The Quiet Road

Vladimir Putin is a dangerous, authoritarian despot. This fact is illustrated both by current Russian domestic policy (towards minorities, opposition groups and free-thinkers) and foreign policy (in Ukraine and now Syria).

It seems likely to me that Russian intervention in Syria will have a fairly disastrous outcome. Putin’s military will almost certainly kill and maim many thousands of Syrian civilians in an attempt to prop up the vicious local dictator, Assad, who also routinely kills and maims Syrian civilians. It is a hideous state of affairs.

I don’t claim to know exactly what’s best for Syria and its people; but I am 100% convinced that turning it into Guernica writ large is not the solution. So I – and I hope all right-thinking people and governments – unequivocally condemn Russian policy in this case.

Get the hell out of there, Russia!

That said; the faux-outrage emerging from the United States government and media is nauseating. Any global condemnation of Putin is effectively undermined when the American government joins the chorus. So long as the US military is bombing hospitals in Afghanistan and providing active support to the murderous Saudi Arabian campaign in Yemen, their government should shut the hell up.

And why beholdest thou the mote that is in thy brother’s eye, but considerest not the beam that is in thine own?

Over the past few years the citizens of Ireland have, collectively, been plunged into crippling debt likely to last generations. This was done, ultimately, by a fairly small group of politicians, bankers and property speculators. Our response has been fascinating. With the singular exception of the water privatisation* issue (which has sparked protest and may yet prove a rallying point for a broader “anti-austerity” movement**) we’ve pretty much accepted it with a reluctant shrug. There’s been plenty of anger, don’t get me wrong. But it tends to be seething and grumbling and the narrowing of the eyes with us (rather than riots and petrol bombs and voting for socialists).

I could write at length about why the Irish collective psyche has reacted this way, but I’ll leave that for another day. For now I just wanted to highlight the weird way in which powerful establishment figures involved in the financial crisis occasionally pop up in the media ostensibly to “apologise” (or in this case “renew their apology” – how weird is that!?) but actually seem to be insulting the very people they have completely screwed over. What other explanation can there be for former Allied Irish Bank chairman Dermot Gleeson’s testimony in front of the Oireachtas Banking Inquiry today?

I feel confident in saying that every person reading this post had learnt and understood, by the time they were 10 years old, that “but everyone else was doing it” does not constitute a legitimate justification for doing something. Parents and grandparents will ram the point home with questions about hands in the fire and jumping off cliffs. We knew, as children, that doing something wrong because “the others were doing it” is bullshit plain and simple.

So I feel no hesitation in shouting “Bullshit!” when Dermot Gleeson acknowledges that yes, absolutely, AIB was indeed engaged in:

lending that was ‘expansive’ at a time of excessive risk taking on the back of a construction and property-fuelled boom

but that no single lender could have done anything about it. Because:

“if AIB had stopped lending, their competitors would have happily stepped in to satisfy the demand”

It’s hard to believe, I know, but that really is the former head of Ireland’s second biggest bank telling a government committee that because all the other banks were running up huge unsustainable debts that would one day collapse the economy, it was OK for his bank to do it too. More than that, it was the government’s fault for not stopping him.

The regulator was “hopeless” he claimed. I can’t be the only person made furious by that, right? The man was in a powerful position with a huge amount of public responsibility… but he didn’t comprehend that the point was not to see how many insane things he could do without falling foul of the regulator. We clearly need regulators (not least because of eejits like this guy) but if you’re in charge of a bank deemed of national importance and structurally vital to the stability of the public finances and you’re playing a game of chicken with the regulators. Then you’re doing it wrong!

The heads of our major banks should not be tasked with seeing how close to the edge they can bring the institution in the name of ever increasing “shareholder value”. These banks, sadly, are too damn important to us – the people – to act in so reckless a manner. Or be allowed to. And if we’re still employing that kind of fricking idiot to run our big institutions (hint: we are, because absolutely nothing has changed in that respect) then we need to stop right now.

That said, Gleeson is correct in implying that the government are far from blameless… everyone involved should be writing their memoirs in jail. But as the head of the second biggest bank in the country it was at least part of Gleeson’s job not to run the bloody thing into the ground and the country with it. It’s not acceptable for the head of AIB to steer the institution in whatever reckless direction he fancies so long as he manages to find a way around government regulation and oversight.

Mind you, you kind of have to admire the way he so succinctly illustrates the central attitudes of capitalism with his every utterance.

Also let’s be very clear about something… if the second largest bank in Ireland had actively tried to put the brakes on during the run-up to the collapse; while it clearly would not have prevented the crash, it’s not unreasonable to imagine the country would be in slightly better shape today… a few billion less in debt at least.

And because that equates to a few billion less for the salaries of doctors and nurses and teachers and policemen and the coast guard… well, let’s just say that Gleeson’s failure to learn a lesson most of us grasped as children has caused a great deal of suffering and maybe even cost a few lives. But hey, he’s sorry. So leave him to his wealth. We will condemn him to the inconvenience of appearing before committees every year or two – that’ll surely deter future bankers from destroying the financial system.

For a little while now the Leftist government in Greece, led by Syriza and most visibly represented by Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, has been raising the issue of “German war reparations” whenever the Greek financial crisis is discussed. Up until now however, they had not proposed a figure. A few days ago they got down to brass tacks and suggested €279bn might be fair.

On facebook feeds and web forums I’ve seen a surprising number of people suggest that this somehow represents a “distasteful” strategy. That it’s somehow “below the belt”. So-called moderate leftists have been tut-tutting this apparently shameful behaviour and suggesting Syriza need to retreat to the centre, agree to EU/IMF instructions and calm the hell down. And it’s not just on social media you hear this… the bloody Guardian is full of these “moderate leftists” attacking Syriza. Going so far as to wonder aloud as to whether Greece’s Left is falling under the spell of Moscow. Yes, that is Britain’s flagship “left of centre” newspaper whispering “reds under the bed!” ominously in your ear. God only knows what the Mail and the Telegraph are up to.

There are two things to be said about left-wingers who call for Syriza to return to the centre… firstly, they are totally misreading the situation in Greece which is on a real knife-edge. And secondly, they are – unwittingly – calling for a course of action likely to produce a sharp swing to the far right in southern Europe. At best it’s an ignorant centre-right position. At worst it’s a bit more sinister than that. It’s certainly not “left wing”.

There is genuine concern among many Greeks about the volatility of politics there right now. By and large no modern democracy actually wants to be in a position where they are forced to vote for “a radical solution”. That almost always means something has gone terribly wrong and the safe, conservative, quiet middle ground is no longer working for some reason. And that’s the situation in Greece right now. The country is on the verge of economic collapse (in the sense of there being no money in the banks and no bread in the shops; not in the sense of middle class Greeks being unable to afford a second holiday this year). And the reason for this is two decades of centrist corruption, coupled with the subsequent European banking crisis.

If you’re one of the army of unemployed graduates in Greece right now, you’ve lived your entire life under a centre-left/centre-right political class which actively falsified national accounts at the behest of wealthy oligarchs who refused to pay tax. What’s more… pretty much everybody knew it was happening. Corruption was endemic and both the far left and the far right were shouting about it. But so long as the status quo permitted the Greek government to generate ECB credit; it was ECB policy to encourage it to continue.

And then, surprise surprise, the whole thing collapsed. The European financial institutions acted shocked (just as they did when the Irish property bubble burst… because that was never going to happen, right?) and demanded that the people of Greece be punished for the sins of their corrupt government. Try to remember… it was ECB policy to offer limitless credit to idiotic Irish property developers based on absurdly inflated valuations. And it was ECB policy to offer limitless credit to a corrupt Greek oligarchy (via the Greek Central Bank). I find it mystifying that so many people have bought into the idea that the citizenry of those countries be held responsible for the reckless debts and corrupt behaviour of a few private individuals and institutions.

And that, of course, is the point being made by Tsipras when he demands German reparations. This seems to have gone over the heads of many (or else they are wilfully ignoring it). He’s a pretty smart guy and he knows he’s not going to get any war reparations. He’s merely publicly highlighting a vast discrepancy… how the German people were supported after their government betrayed them, and yet the Germans (who are the principal drivers of European financial policy) are demanding the Greeks be treated entirely differently. It is not distasteful to point out a very relevant double-standard.

When a government betrays its people and rips the nation apart, the international community can offer a Versailles Treaty or a Marshall Plan. It was literally the single most obvious lesson of 20th century history, and we – quite staggeringly – appear not to have learnt it. (Hint: The Marshall Plan turns out better for absolutely everyone involved)

Tsipras and Varoufakis are walking a tight-rope. The IMF/ECB intervention was not working in Greece. The situation didn’t need “adjusting”, it needed a new approach. In Ireland austerity is biting very hard, but the fact is – life in Ireland today is still considerably better than it was for most of the past half century, so people have adjusted. It rankles that we’ve accepted this debt with so little resistance, but that’s how it went.

In Greece though… circumstances are very different and the country has been decimated by the policies imposed by the troika. In 2005 Greece had the lowest suicide rate in Europe. Today it has the highest. Let that statistic sink in. Seriously. Think about how radically a society must have changed for that to have happened… think about how socially damaging the policies of the troika have been to result in that outcome. Nobody can be happy when unaccountable international financial institutions are laying waste to their society. And nobody can be happy when all of their mainstream political parties have accepted this situation and speak almost casually of “a further 10 years of austerity”. Those are precisely the circumstances in which nations are stirred to seek “radical solutions”.

So of course the Greeks have looked for an alternative. To do otherwise is literally suicidal.

The policies currently being imposed on Greece today are very similar to those imposed on Yugoslavia in the 1980s by the IMF (under the behest of a rabidly anti-socialist Reagan administration). Are we really dooming ourselves to walking that grim path again? Golden Dawn are unlikely to ever gain a popular mandate the way Syriza did… but the Greek people will not quietly trudge back to the centre ground if Syriza fails. They can’t afford to. And if Syriza fails, if the current government collapses, it is very possible that a right wing coalition will find themselves requiring the tacit support of Golden Dawn in order to hold power. And once you let fascists into government, even in an unofficial capacity, it can be pretty tough to get them out again.

I believe that Tsipras has one card – and one card only – he needs to somehow stall the EU and the IMF until the Spanish elections and hope (against hope) that Podemos somehow do in Madrid what Syriza managed in Athens. If that happens, it’s just about possible that a leftwing bloc within Europe, strong enough to demand policy change, could emerge. Very unlikely but it’s really their best bet (and I suspect they know it). Hence all the delays and stalling and missed meetings and “promises to review”. Also hence the demands for war reparations. It’s a stalling tactic*, but one with bite, and one with a real point to make.

Those calling for Syriza to fail in Greece (and right now, a call for a return to the centre ground is a call for their failure) are either hoping for a hard-right government or – at best – another decade of the Greek people watching the elderly kill themselves because they can no longer afford their medicine, and young men kill themselves because they see no future in a country where youth unemployment has now passed 50% and is still rising. The Greek people don’t deserve what’s happening to them. It’s crushing them. And it’s business-as-usual centrists… moderates… that are doing it and insisting upon years more of it. So the only real choice facing Greece right now is “left” or “right”?

Those who want the left to fail should – in this instance – be very careful what they are wishing for.

I’m on an email discussion list that includes a bunch of people in the oil industry. On an average day the ratio of shop-talk to global conspiracy stuff is 10:1… and really, there’s only so many times you can read the same impassioned arguments about the merits of different fluid injection methodologies. But every now and then a discussion about a wider political issue gains traction. By and large these are sober, conservative (small ‘c’) engineers not taken to flights of fancy. So when they start saying things like “there’s only a 60% chance the US dollar will still be a viable currency in 18 months”, it piques my interest.

For the past couple of months there has been an almost complete consensus among these people that the Gulf States are driving down the price of oil in order to destabilise Iran. There’s even a guy who – having spent some time chatting with a staffer in the UAE oil ministry – claims that Saudi Arabia, Kuwait and the UAE are targeting $40 per barrel by the middle of 2015 and they intend to keep it there for a year.

As an aside, I read a message from a guy who said he expects 5 year oil futures to drop below $85 any day now. That there… that’s as close to a sure thing investment as the modern financial industry is capable of. What’s more, given the short-sightedness of the financial industry, I wouldn’t be surprised if you could buy November 2020 oil futures for less than $70 by this time next year. Pretty crazy.

Anyway, there’s no doubt that Iran’s economy is utterly buggered if this continues for much longer. Even if the $40 for a year thing is exaggeration, this is presenting Tehran with very serious problems.

Thing is, Iran isn’t the only place this is hitting hard. The Gulf States can weather this storm, but almost no other major oil exporter can. And while oil importers are quite enjoying this period of temporary price-fixing, places like Venezuela and Nigeria are suffering. The fracking industry in the United States is also in trouble (though this price drop is only one of the reasons for that) but America isn’t too worried about that because they like seeing the squeeze put on Iran, while the damage being done to the Russian economy is being seen – curiously enough – through the lens of Ukraine, the Malaysia Airliner disaster and what’s being viewed as Putin’s increasingly aggressive stance towards the west. So the Americans are offering their explicit support to the Gulf States in order to put Russia under pressure.

Now, let’s be under no illusions here… Putin is a dangerous man. I’ve noticed more and more western liberals buying into the Russia Today narrative and viewing Putin with a kind of grudging, “enemy of my enemy” respect. Which is madness, because this guy should be viewed as at least as big an enemy as western capitalist imperialism. Anyway, it’s simply inconceivable that Russia won’t respond dramatically to this very real threat to their national economy. And what response will that be?

Well, according to the mailing list people, Putin is getting ready to announce a major shift in policy. Early next year he will be switching all of Russia’s petroleum trading to roubles. That’s what they’re saying on the grapevine anyway.

A lot of people – even economically literate ones – don’t fully understand the important link between the US dollar and the global oil trade. The pricing of oil in dollars isn’t just a matter of convenience. All trade in oil actually takes place in dollars. Dollars get exchanged for oil. Not euro, or roubles or yen. This ensures a constant demand for dollars as anyone who wants oil… i.e. everyone… needs to buy dollars before they can buy that oil.

Not sure if you’ve noticed the huge collapse in the value of the rouble in the past week? And the huge Russian interest rate hike? Well, according to some people Russia has deliberately torpedoed their currency in order to buy back roubles, from anyone who has them, at a bargain price. Because if Putin goes through with this and demands roubles in exchange for oil and gas? He will instantly make the rouble into a European reserve currency. Demand will rocket and the dollar flight will begin.

Unlike other countries, the US will not be able to intimidate Russia into backing down on this. Especially given the huge hardship being caused to Russia by this US-supported Gulf strategy. And if it turns out to be a success for Putin (which I think it will do) then there’s really nothing to prevent other countries doing the same.

The Saudis, with the support of the US, are playing a very risky game right now. And one that could result in the end of the dollar as global reserve currency. Sleep tight.

Those who keep an eye on such things will know that something very strange has been happening with the oil price over the past few months. Saudi Arabia, Kuwait, Qatar and the Emirates have been aggressively driving down the price of oil (and have just signalled their intent to continue doing so). This fall has not coincided with an equally precipitous drop in demand, and it is not – except tangentially, in a manner I’ll discuss in the fifth paragraph – related to the “unconventional oil” coming out of America thanks to the fracking boom. That whole fracking thing is smoke and mirrors of the first order by the way.

No, what’s happening with the oil price right now is geopolitical. What’s more, it heralds an era of increased geopolitical tension.. something that’s only starting to filter through into the mainstream. There’s a big wake-up call coming folks.

What do I mean when I say the price drop is geopolitical? Well, it’s important to understand that when it comes to oil, the Saudis (and the other Gulf Kingdoms) are very astute. Right now they possess a large enough share of the oil export market to effectively drag the global price any direction they choose. And this has a massive effect on the global economy. However, it is extremely unlikely they will still possess this influence in 20 years (even 10 years from now there’s no guarantee). Based on depletion profiles that they take very seriously (even if the western media does not), they will never possess as great a global influence as they do today.

Saudi Arabia is taking the lead on this, and is being backed by Kuwait and Qatar (with the United Arab Emirates a more reluctant fellow-traveller… this hurts their economy more than it hurts the others for a bunch of reasons). It’s important to realise that it is not an OPEC thing. In fact… OPEC is bloody furious. And with good reason; a number of OPEC nations are going to end up as collateral damage in all this (Venezuela and Nigeria are both being crucified).

Russia is also feeling the pinch. And the fracking boom in America is being hit very hard. That entire industry is a pipe-dream. It can only exist thanks to massive government subsidy in tandem with a very high oil price. Both of which can be arranged, it’s true, but more importantly… there just isn’t as much of it as has been suggested. Nowhere near as much. And ramping up production to cover the drop in conventional crude production simply isn’t going to happen.

Now, it’s unlikely the Saudis are willing to take such a large economic hit themselves simply to undermine the US fracking industry. That Financial Times article suggests that the low price could put a strain on US / Saudi relations, but as an overall economy the United States benefits from a low oil price. So I don’t see that being the case. Besides which, the US and Saudi Arabia are firm allies and they share a common enemy… Iran.

The real reason the global oil price is low* right now is because Saudi Arabia is waging economic warfare on Iran.

When a country gains a large proportion of its income from oil exports, it is possible to calculate a “breakeven oil price” for that country. That is, the price at which they must sell oil to cover government spending. Different economists tend to come up with different numbers (no surprise there) but if you see them as a guideline rather than an absolute value then they can be illuminating. CitiGroup say Saudi Arabia’s breakeven number is $89. The IMF says it’s $80. Deutsche Bank say $78. So you can see that having oil down below $80 per barrel is going to hurt the Saudis, but it’s something they can live with – this is not a nation that finds credit hard to come by. Qatar’s down in the mid-70s. While Kuwait’s breakeven is between $54 and $75 depending on who you listen to.

Not so Iran. According to CitiGroup they have a breakeven price of $130. The IMF suggests it could be as high as $140. And if you hear an analyst on the news try to explain the current fall in oil prices in terms other than an outright economic assault by Saudi Arabia against Iran, they simply do not know what they’re talking about. Because this is shattering the Iranian economy. It’s also giving a proper kicking to a bunch of other oil exporters. Nigeria and Russia both have notional breakevens above $110 and Venezuela is right up there with Iran when it comes to exposure to low oil prices. As for Iraq… if the country is to have any chance of surviving as a united entity it needs a reliable income stream, and with a breakeven price around the $100 mark, it doesn’t have that right now.

The effect on Russia is particularly concerning, especially if you’re a European like me who has just witnessed Putin sign a contract to sell a whole bunch of gas to the Chinese and can see the spectre of European gas shortages should this looming Cold War escalate (when the normally taciturn Finns start complaining about something, it’s a good idea to listen). The notion that “they need our money as much as we need their gas” has simply never been true (the Russian capacity for belt-tightening far surpasses the capacity of European governments to survive power-cuts and cold winters… so European governments will always cave first). And it’s especially not true now when the Asian economies can provide an alternate source of income. Falling oil prices puts additional pressure on Russia and is likely to drive Putin towards a more aggressive foreign policy (in my view).

But Iran is the target, and while nobody outside Gulf aristocracy knows how long they plan to keep up this assault, it is likely to only be the first in a series of oil price manipulations over the next few years. And as a result, we’re likely to see the kind of geopolitical brinkmanship that has the potential to end very very badly indeed.

“Today I Thunk”… kind of like “Thought For Today” but with less gravitas.

So as campaigning continues in the local and European elections, I am struck by just how hollow the claims of the candidates sound. We have reached a point where I basically assume a politician is lying whenever their lips are moving. Or at best, they are too damn stupid to understand just how stupid they sound. Either they are schemers with a hidden agenda, or they are careerists without the intelligence to hide their agenda of pure self-interest. And the problem, of course, is that politics has become a job without any consequences for failure*.

Which is kind of crazy given that it’s actually a pretty important job. Indeed, with the exception of Hollywood film producer and premiership referee, there is surely no other job where you can so consistently demonstrate incompetence and yet face no negative consequences aside from transient public criticism.

So here’s an idea… when politicians are campaigning for our vote, they should be obliged to sign a contract with the electorate. This contract would outline the exact terms by which their party would measure success if elected.

So, for example, they might state that unemployment would be below a certain percentage after their first term in power. Or that the number of people classified as being in poverty would be below a certain number. There are all manner of metrics that can (and should) be developed to quantify the success (or failure) of a government.

Then, at the end of the term in office, if they have not succeeded in keeping a significant proportion – say 75%? – of their promises, those individuals are legally prevented from (a) standing in the next election, and (b) drawing any pension from that term of office.

If nothing else, this will result in political parties being forced to openly admit they’re unwilling to make ambitious promises. It will demonstrate the paucity of their belief in their own intentions. It will bring some much needed “consequence” to their almost inevitable failure. And – over time – it may even result in a better class of politicians – people willing to make ambitious promises that they actually intend to keep.