Why drilling in American waters is good for the environment

As much as I despise big oil survives for it reliance on government transportation policies and not market forces, all things equal, I think it's best for the environment to drill in American waters. Why? Because if you don't, things like this happen:

BP will start deep-water drilling off the coast of Libya within weeks in spite of concerns about the UK group’s environmental and safety record after the Gulf of Mexico oil spill disaster. [...]

Barack Obama’s imposition of a moratorium on deep-water drilling in the Gulf of Mexico has highlighted the growing importance of new exploration across the Mediterranean. Diamond Offshore, a US deep-water driller, is moving a rig from the Gulf of Mexico to Egypt, while Australia’s APX started drilling last week between Tunisia and Italy. Shell plans to start exploring soon off western Sicily.

Italy has speeded up its procedures and granted 21 new exploration permits. New limits imposed on near-shore drilling in response to the Gulf of Mexico spill apply only to future operations and barely affect the most promising areas off Sicily.

With cash-strapped governments courting Libya’s oil-fuelled sovereign wealth funds, countries such as Italy, Greece and Malta – all within a radius of 500km (310 miles) of the Gulf of Sirte – have refrained from commenting on Libya’s plans.

However, environmentalists and politicians have expressed concerns. A proposal by Günther Oettinger, Europe’s energy commissioner, for a moratorium on deep-water drilling in European Union waters failed to get a response from Mediterranean states.

If a rig like Deepwater Horizon exploded and started spewing oil off the coast of Libya, I doubt it would be contained within three months. Apparently oil has been leaking into the Niger Delta for decades and shows no signs of slowing. It's possible that environmentally-minded northern EU countries would step in and force Gaddafi and Berlusconi to take an oil spill seriously, but if BP thought that way, I'm not sure they would have bothered moving.

How Basel regulations fucked over both American real estate and Southern European governments

A blog dedicated to explaining the causes of the financial crisis has an excellent summary of the argument that Basel regulations doomed us all, both Americans and Europeans.

Basel regulations essentially tells large banks and institutions (and only them) precisely how much risk they can take with certain asset classes. Under Basel I, adopted in the West in 1992, banks were allowed to take huge risks in mortgage-backed securities and small risks in vanilla business loans. Basel I is in the process of being phased out in favor of Basel II, which went into effect in Europe in 2006-07. The second incarnation allows institutional investors to plow all of their clients' money in certain classes of sovereign debt (which at the time included Greek or Portuguese government bonds) without leaving a cent left over in case the bonds default. Obviously, it was precisely the asset classes that required little capital that have been taking down the global financial system, more slowly that us Americans realized.

As Jeffrey Friedman explains in the first piece, these rules only applied to large institutions such as banks and pension funds. While other investors were not as heavily invested in these risky products, they did fall victim to the mania to a lesser extent – though in the end, it's the banks who need the bailouts (and the public pension crisis in America is coming), not hedge funds and S&L's.

Those who call for more regulation of financial risk are frequently unaware of how minutely risk is regulated for large institutions. Proponents of regulation that are aware often argue that these are merely ceilings on risks and that an unregulated market would have been able to go even wilder on these risky loans, but the truth is that regulations are more than just ceilings. As they used to say in IT procurement, nobody ever got fired for buying IBM – a company whose big break was FDR's 1935 Social Security Act and the lucrative federal contracts it created. And when you lower ceilings on risk – presumably the Democrat's desired regulatory policy – you're only entrenching the idea of relying on the government to tell you what is a good investment and what is not.

Would Germany be better off now if it were on the pound rather than the euro?

I don't really feel very qualified to talk about European monetary and macroeconomics, which is why for the most part I've avoided writing about Greece and the Eurozone's crisis, but – and maybe it's just the benzos – I feel like I have something slightly relevant to say.

First of all, Tyler Cowen has a great round-up of recent events and indicators (although I hate his first point) here. Additionally, I hear that even Paul Krugman – someone who, sometime during his transition from serious economist to columnist, turned into a man who never met a bailout he didn't like – thinks Greece is going to be dropped from the euro. (Although later in the article he seems overjoyed at the fact that a Greece back on the drachma would be able to destroy the currency to its heart's content.)

As far as I can gather, the consensus among economists is that debt restructuring (in Krugman's words, "a polite term for partial default") is certain, a more serious default is likely, and Greece leaving the eurozone – an that was seen as very fringe a few weeks ago – is now a distinct possibility. In the end, I think that the quicker Greece leaves the euro, the better. Many in Europe worry about the resultant instability won't be worth the risk – after all, even Greek dogs like to riot. But in the end, Greeks have become too accustomed to capitalism and liberal democracy, and once its leftist protestors no longer have the euro and lack of monetary and fiscal sovereignty to blame, the rioting will stop and the hard reforms will begin. Greek voters are too sophisticated to give into geography and regress to the level of its Balkan neighbors, who despite Greece's problems, they still make it look like Switzerland in comparison.

The big European monetary debate has always been whether the UK and Scandinavia should give up their pounds and crowns in favor of the euro. But it now looks like it would have been better for Germany, the Benelux, and Scandinavia to give up their marks, francs, guilders, and crowns in favor of the pound sterling.

"Greece admits it is riddled with corruption"

The title of this article – "Greece admits it is riddled with corruption" – sounds like it's from the Onion, but alas, it's from the Financial Times.

Here are some choice quotes from inside the article:

At an EU summit on Thursday night, The bloc’s 26 other national leaders sat in silence as Mr Papandreou delivered a short, blunt speech on Thursday night that said everything the rest of Europe had long known, or suspected, about Greek bureaucracy. [...]

“He recognised that there was a huge problem of corruption throughout the administration, including in public procurement,” Mr Barroso said. [...]

“Our basic problem is systemic corruption,” Mr Papandreou said in Brussels on Friday. [...]

The underlying problem is, however, one of Greek credibility...

...I'll say!

Why Russia supports Iran's nuclear program

This is exactly why Russia is helping Iran develop nuclear weapons - so that Tehran and Washington will never normalize relations, and Russia will maintain its grip on natural gas flows westwards from the Caspian:

Iran can participate in the EU backed gas Nabucco pipeline if Washington normalises relations with Tehran, the US Secretary of State's Special Envoy for Eurasian Energy said today.

How some tariffs can actually be pro-free trade

Here's something you don't see every day: anti-protectionist tariffs. The European Commission is reportedly considering tacking import tariffs on biodiesel from the US in order to counter the subsidies that American producers receive from their own government. The tariffs will be tailored to, among other things, the amount of subsidies that the fuel receives back in the US:

The level of tariffs would be tailored to individual companies to reflect the types and amounts of the fuel they produce, and the amount of subsidies and other support they receive from American authorities, the diplomats said.

While this action would cancel out the effects of some of the American subsidies, there's still the matter of the European subsidies. The obvious reason for the encouragement of biodiesel is that it's more environmentally-friendly than fossil fuels, though I wonder if this is really the case.

The political economy of cucumber curvature

A lot of people have heard about the EU's ridiculous restrictions on selling misshapen fruits and vegetables, recently in the news because many of the rules were relaxed. But just today, after years of having read probably a dozen stories on the matter, I finally found the first real analysis of why the rules were enacted in the first place. The Christian Science Monitor reports:

Farmers in sun-challenged Britain and other growers across northern Europe have protested for years against the regulations, claiming the standards force them to waste more than 20 percent of their crops. [...]

The decision to relax most of the rules drew strong criticism from farmers in Spain and Italy, who, with help from the Mediterranean sun, pride themselves on the production of the continent's most geometrically perfect fruits and vegetables. The farmers fear the change opens the door to competition from less scrupulous growers outside Europe, namely places where labor is cheap.

That 20% figure seems suspiciously high, though I'm not an agronomist – but if it's true, then that's a serious trade barrier that's just been lifted. It's ironic (but all too predictable) that the EU, an organization designed primarily to foster free trade among members, would foist this protectionist regulation on members whose national legislatures had not adopted it.

Georgian terrorists, gas in Turkmenistan, and Putin's next power grab

In reading a headline like "Georgian Threat to Moscow Uncovered" in the state-owned Russian newspaper Izvestia, I'm startled, but not for the reasons that the FSB office that "leaked" the intelligence probably wanted. The Izvestia article reports that they received leaked communication from within the Russian government indicating that they foiled a plot by the Georgian government, disguised as Islamic terrorists, to blow up buildings in Moscow, St. Petersburg, and Sochi, and gun people down in at least Moscow.

As Stratfor notes, this is highly dubious for a number of reasons. For one, Georgia has never attacked outside of its own country, with the exception of South Ossetia and Abkhazia. Secondly, Muslims make up a small percentage of Georgia's population, and they are mostly pro-Russian.

But then there's the big one that Stratfor doesn't note: Russia has recently been given a huge incentive to cause trouble in or attack Georgia, in the form of the recent confirmation of the Caspian Sea's natural gas riches. Energy delivery, especially to Europe, and especially in the form of natural gas, is the biggest trump card that Russia has over the West. But with the confirmation of gas in Turkmenistan, the EU has also hyped expectations of connecting Europe to the Caspian region via the Caucasus. The Caucasus stand in the way of Russia's ambitions, quite literally: besides through Russia, there are only two ways to get a pipeline to Europe (i.e., Turkey or Israel): through Iran, or through the independent countries in the south Caucasus. Iran is out of the question thanks to Russia's measured support of Iran's controversial activities. And in the Caucasus, you only need two out of three to create an impenetrable bloc between the Russian north Caucasus and Iran. Russia has already cowered Armenia into not allowing Western pipelines, and with Georgia out of commission thanks to this "leaked" intelligence (or something like it), it would render Azerbaijan irrelevant.

But perhaps the most startling part of all of this is that Russia may not be bluffing: it wouldn't be the first time that they used false flag apartment bombings under the guise of Islamic terrorism as an excuse to invade a Caucasian republic. The last time they did it was in 1999: Russia's equivalent of 9/11, the apartment bombings in Buynaksk, Moscow, and Volgodonsk, and the failed attack in Ryazan that blew the FSB's cover. The Russian secret services orchestrated the attacks as an excuse to invade Chechnya, and invade they did: tens of thousands of Chechen civilians died in the Second Chechen War, and war crimes abounded. In 1999, the false flag attacks led to the invasion of Chechnya in order for the FSB and Putin to effect a virtual coup d'état in the midst of a huge national crisis. Putin was introduced to Russia, Russia loved him, and he became Russia's unelected president a few months later. If in 2008, false flag attacks (or the threat thereof) lead to the invasion of Georgia, it will be to cement control of the Caspian, in order to cement Putin's power in preparation for new power grabs.

Old Cold War friends are reunited once again, and it feels so good

Aside from Russia and points eastward, Europe's only true alternative for natural gas is North Africa. And Russia is apparently acutely aware of that, as they've begun courting Libya, initially for its gas and pipeline, but in the future probably for its vast oil reserves, too:

Gazprom is expected to sign a deal with Eni to acquire the Italian company’s stake in Libya’s Elephant oil field. But Gazprom is really after Eni’s stakes in the Greenstream natural gas pipeline, which runs from Libyan fields to Sicily and would give Russia another potential energy lever to use against the Europeans.

In exchange for the Libyan oil fields, Gazprom has theoretically given Eni access to some of the energy reserves along Russia's Arctic coast.

As the Stratfor article mentions, Libya was very close to the Soviet Union during the Cold War. Through its own apparatus and through the security services of other Eastern bloc nations, the Soviets channeled weapons and expertise to Libya, whose leaders dutifully carried out Soviet foreign policy. They armed the PLO and the Iranians after the Revolution, backed the terrorists at Munich, employed Carlos the Jackal at various points (but really – who didn't?), and generally acted as staid proxies for Soviet malevolence. After the end of the Cold War, Libya saw the writing on the wall and jumped sides, resolving tensions over the Pan Am bombing and accepting billions in western development aid. But obviously, Libya has no favorite in this fight, and is up for whatever as long as it gets security and compensation.

The chicken tariff spat that killed Detroit

The NYT has an editorial online about the unintended consequences of government interference in the market. The editorial traces the roots of American auto makers' disproportionate share of the light truck market (a declining one in the face of $100+ barrels of oil) to a retaliatory trade war started in the 1960s. Germany, in an attempt to protect its own domestic poultry market, convinced the European Common Market (the second incarnation of what has become the EU) to triple the tariff on frozen chicken imported from the United States. The US retaliated, imposing a 25% tariff on light truck imports, a move directly targeted at Germany's Volkswagen automaker. However, the tariff was also imposed on Japanese imports, giving Detroit an advantage when it came to competing with the Japanese over the American auto market. The chicken tariffs ended long ago, but American carmakers got too cozy with the benefits from the light truck tariff, and now it's coming back to bite them in the ass with that market in free-fall and consumers going for smaller cars. A nice example of the unintended consequences of government action.

Nabucco: on, or off?

Right after the South Ossetian conflict I wrote about articles foretelling the Nabucco gas pipeline's demise, and now I have some follow-up information. Radio Free Europe reports that there was a conference held in Baku where a few potential gas-producing/gas-transiting counties came together and pledged their support, but it included firm promises from only Azerbaijan and Turkey. And even then, Azerbaijan – the only committed country with natural gas supplies – admits that without others, it can't produce enough gas to fill the pipeline. And even Azerbaijan's commitment is not firm. The Moscow Times reports:

U.S. Vice President Dick Cheney has failed to win Azerbaijan's support for the construction of a new gas pipeline from the Caspian that would bypass Russia.

Azeri President Ilham Aliyev indicated to Cheney during talks in Baku on Wednesday that he did not want to anger Russia in the wake of its invasion of neighboring Georgia, Kommersant reported, citing an official in Aliyev's administration. Cheney was so disappointed that he did not attend an official dinner in his honor, the report said.

Azerbaijan has also increased flows of oil through a pipeline to the Black Sea port of Novorossiisk, the newspaper reported, citing a Russian energy official.

Other than Azerbaijan, the only gas-producing countries that would possibly be in on the deal are Kazakhstan and Turkmenistan. Turkmenistan isn't certain, according to RFE:

Turkmen officials at the Baku conference have not yet said what level of participation, if any, Turkmenistan would have in Nabucco. Furthermore, Turkmenistan has committed itself to pumping more gas to Russia and China in recent weeks.

...and the RFE article doesn't mention anything about Kazakhstan's involvement in the conference, nor does it cite any Kazakh or other sources as to the possibility of Kazakh contributions to the pipeline. Kazakhstan's participation in another pipeline – the Baku-Tbilisi-Ceyhan oil pipeline – has been uncertain, with officials supporting the project in public but ruling it out in private conversations. It's shown the same tendency with the Nabucco gas pipeline, supporting it in public but throwing its weight behind Russia when it comes to actually building pipelines.

Russia eats a little bit of BP's soul

Over in the northeastern quarter of the globe, the post-South Ossetian war cowerfest continues. The latest to step up and cower in Russia's presence is BP, who broke down and ceded more control to the Russian government over its huge investment in Siberia. The news is relatively good to BP shareholders: the project could have been completely nationalized, like Yukos' and Royal Dutch Shell's investments. With a quarter of BP's energy reserves in jeopardy, the threat was considerable. But despite Russia's apparent leniency, the message to the West is clear: we're tolerating existing investments, but don't think about making anymore.

The EU is acutely aware of this, but they're impotent (considering that domestic liberalization of land use, transportation, and energy is absolutely not an option). The EU energy chief said that the EU must pursue the Nabucco link to the BTE pipeline from the Caspian, and continues to heroically insist that the pipeline will be built, when all signs point to it not:

The EU has signed agreements with Turkmenistan, Azerbaijan, Kazakhstan, and Ukraine to help develop their energy supplies with a view to future imports. It is also eyeing Egypt and Iraq as possible future suppliers.

But Azerbaijan is now in talks with Russian energy giant Gazprom OAO to sell gas to Russia, throwing Azeri supplies to Nabucco into doubt.

Russia's invasion of Georgia highlighted the vulnerability of Azerbaijan's gas link to Nabucco, the Baku-Tbilisi-Erzurum (BTE) pipeline across Georgia to Turkey.

But Piebalgs stressed the EU's continued support.

"This does not change our minds, or I think the EIB's [European Investment Bank,] that this project should be supported," he said.

Thoughts on the conflict in Georgia...

So I'm sure you've all heard about it and read about it, but I thought I'd boil it down to a few essential points, sorting out blame and teasing out the causes of the war.

• South Ossetians and Abkhazians definitely do want to secede from Georgia, without a doubt. If it came down to being with Georgia or being with Russia, and independence weren't an option, they'd take Russia in a heartbeat. Apparently bitterness over what Stalin (a Georgian native of Gori) did to the place is placed on the Georgians, not the Russians.
• It's debatable who made the first "move," but it seems pretty obvious that Russia set a trap for Georgia, and they fell for it. Russia began signaling in the beginning of the year that it was going to press the issue of Abkhazia (another pro-Russian de facto independent region within Georgia), intervening more heavily in the affairs of the two breakaway republics, and in April shot down an unmanned Georgian drone over Abkhazia. Russia started building up its forces in Abkhazia beyond the limits set out in a UN treaty, and before you know it, the war was on. Georgia really blundered when it shelled the South Ossetian capital of Tskhinvali – whether or not they committed atrocities against civilians is debatable, but regardless of the truth, it gave Russia a propaganda tool, and an ostensible excuse for further action against Georgia.
• The Russians way overplayed their hand by attacking Gori – a city without a pro-Russian secessionist movement. They further proved (as if it needed to be said) that the war wasn't about preventing the Georgians from massacring civilians when they headed for Tbilisi (it remains to be seen if they'll reach it) and occupied about half the country along the way. To make matters worse, the Russians are still denying that they've moved outside of South Ossetia, a tacit admission that it would be illegitimate to take the war any farther.
• None of this would have happened had Georgia been let into NATO. As a NATO member, the US would have been obliged to defend Georgia against a Russian invasion, and Putin isn't suicidal enough (unlike Georgia's Saakashvili, apparently) to go to war with the US. Regardless of whose side you're on, it's tough to deny this.
• Ultimately, it's all about the oil. The Georgian military as it relates to possible atrocities committed in South Ossetia has no stake in the Baku-Tbilisi-Ceyhan oil pipeline that the Russians have been bombing, and same deal with the port of Poti, through which a lot of oil flows. In attacking these targets, the Russians have proven that everything else was a pretext, and what they really wanted was to ensure that Russia continued to have a monopoly on delivering energy resources to Europe from the east. Make no mistake: Russia does not care about the South Ossetians or the Abkhazians, and is only using their plight as an excuse to further its energy interests. If they truly cared, they would have been careful not to touch Georgia's energy resources so as to prove to the world that they were interested only in the welfare of the Ossetians. Compare what's happening in the Georgian secessionist republics to the lack of action in Transnistria, a pro-Russian enclave in Moldova. The reason? There's no oil, or oil pipeline, in Moldova.

A vote against Europe is a vote for capitalism...and a vote for socialism

The Irish, following in the footsteps of the French and Dutch a few years earlier, have rejected the Lisbon Treaty – essentially the EU Constitution in not so many words. The process strikes me as totally antidemocratic – the Dutch and French rejected it last time, so their governments didn't put it up for popular vote, and Ireland was the only country in the 27-member supranational union to put the vote to the people. But anyway, what interested me the most is how different groups lobbied against the proposal for seemingly contradictory reasons. The pro-business ad-hoc anti-treaty group Libertas fought for a no vote by warning of "inflexible regulation," "back doors to increased taxes," and fears of Brussels meddling with FDI, while the leftist/nationalist Sinn Féin party argued against the treaty with socialist arguments like:

Sinn Féin today claimed the Lisbon treaty would have serious consequences for Irish public services by advancing the liberalisation of that sector.

Speaking at Leinster House, Sinn Féin health spokesman Caoimhghín Ó Caoláin said there was a “clear desire” within the European Commission and many EU governments to open members’ markets in public services such as health and education to competition.

He warned there were “clear consequences” when such public services are opened up to competition.

“Treating health care or education as commodities to be traded on the market creates inequalities in access to public services. . . . Opening public services to competition actively undermines universal access to healthcare, and forces reliance on private insurance.”

Mr Ó Caoláin said such liberalisation puts downward pressure on wages.

“It also undermines the long term viability of the public sector, as the private sector cherry picks the most “profitable” sectors, thus undermining vital revenue streams through which the public sector subsidies the unprofitable sectors.”