<?xml version="1.0" encoding="UTF-8"?><rss version="2.0" xmlns:content="http://purl.org/rss/1.0/modules/content/" xmlns:wfw="http://wellformedweb.org/CommentAPI/" xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:atom="http://www.w3.org/2005/Atom" xmlns:sy="http://purl.org/rss/1.0/modules/syndication/" xmlns:slash="http://purl.org/rss/1.0/modules/slash/" > <channel> <title>Oil – The Musings Of A Politics Junkie & Closet Economist</title> <atom:link href="https://kurtdavisjr.com/tag/oil/feed/" rel="self" type="application/rss+xml" /> <link>https://kurtdavisjr.com</link> <description></description> <lastBuildDate>Sat, 12 Oct 2024 16:56:04 +0000</lastBuildDate> <language>en-US</language> <sy:updatePeriod> hourly </sy:updatePeriod> <sy:updateFrequency> 1 </sy:updateFrequency> <generator>https://wordpress.org/?v=6.7.1</generator> <item> <title>US President Biden’s Postponed Angola Trip Is A Missed Opportunity</title> <link>https://kurtdavisjr.com/us-president-bidens-postponed-angola-trip-is-a-missed-opportunity-united-states-russia-china/?utm_source=rss&utm_medium=rss&utm_campaign=us-president-bidens-postponed-angola-trip-is-a-missed-opportunity-united-states-russia-china</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Thu, 10 Oct 2024 17:13:26 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[Angola]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Economy]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[RUssia]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=834</guid> <description><![CDATA[President Joe Biden has postponed his trip to Luanda. With US elections in less than four weeks it is unlikely he will visit Africa as president...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-full"><img fetchpriority="high" decoding="async" width="1099" height="627" src="http://kurtdavisjr.com/wp-content/uploads/2024/10/Angola-US.jpg" alt="" class="wp-image-835" srcset="https://kurtdavisjr.com/wp-content/uploads/2024/10/Angola-US.jpg 1099w, https://kurtdavisjr.com/wp-content/uploads/2024/10/Angola-US-300x171.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2024/10/Angola-US-1024x584.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2024/10/Angola-US-768x438.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2024/10/Angola-US-750x428.jpg 750w" sizes="(max-width: 1099px) 100vw, 1099px" /><figcaption class="wp-element-caption">Angola’s President João Lourenço with US President Joe Biden in Washington, December 2023. (Photo Credit: The White House)</figcaption></figure></div> <p class=""><strong><em>This originally appeared on <a href="https://www.theafricareport.com/364214/opinion-us-president-bidens-postponed-angola-trip-is-a-missed-opportunity/" data-type="link" data-id="https://www.theafricareport.com/364214/opinion-us-president-bidens-postponed-angola-trip-is-a-missed-opportunity/">TheAfricaReport.com</a></em></strong></p> <p class="">President Joe Biden has postponed his trip to Luanda. With US elections in less than four weeks it is unlikely he will visit Africa as president.</p> <p class="">On 8 October, President Joe Biden announced he would not be visiting Angola on 11-13 October as planned, citing the crisis of Hurricane Milton in Florida. He was due to hold a high-profile meeting with President João Lourenço, focusing on key issues like democracy, climate security, clean energy and peace. Biden said the trip had been postponed, but with the upcoming 5 November election it is unlikely Biden will visit Angola before the end of his term.</p> <p class="">Historically, only two US presidents have visited Africa in December or January: Franklin Roosevelt during World War II and George HW Bush in 1993 to visit US troops in Somalia.</p> <p class="">This history suggests that Biden’s postponed trip could very well be a missed opportunity to reset US-Africa relations, and with Barack Obama being the last president to visit Africa in 2015 (with stops in Kenya and Ethiopia), the postponement underscores the long-standing critique that the US often arrives too late or fails to follow through on its promises to Africa.</p> <h2 class="wp-block-heading">The good that could have been</h2> <p class="">Had the trip occurred, it could have bolstered US investments in Angola’s oil, gas and mining sectors. Earlier this year, the US International Development Finance Corporation (DFC) financed Phase II of the Lobito Corridor, a project aimed at connecting mining regions in the Democratic Republic of Congo (DRC) and Zambia to Angola’s port.</p> <p class="">Biden’s presence in Angola might have been a key moment to push for further collaboration on infrastructure and development projects.</p> <p class="">The visit also presented a chance for Angola to diversify away from China, which holds $17bn of Angolan debt. By offering alternatives to China’s Belt and Road Initiative (BRI), the US could have positioned itself as a counterweight to growing Chinese and Russian influence.</p> <p class="">Angola’s close ties to those nations make it a strategic focal point, especially given US concerns over terrorism and Russian-backed mercenaries, like the Wagner Group, operating in Africa.</p> <p class="">Moreover, the trip could have signalled a shift in US engagement with Africa. Unlike China, the US doesn’t have a vast network of state-owned companies to underpin a BRI-style investment strategy, nor does it have the domestic oversupply of contractors to deploy to the continent.</p> <p class="">However, it does possess technical expertise and financial capital that could play a crucial role in sustainable development across the continent.</p> <h2 class="wp-block-heading">The bad of the postponement</h2> <p class="">The postponement of Biden’s trip reflects the US’ ongoing inconsistency in engaging with Africa. While the US continues to express interest in Africa, concrete actions often lag behind, and this delay is emblematic of that trend.</p> <p class="">This inconsistency is particularly concerning as China has solidified its position as Africa’s largest trading partner, a status it achieved in 2009.</p> <p class="">China-Africa trade is now more than four times the volume of US-Africa trade. Even if Biden had made the trip, questions would remain about how the US plans to sustain its engagement with Africa after his presidency ends.</p> <p class="">Security partnerships also pose challenges. The recent withdrawal of US troops from Niger after political protests and Chad’s threats to end security cooperation highlight the fragility of US influence. Meanwhile, China’s BRI has signed deals with 52 African nations despite facing similar political and security challenges, demonstrating greater resilience in its approach.</p> <h2 class="wp-block-heading">An opportunity lost</h2> <p class="">Africa’s influence in the Global South is growing. The expansion of the BRICS+ bloc this year, adding Ethiopia and Egypt alongside Iran and the UAE, reflects this trend.</p> <blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow"> <p class="">Without swift and strategic action, the US risks being overshadowed in Africa as other global powers continue to strengthen their relationships and expand their influence</p> </blockquote> <p class="">Furthermore, 25 of 54 African countries abstained or did not vote on the 2022 UN resolution condemning Russia’s invasion of Ukraine, signalling a more independent stance on global issues.</p> <p class="">While the US has voiced support for two permanent African seats on the UN Security Council, such symbolic gestures (especially considering the US previously offered similar support to Germany, India and Japan) need to be accompanied by meaningful engagement across the continent on issues beyond security.</p> <p class="">Without this, the US risks falling behind not only China and Russia but also Gulf and European powers actively competing for influence in Africa.</p> <h2 class="wp-block-heading">The future of US influence in Africa</h2> <p class="">Africa is not bound to any single partner. The continent isn’t anti-China or anti-Russia; it’s open to collaborating with any nation that offers the best deals and support.</p> <p class="">Biden’s Angola trip could have been an opportunity for the US to demonstrate a new, strategic approach – one that goes beyond rhetoric and delivers real, sustainable outcomes.</p> <p class="">Without swift and strategic action, the US risks being overshadowed in Africa as other global powers continue to strengthen their relationships and expand their influence.</p> <p class="">Time is running out for the US to prove it can engage meaningfully and consistently with the continent.</p> <hr class="wp-block-separator has-css-opacity"/> <p class=""></p> ]]></content:encoded> </item> <item> <title>Top Foreign Policy Issues Facing Next U.S. President on Day 1</title> <link>https://kurtdavisjr.com/top-foreign-policy-issues-facing-next-u-s-president-on-day-1-saudi-arabia-israel-gaza-palestine-venezuela-mexico-immigration-china-taiwan-india-russia-ukraine-south-korea/?utm_source=rss&utm_medium=rss&utm_campaign=top-foreign-policy-issues-facing-next-u-s-president-on-day-1-saudi-arabia-israel-gaza-palestine-venezuela-mexico-immigration-china-taiwan-india-russia-ukraine-south-korea</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Thu, 29 Aug 2024 17:01:30 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Europe]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Electric Vehicles]]></category> <category><![CDATA[Fentanyl]]></category> <category><![CDATA[Gaza]]></category> <category><![CDATA[Immigration]]></category> <category><![CDATA[India]]></category> <category><![CDATA[Israel]]></category> <category><![CDATA[Mexico]]></category> <category><![CDATA[North Korea]]></category> <category><![CDATA[Nuclear Weapons]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[Palestine]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Saudi Arabia]]></category> <category><![CDATA[South Korea]]></category> <category><![CDATA[Taiwan]]></category> <category><![CDATA[Ukraine]]></category> <category><![CDATA[Venezuela]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=809</guid> <description><![CDATA[The 2024 U.S. presidential election is in full swing with candidates talking economic policy but partially skirting round foreign policy challenges. The foreign policy debate has been limited with most commentary focused on whether the policy will be more “arrogant” or “predictable”, neither of which are informative descriptions for a candidate or directionally insightful as a strategy. The next U.S. president will face several key issues on day 1 and, while temperament can be part of the test, there is a question of policy answers and details...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-full is-resized"><img decoding="async" width="1000" height="667" src="http://kurtdavisjr.com/wp-content/uploads/2024/08/Harris-Trump.jpg" alt="" class="wp-image-813" style="width:810px;height:auto" srcset="https://kurtdavisjr.com/wp-content/uploads/2024/08/Harris-Trump.jpg 1000w, https://kurtdavisjr.com/wp-content/uploads/2024/08/Harris-Trump-300x200.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2024/08/Harris-Trump-768x512.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2024/08/Harris-Trump-750x500.jpg 750w" sizes="(max-width: 1000px) 100vw, 1000px" /><figcaption class="wp-element-caption">Kamala Harris, Vice President of the United States, on the left and Donald Trump, the former (45th) President of the United States, on the right (Photo Credit: Shutterstock)</figcaption></figure></div> <hr class="wp-block-separator has-css-opacity"/> <h4 class="wp-block-heading has-text-align-center"><strong style="font-style: italic;"><strong style="font-style: italic;">…</strong><em>Skirting foreign policy debates may work for this presidential campaign cycle, but the challenges are not going away</em></strong>…</h4> <hr class="wp-block-separator has-css-opacity"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p class="">The 2024 U.S. presidential election is in full swing with candidates talking economic policy but partially skirting round foreign policy challenges.</p> <p class="">The foreign policy debate has been limited with most commentary focused on whether the policy will be more “arrogant” or “predictable”, neither of which are informative descriptions for a candidate or directionally insightful as a strategy.</p> <p class="">The next U.S. president will face several key issues on day 1 and, while temperament can be part of the test, there is a question of policy answers and details<strong>.</strong><strong></strong></p> <p class=""><strong>Venezuela: President Nicolás Maduro Goes or Stays?</strong><strong></strong></p> <p class="">Migrants, migrants, migrants…it is a major issue in the U.S. political dialogue. About 263,000 Venezuelans crossed the U.S. border in 2023, up from roughly 190,000 in 2022. The root causes of this migration, including democratic breakdown, political and social oppression, and a lack of human rights, have seemingly become more ingrained with the latest election victory by President Nicolás Maduro.</p> <p class="">The opposition, led by former diplomat Edmundo González Urrutia, collected voting data that suggests it won nearly two-thirds of the vote. What does an unrecognized opposition victory mean? Can there be a negotiated exit for Maduro (rumored to have been offered by the U.S.)? With little hope of change, more Venezuelans will head for the U.S. southern border.</p> <p class=""><strong>Palestine: Two State Solution?</strong><strong></strong></p> <p class="">The war in Gaza is now entering month 11 with an elusive ceasefire agreement being discussed. The war has led to more than 40,000 deaths and the Gaza strip being relegated to “42 million tonnes of rubble.” An estimated 70% of housing has been damaged along with most hospitals and schools.</p> <p class="">It comes as no surprise that the ceasefire discussion has an immediate follow-up question: how does the global “we” reconstruct Gaza? Most Palestinians have been displaced and it is not clear what they can return to without a clear reconstruction plan.</p> <p class="">Furthermore, what is the ultimate solution? The two-state solution is widely accepted as the international solution, despite more and more Palestinians and Israelis discussing it with a sense of impossibility – how do you connect the Gaza Strip and the West Bank physically and politically?</p> <p class=""><strong>Saudi Arabia and Israel: A Peace Deal?</strong><strong></strong></p> <p class="">For months, Washington has said a deal to normalize diplomatic relations between Saudi Arabia and Israel was near completion. Yet, there remains a few not-so-small stumbling blocks, such as a two-state solution between Israel and Palestine. Saudi officials reportedly are content with an Israeli commitment to a two-state solution without the detailed specifics of a plan – meanwhile, Crown Prince Mohammed bin Salman (commonly known as MBS) is reportedly concerned that there may be a threat upon his life if he accepts this security deal.</p> <p class="">The deal could also falter without U.S. Senate support with numerous Democratic senators voicing opposition – a U.S. defense treaty (as part of the security pact) would require ratification from two-thirds of the Senate. Then there is the requirement of reducing security cooperation, such as weapon purchases and intelligence sharing, with China. There are leaders questioning whether the normalization deal is possible or worth the effort as it may not be the panacea that supporters imagine it. Nonetheless, if it does fall apart, then Washington will again need to reconsider how to engage both countries and find cooperation on an issue-by-issue basis? That may be even harder than finalizing the normalization deal.</p> <p class=""><strong>India: U.S. Ally or Not?</strong><strong></strong></p> <p class="">Washington continues to aggressively court India. Still. the prospects of properly “tying the proverbial knot” seems impossible with India focused more on a more non-traditional alliance with the U.S. India wants to avoid being dragged into the U.S. vortex of good and evil where sanctions would mean higher energy costs (as the Indian economy currently benefits from significantly discounted oil and coal from Russia) and Prime Minister Narendra Modi would uncomfortably be placed at the center of potential peace discussions between Russia and Ukraine. Modi, who made trips to Ukraine and Russia within weeks of each other, already signaled a lack of desire to be the messenger between the two countries.</p> <p class="">India also has a complicated relationship with China due to a disputed border, China’s ties to Pakistan, an unequal trade relationship, and growing competition for political, social and economic power in Asia – Washington views this chasm as an opportunity, but relationships built on a common enemy are not as strong as relationships built on common ambitions and views. Over time, it will be important for the U.S. and India to bond on the latter.</p> <p class=""><strong>Russia and Ukraine: A Never-ending War?</strong><strong></strong></p> <p class="">The war in Ukraine has passed 30 months with fighting mostly stalled along the frontlines. A surprise Ukrainian incursion into Kursk created some physical movement, though the more significant outcome was the distraction created for Russian troops and the boosted morale for Ukrainian troops. There is the potential Ukraine finds a way to leverage the territory in a negotiated settlement with Russia.</p> <p class="">Today, a negotiated settlement appears far away thus what is the ultimate path to peace? Can it even be negotiated or does one side have to surrender? A surrender is unlikely while a negotiation requires finding a credible mediator. The U.S. and China will struggle to be credible while India has said no. A Middle East country, like the UAE or Saudi Arabia, or an African country, such as South Africa could be an option.</p> <p class="">Until then, will the U.S., Europe and other allies implement more sanctions, especially targeting countries that help Russia circumvent existing sanctions, as well as continue to supply heavy artillery and weapons? What happens to Ukrainian membership in NATO or access to the E.U.?</p> <p class=""><strong>Mexico: Immigration and Fentanyl</strong><strong></strong></p> <p class="">U.S.-Mexico relations benefit from “friend-shoring” with Mexico supplanting China as the U.S.’s top trading partner. A migrant and fentanyl problem, however, will test them. Mexico has turned into a chokepoint for migrants with U.S. policies, such as the “Remain in Mexico” program and Title 42 (a temporary pandemic-era law that was used to expel asylum-seekers), yet the issue has not turned into a political football in Mexican politics. President Biden’s recent executive orders, which further restricted the application of U.S. asylum, will put more pressure on Mexico to house migrants.</p> <p class="">Even with less migrants crossing into the U.S., the fentanyl drug problem remains, despite producers using chemical precursors from China that are already subject to international controls. Some data suggests Mexico is doing less to stop the smuggling of fentanyl versus methamphetamines, which is more commonly sold within the country. What more can be done by countries to stem the fentanyl crisis? The status quo is not working.</p> <p class=""><strong>China: Taiwan and Fentanyl</strong><strong></strong></p> <p class="">Washington and Beijing have a complex bilateral relationship that is both economically interdependent and in competition. China arguably leads the global renewable race with its installed solar photovoltaic capacity, capturing of supply chains for critical minerals, and championing of EVs with big private producers like BYD. That reality drove the passage of the Inflation Reduction Act, which included more than $300 billion allocated for energy and climate investment, and is the impetus for Senator Marco Rubio’s and Senator Mark Warner’s recently introduced bill to combat China’s “monopoly” on critical minerals and related supply chains.</p> <p class="">The dispute over Taiwan crosses into this discussion with TSMC (officially Taiwan Semiconductor Manufacturing Company) producing an estimated 90% of the world’s super-advanced semiconductor chips, which are used to power everything from smartphones to artificial intelligence applications. The U.S. requires access to these chips and is both promising to protect Taiwan if China attempts to retake control of the islands and passing legislation, like the CHIPS and Science Act, to strengthen production at home. Are all these bills enough? Tariffs are being tossed around as another piece of the solution. Lastly, let’s not forget the U.S. government claims China is subsidizing the manufacturing of the chemicals used by traffickers to make fentanyl. What can the U.S. do?</p> <p class=""><strong>The Korean Peninsula: An Emerging Nuclear War?</strong><strong></strong></p> <p class="">China and Taiwan may garner more attention, but the tension between the Koreas cannot be ignored. Polls show that a majority of South Koreans support the pursuit of nuclear weapons with the growing nuclear arsenal in North Korea and a sense of uncertainty around long-term support and nuclear deterrence from the U.S. (despite a recent agreement between the two allies on joint nuclear deterrence guidelines.) An arms race would create instability with the world hoping untested leaders on both sides do not prematurely hit the nuclear button. This would be a new political realm for the Koreas.</p> <hr class="wp-block-separator has-css-opacity"/> <p class=""></p> ]]></content:encoded> </item> <item> <title>A Few Takeaways from the China brokered Saudi-Iran Deal</title> <link>https://kurtdavisjr.com/a-few-takeaways-from-the-china-brokered-saudi-iran-deal/?utm_source=rss&utm_medium=rss&utm_campaign=a-few-takeaways-from-the-china-brokered-saudi-iran-deal</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Thu, 13 Apr 2023 11:51:33 +0000</pubDate> <category><![CDATA[Europe]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[Bahrain]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Iran]]></category> <category><![CDATA[Israel]]></category> <category><![CDATA[Mohammed bin Salman]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[OPEC]]></category> <category><![CDATA[OPEC+]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Saudi Arabia]]></category> <category><![CDATA[United Arab Emirates]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=689</guid> <description><![CDATA[A China brokered Saudi-Iran deal will force the U.S. to further rethink its strategy with Saudi Arabia and the greater Middle East...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-large"><img decoding="async" width="1024" height="682" src="https://kurtdavisjr.com/wp-content/uploads/2023/04/Saudi-IRan-1024x682.jpg" alt="" class="wp-image-690" srcset="https://kurtdavisjr.com/wp-content/uploads/2023/04/Saudi-IRan-1024x682.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2023/04/Saudi-IRan-300x200.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2023/04/Saudi-IRan-768x511.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2023/04/Saudi-IRan-1130x752.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2023/04/Saudi-IRan-750x499.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2023/04/Saudi-IRan.jpg 1290w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">China, which mediated the Saudi-Iran agreement, has built closer economic ties with both Iran and Saudi Arabia in recent years. (Photo Credit: Saudi Press Agency / DPA / Reuters)</figcaption></figure></div> <hr class="wp-block-separator has-css-opacity"/> <h4 class="wp-block-heading has-text-align-center"><strong style="font-style: italic;"><strong style="font-style: italic;">…</strong>The old U.S. playbook may not apply…</strong></h4> <hr class="wp-block-separator has-css-opacity"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p><strong>“Oil for Security” is dying with the changing regional security dynamics…</strong></p> <p>The original deal between the U.S. and Saudi Arabia was quite simple: The U.S. gave security guarantees to Saudi rulers and, in return, those Saudi leaders provided access to the kingdom’s immense oil reserves. The Mutual Defense Assistance Agreement signed in 1951 solidified this long-standing bilateral relationship as well as papered over ideological differences on the Arab-Israeli conflict and human rights among other things between the two countries. </p> <p>Today, the Abraham Accords have cut through the old chessboard in the Arab-Israeli conflict and turned down the volume on human rights discussions. The UAE and Bahrain recognized Israeli sovereignty and brought other countries alongside them in opening business ties and trade. While Saudi Arabia has not signed the agreement, it found commonality with Israel and the U.S. in viewing Iran as the enemy. </p> <p>If the conflict with Iran has been neutralized with the new Saudi-Iran deal, then the alliance (or, at least, understandings) based on Iran as a common enemy will crumble or need to be reconfigured. </p> <p>As a result of this agreement, Saudi Arabia and Iran can reduce their military spending in places such as Yemen (which is great for both countries)…Saudi Arabia would also like to eliminate the risk of any further drone strikes on its oil facilities (allegedly funded by Iran). </p> <p>Saudi rulers will likely take comfort that, if this deal has security gaps or hiccups such as Iran developing a nuclear bomb, Israel will be watching with Israeli Prime Minister Benjamin Netanyahu vowing to consider “all possible means” to prevent Iran from acquiring a nuclear weapon. Some skeptics would argue that this consideration is naturally built into the thinking of both the Saudi and American leaders, which ensures the Israelis remain an integral part of the region’s security balance.</p> <p>Still, the U.S. will theoretically become a less relevant security partner with less bargaining power going forward…though Saudi Arabia is (unsurprisingly) looking to develop its civilian nuclear program and have (surprisingly) asked the U.S. to assist as part of a deal on Saudi Arabia joining the Abraham Accords. </p> <p><strong>Oil is still very important in 2023, especially for the U.S. <em>and</em> China…</strong></p> <p>The U.S. shale boom is not exactly a boon anymore to production with climate change advocates successfully shifting U.S. focus (and money) to renewable efforts. While the global transition to greener energy moves at one pace, the U.S. is attempting to lead with a faster pace of investment in renewables and reduction in carbon emissions (in particular, less oil production over time). </p> <p>However, this shift in policy comes at the risk of the U.S. becoming more reliant on (or at the mercy of) Saudi Arabia and the greater OPEC+ decisions on supply and price management in the market. OPEC currently produces nearly 60% of internationally traded oil. As the argument goes, if the U.S. importance to regional security becomes less relevant, then the U.S. faces the risk of becoming more economically vulnerable (via oil dependency) to Saudi Arabia who requires U.S. security guarantees less and less by the day (while still being left with an Iran problem). According to Bloomberg, analyst surveys suggest an oil price above $80 in the coming years, which is well above the $58-a-barrel average price between 2015 and 2021.</p> <p>Furthermore, China is the largest buyer of oil in the world and buys more oil from Saudi Arabia than anywhere else. Almost half of the $87.3 billion bilateral trade between the two nations in 2021 was China’s oil imports…the oil imports accounted for 77% of China’s total imports from the kingdom. </p> <p>As the U.S. and the European Union continue to focus on sanctioning business with Russia and targeting Russia’s oil exports alongside other major exports, China likely sees a good business decision in strengthening alliances with Saudi Arabia (who will continue to supply oil to the country as demand grows) and Iran (who is the 7<sup>th</sup> largest oil producer).</p> <p><strong>The U.S. and Europe do not have the same problems with (nor sentiments towards) China…</strong></p> <p>The U.S. has a China problem with policy analysts conjuring Cold War analogies as the relationship quickly thaws between the two counties. U.S. House Speaker Kevin McCarthy recently hosted Taiwanese President Tsai Ing-wen in California as she traveled to Central America, which is the first time a Taiwanese president has met a speaker on American soil (Former Taiwanese president, Ma Ying-jeou, of the opposition Nationalist Party is currently on a 12-day trip through China).</p> <p>The U.S. also recently shot down Chinese “spy balloons” which the U.S. believes the Chinese government used to survey U.S. military sites and translate such data back to China. This Sino-American tension has now become palpable in policy with the recent implementation of the CHIPS ACT, which prohibits funding under the new investment act from being used in China. </p> <p>With presidential campaigns already teeing up announcements for 2024, both political parties in the U.S. are equally jockeying to be viewed as the most anti-China (some 38% of respondents to a recent survey by the Pew Research Center labeled China as an “enemy,” which is a 13 point increase from last year, while more than half described China as a “competitor” and only 6% viewed China as a “partner”).</p> <p>European opinion is both less visceral and less negative. The U.S. and Europe may align on Ukraine and Russia but there is a gap between the two sides on China. French President Emmanuel Macron, in his recent visit to China, stated opposition to calls to decouple from the world’s second biggest economy. He will find support from other European countries – China, for example, was Germany’s biggest trade partner for the seventh year in a row despite some uproar in Berlin to reduce German trade dependence on China. In general, the European Union is very reliant on its trade relations with China with the country being the third largest partner for European Union exports of goods and the largest partner for European Union imports of goods in 2022.</p> <p>Lastly, despite political warnings at a sovereign level, U.S. businessmen are not exactly walking away from China (or Saudi Arabia), leaving the U.S. government to navigate the politics on a national level while American companies ‘do their own thing’ on a business level. Chinese and Saudi leaders could happily live with an arrangement of less U.S. government influence and security interference if it has minimal effect on U.S. business investment (though the CHIPS Act obviously demonstrates U.S. officials’ willingness to interfere in markets when they deem necessary).</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>As Energy Transition Goes, 2023 Is The Year of Corporate Utilities</title> <link>https://kurtdavisjr.com/strongas-energy-transition-goes-2023-is-the-year-of-corporate-utilities-strong-usa-ma-capitaloptimization/?utm_source=rss&utm_medium=rss&utm_campaign=strongas-energy-transition-goes-2023-is-the-year-of-corporate-utilities-strong-usa-ma-capitaloptimization</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Fri, 10 Mar 2023 07:46:07 +0000</pubDate> <category><![CDATA[Europe]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[Coal]]></category> <category><![CDATA[Energy Transition]]></category> <category><![CDATA[Gas]]></category> <category><![CDATA[Inflation Reduction Act]]></category> <category><![CDATA[Infrastructure Investment and Jobs Act]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[Power]]></category> <category><![CDATA[Renewables]]></category> <category><![CDATA[Water]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=673</guid> <description><![CDATA[Public discussion has largely focused on the push for expanded use of renewable energy and the related investment required to bring those energy sources online. Yet the success of the Biden energy policy depends on the ability of utility companies to fund a significant amount of capex, in particular for transmission and distribution, in the near term...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="1000" height="645" src="https://kurtdavisjr.com/wp-content/uploads/2023/03/Powerlines.jpg" alt="" class="wp-image-674" srcset="https://kurtdavisjr.com/wp-content/uploads/2023/03/Powerlines.jpg 1000w, https://kurtdavisjr.com/wp-content/uploads/2023/03/Powerlines-300x194.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2023/03/Powerlines-768x495.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2023/03/Powerlines-750x484.jpg 750w" sizes="auto, (max-width: 1000px) 100vw, 1000px" /><figcaption class="wp-element-caption">(Photo Credit: Justin Sullivan / Getty Images)</figcaption></figure></div> <hr class="wp-block-separator has-css-opacity"/> <h4 class="has-text-align-center wp-block-heading"><strong style="font-style: italic;"><strong style="font-style: italic;">…</strong>M&A, Capital Efficiency…and Hopefully Public Support…</strong></h4> <hr class="wp-block-separator has-css-opacity"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>The success of the Biden energy policy depends on the ability of utility companies to fund a significant amount of capex in the near term.</p> <p>Public discussion has largely focused on the push for expanded use of renewable energy and the related investment required to bring those energy sources online. Regulatory Research Associates, a group within the S&P Global Market Intelligence, estimates renewable spending in 2019 surpassed $19 billion, and despite a cool in activity, will remain near $15 billion. </p> <h2 class="wp-block-heading"><strong>Changes in Power Generation Mi</strong>x</h2> <p>This type of renewable investment will ultimately shift the generation mix by 2030: wind and solar will account for 25% to 30% of power compared to roughly 14% on the grid today. Coal and natural gas, which are the two largest sources of power today at 61%, will drop to 40% to 48% by 2030. While the coal decline is well documented (and equally pushed for by many clean energy advocates), the drop in natural gas from nearly 36% to 30% to 32% is more surprising. Yet the drop can easily be explained by the increased investment directed to renewables which, in constrained capital markets, equates to a declining investment in natural gas infrastructure…though some energy experts are already advocating that gas is both clean or, at least clean enough, and more affordable to justify a shift in capital allocation back to gas.</p> <h2 class="wp-block-heading"><strong>Transmission and Distribution Costs</strong></h2> <p>The shift in generation mix creates a ‘grid issue.’ The variety and variable nature of power sources estimated by 2030 will force substantial investment by utilities into transmission and distribution, including energy storage and smart grid technologies. Regulatory Research Associates accordingly forecast utilities to spend $67 billion in 2023 (compared to an estimated $65 billion in 2022).</p> <p>The transmission and distribution capital expenditure will not be equally spread among corporate utilities or by region of the country. Although federal policies and acts, such as the Inflation Reduction Act (IRA), provide a range of incentives for investment, they do not necessarily stipulate the policies and parameters by which states must incorporate those incentives.</p> <p>States unsurprisingly have different goals. New York and California want to generate 60% and 70% of energy respectively from renewables by 2030 and be 100% carbon free by 2040 while Texas and Iowa want 10,000 MW and 105 MW of installed capacity by 2025 from renewables. Utilities in NY and California consequently will have to fund more aggressive capital expenditure programs (as compared to those utilities in Texas and Iowa) to improve the reliability and resiliency of local grids today with the quick changes in generation mixes.<strong> </strong></p> <h2 class="wp-block-heading"><strong>Capital Flows and Capital Efficiency</strong></h2> <p>Faced with such plans and rising interest rates, utility companies are conducting strategic reviews of their assets and capex plans with unfortunately only two options in the short term (if rates stay where they are today). Multiple utilities have pursued the first option of selling minority (or full) interests in assets. ConEd’s $6.8 billion divestiture of its unregulated subsidiary, Con Edison Clean Energy Business, to fund capex at its regulated New York utility business is a perfect example. The price paid for ConEd’s renewable portfolio will continue to inspire others to pursue this route, especially with the assortment of investors focused on building renewable platforms.</p> <p>Other utilities have pursued the option of selling interest in their regulated utilities. Pacific Gas & Electric (PG&E) wants to transfer 5.6GW of non-nuclear generating assets to a new subsidiary and then sell a 49.9% stake. The sale faces pushback from different Californian parties focused on ensuring the “public interest” is protected…a defeat at the hand of consumer watchdog groups, such as Public Citizen, would suggest an increase in focus by corporate utilities on the sale of interests in renewables (as compared to regulated utility subsidiaries). Duke Energy did previously sell a minority interest in Duke Energy Indiana to Singapore’s sovereign wealth fund, GIC…however Duke Energy is now working to divest wind and solar farms in Texas, Utah, and Wyoming. The strategies will obviously vary by the existing make-up of each corporate utility’s portfolio.</p> <p>If the divestitures fail or do not generate sufficient proceeds, then the second option may be more comprehensive balance sheet and capital optimization efforts. Utility companies will reassess project planning – altering the scheduling of projects with corresponding adjustments in investment and capital expenditures. These decisions nevertheless will be driven by federal and state policies encouraging investment in renewable energy and theoretically providing the best return via tax credits and benefits. However, where that return math is not correct, some companies may have to elect for cheaper options like gas with better returns.</p> <p>Federal policy and war may underpin the societal push to accelerate renewable energy investment. But the reality of investment capex requirements coupled with unexpectedly higher borrowing rates places pressure on corporate utilities who must confront regulatory restrictions on inputs, such as pricing, yet assume the blame for failures in the overall energy system and grid. New renewable energy sources are further away from load centers, are more variable in generation (such as wind and solar which depends on uncontrollable weather factors), and must correspond to human usage of energy that is also changing as more people work from home and change cities. Additionally, existing infrastructure, for example with gas utilities, needs to be upgraded in the near term. All these factors suggest policymakers turn their attention to corporate utilities to ensure investors (and capital) flow to these companies…or the energy transition timeline set by some policymakers may be more imagination than reality.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>Three Inputs Often Overlooked In The Energy Transition Process</title> <link>https://kurtdavisjr.com/star-tribune-three-inputs-often-overlooked-in-the-energy-transition-process-us-europe-metals-water-land/?utm_source=rss&utm_medium=rss&utm_campaign=star-tribune-three-inputs-often-overlooked-in-the-energy-transition-process-us-europe-metals-water-land</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Thu, 16 Feb 2023 07:36:47 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Europe]]></category> <category><![CDATA[Latin America]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Energy Transition]]></category> <category><![CDATA[France]]></category> <category><![CDATA[Gas]]></category> <category><![CDATA[Germany]]></category> <category><![CDATA[Inflation Reduction Act]]></category> <category><![CDATA[Infrastructure Investment and Jobs Act]]></category> <category><![CDATA[Land]]></category> <category><![CDATA[Metals and Mining]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[Water]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=668</guid> <description><![CDATA[Recent legislation in the U.S. and Europe (and a war in Ukraine) is accelerating energy transition. Yet, the overhaul of policy requires significant change in other aspects of the economic system and individual livelihoods - in particular, the limited resources of metals and rare earth elements, water and land become significantly more important.]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="670" src="https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-1024x670.jpg" alt="" class="wp-image-669" srcset="https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-1024x670.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-300x196.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-768x502.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-1536x1005.jpg 1536w, https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-2048x1340.jpg 2048w, https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-1130x739.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2023/02/energy-transition-750x491.jpg 750w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">(Photo Credit: Star Tribune)</figcaption></figure></div> <p><strong><em>This originally appeared in the </em></strong><a href="https://www.startribune.com/three-inputs-often-overlooked-in-the-energy-transition-process/600251969/?refresh=true" data-type="URL" data-id="https://www.thedailystar.net/opinion/views/news/top-10-economies-watch-2023-3210131">Star Tribune</a>.</p> <p>Recent legislation in the U.S. and Europe (and a war in Ukraine) is accelerating energy transition. Yet, the overhaul of policy requires significant change in other aspects of the economic system and individual livelihoods.</p> <p>Below are three inputs to the energy transition process that will test more than the world’s ability to legislate carbon emissions out of the equation.</p> <p class="has-medium-font-size"><strong>Metals and rare earth elements</strong></p> <p>The transition to renewable energy (and ultimately net-zero) creates a significant demand on the metals and mining sector. Cobalt, copper, lithium, nickel and rare earth elements are fundamental to producing solar power and wind energy and manufacturing electric vehicles and the batteries that power them. The supply of these metals, however, is dependent on a limited number of countries. Some of those countries — such as the Democratic Republic of Congo (DRC), which produces 60% of the world’s cobalt — have unstable political environments, while other countries, such as China — which controls 80% of the world’s lithium and 60% of the world’s rare earth elements used in EV batteries — can cut off the global supply when they deem necessary. Russia controls 22% of the world’s rare earth metal reserves, and we have already seen how the West’s interaction with Russia has changed in the last 12 months.</p> <p>Beyond the politics of the metal- and mineral-rich countries, the extraction process is also energy-intensive and creates significant emissions in the process. ESG (environmental, social and governance) advocates also find an issue with increased extraction of these necessary resources. Prices will rise with increased demand as supply chains take time to match the demand. In due time, innovation should create products that are less mineral-intensive. Until then, the hunt for metals and rare earth elements will force the mining sector to ramp up to levels not exactly imagined only a few years ago.</p> <p class="has-medium-font-size"><strong>Water</strong></p> <p>Water is a limited resource. Although it covers 70% of the earth, only 3% of that water is freshwater, of which two-thirds are trapped as frozen glaciers or otherwise unavailable for use. Consequently, it is estimated that 1.1 billion people lack access to water, with a total of 2.7 billion finding water scarce for, at least, one month of the year. How could this water reality become a bigger problem?</p> <p>Water is one of the more forgotten inputs in energy. Approximately 10% of the freshwater is used in energy production. In some estimates, that number could grow to 60% by 2040. Thermal power plants running on gas or even coal plants already consume huge amounts of water today. And, while some renewable-energy options such as solar and wind require less water, many other low-carbon technologies, such as biofuel, carbon capture, nuclear power and hydropower, are water-intensive.</p> <p>Yet warmer temperatures and drought today could ultimately be a limiting factor with water deficits in the future. Droughts in Spain, which are becoming increasingly normal, are forcing the Spanish utility Endesa to consider shutting down plants. Similarly, in France, where nuclear power accounts for about 70% of power, dryer summers and lower water levels force reactors offline and reduce electricity output. Lithium mining in the Chilean salt flat Salar de Atacama uses 60% of the local area’s water. Reducing climate change, at some level, helps to reduce water insecurity — but how much water is required in the process remains an open question.</p> <p class="has-medium-font-size"><strong>Land</strong></p> <p>Land is also a limiting resource. Large solar and wind farms require nearly 9 to 10 times as much land per unit of energy as natural gas or coal power plants, according to a McKinsey report, such that replacing a one-gigawatt gas plant with a one-gigawatt solar farm would increase land use from 350 to 40,000 acres. That number can range from 30,000 to 250,000 for wind turbines. Finding sufficient land for these type of power sources ultimately competes against society’s need for housing, farming and nature preservation.</p> <p>The U.S. may be the perfect microcosm of these competing interests. The Infrastructure Investment and Jobs Act of 2021 made $1.2 trillion available over 10 years for bridges, roads and cables for a new green grid, while the Inflation Reduction Act of 2022 contained $400 billion in subsidies for green tech over 10 years. Yet, the permitting and authorization processes at a local level can be very long. The permitting process for the Boardman-to-Hemingway Project, which is a project by Idaho Power to build a 290-mile transmission line to carry power produced by hydro dams in Idaho and Oregon, is an example of how a process can take 15 years with environmentalists and power producers at crossroads and various regulatory bodies in the middle.</p> <p>In Europe, policy can be even less synchronized across different countries. Only 51% of the land in Germany is suitable for onshore wind farms, according to a McKinsey report, with 91% of that 51% off the table due to environmental, regulatory and technical constraints. Military sites and flight paths are the big barrier in France. Rising land values in a scarce market in Europe (and the U.S.) also creates a challenge for project development. Lastly, studies also suggest that agricultural land has been the most attractive for wind energy — Denmark, Germany and Netherlands are examples in Europe. That reality, however, creates issues in Asia where wind (and solar) farms alongside hydroelectric projects compete with the agricultural livelihoods of local Asian communities. As populations grow and energy needs increase, societies will have to become increasingly more efficient with land use.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>The World Need More Oil…Will the U.S. Provide It?</title> <link>https://kurtdavisjr.com/the-world-need-more-oilwill-the-u-s-provide-it/?utm_source=rss&utm_medium=rss&utm_campaign=the-world-need-more-oilwill-the-u-s-provide-it</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Sun, 20 Nov 2022 11:20:26 +0000</pubDate> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[Mohammed bin Salman]]></category> <category><![CDATA[Mohammed bin Zayed al-Nahya]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[OPEC]]></category> <category><![CDATA[OPEC+]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Saudi Arabia]]></category> <category><![CDATA[United Arab Emirates]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=646</guid> <description><![CDATA[What is one thing that Iran, the UAE and Elon Musk can agree on? The world needs more oil...Will the U.S. Provide It?]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-full is-resized"><img loading="lazy" decoding="async" src="https://kurtdavisjr.com/wp-content/uploads/2022/11/OD-Pic.jpg" alt="" class="wp-image-647" width="713" height="500" srcset="https://kurtdavisjr.com/wp-content/uploads/2022/11/OD-Pic.jpg 612w, https://kurtdavisjr.com/wp-content/uploads/2022/11/OD-Pic-300x210.jpg 300w" sizes="auto, (max-width: 713px) 100vw, 713px" /><figcaption class="wp-element-caption">(Photo Credit: Getty Images)</figcaption></figure></div> <p>What is one thing that Iran, the UAE and Elon Musk can agree on? The world needs more oil…</p> <p id="fe15">— The Iranian Minister of Petroleum Javad Owji stressed the world needs more Iranian oil after the announced OPEC+ cut on oil production.</p> <p id="ec13">— UAE President Mohammed bin Zayed al-Nahyan, speaking at Cop 27, asserted his country would continue to supply oil and gas “for as long as the world needs” it.</p> <p id="ec15">— Tesla CEO Elon Musk recently told a group of European energy leaders that the world needs more oil and natural gas alongside the continuation of nuclear power plants.</p> <p id="bab2">U.S. President Joe Biden, who recently chided American oil companies “to deploy these record-breaking profits to increase production,” apparently shares a similar view.</p> <p id="de4b">President Biden had pleaded with Saudi Arabia to increase production but then OPEC+ announced production cuts. Then he tapped into the U.S. Strategic Petroleum Reserves, however that was a small stopgap measure with more political benefits than actual price benefits. That is not a critique on President Biden…messaging to the market on oil remains critical. The stats underscore this reality: oil powers more than 95% of all transportation of goods and people while hydrocarbons account for more than 80% of the world’s energy.</p> <p id="9012">The sanctions on Russia further exacerbate the problem. Europe’s scramble to source alternatives to Russia’s oil and gas continues to encounter various hurdles with increasing supply constraints and prices potentially causing sustained disruption in Europe throughout the winter.</p> <p id="e112">Those politicians and pundits arguing high energy prices will accelerate the “energy transition” must explain why current efforts, with billions spent in the process, still suggest that hydrocarbons will remain a necessity for, at least a few decades. Also the misnomer in the high price theory is that new energy technologies will only succeed when they are scalable at affordable prices for the public.</p> <h2 class="wp-block-heading" id="b556"><strong>Can the U.S. oil and gas industry significantly increase production (as a counterbalance to Russia and potentially OPEC+)?</strong></h2> <p id="a7b1">America’s oil and gas industries sadly are not ready to produce enough oil and gas today to fill the gap created by sanctions on Russia and tamp down prices. The world’s epiphany that more oil and gas is required is effectively seven years late as capex spending on new production is down 60% to 70% since 2015 when prices hovered below $40 per barrel. U.S. energy companies cannot procure nor invest funds in one quick deposit today to cover those missed years of investment and jumpstart production tomorrow. The industry requires continued investment over time to sustain production as output from the world’s existing wells, collectively drop about 6% per year.</p> <p id="3fed">But then again, the price collapses of 2014 and 2020 juxtaposed with the recent price spikes sparked by the war in Ukraine (and subsequent sanctions on Russia) does not provide certainty for operators and investors into the industry. Some economists are suggesting that OPEC+’s recent cuts could sustain prices at levels that cause a recession which, in turn, would drive down demand and subsequently prices. The brutal reality of the industry is first economic uncertainty and secondly its natural linkage to politics — this is not a natural winning mix.</p> <p id="716d">Economic uncertainty is understandable…the messiness of the politics, however, less so. Today, Saudi Arabia is the villain…yesterday, it was American oil and gas companies…tomorrow, it may be the entire industry (some executives say we are already here). The state of public discourse on the sector is generally inflammatory with the usual harping on excessive profits and the public “being taken advantage of.” Industry participants will argue that “anti-oil” policies and investment in new technologies show both the potential of energy transition and the necessity for oil today and in the short term — short term being 30 years, 50 years, or longer.</p> <p id="c5df">And “anti-oil” policies is not a farcical creation in the mind of oil and gas executives. The Glasglow Financial Alliance for Net Zero, a global network of 500 bankers representing $150 trillion in assets, want to “phase out” financing of hydrocarbons. The U.N.’s Net Zero Banking Alliance, a group representing 40% of global banking assets, wants to cut off all capital and credit to the oil and gas industry. And, per the political nature of the industry, the alliance is under investigation in more than 15 states in the U.S. as attorney generals attempt to protect an industry viewed as economically vital to their state.</p> <p id="9d2b">Oil executives furthermore rightfully argue that attempts to financially starve the industry ignores the aforementioned short term need and also speaks to prior successes of industry — the shale boom, for example, was an unexpected and largely revolutionized an industry that some pundits, at the time, had alleged was past its peak. Some industry executives believe digitization of the oil production is next — the industry has successfully deployed digital tools in the field for years with increasing potential for artificial intelligence (AI) and other automation tools to reduce cost to production and improve efficiency.</p> <p id="b849">The industry also faces the constraints of limited terrain, which is a euphemism for saying more than 90% of the U.S. offshore acreage is off-limits to hydrocarbon exploration. Opening access is not politically tangible but a simple change in policy on a fraction of the areas adjacent to current exploration and production could boost U.S. production over time, especially with existing technologies being deployed in field (as well as technologies that may potentially come in the future).</p> <p id="6385">The U.S. government will have to take a strong look at the oil and gas industry in the next several months. The industry has demonstrated an ability to be inventive, crafty and quick yet industry executives can articulate how formal policies at the federal (and state) level and informal policies via activism of climate advocates at banks and other financial institutions undercuts their ability to help the market.</p> <p id="0dae">Most American oil and gas executives appreciate we have a climate issue and that action has to be taken today to combat it long term. Similarly those same executives and legislators (likely with cameras and mics off) will say that a shift in policy on oil and gas production in the U.S. has to change or the country (and the world) remains at the mercy of global actors (if not OPEC+, it will be another set of countries) — this may not be the message for COP27 but it is the reality today.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>Why Is Saudi Arabia Reducing Its Oil Production?</title> <link>https://kurtdavisjr.com/why-is-saudi-arabia-reducing-its-oil-production-abraham-accords-united-arab-emirates-israel/?utm_source=rss&utm_medium=rss&utm_campaign=why-is-saudi-arabia-reducing-its-oil-production-abraham-accords-united-arab-emirates-israel</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Sun, 23 Oct 2022 15:27:40 +0000</pubDate> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[Abraham Accords]]></category> <category><![CDATA[Algeria]]></category> <category><![CDATA[Bahrain]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Gabon]]></category> <category><![CDATA[Iran]]></category> <category><![CDATA[Iraq]]></category> <category><![CDATA[Israel]]></category> <category><![CDATA[Joe Biden]]></category> <category><![CDATA[Kuwait]]></category> <category><![CDATA[Mohammed bin Salman]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[Oman]]></category> <category><![CDATA[OPEC]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Saudi Arabia]]></category> <category><![CDATA[South Sudan]]></category> <category><![CDATA[United Arab Emirates]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=638</guid> <description><![CDATA[Why did the Saudi authorities reduce production, despite receiving US advice to the contrary?]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-full is-resized"><img loading="lazy" decoding="async" src="https://kurtdavisjr.com/wp-content/uploads/2022/10/Saudi-Oil-clean.jpg" alt="" class="wp-image-641" width="757" height="351" srcset="https://kurtdavisjr.com/wp-content/uploads/2022/10/Saudi-Oil-clean.jpg 679w, https://kurtdavisjr.com/wp-content/uploads/2022/10/Saudi-Oil-clean-300x139.jpg 300w" sizes="auto, (max-width: 757px) 100vw, 757px" /><figcaption>Why did the Saudi authorities reduce production, despite receiving US advice to the contrary? (Photo Credit: REUTERS)</figcaption></figure></div> <p><strong><em>This originally appeared in </em></strong><em><strong><a href="https://www.thedailystar.net/opinion/views/news/why-saudi-arabia-reducing-its-oil-production-3149981?amp">The Daily Star</a></strong></em>.</p> <p>The decision by OPEC+ to cut two million barrels a day of oil production has sparked angst in the West, in particular with the Biden administration, who advised the Saudi government that its actions may be interpreted as a nod of support to Russia. There are reports suggesting the UAE, Kuwait, Iraq and Bahrain privately opposed the production cut, but ultimately went along with Saudi Arabia to preserve unity. Saudi authorities have stated it was a consensus among OPEC+ member states.</p> <p>The production cut raises the price of oil globally to Russia’s advantage, which ultimately strikes at European and US efforts to sanction Russia and undercut its ability to fund the war in Ukraine. The production cut also strikes directly at US policy efforts to short-circuit inflation at home, and will likely worsen global inflation (the paradox of greater inflation via high oil prices is the potential of a recession that ultimately reduces demand).</p> <p>Why did the Saudi authorities reduce production, despite receiving US advice to the contrary? </p> <h2 class="wp-block-heading"><strong>Abraham Accords reduces need for US troops </strong></h2> <p>The formalisation of the UAE-Israel relationship coupled with strategic (though not usually “open” and documented) cooperation with Saudi Arabia (e.g., the Middle East Air Defense system) will reduce the required level of US regional involvement. The US is also less needed as the third party negotiator and/or facilitator of efforts to combat the three countries’ common enemy Iran. Finally, Russia and China have seized an opportunity to step in and engage the UAE and Saudi Arabia on security and trade. </p> <p>The Abraham Accords consequently are an example where policy success may ultimately help and hurt the US – less troops and resources in the Middle East is a good outcome for the US, but losing political and economic leverage may not exactly be what policymakers imagined with this policy. </p> <h2 class="wp-block-heading"><strong>The US made a mistake on oil policy</strong></h2> <p>If the US wants to avoid being at the mercy of OPEC+ decisions on oil, it should better manage its local production. Oil production hovers around 12 million barrels a day, compared to 12.3 million barrels a day in 2019, with output expected to average about 12.6 million barrels a day in 2023, according to the Energy Information Administration. </p> <p>The five percent bump in 2023 production will be welcomed by the Biden administration. However, the administration may have to agree with producers on providing support in response to Biden’s request for more output. Otherwise producers will remain cautious about quickly ramping up and facing a price bust similar to 2020. </p> <h2 class="wp-block-heading"><strong>The production cut is not as much as it seems</strong></h2> <p>Current estimates of OPEC+’s September production suggest that, collectively, the group is lagging behind its planned production level by approximately 3.6 million barrels a day. As a result, only eight of the 23 OPEC+ countries will have to reduce their production for a total of 890,000 barrels a day. About 87 percent of the reduction will come from Kuwait, Saudi Arabia and UAE. </p> <p>The other five countries (Algeria, Gabon, Iraq, Oman and South Sudan) are likely to be unreliable. Gabon has only met the cap once since May 2020 (when the bloc agreed on current production levels). South Sudan has exceeded its quota every month since 2020 and never cut its barrel of production during that same time period. And Iraq’s national oil minister suggested the country will stay at the same level of oil exports going forward, thus it would have to reduce domestic consumption (which is politically unpalatable in Iraq). </p> <h2 class="wp-block-heading"><strong>The Saudi 2030 vision is expensive </strong></h2> <p>Lastly, the Saudi 2030 Vision comes with a hefty price. The transformation plan, with its focus on a post-hydrocarbon age, will cost in the trillions. Although the exact number is opaque to most observers, a look at the Neom development project provides directional indication: This smarty city, to be constructed in Tabuk Province, will cost an estimated USD 500 billion alone. </p> <p>US policy suggestions, like the No Oil Producing and Exporting Cartels (NOPEC) Act, which gather backing (and votes) every time oil prices rise and lose steam when prices fall, will not solve the problem. </p> <p>Maybe it is time for the US and Saudi authorities to be open on the changing dynamics of their relationship. It is no longer a simple story of oil, security, and a history of political alliance. The relationship will have to evolve beyond a marriage of necessity or, it will die with the two parties constantly talking past each other.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>Turning U.S. Attention from Middle East to China and Asia</title> <link>https://kurtdavisjr.com/turning-us-attention-from-middle-east-to-china-and-asia-uae-saudi-arabia-israel/?utm_source=rss&utm_medium=rss&utm_campaign=turning-us-attention-from-middle-east-to-china-and-asia-uae-saudi-arabia-israel</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 25 Jul 2022 15:50:04 +0000</pubDate> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[Asia]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Covid-19]]></category> <category><![CDATA[Iran]]></category> <category><![CDATA[Israel]]></category> <category><![CDATA[Joe Biden]]></category> <category><![CDATA[Middle East]]></category> <category><![CDATA[Mohammed bin Salman]]></category> <category><![CDATA[Mohammed bin Zayed Al Nahyan]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[OPEC]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Saudi Arabia]]></category> <category><![CDATA[UAE]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=601</guid> <description><![CDATA[The current dynamics in the Middle East are creating an opportune time for U.S. leadership to strategically shift priorities on the global stage, especially as the U.S. is not entangled in any war...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-large"><img loading="lazy" decoding="async" width="1024" height="527" src="https://kurtdavisjr.com/wp-content/uploads/2022/07/US-Asia-WHite-House-1024x527.jpg" alt="" class="wp-image-603" srcset="https://kurtdavisjr.com/wp-content/uploads/2022/07/US-Asia-WHite-House-1024x527.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2022/07/US-Asia-WHite-House-300x154.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2022/07/US-Asia-WHite-House-768x395.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2022/07/US-Asia-WHite-House-1130x581.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2022/07/US-Asia-WHite-House-750x386.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2022/07/US-Asia-WHite-House.jpg 1240w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Asean leaders pose with US president Joe Biden in a group photo on the South Lawn of the White House in Washington. From left are, Secretary-General of the Association for Southeast Asian Nations Dato Lim Jock Hoi, Vietnamese Prime Minister Pham Minh Chinh, Thailand Prime Minister Prayut Chan-ocha, Cambodian Prime Minister Hun Sen, Sultan of Brunei Haji Hassanal Bolkiah, Biden, Indonesian President Joko Widodo, Singapore Prime Minister Lee Hsien Loong, Laos Prime Minister Phankham Viphavan, Malaysian Prime Minister Datuk Seri Ismail Sabri Yaakob and Philippines Foreign Affairs Secretary Teodoro Locsin Jr. (Photo Credit: AP Photo/Susan Walsh)</figcaption></figure></div> <hr class="wp-block-separator has-css-opacity"/> <h4 class="has-text-align-center wp-block-heading"><em><strong>It Is Not Abandonment But Rather Strategic Positioning…</strong></em></h4> <hr class="wp-block-separator has-css-opacity"/> <p>The ‘pivot to Asia’, first introduced by President Barack Obama, has always been at the mercy of other emergencies on the American agenda. A war in Afghanistan, covid-19, Iran and a war in Ukraine are a few examples.</p> <p>The simplified thinking has been to reallocate resources from the Middle East to Asia, the world’s most populous continent, which is increasingly becoming the epicenter of global affairs. The shortcoming in this strategy, however, is the U.S. dependence on the Middle East for energy, as illustrated by President Joe Biden’s recent trip to the region and his pitch for increased oil production from Saudi Arabia amid the current price environment.</p> <p>Despite this shortcoming, the current dynamics in the Middle East are creating an opportune time for U.S. leadership to strategically shift priorities on the global stage, especially as the U.S. is not entangled in any war (this statement reluctantly ignoring the U.S. involvement in Ukraine).</p> <h2 class="wp-block-heading"><strong><em>Dynamic #1: Abraham Accords and Security</em></strong></h2> <p>The Abraham Accords, which normalized relations between Israel and Bahrain and the UAE, effectively formalized the engagement between the three states that has long persisted informally behind the scenes. Critics continue to label the Abraham Accords as a vanity project of former President Donald Trump as the Abraham Accords do not necessarily solve the serious economic, political, and social problems that currently trouble many regional countries.</p> <p>Supporters of the Abraham Accords nevertheless will quickly retort that advocates for the change in policy were not focused on creating European Union style relations between the three states. Rather, supporters rightfully emphasize the burgeoning Arab version of the NATO alliance, which Israel’s defense minister Benny Gantz gave credence to last month with an official confirmation of the Middle East Strategic Alliance to Israel’s parliament. According to Gantz, the alliance includes the Middle East Air Defense (MEAD) system that “is already operating, and has already led to thwarting Iranian attempts.”</p> <p>MEAD participants include countries, such as Saudi Arabia, who do not have ‘open’ relations with Israel and who may prefer to avoid public disclosure of such a relationship. Other participants could include Kuwait and Jordan, who due to their electoral systems will, like Saudi Arabia, want to avoid any appearance of cozying up to Israel…. that said, irrespective of public acknowledgement (or not) of relations, MEAD is a manifestation of the changing security alliances and dynamics in the region.</p> <h2 class="wp-block-heading"><strong><em>Dynamic #2: Iran as the Common Enemy</em></strong></h2> <p>U.S. efforts to re-broker the Iran nuclear deal become increasingly challenging as the calendar approaches November midterm elections and the potential for a Republican-controlled Congress turns the discussions into a game of political football. Accordingly, the greater Israeli-Arab cooperation and MEAD represent a strategic counterbalance for countries, in particular the UAE and Saudi Arabia, which both view Iran as growing threat to peace and remain very concerned about the potential of Iran with nuclear weapon capability…Let us not forget that Russia’s nuclear weapons have provided President Vladimir Putin with sufficient cover against a direct NATO counterattack for Russia’s war in Ukraine.</p> <p>Critics of a potential nuclear deal argue that a successful renewal creates another problematic scenario where Iran receives a lot of money from the U.S. (and its allies) and uses that money to fund its proxies, such as those in Iraq and Yemen, with weapons and other resources which further destabilizes the region. This worry is further underscored by reports that the Biden administration would consider the removal of the Iranian Revolutionary Guard Corps (IRGC) from the U.S. terror list as part of a new agreement. It is this type of ‘backfiring’ scenario that both worried the Trump administration and incentivized Israeli-Arab cooperation. By and large, the uncertainty of U.S. regional presence and policy (in particular, Iran nuclear deal or no Iran nuclear deal) is a significant driving force for the strengthening of an Israeli-Arab alliance.</p> <h2 class="wp-block-heading"><strong><em>Dynamic #3: Saudi and UAE Political and Economic Strength</em></strong></h2> <p>Underpinning a lot of the change in the region is also the economic and political strength of Saudi Arabia and the UAE. An oil boom is filling government coffers and funding political and economic ambitions for both countries, which aligns their interests (along with other members of OPEC) on controlling oil production and prices. Both countries are also run by strong royal personalities—President Mohammed bin Zayed in the UAE and Crown Prince Mohammed bin Salman in Saudi Arabia—who agree on more (i.e., regional security and Iran, OPEC controls, and regional economics) than they disagree (i.e., Yemen War)…the alliance between the two heavyweights is as equally important as the increased engagement with Israel.</p> <h2 class="wp-block-heading"><strong><em>Dynamic #4: Weakened Asian States</em></strong></h2> <p>President Gotabaya Rajapaksa (or Gota as he is known locally) recently emailed his resignation from outside the country as angry Sri Lankans ransacked the presidential palace in Colombo. The scene was a disturbing fall from grace for the governing party that won a landslide victory in Sri Lanka’s parliamentary elections in August 2020. The win was viewed then as a redemption victory for the Rajapaksa family after Gota’s brother Mahinda Rajapaksa lost the presidential election in 2015.</p> <p>Most observers, however, back then understood the uphill economic climb facing the country as covid-19 and the lack of a vaccine both obliterated tourism revenue and the Sri Lankan government coffers. Two years later, Sri Lanka (like many other countries in Asia) has sadly not fully opened nor recovered from the effects of covid-19.</p> <p>False starts with opening borders for tourism and new covid-19 variants continues to thwart regional economies dependent on tourism. Economists are already watching Nepal as tourism has not recovered to previous levels and inflation coupled with a struggle to import food and fuel undercuts the economy. A similar narrative (to a lesser degree) is emerging in Thailand.</p> <p>The local protests and weakened political infrastructure coupled with the economic uncertainty creates regional risk. China has normally provided substantive financial and political support but China is also in a weakened position…</p> <h2 class="wp-block-heading"><strong><em>Dynamic#5: China’s Challenged Economy</em></strong><strong><em></em></strong></h2> <p>China’s announcement that its economy grew by only 0.4% in the second quarter highlights the challenges of “zero-covid” efforts. Virus controls shut down Shanghai, which is home to the world’s busiest port, and other industrial centers dating back to late March this year. Some factories and offices reopened two months later in May, but economic activity may not return to normal levels for weeks or months. June numbers suggest industrial and retail will rebound, with both up 3.9% and 3.1% respectively compared to the June 2021.</p> <p>Despite the June optimism, an economic rebound in China will be slow with global inflation and other economic challenges at home and globally. The country is also confronting a property crisis, which is creating volatility in the banking system, while regulatory crackdowns on certain sectors, in particular tech, has disrupted investment and growth. For regional partners, a lack of Chinese travelers (limited by covid-19 restrictions for Chinese citizens) and diminished Chinese trade and business weakens the economic security blanket expected by many regional parties from China.</p> <h2 class="wp-block-heading"><strong><em>Pivoting to Asia at the Right Time…But How?</em></strong></h2> <p>The U.S. pivot to Asia is timely and strategic…though questions remain on how the U.S. will make the pivot. Strategic economic alliances, such as the Indo-Pacific Economic Framework (IPEF), are broadly aligned with the U.S. expanding its economic participation and leadership in Asia. However, these types of alliances also demonstrate the challenges with U.S. economic policy in the region.</p> <p>IPEF is not a free trade deal as new free trade deals are not finding substantive support from Democrats or Republicans…supporting free trade deals sadly is not a winning political strategy in today’s environment as illustrated by the death of the Trans-Pacific Partnership (TPP). Yet, it is trade and business that many Asian countries require as they recover from the economic effects of covid-19. The lack of political will or support to make new free trade deals in Asia may ultimately undermine U.S. ability to assume a robust leadership and economic position in the region.</p> <p>Furthermore, IPEF (as well as TPP) do not target some of the region’s weaker economies, such as Sri Lanka and Nepal. The U.S. focus on major Asian partners, such as Australia, Japan and South Korea, makes sense, considering the group’s collective view of China as a threat and broad desire to create a counterbalance to China. But a sustained regional influence will be dependent on the U.S.’s ability to align with smaller countries through economic support — i.e., trade deals or infrastructure investment.</p> <p>The U.S. could take a page out of the Chinese playbook in Latin America where the Chinese are providing significant debt financing for infrastructure projects. Most of the countries are participants in the Belt and Road Initiative with many countries also planning to use Huawei equipment (or other Chinese-made equipment) for their 5G networks and related tech infrastructure. Can the U.S. provide similar funding and support to Asian countries? Can the U.S. provide technical support to the region? It is these types of questions that U.S. leaders will have to answer.</p> <p>Less resources are required in the Middle East without the U.S. involved in any war and the expanding strength of regional alliances. That said, to get to the current state of the Middle East was not inexpensive nor was it quick, thus the U.S. should not expect a quick process in finding its path or footing in Asia. Lastly, China (and Russia) are focused on the Middle East — China as the second largest energy consumer behind the U.S. and Russia as an oil producer — thus U.S. efforts in Asia are not necessarily independent of U.S. interests in the Middle East.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>The U.S. and Saudi Arabia: A Rendezvous in the Desert…</title> <link>https://kurtdavisjr.com/the-u-s-and-saudi-arabia-a-rendezvous-in-the-desert/?utm_source=rss&utm_medium=rss&utm_campaign=the-u-s-and-saudi-arabia-a-rendezvous-in-the-desert</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Fri, 24 Jun 2022 10:27:44 +0000</pubDate> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[United States]]></category> <category><![CDATA[China]]></category> <category><![CDATA[Iran]]></category> <category><![CDATA[Joe Biden]]></category> <category><![CDATA[Mohammed bin Salman]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[OPEC]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Saudi Arabia]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=595</guid> <description><![CDATA[U.S. President Joe Biden and Saudi Crown Prince Mohammed bin Salman must come together for a long awaited rendezvous in the desert…ideally the two leaders can employ some modern rules of dating in making the alliance work...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="670" height="358" src="https://kurtdavisjr.com/wp-content/uploads/2022/06/USA-KSA-Flags.jpeg" alt="" class="wp-image-597" srcset="https://kurtdavisjr.com/wp-content/uploads/2022/06/USA-KSA-Flags.jpeg 670w, https://kurtdavisjr.com/wp-content/uploads/2022/06/USA-KSA-Flags-300x160.jpeg 300w" sizes="auto, (max-width: 670px) 100vw, 670px" /><figcaption>(Photo Credit: Arab News)</figcaption></figure></div> <hr class="wp-block-separator has-css-opacity"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em><em><em>Dating…Codependency…Marriage of Convenience…Or Something Else</em></em></em></em></strong>…</h4> <hr class="wp-block-separator has-css-opacity"/> <p>Back when U.S. President Joe Biden was a candidate, every political analyst knew there would come a day when he would meet with Saudi Crown Prince Mohammed bin Salman (MBS), the leader of the country President Biden pledged to make a “pariah.”</p> <p>Those same political analysts also knew that when MBS said “Simply, I do not care” in response to whether President Biden misunderstood things about him that MBS knew there would be a meeting one day.</p> <p>Now the two leaders must come together for a long-awaited rendezvous in the desert…ideally the two leaders can employ modern rules of dating in making the alliance work…</p> <h2 class="wp-block-heading"><strong>First, the past is the past…</strong></h2> <p>Memory will have to be short. President Biden, as a candidate in 2020, promised to make Saudi Arabia a “pariah” in response to the assassination of prominent dissident and journalist, Jamal Khashoggi, in 2018 while his National Security Advisor Jake Sullivan drew the ire of MBS back in September when he questioned the Saudi leader on the subject matter.</p> <p>MBS also reportedly refused to take President Biden’s call at the start of the war in Ukraine. Since then, overtures to Saudi Arabia (and the UAE) to increase oil production have been ignored while the U.S. has sidestepped supporting Saudi Arabia’s intervention in Yemen’s civil war.</p> <p>To move this relationship forward, both parties will have to show up with open minds…</p> <h2 class="wp-block-heading"><strong>Second, don’t focus on your partner’s faults…</strong></h2> <p>MBS will have to juxtapose the climate change and “pariah” fighting human rights advocate with the amicable ally coming to Riyadh to renew a friendship and talk oil. </p> <p>Similar to President Jimmy Carter in 1977, President Biden may have to change his tone and public stance with an ally to combat the high gasoline prices at home. His visit to Saudi Arabia will likely include a request to the Kingdom to break with its OPEC+ agreement with Russia and pump more oil. For the American First crowd, it will be an odd scene when only a few years ago, U.S. was declaring itself a net exporter of oil.</p> <p>President Biden will have to accept MBS’s relationship with his Russian foe. The Saudi Crown Prince is unlikely to abandon a relationship with Russia that has paid significant dividends, particularly as it relates to oil revenues. The OPEC+ agreement with Russia help stabilize prices after a price war in March 2020 plummeted prices by more than 30% in a few weeks.</p> <p>And, as sanctions have reduced the availability of Russian energy supplies to the global market, MBS is in the driver seat for the global oil supply. Simply put, MBS periodic calls to Russia’s Vladimir Putin are something Biden has to accept.</p> <h2 class="wp-block-heading"><strong>Third, recognizing that you need each other…</strong></h2> <p>The U.S. and Saudi Arabia, after all the pluses and minuses, need each other. Yes, President Biden flirted with Venezuela for oil, but MBS knows that was a short fling and not serious. President Biden needs more Saudi oil (and Emirati oil) in the market until, at least, he befriends American producers again or the war in Ukraine ends.</p> <p>And, although MBS has developed closer ties to Chinese leader Xi Jinping, the U.S. knows Xi does not offer everything MBS is looking for…i.e., the Chinese will not provide the necessary security support for Saudi Arabia in the region nor do the Chinese have a similar level of interest in Middle East geopolitics. MBS may consider military cooperation with Russia, but the war in Ukraine undermines a potential alliance, at least, for now.</p> <p>Iran is a shared problem with both the U.S. and Saudi Arabia seeking a way to reduce confrontation with the country. Oil facilities in Saudi Arabia (and the UAE) have been attacked in recent years by parties believed to be tied to Iran while the U.S. has occasionally confronted Iranian influence in Iraq with the U.S. strike on Iranian commander Qassem Solemani on Iraqi soil as a prime example. That said, the U.S. is seeking to revive a nuclear treaty that apparently does not excite Saudi Arabia, who is equally engaged in separate discussions with Iran.</p> <p>The co-dependence or partnership or whatever word is more palatable (for pundits at home) to describe this relationship is not important. The <em>strategic</em> value of the relationship should be obvious to the President and the Crown Prince. The 1973 oil embargo, 9/11, Khashoggi murder, and “pariah” label are, by no means, small matters. But many relationships between nations have survived (and even thrived despite) tougher terrain because both parties recognized the partnership was worth saving. </p> <p>Hopefully the President and the Crown Prince find this relationship worth the effort and don’t employ any antiquated rules of dating, such as “playing hard to get” or “skipping over the serious topics”…the world does not have patience for that type of game.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>North Africa As A ‘Perfect’ Microcosm Of The Global Effects of Russia Ukraine War</title> <link>https://kurtdavisjr.com/north-africa-as-a-perfect-microcosm-of-the-effects-of-russia-ukraine-war-morocco-algeria-libya-tunisia-egypt/?utm_source=rss&utm_medium=rss&utm_campaign=north-africa-as-a-perfect-microcosm-of-the-effects-of-russia-ukraine-war-morocco-algeria-libya-tunisia-egypt</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Sun, 24 Apr 2022 16:12:30 +0000</pubDate> <category><![CDATA[Africa]]></category> <category><![CDATA[Middle East / Asia]]></category> <category><![CDATA[Algeria]]></category> <category><![CDATA[Bread]]></category> <category><![CDATA[Egypt]]></category> <category><![CDATA[Gas]]></category> <category><![CDATA[Inflation]]></category> <category><![CDATA[Libya]]></category> <category><![CDATA[Morocco]]></category> <category><![CDATA[Oil]]></category> <category><![CDATA[Oil & Gas]]></category> <category><![CDATA[RUssia]]></category> <category><![CDATA[Tunisia]]></category> <category><![CDATA[Ukraine]]></category> <category><![CDATA[War]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=573</guid> <description><![CDATA[The Russia-Ukraine conflict is worsening a food crisis in the North African region, as Ukraine and Russia are leading exporters of agricultural products to North Africa, while also forcing countries to do a geopolitical dance to avoid picking a side, especially when the countries have military and diplomatic ties to either Russia or the US or sometimes both countries. The conflict also presents opportunities for exporters who can fill gaps in the global supply chain, in particular energy…but then again, those gaps are the result of both economic and political challenges with the political challenges never being so simple to solve.]]></description> <content:encoded><![CDATA[ <div class="wp-block-image"><figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="1024" height="585" src="https://kurtdavisjr.com/wp-content/uploads/2022/04/Russia-Ukraine-Conflict.jpg" alt="" class="wp-image-575" srcset="https://kurtdavisjr.com/wp-content/uploads/2022/04/Russia-Ukraine-Conflict.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2022/04/Russia-Ukraine-Conflict-300x171.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2022/04/Russia-Ukraine-Conflict-768x439.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2022/04/Russia-Ukraine-Conflict-750x428.jpg 750w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption>Russia’s President Vladimir Putin holds a meeting of the Russia – Land of Opportunity Supervisory Board at the Catherine Hall of the Moscow Kremlin. (Photo Credit: Mikhail Tereshchenko)</figcaption></figure></div> <p><strong><em>This originally appeared on TheAfricaReport.com</em></strong></p> <p><strong>The fate of Ukraine still hangs in the balance. A mix of more weapons from NATO powers, noteworthy Ukrainian victories, and increased western diplomacy strengthen hopes for a negotiated settlement, yet the bombardment of missiles and the massive humanitarian crisis suggest a conflict that will further intensify before it cools down.</strong></p> <p>Such an elongated and heightened conflict creates crises outside Ukraine and Russia. North Africa is a perfect microcosm of how this conflict has created both political and economic dislocation beyond the borders of Europe.</p> <p>The conflict is worsening a food crisis in the region, as Ukraine and Russia are leading exporters of agricultural products to North Africa, while also forcing countries to do a geopolitical dance to avoid picking a side, especially when the countries have military and diplomatic ties to either Russia or the US or sometimes both countries.</p> <p>The conflict also presents opportunities for exporters who can fill gaps in the global supply chain, in particular, energy…but then again, those gaps are the result of both economic and political challenges with the political challenges never being so simple to solve.</p> <h3 class="wp-block-heading">Algeria: Who needs more gas?</h3> <p>Europe’s scramble to wean itself off Russian energy will benefit Algeria with its large gas reserves. Given its proximity to Europe, Algerian leaders and Sonatrach officials were on the shortlist for calls in the initial days of the conflict in Ukraine.</p> <p>The US also took the initiative to meet with Eni and Total among other companies operating in Algeria in the initial weeks. One result of focused European and American efforts was Italian Prime Minister Mario Draghi announcing last week a deal with Algeria to increase the flow of gas to Italy via the Mediterranean pipeline.</p> <p>The deal could be the beginning of Qatari-style leadership from Algerian President Abdelmadjid Tebboune whose administration maintains close diplomatic links and military alignment with Russia yet is willing to increase the flow of Algerian gas to Europe.</p> <p>Such commercial pragmatism could pay significant long-term economic and political benefits. Furthermore, with European officials floating the idea of a phased import ban on Russian energy sources, Algeria would best be advised to promote itself as the neutral, commercially savvy partner to energy-starved countries in Europe.</p> <p>Such positioning would be a big geopolitical win for Algerian leadership. In some ironic way, this positioning is dependent on its former coloniser France as European officials remain hesitant to proceed with the import ban and actually vote on the measure until they understand who wins the second round of elections in France.</p> <h3 class="wp-block-heading">Egypt: Food inflation, loss tourism, and political dancing</h3> <p>As the story goes, no meal in Egypt feels proper without some bread. Subsidised bakers across the country offer 20 loaves of Egyptian flatbread <em>aish baladi</em> for one Egyptian pound, which is roughly $0.6.</p> <p>The bread costs about $0.50 to $0.60 to make; consequently, the state bill for the tasty pita is not small at about $3.0bn annually. And as the other story goes, <strong>no sane Egyptian politician has a chance to maintain power</strong> if he makes that subsidy the target of his financial frustrations.</p> <p><a href="https://www.theafricareport.com/147173/egypt-was-sadats-assassination-an-act-of-vengeance-or-a-failed-coup-attempt/" target="_blank" rel="noreferrer noopener">President Anwar Sadat</a> once dared to scrap the bread subsidy in 1977 and reversed course after the army had to subdue the riots in the streets. Thus the ultimate question is how much subsidising the price of wheat (and effectively bread) will cost the government.</p> <p>Egypt also c<strong>annot escape the comprehensive partnership agreement</strong> signed in 2018 with Russia to bolster trade and other ties between the countries.</p> <p>It was this treaty (and related discussions) that led to the resumption of direct flights between Russia and Egypt, which had been suspended after a bomb planted by the Islamist State took down a Russian plane over Sinai in October 2015 and killed 224 people onboard.</p> <p>Today, Egyptian tourism, which accounts for 12% of the GDP, depends significantly on the influx of both Russian and Ukrainian tourists that will not be coming again soon.</p> <p><strong>The ultimate result is a huge economic loss as the war continues.</strong> As for the political situation, there is no better example of a country stuck in the middle as a major ally of the West, in particular the US, and equally a major beneficiary of links to Russia, especially militarily where Russia provides an estimated 30-40% of Egyptian weapons.</p> <p>Let’s see how Egyptian leader Abdel Fattah al-Sisi plays his hand in this situation. Ideally, a winning hand pays some financial dividends.</p> <h3 class="wp-block-heading">Libya: Oil-rich, but commercially engaged with Europe?</h3> <p>Europe is not only searching for gas; it could use a partner to help replace Russian oil. But Libya with Africa’s largest oil reserves (plus a sizeable amount of gas) is mired in an ongoing internal conflict, which is plagued by a nasty mix of Russian mercenaries and Russian cash (as well as cash from the UAE and Saudi Arabia) backing General Khalifa Haftar and US forces and money supporting the UN-backed government and its efforts to organise an election.</p> <p>Hence, it came as no surprise that Libya’s oil minister quickly announced last month that it did not have “sufficient reserves to make a difference” regarding global supply.</p> <p>It was a <strong>strategic exit from a conservation for a country marred</strong> by its own political uncertainty. That said, if Libya cannot capture the oil opportunity, it surely cannot avoid the pain caused by the conflict in Ukraine. Food prices in Libya are rising as the country imports about 75% of its wheat from Russia and Ukraine.</p> <p>It cannot trade oil for wheat if it truly lacks the reserves to do so and additionally is not able to capture the windfall from oil prices. In the most optimal situation, oil windfalls would pay for food inflation (creating a near net-neutral position if possible. Sadly, the situation in Libya has not been optimal for a while.</p> <h3 class="wp-block-heading">Morocco: Stay quiet and stay neutral as long as possible</h3> <p>Morocco is the odd child in this group, not offering energy resources and not exactly doing the political dance. Rather, Morocco permits Russian airlines, Azur Air and Nordwind, to stopover in Morocco with sanctions forcing such airlines to choose different routes to complete certain travel and avoid planes being repossessed.</p> <p>Morocco <strong>assumes a neutral position in this conflict.</strong> Moroccan leaders also want to avoid any conflict with Russia who they continue to build better relations with as well as see as the prime ally of their quasi nemesis Algeria.</p> <p>Yet neutrality can only go so far as Morocco relies heavily on grain, minerals, and energy imports from Russia and is increasingly facing constraints on the national budget as prices for their key imports continue to rise.</p> <p>Moroccan state-owned OCP, which is the largest exporter of crude phosphate, possesses a substantially healthy and growing fertilizer business and could capture additional market share with exports down for Ukraine and Russia yet skyrocketing gas and ammonia input prices likely counteracts any effort to boost production. Therefore, expect Morocco to stay put and avoid stirring the pot.</p> <h3 class="wp-block-heading">Tunisia: Oil imports and food inflation</h3> <p>Tunisian President Kais Saied is sending a delegation to meet with the IMF to, as political analysts note, cover the holes created by Covid-19 and further exacerbated by rising food and oil prices.</p> <p>Tunisia, <strong>as both a big grain and energy importer,</strong> is facing economic challenges in the midst of political turbulence. President Saied has dissolved the parliament and already proposed economic reforms (viewed as a precursor to its IMF discussion) that Tunisia’s labor union UGTT is warning will lead to future strikes and protests.</p> <p>Tunisians have stocked up on food in anticipation of the end of the Ramadan period when food consumption increases, thus supply in the country is strained.</p> <p>Unsurprisingly, as wheat supplies become limited (with Tunisia dependent on Russia and Ukraine for approximately 60% of its supply) along with depleted supplies of semolina (prime ingredient in couscous), President Saied could be facing a situation where labour protests are coupled with empty supermarket shelves.</p> <p><strong>Rising energy costs only further fuel (no pun intended)</strong> the frustration amongst Tunisians. Tunisians should also prepare for a decline in tourism during the summer with a drop in tourists expected from Russia and Ukraine. This situation could ultimately become a toxic political and economic cocktail for President Saied. For now, Tunisians are not exactly pointing the finger at President Saied but blaming Covid-19, global supplies, war, etc…which may be the only thing preventing major social unrest.</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> </channel> </rss>