Tag Archives: oil

Oil, Terror, and Economic Development in Nigeria

This week marks the first 100 days in office for Nigeria’s President, Muhammadu Buhari. Buhari’s election in May marked a fundamental turning point in Nigeria’s conflicted political history. Buhari first assumed political power through a military coup in 1983. But he later resigned and political power transitioned to an elected president. Buhari unsuccessfully ran for the elected office in 2003, 2007, and 2011. Earlier this year he campaigned again for the position and won the popular vote, marking the first time in Nigerian history that an incumbent president lost the office through a popular vote.

Buhari’s presidential campaign centered on three main pillars: defeating the Boko Haram terrorist group that occupied much of the northern part of the country, fighting the rampant corruption that plagues Nigeria, and spurring economic growth. How has he done? Boko Haram has been dispelled from much of the territory it held in northern Nigeria but remains a threat. Corruption remains rampant. And economic growth in Nigeria has been undermined by falling global oil prices.

What do you think? Can Buhari spur economic growth in Nigeria? How? What would you counsel him to do if you were his political and economic adviser?

Advertisements

Price Controls, Trade Restrictions, and Global Competition

Venezuela’s economy has been hit hard in recent years by the sharp decline in global oil prices. According to OPEC, oil accounts for about 95 percent of all of Venezuela’s export earnings and about a quarter of its total gross domestic product. Declining oil revenue has sparked an economic crisis in the country, leading to anti-government protests. In an effort to stem discontent, the government has imposed currency controls and limited the prices of key consumer goods—all in an effort to stabilize the economy and limit inflation estimated at about 60 percent.

But broad economic policies are felt on the ground as shortages of key commodities and long lines for basic supermarket goods. The unintended consequence of price controls combined with high inflation has led to shortages and hoarding. Meanwhile, the government of Venezuela asserts that the country’s economic collapse has been driven by US efforts to destabilize the regime, once seen as an alternative to American influence in the region.

What do you think? What was the primary cause of the crisis? What balance of international and domestic factors explain the crisis? How might Venezuela address its ongoing economic crisis? And how might it be resolved?

The Declining Dollar and the Rise of American Jobs

Blogging over at The Daily Beast, Simon Johnson offers an interesting take on the recent but steady decline in the value of the U.S. dollar. Gold prices reached record levels yesterday, as the U.S. dollar continued its six month decline against most major international currencies. The dollar is currently trading at near-record lows against the euro and the yen. And according to a story by Robert Fisk in Tuesday’s Independent,

Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

This comes on the heels of discussions within the Chinese government to diversify its currency reserves, potentially replacing the dollar as the global reserve currency with a basket of currencies.

If true, such moves could have dramatic implications for the U.S. economy. The dollar has been the de facto reserve currency for the world since the end of World War II. And oil is the most widely traded commodity in the world, and the global oil trade provides a significant level of demand for U.S. dollars.

Most economists suggest that a shift will occur, but that it will be a gradual change rather than a sudden shift. Indeed, as former U.S. Trade Representative and current President of the World Bank, Robert Zoellick conceded ahead of World Bank meetings in Istanbul last week, “One of the legacies of this crisis may be a recognition of changed economic power relations.”

Still, Simon Johnson suggests that the current decline in the value of the dollar may not be anything to worry about. Indeed, he suggests that it may be part of a deliberate strategy by the Obama administration to improve the economic outlook in the United States ahead of 2010 Congressional elections. A weak dollar has historically been viewed as good for manufacturing but bad for the financial sector. Given that inflation is a major concern currently, the reason for a strong dollar appear less compelling. Johnson writes,

think what a weaker dollar does for the industrial heartland, where so many congressional seats will be in play and where today it’s easier to export or compete against imports because the same dollar costs convert into fewer euros, yen, or renminbi (this is what a “weaker” dollar means—foreigners can more easily afford our goods and their stuff is more expensive to us). If the dollar stays weak or declines further, our car companies, machinery makers, and turbine blade manufacturers will soon be rehiring and we’ll finally get some job growth as part of our sputtering economic recovery.

Certainly a new spin on an old debate.

Five Stories You Might Have Missed

President Barack Obama has been busy on the diplomatic front this week. On Thursday, Obama announced his administration would cancel President George Bush’s proposed deployment of a missile defense system to Eastern Europe.  The missile defense system would have involved deployment of radar systems to Poland and the Czech Republic, a move which the Russian government insisted undermined its own national security and necessitated the expansion of its missile systems into Eastern Europe. Although the Russian government denied there was a quid-pro-quo agreement for the U.S. move, the Obama administration is hoping that the change in U.S. policy will help improve relations with Russia and lead to greater cooperation in other areas, including addressing the situation in Iran. However, Russian Prime Minister Vladimir Putin responded to the announcement with a demand for greater U.S. concessions, including support for Russian membership in the World Trade Organization, leading some analysts to speculate that the United States had miscalculated if it believed that its policy change in missile defense would result in a dramatic shift in Russian policy.

On Saturday, the White House announced that President Obama would hold a joint meeting with Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abba on Tuesday. Obama hopes that the meeting will restart peace talks, which reached an impasse last year. U.S. Special Envoy for the Middle East, George Mitchell, has been engaged in shuttle diplomacy to address the stalled talks for more than a week, but Netanyahu remains under domestic political pressure not to make any concessions on the expansion of Israeli settlement activity in the West Bank, a key obstacle for the Palestinians.

In other news from the past week:

1. Last week’s meeting of the Central Committee of the Chinese Communist Party raised questions about who will succeed Hu Jintao as the country’s leader. Most analysts had believed that Vice President Xi Jinping was Hu’s heir apparent, poised to take control of the party (and the country) after Hu steps down in 2012. When Xi was named to the Politburo in 2009, it was assumed that his elevation would follow the same path as Hu’s. Hu’s political power rests in his control of three offices: Secretary General of the Communist Party, President of China, and Chairman of the Central Military Commission. Xi was expected to be nominated to succeed Hu as Chairman of the Central Military Commission on Friday, but no announcement from the Central Committee was forthcoming. Although some analysts believe that Xi’s appointment may be announced at a later date, others believe that Hu may be trying to retain control of key positions, including head of the military, after his 2012 retirement.

2. Efforts to resolve the political crisis in Afghanistan continued over the weekend, as closed-door meetings between foreign envoys, opposition leaders, and representatives of President Hamid Karzai discussed the future of the country. Although President Karzai was declared the winner of last month’s presidential elections by the Afghan elections commission, most observers believe that the vote was badly flawed, with the European Union suggesting that as many as 1 million of Karzai’s votes (which would represent more than ¼ of all votes cast in the election) should be viewed as suspect. Seeking to address the political standoff, the West is pushing for a power-sharing agreement in Afghanistan that would see Karzai claim the presidency but would considerably weaken the office, transferring significant political authority to appointed technocrats.

3. On Thursday, Islamic insurgents launched a suicide bomb attack against African Union peacekeeping forces in Somalia, in a move retaliating against a U.S. strike that killed Saleh Ali Saleh Nebhan, a suspected al-Qaeda leader. The African Union force, comprised primarily of Ugandan and Burundian soldiers, remains understaffed despite being responsible for addressing the threat posed by Islamic radicals intent on toppling the fragile government.

4. The government of Venezuela has been busy courting foreign assistance in developing its oil production facilities. The Venezulan government last week announced the discovery of a “very large” pocket of natural gas offshore, following a similar announcement by the government of Brazil. The Venezulean government announced that it had signed a $20 billion deal with the Russian government and a $16 billion with the Chinese government to expand oil production in the country by as much as 1.35 million barrels per day.

5. The campaign around the Irish ratification vote on the Treaty of Lisbon, scheduled for October 2, has entered full swing. Charlie McCreevy, Ireland’s European Commissioner, delivered a strongly-worded speech to the business community in Dublin suggesting that “international investors would take flight” from the country if it rejected the Treaty. The Treaty, viewed as vital to the continued growth and expansion of the European Union, was rejected by Irish voters in 2008, sparking a furious round of diplomacy to get the Treaty passed. But many observers are forecasting another no vote by Ireland in October could lead to the defeat of the Treaty in other Euroskeptic countries, including Poland and the Czech Republic.

Five Stories You Might Have Missed

The major news story this week was the nomination of Sonia Sotomayor to replace David Souter on the U.S. Supreme Court. If confirmed by the Senate, Sotomayor would be the first Hispanic and only the third woman appointed to the highest court in the United States. Politically, Sotomayor’s nomination was a brilliant move on the part of the Obama administration. While President Obama did not take advantage of the opportunity to appoint a liberal counter-weight to the conservative ideologues of Justice Antonin Scalia, the President did manage to force Republicans into a difficult spot. Republicans had been gearing up for a protracted fight against any Obama nomination as a way to mobilize their softening political base and increase fundraising in anticipation of next year’s Congressional elections. But in nominating Sotomayor, Obama forces Republicans to balance their desire to mobilize their base against their need to expand the base of the party to include the country’s largest and fastest growing minority group.

In news from outside Washington DC last week:

1. The United States is still struggling to figure out how to deal with the challenges posed by North Korea’s increasingly belligerent policy stance. Over the past two weeks, North Korea has engaged in a nuclear warhead test (on Monday) and several missile test fire operations. While the United States has officially downplayed the situation, describing North Korea’s actions as “nothing out of the ordinary” and dismissing it as mere “posturing,” it has discussed the need for a tougher approach. Meanwhile, the United Nations Security Council seems unlikely to moved on fresh sanctions against the North Korean regime.

2. After a week of intense fighting, the Pakistani military has regained control of Mingora, the main town in the disputed Swat valley. The government of Pakistan has been fighting against Taliban militants, who have turned to terrorist  bombings in their fight against the Pakistani government. On Thursday, for example, four bombs exploded in Peshawar, a city in north-west Pakistan. Observers are speculating that the Pakistani government may turn its attention to the Waziristan region along the Afghanistan border once operations in the Swat valley are completed. But the ability of the Pakistani government to continue to exercise sovereignty over the border regions will depend on its ability to establish governmental institutions and expand the reach of the country’s central institutions into the border regions—something the central government has not been able to do so far.

3. Political tensions within the Palestinian Authority intensified on Sunday after forces loyal to Palestinian President Mahmoud Abbas (from the Palestinian Liberation Organization faction) raided a safe house belonging to Hamas, the other party in government. The clash–the bloodiest since the Abbas government revived peace talks with Israel in 2007, resulted in six deaths, including two high-ranking Hamas officials. The attack came just four days after Abbas met with President Barack Obama in Washington, DC. Obama encouraged Abbas to improve his efforts to fulfill his obligations under the road map for peace, including maintaining law and order in the West Bank. Observers believe this attack was part of that effort, intended to demonstrate to the United States that the Palestinian Authority is following through on its promises.

4. Fighting in the Niger River Delta region continued over the past week, as the government of Nigeria continued its attacks on militants in the region. The government is hoping to reopen oil wells in the Ogoniland region. But observers fear that the government’s increasingly militarized efforts to address the crisis may backfire. Groups in the Niger Delta region claim that they have received few benefits from the country’s oil wealth, suffering from severe environmental degradation and severe human rights violations resulting from oil production, but seeing little benefit from the industry. Militants in the region have already launched attacks against some oil production facilities, hoping to cut off production and increase the cost of operating. Activists in the United States have taken a different approach, attempting to sue in U.S. courts the multinational oil giant Royal Dutch Shell for their alleged involvement in the death of Ken Saro-Wiwa and other human rights activists in the region.

5. Oil prices reached a six-month high on Friday, trading at $66 per barrel. OPEC is projecting that oil should reach $70-$75 per barrel by the end of the year. While the fighting in the Niger Delta region certainly contributed to increasing prices, observers also believe that speculators are coming back into commodities markers, leading to price increases. In a move certainly linked to the higher prices, the government of Brazil announced that it would reopen its vast offshore oil fields to international bidders. Meanwhile, the oil giant Chevron is being sued in Ecuadorian courts, facing damage liabilities as high as $27 billion for alleged damage to the environment and human health caused by their operations in the country.

Five Stories You Might Have Missed

It’s been a relatively quiet week in domestic U.S. politics. Congress continues to spar over the Pelosi-CIA briefing debate, and observers continue to speculate about who President Barack Obama might nominate to replace Justice David Souter in the U.S. Supreme Court. Congress also moved forward with passage of a cap-and-trade system to address greenhouse gas emissions (though the legislation still has a long way to go before it becomes law). The most interesting story of the week came on Wednesday, when former Vice President Dick Cheney and President Obama gave “dueling speeches” on the topic of torture and U.S. national security.

But while it was relatively quiet in the United States, it was a busy week globally. Here are five stories you might have missed:

1. The campaign for elections to the European Parliament, scheduled for June 4, are beginning to heat up. The European Parliament is selected on the basis of nation-wide proportional representation elections, which means that national politics often play out in interesting ways at the European-wide level. Thus, observers are looking to the results of the election in the U.K. as a forecast for Gordon Brown’s political future, which has been challenged in recent weeks by the ongoing corruption scandal. In Italy, the vote is being cast as a referendum on Silvio Berlusconi’s aggressive anti-immigration platform. And in France, the campaign is centering on the question of Turkish membership in the European Union.

2. The German presidential elections took place on Saturday, with incumbent president Horst Köhler narrowly winning re-election and handing Chancellor Angela Merkel a symbolic victory ahead of her own re-election campaign. The German presidency is elected by the upper house of the country’s parliament. The position has little real authority, with executive power being vested in the office of the chancellor. However, a challenge from Merkel’s coalition partners threatened to see Köhler defeated, creating a political challenge just four months from the country’s next general election.

3. A trade agreement currently being negotiated between China and Brazil aims to see the countries use their own currencies rather than U.S. dollars in transactions. The move, seen as part of China’s broader strategy of moving the U.S. dollar out of its status as the global reserve currency, expands on a previous currency swap agreement between the two countries. In separate negotiations, China agreed to expand imports of Brazilian chicken and beef and to provide up to U.S. $10 billion to Brazil’s government-controlled oil company in exchange for guaranteed oil supplies over the next decade. China overtook the United States as Brazil’s largest trading partner earlier this year. 

4. The government of Nigeria launched a new military offensive in the Niger River Delta last week, hoping to defeat armed opposition forces in the area. The move marks a decisive shift in the politics of the delta. The previous Nigerian administration had opted for a more diplomatic approach, emphasizing negotiations with the Movement for the Emancipation of the Niger Delta, an umbrella group emphasizing autonomy for the Warri region. According to observers, however, the new Nigerian government headed by Umaru Yar’Adua is opting for a military-based approach to the crisis. The oil-rich region houses operations by leading international oil companies, including Royal Dutch Shell, ExxonMobil, and Total. The conflict has led to a sharp decline in Nigerian oil exports, and observers fear that this may lead to a spike in global oil prices.

5. Former South Korean President Roh Moo-hyun committed suicide on Saturday. Roh rose to power as a human rights lawyer representing student and union activist in the struggle against the country’s military government in the 1980s. He was elected president in 2003 on a strong anti-corruption and political reform platform, earning him the nickname “Mr. Clean.” However, after his party suffered a series of electoral defeats, he resigned from office in 2008. Shortly after Roh’s resignation, accusations of corruption in his administration began to surface, including charges that a South Korean tycoon paid his wife $1 million while another family member received $5 million from the same tycoon. Roh killed himself after losing face as a result of the scandal. However, such accusations have not been uncommon in South Korean presidential politics, and two of the four presidents who preceded Roh have been jailed on similar charges. Nevertheless, observers fear that Roh’s suicide may increase political tensions in South Korea.

Five Stories You Might Have Missed

It’s been a week of surprises by the Obama administration. On Saturday, President Barack Obama nominated Jon Huntsman to be the next U.S. ambassador to China. Huntsman was a surprising pick. With his experience as U.S. ambassador to Singapore, his previous tenure as deputy U.S. trade representative and as deputy assistant secretary of commerce, and his fluency in Mandarin, Huntsman appears to be a solid pick. However, Huntsman is a Republican currently serving as governor of Utah, and has widely been viewed as a potential Republican candidate for the presidency in 2012. Obama last week also reversed his previous position in two controversial areas. First, on Friday, Obama announced the U.S. government would revive the military tribunals created by the Bush administration but suspended by Obama in January to try some 20 prisoners currently held at Guantánamo Bay.  Obama also changed position on the release of hundreds of photograps showing U.S. soldiers abusing detainees. Obama had previously promised to release such photos, but on Wednesday said that their release would “not add any additional benefit to our understanding of what was carried out in the past by a small number of individuals” but would further enflame anti-American opinion and…put our troops in further danger.” The reversal was criticized by the American left, and even managed to draw a response from Jon Stewart’s Daily Show.  
 
In other news from the last week:

1. The Congress Party won a decisive victory over its rival Bharatiya Janata Party (BJP) in India’s nation-wide elections Saturday. According to most observers, the election gives the Congress-led United Progressive Alliance, a coalition of center-left parties, a mandate to push ahead with a series of economic reform. Because most Pakistianis view Congress as less hawkish than the Hindu nationalist BJP, the election could also provide an opportunity to improve relations with Pakistan, which have been strained since the terrorist attacks on the Indian city of Mumbai six months ago.

2. Parliamentary elections in Kuwait were also completed on Saturday. The country has been paralyzed by a standoff between conservative Islamists in the parliament and the government which wants to move forward with economic reforms. Kuwaiti elections are unusual insofar as there are no political parties; candidates run as individuals without formal political affiliations. Historically, the parliament has been dominated by religious figures and tribal authorities who oppose the power of the central government. Kuwait formally extended the right to vote to women in 2005, and analysts had hoped that the expansion of the franchise might moderate the parliament. But while women were elected to the national parliament for the first time in the country’s history—some sixteen of the 210 candidates for the 50 seat-assembly were women; and two women were actually elected into the parliament—the overall composition of the parliament changed little. Analysts now fear that the standoff between the government and the parliament will continue into the next legislative term.

3. A political scandal rocked Gordon Brown’s ruling Labour Party in the United Kingdom last week. On Saturday, Labour suspended MP David Chaytor after it was revealed that he claimed £13,000 of taxpayers’ money for a mortgage he had already paid off. Chaytor was the second Labour MP suspended due to allegations of misuse of taxpayer funds. The scandal has also claimed one junior minister, Shahid Malik, who is being investigated by the parliamentary oversight committee for accusations that he violated the ministerial code. David Cameron, leader of the opposition Conservative Party, has tried to seize the initiative, accusing the government of failing to provide sufficient oversight. But with members of his own party also accused of wrongdoing, some analysts believe the only real winners in the scandal are likely to be left-wing Liberal Democrats and the far-right British National Party, neither of which have been implicated in the scandal. With local and euro-elections scheduled for June 4, voters will not have long to wait to express their frustrations.

4. The fuel shortage in Nigeria—one of the world’s leading oil exporters—appears to be drawing to a close. A standoff between Nigeria’s president, Umaru Yar’Adua, and a group of powerful Nigerian business interests had led fuel importers to cut off supplies to the country. Fuel importers receive extensive subsidies from the Nigerian government to keep domestic fuel prices artificially low. However, as the subsidies have become increasingly expensive, the government sought to reduce their levels, sparking a confrontation with fuel importers, who receive approximately $5.5 billion per year from the subsidies. The Nigerian oil industry is the primary source of foreign exchange for the country, but has also been a source of considerable controversy.

5. After announcing plans to seize more than 60 oil-servicing companies last week, Venezuelan President Hugo Chávez continued his efforts to nationalize the country’s food industry last week. On Thursday, Chávez announced that the government would seize control of a pasta factory owned by the U.S. food producer Cargill. In March, the government seized a rice mill owned by Cargill, a Coca-Cola plant, and several other food factories. The government accused the companies of violating price controls aimed at controlling inflation and maintaining a sufficient national food supply. Cargill owns another 22 plants around the country, and the Chávez government warned the country that it could see further nationalizations within 90 days if it continued its “marked non-compliance with the law.” Venezuela currently suffers inflation of almost 30 percent and shortages of key staple foods are becoming increasingly common.

And in a bonus follow-up story this week:

6. Concerns over the H1N1 (swine flu) epidemic appear to be waning, but several important stories nevertheless emerged last week in the wake of the crisis. First, the Mexican tourism industry is trying to encourage visitors to return to Mexico. Concerns over visiting Mexico, the epicenter of the outbreak, had led to a collapse of tourism in the country. The resort destination of Cancún, for example, is losing an estimated $6 million per day as a result of the downturn. To counter the decline, some Mexican resort destinations are now offering flu-free guarantees to lure back visitors.

And even more importantly, the H1N1 outbreak has also rekindled debates over the tradeoffs between intellectual property rights and the right to access essential medicines. The pharmaceutical giant Roche, manufacturer of the Tamiflu antiviral flu drug, has agreed to increase production. Roche currently sells Tamiflu for €12 ($16.30) per treatment for developing countries and€15 in developed countries. However, developing countries have been pushing the World Health Organization (WHO) to classify Tamiflu as an essential medicine, a move which would bypass Roche’s intellectual property claims and allow generic production to address public health concerns in the global South. Roche maintains that it can provide sufficient stockpiles of the drug to make such a move unnecessary. While the WHO has not yet issued its opinion, a leading Indian pharmaceutical company is nevertheless planning on moving forward with its plans to produce a cheap generic version of the patented Tamiflu drug, which its says it can sell for less than half the cost of the patented brand.