Putin’s Planned Pipeline With Turkey – Just Smoke & Mirrors

Russia’s Prime Minister Vladimir Putin s

Much speculation has been made since Russian President, Vladimir Putin, announced the cancellation of the planned South Stream project last December. Seen by some as a rebuke by the Kremlin towards the EU’s sanctions against Russia, many analysts speculated various theories.

One theory doing the rounds was that the cancellation of the project sounded the death knell for Europe’s poorer countries who are both reliant on Russian supplied gas to power their business and warm their homes and who would have benefited economically from jobs created in the construction of the pipeline, and of course the transiting of the gas once the pipeline was up and running.

Another theory doing the rounds is that it makes political sense to further destabilise Europe, and NATO. Russia would prefer to bring Turkey under its sphere of influence, a country similarly modelled on a narcissistic dictator who has no real respect for democracy, human rights or a free press, all of which are values that Europe holds dear. Thus cancelling South Stream would do two things. It would create economic uncertainty for the poorer east European countries, thus creating a discord between their governments and Brussels, and it would also put the cat among the pigeons with NATO leaders as the only NATO member state ruled by a dictator has built enormous political capital at home and potentially gains more influence, and thus immunity from criticism, with Brussels.

But I think this is all bullshit, and here’s why.

Recently, Gazprom’s mafioso CEO, Alexei Miller, announced a veiled threat to Europe, in the form of a “Godfather” styled “offer they can’t refuse”. You know the kind I’m talking about, how you have “such a nice family and it would be a shame if something happened to it.”

Miller announced yesterday that it would be in Europe’s best interests to support Gazprom’s initiative to circumvent Ukraine as a transit country, by way of building a connector between Greece and Turkey, enabling them to press on with their plan to use Turkey as a transit country into Europe, now that South Stream was cancelled.

“the Turkish Stream is the only route along which 63 billion cubic metres of Russian gas can be supplied, which at present transit Ukraine. There are no other options,” he said.

“Our European partners have been informed of this and now their task is to create the necessary gas transport infrastructure from the Greek and Turkish border,” said Miller, according to a Gazprom statement.

“They have a couple of years at most to do this. It’s a very, very tight deadline. In order to meet the deadline, the work on building new trunk gas pipelines in European Union countries must start immediately today,” Miller warned.

Or else what, Alexei?:

“Otherwise, these volumes of gas could end up in other markets.”

Please, don’t make me laugh. And I also like the way Russians still overuse the word “partner” when referring to any dealings they have with Europe. Any real “partner” wouldn’t have shut off gas supplies, as they have 2006, 2009 and again in 2015. With “partners” like these, who needs enemies?

And where, pray-tell are these gas supplies likely to be sent, if they are redirected away from Europe? China? Not bloody likely. The Chinese gas infrastructure is worse than a leaking sieve. There is already one major pipeline, from KAZAKHSTAN, supplying their main network. And unlike Europe’s infrastructure, China’s is highly centralised, in the form of hub-and-spoke. In fact they have such a hard time actually getting gas to where it’s needed that they’re too busy fixing their own internal pipelines to cover the immediate demand. So where Alexei? Tell me!

What hardman Miller is basically trying to say is that if gas can’t move to Europe via Turkey, Gazprom won’t ship it via Ukraine. But push come to shove, if Europe is still deemed the most valuable destination for Russian gas, Gazprom will continue to sell it there, and ship it via Ukrainian pipes. It simply cannot afford not to.

It’s a bluff, plain and simple. Even the most doveish Eurocrat can see it for what it is. To top it all, gas supply is expected to increase later this year as the Gladstone and Gorgon LNG sites in Australia and Sabine Pass in the US come online. And this glut in supply will further exacerbate the drop in gas prices, meaning that gas imports in Asia will centre on cheaper (and more politically stable) suppliers from Australia, further excluding pass-through business Gazprom could only hope to gain with their deal with the Chinese.

As for Europe, with another mild Winter almost gone, the consequent bumper reserve stores and a focus during these past two years on retrofitting gas terminals in Grangemouth (Scotland), Ferrol, Valencia & Cartagena (Spain) and Hammerfest (Norway) to enable them to handle LNG from the US, it further diminishes Gazprom’s grip on gas supplies into Europe. This alternate path to supply undercuts Russian leverage, not just in Europe, but in China too. And given the noise regarding unresolved prices coming from Mandarin’s in China about the gas deal with Russia announced last year, you just KNOW that the Chinese will squeeze Putin’s balls like a hungry python.

On top of this, the whole thing with Turkey looks like a set-up to me. Since late 2013, right up until very late 2014, the Bulgarians had been courting the Kremlin and Gazprom. Along with demented Hungarian President, Victor Orban, Russia has few other allies in Brussels. The Bulgarian Parliament had tried to pass a law circumventing EU rules forbidding Gazprom from owning AND controlling the pipelines they operated in the EU. They even went so far as to have Gazprom actually WRITE the law! But with Brussels threatening to cut off much needed cash from the EU development funds, the Bulgarians quickly fell into line and they rejected South Stream.

So…..a connector between Greece and Turkey, eh? Why wouldn’t it work? Ignoring the centuries of hatred, a stale war in Cyprus and a complete mistrust between the two? Well, for starters, ignoring the politics for a moment, the current Turkish infrastructure can’t even handle the current pass-through commitments from other deals the Turks inked.

Turkey has the domestic infrastructure to get the gas from the Black Sea shore to the Aegean. From an Oxford Institute for Energy Studies report:

The BOTS [Turkish national gas company] transport system’s throughput capacity is not sufficiently developed to accept and ship all the contracted gas volume from the eastern suppliers due to the limited installed capacity of the existing compressor stations. BOTAS is able to take some 90% of the gas from the Trans-Balkan Gas Pipeline (the Western Line) and the Blue Stream pipeline from Russia, but has struggled to cope with volumes contracted from Azerbaijan and Iran. Therefore, the company has had to pay billions of dollars for ‘untaken’ gas.

This is the picture today. It will take a significant level of investment in Turkey to upgrade their infrastructure that will allow it to handle large additional gas flows via the new pipeline.

So who is going to pay for all of this? It’s not like Gazprom is flush with cash. On the contrary, like all Russian corporations, Gazprom is in dire straits financially. Although it’s not subject to sanctions right now, it IS affected by it’s inability to tap foreign money markets through it’s banking concern. It owes billions of USD denominated debt, which falls due during the course of 2015. Ordinarily they’d pay this off by simply borrowing more and rolling that debt over. But since the money markets have been shut off, they’ve had to resort to government funds and other unlikely sources, such as China (remember those guys?)

Whilst Gazprom is not directly sanctioned now – just the Gazprombank arm – all that could change with the very fluid situation right now in Ukraine. One wrong move by the Kremlin in eastern Ukraine could vastly change the playing field. In addition, Gazprom’s hard currency revenue picture is dismal. Gazprom’s shipments to Europe were down more than 9% last year, and no gas is yet flowing to China. And the best part of it is that Gazprom prices – at its own insistence! – are tied to lagged oil prices. What’s that mean?Well, since the price of oil has plummeted 60%, so too will the price of gas Gazprom sells. It’s revenues from Europe will decline by the same order of magnitude as oil prices have, to the tune of 60%. A far cry from their predictions of $250(!!) back in 2008. Great work Alexei. I can see why you were picked to be CEO.

Schadenfreude doesn’t even come close to describing my feelings at contemplating Gazprom getting what it insisted on – an oil price link. It insisted on this link almost as a matter of principle, and came up with one ludicrous argument after another to justify it.

And while we’re talking about revenue, let’s talk about prices in general. One of the biggest flies in the ointment about the Turkey deal, and which everyone seems to fail mentioning, is the fact that the Russians still haven’t finalised a deal with Turkey on the gas prices for THIS YEAR! So somehow, whilst they’re still bickering about a price deal for this year, they are somehow going to magically reach an agreement and lock in a long-term price for the pipeline business? Keep dreaming Alexei.

Whilst we’re still on the topic of price, let’s cast our minds back to all the other large pipeline projects Putin and his cronies announced this past decade, and ask yourself how many of them ACTUALLY followed through and went live. There were deals announced with China going as far back as 2006, but they never materialised because neither the Chinese, nor the Russians, come come to an agreement on price. The same thing happened with two other lines with the Kazakhs and Azerbaijan. The two latter parties ultimately choosing to cast off the shackles of Gazprom and opting to go it alone.

This current deal, signed when Putin was under the gun has not fully resolved price issues. This “deal” has every prospect of having the same issues as all the others that have come before it, especially since the Turks realise Russia’s holding a weak hand. Not to mention, the Chinese can smell blood from miles off, and they’ve been circling Gazprom like a famished school of sharks.

So sizing up all of the above, the veiled threat from Putin’s favourite Herald, Alexei Miller, is nothing more than that. It’s a ploy, designed by the Kremlin to further destabilise an already unbalanced European economy. It’s made all the more poignant by the fact that one of the country’s that, on the face of it, stands to gain a great deal economically, i.e. Greece, but will in reality not gain much at all. Already lumbered with a massive bailout program which they are failing to manage, putting extra pressure on the Eurozone as as whole. In fact, the way Miller has positioned it, he’s expecting an already bankrupt economy to foot the bill. And remember, that all this is going on whilst the Mandarins in across the EU member states foreign offices are all deciding what to do vis-a-vis the sanctions with Russia. Do they tighten the screws, loosen the screws or just sit on their hands. I’m just curious who will end up with a horse’s head in their bed.

Russian Pipeline

Russia’s Output Will Slump Sharply in 2015

battered-russiaThis article originally appeared in the Atlantic Interest on 15th January, 2015 written by Anders Åslund

Sanctions, falling oil prices, and poor structural economic policy point to a bad year.

Russia’s GDP is likely to plunge in 2015. Indeed, it would be prudent to expect a slump on the order of 10 percent. In many ways, Russia’s financial situation is eerily similar to the fall of 2008, when then-Prime Minister Vladimir Putin called his country a safe haven in the global financial crisis. In 2009, Russia’s GDP dropped by 7.8 percent.

In other ways, the situation seems even worse.

Macroeconomic forecasting is inadequate when major changes are under way in a country, because it is marginal and linear by nature. It is at a loss to predict the future when multiple dramatic changes of a qualitative and non-linear nature are at play; nor is it able to model the interaction between several interwoven shocks.

In late 2014, the Russian economy entered a serious financial crisis. In order to understand its likely economic consequences, we are better off looking at various scenarios, comparing what happened in analogous situations in other countries, while at the same time stressing Russia’s differences from those countries. The three key factors having an effect on Russia’s economy are the financial sanctions regime imposed on it by the United States and the EU, the effect of falling global oil prices, and poor structural economic policy.

On July 16, the United States imposed “sectoral” sanctions on Russia, including financial sanctions against major state banks. On July 31, the European Union followed suit. Initially, sanctions advocates worried that they would not be tough enough. By November, it became evident that they were stricter than anybody had presumed. The Dodd-Frank Act and similar EU regulations have reinforced the powers of U.S. and EU financial regulators, compelling international banks to exercise extreme caution. The banks’ internal due diligence departments are far more strict than the actual law, and they prevented loans to Russian companies from going through even when the transactions were formally legal, because they feared that the rules might suddenly change. Even Chinese state banks are now reluctant to lend to Russia. As a consequence, Russia has become exposed to a liquidity freeze.

A liquidity freeze or “sudden stop” of international financing is a frightful condition. It hit much of the world after the Lehman Brothers bankruptcy on September 15, 2008. The smaller and the more financially exposed an economy was, the greater the damage. Three of the worst-hit economies were the Baltic countries—Estonia, Latvia and Lithuania—which faced GDP slumps of 14-18 percent in 2009. Interestingly, these three countries had state finances that were as stellar as Russia’s, with more or less balanced state budgets and minimal public debt, before the crash, but it did not save them. Thus these Russian virtues are beneficial, but are no guarantee of financial stability. The key commonality of these four countries is that they all lacked access to international finance. For the Baltic countries, the liquidity freeze lasted only three quarters. It is likely to last much longer for Russia.

The Kremlin contends that Russia can withstand the financial sanctions regime due to its vast international reserves, amounting to $510 billion on January 1, 2014. This is a big positive factor, but it is hardly sufficient. Last year alone, Russia lost about $130 billion of its reserves, leaving it with $380 billion at the end of the year. Interestingly, the Russian authorities have delayed publication of the final number. Russia’s move to freely float its exchange rate late last year has reduced Russia’s losses of reserves, but its starting point in 2014 was lower than in 2008, when its reserves had peaked at $600 billion.

In fact, only $175 billion of these reserves are liquid and held by the Central Bank of Russia (CBR); two sovereign wealth funds, currently with holdings of $169 billion, are jealously held by the Ministry of Finance, and $45 billion of the CBR reserves consists of gold. Considering that Russia has a total foreign debt of about $600 billion, with an annual foreign debt service of $100 billion, and currently has no access to refinancing, Russia’s external financial situation is precarious, to say the least. Capital flight, bank runs, and currency runs are likely to aggravate it further. And as long as the Kremlin does not withdraw its troops and armaments from eastern Ukraine, there is no reason to anticipate that the West will ease its financial sanctions against Russia.

In the second half of 2014, the ruble-dollar exchange rate plummeted from 34 rubles on June 30 to 66 rubles per dollar on January 14. By and large, the exchange rate has fallen with the oil price. Commodity prices as well as credit expansion move in long cycles. The world has just gone through one of the greatest commodity, credit, and growth booms of all time, from 2000-2013. Last time we saw a major oil boom was 1973–80. It was followed by two decades of low oil prices.

This oil boom has lasted for even longer, which means that more investment has been made in supply as well as in energy saving. Overwhelmingly, these investments are long term and irreversible. You do not knock out the second window pane in a double-glazed window because energy has become cheaper. Nor do you reinstall obsolete blast furnaces in steelworks. As long as current costs are lower than the going price, oil producers will increase rather than reduce output as prices fall to stay in the black. A reasonable assumption today is that the oil price will stay low for a decade or so. It is reasonable to assume an average oil price of $50 per barrel in 2015, half of the price in 2014, and a commensurate ruble exchange rate of around 65 rubles per dollar.

AslundChart

The low oil price and ruble exchange rate will have a radical impact on the Russian economy. In 2013, Russia’s GDP at current exchange rates was $2.1 trillion, according to the IMF. Anticipating that the dollar exchange rate will be halved, the Russian economy stagnated last year and inflation peaked at 11.4 percent. Russian GDP at current exchange rates is $1.25 trillion or about 1.5 percent of global GDP, slightly less than that of Spain or South Korea. In one year, this depreciation of the ruble has reduced Russia from the eighth-biggest economy in the world to the fourteenth at current exchange rates, being also overtaken by Italy, India, Canada, and Australia.

Since oil and gas account for two-thirds of Russia’s exports, and the oil price is likely to be half in 2015 of what it was in 2014, Russia’s merchandise exports are likely to fall by one-third from around $508 billion in 2014 to $339 billion in 2015. If merchandise imports would fall by an equal amount, they would dwindle from a forecast $310 billion in 2014 to $141 billion in 2015. That would mean that imports would correspond to only 13 percent of GDP, which is rather little by international comparison. On their own, the higher import costs would only raise domestic prices by 13 percent.

These changes would be devastating for Russia. Presumably, net exports would be approximately the same, neither adding nor deducting from GDP. As Putin has pointed out, if the ruble exchange rate falls with the oil price, the impact on the state budget revenues, half of which are financed with oil taxes, would be neutral. The problem lies on the import side.

The prices of current imports are set to double with the big depreciation. For imports of manufactures, this is likely to mean a shift from high-quality goods from Europe to goods of lower quality and lower prices from China, India, and Indonesia. For basic foods, however, world market prices rule, and their prices are likely to rise proportionately to depreciation. Shortages and an inflation of 70 percent were recorded for buckwheat, an important Russian staple, in 2014. The strains on regular people’s standard of living will be considerable.

Also the state budget will suffer seriously from the rising import costs. Russia imports most pharmaceuticals from the West. The Ministry of Finance has called for initial overall cuts of expenditures by 10 percent. That is a lot, but it might not suffice to make ends meet; even so the Ministry of Finance has been forced to reduce its cuts. On December 1, Putin suddenly and to widespread surprise abandoned the long-planned South Stream gas pipeline from Russia to the Balkans through the Black Sea. He will need to call more large projects into question. But since his loyal cronies sit behind many such projects, he will need to balance economic expedience with political concerns.

The higher import costs will cut both consumption and investment, and thus output. Inflation is rising fast and, as noted earlier, has already reached 11.4 percent at the end of 2014. The CBR is perceived as hawkish, having hiked its policy rate repeatedly, as high as 17 percent in December. Meanwhile, bank interest rates have skyrocketed to 20-25 percent, which will further dampen investment and consumption.

Optimists claim that the doom-saying around depreciation has been overdone, and that Russia will benefit from import substitution as it did in 1999. Unfortunately for Russia, that is unlikely. In 1999, the Russian economy contained significant slack. Today, the labor market is tight, with the lowest unemployment since the end of communism at only 5 percent, but with high and rising inflation present. Russia’s economy is in fact overheating without any of the attendant signs of growth.

The reason for this is Putin’s overall poor structural policy, which favors state companies run by insiders that now account for half the economy. This is blocking the creative destruction that was thriving in 1999. In the wake of the financial crisis of 2008, the Kremlin simply pumped up the old state and oligarchic corporations, laying the ground for the stagnation which Russia is now struggling with. Some import substitution is inevitable, but the costs of bankruptcies in sectors suffering from the depreciation, such as the travel industry and retail trade, may be larger. The net devaluation gains are overall likely to be minimal.

Before the crisis, Russia’s banks were considered well capitalized, but now they are being exposed to tremendous stresses. The collapse of the 32nd-biggest Trust Bank at Christmas time was presumably only the beginning of a larger trend, and it cost the government $2.4 billion in recapitalization. The government has also already recapitalized the state banks VTB and Gazprombank. With the big state banks widely considered to be key elements of Putin’s kleptocratic apparatus, rescuing them all may put big holes in Russia’s public finances. BNP Paribas assesses that Russian banks are likely to need $45 billion in recapitalization in 2015.

According to the United Credit Bureau, Russian banks approved only 5 percent of loan applications in the third quarter of 2014. How can any bank dare to lend anybody in the current fluctuating situation, and why would anybody want to invest? The CBR has recorded that the share of non-performing loans rose from 5.8 percent in January to 8.1 percent in December.

An even bigger hole is the big state corporations, in particular Gazprom and Rosneft. Gazprom’s production fell substantially—by 9.2 percent—in 2014 because of its outrageous treatment of its customers. Russia’s oil production grew marginally by 0.7 percent for the year, but mainly due to Bashneft, whose production rose by 10.7 percent while the rest stagnated. Because of its success, Bashneft was summarily renationalised and is expected to be folded into Rosneft so that it can keep up its production. What private businessman would dare to invest in oil after the seemingly unjustified arrest of former Bashneft owner Vladimir Yevtushenkov?

Rosneft is repeatedly refinancing its short-term debt of $40 billion after its purchase of the best-performing oil company in the world, privately-owned TNK-BP, whose production started contracting after Rosneft chased away its outstanding managers and replaced them with its own amateurs. In early December, Rosneft’s issue of $12 billion of ruble bonds unleashed the collapse of the ruble. These two companies stand out as the major sources of destabilization of the Russian economy.

In December, the Russian economy was rocked by extraordinary uncertainty. A major source was the government, which has stopped coordinating its policymaking among its branches, with the CBR, the Ministry of Finance and the big state corporations each acting on their own. They all take orders from Putin, but they do not coordinate their policies. One consequence has been that the ruble exchange rate has swung back and forth, often as much as 5 percent a day, because one state authority or the other intervened too much or too little, while the CBR has lost its dominant role in currency intervention. The instability became so severe that many foreign companies closed their shops temporarily because they did not know how to price their goods. This continued uncertainty and instability must hurt investment severely.

President Putin even refuses to utter the word “crisis.” This is no way to run an economy, and it could end very badly. Because of lack of financing, investment is likely to fall by 25–30 percent. With an investment ratio of 20 percent of GDP, that reduces GDP by 5–6 percent.

Public and private consumption or the standard of living is likely to fall sharply, but it is difficult to predict by how much. In November, annualized real incomes fell suddenly by 4.7 percent and that was only the beginning. Particularly badly hit were workers in health care, with wage drops of 9 percent, and in education, with 14 percent. Six percent appears a minimum, that is, a decline of GDP of 4.8 percent because of declining consumption. As before, I presume that net exports will be unchanged.

That would mean a fall in GDP of about 10 percent. Admittedly, these are only informed guesses, but in the face of a radical change sensible guesses help us to land in the right ballpark, unlike conventional forecasts. Indeed, consumption may fall more.

Did The World Get A Little Absurd in 2014?

Scales Tipped So much of the news this year has been hopeless, depressing and, above all, confusing. Take for example the main topics which have been repeatedly covered by mainstream media over the past twelve months – Ebola, ISIS, Austerity, Ukraine, Russia, Syria, Phone Hacking, Child Abuse, Foreign Exchange Rigging, Beheading, Groping Disc Jockey’s, Kim Kardashian’s Arse, Eat Vegetables or DIE.

To which is the only response is “Oh Dear”.

This defeatist response has become the central part of a new system of political control. To understand how this is happening you have to look at Russia, to a man called Vladislav Surkov.

Surkov is one of President Putin’s advisors and has helped him maintain his power for 15 years. But he has done it in a very new way. He came originally from the avant-garde art world, and those who have studied his career say that what Surkov has done is to import ideas from conceptual art into the very heart of politics.

His aim is to undermine people’s perception of the world so they never know what is really happening. Surkov turned Russian politics into a bewildering, constantly changing piece of theatre. He sponsored all kinds of groups from Neo-Nazi skinheads to liberal human rights groups. He even backed parties that were opposed to President Putin. But the key thing was that Surkov then let it be known that this was what he was doing. Which meant that no one was sure what was real and what was fake.

As one journalist put it, “It’s a strategy of power that keeps any opposition constantly confused. A ceaseless shapeshifting that is unstoppable because it’s indefinable”. Which is exactly what Surkov is alleged to have done in Ukraine this year.

In typical fashion, as the war began, Surkov published a short story about something he called “non-linear war”. A war where you’re never really sure what the enemy are really up to, or even who they really are. The underlying aim, Surkov says, is not to win the war, but to use the conflict to create a constant state of destabilised perception in order to manage and control.

Maybe we have something similar emerging here in the West. Everything we’re told by journalists and politicians is confusing and contradictory. Of course, there is no Mr.  Surkov or his equivalent in charge, but it’s an odd non-linear world that plays into the hands of those in power.

NATO troops have come home from Afghanistan, but nobody seems to know whether it was a victory or whether it was a defeat. Aging disc-jockeys are prosecuted for crimes they committed decades ago, yet practically no one in the City of London is prosecuted for the endless financial crimes that are being revealed month after month. In Syria, we are told that President Assad is the evil enemy, but then his enemies, ISIS, turn out to be even more evil than him. So we bomb them, and by doing that we help keep Assad in power.

But the real epicentre of this non-linear world is the economy. And the closest we have to our own post-modern shape shifting politicians are George Osborne and Mario Draghi. They tell us proudly that the economy is growing but at the same time wages are going down. Osborne says he is cutting the deficit, but then it’s revealed that the deficit is actually going up. Draghi waxes lyrical about how low interest rates are a good thing for consumers and home owners, yet anguishes in the same breath that the inflation rate is TOO LOW! But the dark heart of this shape shifting world is Quantitative Easing.

Governments across Europe have insisted on taking billions out of the economy through their austerity programs. Yet at the very same time the UK is pumping billions of pounds INTO the economy through Quantitative Easing. The equivalent of £24,000 for every family in Britain. I’ve written before that the only way an economy can get itself out of a recession is to spend its way out. But make sure you spend the money on public infrastructure and projects that will benefit the economy on a long term basis, such as schools, nurseries, roads, bridges, hospitals, hell, even the military adds money to local economies where bases and troops are stationed.

Whilst the US and Britain has jumped on the QE band-wagon with great gusto, the European Central Bank have yet to decide on whether they want to continue to weathering the economic storm in the Eurozone without any major fundamental economic policy shifts, or if they want to introduce their version of QE. With the Germans so vehemently opposed to increasing public spending and their continued championing of austerity as a solution, it’s unlikely that the ECB will announce anything soon. In fact the continued decline of the EUR/USD F/X rate is a clear indication that QE will most likely not be  on the cards for the Eurozone any time soon.

But it gets even more confusing, because the Bank of England has admitted that those billions of pounds have not gone where they were supposed to. A vast amount of the money has actually found its way into the hands of the wealthiest 5% in Britain. It has been described as the biggest transfer of wealth to the rich in recent documented history.

It could be a huge scandal comparable to the greedy oligarchs in Russia. A ruthless elite, syphoning off billions of public money. But nobody seems to know. It sums up the strange mood of our time, where nothing really makes any coherent sense. We live with a constant vaudeville of contradictory stories that makes it impossible for any real opposition to emerge, because they can’t counter it with a coherent narrative of their own. And it means that we as individuals become ever more powerless. Unable to challenge anything because we live in a state of confusion and uncertainty, to which the response is “Oh Dear”.

But that’s what they want you to say.

Welcome to 2015!

New Year 2015 formed from sparking digits over black background

The Wheels Of The Bus Are…..

Russian Rouble

….falling off. At least that’s the case with Russia’s long-term economic outlook. I’ve been banging on about how Russia is nothing more than a banana republic. A one trick pony that has substituted oil for banana’s. It seems that the conditions are slowly ripening to bring about the perfect economic storm in Russia. Could it be this that eventually topples Putin’s stranglehold on power?

Russia’s best and brightest have either long since left, or are working on ways to leave, because they do not feel comfortable building a business in an environment where he who pays most to the judiciary or tax inspectors wins, where bribery is the accepted norm, even if it is for something so important like getting your child accepted into the best university! And none of this encourages either any long-term inflows of western capital or internally developed innovation in areas other than the mainstay of oil and gas.

There is one simple thing that is scares the shit out of Putin, which is how does he deliver on his promise of continued economic growth and stability, thus ensuring the avoidance of a dissenting middle-class. The only reason his approval ratings are so high is because people have grown accustomed to having money in their pockets and being able to afford the nice things in life.

During the turbulent Yeltsin years, it was the norm for workers to go months without being paid. In fact this worked to the Oligarch’s advantage because families who had received “shares” in the previously state-owned companies they worked for ended up selling their shares to the management for pennies because having the cash to buy food was more useful than owning “worthless pieces of paper” (share certificates).

Fast forward two decades later and look at the new Russia, which has been built on two things….rising oil prices and credit (well actually one thing, because the credit is also a derivative of the oil price).

The Kremlin has traditionally based their budget on a lower than expected yield on the price of a barrel of oil. When oil in 2003-04 was reaching the dizzying heights of $40 a barrel, the economists at the Kremlin laid out their spending plans on an estimated $16 a barrel – which was the average price for the 5 years previous. This meant that they had a win-fall of $24 which they could either squirrel away for a rainy day, or use to develop and enhance the living standards of the average Russian.

Now those of you who’ve been fortunate to have visited either Moscow or St. Petersburg, and were astute enough to notice the number of fancy cars driving the clogged arteries of these two cities or the number of women touting the latest in designer fashion might think “Oh, clearly they spent the money on the average Russian”. But that’s not the case. The average Russian doctor earns just $650 a month ($1270 a month in based in Moscow), whilst the average teacher earns just $350 a month! And the police and other state officials are typically no better off. Which is the core reason low incomes are then bolstered by way of bribes and back-handers. If you want your child to go to a good college, a thousand dollars will go a long way to ensure they get the requisite mark. You want 1st class medical treatment? Well, you COULD pay a bribe to the doctors and nurses tending to your loved one, to ensure they get the proper treatment. But if you’re REALLY wealthy, then you’re better off taking them abroad to the likes of Germany, Austria or Switzerland to get the necessary treatment.

Babushka

What’s my point in all of this, I hear you ask. Well, it’s a prediction of sorts. I am predicting that within the next 3-5 years, Russia will find itself on the back of the curve, so to speak. There is a growing middle class, limited for the most part for now in Moscow and St. Pete, but it’s slowly starting to grow in the other regional capitals like Yekaterinburg, Samara, Perm, Nizhny Novgorod, Kazan & Omsk to name but a few. And as the size of the middle class begins to swell, they will become even more demanding. But that’s what has Putin and his merry band of kleptocrats worried. Because the economy has begun to stall (latest growth numbers show only a 1.6% increase in the economy) and at 6.5%, the rate of inflation is not easing either.

This means two things, price rises and job cuts. The affluent Russian will start to feel the pain. Gone are their holidays abroad (made all the more difficult with a currency that has fallen off a cliff). Those flashy cars, bought with credit (30% interest rates!) still need to be paid for, or worse, it’s repossessed and you’re forced back onto the already overcrowded metro (a fall in status). And their glorious leader Putin, the man who was responsible for all the great things they’ve enjoyed so far, has no idea what to do to get the economy going, other than pumping more oil. But that’s not going to help them either.

With the US powering ahead with shale gas exploitation and exporting that shale gas across the Atlantic for processing, Europe has already started to turn off the tap from Russia. In addition, the new pipelines which bi-pass Russia completely and now pipe gas under the Caspian straight into Europe is also helping reduce the dependency on Russia and has Gazprom scratching its head on how to avoid being left out in the cold. The Chinese, already learning from Europe’s mistake, now deals with the Kazakhs direct for her gas needs.

Found in the same boat, other countries would have long ago looked at alternative industries to develop and nurture, such as high-tech, finance, agriculture, in which to spur on economic growth. But the Russian’s have had a brain drain for the past two decades. And their business environment is so corrupt and bereft of transparency, justice and trust that very few Russian’s are willing to repatriate themselves and base their business or brainchild in or near Russia.

Recent spats with Moldova and Ukraine over perceived heath risks over food and agri-products have resulted in food and drink never making it past the border. Funnily, the Moldovan’s don’t care. In what was once their biggest market, Russia has become second fiddle. Their wine industry used to sell 4 out of every 5 bottles to Russia. They now sell 4 out of 5 to the EU and have geared their health and safety requirements to mirror those of the EU. Why something that is safe enough to be sold on the shelves of a German supermarket is now considered so unsafe by the Russian’s is mindboggling. But it’s not really. Because by trying to put the squeeze on Moldova, banning imports, and forcing them to join Putin’s Customs Union, in the same way they’re doing with Ukraine, Russia is trying to protect her market and her economy, and in the end stave off any potential economic disaster and the ensuing civil unrest that would accompany it.

But it’s doomed to fail. One of the key components the Kremlin are using to measure the success of their plans is by tracking the number of new mortgages issued in a given year. In a country whose property market is already over inflated, and whose mortgage interest rates are akin to those of Gaullist era France, in the high teens, they do very little to persuade local discretionary expenditure. In fact, looking at Russia’s balance of trade, with the EU for example, if you exclude the oil and gas influence, there is more money leaving the country than coming in. Russian’s are travelling more, spending copious sums of cash abroad, and buying anything that has a “Made in EU” sticker on it because it’s believed to be much better than it’s Russian or Chinese equivalent.

And this discretionary spending, which normally fuels internal economic growth, will actually stifle it. Why? Well firstly the not-so-cheap credit is funded by Russian banks lending to Russian consumers. This money is funded by the excess revenues the government gets from the higher price of oil. With oil plateauing, and spending on the rise, the government will soon run out of ways to finance the banks as that budget win-fall will erode over time. And it is this credit boom which is in turn funding the hyper consumerism that is rampant across Russia today.

With sources of consumer credit drying up, and the government already looking at ways to shore up its coffers by introducing new taxes on property and wealth, you can very quickly see the average Russian suddenly feeling the squeeze. They’ll be in a precarious position worrying about jobs uncertainty, high personal debt, inflation in the 9%-10% range and a closet full of expensive, out-of-date designer fashion and no cash to splash to replace any of it. Reminds me of Ireland, circa the Celtic Tiger era.

It’s an economic certainty that unless you diversify and truly manage your economy’s money, sharing out the benefits and the pain fairly, then you will always find your economy being driven into an abyss. Russian’s have been riding the wave of heightened consumerism for a while, but that wave is set to crash on the shores of economic disaster unless the country finds a way of enticing outside investment and keeping it there.

The recent fall in the rouble has only served to demonstrate that in a crisis, no matter big, small, political or economic, the flight of capital in an emerging market is very real. And this capital flight further unsettles the economic stability, potentially setting in motion a chain of events that could ultimately bring on the collapse of an entire country. It happened before under Yeltsin. It could easily happen again.

The Weekly Shop

Food waste in the West has reached unprecedented levels in the last decade. And what’s even worse is the fact that this wastage continues, even inspite of rocketing food prices.

Add to that, the soaring obesity levels across the likes of the USA, UK, Ireland, to name but three, and the amount of corn syrup, preservatives, chemicals and crap in general pumped into our food, along with the never ending encroachment of GM foods in our diet, it’s no wonder that the population in the West is suffering from more food allergies, lower sperm counts, heart and digestive diseases than ever before.

On the flip side, there are nations whose population does not enjoy the excesses and trappings of a corn syrup filled, chemically pumped diet. In fact, they have to eek out an existence on a very basic diet indeed. And they also don’t throw stuff away just because they bought too much in a two-for-one offer down at the Piggly Wiggly or at Tesco and it’s now going off!

To get a glimpse of how other families live, Oxfam published a new photo series, which depicts people from around the globe with one week’s food supply for their families.

Building on an idea that originated with 2005′s Hungry Planet: What the World Eats, the new images are especially well-timed, when reports about half of the world’s food going to waste vie for space with news about rising global food prices. According to a recent article accompanying some of the photos in the UK Independent, “There is deep injustice in the way food is grown and distributed … the world’s poorest people spend 50%-90% of their income on food, compared with just 10%-15% in developed countries.”

Two things that strike me the most. The first is how almost everyone’s food basket consists of locally grown and seasonally dependent food. Unlike, say, the EU, where you can buy strawberries in the middle of winter, in these photo’s, if it wasn’t in season, it’s not on the table.

Secondly, if you look at the shopping basket of someone in the west, there’s loads and loads of pre-cooked, tinned, ready-meal style meals, and practically none of that crap in other the countries. Think about how much salt, sugar, preservatives and chemicals go into making that tin of Campbells soup, or that microwave lasagne!

Food For Thought – Literally!

Shahveller, AzerbaijanOxfam Food Azerbaijan

Mirza Bakhishov, 47, his wife, Zarkhara, 37, and two sons, Khasay, 18 and Elchin, 15, own a small plot of land where they grow cotton and wheat as well as animal feed. “Our small cattle and poultry [are] everything for us. All our income and livelihood is dependent on them,” said Bakhishov.

Vavuniya, Sri LankaOxfam Food Sri Lanka

Selvern, 70, far right, and her daughters have been members of Oxfam’s local dairy cooperative for four years. Her youngest daughter Sukitha, second from right, works at the cooperative and is also trained as a vet. Selvern gets up at 5:30 every morning to help her daughters milk their cows; she sends most of the milk to the co-op with Sukitha and uses the remainder to make cream and ghee for the family.

Mecha, EthiopiaOxfam Food Ethiopia

A week’s food supply for Wubalem Shiferaw, her husband Tsega, and 4-year-old daughter Rekebki includes flour, vegetable oil, and a paste of spices called berbere. Tsega works as a tailor, while Wubalem follows a long local tradition and supplements her income with honey production. An Oxfam-supported cooperative helped Wubalem make the transition to modern beekeeping methods, which produce greater yields.

Yegeghus, ArmeniaOxfam Food Armenia

The Josephyan family from with their weekly food supply, which includes wheat flour, dried split peas, sugar, and cooking oil. The family supplements their diet with eggs laid by their chickens and wild greens from the fields.

Kaftarkhana, TajikistanOxfam Food Tajikistan

BiBi-Faiz Miralieba and her family, from left to right: son Siyoushi, 11, niece Gulnoya Shdova, 14, and children Jomakhon, 6, Shodmon, 9, and Jamila,13. Like many women in rural areas of Tajikistan, Miralieba is now the head of her household as her husband has migrated to Russia to find work.

Gutu, ZimbabweOxfam Food Zimbabwe

Ipaishe Masvingise and her family with their food for the week, which includes grains and groundnuts as well as fruits like pawpaw and oranges. Masvingise, a farmer, said she sells extra grain from her harvests to pay for school fees and medical costs, and to support members of her extended family who don’t own their own land.

London, U.K.Oxfam Food UK

Ian Kerr, 30, with his family and a week’s food supplied by a charity food bank. Ian left his job to become a full-time carer to his disabled son Jay-J, 12. Also pictured are his daughter Lillian, 5, and mother-in-law Linda, 61. Kerr says the family’s favorite food is spaghetti Bolognese, but Lillian says her favorite is Jaffa Cakes.

Original by Anna Kramer at Oxfam America. The photographers are (in order of photos) David Levene (Oxfam), Abir Abdullah (Oxfam), Tom Pietrasik (Oxfam), Abbie Trayler-Smith (Panos), Andy Hall (Oxfam), Annie Bungeroth (Oxfam) and Abbie Trayler-Smith (Oxfam).

Cotton On – Uzbekistan’s White Gold Make Regime Rich On Slave Labour

If I asked many of you to point Uzbekistan out on a map, you’d probably ask me “Where?” before having to search for it in an atlas. It doesn’t get many columns written about it in the Western press, especially when we’re so caught up in stories about hostages in Algeria and cheating cyclists who lied for a decade about their doping regimen.

But Uzbekistan is home to one of the last bastions of dictatorship kleptocracies in the world, an ex-Soviet republic whose dictator and his family hold key government positions, earning millions on the backs of their citizens whom they treat as nothing more than slaves whose sole purpose in life is to enrich the kleptomaniacal “first family” and keep them in a style of living they’ve grown accustomed to.

Islam Karimov, is the incumbent President of Uzbekistan, a position he has maintained since the fall of the Soviet empire through the usual methodology of regular human rights violations, election rigging and blocking of opposition parties (tactics practiced across the ex-Soviet states such as Russia, Belarus, Azerbaijan, Kazakhstan and Ukraine) along with some other choice methods such as the regular detention (without trial), torture and disappearance of ordinary Uzbeks, who often vanish into thin air, never to be heard of again. His favoured method of dispatching dissidents is to have them boiled alive. And his security police have shot dead hundreds of unarmed protesters in 2005. The lucky ones may return, their mutilated bodies are sometimes recovered when the secret police have no more use of them and the lucky families can find closure and bury their long missing loved ones.

But we here in the West also play a part in the continuance of this brutal regime. It might never cross your mind, but the next time you find yourself pushing a young mother out of the way so you can get a deal on the last cotton skirt on sale in H&M, think twice about where it’s come from! Because the Uzbek regimes largest source of wealth comes from what the Russians once called “White Gold”.

“White Gold”, coined by the Soviets, Cotton is Uzbekistan’s largest source of foreign currency, and Uzbekistan is one of the largest exporters of cotton worldwide. The cotton farms, cotton exporters and cotton harvesters are ALL state-owned. Which means 99% of the cash goes straight into the back pockets and Swiss bank accounts of the Karimov family, with the remaining 1% shared between the farms and the Uzbek people toiling in the fields picking the cotton.

And the people picking the cotton are ordinary folk, ranging from 7 and 8 year old children, all the way to well trained doctors, nurses, teachers and engineers. The crop is so huge that they force Uzbeks to pick the cotton giving strict daily quota’s, all so that the Karimov family can maximise the amount of cash they’ll get when they export it, just so Karimov’s wife or his camera shy daughter (NOT!), Gulnara Karimova, can splash out on a new villa in the Mediterranean coast, or attend Fashion Week in New York, or whatever else the well-heeled Oligarchy get up to these days with their stolen riches.

The next time you’re out shopping, look at the label or search online and find out WHERE your cotton came from. Do not simply shop with an absent mind. You, as a single individual CAN have an impact on geopolitical affairs and can help stamp out human rights violations, even thought you’re a world away! Don’t be a sheep and follow the herd, think for yourself and shop conscientiously and politically…..because your fellow human beings are depending on you!

The Scattering

The Scattering 2013

Herself and I were watching the Six-One news on RTE last night, and one of the leading stories was that of the now traditional tears and scenes of heartbreak at airports across the country that follow on from a Christmas spent with family who had returned from overseas just so they could be home with family at this particular time of the year.

For herself, it was a little strange. She not being Irish, couldn’t quite get her head around the idea of being sad and upset with having to go away across the foam to find work. “Sure aren’t you getting a better quality of life and more money?” she asked. And yes, in some respects she’s undoubtedly right. But given that her argument was that in Ukraine, where she’s from, people would give their eye teeth to be able to just leave Ukraine and go somewhere better, her logic was that we should be happy that we have that privilege.

I can see where she’s coming from, but then I explained to her about the Celtic Tiger and then reminded her of the emigration legacy that has been the story of Ireland and her people for centuries and that given a choice, most Irish people would choose to stay in the Emerald Isle if they could.

But then I read the news online and read that this fucking stupid PR job that those shites in the Oireachtas are pulling off this year – The Gathering – is being managed by a PR company in the ENGLAND! WTF!! In an era where we are moaning about job losses and plant shutdowns, surely to God they’d have looked at this as a way of creating jobs at HOME rather than outsourcing it from abroad! Talk about adding insult to injury. What a bunch of fucking wankers.

And then I came across this beautiful, poignant piece written by a friend of a young girl called Aisling Twomey who wrote “A Friend of mine is emigrating. Quite a wordsmith.

The Scattering Parting Words

I wish the author of those beautiful, poignant words lots of luck and best wishes in his/hers endeavours abroad and I hope, sincerely, that this shower of wankers who have caused and exacerbated the crisis, the heartache and the everyday pain suffered each and everyday by our loved ones back home in Ireland, get what’s coming to them.