a bowling alley. Are other people who shared the same space with him at risk? Probably not. But, nonetheless, the health authorities are trying to contact everybody who may have been in close proximity to the Doctor who turned out to be sick.

Quarantine, at last

And so now, after having reviewed the potential damage of just one sick person wandering around NYC, not to mention the cost of tracing and then monitoring everybody he came into contact with, New York and New Jersey have instituted a quarantine regime for health care workers returning from African countries where Ebola is rampant.“We do it now, after we have realized the consequences of not taking this most elementary precaution before”. Truly brilliant leaders, you must admit.

And this after the fact “swift action” is what is done in New York City, a sophisticated, modern metropolis, with state of the art health care facilities. Imagine elsewhere.

Let’s hope we do not have a real crisis

I really hope that at no serious health crisis will break out in America. We are led by self-described public health “experts” who are essentially unimaginative bureaucrats, always several steps behind. They see a problem only after it hit them really hard. No foresight. No serious planning.

These “leaders” cannot even take elementary precautions like placing in quarantine the people who have been directly in contact with Ebola.

Imagine the same people handling a real public health crisis, with emergency rooms overwhelmed by throngs of really sick people.


Lesson From Ottawa Attack: Too Much Media Coverage For Acts Of Political Violence

WASHINGTON – What is the lesson to be drawn from the shootings in the Canadian Parliament in Ottawa? Very simple. In the first place, we should accept the fact that democratic, open societies are extremely vulnerable. To be precise, our freedoms are largely the source of our basic fragility. In a democracy, people come and go as they please. Impossible to check on everybody.

Fascination with political violence

But there is more. If you add to this basic reality of “systemic vulnerability” an almost perverse mix of fear and fascination with any and all acts of political violence, we get a bad mix.

Even a relatively small incident like the Ottawa shooting creates an enormous, world-wide echo. So, we get hit because we are easy targets. And each incident gets way too much attention.

One incident gets worldwide attention

In Ottawa’s case, just one shooter, Michael Zehaf-Bibeau, managed to get international, non-stop media coverage. Sure enough, his targets were selected because they have high symbolic meaning. A soldier guarding Canada’s War Memorial, and then the Parliament, the nerve center of the state. Still, the gunman, while scaring many people, killed just one person. He himself was killed inside the Parliament.

All this is frightening and tragic. There has been loss of life, and a lot of anxiety and confusion. However, this isolated act of political violence, featuring one lone gunman, is not the end of Canada, and –most certainly– it is not the end of the world.

Too much media coverage

But instead we treat this event as an enormous crisis that could have all sorts of possible ramifications. Cable news TV outlets (CNN, FOX News, MSNBC and others) parade dozens of terrorism experts who theorize, analyze and opine. To make themselves “relevant”, they exaggerate the meaning of such attacks.

As I said, we have a mysterious attraction towards political violence. We want to know everything about killers or would-be killers motivated by religion or by crazy ideologies somehow rooted in weird interpretations of religion, Islam in most cases.

Criminal violence gets no attention

Because of this fascination, just one event, tragic as it may be, causes world-wide uproar. But the equally tragic drug related violence, all the shootings, killings and what not taking place on a daily basis in Chicago or elsewhere get some mention only in the local news. For sure, no national headlines.

And yet, at some level, it is the very same sad phenomenon: violent people killing other human beings. So, why such a different level of coverage and media attention?

May be the difference is that our culture has digested and accepted as “a fact of life” most violence related to criminal activity, even when the numbers of people getting killed are staggering.

Political violence is different

Whereas, political violence inspired by ideology or religion is rare, new and different. This is about killing in the name of a “cause”. The cause seems to be the desire to destroy our society. And therefore, because of this sharply different motivation, political violence supposedly warrants much more attention.

We want to know “why” this person engaged in this or that. Where, when and how exactly was his mind “turned”? More broadly, is there some evil ingredient within Islam that can trigger what we like to call “self-radicalizalization”? And, if this is indeed the case, are we now in a new, uncharted era in which scores, possibly hundreds of young people, just by watching some crazy jihadist videos on the internet, will decide to get machine guns and kill anybody connected with our institutions? Is this the new “enemy within”? And, if so, who’s going to protect us against this subterraneous but pervasive menace?

These are not illegitimate questions. It is totally appropriate to investigate and look for possible conspiracies, recruiting systems, and patterns of behavior.

But what is truly baffling is the non-stop coverage and the loud volume. Like it or not, by obsessing on these rare events, the news media created a panic atmosphere.

Hyperbole and exaggeration

Once again, let’s look at the facts. One person was killed in Ottawa. Two, if we add a previous incident in which another Canadian soldier was killed. This is serious business. But it is not a national, let alone global, catastrophe.

Of course, the first reaction is that we have to do more to protect obvious targets. This is probably true. The Canadian Parliament was not a “hardened” target. The gunman had no difficulty getting in.

In another, totally unrelated episode, here in Washington a deranged man, (with no particular political motives), was able to climb the fence and get into the White House without being stopped by the US Secret Service, supposedly the best security service in the world.

The day after Ottawa, a man in York City used an ax to attack a group of policemen, seriously wounding one.

You cannot protect everybody, all the time

As there is danger out there, let’s review all security procedures. Let’s have better defenses. This is good. But the harsh reality is that it is simply impossible to protect “everything”, “all the time”.

As I pointed out at the beginning, we live in open societies in which people move freely. And there are other issues. In America in particular there are literally hundreds of millions of weapons available to almost anyone. Many are legally owned. Others are not. It is practically impossible to make sure that all people with bad intentions will be unable to obtain a fire arm.

Beyond that, the notion that our domestic counter terrorism forces, plus Homeland Security and various police forces will be able to prevent any and all plots and/or spontaneous “lone wolf” attacks is preposterous.

Of course, they should be on the look out. This is their job. And they will catch some bad guys before they will act. But it is unrealistic to believe that they will be successful all the time. This is impossible.

Do not give so much publicity to isolated acts of terror 

Given all this, here is an idea. I suspect that most of these “self-radicalized” young people are in large measure unhappy, publicity-seeking narcissists. Sure they want to be jihadists. They want to be martyrs.

But they also want to be famous. They want their noble deed to be talked about. They want to be on TV. In a deranged way, through these crazy gestures they want to emerge from grey anonymity.

If this is indeed the case, then we have to understand that the more publicity we give to events such as the Ottawa shootings, the more we convince others that these otherwise sterile, isolated acts of violence actually produce the desired effects. The perpetrator, dead or alive, is a hero. He is a martyr. And, most of all, he is famous. Therefore, to follow his example is a really good idea.

We should just move on

If and when our societies will find a way to process these random acts of politically motivated violence and move on, calmly and without any hysteria, I suspect that there would be far fewer incentives for others to emulate these crackpots whom they believe to be “heroes” in an ongoing “just war”.

No More News From Ukraine – Putin Won, Poroshenko Lost

WASHINGTON – We hear nothing about Ukraine these days. And for a very simple reason. The war is over. Russia won, Ukraine lost and the West looks the other way. President Petro Poroshenko finally realized (amazing that it took him so long) that he was and is on his own in this most unequal fight.

Putin won

In just a few days, Putin took over Crimea; and he got away with it. And now the Moscow-funded rebels who took control of portions of the East cannot be dislodged. Ukraine cannot win against rebels resupplied by Russia. At the same time, Ukraine found itself in the very uncomfortable position of having to reach an agreement with its very Russian enemies on the critical issue of natural gas deliveries from Russia. They are essential for Ukraine’s very survival.

Give up

Taking all this into account, Poroshenko came to the most obvious conclusion. “Whatever we may say in public, Russia won this war.  We lost.” The hope that this fight in Eastern Ukraine could become a Western fight in which pro-democracy Good Guys would battle authoritarian Bad Guys proved to be just that: a hope.

The West will do nothing

Europe and the US are willing to say a few nice things. Up to a point, they will help out Kiev with loans and credits. But there will be no military engagement. None whatsoever. And not even indirect support, via arms or anything else that would improve Ukraine’s hopeless military inferiority vis-a-vis Russia.

The US and NATO may be counted upon to defend NATO countries under threat, at least we think so. Anything else is a non starter.

Waste of money

This was obvious months ago. It is really too bad that it took so long for Poroshenko to realize that his country would receive no military or any other assistance that would turn the tide of the conflict in the East. He could have come to the conclusion that it was time to give up and allow Russia to win many months ago. This could have saved lives, property and probably hundreds of millions of dollars totally wasted in a really hopeless, unwinnable war.

Clever Putin

Very shrewdly, Putin understood that he had essentially a free hand in Ukraine and took advantage of the opportunity to unilaterally modify the post-Soviet era borders that he and so many other Russians believe to be unfair to Russia.

Total’s Chief Accidently Killed By His Russian Friends

WASHINGTON – It is really odd that oil man Christophe de Margerie, Total’s CEO and Putin’s friend, was killed in an airplane accident caused by Russian negligence, as his private jet, a Dassault Falcon 50, was taking off from Moscow’s Vnukovo Airport in bad weather.

Russia’s friend

de Margerie was one of Putin’s strongest supporters in the West. He openly advocated closer energy ties with Russia. He wanted Total, one of the largest oil and gas conglomerates in the world, to continue joint energy projects with Moscow, despite the EU-imposed trade sanctions caused by Putin’s aggression in Eastern Ukraine.

Sad irony

The sad irony here is that de Margerie was killed, according to preliminary findings, by the ultra negligent behavior of his good and trusted friends. The crash was caused by a Russian Airport staff person who left his snowplow too close to the runway. Most unfortunately, as de Margerie’s private jet was taking off, it hit the plow and became uncontrollable. It fell from the sky, and the impact killed everybody on board.

So, de Margerie, on a good will trip aimed at keeping an open dialogue with his Russian friends, was killed by their lack of professionalism.


The first news coming out of Russia is that the snow plow operator responsible for the accident was drunk. More broadly, other news accounts indicate that there was chaos at the Vnukovo Airport, because many commercial flights had been diverted there on account of bad weather.

As a result of too many flights and bad weather, the airport ground operations were overwhelmed. Hence confusion, a large piece of equipment parked in the wrong place, and then an accident.

Of course, this is a tragic accident. And it is not unique. There have been other instances of crashes in other countries when airplanes try to land or take off in bad weather.

This is Russia

But in this particular case, this unfortunate accident is also a reminder of what Russia is. It is a mix of bluster and over confidence, thuggish behavior and colossal incompetence. In this case, a snowplow obstructing the runway of a major international Airport.

Sure, Russia also has a lot of oil and gas. And this is why it has “friends”, just like de Margerie. Too bad that the Russians accidentally killed him.

Count on Total’s friendship

But I suspect that his successor at Total may be counted on to continue on the same “realist” course aimed at salvaging the relationship with Russia because of its self-evident economic benefits.

Benefits that, according the France’s sophisticated and super savvy managers, should not be sacrificed on account of energy poor, destitute Ukraine.


China’s New Slow Economy

WASHINGTON – What’s really happening to the Chinese economy? The answer is that we do not know for sure. But the signs that we get are not that good.

Housing crisis

This year home sales are down. Home prices are way down. The price of steel, a key construction materials, is also down. According to the WSJ, Zoomlion Heavy Industry Science & Technology Co., a major construction equipment manufacturer, “expects a 65% to 75% decrease in net income in the first nine months this year due to..[…]..the slow down in the growth of real-estate investment”. 

Beyond that, there are plenty of stories of real estate developers going bankrupt, of buyers who had paid in advance left with nothing when developers disappeared, leaving behind half built condos.

Plenty of Chinese cities have huge areas filled with brand new and largely empty developments. This large housing bust also suggest heavy losses for lenders, particularly unconventional financial institutions.

No crash

So, what do we make of all this? Most analysts agree that this is bad news. Still, to keep things in perspective, this is not the beginning of a Chinese economic crisis.

China has $ 3.8 trillion in foreign exchange reserves. That’s right: $ 3.8 trillion. This is a formidable financial cushion. Clearly the Chinese government has the means to bail out many if not all distressed companies, especially if they are State Owned Enterprises. Do not expect Western style dislocation following well publicized bankruptcies.

What about growth?

This is good, but not perfect. Plenty of cash is useful in any effort to save companies in trouble. But cash alone will not trigger innovation, competitiveness and vibrant growth. And going forward China needs genuine growth based on real competitive advantages. Hard to see where that will come from. Much of China’s growth was based on the spectacular growth of labor intensive manufacturing, due to the extraordinary advantage of low labor costs. This is largely over.

Where are the new Chinese high-tech, globally competitive sectors? Sure, there are a few recognized Chinese brands, (for instance Lenovo, Huawei, Haier). These are major global companies. But that’s not enough to sustain 1.3 billion people.

Right now, if we put together the deep housing crisis, diminished nationwide electricity use, and the significant import cuts of key commodities and raw materials, we get a picture of significant economic slow down.

Slow growth and its political consequences

What we do not know is how deep a slow down. Is this just a bad patch, a temporary correction, or the beginning of a “new normal ” of slower growth?

Some analysts believe the latter, pointing out that based on their calculations Chinese official growth statistics are routinely inflated. By this they mean that China is not growing at around 7% a year. The real number may be 5% or even less.

Assuming that they are at least in part right, the emerging picture is that China, after its incredible 30 year journey fueled by rather exceptional circumstances, is reverting to “normal” growth.

Nothing wrong with that, except that the Chinese people have been told that rapid growth year after year was the normal trend for China. An entire generation came to maturity having known only spectacular growth.

If the longest boom in modern economic history is over, at some point there can be political repercussions. Do keep in mind that the Chinese Communist Party’s legitimacy rests in large part on its role as chief architect of the economic expansion of the last 30 years. If the economic sputters, would there be resentment? Who knows, really.

Wealthy Chinese want to emigrate

But we know about a few signs that indicate widespread uneasiness, at least among the elites. There is plenty of evidence that large numbers of wealthy Chinese emigrate, or try to emigrate.

Those who can move to Canada, to the US or Europe. Chinese students flock to universities in English-speaking countries. Wealthy Chinese apply in record numbers for “Investor Visas”. By paying huge sums of money, they get on a fast track for US resident status.

Why leave China?

Now, all this looks incredibly counter intuitive. According to the established orthodoxy, China is doing very well. It is the emerging, self-confident super power, poised to overtake America in just a few years.

Then, given these solid fundamentals, why is it that those who benefited the most from China’s incredible growth are trying to get out?

Is it possible that they know something we do not know?