Sunday, March 20, 2005

The New "Axis of Evil" - or the emerging Geo-Political "Continental Shift"

2005 is turning out to be more interesting than what it promised to be. There is a new emerging configuration of geo-strategic forces, which is likely to redefine the world as we know it now.

So here is a curtain-raiser of the emerging forces/new axis/configurations, which are normally kept hidden under the "mainstream media veil" (giving us a "business-as-usual" semblence of the world):

I. Behind Iran's Nuclear "Threat":

  • This largely neglected article which was published in The Guardian in June 2004: Iran takes on west's control of oil trading: "Iran is to launch an oil trading market for Middle East and Opec producers that could threaten the supremacy of London's International Petroleum Exchange." - the reason being that this exchange will denominate oil in Euro - thus, breaking the hegemony of petro-dollar."

  • In October 2004, William Clark published this article entitles, The Real Reasons Why Iran is the Next Target: The Emerging Euro-denominated International Oil Marker: "The Iranians are about to commit an "offense" far greater than Saddam Hussein's conversion to the euro of Iraq’s oil exports in the fall of 2000. Numerous articles have revealed Pentagon planning for operations against Iran as early as 2005. While the publicly stated reasons will be over Iran's nuclear ambitions, there are unspoken macroeconomic drivers explaining the Real Reasons regarding the 2nd stage of petrodollar warfare - Iran's upcoming euro-based oil Bourse."

  • Suddenly, after re-election of GBW, the focus of US shifted to Iran - one of the "axis of evil". Dick Cheney made it clear that, "Iran is a top threat to world peace and Middle East stability, accusing Tehran of sponsoring terrorism against Americans and building a "fairly robust new nuclear program."... In an interview aired on MSNBC... a few hours before President Bush's inaugural address, Cheney warned that Israel "might well decide to act first" militarily to eliminate Iran's nuclear capabilities if the United States and its allies fail to solve the standoff with Tehran diplomatically.... "Given the fact that Iran has a stated policy that their objective is the destruction of Israel, the Israelis might well decide to act first, and let the rest of the world worry about cleaning up the diplomatic mess afterwards," Cheney said."

  • Only time will tell if Scott Ritter's assertion that US will attack Iran by June 2005 or not. In fact, in January 2005, Seymour Hersch had also mentioned the next target being Iran: "Bush has an aggressive and ambitious agenda for using that control—against the mullahs in Iran and against targets in the ongoing war on terrorism—during his second term... In my interviews, I was repeatedly told that the next strategic target was Iran. “Everyone is saying, ‘You can’t be serious about targeting Iran. Look at Iraq, "the former intelligence official told me. “But they say, ‘We’ve got some lessons learned—not militarily, but how we did it politically. We’re not going to rely on agency pissants.’"
    [NOTE: for those not in the know, Scott Ritter was the former UN weapons inspector in Iraq, who had challenged US assertion that Iraq has WMDs back in September 2002; and Seymour Hersch was was the journalist who had exposed the Abu Ghraib happenings]

    II. ...Enter Venezuela:

    In the meanwhile, other partnerships and alliances are emerging. And one of the major player is Venezuela (Venezuela's importance is in being the 4th largest oil supplier to the US, accounting for 12-14% of latter's oil imports, and 60% of Venezuela's crude production). Thus, diversifying its partners is in Venezuela's interest, which is precisely what it has been doing last few months. For instance:

  • About 10 days back the visiting Iranian President Mohammad Khatami and his Venezuelan counterpart President Hugo Chavez signed over a $1bn bilateral trade agreements, which include, "encouragement and support of investment, avoidance of double taxation, shipping and marine trade as well as MoUs on oil, gas and petrochemistry..."

  • Within last couple of months, Venezuela has also signed deals with China: "Chinese Vice President Zeng Qinghong and Venezuelan President Hugo Chavez signed 17 bilateral agreements and also discussed cooperation in mining, oil and gas projects, as well as technological partnership... Venezuela is the world's fifth-largest oil exporter. China, which faces a significant energy shortfall, is looking to strengthen energy cooperation with oil-exporting countries." China already operates two oil fields in Venezuela. Under the new agreements, it would develop 15 declining oil fields in eastern Venezuela, build a plant in Venezuela to produce boiler fuel used in Chinese power plants, and participate in much larger projects, like exploring for oil in the Orinoco belt, which has one of the world's great deposits of crude oil, etc.

  • ... and with India



  • It is not surprising that US Administation sees Venezuelan President Hugo Ch├ívez as a threat who needs to be contained.

  • Clearly, Venezuela's future with US is limited. In February, Hugo Chavez announced that he planned to sell Citgo, a Venezuelan-owned refining and distribution network in the US, clearly signaling his intent to divert Venezuelan exports away from the US market.

  • This month, Chavez caused much anxiety when he threatened to cut-off oil supplies to US: "President Hugo Chavez has recently accused President Bush of plotting to assassinate him, made suggestive comments about Secretary of State Condoleezza Rice, visited Fidel Castro in Cuba and bashed the United States... But concern in Washington has been rising as Chavez has worked feverishly in recent months to match his words with deeds...Since threatening to cut off oil shipments to the United States, which buys 1.5 million barrels a day from Venezuela, Chavez has been traveling the globe looking for new markets and allies to unite against "the imperialist power." He recently signed energy deals with France, India and China, which is searching for new sources of oil to power its industrial expansion."


    III. The Re-emerging Russia:

    After the collapse of the Berlin Wall - and the Russian Empire - the world had given up on Russia (in fact, Francis Fukoyama went on to commemorate it by writing The End of History - i.e., the good won over the evil, and everyone lived happily ever after).

    However, since its turnaround in 1999, a renewed Russia has emerged as a new force to contend with. It has emerged as the second largest producer of crude oil after Saudi Arabia, and exports 70% of its produce (more than 70% of this goes to EU).

    A change in Russian policies will have impacts, e.g.,

  • In Feb '05, Russia dissmissed US protests about supplying arms to Venezuela, and described them as "biased and unfounded" (Actually, Venezuela's neighbour, and rival, Columbia, has been the 3rd largest recepient of US arms "aid" - after Israel and Egypt - for many decades). A message last week, from Russia's foreign minister Sergei Lavrov to his Venezuelan counterpart Ali Rodriguez on the occasion of the 60th anniversary of the establishment of diplomatic relations between the two countries, reads: "Much has been done over the past decades in the material sphere of cooperation which has inviting prospects in such areas as high technologies, oil and gas industry, energy, aluminum production, military-technical cooperation, trade, investments and others"

  • Last month, Russia ended its de facto dollar peg and moved to align rouble with euro:"Russia... abandoned efforts to tie the rouble’s movement closely to the dollar and switched to shadowing both the euro and the US currency... The move heightened expectations that other countries operating de facto dollar pegs, such as China, could follow suit... With 81 per cent of Russia’s oil exports currently sold to Europe, the move also provoked fresh speculation that Russia could decide to denominate its oil in euros. Russia is the world’s second-largest oil exporter, behind Saudi Arabia."

  • Last month, Russia signed an agreement with Iran to help it set up a Nuclear Power plant by next year


    IV. The China Shift:

  • The real emerging "China Threat" for US is that European Union has replaced US as China's largest trading partner. In 2004, China's trade with Europe in 2004 was worth $177.2 billion, with the United States $169.6 billion, and with Japan $167.8 billion.

  • As a consequence, during 2004, China's central bank cut the share of its foreign reserves held in U.S. dollar assets, reducing it from 83% to 76%. This shift suggests "that the United States might no longer be able to rely on Asia to finance growing deficits, investment bank Lehman Brothers said in a report this week.... The bank "is slowly diversifying its FX (foreign-exchange) reserves away from U.S. dollars," said the report, written by London-based analyst Shruti Sood."

  • Not much reported in the mainstream media, in December, 2004, China rocked the geopolitical boat by signing a $100bn oil deal with Iran: "Billed as the "deal of the century" by various commentators, this agreement is likely to increase by another $50 to $100 billion, bringing the total close to $200 billion, when a similar oil agreement, currently being negotiated, is inked not too far from now... The gas deal entails the annual export of some 10 million tons of Iranian liquefied natural gas (LNG) for a 25-year period, as well as the participation, by China's state oil company, in such projects as exploration and drilling, petrochemical and gas industries, pipelines, services and the like."

    V. ... and India Joins:

    Just the headlines during last couple of months:

  • India Ready to Invest $25Bn in Russia’ Oil Industry

  • last month, India signed a gas pipeline deal with Iran, despite US opposition

  • India has signed a deal to take a 49% stake in a Venezuelan oil field, boosting energy ties between one of Asia's biggest consuming economies and one of the world's largest exporters

  • India, China set for big-rig oil partnership to take stake in Kazakhstan's oil and gas exploration projects


    VI. To Conclude... - The Continental Shift:

    What we are witnessing is a sort of continental shift, in which the US$ global hegemony may become "He-He money", turning the flow of the world trade topsy-turvy.

    This article, published a couple of days back, reports some other tremors, e.g.,:

  • Japan, the largest holder of US$ in foreign reserves, plans to "diversify" its FX basket.

  • The Basel-based Bank of International Settlement (BIS) indicates that US$ holding in India (the 6th largest country with FX reserves) fell from 68% to 43% during 2001-2004.
  • The BIS data also shows that Asian central and commercial banks reduced their US$ deposits from 81% to 67% during 2001 and 2004.

  • A survey by Lehman Brother showed that showed that almost 70 per cent of the 56 Central Banks had increased their exposure to the euro in four months, between September and December, last year. This means that the exposure to the US dollar was reduced.

    ....Perhaps, the best indicator of this changing scenario/equation is that:
  • last month, when South Korea (a US "client state" for half a century - having the 4th largest FX reserves) made an announcement that it may diversify its FX portfolio, the US$ went into a tumble...

    ... interesting times ahead..

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