The Great Debate UK

from Breakingviews:

Saudi handouts ratchet up “fair price” of oil

By Una Galani The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

DUBAI -- Saudi Arabia's rulers have long thought they could tell what a "fair" oil price should be. Prior to the heightening unrest on its own borders, the Kingdom reiterated its long-held view that this was somewhere between $70 and $80 per barrel. But the recent pledge for a massive boost to spending on everything from housing to religious police is pushing Saudi into its largest budget spending. No wonder the Kingdom now thinks the market is "oversupplied". "Fair" looks set to become more expensive.

The Kingdom will need an average oil price of between $80 to just over $90 per barrel to balance its budget during 2011, according to various estimates. This is one of the highest breakeven prices within the bloc of six Gulf nations, up from previous forecasts of around $60 to $70 per barrel.

Of course, supply disruptions in Libya -- which produces a type of sweet crude that the Kingdom cannot easily replace -- and the threat of similar problems erupting elsewhere have pushed prices well above Saudi's needs to around $123 per barrel for Brent crude and $109 for WTI.

It is not in Saudi's interests to keep prices so high that they threaten the global economy, irk Western allies, and provide incentives for developing alternative fuels. But if higher spending becomes a new norm and Saudi wants to avoid taking on new debt or eating into its foreign reserves, then the Kingdom clearly needs to adjust its view of what is sees as fair.

The previous margin between Saudi's breakeven requirements and its stated price target, suggests that the Kingdom might now consider a fair price to be closer to $90 to $100 per barrel. But even if spending comes down in the future, higher price expectations will be supported by another domestic factor: the Kingdom's explosive growth in domestic oil consumption which Banque Saudi Fransi estimates has grown 27 percent since 2007.

Speculation has long-swirled about the longevity of Saudi's oil reserves. Record spending and the Kingdom's own oil consumption -- which according to some estimates amounts to about 15 percent of its production -- suggests that Saudi's domestic issues will probably force it to shift its consideration of what it deems "fair" nearer to $100 per barrel. Consumer countries better take note.

from Chrystia Freeland:

The revolutionary significance of job growth

It was striking to hear how encouraged both Klaus Kleinfeld and Dominic Barton sounded when Chrystia asked them about the effects of the recent turmoil in the Middle East on the business environment there. Barton believed the regime changes in Tunisia and Egypt were "the dawn of a new good thing that's occurring" and noted that it is likely that new capital will come into these countries as a new leadership emerges. Kleinfeld, whose company is in the process of building the world's largest integrated aluminum system in Saudi Arabia, said that Alcoa is still very comfortable in the region and that the only surprises with their Saudi partners have been positive surprises. For Kleinfeld, the most assured way to bring about stability in a region plagued by unrest is to have businesses come in and create jobs:

If there's one thing that the Middle East needs particularly for the young -- as well as well-educated people -- it's jobs. And it does it in a region which typically has not had much of an economic growth around Ras Azzour. So that's all very, very good. And not just for us as a company but also for the region. And it's gonna have a stabilizing as well as a kind of uplifting, positive element

Like Saudi Arabia, China has a large population that accepts a level of repression so long as the leadership can deliver economic growth. Barton, a China expert who headed McKinsey's Asia operations before ascending to the consultancy's top spot, said that he did not think that dissent in China would spillover and create a Middle-East-style uprising because the Chinese Communist Party has been able to stay on top of job growth. He had an interesting anecdote about McKinsey's study on the effectiveness of China's stimulus plan that illustrated the leadership's obsession with maintaining growth:

During the financial crisis, there was a stimulation program that was being put in place. And we'd been asked, almost ordered to do work to figure out what sort of discount should you put on TVs in tier three cities? It was a very focused question. And the reason was they were trying to create consumer demand in a very sophisticated manner. Do you sort of drop the price by 25 percent or do you have people buy it and they get a 25 percent rebate from the mayor? That was literally the thing.

And as we were talking about this I was amazed at how sort of precise it was. I said, you know, we gotta make sure that the impact is there and how we do -- sort of doing the McKinsey thing, we wanna make sure this happens. And this guy said to me, "I think we have a different definition of impact than you." And I said, "What's that?" And he says, "If this doesn't work, we're gonna have probably 12 million people that won't have jobs. And you should know that all of the revolutions in our 5,000 year history have occurred in the countryside."

And so there is a revolution -- it -- so he was just trying to explain to me we understand how important this is, you idiot, basically.

Posted by Peter Rudegeair.

from Pakistan: Now or Never?:

Wikileaks on Pakistan

In the State Department cables released by Wikileaks and so far reported, the most eye-catching as far as Pakistan is concerned is a row with Washington over nuclear fuel.

According to the New York Times, the cables show:

"A dangerous standoff with Pakistan over nuclear fuel: Since 2007, the United States has mounted a highly secret effort, so far unsuccessful, to remove from a Pakistani research reactor highly enriched uranium that American officials fear could be diverted for use in an illicit nuclear device. In May 2009, Ambassador Anne W. Patterson reported that Pakistan was refusing to schedule a visit by American technical experts because, as a Pakistani official said, “if the local media got word of the fuel removal, ‘they certainly would portray it as the United States taking Pakistan’s nuclear weapons,’ he argued.”

The Pakistan Army is deeply sensitive about any questions on the safety of its nuclear weapons.  The country is also often awash with conspiracy theories accusing the Americans of harbouring secret plans to dismantle the nuclear weapons.

That said, the row reported by the NYT appeared to have been about HEU at a nuclear research reactor rather than the weapons themselves, so it may turn out to be less dramatic than it appears.  Pakistan's nuclear weapons are considered to be well-guarded although analysts have cited a risk of militants trying to seize nuclear material which they might use to make a dirty bomb. (For a factbox on Pakistan's nuclear weapons, see here).

Of potentially huge significance for Pakistan are cables, reported in The Guardian, saying that Saudi Arabia's King Abdullah has repeatedly urged the United States to attack Iran to destroy its nuclear programme.

"The Saudi king was recorded as having 'frequently exhorted the US to attack Iran to put an end to its nuclear weapons programme', one cable stated. 'He told you [Americans] to cut off the head of the snake,' the Saudi ambassador to Washington, Adel al-Jubeir said, according to a report on Abdullah's meeting with the US general David Petraeus in April 2008." The Guardian reported.

from Pakistan: Now or Never?:

Iran’s role in Afghanistan

Iran has been hosting regional leaders, including Afghan President Hamid Karzai, to celebrate the Persian New Year, or Nowruz (a spring festival whose equivalent in Pakistan, incidentally, is frowned upon by its own religious conservatives).

The Nowruz celebrations, which also included the presidents of Iraq, Tajikistan and Turkmenistan, are part of Iran's efforts to build regional ties and followed renewed debate over the kind of role Iran wants to play in Afghanistan. As discussed here, it has also been improving ties with Pakistan, and both countries may have worked together on the arrest last month of Abdolmalik Rigi, leader of the Jundollah rebel group.

Depending on who you listen to, Iran is either an unlikely potential ally of the United States in Afghanistan, with shared common interests in stabilising the country, or a spoiler ready to support its old enemies the Afghan Taliban in order to undermine Washington's position.  Others put it somewhere in between, like every other country in the region biding its time in order to make sense of the U.S. exit strategy from Afghanistan, while also picking its way through a showdown with the United States over its nuclear programme.

Evidence so far of its exact intentions on Afghanistan is sketchy. After initially supporting the United States following the overthrow of the Taliban in 2001 -Shi'ite Iran has no natural sympathy with the hardline Sunni Taliban - it found itself branded by former president George W. Bush as part of the axis of evil in 2002, and then after 2003 squeezed between U.S. troops in both Iraq and Afghanistan.

Since then there have been regular unconfirmed reports of Iranian support for the Taliban, largely designed to queer the pitch for the Americans. In one of the more recent reports, Britain's Sunday Times newspaper provided what it said were details of Taliban fighters being trained in camps in Iran. In a follow-up, however Britain's Daily Telegraph quoted a senior diplomat as saying that there was intelligence that Iran was instead holding off support to the Taliban and had recently refused requests for arms. U.S. Defense Secretary Robert Gates described Iranian support for the Taliban as "pretty limited"

At the same time, Iran is keen for stability in Afghanistan in part to help clamp down on a booming heroin trade which has left it with its own huge drug addiction problem. Nearly a year ago, it offered help in combating the Afghan drugs trade at a conference in The Hague attended by U.S. Secretary of State Hillary Clinton.

Its police chief was quoted this month by Press TV as saying that, "in addition to hosting a large domestic consumption market for narcotics, Iran is the shortest drug trafficking route from Afghanistan to the world. Opium-based products such as morphine and heroin are usually transported to European countries and other products such as hashish are trafficked to other countries such as the Persian Gulf littoral countries. Given all of this, naturally Iran is the country suffering here."

from FaithWorld:

Pew measures global religious restrictions

The Pew Forum on Religion & Public Life has come out with a new report that tries to measure, country by country on a global level, government and social restrictions on religion. You can see our coverage of the report here and here and can download the whole report here.

The report, which Pew says is the first major quantitative study of the subject on a global level, ranks countries under two indices -- one measures government restrictions on religion, the other social hostilities or curbs on religion that stem from violence or intimidation by private individuals or groups.

A damaged mosque in Onitsha in southeastern Nigeria

The Government Restrictions Index is based on 20 questions used by the Pew Forum to assess state curbs on religion at the national, provincial and local levels.

"Is public preaching by religious groups limited by any level of government?," and "Taken together, how do the constitution/basic law and other national laws and policies affect religious freedom?" are among the questions asked.

The Social Hostilities Index is based on 13 questions including “Was there mob violence related to religion?” and “Was there a religion-related war or armed conflict in the country?”

from The Great Debate:

Obama and flawed logic on Cuba

-- Bernd Debusmann is a Reuters columnist. The opinions expressed are his own --

The U.S. case for isolating Cuba and keeping it out of international meetings such as this week's Summit of the Americas sounds simple: the country doesn't have democratically elected leaders, it holds political prisoners, it violates human rights and its citizens can't travel freely. All perfectly true.

But if the logic used for isolating Cuba were applied consistently, neither China nor Saudi Arabia, for example, should have taken part in the London G20 summit. The U.S. State Department estimates China has "tens of thousands" of political prisoners and describes it as "an authoritarian state in which the Chinese Communist Party ... is the paramount source of power."

That has made little difference to the close relationship of mutual dependence between the U.S. and China, the largest creditor of the United States. During U.S. Secretary of State Hillary Clinton's February visit to China, pragmatism triumphed over human rights concerns as she urged the Chinese to keep buying U.S. treasury bonds.

In comparison to China's "tens of thousands," the State Department's latest human rights report quotes a Cuban human rights group as saying the government there held at least 205 political prisoners at the end of 2008, down from 240 at the end of 2007.

The Saudi monarchy, according to the State Department report, denies its citizens the right to change the government peacefully, holds political prisoners, curbs free speech, restricts religious freedom, tolerates violence against women, and sanctions corporal punishment. The list goes on and includes lack of due process in the judicial system.

from The Great Debate:

In China, OPEC’s nightmare comes true

-- John Kemp is a Reuters columnist. The opinions expressed are his own --

China's decision to link domestic fuel prices indirectly to the international crude oil market, subject to a price cap, while hiking the consumption tax on gasoline and diesel and phasing out a variety of road tolls and other fees shows Saudi Arabia's worst fears about high prices and demand destruction are starting to come true.

It seems likely to confirm the kingdom's determination to see prices stabilize around $75 per barrel, well below recent price peaks, and far below the level sought by some other OPEC members, as well as international oil companies and advocates of alternative energy.

China is among the world's most inefficient users of energy, measured in terms of BTUs consumed per dollar of GDP produced.

Since China's economy is one of the largest and fastest growing, and heavily reliant on imported crude oil, China has been hit harder than any other country by the recent surge in oil and energy prices.

Rising energy prices have worsened the country's terms of trade, and threaten the viability of much of the industrial base (including the power-intensive steel and aluminum industries).

The central government has made reductions in energy consumption per unit of output a top priority. Policymakers have used investment controls and other administrative measures to try to limit the expansion of energy-intensive industries aimed at producing primarily for export.

from The Great Debate:

New economies want power before paying

--Paul Taylor is a Reuters columnist, the views expressed are his own--

Anyone who expected the major emerging economies to write fat checks in exchange for being invited to the first G20 leaders' summit on rescuing the world economy will have been disappointed.

But that should only have surprised the naive.

Despite intensive lobbying by British Prime Minister Gordon Brown of Saudi Arabia and China, the rising powers were never likely to make a cash down-payment to the International Monetary Fund before getting more seats and votes at the top table.

IMF Managing Director Dominique Strauss-Kahn said after Saturday's Washington summit that his organization will need at least another $100 billion in the next six months to bail out countries stricken by the credit crisis.

Among the world's major reserve holders, only Japan, an established member of the Group of Seven most industrialized nations, offered the IMF a $100 billion unilateral loan.

The Saudis, Chinese, Russians and Indians want to be sure of winning a permanent say as equal partners in the management of the global economy, and of locking incoming U.S. President Barack Obama into a new world financial order, before they open their wallets.