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Archive for April, 2011

Well, I guess I wondered right. (See my post What if the West Doesn’t do Enough?)

In less than a week it appears that NATO has again inadvertently targeted rebel soldiers from the air, this time killing at least five and wounding 10 others, according to Al Jazeera. Friendly fire happens, unfortunately, and it has led to outcries of blame from the anti-Qaddafi fighters. Abdel-Hafidh Ghoga, the vice-chairman of the Libyan National Provisional Council, has urged that NATO do much more and recently even called NATO a “burden.” According to an Al Jazeera reporter, “There is obviously agreement here among the opposition that if more military gains are to be made, international forces must step up their operations.”

A story in today’s Washington Post quoted a Libyan doctor:

“The last time it was a mistake. But today, they knew it was us, and they shot us,” said Mohammed Ahmed, a doctor at the hospital in Ajdabiya, northeast of Brega.

“We don’t need NATO anymore. They don’t help us,” Ahmed said. “Every time they promise to help us, they shoot us.”

A young fighter was quoted as saying, “NATO is not with us. NATO is cheating us.” The Washington Post reporter also noted that tensions were growing among NATO and the rebellion, with the latter accusing the alliance of failing to carry out much needed attacks against Qaddafi forces. The Associated Press heard fighters chanting, “Down with NATO!”

As I wondered back on March 29, what if the West’s intentions didn’t match Libyan and Arab expectations? Apparently, the stone-cold reality is that they don’t match at all. So, where does that put us? According to Gen. Ham, a stalemate is looking more and more likely. I’m not sure what happens now, but I think where we are now was highly predictable. Stay tuned for unintended consequences.

Update, April 8: From the Associated Press…

“The strikes, including an attack earlier this week, provoked angry denunciations of NATO by the rebels. At the same time, NATO officials have expressed frustration with the Libyan insurgents, who now view the alliance, whose mandate is limited to protecting civilians in Libya, as their proxy air force.”

Yep, I think that about sums things up.

*****

Though I try to be somewhat balanced, I ran across an article yesterday that I believe everyone should read. I think it’s a very good piece…the title says it all: The Problem with Humanitarian Wars

Leslie Gelb has also written some excellent pieces arguing against humanitarian interventions. See here.

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In an interview with the Financial Times last June, Barclays Capital researcher Amrita Sen painted a bleak picture for future consumer gas prices. Citing increased oil demand from China, which is responsible “for 40 percent of the growth in global demand in recent years,” India and the Middle East (more on the ME below), Amrita argues a supply crunch is looming because “easily accessible deposits have already been exploited and new projects lie in increasingly challenging areas such as deepwater offshore fields.” In other words, supply is having trouble keeping up with demand and that will continue to put upward pressure on the price of oil. The recession gave us but a brief respite from this dynamic.

Now flash-forward to the present. Libya is a mess, but gas prices aren’t necessarily being directly driven by the civil war. Of all the oil consumed globally on a daily basis, just 2% comes from Libya. But the broader unrest and turmoil in North Africa and Middle East have traders spooked, especially in light of the demand and supply crunch.  Like us, they have no idea when it will all end or which regime will come under attack and have their oil production disrupted. This, of course, puts even more pressure on prices. As Javier Blas of the Financial Times reports:

“In short, the cost of oil will be higher than before, as traders will demand a geopolitical price premium to compensate for the perception of higher risk.”

But in my opinion here’s the kicker:

“Even when the unrest settles and supply disruptions end, the emerging populism evident in the region is thought likely to push countries towards policies that imply high oil prices as they need to fund higher spending to buoy popular support.” (Emphasis mine.)

Indeed, this has already happened in the most important oil state in the Middle East, Saudi Arabia. Worried by the revolts in Tunisia and Egypt, the government in Riyadh went on a spending spree to placate its populace, throwing around a total of $129-billion for various programs and giveaways. That’s long been the grand bargain between the House of Saud and its citizens: we’ll spend and provide and, in return, you stay out of politics! Unfortunately for the royal family, the grand bargain doesn’t come at a bargain price anymore.

According to analysts, the spending to both head off and respond to civil unrest by the Saudi government has increased the price per barrel needed to balance its budget from $20-$25 a decade ago to $88 this year and, according to forecasts, $110 in 2015. On top of that, the Saudi regime subsidizes the price of oil for its citizens, making it dirt cheap. In such a situation the demand for oil virtually explodes. The Financial Times reports that during the past 15 years, Saudi oil consumption has doubled and it is now a top 10 consumer of “black gold.” Why is this worrisome? Because Saudi demand, which in the current political environment is perceived as a priority for the regime to supply in order to ensure survival, takes away from the amount of oil the Saudis can export to the rest of the world. It also increases the likelihood that the Saudis, who at times have been helpful in lowering prices, will be more hawkish when it comes to oil prices.

Now, I should say that there is a delicate balancing act these oil producing states need to adhere to. For instance, the Saudis have to sell oil and certainly don’t want to limit production to the point where the price is too high and throws the world into another recession, which would lead to lower oil prices. In fact, the Saudis and other Gulf states are attempting to upgrade their infrastructure and bring new rigs on-line, though analysts note that “Meeting Libya’s shortfall has got Opec’s spare capacity down to uncomfortable levels, particularly on a one- to two-year forward view” and that “The supply and demand balance in oil services is going to get tight.” That’s not good news for you and I at our local gas station. And, if spare capacity is low and will remain so because of various disruptions or if unrest and uncertainty continues or both, prices are likely to remain high. It just doesn’t look good right now.

Finally, I do read that oil shale is being “mined.” That’s good news since the U.S. possesses vast reservoirs of the stuff. Unfortunately, current technology makes its extraction quite costly and is only commercially (profitably) feasible if oil prices remain high.

I guess we’ll be paying close to $4.00 or more a gallon for regular unleaded at the pump for a while (forever).

So, is the Saudi regime too expensive to support anymore? Is there an alternative?  To quote Keanu Reeves, “What do you do?”

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