01-22-2006, 10:26 AM
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From Deccan Chronicle, 21 Jan., 2006
<b>The new Sputniks to deal with</b>
By Thomas L. Friedman
Detroit: I came to Detroit looking for the hottest new American cars. Instead, I found Sputnik. You remember Sputnik â the little satellite the Soviets launched in 1957. The Eisenhower administration was so stunned it put the United States into a crash programme to train more scientists and engineers so America could catch up with the Russians in the space race.
Well, for anyone paying attention, our generationâs Sputnik showed up at the annual Detroit auto show this week. Itâs not a satellite. Itâs a car. Itâs called the Geely 7151 CK sedan. It seats a family of five, gets good mileage and will cost around $10,000 when it goes on sale in 2008.
Itâs made in China.
That doesnât get your attention? Well, thereâs another Sputnik that just went up: Iran. Itâs going to make a nuclear bomb, no matter what the United Nations or United States say, because at $60-a-barrel oil, Tehranâs mullahs are rich enough to buy off or tell off the rest of the world. That doesnât worry you? Well, thereâs a quieter Sputnik orbiting Earth. Itâs called climate change â aka Katrina and melting glaciers.
What am I saying here? I am saying that our era doesnât have a single Sputnik to grab our attention and crystallise the threat to our security and way of life in one little steel ball â the way our parentsâ era did. But that doesnât mean such threats donât exist. They do, and they have a single common denominator: the way we use and consume energy today, particularly oil.
Friends, we are in the midst of an energy crisis â but this is not your grandfatherâs energy crisis. No, this is something so much bigger, for four reasons. First, we are in a war against a radical, violent stream of Islam that is fuelled and funded by our own energy purchases. We are financing both sides in the war on terrorism: the US Army with our tax dollars, and Islamist charities, madrasas and terrorist organisations through our oil purchases.
Second, the world has gotten flat, and three billion new players from India, China and the former Soviet Union just walked onto the field with their version of the American dream: a house, a car, a toaster and a refrigerator. If we donât quickly move to renewable alternatives to fossil fuels, we will warm up, smoke up and choke up this planet far faster than at any time in the history of the world. Katrina will look like a day at the beach.
Third, because of the above, green energy-saving technologies and designs â for cars, planes, homes, appliances or office buildings â will be one of the biggest industries of the 21st century. Tell your kids. China is already rushing down this path because it canât breathe and canât grow if it doesnât reduce its energy consumption. Will we dominate the green industry, or will we all be driving cars from China, Japan and Europe?
Finally, if we continue to depend on oil, we are going to undermine the whole democratic trend that was unleashed by the fall of the Berlin Wall. Because oil will remain at $60 a barrel and will fuel the worst regimes in the world â like Iran â to do the worst things for the world. Indeed, this $60-a-barrel boom in the hands of criminal regimes, and just plain criminals, will, if sustained, pose a bigger threat to democracies than Communism or Islamism. It will be a black tide that turns back the democratic wave everywhere â including in Iraq.
The one thing we can do now to cope with all four of these trends is to create a tax that fixes the pump price at $3.50 to $4 a gallon â no matter where the Opec price goes. Because if consumers know that the price of oil is never coming down, they will change their behaviour. And when consumers change their behaviour in a big way, GM, Ford and DaimlerChrysler will change their cars in a big way, and it is cars and trucks that consume the vast majority of the worldâs oil.
The more Detroit goes green, the faster it will be propelled down the innovation curve, making it more likely that Detroit â and not Toyota or Honda or the Chinese â will dominate the green technologies of the 21st century. A permanent gasoline tax will also make solar, wind and biofuels so competitive with oil that it will drive their innovations as well.
George W. Bush may think he is preserving the American way of life by rejecting a gasoline tax. But if he does not act now he will be seen as the man who presided over the decline of our way of life. He will be the American President who ignored the Sputniks of our day.
<b>Nationalism fuels Putin </b>
By Paul Robinson
I donât believe that I can be alone in having spent a Russian or Ukrainian winter with the windows of my room wide open. Many buildings in that part of the world are dreadfully overheated, for the simple reason that energy is so cheap. Soon, however, Ukrainians will have to learn to close their windows. Until recently, the Russian gas company Gazprom charged Ukrainian consumers $50 for every 1,000 cubic metres of gas they used.
Then Gazprom demanded that they pay $230. The Ukrainiansâ first response was to refuse, and the Russians turned off the gas. After that Ukraine agreed to pay $95 per 1,000 cubic metres for a mixture of Gazprom supply and cheaper gas from Central Asia. Gazprom has, for the moment, said it is satisfied.
Whatâs going on? With the collapse of Soviet military and economic might, Russia was left with very few means with which to influence the world around it. Now rising energy prices have handed Moscow a new weapon. Russia has 30% of the worldâs natural gas deposits and 10% of the worldâs oil. Oil and gas production in the rest of Europe is declining, and within a few years the European Union will import about half of all its gas from Russia. This gives Russia great leverage over its neighbours, and the Russian President Vladimir Putin is showing clear willingness to use that leverage.
We Brits love an underdog. As Robert Baden-Powell harrumphed in his classic Scouting for Boys, âIf you see a big bully going for a small weak boy, you stop him because it is not âfair playâ.â Gazpromâs price hike provoked great howls of indignation in some circles of the British press, particularly as Russia has taken over the rotating chairmanship of the G8.
According to the Daily Telegraph, âThe methods of gangsterism and blackmail now being used by Gazprom are reminiscent of the Soviet era...â Unfortunately for those spinning this simplistic tale of bully and bullied, Gazpromâs âunacceptable conductâ is actually something we have been requiring of it. For in raising the prices they charge for gas in Eastern Europe, the Russians are merely going part way towards meeting demands made by the European Union over several years.
The initial increase in the gas price proposed by Gazprom, to $230, was certainly a large one, but it is, after all, what consumers in Western countries such as Germany are charged, whereas $50 is below cost price, meaning that Gazprom made a loss by selling gas at that rate.
Gazprom is only notionally an independent company; in practice it is an arm of the Russian state, which owns 51% of the stock, and the state is prepared to take a loss in some circumstances for political advantage â bribing potential allies, keeping Russian votersâ energy bills low, and subsidising domestic industry, for instance.
Accordingly, Gazprom has been selling its gas at $50, or even less, to consumers throughout the Commonwealth of Independent States (CIS) ever since the collapse of the Soviet Union. As Aleksandr Ryazanov, deputy director of Gazpromâs board of directors has noted, $50 âdoesnât even cover our real costs for producing and transporting gas to CIS countries.â
Now you might imagine that it is entirely Gazpromâs business if it wants to make a loss on some of its deals; but not so in the eyes of the ever-meddling EU, which for years has been demanding that Russian companies stop subsidising energy prices and start charging market rates. In the oil sector, this has largely happened. In the gas and electricity sectors, it has not. Gazprom and the Russian electricity giant UES have, therefore, long been in the Eurocratsâ sights.
In October 2000 the EU and Russia started a series of bilateral meetings known as the âEU-Russia Energy Dialogue.â On the European side, the aim of the dialogue is to reform the monopoly system in the Russian gas and electricity markets, open up those markets to EU investors, enhance environmental protection and secure Europeâs energy supply.
On the Russian side, the aim is to gain long-term contracts for Russian energy exports, attract European investment and gain unrestricted access for Russiaâs exports into the EU. Parallel to the energy dialogue, negotiations took place between the EU and Russia regarding Russiaâs entry into the World Trade Organisation (WTO). Much to the Russiansâ annoyance, the EU linked the two, demanding that Russia liberalise its energy prices as a condition of European support for its WTO membership.
The reason the EU dislikes the low prices charged by Gazprom to CIS members is that these are considered an unfair subsidy to CIS industries, which gives them a competitive advantage over European companies. This is of particular concern in some sectors such as metals and fertilisers, where CIS exporters have been able to keep costs low through subsidised energy, and then harm European competitors.
For instance, the collapse of Communism led to a dramatic fall in domestic Russian demand for nitrogen fertilisers. The Russian fertiliser industry responded by what has been called an âaggressive export dumping campaignâ in the EU. In accordance with its free-market principles, therefore, the EU has stated that Russian energy subsidies are incompatible with free trade and must go.
In addition, the EU is in the process of liberalising its own energy industry. The Russian habit of signing long-term contracts with different European countries at differing fixed rates is incompatible with the aim of producing an EU-wide free market in energy. âMarketisationâ of the Russian energy system is, therefore, an important European goal.
Aware of the inefficiencies and waste caused by its policies, the Russian government in April 2003 laid out objectives for achieving more efficient energy use.
This strategy requires marketisation of the energy sector, including liberalisation of prices and raising the costs of energy consumption in order to reduce waste and increase exports of surplus energy.
On the environmental side, the EU pressured Russia long, hard and ultimately successfully to ratify the Kyoto accord. This requires a reduction in carbon emissions, and so adds further incentives to reduce consumption of oil and gas by means of raising prices. Consequently, Russia became aware of the advantages of higher prices, and in May 2004 reached a compromise agreement with the Europeans. The EU agreed to support Russiaâs WTO accession, in return for which Russia promised to double its domestic gas prices by 2010.
Given all this, Gazpromâs decision to charge market prices to Ukraine is, on the surface, one for which the EU should be congratulating it. It represents at least a small step in a general Russian policy towards liberalisation which has been slowly gaining pace over the past five years. Ukraine is not the worldâs sixth largest consumer of natural gas because its industry requires such enormous consumption, but because its subsidised prices make it indifferent to energy-saving. Paying more for its energy might actually do it some good.
In short, the increase in gas prices is fully in keeping with the Westâs desire to complete the process of creating a genuine market economy in Russia, Ukraine and the other countries of the CIS, as well as progressing towards fulfilling the environmental demands of the Kyoto accord.
Economics cannot be the only reason Gazprom has acted the way it has. The company has, after all, chosen to increase its charges to most former Soviet countries by much less than it was threatening to increase those to Ukraine. Gazpromâs charges to Georgia are increasing from $60 per 1,000 cubic metres to $110. Similarly Armenia will now pay $110, Moldova $160, and the three Baltic states $120-125. Until the last-minute deal it seemed as though Ukraine had been singled out for particular punishment.
Perhaps the $230 was more bargaining chip than ultimatum, but it is hard not to see Moscowâs move as political â a reaction to the perceived anti-Russian policies of the current Ukrainian administration. Aleksandr Lukashenko, President of Belarus and Russiaâs close ally, recently signed a new deal guaranteeing his country continued gas supplies at $47 per 1,000 cubic metres, and gloated about this at the end of last month. His deal, he said, was a âreward for loyalty.â Indeed.
Putin seems to regard the key to Russiaâs resurrection as being the recreation of a powerful central state. Weak government has been a perpetual problem in Russian history, and has all too often brought economic and social disintegration. For this reason Putin has sought to bring the most important economic assets of the country â the oil and gas industries â back under the sway of the state. The renationalisation of Mikhail Khodorkovskyâs Yukos oil company can be seen in this light. Now, having more or less completed this process, the President is flexing his new-found muscles on the international stage.
It is this which causes the current indignation. But in truth, all major nations provide aid and subsidies to their allies, and seek to coerce or punish others. As Eric Kraus, chief strategist at the Sovlink Securities brokerage firm in Moscow, comments, âRussia does not have to subsidise countries which are overtly hostile to Russia. The Americans or the French or the Germans can give foreign aid to some countries and not to others. They heavily subsidise Egypt; they donât subsidise Syria. Does this give Syria the right to complain of unfairness?â
Putinâs policy certainly represents a very crude pursuit of national interest, implemented unilaterally and with little regard for international opinion. But as such it is not so very different from the sort of policies pursued by other states, including our own. Furthermore, the marketisation of energy policy which it involves is entirely in keeping with the demands that European states have been making of Russia for several years. While one may sympathise with the Ukrainians who are having to shut their windows, there is in reality very little to be indignant about.
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From Deccan Chronicle, 21 Jan., 2006
<b>The new Sputniks to deal with</b>
By Thomas L. Friedman
Detroit: I came to Detroit looking for the hottest new American cars. Instead, I found Sputnik. You remember Sputnik â the little satellite the Soviets launched in 1957. The Eisenhower administration was so stunned it put the United States into a crash programme to train more scientists and engineers so America could catch up with the Russians in the space race.
Well, for anyone paying attention, our generationâs Sputnik showed up at the annual Detroit auto show this week. Itâs not a satellite. Itâs a car. Itâs called the Geely 7151 CK sedan. It seats a family of five, gets good mileage and will cost around $10,000 when it goes on sale in 2008.
Itâs made in China.
That doesnât get your attention? Well, thereâs another Sputnik that just went up: Iran. Itâs going to make a nuclear bomb, no matter what the United Nations or United States say, because at $60-a-barrel oil, Tehranâs mullahs are rich enough to buy off or tell off the rest of the world. That doesnât worry you? Well, thereâs a quieter Sputnik orbiting Earth. Itâs called climate change â aka Katrina and melting glaciers.
What am I saying here? I am saying that our era doesnât have a single Sputnik to grab our attention and crystallise the threat to our security and way of life in one little steel ball â the way our parentsâ era did. But that doesnât mean such threats donât exist. They do, and they have a single common denominator: the way we use and consume energy today, particularly oil.
Friends, we are in the midst of an energy crisis â but this is not your grandfatherâs energy crisis. No, this is something so much bigger, for four reasons. First, we are in a war against a radical, violent stream of Islam that is fuelled and funded by our own energy purchases. We are financing both sides in the war on terrorism: the US Army with our tax dollars, and Islamist charities, madrasas and terrorist organisations through our oil purchases.
Second, the world has gotten flat, and three billion new players from India, China and the former Soviet Union just walked onto the field with their version of the American dream: a house, a car, a toaster and a refrigerator. If we donât quickly move to renewable alternatives to fossil fuels, we will warm up, smoke up and choke up this planet far faster than at any time in the history of the world. Katrina will look like a day at the beach.
Third, because of the above, green energy-saving technologies and designs â for cars, planes, homes, appliances or office buildings â will be one of the biggest industries of the 21st century. Tell your kids. China is already rushing down this path because it canât breathe and canât grow if it doesnât reduce its energy consumption. Will we dominate the green industry, or will we all be driving cars from China, Japan and Europe?
Finally, if we continue to depend on oil, we are going to undermine the whole democratic trend that was unleashed by the fall of the Berlin Wall. Because oil will remain at $60 a barrel and will fuel the worst regimes in the world â like Iran â to do the worst things for the world. Indeed, this $60-a-barrel boom in the hands of criminal regimes, and just plain criminals, will, if sustained, pose a bigger threat to democracies than Communism or Islamism. It will be a black tide that turns back the democratic wave everywhere â including in Iraq.
The one thing we can do now to cope with all four of these trends is to create a tax that fixes the pump price at $3.50 to $4 a gallon â no matter where the Opec price goes. Because if consumers know that the price of oil is never coming down, they will change their behaviour. And when consumers change their behaviour in a big way, GM, Ford and DaimlerChrysler will change their cars in a big way, and it is cars and trucks that consume the vast majority of the worldâs oil.
The more Detroit goes green, the faster it will be propelled down the innovation curve, making it more likely that Detroit â and not Toyota or Honda or the Chinese â will dominate the green technologies of the 21st century. A permanent gasoline tax will also make solar, wind and biofuels so competitive with oil that it will drive their innovations as well.
George W. Bush may think he is preserving the American way of life by rejecting a gasoline tax. But if he does not act now he will be seen as the man who presided over the decline of our way of life. He will be the American President who ignored the Sputniks of our day.
<b>Nationalism fuels Putin </b>
By Paul Robinson
I donât believe that I can be alone in having spent a Russian or Ukrainian winter with the windows of my room wide open. Many buildings in that part of the world are dreadfully overheated, for the simple reason that energy is so cheap. Soon, however, Ukrainians will have to learn to close their windows. Until recently, the Russian gas company Gazprom charged Ukrainian consumers $50 for every 1,000 cubic metres of gas they used.
Then Gazprom demanded that they pay $230. The Ukrainiansâ first response was to refuse, and the Russians turned off the gas. After that Ukraine agreed to pay $95 per 1,000 cubic metres for a mixture of Gazprom supply and cheaper gas from Central Asia. Gazprom has, for the moment, said it is satisfied.
Whatâs going on? With the collapse of Soviet military and economic might, Russia was left with very few means with which to influence the world around it. Now rising energy prices have handed Moscow a new weapon. Russia has 30% of the worldâs natural gas deposits and 10% of the worldâs oil. Oil and gas production in the rest of Europe is declining, and within a few years the European Union will import about half of all its gas from Russia. This gives Russia great leverage over its neighbours, and the Russian President Vladimir Putin is showing clear willingness to use that leverage.
We Brits love an underdog. As Robert Baden-Powell harrumphed in his classic Scouting for Boys, âIf you see a big bully going for a small weak boy, you stop him because it is not âfair playâ.â Gazpromâs price hike provoked great howls of indignation in some circles of the British press, particularly as Russia has taken over the rotating chairmanship of the G8.
According to the Daily Telegraph, âThe methods of gangsterism and blackmail now being used by Gazprom are reminiscent of the Soviet era...â Unfortunately for those spinning this simplistic tale of bully and bullied, Gazpromâs âunacceptable conductâ is actually something we have been requiring of it. For in raising the prices they charge for gas in Eastern Europe, the Russians are merely going part way towards meeting demands made by the European Union over several years.
The initial increase in the gas price proposed by Gazprom, to $230, was certainly a large one, but it is, after all, what consumers in Western countries such as Germany are charged, whereas $50 is below cost price, meaning that Gazprom made a loss by selling gas at that rate.
Gazprom is only notionally an independent company; in practice it is an arm of the Russian state, which owns 51% of the stock, and the state is prepared to take a loss in some circumstances for political advantage â bribing potential allies, keeping Russian votersâ energy bills low, and subsidising domestic industry, for instance.
Accordingly, Gazprom has been selling its gas at $50, or even less, to consumers throughout the Commonwealth of Independent States (CIS) ever since the collapse of the Soviet Union. As Aleksandr Ryazanov, deputy director of Gazpromâs board of directors has noted, $50 âdoesnât even cover our real costs for producing and transporting gas to CIS countries.â
Now you might imagine that it is entirely Gazpromâs business if it wants to make a loss on some of its deals; but not so in the eyes of the ever-meddling EU, which for years has been demanding that Russian companies stop subsidising energy prices and start charging market rates. In the oil sector, this has largely happened. In the gas and electricity sectors, it has not. Gazprom and the Russian electricity giant UES have, therefore, long been in the Eurocratsâ sights.
In October 2000 the EU and Russia started a series of bilateral meetings known as the âEU-Russia Energy Dialogue.â On the European side, the aim of the dialogue is to reform the monopoly system in the Russian gas and electricity markets, open up those markets to EU investors, enhance environmental protection and secure Europeâs energy supply.
On the Russian side, the aim is to gain long-term contracts for Russian energy exports, attract European investment and gain unrestricted access for Russiaâs exports into the EU. Parallel to the energy dialogue, negotiations took place between the EU and Russia regarding Russiaâs entry into the World Trade Organisation (WTO). Much to the Russiansâ annoyance, the EU linked the two, demanding that Russia liberalise its energy prices as a condition of European support for its WTO membership.
The reason the EU dislikes the low prices charged by Gazprom to CIS members is that these are considered an unfair subsidy to CIS industries, which gives them a competitive advantage over European companies. This is of particular concern in some sectors such as metals and fertilisers, where CIS exporters have been able to keep costs low through subsidised energy, and then harm European competitors.
For instance, the collapse of Communism led to a dramatic fall in domestic Russian demand for nitrogen fertilisers. The Russian fertiliser industry responded by what has been called an âaggressive export dumping campaignâ in the EU. In accordance with its free-market principles, therefore, the EU has stated that Russian energy subsidies are incompatible with free trade and must go.
In addition, the EU is in the process of liberalising its own energy industry. The Russian habit of signing long-term contracts with different European countries at differing fixed rates is incompatible with the aim of producing an EU-wide free market in energy. âMarketisationâ of the Russian energy system is, therefore, an important European goal.
Aware of the inefficiencies and waste caused by its policies, the Russian government in April 2003 laid out objectives for achieving more efficient energy use.
This strategy requires marketisation of the energy sector, including liberalisation of prices and raising the costs of energy consumption in order to reduce waste and increase exports of surplus energy.
On the environmental side, the EU pressured Russia long, hard and ultimately successfully to ratify the Kyoto accord. This requires a reduction in carbon emissions, and so adds further incentives to reduce consumption of oil and gas by means of raising prices. Consequently, Russia became aware of the advantages of higher prices, and in May 2004 reached a compromise agreement with the Europeans. The EU agreed to support Russiaâs WTO accession, in return for which Russia promised to double its domestic gas prices by 2010.
Given all this, Gazpromâs decision to charge market prices to Ukraine is, on the surface, one for which the EU should be congratulating it. It represents at least a small step in a general Russian policy towards liberalisation which has been slowly gaining pace over the past five years. Ukraine is not the worldâs sixth largest consumer of natural gas because its industry requires such enormous consumption, but because its subsidised prices make it indifferent to energy-saving. Paying more for its energy might actually do it some good.
In short, the increase in gas prices is fully in keeping with the Westâs desire to complete the process of creating a genuine market economy in Russia, Ukraine and the other countries of the CIS, as well as progressing towards fulfilling the environmental demands of the Kyoto accord.
Economics cannot be the only reason Gazprom has acted the way it has. The company has, after all, chosen to increase its charges to most former Soviet countries by much less than it was threatening to increase those to Ukraine. Gazpromâs charges to Georgia are increasing from $60 per 1,000 cubic metres to $110. Similarly Armenia will now pay $110, Moldova $160, and the three Baltic states $120-125. Until the last-minute deal it seemed as though Ukraine had been singled out for particular punishment.
Perhaps the $230 was more bargaining chip than ultimatum, but it is hard not to see Moscowâs move as political â a reaction to the perceived anti-Russian policies of the current Ukrainian administration. Aleksandr Lukashenko, President of Belarus and Russiaâs close ally, recently signed a new deal guaranteeing his country continued gas supplies at $47 per 1,000 cubic metres, and gloated about this at the end of last month. His deal, he said, was a âreward for loyalty.â Indeed.
Putin seems to regard the key to Russiaâs resurrection as being the recreation of a powerful central state. Weak government has been a perpetual problem in Russian history, and has all too often brought economic and social disintegration. For this reason Putin has sought to bring the most important economic assets of the country â the oil and gas industries â back under the sway of the state. The renationalisation of Mikhail Khodorkovskyâs Yukos oil company can be seen in this light. Now, having more or less completed this process, the President is flexing his new-found muscles on the international stage.
It is this which causes the current indignation. But in truth, all major nations provide aid and subsidies to their allies, and seek to coerce or punish others. As Eric Kraus, chief strategist at the Sovlink Securities brokerage firm in Moscow, comments, âRussia does not have to subsidise countries which are overtly hostile to Russia. The Americans or the French or the Germans can give foreign aid to some countries and not to others. They heavily subsidise Egypt; they donât subsidise Syria. Does this give Syria the right to complain of unfairness?â
Putinâs policy certainly represents a very crude pursuit of national interest, implemented unilaterally and with little regard for international opinion. But as such it is not so very different from the sort of policies pursued by other states, including our own. Furthermore, the marketisation of energy policy which it involves is entirely in keeping with the demands that European states have been making of Russia for several years. While one may sympathise with the Ukrainians who are having to shut their windows, there is in reality very little to be indignant about.
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