Raising The Temperature In The Middle East

By Paolo von Schirach –

WASHINGTON – After the unexpected airstrike that killed IRGC General Qassem Soleimani, right outside the Baghdad airport, analysts began speculating what Trump’s end game may be. In other words, is this just an ill-conceived, spur of the moment decision? Or is this targeted assassination of the master mind of all the Iran-led irregular forces operating with impunity in the Middle East part of a carefully orchestrated US “plan”?

Recalculations about America’s will are in order

I have no idea. However, I would say that this brazen attack that eliminated the most significant and most revered leader of Iran’s international mischief will probably cause some rethinking on the part of those who have come to believe that America is a hesitant giant, essentially impotent when targeted by non state actors.

Well, not so impotent, it turns out. I would speculate that Soleimani was killed in some measure because he got used to traveling from Iranian fiefdom to Iranian fiefdom, (Lebanon, Syria, Iraq, Yemen), without too much concern about his own safety. In other words, being at the head of a victorious and unchallenged unconventional military force, made Soleimani arrogant. It made him believe that he was invincible, that he could safely move around almost anywhere in the region.

Here is the thing. Going forward, the accepted narrative of a rather passive and impotent America, incapable of reacting to stealthy attacks that do not leave clear footprints, no longer applies. Not just Iran, but all America’s enemies should take all this into account.

Making things worse in the Middle East?

Sure enough, this sensational killing caused all sorts of speculations regarding possible reverberations on the volatile Middle East, already torn by conflicts and insurrections. Trump has been accused by Joe Biden, would be Democratic nominee for the presidency, of having thrown a stick of dynamite into a powder keg, or something like that.

Sure, this American action raises the temperature in the region. But the most feared consequence of a major Middle East crisis, sky rocketing oil prices, will not happen. As Holman W. Jenkins noted in a recent piece in The Wall Street Journal, the unrelated American fracking revolution, by substantially increasing US oil production, completely transformed global oil markets.

There is plenty of oil

In other words, today the world should not be overly concerned with any disruption of the flow of oil passing through the Strait of Hormuz. The difference between 10 0r 15 years ago and today is that America –until not long ago a major oil importer– is now the largest oil producer in the world. Yes, the US produces more oil than Saudi Arabia or Russia. While America still imports oil, it buys most of it from Canada, not from the Persian Gulf.

This fantastic increase of America’s oil production has had and will have significant geopolitical consequences. A very big one is to have down graded the strategic importance of the Middle East as an oil producing region, and therefore the possible negative impact of Iranian actions targeting Middle Eastern oil facilities on the world economy.

Nothing happened after Iran attack Saudi oil facilities

If you recall, a few months ago, the Iranians launched a surprise attack against major Saudi oil installations, knocking down with one shot about 50% of Saudi Arabia’s oil output. Well, what happened? Not much. Yes, oil prices went up, for a few days. But then, when the analysts were reassured that there was plenty of extra supply in global energy markets, oil prices went down again.

I am not suggesting that the Middle East has become irrelevant, far from it. What I am suggesting is that Iranian threats and possible attacks against oil are not as dangerous as they used to be in an era of tight supplies and enormous needs for imported oil on the part of the United States.

Iran is not the winning champion

Yes, after the stinging loss of Soleimani, its revered military leader, we should be prepared for something really nasty coming out of Iran. But let us not forget that Iran is not Stalin’s Soviet Union, or Nazi Germany at the height of its power.

Iran is an impoverished police state, stricken by US economic sanctions. It is a country in which an increasingly recalcitarting population, notwithstanding the obvious threats of imprisonment, torture or death, still engage in spontaneous protests against the high cost of food and other basic necessities. While we should not underestimate its resourcefulness, today’s Iran is not exactly an unbeatable champion.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC




War With Iran?

By Paolo von Schirach

WASHINGTON – The killing of General Qassem Soleimani, the legendary head of the Iranian al Quds force, is a game changer in America’s creeping hostilities with Iran. I wrote recently http://schirachreport.com/2020/01/02/iraq-is-lost/ that unless the US wants to engage in a conflict over Iraq, this poor, war-torn country is lost to us, on account of the solid Iranian grip on it. Large pro-Iranian Iraqi Shia military forces and pro-Iran Iraqi political parties make it almost impossible –short of an all out war– to dislodge the Iranians from what is now their vassal state.

Iraq is still lost

The killing of Soleimani changes nothing in this regard. If anything, it will lead to a formal request on the part of the Iraqis that all US forces currently in Iraq, supposedly to guard against any possible ISIL come back, leave immediately. I am not quite sure how this major political crisis with Iraq can be handled by Washington so that it will have a smooth end. Highly unlikely. Forget about working with any Iraqi government on anything at all.

Escalation with Iran

Regarding Iran, with this sensational assassination of the leader of all Iranian terror forces, now Washington has escalated the conflict with Tehran. The loss of Soleimani, a cult figure in Iran, stings badly. Iran will have to do “something” in response to this humiliation, possibly something very big. And this will inevitably cause a US retaliation.

Prior to the killing of Soleimani, notwithstanding countless Iranian provocations, President Trump repeatedly indicated that the US does not want “war” with Iran. But as of now, with this assassination of a key Revolutionary Guard leader, arguably the US is at war with Iran. An undeclared war; but war nonetheless.

Is Washington ready?

And this presents significant challenges for Washington. America is not very good at fighting unconventional conflicts in which our wily adversaries engage in asymmetric warfare. We are rarely proactive, hitting our opponents before they hit us, this way putting them on the defensive.

We are usually waiting for the next hit, whenever our adversary chooses to strike, and then do our best to retaliate. Which means that the other side, the bad guys, always retain the initiative.

The killing of Soleimani represents a major change. For sure the Iranians did not expect this, as they are used to moving around in contested territories with impunity. Does this mean that the US has now taken the initiative? Is America planning more strikes? Not clear at this early stage.

Big question

While the situation is still quite fluid, if we try to piece what we know together, here is the big question. “Is President Trump, in this critical 2020 election year, willing to engage in an undeclared war of attrition with Iran which will inevitably entail more terror attacks, possible disruption of oil flows in the Strait of Hormuz, strikes against Israel, and a lot more?”

Can Trump convince America that he has a good plan?

In other words, is America ready to absorb the blows that will inevitably come from Iran and its proxies, and forcefully retaliate in kind, whatever it takes, for as long as it takes? Furthermore, can the Trump administration present a credible “plan” that includes a clear path to something looking like “victory” against Iran?

Until yesterday, the plan was to exert maximum pressure against Tehran via economic sanctions, hoping that the significant pain inflicted by the sanctions would convince the Iranians to come back to the negotiating table and agree to whatever Washington demands.

Now it is different. After this assassination of a key Iranian military leader, forget about negotiating anything with Tehran. This being the case –open ended hostilities with Iran– if we continue with this tough stand against the Ayatollah’s regime, how is US public opinion going to react to all this? Will this escalation with Iran help Trump get reelected?

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC




Iraq Is Lost

By Paolo von Schirach

WASHINGTON – Let’s not kid ourselves, Iraq is lost. Yes, totally lost. The events of the last few days make this crystal clear. We know that US forces retaliated against attacks by Kataib Hezbollah on military installations in Iraq in which there are some American troops and contractors. These frequent attacks against Americans have been directed by pro-Iranian militias such as Kataib Hezbollah, trained and armed by Iran, that are now part of the Iraqi forces. Furthermore, pro-Iranian Shiite political parties are in the Iraqi parliament and support the coalition government.

Assault against the US Embassy in Baghdad

Right after the US forceful retaliation that killed several members of the pro-Iranian militias, an Iraqi umbrella organization of pro-Iranian forces, called the Popular Mobilization Forces, organized an attack against the US Embassy in Baghdad. This was done ostensibly to protest against the killing of members of the Iraqi forces by the wicked Americans. While the well-organized assault against the US compound was underway, Iraqi security forces, according to international law responsible for guaranteeing the safety of all diplomatic facilities, stood by and did nothing.

Along with this open display of anti-American sentiment, the same groups now strongly demand the expulsion of all foreign (read American) military forces from Iraq. To make this even worse, Ayatollah Sistani, the most revered senior religious authority for all Iraqi Shia, added his powerful voice to the chorus of anti-American condemnations.

Iraq is controlled by pro-Iranian forces

So, this is the picture. The net result of the US 2003 invasion of Iraq that ended up costing us a fortune, not to mention thousands of dead soldiers and tens of thousands injured, some of them horribly, is that now at the beginning of 2020 it is quite clear that Iran controls Iraq. May be not totally, but almost.

The US, the supposedly friendly military power that ostensibly freed the Shia majority from the tyranny of Saddam Hussein and his Sunni minority government, is viewed by most pro-Iranian Iraqi Shia as a hostile occupying force. And this is so because, after the US 2003 invasion, over time Iran managed to increase its influence within the Shia majority, so that today Tehran controls large Iraqi militias, and Iraqi Shia political forces heavily represented in Parliament.

This is not fixable

Let’s be real. In Iraq we have been defeated by a clever opponent. This is not fixable. We are outnumbered and outclassed. Short of a welcome but unlikely collapse of the wicked regime of the Ayatollahs and the Revolutionary Guard in Tehran, something that would cause the collapse of all Iranian efforts aimed at controlling the Region, there is no way that the US can win this fight.

In Iraq, we have almost no real allies. The only groups that are still sympathetic towards Washington are the Kurds in the north and some Sunni factions that clearly do not like the prospect of being dominated by Iran backed Shias. But they are not going coalesce to wage a bloody fight aimed at kicking Iran out of Iraq. Impossible.

Can anything be salvaged?

So, there you have it. While this may be a bit oversimplified, the net result of the brilliant Washington plan hatched by President George W. Bush in early 2003 to engineer “regime change” in Baghdad is to have turned Iraq –at the time clearly an enemy of Iran– into a subsidiary of Tehran.

I have no idea as to what, if anything at all, may be salvageable at this stage. I suspect almost nothing, since Iraq’s politics and most of its military forces are dominated by our Iranian enemies.

The killing by a US airstrike at the Baghdad Airport of General Qassem Soleimani, the almost legendary head of the elite Iranian Quds force, is symbolically important; but it does not change the overall balance of forces in Iraq.

Of course, Soleimani will be immediately replaced, and the Iran-led anti-American campaign, in Iraq and everywhere else in the Middle East, if anything, will be intensified as a way to avenge this loss.

Unless President Trump just decided to have another Middle East War, with massive deployments of US forces in Iraq with the purpose of engaging and destroying all pro-Iranian militias, the killing of a major Iranian military leader will not change the overall picture –a picture that does not favor the US.

And, in case of a US escalation, we can rest assured that Iranian forces and their proxies will do their best to hit US targets and US allies anywhere they can. This will not be just about Iraq.




Europe’s Dreams

By Paolo von Schirach –

WASHINGTON – We heard from Ursula von der Leyen, the new President of the European Commission, that she will lead a “geopolitical” Commission. So, we are led to believe that, under her leadership, there will be deep thinking and strategizing about how to effectively combine the significant European economic, business, investments and military assets so that the EU will play a leading role on the world stage. From climate change to global development, international stability and cyber warfare, expect a cohesive, proactive Europe to be assertive and forceful when it will be necessary to foster stability and sustainability.

Big numbers hide structural weakness

Nice plan. Except that it is a total fantasy. The EU does not have and will not have the tools to become a dynamic force in world affairs. Sure, on the surface some EU numbers look very impressive. the EU total population is 512 million, much larger that America. If we put together the GDP of all its 27 members (UK on its way out) we get to about $ 19 trillion, almost the same as the US. If we combine defense spending of all EU Members we have the second largest defense budget in the world. And the EU is the largest foreign aid donor. Not to mention the clout of the EU in determining competition policy standards around the world, and a lot more.

So, a global force to be reckoned with? No, not really. The sad story about the EU is that these aggregate numbers are almost meaningless, simply because the EU, as conceived and currently structured, is unable to effectively combine the resources of all its members in order to obtain real synergies. And do not expect major institutional changes any time soon.

Dreams of a Federal Europe

Sadly, s strong Europe is destined to remain an unrealized dream. Right after WWII, there were a few fervent believers in a truly integrated new Europe that would have helped to eliminate the old intra-European rivalries, while redirecting the enormous potential of various European countries towards the goal of creating a new European Federal State. The European Federalist Movement led by Altiero Spinelli, and later on the Union of European Federalists, are the manifestations of this vision. However, these organizations never gained any real traction. They were and are essentially irrelevant.

EU is not a Federation

There is a European Union, of course; but it is not a Federal State, and it will never become one. Born out of the European Coal and Steel Community created in 1952 as a French olive branch to defeated Germany, the actual European project, (officially created in 1957, with the Treaties of Rome), went through many phases. It began as a European Common Market, then it developed into the European Community, and finally into the European Union. These name changes suggest an incremental integration process. And , in truth, there is more integration.

But Europe remains at its core an inter-governmental arrangement among sovereign states. Sure enough, a number of institutions have been created and nurtured, and all the EU Members agree to enforce EU norms and regulations on a large number of issues.

However, the qualitative step of merging all the Members States with the goal of creating a vibrant, unified European Federation was never taken, and I doubt that it will ever be taken. As a result, we have a hybrid. Certainly much more than a Free Trade Area, but a lot less than a real unified state.

A set of complex structures, laws and regulations

Over time, the EU created an extremely complex set of laws, rules and regulations enforced by a bureaucracy managed by Brussels based EU governing bodies. There is also a European Parliament that looks like a legislative body, however without the full sovereign powers of national parliaments. Some key EU states gave life to the Euro, the very successful European currency. And, of course, at the top of the pyramid, there is the EU executive body, the Commission, now presided over by Ms. von der Leyen. But the Commission President is not the elected Leader of Europe. She was nominated.

The Commission is led by a functionary

Therefore Ms. von der Leyen is not an elected political leader. She is a functionary. A very important functionary, with significant prerogatives, but still a functionary. The EU Commission enforces policy. Except for clearly designated areas, the EU carries out policy. It has no real, autonomous powers to make policy for Europe without the prior consent of the Member States.

No EU armed forces, no effective foreign policy

And this is only half the story. In order to affect global geopolitics, Europe should have credible tools. A critical one is a European foreign policy supported by real European armed forces.

Well, the EU has neither. Yes, it created the embryo of a foreign policy making body with a high official, (another appointed functionary), running it. But its discretionary powers are very limited. The EU can act in world affairs as one only if and when all the key Members agree on something. And this is very difficult, to put it mildly.

And when it comes to creating the backbone –that is real European armed forces– forget about it. There is nothing; and there will be nothing, except for high level commissions, studies and debates. And this is the case for various reasons. For a true European military force to be created, you would need as a foundation a robust political agreement among all EU Members on the size, purpose and command structure of such a force. And then Members would have to agree on an appropriate level of spending and how to pay for it.

Let NATO defend Europe

Politically, this is just too complicated. Besides, most EU Members are also NATO Members. Admittedly these days NATO’s purposes, force structure and capabilities are debatable. Still, NATO has the advantage of having been around since 1949. Whatever its shortcomings, it exists; while most European countries continue to believe that they are safe under what they would like to think is a still credible US security blanket.

Dreams and wishful thinking

So, here is the picture. In Europe dreams and fantasies abound, when it comes to a new, assertive EU role in the global arena. But there are no tools and therefore no real substance when it comes to the ability to play a credible, major role in world affairs. Ms. von der Leyen may talk about geopolitical goals for her Commission; but this is another instance of wishful thinking.




Cyber War Happening Now – We Are Not Ready

By Paolo von Schirach –

WASHINGTON – We are at war. Aggression which one day can take devastating dimensions is targeting America on a daily basis. I am talking about cyber warfare. Unfortunately, it is very hard to label cyber war as “war”, simply because it is vastly different from the “conventional war” we are used to study, discuss and prepare for.

Intellectual obstacles

Sadly, our ability to think intelligently and proactively about this potentially fatal form of aggression is seriously hampered by our old-fashioned categories. Much to our disadvantage, when it comes to warfare, we are still prisoners of largely obsolete concepts, scenarios, international law definitions, strategies and tactics that do not allow us to fully comprehend the extent of unconventional warfare, in particular cyber war.

The UN Charter allows self-defense

All students of international law know that Article 51 of the UN Charter clearly affirms the right of self-defense that can be exercised by any UN Member, irrespective of any action that may or may not be taken by the UN Security Council to deal with that specific breach to international peace. It sounds right. Self-defense is an inherent right of all sovereign nations. Except that Article 51 specifies that self-defense is justified “if an armed attack occurs”.

Armed attacks

And here –in this narrow and quite frankly obsolete definition– is our problem. This classic definition indicates that an illegitimate war of aggression has occurred if and when there is an “armed attack”. And we know what that is. This is Pearl Harbour. This is Nazi Germany moving into Poland on September 1, 1939. We picture armies shooting their way across internationally recognized, sovereign boundaries. We know a war of aggression when we see one.

Deliberate obfuscation in semi-conventional conflicts

But today we are confronted with a vastly different universe when it comes to warfare. Even when we are dealing with quasi-conventional conflicts, in recent years the lines have been deliberately blurred by bad actors who do their best to muddy the waters, with the goal of denying responsibility for their actions.

Indeed, Crimea was taken over in 2014 not by the Russian Army but by “Green Men” whose uniforms did not have any insignia. Likewise, officially no Russian forces are taking part in the bloody conflict in the Donbas region in eastern Ukraine. The Iranians have proxy forces in Iraq and Syria, trained and armed by them. But they are not technically part of the Iranian Army. And we could go on and on.

When there is no armed attack

While it is not that complicated to see through these disguises in semi-conventional conflicts, when it comes to cyber operations, cyber attacks, and cyber terror, we are in uncharted waters. To start with, it is often hard to determine that there was an attack, let alone who the attacker is. Whatever they are, these actions are not “armed attacks” as defined by Article 51 of the UN Charter, and as most practitioners think about acts of aggression.

We do not recognize cyber war as war

And here is our main problem. Our weakness as a society, and I suspect this includes key policy-makers, is that we have a psychological resistance in recognizing that cyber attacks are pure “acts of war”, simply because they do not look like the conventional aggressive military operations we are used to.

Furthermore, since cyber war is relatively new, we still do not have the intellectual and technical tools to fully comprehend the extent of this threat, and how devastating large scale cyber attacks could be. Are we talking about a few cyber probes here and there? Are we talking about discreet actions of cyber theft or cyber espionage? We know about all of them. But is this really war? Yes, it is.

Prepare for the worst scenario

And it will get worse. Count on it. There will be new, stealthy and deadly tools. It would be foolish, if not criminally negligent, not to think about all this and try to prepare for the absolute worst. I mean well coordinated cyber attacks that could cripple our country, (for instance, attacks that would completely and permanently disable our national power grid), without a single shot being fired by enemy forces.

Our problem

And here is our problem. Right now we are at the very beginning of a very dangerous new era in which cyber tools are used as weapons. To date, aggressive cyber capabilities are probably still relatively modest. But they will inevitably grow, along with the growth of cyber science and the numerous new applications that will be created. And the temptation to do bad things is very strong. Hostile forces can always hope to hide behind anonymity.

We sort of know all this. But in a rather nebulous way. Most of all, there is no real sense of urgency, most likely because these acts of aggression take place in this intangible cyber space, whose dimensions and relevance are generally unknown to most of us and that would include policy-makers who do not have the sophisticated technical background that would allow them to immediately grasp the dimensions of this ominous threat.

The challenge

So, here is our challenge. How do we mobilize all relevant policy and scientific resources against a war we are already involved in that does not look at all like the wars we are used to? How do we mobilize and sustain national efforts aimed at countering invisible cyber attacks that may soon be replaced by much bigger, perhaps fatal attacks?




US Kicks Gazprom In The Shin

By Paolo von Schirach –

WASHINGTON – It looks like a clever Washington move. The US Government just put on notice any company involved in laying pipes underwater that they should immediately stop work on the Gazprom Nord Stream 2 pipeline designed to deliver Russian gas to Northern Germany, and beyond via the Baltic Sea. If they do not stop, they will face US sanctions. Allseas, the Dutch-Swiss company directly involved in the Nord Stream 2 pipe-laying operations, immediately signaled that it would comply, in order to avoid US sanctions. Hence the halting of the pipeline project, just as it was close to completion.

Last minute effort to stop Nord Stream 2

Well, what’s this all about? This is about the American determination to prevent the completion of this Russian pipeline, even though Germany and many other EU countries openly want it, because Washington fears that Russian dominance of the European energy markets will give Moscow a dangerous degree of influence in European affairs.

Besides, for years Washington has been pointing out that this Nord Stream 2 pipeline has the clear geopolitical goal to divert to this new pipeline Russian gas now flowing to Eastern Europe via pipelines transiting through Ukraine. Upon completion of Nord Stream 2, the same Russian gas destined to European markets will no longer go to Eastern Europe via Ukraine. It will be shipped to Europe via Nord Stream 2. This way, with implicit European complicity, Russia will isolate Ukraine, while selling the same gas to its willing European customers.

The Europeans know what’s going on

Let me stress here that the Europeans (ostensibly our Allies) know very well that this is exactly what is going on. Russia wants to hit Ukraine and figured out a clever way to prevent it from collecting the transit fees for the Russian gas passing through it on its way to Eastern Europe and beyond.

But now America, with the threat of sanctions, stopped the whole thing. The Nord Stream 2 pipeline will not be completed; and the wily Russians got a bloody nose. Well, not really.

Nord Stream 2 will be done

Sure enough, this is a major inconvenience for Gazprom and Moscow that most likely will cause a significant delay and cost overruns for the mega-project now almost completed. But there is no doubt that in the end Nord Stream 2 will be done. Notwithstanding the aggravation and the additional costs, Russia seems to have the vessels that can step in and lay the pipes, so that the project will be finished, at some point.

Only a gesture

So, what is this fracas about sanctions all about? Quite frankly, at best, this is a gesture on the part of the US. I do not see much substance here. Frankly, it is odd for Washington to try to stop our fully consenting NATO allies, who really want this energy project with roguish Russia, (up to no good in Ukraine and elsewhere), simply because we say that it is bad for them.

The reality is that via these targeted sanctions the US can certainly delay this Nord Stream 2 project; but it cannot not stop it altogether. In the meantime, Europe sees us as bullies trying to impose our own views on them, while the EU and NATO countries engaged in this venture with Russia apparently see nothing wrong in doing business with Russia, while abetting its clear design to hurt Ukraine.

No unified view on energy policies within NATO

Sadly, the problem here is not about this ill-advised pipeline aimed primarily at hurting Ukraine. The problem is that the very existence of this project, with full European participation, (the Germans in the lead), illustrates the inability to have a cohesive, unified view of what constitutes a threat to European security, and more broadly to NATO.

An empty gesture that will drive the US and Europe further apart

This clever US move to stop the work on the pipeline looks to me like an empty gesture that at best will delay completion of this energy project. However, we can rest assured that this American blatant interference in a deal freely struck between our NATO Allies and Russia will only engender more anti-American animosities in Europe, and not the necessary reappraisal of what we, as NATO Alliance, consider to be a serious threat to our security when it comes to energy, or other critical areas.




Boeing Is In Serious Trouble

By Paolo von Schirach –

WASHINGTON – Boeing’s big troubles are not going away. At last, the Board got rid of Dennis Muilenburg, the CEO who seemed to personify the company’s ill advised self-assurance in the light of the seriously negative ripple effects caused by the two well-publicized crashes involving the 737 Max. But this “human sacrifice” seems to be too little, too late and it will not satisfy anybody. According to many, it seems that Boeing’s troubles run deep, way beyond the specific circumstances arising from technical malfunctions that seem to have caused the two crashes.

It seemed a manageable problem

At the beginning it seemed that we were dealing with a serious mechanical problem; but an isolated problem that affected one potentially defective system in one type of aircraft, the 737 Max. It was all about a software glitch that could trigger anomalous automatic adjustments in response to a sometimes defective sensor in the new 737 Max airplanes. Right after the crashes, Boeing’s reassuring reaction was that the problem had been identified and an adequate technical solution would be provided, in no time.

Because of Boeing’s reassurances, in the immediate aftermath of these accidents the accepted narrative was that, while these crashes were clearly bad news for Boeing, there would be an adequate fix which consisted in correcting the defect and then providing appropriate guidance and training to all pilots using the 737 Max around the world.

Most experts agreed that this fix should do it. Yes, Boeing had suffered a tremendous blow to its reputation and prestige as one of the two major civilian airplanes manufacturers in the world, (the other one being the European consortium Airbus); but, in time, it would be back to business as usual, and this stain would be forgotten.

Deeper issues

Well, without getting into the details, this relatively optimistic scenario did not and will materialize. And this is because these accidents triggered a stream of leaks followed by reluctant admissions on the part of Boeing that revealed how safety standards and protocols, testing of parts, cooperation between engineers and test pilots were not taking place according to the highest engineering and safety standards.

In other words, the picture that emerges, (although it may be exaggerated), is of a company that got so comfortable being number one in America and one of only two in the world that it allowed practices that were well below acceptable and agreed upon safety standards, al multiple levels.

Whatever we do must be good enough

In other words, we are getting a picture of a hubristic management whose main concern was to get products out of the factory as soon as possible, because the primary goal was to deliver airplanes as fast as possible to the customers, taking for granted that whatever safety standards the company was following, they had to be good enough.

FAA not yet convinced

Again, much of this is speculation; and it would be unfair to conclude that Boeing as a company was no longer concerned with high levels of safety. However, up to now the company has been unable to convince its US regulators, the Federal Aviation Administration (FAA), that it has made all the necessary fixes to the 737 Max and that it has implemented the highest quality safety protocols that will guarantee now and in the future safe airplanes, along with the best and most complete training programs for all pilots of all airlines, regardless of their nationality or seniority.

Indeed, as of today, there is no set date for the resolution of this gigantic problem. Without FAA certification the 737 Max cannot fly. Hundreds of airplanes produced by Boeing cannot be delivered to customers around the world. In fact, Boeing had to stop production of the 737 Max, since it has no idea as to when things will go back to “normal”, whatever thais means in these highly unusual circumstances.

Too big to do anything wrong?

I know that this is a bit of a stretch. But this level of corporate arrogance, if proven, makes me think of another major tragedy: the BP Deepwater Horizon explosion in the Gulf of Mexico in 2010 which resulted in the worst ecological disaster ever connected with oil exploration in the entire history of the US.

In that case, unsafe procedures were allowed which resulted in the explosion on the offshore platform, the loss of many lives, and the unprecedented ecological catastrophe that followed. Subsequent investigations revealed shoddy practices and lack of proper oversight. The difference is that BP, the oil company that ultimately got the blame, was not directly involved in the activities of its contractor; whereas here we are talking about Boeing’s internal procedures.

Still, it seems that being super big and successful allows smugness to ensue. You are so big and so strong that whatever you do, even when you cut some corners, must be right.

Leaks revealed serious issues

Well, tragically, it is not so. Even when you are number one, or perhaps because you are number one, safety and all proper procedures need to be strictly enforced. Belatedly, Boeing’s Board at last fired Dennis Muilenburg, the CEO who was in charge when the tragedies occurred and who has been saying ever since that everything would be in good order, in no time.

Unfortunately, while Muilenburg was trying to reassure shareholders and customers, all these revelations about relaxed procedures and lowered standards were leaked, this way causing serious additional damage to the company’s prestige and reputation. And so finally, as the CEO who seemed to personify a bad corporate culture, not to mention inadequate crisis management skills, he got fired.

FAA not reassured

But this is not nearly enough to reassure regulators, all the airlines domestic and foreign, that buy Boeing airplanes, and the flying public across the world.

Boeing’s number one objective must be to do whatever it takes to convincingly reassure all stakeholders that Boeing’s engineering and safety standards are second to none.

This may require extraordinary measures, such as hiring outsiders with a stellar reputation within the industry to go through all procedures and factory floor operations and certify them, or something like this. In other words, something really drastic must be done to recreate trust. Firing the CEO is just not enough.

Boeing is a national treasure

In the end, let’s look at the big picture. Let’s remember that Boeing is not just a big US company that makes civilian airliners, (ands a lot more, if we consider its space and defense divisions).

Boeing is an American national treasure.

It epitomizes the best of American innovation, technological prowess, ingenuity and complete dedication to quality by upholding the highest industry standards.

This was Boeing’s well deserved reputation until these two sad accidents and all the leaks and revelations that came out in their aftermath. Fairly or unfairly, Boeing’s reputation has suffered enormously. It is now up to its senior management to do their utmost to regain the confidence that has been compromised. Small fixes and reassuring press releases will not do it.




US Will Soon Be The Number One LNG Exporter

Paolo von Schirach –

WASHINGTON – Energyindepth, www.energyindepth.org recently stated that the world is witnessing a major energy supply revolution. The United States, until a few years ago destined to become a major natural gas importer, is now slated to become the world’s number one exporter of Liquefied Natural Gas, LNG.

New geopolitics of energy

The website made this point also quoting the Executive Director of the International Energy Agency, a Paris-based group of major energy consumers: “The growth of U.S. natural gas production – led by increased shale production – has been transformative, not only domestically but globally. And it’s only the beginning. As IEA Executive Director Fatih Birol recently said:

“The second wave of the U.S. shale revolution is coming. It will see the United States account for 70 percent of the rise in global oil production and some 75 percent of the expansion in LNG trade over the next five years.  This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy.”

US as LNG exports leader

While the US is now the world leading oil producer, let us focus here on the vastly increased American LNG export capacity. New US LNG terminals have been completed, and additional ones will come on line very soon. As a result the US, already the world number three LNG exporter, (behind Qatar and Australia), in a few years will become number one.

While this is good for business, it is obvious that this new role of America as key energy supplier will have important geopolitical implications, as this surge in LNG exports is not just a temporary phenomenon. Indeed, the undeniable fact is that the world will rely on large amounts of natural gas for decades to come.

The world will continue to rely on gas

Realistically, it is clear that notwithstanding pledges to cut down the use of fossil fuels in order to combat global warming there is no way to achieve a rapid shift to non-carbon energy sources within the foreseeable future. It is just technically impossible. And it is also clear that affordable natural gas, used largely as electric power generation feed stock, is and will be the fuel of choice for many energy poor countries. Besides, it pollutes a lot less than coal. Therefore, from an environmental protection perspective, it is the least damaging among the fossil fuels.

Taking all this into account, the world will continue to rely on natural gas as feed stock for electric power generation, heating, and much more for decades.

Vast geopolitical implications

Of course, this sustained demand for gas is about new or expanding markets for the US energy business. However, it is obvious that there are and there will also be significant geopolitical implications. Indeed, US growing LNG exports will be a factor in reshaping commercial and political relations with many Asian countries and Europe.

New markets in Asia

For example, India desperately needs additional energy supplies for its energy starved population, now exceeding 1.3 billion. When it comes to electric power generation, India still largely relies on dirty coal, with horrible environmental repercussions in terms of staggering air pollution levels in most large urban areas. Switching over to natural gas is a necessity for India. The availability of increasing amounts of US LNG will make this transition away from coal a bit easier; while a new, robust energy trade will strengthen overall ties. Likewise, Japan and South Korea, traditional US allies and always net energy importers, also need gas. The opportunity to buy additional quantities of US LNG will strengthen the bonds with these two key Asian countries.

Of course, energy poor China could also be a major buyer of US LNG. But the political relationship between the US and China is bad, and not destined to improve any time soon. Therefore do not expect China to be a major buyer of US LNG. (China is focusing now on a significant increase of imported Russian gas, via new pipelines).

More LNG to Europe will counter Russian dominance

Another important market for US LNG will be Europe. All projections indicate that natural gas consumption in Europe will stay flat. However, European sources of natural gas (originating from Norway and The Netherlands), are dwindling, while much of Europe relies heavily on imported Russian natural gas supplied via a variety of pipelines, old (via Ukraine) and new (via the Baltic Sea). Some European countries see no problem in this significant energy dependence on Russia, while others feel uneasy, given the history of Russian meddling in Eastern Europe and beyond.

Given these geopolitical concerns, some European countries, most notably Poland and the Baltic States, look very favorably at the opportunity to diversify their natural gas imports by increasing US LNG purchases. For the time being, US LNG exports to Europe are modest, and so they do not shift the overall pattern of large purchases from Russia.

New flexibility

However, the very fact that several European buyers of Russian gas now have a new purchasing option –US LNG– that simply did not exist until a few years ago, gave flexibility and better bargaining power to the Europeans. As a result, Russia in many instances was forced to lower its prices, as a way to fend off US LNG competition. Going forward, as US LNG export capacity increases and the price differential between LNG and Russian piped gas shrinks, expect additional European purchases of US LNG.

Increased US influence around the world

All in all, the fact that the United States already is today –and will be even more so in the years to come– the leading, dependable exporter of liquefied natural gas, a vital, relatively clean, energy source, will increase American influence around the world, and will help strengthen political ties with key countries in Asia and in Europe.

Yankee Ingenuity

Not so bad overall, considering that this US natural gas (and oil) revolution originated out of the dogged persistence of a small band of American “frackers” who believed that oil and gas could be profitably extracted from shale formations, when all the energy experts and the big energy companies stated that it was absolutely impossible.

Three Cheers for Yankee Ingenuity!




The Fake Aramco IPO

By Paolo von Schirach

WASHINGTON – There were great expectations about the Aramco IPO. It was announced long ago by Saudi authorities, and then postponed several times. Well, now we know why it took so long, and why in the end the IPO did not take place in New York or London. Indeed, the Saudi government, the sole owner of this energy giant, could not be sure about the response of savvy international investors. Would they really buy shares at a price that implies an overall $ 2 trillion valuation for Aramco? May be not. And so the Saudis decided to play it safe. They would do this at home, in an environment and with investors they could control. And so they used the Riyadh Tadawul stock exchange (where less than 200 stocks are traded) as the venue for this “historic” IPO.

Home made IPO

And, sure enough, the compliant, super wealthy Saudi elites bought the Aramco shares at the set price and bid up the stock so that Aramco would reach the $ 2 trillion valuation This choice of venue and how all this was arranged tells us that this is is no genuine IPO.

This is a (forced?) purchase, at a preset, dubious valuation of a very small number of Aramco shares by a few wealthy Saudis and some Saudi companies. Prince Mohammad Bin Sultan, MBS, the de facto ruler of Saudi Arabia, wanted the valuation of Aramco –no doubt the world’s largest energy conglomerate– to be at or close to $ 2 trillion. And so the shares had to be priced accordingly, and the compliant buyers –all of them Saudis– had to pay and sustain that price.

Not the real thing

Anyway, because of all this maneuvering, it is clear that this is not a genuine IPO in which the market eventually sets the value of the newly offered company based on available, scrutinized financial data and on their interpretation of market trends.

This IPO is a Saudi government gimmick aimed at getting essentially free cash in exchange for a tiny sliver of Aramco for which several compliant Saudi buyers paid a preset political (and therefore most likely inflated) price.

The risks involved in a real IPO

If Saudi Arabia had wanted to attract serious international buyers, it would have had to disclose a lot more, and then let the market decide what the value of Aramco really is. But this orthodox approach carried the risk of a lower overall valuation for Aramco after the IPO, had investors decided that the company, however enormous and certainly very valuable, is not worth $ 2 trillion. And this would have hurt the prestige of the Saudi Kingdom. For Saudi Arabia, Aramco is “it”. There is not much else in the Kingdom beyond oil and oil products.

Cognizant of these risks, MBS opted for a safe IPO. The offering took place at home, in Saudi Arabia, using the tiny Saudi stock exchange. The Saudi elites were persuaded (forced?) to buy the Aramco shares, so that the government could prove to the world that Aramco is the most valuable company on earth. In other words, this is about propaganda, and therefore the IPO is not serious.

What is Aramco’s true market value?

There is no doubt that Aramco is an energy giant. In fact, “the” energy giant. But, based on all we know about the company and most importantly about the future of global oil demand and oil prices in this new era of electric vehicles and carbon taxes, what is a fair valuation for Aramco? Is it close to to $ 2 trillion as the “local buyers only” IPO would suggest? Or is it less, perhaps half of that, as many analysts indicated? We did not know for sure before this IPO, and we still do not know today.

Clearly, executing a proper IPO in an internationally recognized exchange would have exposed the Saudi government to the scrutiny of international investors, and therefore a possible embarrassment, had investors decided that the shares were too expensive and consequently the touted $ 2 trillion pre IPO valuation excessive. In order to guarantee a “success” MBS engineered this “friends and family only” IPO.

Big questions about the Saudi reform agenda

That said, one thing is clear. If the manner in which this long delayed IPO took place is illustrative of the seriousness of MBS’ ambitious economic reform agenda for Saudi Arabia, I am not impressed; and consequently not very optimistic about the future success of MBS’ plans to diversify and grow the non-oil Saudi economy.




Thanks to Fracking, No Panic in the US After The Attacks on Saudi Oil

by Paolo von Schirach –

WASHINGTON – The most astonishing consequence of the unprecedented, devastating attack on Saudi Arabia which crippled the Kingdom’s oil production and refining facilities is what did not happen, especially in the USA.

There was no panic in the US or worldwide; no skyrocketing, out of control oil prices. Yes, crude prices went up, significantly; but not in a dramatic way, if you consider that the supplies of Saudi Arabia, the leading world exporter, (along with Russia), have just been cut down by 50%! That 50% represents 5% of total world supply. In an environment where strong demand matched tight supply, this sudden shortfall would be a disaster, especially for the US, along with China the leading oil consumer. But right now world oil supplies are not stretched, notwithstanding steady demand, thanks to the US fracking revolution which added millions of barrels of oil a day to global energy markets. More on this in a moment.

Surprise but no shock

Obviously, world markets took this unexpected and sadly successful attack against well defended (we all thought) and vitally important Saudi oil facilities quite seriously. But again, there was no panic; no stock market crazy gyrations. In contrast, you can rest assured that if the very same attack on Saudi Arabia had taken place 10 or 15 years ago, the reaction would have been chaos and mayhem –especially in Washington, DC and on Wall Street. Similar shortfalls caused the oil crises of 1973-74 and 1979.

What happened in the last 15 years?

So, what is the difference between now and then? The difference is the US fracking revolution. The almost unthinkable surge in US oil and gas production made possible by the adoption of fracking technologies by many US energy companies , (a successful combination of hydraulic fracturing and horizontal drilling), which began 10 to 15 years ago has given the United States millions of additional barrels of oil a day; and, as a consequence, also a much higher degree of energy self-sufficiency. Not total self-sufficiency, mind you, but close. Heavy reliance on distant (and it turns out not so reliable) oil suppliers was drastically diminished along with massive increases in domestic oil production. 

The broader impact of the US fracking
revolution

This gigantic increase in domestic oil and gas production made possible by extracting oil and gas from shale formations, coupled with increased oil imports from Canada, a friendly neighbor, have created a new scenario of quasi “Hemispheric Energy Independence”. In simple terms, North America, (Canada, USA and Mexico combined), can soon become energy self-sufficient.

Let’s be clear, we are not there yet. But we are almost there. The US still imports some OPEC oil, as well as crude from other regions of the world, but most of the oil we consume now in America is either domestically produced or imported from reliable neighbors.

Relaxed atmosphere

Hence the relatively relaxed atmosphere both in Washington and on Wall Street, in the aftermath of the attack on Saudi oil facilities, when it comes to confidence in our ability to ensure continuity of energy supplies to industry and consumers.

Notwithstanding the shockingly bad news of the brazen attacks that knocked down half of Saudi Arabia’s oil production and refining facilities, with the ensuing cuts in global supplies, there is no panic in America.

This is an incredibly important achievement. And we owe this to a multitude of small, medium and some large fracking companies that are behind this American energy revolution.

Global benefits

And the fracking revolution obviously benefits the rest of the world as well. Since America’s imports have been cut down by millions of barrels a day, there is more oil in the global market place available to all other importers. Abundant supply means lower energy prices for all, ample reserves, and (almost) guaranteed deliveries to all importers.

So, here is the story. Thanks to fracking and massively increased US oil production, even an unprecedented, catastrophic event like the attack on Saudi oil facilities can be handled without resorting to extraordinary measures such as price controls, rationing, etc.

A private sector effort

Where am I going with all this? Very simple. Fracking was not a US government program. Fracking is all about old fashioned Yankee ingenuity. The US private sector, often small energy entrepreneurs, largely unhindered by suffocating state or federal rules and restrictions, had the freedom to invest in drilling in shale –an endeavor what at the beginning seemed to most experts a perfectly crazy idea, destined to failure.

Well, the seasoned experts were wrong. After a few years of trial and error, the daring energy entrepreneurs were proven right, and America now –thanks to fracking—is in the midst of this incredible “Energy Renaissance”. This huge additional domestic production, in this moment of international bewilderment caused by the brazen attacks on Saudi oil facilities, provides precious support and reassurance to both the US economy and US national security.

Broader lesson: encourage free enterprise

So, here is the broader lesson. As a Nation, let us do all we can to encourage more innovation and entrepreneurship –in all sectors. Do not place roadblocks on the path of those who seek to create new products, new systems and new solutions. And I am not just talking about energy here. I am talking about all economic sectors.

Sure, all
economic activities have to be conducted within the boundaries of the law,
while they have to comply with all necessary safety and public health
standards. These are the common sense rules of a modern, civilized society.
But, once reassured that there is genuine compliance with the basic norms of
our nation, let people be free to do what they want to do.

In the case of fracking we see the enormous economic and now national security benefits brought about by daring spirits, ingenuity and enterprise. About other economic sectors, God only knows what new benefits commercially viable innovation may bring to us.