France & Belgium: Football's Cases for Migration?

♠ Posted by Emmanuel in ,, at 7/15/2018 06:37:00 PM
Why can't the non-footballing talents of Belgium and France be spotted and nurtured too? That is the question.
Apologies for the light posting over the past few days. Like most of you probably, I've been following the World Cup rather too closely to have time to post. However, with the tournament over as I write--France has won and Belgium finished third--there is actually an IPE angle here. (Even fourth-place UK deserves mention here.)  Bloomberg op-ed writer Leonid Bershidsky penned an interesting commentary from a few days back asking whether immigration's case is bolstered by multicultural French and Belgian teams. Indeed, these teams are more diverse than the general populations of these nations:
France’s starting lineup in Tuesday’s semifinal against Belgium contained five players born overseas or to immigrant parents: Cameroonian-born Samuel Umtiti; N’Golo Kante, whose parents came from Mali; son of Guinean parents Paul Pogba; Kylian Mbappe, whose father is Cameroonian and mother Algerian; and Blaise Matuidi, son of an Angolan father and a Congolese mother. That’s 45 percent of the starting 11. Non-European Union immigrants and their children make up only 13.5 percent of France’s population, according to Eurostat.

Belgium’s starting 11 also had five players of immigrant background: Nacer Chadli, who started out playing for the Moroccan national team before he switched to Belgium; Marouane Fellaini, whose parents are also Moroccan; Vincent Kompany and Romelu Lukaku, whose fathers are Congolese; and Mousa Dembele, whose father is from Mali. Belgium’s population of first- and second-generation non-EU immigrants is 12 percent.
There is a meritocratic nature to footballing that you don't necessarily find in other walks of life in these nations:
In soccer, the son of a banker and a lawyer (that’s the background of French goalkeeper Hugo Lloris) is on an equal footing with someone like Lukaku, whose family couldn’t pay its electricity bills for weeks at a time and whose mother had to water down his milk to make it last longer. Or like Sterling, whose mother cleaned hotel rooms to put herself through school.
Therein lies the rub: Unlike their footballing counterparts, migrants haven't done as spectacularly well as these footballing stars without as established infrastructure for spotting and developing talent:
The odds are stacked against kids with the same background as the world-class soccer players in a number of important ways. Statistics show a higher percentage of second-generation immigrants than native-born people go to college in France and the U.K. (though not in Belgium) — but, according to a 2017 report from the Organization of Economic Cooperation and Development, an overwhelming majority of young people with low educational attainment in all three countries are second-generation, non-EU immigrants.
Then again, why is it not the case that similar mechanisms for spotting and developing talent are not available in other endeavors?
There’s a lesson in this for the rest of society. Soccer’s support networks for talented kids can and should be replicated in other areas of endeavor. Some of the boys and girls growing up in no-hope areas today could be the Mbappes and Lukakus of tech, finance or the arts. The national teams, multicolored as they are, exist to remind governments, businesses and educational institutions that they just need to look harder.

So football does provide an example in how migrants can achieve outstanding success. However, the real challenge from a societal perspective is to make similar means for advancement available for other migrants and their offspring who are not as blessed with sporting skills. That would seal the case for migration.
Let's be timely here: Although the Ugly American Donald Trump did his best to insult the Europeans for welcoming migrants, I would venture these nations would much rather have their first- or second-generation footballing talents for company instead of the US-based racist-in-chief. Why not make migrants' contributions as evident in other areas to shut up people like him for good? If it can be done in football...

Does Trade War Slow PRC Global Ambitions?

♠ Posted by Emmanuel in ,, at 7/05/2018 08:39:00 PM
How much should Indonesia and others the Chinese are providing infrastructure to fear its ambitions in this trade war era?
Here's a thoughtful rejoinder to a previous post in which it was opined that the Chinese are lending to various infrastructure projects worldwide--with less regard to their borrowers' financial conditions or the viability of these projects--for as long as the PRC can ultimately benefit. So what if the borrowers can't repay? They might be able to obtain prime infrastructure on favorable terms in strategic locations when the fools default.

Or, is that cynical viewpoint not really how the Chinese go about things? Certainly they'd want to rebut such characterizations. Apropos for the times we find ourselves in, the eve of global trade war--US tariffs kick in on $34B worth of Chinese goods on Friday, July 6--may mean the Chinese need to scale back grand ambitions. Delusions of grandeur forestalled and all that...
The value of the deals that Chinese companies are striking under the country’s big global plan — called the Belt and Road Initiative — is smaller than a year ago, according to new data. Chinese officials themselves are sounding a cautious note, voicing worries that Chinese institutions need to be careful how much they lend under the program — and make sure their international borrowers can pay it back.

“Current international conditions are very uncertain, with lots of economic risks and large fluctuations for interest rates in newly emerged markets,” said Hu Xiaolian, the chairwoman of the Export-Import Bank of China, a state-controlled lender that plays a big role in financing the projects, at a forum this month in Shanghai. “Our enterprises and Belt and Road Initiative countries will face financing difficulties.”

China has begun a broad, interagency review of how many deals have already been done, on what financial terms and with which countries, say people close to Chinese economic policymaking, who asked to speak on the condition of anonymity because the effort has not been made public.
The gist of the argument here contains the following: (a) foreign expansionism may be curbed by difficulties at home brought on by Trump's global trade war; and (b) foreign partners do not have infinite patience with being exploited for China's gain:
Under the initiative, Chinese government-controlled lenders offer big chunks of money — usually through loans or financial guarantees — to other countries to build big infrastructure projects like highways, rail lines and power plants. That money often comes with the requirement that Chinese companies be heavily involved in the planning and construction, throwing them a lot of business.

But even with its financial firepower, China has its limits. Its economy is showing signs of slowing, and it is in the middle of a trade war with the United States. Beijing is struggling to tame domestic debt problems — problems an international lending spree certainly hasn’t helped. Too much overseas activity risks creating wasteful white elephants that can drag down Chinese companies and local partners alike.
Which version of events is correct, of the PRC as the new imperialists or that of co-suffering developing countries on the eve of trade war? As with most things, reality probably lies somewhere in between. However, I veer more toward the version described above in that the PRC needs to maintain the trust of other countries as it seeks to build up its international relations, and failed projects cannot always be redeemed by the Chinese if their foreign partners fold.

Can Trump Withdraw US From WTO as He Wishes?

♠ Posted by Emmanuel in , at 6/29/2018 08:06:00 PM
Are the WTO's days numbered with Trump desiring that the US leave it?
Well, it always was bound to come down to this: I have discussed about how various US trade actions on aluminum, steel, automobiles and heaven knows what else are flat-out WTO-illegal. These Section 232 actions on dubious "national security" grounds and Section 301 actions on equally questionable claims about righting US trade partners' injurious trade policies predate the WTO. Indeed, Trump's US Trade Representative Robert Lighthizer who was renowned for using these actions was last in government when Ronald Reagan was in power.

A common thread here is a desire to return to a pre-WTO situation when international trade rules were less codified and the United States presumably had more leeway in pushing others around as it pleased--at least according to the likes of Lighthizer and Trump's assorted minions. Ironically, of course, many developing countries have criticized the WTO for being designed largely to fulfill US wishes regarding trade such as the incorporation on intellectual property rights. At any rate, the main reason to leave the WTO as I have explained is that cases involving Trump's trade actions are likely to be ruled against when brought to its dispute settlement mechanism. To his way of thinking, this outcome would be "unfair." So, why not just leave altogether?
President Trump has repeatedly told top White House officials he wants to withdraw the United States from the World Trade Organization, a move that would throw global trade into wild disarray, people involved in the talks tell Axios.

What we're hearing: “He’s [threatened to withdraw] 100 times. It would totally [screw] us as a country,” said a source who’s discussed the subject with Trump. The source added that Trump has frequently told advisers, "We always get fucked by them [the WTO]. I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States."
There will certainly be "globalists" even in Trump's cabinet pushing back against this line of action. But, as his other moves on trade demonstrate, he often ignores advisers going against his racist / protectionist / isolationist instincts:
Between the lines: Even if his advisers put a policy process in place and try to make sure he’s well-informed on what it would mean to try to withdraw from the WTO — there is no guarantee that Trump won’t do it. History shows he doesn't care about the process.
  • Remember when Trump upended his globalist trade advisers’ carefully constructed policy process and simply announced he’d be imposing massive tariffs on steel and aluminum imports? It’s not unimaginable that the same could eventually happen with his desire to try to withdraw from the WTO.
So, what can Trump do? Similar to NAFTA, it is a question as to whether withdrawing from the body in question can be done by the executive. That is, congress having authorized entry into NAFTA or the WTO, another act of congress should also be necessary to authorize departure:
The safety valve: Should Trump defy his advisers and announce a withdrawal at some point in the future, he would run into significant legal hurdles.
  • As head of state, Trump under international law could make the notification at the WTO. But the U.S. law implementing the WTO agreements states quite plainly that withdrawal from the WTO requires an act of Congress.
Just because he isn't authorized to leave NAFTA or the WTO doesn't mean he won't try since this president does not feel bound by law.

One Belt, One Empire? PRC's Sri Lankan Port

♠ Posted by Emmanuel in at 6/26/2018 06:17:00 PM
A port in Sri Lanka made by China and now owned by it shows dangers in borrowing from the PRC for infrastructure.
A continuing thread I've been investigating is the PRC's grandiose One Belt, One Road Initiative, lately abbreviated to the Belt and Road Initiative. Its stated intention is to restore the commercial infrastructure of the historic Silk Road which stretched from China all the way to the Middle East. To this end, the Chinese government has been spending a lot on infrastructure projects in many developing countries stretching from the Far to the Middle East.

It cuts both ways: developing countries are keen on alternate sources of financing for their infrastructure needs. What's more, China knows a thing or two about improving infrastructure going by the improvements they've made in this respect over the years. Meanwhile, the Chinese benefit by gaining commercial and of course trade access to these nations.

Today, though, we have an interesting counterpoint: What if China's "non-intervention" in the internal affairs of other countries actualy involves lending to corrupt leaders who the Chinese know have no ability to pay them back for these grandiose infrastructure projects? Then the Chinese may still benefit by taking over these facilities. Indeed, the cynical would say that's the entire point of this initiative.
“John Adams said infamously that a way to subjugate a country is through either the sword or debt. China has chosen the latter,” said Brahma Chellaney, an analyst who often advises the Indian government and is affiliated with the Center for Policy Research, a think tank in New Delhi.
Witness what's happening with Sri Lanka nowadays. As the Chinese sought a presence on the Indian subcontinent, its borrowers have conveniently gone belly up and have given up control of a newly port by the Chinese to its builders:
Over years of construction and renegotiation with China Harbor Engineering Company, one of Beijing’s largest state-owned enterprises, the Hambantota Port Development Project distinguished itself mostly by failing, as predicted. With tens of thousands of ships passing by along one of the world’s busiest shipping lanes, the port drew only 34 ships in 2012. And then the port became China’s.

[Former Sri Lankan President] Rajapaksa was voted out of office in 2015, but Sri Lanka’s new government struggled to make payments on the debt he had taken on. Under heavy pressure and after months of negotiations with the Chinese, the government handed over the port and 15,000 acres of land around it for 99 years in December.
The case of a single port is not enough to indict China's intentions, of course. A multi-country study would be useful on whether infrastructure projects were actually completed, used, or worse handed to the PRC after recipient governments could not pay off loans. At this point, though, nobody should believe China's intentions are purely altruistic "third world solidarity" and all that jazz.

There are many dupes like those in Sri Lanka just waiting all over the world.

Trade Wars & Impending Death of American Soy

♠ Posted by Emmanuel in , at 6/20/2018 04:21:00 PM
 
There's a saying that you get the leaders you deserve, and it seems American soybean farmers have voted to put themselves out of business.  Overwhelmingly carrying states where soybean farmers are located, Trump is hellbent on rewarding his voters with economic misfortune. Given Trump's radically anti-China campaign rhetoric, let's say this turn of events is of no surprise to no one. What's more, the export of soybeans was one of the few bright spots in an otherwise dismal agricultural industry:
Soybean-producing counties went for Trump by a margin of more than 12 percent, according to a Washington Post analysis...

Like most large-scale soybean farms in the United States, [this] business relies heavily on foreign markets. China buys 60 percent of all U.S. soybean exports to feed a growing fleet of hogs, fish and chicken.

The high demand has made soybeans a bright spot of profitability for farmers at a time when many other crop prices are down. But Trump’s aggressive tariffs against Chinese goods, meant to protect U.S. intellectual property and manufacturing interests, have incited retaliatory actions that farmers say threaten their profits.
In recent days, the price of soybeans has dropped precipitously, probably causing no small amount of concern for the folks who voted for Trump to punish themselves:
Soybean futures for July delivery dropped more than 7 percent to a low of $8.415 a bushel, their lowest since March 2009, according to Thomson Reuters. They were trading near $8.64 a bushel as of 11 a.m. ET. There are a lot of "unknowns and no confidence," said Rich Nelson, director of research at Allendale, an agricultural market research and trading firm...

With Tuesday's late morning sell-off, soybean prices are now more than 17 percent lower for the quarter and down more than 10 percent for the year..."The dramatic drop today is soybeans because soybeans is first and foremost what the Chinese like to buy from us," said Phil Flynn, senior market analyst at The Price Futures Group.
As a mainly export-driven industry selling to the Chinese, the future of soybean farming has been cast in doubt despite the trade making sense on paper. But, who says logic matters during a trade war as belligerents seek to one-up each other in harming themselves?
But that situation only holds in the short term. Yes, as the world’s top buyer, China needs U.S. soybeans today, in a few months, and likely even next year. However, it is not unreasonable for China eventually to wane itself off American beans in the longer term, which could have detrimental and irreversible effects on U.S. markets...

On paper, a soybean trade war involving the United States and China makes no sense for either party. China imports roughly 100 million tonnes of soybeans each year, primarily from Brazil and the United States, which together produce 70 percent of the global supply.

Simple math demonstrates that under the current structure, China cannot avoid U.S. soybeans right now if it is to meet its import schedule. And besides, why would China want to pay more for a product it clearly needs? Why would the United States threaten its No. 2 export (behind aircraft) to the East Asian country? But logic apparently matters not in this case, as these are the choices that have ultimately been made under the decision to proceed with the tariff tit-for-tat, and potentially a full-on trade war.
When they chalk up the demise of the American soybean industry years from now, it will come down to one word: "Trump". Having voted for him in the first place, soybean farmers will have no one to blame but themselves.

UPDATE: Using the familiar computable general equilibrium model GTAP, researchers at Purdue University estimate Chinese soybean imports from the United States can drop up to 71% if 30% tariffs are applied. Currently, Chinese authorities have indicated a 25% tariff. Not far off...

US Against the World: Three-Front Trade War

♠ Posted by Emmanuel in ,,, at 6/01/2018 07:25:00 PM

Military historians generally believe that World War II was lost by the Germans waging a two-front war. In the West, it fought against the UK, France, and the rest while it simultaneously fought Russia in the East. Not being a close follower of military history, Donald "Trade Wars are Good and Easy to Win" Trump has now  simultaneously declared war not on two but three fronts: against China (by vowing to make good on slapping tariffs on $50B worth of Chinese imports), the European Union, and North America (by not renewing exemptions from steel and aluminum in June).

Can Trump Make America Great Again through US Against the World? Jeffrey Sachs believes Trump has gone insane and that the obvious answer is "no" in calling for Trump to be relieved of office:
The US has probably never before had a delusional President, one who speaks gibberish, insults those around him including his closest associates, and baffles the world. By instinct, we strive to make sense of Trump's nonsense, implicitly assuming some hidden strategy. There is none.
Trump's trade actions are blatantly illegal. They are flimsily justified as an act of national security, but this is sheer nonsense. They are also fatuous in terms of US economic and geopolitical interests. Harming our closest allies, raising the prices on key intermediate products, and provoking retaliation cannot possibly deliver higher wages, better jobs, or an improved trade balance. Trump's latest notion to slap tariffs on German automobiles would be even more damaging geopolitically.
Jeffrey Frankel, like most other sensible observers, also sees folly in Trump's nonsensical moves:
But the economics would be illusory. There would be virtually no effect on the overall U.S. trade deficit: We would otherwise sell the natural gas to some other country, and in reality those smartphones already get about 95 percent of their value added from South Korea, the United States and other countries anyway. Focusing on the bilateral balance is a waste of time. Regardless what happens with China, the overall U.S. trade deficit will rise this year as a result of the Republican tax cuts, enacted at a time when the economy is already producing at the limit of its capacity.

Similarly unmoored from both economic and legal logic are the tariffs that Trump has imposed on imports of steel and aluminum, and threatens to impose on automobiles and other goods. With respect to legal criteria, the national security justification that he has invoked is flimsy in the extreme and will likely inspire other countries to retaliate. With respect to economic criteria, the beneficiaries in the steel industry, for example, are vastly outnumbered by those who will be hurt because they use steel as inputs, they consume the final product, or they produce export goods that will be hit by the repercussions, such as farmers.
Anyway, on to the belligerents. Take, for instance, slapping unexpected steel and aluminum tariffs on Canada and Mexico after Canada's PM Justin Trudeau flat refused to have NAFTA renegotiated every five years (as he should):
The White House launched a round of strong-arm tactics Tuesday when Vice President Mike Pence called Justin Trudeau and issued an ultimatum: A reworked NAFTA deal would need to be renewed every five years. In response, Trudeau canceled a trip to the U.S. Then on Wednesday, the Trump administration announced surprise steel and aluminum tariffs on Canada and Mexico. And on Thursday and Friday, President Donald Trump bashed Canada’s trade practices.

The White House is hoping the campaign of aggression will cause Canada and Mexico to cave as talks to renegotiate the 25-year-old NAFTA agreement are plagued by standoffs and delays. But instead, the moves could backfire as Canada and Mexico retaliate with their own tariffs, leading to a stalemate that would result in Trump pulling out of NAFTA altogether.
The other NAFTA countries are now engaged in a retaliatory tariff slapping frenzy:
Starting July 1, Canada will impose duties on about $12.8 billion worth of U.S. imports. The tariffs will target steel and aluminum imports from the U.S., but also agricultural and manufactured goods like cucumbers, laundry detergent and mattresses.

Mexico also said it would impose tariffs on $8 billion in American pork, blueberries, lamps and other goods. Mexican Economy Secretary Ildefonso Guajardo told reporters on the sidelines of a summit in Paris that his government is taking the action under the rules of NAFTA, which will allow the country to impose its retaliatory tariffs immediately, as soon as early next week.
Not content with irking the normally placid Canadians, the Yanks are making Europeans also deal with the same steel and aluminum tariffs. More specious measures are said to be forthcoming on "national security" grounds on Germans cars:
Mr Trump had warned before Thursday’s decision that any EU countermeasures would be responded to in kind — a message reaffirmed by US officials in recent contacts with European diplomats. The US administration in May announced an investigation into whether car imports pose a national security risk— a probe that is being eyed warily in Germany and elsewhere, as auto tariffs pose a much larger potential threat to the EU than the steel and aluminium duties. Germany, for example, accounted for just 4 per cent, or about $1.2bn, of the US’s $29bn in steel imports last year. But the US imported $20.2bn worth of cars from Germany and a further $8.6bn from the UK.
We'll see how the third round of China-US trade talks will go the next few days, but the writing appears to be on the wall already. As many have observed, the US trade actions are unlikely to be upheld at the World Trade Organization. Following China and India, the European Union has just initiated a case at the WTO against these steel and aluminum tariffs.

Given Trump's unrivaled ability to offend everyone--others Asians like China and Japan included over steel and aluminum alone--I would expect the rest to consolidate their cases against America. An interesting aspect here is that Trump is potentially driving the Europeans into the arms of China now since the EU has traditionally had complaints about the PRC more similar to those of the United States concerning the overproduction and dumping of Chinese steel and other goods. America will be left with no real major economic allies, be they Asian, European, or North American.

Let's further assume that the Europeans and the others win their WTO case(s) against the United States. These things take time. It may be that the case stretches into the 2020 US presidential elections when a less protectionist candidate wins--it's hard to imagine anyone more protectionist than Trump. The more "exciting" outcome would be the US losing its case while Trump is still president, in which case the US will probably just ignore the WTO ruling. It has done so in the past, and Trump has already pledged to ignore those it sees as "anti-US". With that result, we must return to the idea that Trump's intent, knowing full well that his trade policies are WTO-illegal, is to blow up the institution. Here, the question would be how long it is before a more conventional American leader is put in place to shore up an institution the United States thought up in the first place.

So, can the US "win" a three-front trade war? Two was already a stretch going by conventional wars; three is probably a step even beyond "too far already". In the end, the losers here are probably everyone involved as history suggests there are no real victors in these trade wars.

The Case for Singapore Rejoining Malaysia

♠ Posted by Emmanuel in at 5/31/2018 03:28:00 PM
Perhaps the only time Lee Kuan Yew cried in public was when Singapore left the Malayan Federation. Can things still work out?
Our longtime contact Andy Mukherjee of Bloomberg View recently penned a thought-provoking op-ed on why it makes sense for Singapore to rejoin Malaysia. Recall that Singapore was kicked out in 1965 of what was then known as the Malay Federation. Refusing to accept "affirmative action" laws aimed at ensuring ethnic Malays would gain preferences especially over the economically dominant ethnic Chinese, Lee Kuan Yew felt no choice but to leave. However, to the end of his life, he never gave up on the possibility of reintegrating with Malaysia.

Interestingly enough, recent events make this possibility less remote. Mainly, it makes economic sense. That said, we have to wait for  upset election victor, 92-year-old Mahathir Mohamad, giving up the reins of power to his onetime protege, 70-year-old Anwar Ibrahim. Due to Mahathir's age, it may actually happen fairly soon. The hope is that Anwar would once and for all do away with the "New Economic Policy" of Malay-favoring affirmative action that offends Singaporeans with their mix of ethnic Chinese, Indians, and Malays:
But guess what. The latest Malaysian election, with its big upset, offers a reason to reconsider Lee’s 1996 and 2007 optimism [on reunification]. Maybe the analyst in him was right all along.

Once Anwar Ibrahim is out of prison and in the Malaysian prime minister’s seat, and once he starts taking apart the system of state-sponsored racism that has existed there since 1971, the difference between peninsular Malaysia and Singapore will be of living standards. In fact, with a shared heritage of British-inspired common law and parliamentary democracy, the difference will be even less than it is between Shenzhen and Hong Kong.
There's also the added attraction of gaining a relatively populous market in Malaysia for famously low-birth Singapore. Simply, Malaysia has more of the people Singapore needs. The example of the Pearl River Delta is also an attractive example to consider in a "one country, two systems" sense that works well enough economically:
Much better institutional arrangements are possible now, taking a leaf perhaps out of the Greater Bay Area that Beijing wants for Hong Kong, Macau and Guangdong province. If the agglomeration proves to be an economic success for Hong Kong, it would again put pressure on Singapore to find the one thing it doesn't have: a hinterland.

A hinterland, and babies. Almost 25 percent of Malaysia’s 32 million population is below 14 years of age. For aging Singapore, where the figure is 15 percent, the neighbor’s demographic dividend — if harvested well by Anwar — is a valuable resource. Defense savings, should the two countries agree to share resources, are an added attraction.
The catch remains a strong one that Mahathir, who was already in a position of leadership when the "New Economic Policy" was implemented, is habituated to the old ways. Indeed, the recently defeated Najib Razak was rather more Singapore-friendly than Mahathir.
Mahathir is too wedded to the status quo to move the needle on race relations. But if Anwar does manage to plant the seed of equal opportunity and rules-based competition while clearing out the weeds of rent-seeking and cronyism, a mutually beneficial economic union with some sharing of the defense burden is possible. None of this will occur tomorrow. The shock election result has increased the odds of a loose confederacy from zero to, say, 10 percent over the coming 30 years. Still, that’s a start.
Maybe Lee Kuan Yew will still find solace over this matter in the afterlife; I for one don't rule it out happening...one day.

How OPEC Boosts US Oil Exports to Asia

♠ Posted by Emmanuel in at 5/28/2018 08:56:00 PM
Us Asians don't need Trump to force us to buy American oil. Fancy that.
As it was in the beginning with cartels, so it shall be until their end. The trouble with these things is that they only work if compliance with production limits are observed by a clear majority of the producers. I must admit that while the recent OPEC/Russia effort has been quite impressive--if you told me oil prices would reach their current levels when they started, I'd have said you're mad--there are limits.

The clear "antagonist" to these would-be petroleum oligopolists are the Yanks. Namely, the shale oil producers who have taken advantage of new production techniques to extract more oil and gas than previously thought possible from the United States. They too have been helped by the lifting of an oil export ban at the end of 2015; exports resumed in January of the next year.

The type of crude oil exported by non-American sourced is called Brent, whereas that coming from the United States is West Texas Intermediate (WTI). OPEC/Russia have succeeded in limiting supplies of Brent which they produce more of, while American WTI has been less affected. So, the price "spread" (difference) between cartelized Brent and WTI has been widening lately. The question is, why would oil customers worldwide buy OPEC/Russia's pricier Brent instead of WTI? The answer has to do mainly with bottlenecks getting US shale out of the ground and delivered to world markets. After all, you don't expect a country forty years dormant in exporting oil, the USA, to develop the necessary infrastructure overnight:
The simple reason for this is that the shale oil boom has left crude sloshing around the U.S., resulting in a local oversupply. While Brent prices have risen some 14 percent over the past three months, WTI is up just 7.5 percent and Midland crude – the version of WTI priced in the booming Permian basin rather than the benchmark delivery point in Cushing, Oklahoma -- is down 4.8 percent.

The last time we saw these sorts of spreads, there were sound legal reasons for it. The U.S. had forbidden almost all exports of crude oil for four decades until the end of 2015, so for many years its soaring shale oil production was trapped by the ban and the capacity limits of U.S. refineries that were able to convert it into exportable products.

The growing spreads now suggest that supply is pushing up against a different sort of bottleneck: A shortage of pipeline capacity between Midland and Cushing, and then a further shortage of pipeline and port capacity to get U.S. crude onto a hungry global market.
What may happen is that if OPEC/Russia keep artificially limiting oil production to boost prices, it may become even more economically viable for American shale producers to develop the infrastructure to get their oil to customers in Asia and elsewhere. Already, shale and similar sources have increased their production to almost counterbalance OPEC supply reductions:
There’s a further factor to consider, though, and it relates to what’s happening on the plains of Texas and Oklahoma. The latest period of supply restraint from Opec and Russia has in essence seen them give up market share to onshore North America. The 1.8 million barrels a day that they’ve taken off the market is almost entirely compensated for by the 1.53 million barrels a day of additional unconventional crude production from the U.S., not to mention 640,000 of additional daily barrels that have come out of Canada.

At the moment, infrastructure bottlenecks are keeping the U.S. shale boom almost as quarantined from global markets as legal restrictions did in the pre-2016 era. But, as my colleague Liam Denning has written, those widening spreads between delivery locations are driving midstream operators to seek profit from new export channels, from pipelines to the nascent capacity to load larger tankers from Louisiana’s Loop terminal.
We are already seeing the Yanks eat the lunch of greedy OPEC/Russia in Asia:
In Asia, China - led by Sinopec, the region’s largest refiner - is the biggest lifter of U.S. crude. The company, after cutting Saudi imports, has bought a record 16 million barrels (533,000 bpd) of U.S. crude, to load in June, two sources with knowledge of the matter said. India and South Korea are the next biggest buyers in Asia, each lifting 6 million to 7 million barrels in June, sources tracking U.S. crude sales to Asia said. Indian Oil Corp bought 3 million barrels earlier this month via a tender, while Reliance Industries purchased up to 8 million barrels, the sources said, although it wasn’t clear if Reliance’s cargoes would all load in June.

South Korea’s purchases are driven by its top refiners SK Energy and GS Caltex. Taiwanese state refiner CPC Corp has also snapped up 7 million barrels to be lifted in June and July. U.S. exports to Thailand will increase to at least 2 million barrels. State oil company PTT PCL is 1 million barrels of WTI Midland, while Thai Oil and Esso Thailand bought at least 500,000 barrels of Bakken crude each, said traders with knowledge of the country’s crude deals.
It's rare to find American good guys in the age of Trump, but I suppose the shale producers' contributions to punishing OPEC/Russia for introducing price distortions hurting oil consumers like you and me counts.  

Pope Francis, Do Speculators Go to Hell?

♠ Posted by Emmanuel in ,,, at 5/18/2018 03:18:00 PM
You tell 'em, Pope Francis! Here are more of his thoughts on haute finance.
Okay, so the question posed above is not definitively answered in a new papal bull on modern finance. Let's just say that certain kinds of speculative activity most likely raise your chances of eternal damnation. As a pope coming from Argentina--ground zero for IMF borrowings past and immediate future--the way financial markets impact the well-being of persons has long been on his mind. Earlier this year, an apostolic exhortation encouraged people to think about the true meaning of "security" which does not equate to "wealth":
67. The Gospel invites us to peer into the depths of our heart, to see where we find our security in life. Usually the rich feel secure in their wealth, and think that, if that wealth is threatened, the whole meaning of their earthly life can collapse. Jesus himself tells us this in the parable of the rich fool: he speaks of a man who was sure of himself, yet foolish, for it did not dawn on him that he might die that very day (cf. Lk 12:16-21).

68. Wealth ensures nothing. Indeed, once we think we are rich, we can become so self-satisfied that we leave no room for God’s word, for the love of our brothers and sisters, or for the enjoyment of the most important things in life. In this way, we miss out on the greatest treasure of all. That is why Jesus calls blessed those who are poor in spirit, those who have a poor heart, for there the Lord can enter with his perennial newness. 
Just yesterday, Pope Francis continued with this theme of countering what the world values by identifying immiserizing forms of finance that *might* make you wealthy but leave others worse off (and endanger your soul's well-being in the process). Given a reasonable premise that financial crises leave many worse off in market-based societies, derivatives attract scrutiny insofar as they may hasten such crises as witnessed during 2007-08. From the just-released Economic and Pecuniary Questions:
[26.] However, in some types of derivatives (in the particular the so-called securitizations) it is noted that, starting with the original structures, and linked to identifiable financial investments, more and more complex structures were built (securitizations of securitizations) in which it is increasingly difficult, and after many of these transactions almost impossible, to stabilize in a reasonable and fair manner their fundamental value. This means that every passage in the trade of these shares, beyond the will of the parties, effects in fact a distortion of the actual value of the risk from that which the instrument must defend. All these have encouraged the rising of speculative bubbles, which have been the important contributive cause of the recent financial crisis.

It is obvious that the uncertainty surrounding these products, such as the steady decline of the transparency of that which is assured, still not appearing in the original operation, makes them continuously less acceptable from the perspective of ethics respectful of the truth and the common good, because it transforms them into a ticking time bomb ready sooner or later to explode, poisoning the health of the markets. It is noted that there is an ethical void which becomes more serious as these products are negotiated on the so-called markets with less regulation (over the counter) and are exposed more to the markets regulated by chance, if not by fraud, and thus take away vital life-lines and investments to the real economy.
In a similar vein, other targets of the pope's ire include credit default swaps when used for the purpose of "gambling" on the eventual insolvency of firms instead of "insurance" for corporate debt holdings as originally intended:
A similar ethical assessment can be also applied for those uses of credit default swap (CDS: they are particular insurance contracts for the risk of bankruptcy) that permit gambling at the risk of the bankruptcy of a third party, even to those who haven’t taken any such risk of credit earlier, and really to repeat such operations on the same event, which is absolutely not consented to by the normal pact or insurance[...]

In fact, the process of acquiring these instruments, by those who do not have any risk of credit already in existence [i.e., those who don't hold debt securities], creates a unique case in which persons start to nurture interests for the ruin of other economic entities, and can even resolve themselves to do so.

It is evident that such a possibility, if, on the one hand, shapes an event particularly deplorable from the moral perspective, because the one who acts does so in view of a kind of economic cannibalism, and, on the other hand, ends up undermining that necessary basic trust without which the economic system would end up blocking itself. In this case, also, we can notice how a negative event, from the ethical point of view, also harms the healthy functioning of the economic system.

Therefore, it must be noted, that when from such gambling can derive enormous damage for entire nations and millions of families, we are faced with extremely immoral actions, it seems necessary to extend deterrents, already present in some nations, for such types of operations, sanctioning the infractions with maximum severity.
You may of course question my impartiality on this matter, but I do think the pope lays out a straightforward response to a highly topical issue. Risks of financial distress tend to rise in developing countries like Argentina as interest rates increase Stateside, and the current rate-hike cycle is no exception. Detached from the "real" economy, financial activity without underlying economic purpose aside from speculation is ethically questionable insofar as the lives of other persons can be subject to grave harm--especially in the developing world:
17. What is morally unacceptable is not simply to profit, but rather to avail oneself of an inequality for one’s own advantage, in order to create enormous profits that are damaging to others; or to exploit one’s dominant position in order to profit by unjustly disadvantaging others, or to make oneself rich through harming and disrupting the collective common good.

Such a practice is particularly deplorable from the moral point of view when the intention of profit by a few through the risk of speculation even in important funds of investment, provokes artificial reduction of the prices of public debt securities, without regard to the negative impact or to the worsening of the economic situation of entire nations. This practice endangers not only the public efforts for rebalancing, but also the very economic stability of millions of families,  and at the same time compels government authorities to intervene with substantial amounts of public money, even to the extent of artificially interfering in the proper functioning of political systems.
 The pope is able to relate finance's potential dangers in a manner we can easily understand.

EU Firms Main Targets of US Sanctions on Iran

♠ Posted by Emmanuel in ,,, at 5/12/2018 03:51:00 PM
I guess there are good reasons these folks don't dislike Europeans as much.
One thing the Trump administration has delivered on, for better or worse, is pursuing "unisolationism." Ask the Europeans. Withdrawing from the Paris Agreement on climate change, criticizing Europeans for not contributing enough to NATO's defense, putting the Transatlantic Trade and Investment Partnership (TTIP) on the back-burner, and now reneging on a deal to obtain Iran's compliance on not enriching weapons-grade uranium (JCPOA)...the list goes on and on.

The last is very interesting: isn't it meant to reimpose US sanctions on Iran? For all intents and purposes, American firms still had significant reservations about doing business in Iran after that deal was struck. With the benefit of hindsight--Trump's election and all that--they were right not to seek much business there. However, the Europeans did not seem to have as many reservations. The end result is that, because American firms doing business with Iran were rather few, the real Western victims of this policy change are European firms. It works indirectly: the United States will apply sanctions against firms doing business with Iran like before, and European ones are hardly exempted:
The EU is scrambling to find ways to safeguard huge business deals with Iran, amid the threat of US penalties. Washington is re-imposing strict sanctions on Iran, which were lifted under the 2015 international deal to control the country's nuclear ambitions. On 8 May President Donald Trump denounced the deal, saying he would withdraw the US from it.

Since the deal took effect in 2016 major European firms have rushed to do billions of dollars' worth of business with Iran, and now thousands of jobs are at stake. Many of those firms fear their business ties with the US could be at risk if they continue to do deals with Iran past a November deadline.
Ie there anything the Europeans can do to insulate them from American sanctions on deal-doers with Iran? The bottom line is that all the other existing parties want to keep JCPOA intact, including the Europeans. However, the mechanisms which they can use to evade US overreach are iffy:
There is an existing EU "blocking statute", from 1996, aimed at countering US sanctions linked to communist Cuba. Now EU officials say they are revamping the statute to avoid the latest US restrictions on firms doing business with Iran.

But there are doubts about the statute's legal power. Reuters news agency says Shell and some other European firms with big operations in the US prefer to push for US waivers on a case-by-case basis. US authorities have imposed hefty fines on banks for processing Iranian transactions, including UK-based Standard Chartered, HSBC and Lloyds. France, Germany and the UK all say they remain committed to the nuclear deal with Iran and to expanding business ties, provided Iran sticks to its commitments.
Well, good luck with that. Speaking of which, here's a list of European deals now at risk:
  • Total (French) signed a deal worth up to $5bn to help Iran develop the world's largest gas field, South Pars
  • Norway's Saga Energy signed a $3bn deal to build solar power plants
  • Airbus clinched a deal to sell 100 jets to IranAir
  • European turboprop maker ATR (an Airbus-Leonardo partnership) agreed to sell 20 planes to Iran
  • Germany's Siemens signed contracts to upgrade Iran's railways and re-equip 50 locomotives
  • Italy's state rail firm FS signed a $1.4bn deal to build a high-speed railway between Qom and Arak
  • France's Renault signed a joint venture deal, including an engineering centre and a production plant, to boost Renault's production capacity in Iran to 350,000 vehicles a year
Going by the amounts proceeding the dollar signs above, it's not going to be a small loss of business for European firms if they comply with American sanctions. Many were particularly appalled when the US ambassador to Germany told German firms to start drawing plans to withdraw from business deals with Iran. However, the course of action European firms will take obviously depends on how much they business they stand to lose in America should they ignore America's reimposition of sanctions. Chinese firms not doing much business Stateside are not under pressure, and may even pick up business once the Europeans leavee, for example.