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Authored by Cyril Widdershoven via Oilprice.com,

The full impact of U.S. sanctions on Iran is still to be assessed, as major underlying factors remain opaque...

Read more.....

Authored by Cyril Widdershoven via Oilprice.com,

The full impact of U.S. sanctions on Iran is still to be assessed, as major underlying factors remain opaque...

OPEC’s current fear of an oil glut in 2019, as indicated by investment banks, IEA, EIA and others, might not materialize. Market fundamentals are still strong, especially taking into account that U.S. refineries are ramping up production after maintenance season, while Iranian floating oil will end soon as sanctions are about to hit. Still, one of Iran’s major lifelines could be the current EU approach, which is largely trying to mitigate the effects of U.S. sanctions on European companies and financial operators. The rosy future painted by EU officials however shows severe cracks, while reality on the ground is extremely bleak.

European efforts to protect trade with Iran, as an answer to mitigate U.S. sanctions, are hitting a brick wall. European politicians seem to be out of touch with reality not only in the markets, but also concerning the attitude of several of its member countries. European politicians, mostly working from their shiny offices in Brussels and Strassbourg, seem to be living in an ivory tower, as no real practical support for all their measures has been shown in the respective member states.

The last factor showing the weakness of the EU Iran approach is the fact that no single European country is willing to host a so-called Special Purpose Vehicle (SPV) as they fear the wrath of the U.S. Washington’s influence in real politics and markets is still much larger on a global and even bilateral stage than Brussels wants to admit. Leading European powers – Great Britain, Germany and France – are currently putting pressure on minor league EU member Luxembourg to host the SPV. The latter however is already doomed, as not only is the influence of London on Luxembourg minimal, but the small EU member can hide behind the refusal of Austria to host the SPV too. Brussels is showing a brave face, but it’s likely that Eastern European and Balkan member countries will reject the SPV plans, while Italy and Spain are still in limbo. Statements made by EU Justice Commissioner Vera Jourova that the EU cannot accept that a foreign power takes decisions over our legitimate trade with another country, seem to be very hollow and empty.

The SPV at present is seen as the lynchpin in the EU moves to save not only their trade with Iran but also the overall JCPOA agreement. At present, Brussels and its main supporters, Paris and Berlin, are trying to keep the JCPOA agreement in place, risking a direct confrontation not only with the U.S. but with most of the Arab world. The SPV has been set up as a kind of clearing house that could be used to help match Iranian oil and gas exports against purchases of EU goods in an effective barter arrangement circumventing U.S. sanctions. The main issue European companies are facing with Iran are currently based on the position of the US dollar in international trade.

Even with full EU support, the SPV, according to most analysts, will not shield EU companies and banks from US sanctions. These will be hefty, for sure much more than the current Iran-EU trade volumes could counter.

A possible failure of the EU SPV proposal would for sure heat up the market very soon. Iran’s main lifeline at present is very weak, Asian markets continue to buy Iranian crude and products, but seem to be heading to zero crude imports when the current U.S. waivers will end. At the same time, the effects of the decision by international financial system SWIFT not to allow any-more deals with Iran already has significantly slowed down trade with Europe.

For Iran, the future is looking dark. A European failure would be seen a betrayal, and possibly the end of the JCPOA agreement. An Iranian reaction to this should be expected, as such a failure would strengthen the hardliners in Tehran.

For global oil markets, taking the position of the devil’s advocate, this could be bullish. More clarity on Iranian volumes and possibilities of circumventing the U.S. sanctions, is necessary to assess the perceived oil glut scenarios. OPEC’s leaders will already be taking this into account to set up a production cut agreement early December in Vienna. Iran’s situation will be clearer by that date, leaving Saudi Arabia, Russia, UAE and others, more space to pro-actively counter a real oil glut in 2019. Fundamentals are at present diffuse, but once Europe’s position is clear, one large destabilizing factor is removed with a bang.

The fact that already some major Iranian oil importers in Asia have been very compliant to U.S. threats, such as South Korea, should be a sign that even without a multilateral sanctions approach, Washington is still able to wreak havoc on Iran. Oilprice.com reported this week that no Iranian oil has been imported in South Korea for a second straight month due to the re-imposition of US sanctions. For the first 10 months of 2018, South Korea’s Iran crude imports halved in real terms. South Korea is also having a waiver from the U.S. in place, but reality seems to be different.

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A new study by Bloomberg Economics claims that US sanctions have knocked as much as 6% off Russia's economy over the past four years. The findings highlight the general devastation that Washington and E.U. sanctions against Moscow wreaked in the aftermath of the Crimean crisis in 2014. 

According to the authors the  Read more.....

A new study by Bloomberg Economics claims that US sanctions have knocked as much as 6% off Russia's economy over the past four years. The findings highlight the general devastation that Washington and E.U. sanctions against Moscow wreaked in the aftermath of the Crimean crisis in 2014. 

According to the authors the estimate is based on a growth forecast that would be reasonably expected according to indicators at the end of 2013 if the crisis had never happened. The study found that while some of the blame is due to the slump in oil prices, sanctions have been the bigger driver, and perhaps partly the introduction of inflation targeting and a sell-off in emerging markets could be other factors. 

According to the report, “The underperformance has been much bigger than crude alone can explain.” 

Scott Johnson, study author and analyst at Bloomberg Economics in London, concluded “Part of the gap is likely to reflect the enduring impact of sanctions both imposed and threatened over the last five years.”

Bloomberg reports of Moscow's reactionary measures in the face of sanctions:

Policies aimed at protecting the nation from future sanctions by building up reserves have made it more resilient, but they have come at the expense of growth. Still, the Kremlin argues that the sanctions haven’t had an impact on its foreign policy.

Perhaps more notably the Russian economy will continue to slide, according to analyst predictions:

However, the fact that the gap in potential versus actual growth continues to widen implies that sanctions are having a prolonged impact, the analysts said. The lingering effect puts under question Russian government forecasts that policy changes and investment will push GDP growth above 3 percent by 2021.

“It’s possible, but that pace won’t be sustainable without a dramatic pick-up in productivity gains,” Johnson wrote. “If sanctions remain in place, as seems likely, that’s one more reason to expect the economy to come up short.”

Meanwhile the U.S. State Department announced this week it's actually considering further rounds of draconian sanctions related to the Skripal case. 

US Assistant Secretary of State for International Security and Nonproliferation Christopher Ford said on Wednesday: "Under statute… there is a menu of options if you will, things that need to be considered. As part of that, we do not have an inter-agency decision answer on what those pieces are yet. It is under active consideration."

He threatened further: "The second round of sanctions under the statue is a more draconian menu than the first round."

And later in the week on Friday Secretary of State Mike Pompeo promised efforts toward a further squeeze on Russian energy export efforts, saying on Friday, "We will keep working together to stop the Nord Stream 2 project that undermines Ukraine's economic and strategic security." Nord Stream 2 is expected to be put into operation by the end of 2019 and is seen as a vital European lifeline Russia needs to halt its economic slide, and an issue where Europe has shown itself unwilling to bow to US demands. 

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Authored by Daniel Lacalle via dlacalle.com,

Eurozone banks have fallen dramatically in the stock market despite the results of the stress tests carried out by the ECB. EU Banks Index is down 25% on the year despite year-long bullish recommendations from almost every broker. This should not surprise anyone because we have seen in the past that these tests are only a theoretical ex Read more.....

Authored by Daniel Lacalle via dlacalle.com,

Eurozone banks have fallen dramatically in the stock market despite the results of the stress tests carried out by the ECB. EU Banks Index is down 25% on the year despite year-long bullish recommendations from almost every broker. This should not surprise anyone because we have seen in the past that these tests are only a theoretical exercise. Moreover, stress tests’ results are widely challenged, and rightly so, because the exercise starts with the most ridiculous premise in economics: Ceteris Paribus, or “all else remaining equal”, which never happens. Every asset manager knows that risk builds slowly and happens fast.

Disappointing earnings, rising risk in the eurozone as well as in their diversification markets such as emerging economies, weak net income margins and low return on tangible equity are factors that have contributed to the weak performance of European banks. Investors are rightly suspicious about consensus estimates for 2019 with expectations of double-digit EPS growth rates. Those growth rates look impossible in the current macroeconomic scenario.

Eurozone banks have done a good job of strengthening their capital structure, reaching almost a one per cent per annum increase in Tier 1 core capital. The question is whether this improvement is enough.

Two factors weigh on sentiment.

1. More than EUR104 billion of risky “hybrid bonds” (CoCos) are included in the calculation of core capital.

2. The total volume of Non-Performing Loans across the European Union is still at around EUR 900 billion, well above pre-crisis levels, with a provision ratio of only 50.7%, according to the European Commission.  Although the ratio has declined to 4.4%, down by roughly 1 percentage point year-on-year, the absolute figure remains elevated and the provision ratio is too small.

This is what I call the “one trillion eurozone timebomb”. One trillion euro risk when the MSCI Europe Bank index has a total market capitalization of around EUR790 billion.

(Source: Bloomberg, Bologna, Miglietta, Segura)

Let us focus on the CoCos, because it is a less commented issue.

The EUR104 billion of CoCos can be a double-edged sword. On one side, they have been one of the favourite instruments to improve core capital rapidly. It was a very popular instrument in recent years to reinforce capital and diversify funding sources. On the other hand, it is a highly risky asset that can create a domino effect on the equity and the other bonds of the entity. Let us face it, the idea that a CoCo can default with no contagion risk to the rest of the capital structure is simply ludicrous.

These CoCos are hybrid bonds. Rating agencies assign them up to a 50% of ‘equity’ component because the investor can lose the entire coupon, as well as part or all the principal if the issuer’s capital ratio falls below 7% or 5%.

These high-risk bonds have been issued widely and with great success in a world in which investors were hungry for some yield in the face of falling interest rates when many assumed the rising strength of banks. It was almost a “no brainer”. Core capital was rising, banks were stronger than ever, and the yields of these Co-Cos ranged between 4 and 7%. Except the risk was much higher.

In 2011, European banks issued 10 billion euros in these products with returns that reached 10%. It seemed a safe business with almost no risk of default.

The policy of central banks and financial repression, once again, led investors to take more risk for lower yields.

By 2017, Eurozone banks had issued more than 70 billion euros with yields that fell to 4%.

From 10% to 4% yield as risks were gradually building, bank stocks were falling and economic data began to disappoint.

These products were extremely popular because few investors thought that the banks would have no problem meeting the required 10% Tier 1 core capital figure. The risk of breaching the core capital threshold seemed impossible.

“Impossible” and “no risk” are very dangerous words in any asset class. In hybrid bonds, it is reckless to believe in no risk.

A recent paper (Contagion in the European CoCos market) by professors Pierluigi Bologna, Arianna Miglietta and Anatoli Segura, concludes: “The recapitalisation of the banks as a going concern provided by CoCos cannot be detrimental for the stability of the rest of the market. Should the operational features of CoCos keep on proving destabilising in future stress situations, rethinking their role as bank regulatory capital tools would be necessary”.

Unsurprisingly, CoCos have fallen sharply and created a domino effect that impacts equities as well.

The idea that a bond can default with no threat to the equity or solvency of the issuing bank could have only occurred to central planners with no clue of risk and contagion.

Eurozone banks bounced in late August while forward earnings estimates were falling (see above).

Risks in CoCos are evident. In NPLs, concerns are mounting:

• Weaker earnings from the borrowers due to the slowdown. According to the BIS, the percentage of large zombie companies (those that cannot pay interest expenses with operating profits) has soared to 9% of quoted names.

• The need to accelerate recapitalization to avoid the next crisis will make it less easy to refinance NPLs.

• The impact of the global slowdown in banks that had opted to grow in emerging markets, commodities and public infrastructure financing.

Anyone who believes these two problems will be solved by extending quantitative easing and low rates has learnt nothing from the past years.

What these risks show is that eurozone banks need to implement a much more aggressive recapitalization plan. Capital increases and eliminating cash dividends will likely have to return. Managers do not want to do it because shares are too low according to them. However, waiting for a bounce has proven to be a big mistake. 2018 was the year of the perfect combination to drive banks shares higher: Confidence in the eurozone, the likelihood of rate hikes, improvement of fundamentals and earnings growth. None of it happened. Waiting for things to get better for asset classes is not enough.

Eurozone banks are better than three years ago. They are nowhere close to having solved their challenges.

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Friday's release of the draft Brexit agreement couldn't have gone much worse for the prime minister.

Having been met with staunch opposition from all sides, the push back peaked with the resignations of Brexit secretary Dominic Raab and Work and Pensions Secretary Esther McVey, followed by the influential Jacob Rees-Mogg sending a letter of no confidence - potentially paving the way for her remov Read more.....

Friday's release of the draft Brexit agreement couldn't have gone much worse for the prime minister.

Having been met with staunch opposition from all sides, the push back peaked with the resignations of Brexit secretary Dominic Raab and Work and Pensions Secretary Esther McVey, followed by the influential Jacob Rees-Mogg sending a letter of no confidence - potentially paving the way for her removal.

But, as Statista's Martin Armstrong asks, what about feelings outside of Westminster - do the public share the MPs negativity?

Put simply, yes.

You will find more infographics at Statista

A poll conducted by YouGov in the wake of yesterday's events revealed that, while a lot of people say they do not know, a plurality of the public across the political spectrum, do not support the draft agreement.

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Authored by Arkady Savitsky via The Strategic Culture Foundation,

The EU has had a lot of trouble on its hands, as its members, such as Poland and Hungary, are openly challenging the established order. This time it’s a very serious situation, because Brussels is facing defiance from Italy, the 3rd largest national economy in the eur Read more.....

Authored by Arkady Savitsky via The Strategic Culture Foundation,

The EU has had a lot of trouble on its hands, as its members, such as Poland and Hungary, are openly challenging the established order. This time it’s a very serious situation, because Brussels is facing defiance from Italy, the 3rd largest national economy in the eurozone and the 8th largest global economy in terms of nominal GDP. It has a population of over 60 million. It is also a Europhile country and the bloc’s founding member.

The Italian government has rejected the EU’s calls to revise its draft budget for 2019 that includes a 2.4% deficit of GDP, which could dangerously boost the nation’s public debt. The ruling coalition in Rome, which is made up of the League and the populist Five Star Movement, has decided to increase borrowing so that it can fund its campaign promises, such as lowering the retirement age and increasing welfare payments.

Last month the European Commission claimed that these spending targets went against EU rules. Rome is burdened by the second-highest amount of public debt in the eurozone. There’s a 131.8% difference between borrowing and economic output there, but the government believes it will achieve substantial economic growth, while the EU’s predictions for Italy are rather gloomy. Nov. 13 was the deadline for submitting a revised draft budget. Rome did not comply. Now the EU leadership is threatening it with sanctions it until it falls into line. Italy could be slapped with a fine of €3.4 billion.

The Italian government takes an independent stance on a multitude of issues. It is seen as Russia-friendly in its calls for lifting, or at least easing, the sanctions against the Russian Federation. Italian Prime Minister Giuseppe Conte believes Moscow should be re-admitted to the G7. The Italian PM visited Moscow in late October,  hailing Russia as an essential global player and inviting Putin to visit Italy. Despite the EU-imposed punitive measures that are in place, Mr. Conte signed a slew of trade and investment agreements. Last year, Russia’s parliamentary majority party, United Russia, and Italy’s Lega Nord (Northern League), a ruling coalition member, signed a cooperation agreement. The regional council in Veneto, where Deputy Prime Minister Matteo Salvini holds a strong position, recognized Crimea as part of Russia in 2016.

Austria is another Russia-friendly EU member. Even the recent “spy scandal” that was obviously staged by outside forces to spoil that bilateral relationship, has failed to damage that rapport. "We are a country that has good contacts with Russia, we are aimed at dialogue, it will not change in the future,” said Austrian Chancellor Sebastian Kurz, speaking to reporters on Nov .14. The conservative People's Party and the far-right Freedom Party — the members of the ruling coalition — are well-disposed toward Moscow. They don’t support the EU sanctions policy.

Hungary is another Russia-friendly EU member. Last month, the European parliament voted to initiate the Article 7 sanctions procedure against Hungary. The government led by PM Victor Orban has been accused of silencing the media, targeting NGOs, and removing independent judges. Launching the procedures stipulated under that article  opens the door to sanctions. Hungary could eventually be temporarily deprived of its EU voting rights. In reality, the country is being punished for refusing to take in migrants.

This is the second time Article 7 procedures have been launched. The first time was last year, when the European Commission set that article into motion against Poland over its judicial reforms. A unanimous vote is required to suspend Hungary's voting rights and introduce sanctions. That move is likely to be blocked by Poland. It turn, Hungary said it would stand by Warsaw should the EU launch procedures to punish it. The two nations are united in their efforts to support each other and fend off Brussels’ encroachments at a time when the bloc is undergoing the most difficult times in its history.

Hungary, Poland, and Russia are trying to draw Europe’s attention to the threat to democracy and peace emanating from Ukraine — a problem that has been largely hushed up by the EU leadership.

Slovakia is another EU member state to nurture what some call “special ties” with Russia. It has never been happy with the sanctions against Moscow and has openly said so. Last month, its new prime minister, Peter Pellegrini, called on the EU to revise the sanction policy.

A diplomatic row was also staged in Greece but, as in case of Austria, it may have clouded those historically close ties but has failed to sever them. Cyprus has always been friendly toward Moscow, but Nicosia and Athens are not in a position to protect their independence, as both are heavily indebted and dependent on foreign loans.

The battle between Brussels and Rome comes at a time when Europe is preparing for the European Parliament elections in May 2019. Punitive measure taken by the EU against Italy will most certainly lead to growing public support of that government that is standing up to pressure in order to defend its people. It will increase the number of Italian Eurosceptics who win seats. With so many countries dissatisfied with the EU leadership, it’s hard to predict the outcome. There will soon be other people at the helm who hold quite different views on the problems faced by the EU, as well as on the bloc’s future. Everything may change, including the relationship with Russia and the sanctions that have become so unpopular and have resulted in many national leaders openly challenging the wisdom of such policy imposed by a powerful few.

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An extremely rare moment of US-China military to military cooperation? Ironically it's in the area of emergency response and disaster relief at a moment when both sides are marching towards increasingly unpredictable encounters in the South China Sea, which could at any moment result in a catastrophe in its own right. 

At a moment when U.S. officials are urging China to halt militarization of the South China Sea, Reuters reports this unusual tiny bright spot Read more.....

An extremely rare moment of US-China military to military cooperation? Ironically it's in the area of emergency response and disaster relief at a moment when both sides are marching towards increasingly unpredictable encounters in the South China Sea, which could at any moment result in a catastrophe in its own right. 

At a moment when U.S. officials are urging China to halt militarization of the South China Sea, Reuters reports this unusual tiny bright spot in Washington-Beijing relations:

Soldiers from China and the United States wrapped up a week of joint disaster relief drills on Saturday, in a display of cooperation against a backdrop of worsening ties between the two countries over trade, the disputed South China Sea and self-ruled Taiwan.

This comes as tensions are soaring between the world's two largest economies and ahead of President Trump's meeting with Chinese President Xi Jinping at the G20 summit in Argentina starting November 30th. 

The exercise was held in the eastern Chinese city of Nanjing, where Chinese and American soldiers simulated natural disaster response and relief. Drills included practice rescuing people from earthquake-destroyed buildings and treating survivors’ injuries at a People’s Liberation Army (PLA) military hospital. 

Military officials on both sides see the drills as crucial in building the kind of mutual understanding and respect that could avoid the type of unintended military action that could be the spark that leads to war, such as recent Chinese military intercepts of American and Western vessels in the South China Sea.

One top Chinese commander, Qin Weijiang, deputy commander of the PLA’s eastern theater command, told reporters:

Only through more contacts, more exchanges and cooperation in areas of common interest can we effectively increase mutual trust and effectively reduce misjudgments.

So I think bilateral exchanges can start from humanitarian and disaster relief exchanges and expand to other areas of common interest.

And the US side issued similarly rare amicable statements. Robert Brown, Commanding General of the U.S. Army Pacific, called the exchange “extremely important” and described: “Just as our top leaders work towards building a strong working relationship and understanding, we through confidence-building measures like this DME [Disaster Management Exchange] must also at our level build a strong understanding of each other,” according to Reuters.

Such disaster relief exchanges have been held on an annual basis, with this year's being the 14th time US and Chinese troops teamed up for the joint training. Last year the event took place in the United States; however, relations are currently their lowest level. But China's defense ministry issued a statement expressing hope that such rare military cooperation can become a "stabilizer" for overall ties with Washington. 

Michael Chase, a specialist in China and Asia-Pacific security at the RAND Corp, was quoted by Reuters as saying, “These exchanges remain important in that respect even if they aren’t going to solve broader problems in the relationship.”

Meanwhile on the same day the rare, cooperative drills were wrapping up, Chinese President Xi Jinping addressed the Asia-Pacific Economic Cooperation forum in Papua New Guinea with US Vice President in attendance. The two leaders traded barbs in their speeches, with the Chinese president saying in response to White House accusations of Beijing using debt-trap diplomacy:

No-one has the power to stop people from seeking a better life. We should strengthen development cooperation.

And the Chinese president warned further against ramping up the trade war as well as potential military escalation, saying, "hot, cold or trade [war]" could spell catastrophe. "Mankind has once against reached a crossroad," he said. "Which direction should we choose? Cooperation or confrontation, openness or closing one's door?"

It will be interesting to see if the US-Chinese humanitarian response drills will still occurring next year, or if relations hit rock bottom by then. 

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Authored by Pepe Escobar via The Asia Times,

Moscow hosted talks last week to promote peace in Afghanistan as neighbors and regional heavyweights eye the rewards of stability in the long-troubled land...

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Authored by Pepe Escobar via The Asia Times,

Moscow hosted talks last week to promote peace in Afghanistan as neighbors and regional heavyweights eye the rewards of stability in the long-troubled land...

In the “graveyard of empires,” Afghanistan never ceases to deliver geopolitical and historical twists. Last week in Moscow, another crucial chapter in this epic story was written when Russia pledged to use its diplomatic muscle to spur peace efforts in the war-torn country.

Flanked by Afghan representatives and their Taliban rivals, Russian Foreign Minister Sergei Lavrov talked about “working together with Afghanistan’s regional partners and friends who have gathered at this table.”

“I am counting on you holding a serious and constructive conversation that will justify the hopes of the Afghan people,” he said.

Back in the 1980s, the Soviet Union launched a disastrous war in the country. Thirty years later, Russia is now taking the lead role of mediator in this 21st-century version of the Great Game.

The line-up in Moscow was diverse.

Four members of the High Peace Council, which is responsible for attempting a dialogue with the Taliban, took part in the talks. Yet the Afghan foreign ministry went the extra mile to stress that the council does not represent the Afghan government.

Kabul and former Northern Alliance members, who form a sort of “protective” circle around President Ashraf Ghani, in fact refuse any dialogue with the Taliban, who were their mortal enemies up to 2001.

The Taliban for their part sent a delegation of five, although spokesman Zabiullah Mujahid was adamant there wouldn’t be “any sort of negotiations” with Kabul. This was “about finding a peaceful solution to the issue of Afghanistan.”

Diplomats in Pakistan confirm the Taliban will only negotiate on substantial matters after a deal is reached with the United States on a timetable for complete withdrawal.

Russian foreign ministry spokeswoman Maria Zakharova stressed this was the first time a Taliban delegation had attended such a high-level international meeting. The fact that the Taliban is classified by Moscow as a “terrorist organization” makes it even more stunning.

Moscow also invited China, Pakistan, India, Iran, the five Central Asian “stans” and the US. Washington sent just a diplomat from the American Embassy in Moscow, as an observer. The new US special envoy for peace in Afghanistan, Zalmay Khalilzad, widely known in the recent past as “Bush’s Afghan”, has not exactly made much progress in his meetings with Taliban officials in Qatar in the past few months.

India – not exactly keen on a Pakistan-encouraged “Afghan-led peace” process – sent an envoy at a “non-official level” and received a dressing down from Lavrov, along the lines of  ‘Don’t moan, be constructive’. 

Still, this was just the beginning. There will be a follow-up – although no date has been set.

Enduring so much freedom

Since the US bombing campaign and invasion of what was then Taliban-controlled Afghanistan 17 years ago, peace has proved elusive. The Taliban still has a major presence in the country and is essentially on a roll. 

Diplomats in Islamabad confirm Kabul may exercise power over roughly 60% of the population, but the key fact is that only 55% of Afghanistan’s 407 districts, and perhaps even less, submit to Kabul. The Taliban are on the ascendancy in the northeast, the southwest and the southeast.

It took a long time for a new head of US and NATO operations, General Austin Scott Miller, to admit the absolutely obvious. “This is not going to be won militarily … This is going to a political solution,” he said.

The world’s most formidable military force simply cannot win the war.

Still, after no less than 100,000 US and NATO troops plus 250,000 US-trained Afghan army and police failing over the years to prevent the Taliban from ruling over whole provinces, Washington seems determined to blame Islamabad for this military quagmire. 

The US believes Pakistan’s covert “support” for the Taliban has inflamed the situation and destabilized the Kabul government.

No wonder the Russian presidential envoy for Afghanistan, Zamir Kabulov, went straight to the jugular. “The West has lost the war in Afghanistan … the presence of the US and North Atlantic Treaty Organization [NATO] hasn’t only failed to solve the problem, but exacerbated it.”

Lavrov, for his part, is quite concerned by the expansion of Daesh, known regionally as ISIS-Khorasan. He warned, correctly, that “foreign sponsors” are allowing ISIS-K to “turn Afghanistan into a springboard for its expansion in Central Asia”. Beijing agrees.

A grand plan by China-Russia

It’s no secret to all the major players that Washington won’t abdicate from its privileged Afghan base in the intersection of Central and South Asia for a number of reasons, especially monitoring and surveillance of strategic “threats” such as Russia and China.   

In parallel, the eternal “Pakistan plays a double game” narrative simply won’t vanish – even as Islamabad has shown in detail how the Pakistani Taliban have been consistently offered safe-havens in eastern Afghanistan by RAW (Indian intelligence) operatives.

That does not alter the fact that Islamabad has a serious Afghan problem. Military doctrine rules that Pakistan cannot manage the South Asian geopolitical chessboard and project power as an equal of India without controlling Afghanistan in “strategic depth.”

Add to it the absolutely intractable problem of the Durand Line, established in 1893 to separate Afghanistan and the British India empire. A hundred years later, Islamabad totally rejected Kabul’s appeal to renegotiate the Durand line, according to a provision in the original treaty. For Islamabad, the Durand line shall remain in perpetuity as a valid international border.

By the mid-1990s, the powers in Islamabad believed that by supporting the Taliban they would end up recognizing the Durand line and on top of it essentially dissolve the impetus of Pashtun nationalism and the call for a “Pashtunistan”.

Islamabad was always supposed to drive the narrative. History, though, turned it completely upside down. In fact, it was Pashtun nationalism plus hardcore Islamism of the Deobandi variety that ended up contaminating Pakistani Pashtuns.

Yet Pashtuns may not be the major actors in the, perhaps, final season of this Hindu Kush spectacular. That may turn out to be China.

What matters most for China is Afghanistan becoming part of the China-Pakistan Economic Corridor (CPEC). That’s exactly what Chinese envoy Yao Jing told the opening session of the 4th Trilateral Dialogue in Islamabad earlier this week between China, Pakistan and Afghanistan.

 “Kabul can act as a bridge to help expand connectivity between East, South and Central Asian regions,” Jing said.

Pakistani Senator Mushahid Hussain Sayed said: “The Greater South Asia has emerged as a geo-economic concept, driven by economy and energy, roads and railways and ports and pipelines, and Pakistan is the hub of this connectivity due to CPEC.”

For Beijing, CPEC can only deliver its enormous potential if Pakistan and India relations are normalized. And that road goes right through Afghanistan. China has been aiming for an opening for years. Chinese intel operatives have met the Taliban everywhere from Xinjiang to Karachi and from Peshawar to Doha.

The China card is immensely alluring. Beijing is the only player capable of getting along with all the other major actors: Kabul, the Taliban, the former Northern Alliance, Iran, Russia, Central Asia, the US, the EU, Saudi Arabia, Turkey and – last but not least – “all-weather” brothers Pakistan.

The only problem is India. But now, inside the Shanghai Cooperation Organization (SCO), they are all on the same table – with Iran and Afghanistan itself as observers.  Everyone knows that an Afghan Pax Sinica would involve tons of investment, connectivity and trade integration. What’s not to like?

So this is the ultimate goal of the ongoing Moscow peace talks. It’s part of a concerted SCO strategy that has been discussed for years. The long and winding road is just starting. A Russia-China-driven peace process, Taliban included. Stable Afghanistan. Islamabad as guarantor. All-Asian solution. No Western invaders welcome.

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Over a dozen top US energy firms have agreed to devote $100 million towards much needed improvements in West Texas and New Mexico, in order to help the regions cope with shortfalls in health care, education and civic infrastructure in the wake of the shale oil and gas boom, the group said on Sunday. 

Read more.....

Over a dozen top US energy firms have agreed to devote $100 million towards much needed improvements in West Texas and New Mexico, in order to help the regions cope with shortfalls in health care, education and civic infrastructure in the wake of the shale oil and gas boom, the group said on Sunday. 

Chevron, EOG Resources, Exxon Mobil and Royal Dutch Shell are among 17 companies backing the Permian Strategic Partnership, as the consortium is called, Don Evans, a former U.S. government official and energy executive helping launch the group, told Reuters on Saturday. -Reuters

The funds will be used to address labor and housing shortages, according to Reuters, along with traffic congestion caused by companies converging on the Permian Basin - the nation's largest oilfield, where billions of dollars' worth of oil and gas are expected to be extracted over the next several decades, according to experts. 

"t’s a significant amount of money, but these are huge challenges," said Evans, former US Secretary of Commerce from Midland, Texas. "We don’t have enough teachers. We don’t have enough doctors," he added. 

The consortium will work with regional and federal officials, as well as nonprofit groups, companies and educators in Texas and New Mexico. Evans - who became CEO of producer Tom Brown Inc. after starting his career in the Permian, joined the George W. Bush administration as Secretary of Commerce. 

The group is assembling plans to hold meetings in communities across the region, so “everyone have a voice” in the undertaking. There is no timetable or plan for how the initial contribution will be spent. The group is recruiting staff and searching for office space, he said.

In the last decade, the region’s many pockets of oil and low production costs have led to gold rush-like conditions in the Permian. Companies are pouring staff and equipment into the oilfield, which is expected to pump 3.7 million barrels of oil per day by December, four times its rate in 2010, according to the U.S. Energy Information Administration. -Reuters

The unemployment rate in Midland hit 2.1 percent in October, vs. the national rate of 3.7 percent, leaving local employers - including schools and restaurants - under pressure as staff leaves for oilfield jobs. 

As we reported in June, a battle has been playing out in Midland between employee-starved local businesses and multinational energy companies who are poaching local residents left and right for high-paying jobs as the latest Permian Basin shale-oil boom accelerates.

Midland Mayor Jerry Morales has said that the boom is a double-edged sword; while the energy industry has increased sales-tax revenue by 34% year-over-year as of June, the 2.1% unemployment rate has resulted in a severe shortage of low-paying jobs around town - such as the 100 open teaching positions, according to Bloomberg.

Morales, a native Midlander and second-generation restaurateur, has seen it happen so many times before. Oil prices go up, and energy companies dangle such incredible salaries that restaurants, grocery stores, hotels and other businesses can’t compete. People complain about poor service and long lines at McDonald’s and the Walmart and their favorite Tex-Mex joints. Rents soar. -Bloomberg

"This economy is on fire," said Morales - who is also the proprietor of Mulberry Cafe and Gerardo's Casita. Unfortunately, the fire is so hot that the Mayor is scrambling to fill open jobs - from local government positions, to cooks at his restaurants. 

In the country’s busiest oil patch, where the rig count has climbed by nearly one third in the past year, drillers, service providers and trucking companies have been poaching in all corners, recruiting everyone from police officers to grocery clerks. So many bus drivers with the Ector County Independent School District in nearby Odessa quit for the shale fields that kids were sometimes late to class. The George W. Bush Childhood Home, a museum in Midland dedicated to the 43rd U.S. president, is smarting from a volunteer shortage.

And it doesn't take much to get hired by the oil industry - which, as Bloomberg summarizes, "will hire just about anyone with basic training"... and it will quickly double, triple or x-ple their pay in the process. "It is crazy" said Jazmin Jimenez, 24, who flew through a two-week training program at New Mexico Junior College about 100 miles north of Midland. Jimenez was hired by Chevron as a well-pump checker. "Honestly I never thought I’d see myself at an oilfield company. But now that I’m here -- I think this is it."

Meanwhile, the shale boom has also resulted in school overcrowding, a spike in traffic fatalities, drug abuse, and a massive strain on the power grid. 

“Our roads are not designed to handle the amount of truck traffic we have,” said Jeff Walker, transportation training coordinator at New Mexico Junior College in Hobbs.

Drug charges in Midland more than doubled between 2012 and 2016, to 942 from 491, according to police data. Traffic accidents also jumped 18 percent between 2016 and 2017 in Midland County, and 29 percent in nearby Ector County, according to Texas Department of Transportation data. -Reuters

"They all agree that scaling up infrastructure is going to be a huge challenge," said oil industry adviser Bob Peterson. "There’s a common agreement that there’s a whole bundle of problems."

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Authored by Peter Van Buren via Medium.com,

What is the state of diplomacy on the Korean peninsula? Are we again heading toward the lip of war, or is progress being made at an expected pace? Are there Asian Neocons fanning the flames for conflict in Pyongyang much as others did with Baghdad?

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Authored by Peter Van Buren via Medium.com,

What is the state of diplomacy on the Korean peninsula? Are we again heading toward the lip of war, or is progress being made at an expected pace? Are there Asian Neocons fanning the flames for conflict in Pyongyang much as others did with Baghdad?

A year ago, in November 2017, John Brennan estimated the chance of a war with North Korea at 20 to 25 percent. Richard Haass, president of the Council on Foreign Relations, said the odds were 50/50. The New York Times claimed we were “slouching toward war” with the North, on a “collision course.” National security adviser HR McMaster said North Korea represented “the greatest immediate threat to the United States” and that the potential for war with the communist nation grew each day. The U.S. lacked an ambassador in Seoul; Victor Cha was rejected by Trump because, according to “sources and reports,” he didn’t support a preemptive strike on Pyongyang. It was reported the U.S. was “imminently preparing for an attack on North Korea,” driven in part by hawks like Mike Pompeo and John Bolton.

All that was wrong.

Cha, it appears, didn’t in fact support what Trump actually was planning: not a preemptive strike, but a summit meeting with Kim Jong Un, held some five months ago in Singapore following a first try at courtship aside the Seoul Olympics in January 2018. World leaders meeting to talk peace is historically seen as a good thing. Yet the American media consensus was a president they believe is roundly despised globally conveyed “legitimacy” on Kim Jong Un, no matter that his family has ruled North Korea for some seven decades, and his country already holds a seat at the United Nations. No shortage of experts from South Korea universities and American think tanks were found to support those claims.

The media generally ignored (in return for the U.S. postponing a handful of military exercises) “concessions,” which were deeply criticized by an American media which has failed to note the U.S. has actually resumed some exercises, the North unilaterally stopped ICBM testing (the missiles which might someday be able to reach the U.S.) and nuclear detonations. It released American hostages, and took steps to close down two nuclear missile facilities. Kim Jong-un fired top military leaders who dissented over his approaches to South Korea and the United States.

Officials from North and South now meet regularly, and U.S. diplomats engage with both sides on an ongoing basis; Secretary of State Mike Pompeo has been to Pyongyang. Numerous practical steps have been taken along the DMZ to reduce the chance of accidents. South Korea’s unification minister in charge of North Korea issues Cho Myoung-gyon will visit the United States this week, where he is expected to meet Pompeo. This is the first time in four years for South Korea’s unification minister to visit Washington. On the last visit, in 2014, then-Secretary of State John Kerry refused to meet with his predecessor in line with the Obama (and Bush) administrations’ policy of ignoring North Korea in hopes the problem would go away.

Yet the headlines this week in the New York Times and other major U.S. outlets scream of a “great deception” by the North Koreans, evidenced by a hardline think tank?—?helmed in part by Victor Cha?—?“discovering” North Korean missile facilities already long known to U.S. intelligence (Cha’s lo-rez commercial satellite photos are dated March, months before the Trump-Kim summit, so everyone who mattered already knew.)

In a matter of a few paragraphs, Cha and the Times blow this “discovery” up to announce, without any evidence, “What everybody is worried about is that Trump is going to accept a bad deal?—?they give us a single test site and dismantle a few other things, and in return they get a peace agreement” that formally ends the Korean War. Mr. Trump, he said, “would then declare victory, say he got more than any other American president ever got, and the threat would still be there.”

What is the real state of diplomacy on the Korean peninsula? Are we again heading toward the lip of war?

Of course not. South Korea’s presidential spokesperson put those “new” missile facilities into the perspective Trump’s critics lack, saying “North Korea has never promised to shut down this missile base. It has never signed any agreement, any negotiation that makes shutting down missile bases mandatory… There is no agreement, no negotiation that makes it necessary for it to be declared.” In other words, there can be no deception where there was no agreement.

To call what the Times discovered a “deception” is deeply misleading. The Singapore declaration and the inter-Korean summit declarations of April 27 and September 19 this year do not commit Pyongyang to disclose the sites. What is new to the Times is actually old news; Kim Jong Un in his January 2018 New Year’s Day guidance stated North Korea would shift to the mass producing nuclear weapons in such facilities. “The nuclear weapons research sector and the rocket industry should mass-produce nuclear warheads and ballistic missiles, the power and reliability of which have already been proved to the full, to give a spur to the efforts for deploying them for action,” Kim said. The Times in fact more or less acknowledged all this in September, before being suprised by it in November.

And the Times’ big scary takeaway, that the old/new facilities are in caves, confuses tactical concealment with some sort of nefarious political “deception.” Did they expect the missiles to be worked on in the parking lot outside Kim’s villa?

One issue only lightly touched by a western media obsessed with parsing tweets as their stab at journalism is the ongoing rush forward driven by the two Koreas themselves, what under any other media climate would be hailed as a huge series of successes but which falls in 2018 under the Trump Is Always Wrong Shadow. In a short time the two states established psuedo-embassies just north of the DMZ, where representatives from the two Koreas have met more than 60 times. The office has become a clearinghouse for over a dozen projects launched during the summit. There are plans for a massive binational project to link roads and railroads severed during the Korean War.

North and South Korea have begun removing landmines from the border, drawn back some troops, and most recently held a third leaders’ summit in September in Pyongyang North Korean leader Kim offered to permanently dismantle two key ICBM facilities under the observation of outside experts. He also offered to negotiate further on the permanent shut down of the nuclear facility at Yongbyon. South Korean President Moon Jae-In, for his part, better than the U.S. understands the future is ultimately about economics, not nukes. Moon seeks sanctions relief as negotiations move forward (little is ever accomplished without some give and take.) “I believe the international community needs to provide assurances that North Korea has made the right choice to denuclearize and encourage North Korea to speed up the process,” he said this week in Paris during a visit with French President Emmanuel Macron. If the western media is correct that Trump is being duped, played, deceived, and cheated by the North, what must they think about the faster pace set by the South? After all, a U.S. miscalculation means we all switch from Samsung to Apple phones made in China, while South Korea risks being turned into a wasteland dotted only with signs for Nuka Cola.

Left off to the side is that it has been only five months since the historic summit in Singapore. Obama’s agreement with Iran, which did not even involve actual working nukes, took almost two years to conclude. Cold War negotiations with the Soviet Union ran across administrations, extending the broader process into decades of talks, and were aimed at goals much shorter than full denuclearization. Five months is barely enough time to grow a decent garden, never mind resolve multinational problems that reach back to 1945.

With North Korea, there is no history of trust, no basis of goodwill to build on. That all has to be created, built from scratch, as part of the heavy lifting of diplomacy. The ultimate goal?—?denuclearization?—?may or may not someday come to pass, but if it does it will be the result of years of more small steps forward than small steps back. Diplomacy is about moving the goalposts and embracing the long game, not playing chicken. It will require the North’s nuclear weapons to become unnecessary, as the North agrees to and is allowed to become so engaged with the global system that it finds itself no longer in need of such a powerful deterrence to attacks by its neighbors. Diplomacy requires one to at least understand the opponent’s goals and motivations, even if you don’t agree with them.

There exists an industry of sorts devoted to portraying North Korea as an eviler than evil empire, with Kim as a parody of the movie Dr. Evil. These hardliners, ensconced mostly in universities in South Korea and think tanks in the U.S., have been around since the Cold War to make sure the case for the militarization of South Korea and American support for various South Korean military dictators never lacked public advocates. They act as mouthpieces for North Korean defectors with horror stories, and are quick to seize on anything to amplify the threat. Older readers will remember similar mostly defunct “industries” set up to do the same over the actions of Cuba, China, and the Soviet Union once (though the Red Threat gang is trying to make a comeback over Bond villian wanna-be Putin.)

Victor Cha himself is a kind of one man gloom machine, writing regularly of the impossibility of denuclearization. His old articles focus fearfully on meetings canceled them (but since successfully concluded; fatalism ignores the future) he in fact represents a kind of Asian neocon, an industry dedicated to the impossibility of peace on the peninsula as long as the Kim dynasty remains in power. Cha’s home organization, the Center for Strategic and International Studies, for example, features multiple former Secretaries of Defense on its board and as trustees, and is well-funded by elements of the military industrial complex. Of the plan to link railroads across the DMZ, what any sane person would see as progress, the organization grumbled the “move is expected to increase friction with its traditional ally Washington over the pace of inter-Korean engagement.”

So shame on those hardline groups?—?let’s call them Asian Neocons, for they want regime change in the North in the same way as Cheney, Rumsfeld, et al, wanted it in the Middle East?—?and shame on the New York Times for morphing its Trump-is-always-wrong editorial policy into presenting something long-known to U.S. intelligence as something new enough to declare deception has overtaken the diplomatic long game on the Korean Peninsula.

As they did during the run up to the Iraq War, the Times is once again serving as a platform for those who cannot see or will not wait for a peaceful way forward.

Deception? The deception, it is clear, is all (again) on the side of the neocons. They seek to destroy any chance of lasting peace with unrealistic expectations and by announcing failure at goals never actually set. Because if not diplomacy, then what is the alternative? Theirs is not pessimism, it is fatalism. Success instead should be measured by the continued absence of war and the continued sense that war is increasingly unlikely. Anyone demanding more than that wants things to fail.

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The U.S. special envoy to Afghanistan has said he hopes to strike a final peace deal with the Taliban by April of 2019, according to Reuters citing local media reports. 

U.S. envoy Zalmay Khalilzad led three days of talks between the United States, the Taliban and the Afghan government in Qatar where the Taliban has a political Read more.....

The U.S. special envoy to Afghanistan has said he hopes to strike a final peace deal with the Taliban by April of 2019, according to Reuters citing local media reports. 

U.S. envoy Zalmay Khalilzad led three days of talks between the United States, the Taliban and the Afghan government in Qatar where the Taliban has a political office, the culmination of months of attempted unprecedented face-to-face sit down dialogue between American officials and the Islamist insurgent group's representatives. 

Khalilzad told reporters over the weekend that he hopes “a peace deal is reached before April 20 next year”, when Afghanistan is planning to hold a presidential election. While six months is ambitious and a tad optimistic, it appears more about creating the conditions for a final politically face-saving American exit from the now approaching two decade long quagmire. 

Khalilzad was appointed by President Trump specifically for the task of holding the controversial direct talks in order to find ways of ending the 17-year long American war in Afghanistan, at a time when officials have acknowledged the group holds nearly half of the country.

On Sunday Khalilzad said the talks are aimed at establishing “peace and a successful Afghanistan, one that doesn’t pose any threats to itself and to the international community”.

However, we could add it's more immediately and realistically about American forces and advisers acknowledging it's "time to cut and run" after an undefinable mission that's become deeply unpopular with the US public. 

Taliban officials for their part have demanded the US set a timeline for troop withdrawal and the release of senior Taliban figures from jails. Another round of talks is expected but with no date set yet. Commenting on the talks US Joint Chiefs Chairman General Joseph Dunford said on Saturday: “We used the term stalemate a year ago and relatively speaking it hasn’t changed much, but ... we do believe that the Taliban know that at some point they have to reconcile.”

Meanwhile there's been a significant uptick in Taliban terror attacks on Afghan national forces, resulting in hundreds of casualties in recent weeks, ABC reports. 

Earlier this month the newly-appointed American general in charge of US and NATO operations, Gen. Austin Scott Miller, told NBC News that the Afghan war cannot be won militarily and peace will only be achieved through direct engagement and negotiations with the Taliban. "This is not going to be won militarily," Gen. Miller said. "This is going to a political solution."

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