Monthly Archives: January 2006

Bulgaria Says “Thanks, But No Thanks”

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Over at TYR, I argued that the explanation of the Ukraine-Russia gas dispute was an effort by the Russian side to break up the European gas customers as a negotiating block by exploiting the conflict between the transit states (like the Ukraine) and the customers (like Germany). This gave rise to further discussion down-blog right here on AFOE, in the comments to this post of Tobias’s, where this was said…

I think he was trying to play off the customer states against the pipeline states, in order not to deal with a European monopsony. Unfortunately, the pipeliners and customers were rather induced to hang together rather than swing separately, and he backed down in order to prevent the point of payment being moved to the Russian-Ukrainian border, which would have effectively put the Ukraine in the EU for gas purposes.
Posted by Alex at January 5, 2006 10:50 AM

“I think he was trying to play off the customer states against the pipeline states”

Interesting theory, but how do Moldova and Armenia fit into this. The former was cut off and the latter has been badly threatened?
Posted by Edward at January 5, 2006 11:02 AM

Armenia – rather different case. The pipeline/customer thing doesn’t apply (AFAIK), but as Armenia is a small customer relative to Russian gas production, the relationship is very different. No need for anything complicated, just a shakedown for more cash.

Moldova – interesting question. It’s not on the way to anywhere is it?
Posted by Alex at January 5, 2006 03:32 PM

“It’s not on the way to anywhere is it?”

Not that I know of. It just seems to have been……forgotten.
Posted by Edward at January 5, 2006 03:43 PM

It seems Moldova is sitting on the pipeline to Romania and Bulgaria.
Posted by Oliver at January 5, 2006 03:53 PM

That’s it, then: a power grab for control of (or at least cheaper rates on) two export lines, by trying to play off the customers against the pipelines. Armenia was pure opportunism.
Posted by Alex at January 5, 2006 04:43 PM

“It seems Moldova is sitting on the pipeline”

“That’s it, then: a power grab”

Fascinating! This certainly gives plausibility to the idea that they were going for control of the landline installation. The issue now is how will the customers respond.
Posted by Edward at January 5, 2006 09:28 PM

Now, though, we may be about to find out. Bulgaria has been faced with a demand from Gazprom very similar to the one to the Ukrainians, and it seems they’ve given them the brushoff in much the same way. A very similar logic applies, as Bulgaria is both a transit provider (it’s odd how this Internetworking terminology creeps into what is after all a discussion of networks) and a fair-sized gas customer. The Russians seem to have been of a mind to use the latter fact to force changes on the former, and the Bulgarians have adopted an identical strategy.

Which would predict a settlement in double quick time, if we’re right.

Garden Of The Forking Paths?

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“Global imbalances matter” seems to be the favoured warcry over at Brad Setser’s blog these days (I’m not sure anyone really disagrees with the idea that they matter, all the arguing seems to be about how much and why). Recently however Brad seems to be drawing support from a rather unexpected quarter: “one part of the Economist” (well, one part is definitely better than none), the part which believes that despite what happened in 2005, 2006 will be the year of the “great dollar decline”: And why would this be? Because, of course, global imbalances do (here read the US CA deficit), in fact, matter.

Now there is another view available on this.

However this issue is more interesting, since the part of the Economist which believes that the US CA deficit will prove decisive in 2006, also seems to believe that global ageing isn’t in fact a terribly important phenomenon (and here).

The Economist seems to take the view – as Claus Vistesen puts it – that “Rich countries’ populations are shrinking … not to worry though“?

In fact Claus seems much nearer the mark than the part of the Economist which seems to be arguing that ageing doesn’t matter too much when he says:

I agree with the zest of their arguments, namely that the new realities mean that there will be fewer people in the workforce to support more old people in the future. In a global perpspective I also believe that the world would benefit from having fewer people on the whole. However, the point that escapes The Economist in the midst of their optimism is that some countries will have a hell of a lot more difficulties adapting than others, and as such these demographic trends might have a real negative effect, at least some places in the world.

Yes, I would say that this is just the point that escapes the ‘ageing doesn’t matter so much’ part of the Economist, who seem to believe that population meltdown in Japan wouldn’t be a problem since “the last Japanese will (only) die as soon as 2800.” (Actually the article on Japan is near to scandalous, since it only focuses on the legal minimum pensionable age, and misses entirely the important point that most Japanese already continue working after 65, and even by the age of 75 25% of the population are still working).

I have already posted extensively on the population turning point in Japan (and here). So now I would simply make two points. Firstly it is the age structure of the population which matters, not its size, and secondly, it is curious how all those people who seem to want to argue that the US current account deficit is the most important determinant of today’s global economy also feel themselves impelled to downplay (if not actually try to ridicule) the idea that changing global demography (from Bolivia, to Vietnam, to Turkey, to China, to France, to Germany, to Japan) has any important role to play in helping us understand current economic phenomena. I think there is a choice here: two world-views are colliding, and the paths are forking.

UK Housing Boom Over?

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This is the first really concrete piece of news we’ve had on the UK housing situation. George Wimpey Plc, Britain’s second-biggest homebuilder by revenue have just announced that full-year pretax profit probably fell for the first time in a decade:

U.K. sales slipped 1 percent to 12,100 homes, with the average selling price dropping 4 percent, more than analysts had expected. Pretax profit was as much as 22 percent below 2004’s record level and at the lower end of estimates, Chief Executive Officer Peter Johnson said in an interview today.

Prospective buyers shunned purchases as Britain’s benchmark interest rate reached 4.75 percent last year, making mortgage payments more expensive. A quarter-point cut by the Bank of England on Aug. 4 has yet to revive prices. Wimpey last reported a decline in annual pretax profit in 1995. The second-half figure also fell, Johnson said today.

Evo Morales Accepts The Invitation

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Another example of the law of unintended consequences: Evo was in Spain on Wednesday, probably partly as a result of the spoof phone invite from a right-wing radio station. This ‘invitation’ opened the door politically for Zapatero to offer a courtesy invite which might have otherwise drawn a lot more political backfire from the PP right.

In fact, as the linked article makes plain, it is Spanish interests – especially Repsol YPF, Iberdrola and Red Electrica – that are most immediately threatened by Morales nationalisation plans. This makes yet more dog-in-the-mangerism from the PP (Rajoy was too busy to meet with him) very hard to understand. One more time they seem to be putting Party before Common interest, hoping to be able to ensnare Zapatero in Morales’ web for short term political advantage without thinking too much about the actual future of Bolivia, or of Spanish interests there.

Morales was also in Brussels yesterday, where he met, of course (who else), Javier Solana.

Oh, How Are The Mighty Fallen!

I can remember a time when Jeffrey Sachs used to do some pretty innovative work in development economics (and this one). Among other parameters influencing ‘take-off’ he used to think the demographic ones important. Increasingly this seems not to be the case. This podcast interview with Bolivian blogger Miguel Centellas and Jeffrey Sachs is not only informative as to what is happening in Bolivia itself, but also on how Sachs’ thinking is evolving. The three key issues explaining the ‘Bolivian Question’ are now: the fact that it is land-locked, the fact that there is huge inequality, and the fact that there is political instability. The first is a reality which only infrastructural investment can ammeliorate, but the second two involve addressing demographic issues if you want to move forward. At least that is my view. Incidentally hat-tip to Miguel Buitrago and also see this post and comments on the Ciao blog.

Turkey And Avian Flu

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While a lot of our attention this week is focused on the EU’s energy needs, we shouldn’t neglect this piece of news. Basically I had it right on Monday: unfortunately poor Muhammet Ali Kocyigit did test positive for the H5N1 virus, and the Turkish health minister Recep Akdag was guilty of spreading disinformation earlier in the week when he said that even if the cause of death was unknown, it definitely wasn’t avian flu.

As I also suggest here, Turkey’s progress towards a sophistocated modern democracy will be a long and hard one (that’s why we’ve given them ten years, isn’t it). Equally those of us still able to remember the role of the UK Ministry of Agriculture during the BSE outbreak will be aware that those who live in glass houses shouldn’t throw too many stones.

Quick Response?

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Well the news is coming in thick and fast. The EU Observer informs us this morning that:

The EU might build a new gas pipeline on the Adriatic Sea coast in order to ease reliance on Russia following the Russia-Ukraine gas dispute. Hungarian economics minister Janos Koka told news wires about the plan following a meeting of EU energy experts in Brussels on Wednesday (4 December). Under the scheme, tankers would deliver liquid gas from the Middle East and North Africa to an Adriatic region entry point into Europe. A feasibility study is due by March. The EU experts’ meeting was orginally tabled for May, but was brought forward after Russia turned off gas supplies to transit state Ukraine on Sunday causing sharp drops in deliveries to the EU.

I think all this takes us back to the strategic importance of EuroMed.

All Gas Or Just Hot Air?

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This is a kind of bits-and-bobs post without a lot of coherence, as I am trying to make sense of something which is hard to make sense of, so anyone with more specialist knowledge, please chip-in.

Now I think what we have here is a highly complex situation, and if individual actors behave strangely in a complex situation, this should not in fact surprise us. The big picture scenario is the economic take-off of what are going to be two enormous energy consumers – India and China – and a growing per-capita consumption of energy in the rest of the OECD towards the previous US ‘highs’. This has lead to a large and significant increase in oil prices, and the rest of what is happening can be seen as the scrum which has assembled in the wake.

Now what else do we know?
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Unfit To Lead The G8?

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The question as to whether or not Russia ” truly belongs in the prestigious Group of Eight (G-8) advanced liberal democratic market economies”, and even more to the point, whether it is in a fitting condition to take the helm in that organisation is a question which was asked by Taras Kuzio (Visiting Professor at the Elliott School of International Affairs, George Washington University) in yesterday’s issue of Eurasia daily monitor, – a publication which is rapidly becoming a ‘must read’ for those of us who want to follow what is happening along the EU’s eastern frontier.
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What’s in it for Putin?

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If there’s one mystery trumping all the others in the recent Russian-Ukrainian gas supply row, it is the one concerning the role and intentions of the Kremlin, particularly with respect to Vladimir Putin: Why fight a public battle over an issue that is almost as intransparent and complicated as the geological processes that created the gas in the first place? Veronica Khokhlova is trying to make some sense of the deal –

On the surface, it’s all clear and nice: they’ve reached an agreement, and we aren’t paying what Gazprom initially wanted us to pay. Europe can relax, too. But … it’s a complex deal. The Reuters piece [she cites on her blog] doesn’t mention Rosukrenergo as part of the scheme, an intermediary company that will be buying Russian gas from Gazprom for $230 and then selling both Russian and Turkmen gas to Naftogas for $95. A Gazprom affiliate and Austria’s Raiffeisen Investment AG own 50/50 stakes in Rosukrenergo, which, in a way, means that Gazprom will be buying gas from itself. Rosukrenergo is registered in Switzedrland, and Raiffeisen Investment AG has, allegedly, nothing to do with Raiffeisen Bank. Oleksandr Turchynov, former head of SBU and Yulia Tymoshenko’s man, launched an investigation into Rosukrenergo in summer 2005, but was not allowed to finish it.”

And Jerome at Eurotrib keeps arguing that all this is (simply) a matter of oligarchic infighting at the expense of the peoples involved (as they are paying significatnly higher energy prices than those paid by their countries/oligarchs energy corporations).

Be that as it may – the real question at hand is, as I see it, the following: did Russia/Putin want to appear weak in this matter, demonstrating to the west that he needs to do in Russia what he deems necessary (remember Yukos, the NGO law), or is the Kremlin/Putin indeed so weak that it has to accept oligarchic infighting to the extent of creating a foreign policy crisis, and that, as a result, the Kremlin needs to tighten its grip? Quite frankly, neither alternative is likely to make anyone happy.

Towards a European strategy for the security of energy supply

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Here’s the link to the EU Energy green paper I mentioned yesterday. As is to be expected, the report is ‘fair and balanced’. The section on nuclear energy focuses mainly on the sovereign decision making process as to its adoption and emphasises the role of Brussels in ensuring environmental safety. It does, however, contain this intriguing paragraph:
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