Geo-Politics: How the west might soon be lost - by Martin Wof

Sometimes history jumps. Think of the first world war, the Bolshevik revolution, the Great Depression, the election of Adolf Hitler, the second world war, the beginning of the cold war, the collapse of the European empires, Deng Xiaoping’s “reform and opening up” of China, the demise of the Soviet Union, and the financial crisis of 2007-09 and subsequent “great recession”.

We may be on the brink of an event as transformative as many of these: the election of Donald Trump as US president. This would mark the end of a US-led west as the central force in global affairs. The result would not be a new order. It would be perilous disorder.

The fact that Mr Trump can be a credible contender for the presidency is astounding. In business, he is a serial defaulter and litigator turned reality TV star. He is a peddler of falsehoods and conspiracy theories. He utters racist calumnies. He attacks the independence of the judiciary. He refuses to reveal his taxes. He has no experience of political office and incoherent policies. He glories in ignorance. He even hints at a federal default. He undermines confidence in the US-created trade order, by threatening to tear up past agreements. He undermines confidence in US democracy by claiming the election will be rigged. He supports torture and the deliberate killing of the families of alleged terrorists. He admires the former KGB agent who runs Russia.

Evidently, a huge number of US voters have lost confidence in the country’s political and economic systems. This is so to an extent not seen even in the 1930s, when voters turned towards an established politician. Yet, for all its challenges, the US is not in such terrible shape. It is the richest large country in the history of the world. Growth is slow, but unemployment is low. If voters were to choose Mr Trump — despite his failings, displayed again in the first presidential debate — this would tell us grim things about the health of the US.

It is the world’s leading power, so this is not just a domestic US concern. What might a Trump presidency mean? Forecasting the policies of someone so unpredictable is impossible. But a few things seem at least reasonably clear.

The US and its allies remain immensely powerful. But their economic dominance is in slow decline.

According to the International Monetary Fund, the share of the high-income countries (essentially, the US and its chief allies) will fall from 64 per cent of global output (measured at purchasing power) in 1990 to 39 per cent in 2020, while the US share will fall from 22 per cent to 15 per cent over this period.

While the US military might is still huge, two caveats must be made. One is that winning a conventional war is quite a different matter from achieving one’s aims on the ground, as the Viet­nam and Iraq wars showed. Furthermore, China’s rapidly rising defence spending could create serious military difficulties for the US in the Asia-Pacific region.

It follows that the ability of the US to shape the world to its liking will rest increasingly on its influence over the global economic and political systems. Indeed, this is not new. It has been a feature of US hegemony since the 1940s. But this is even more important today. The alliances the US creates, the institutions it supports and the prestige it possesses are truly invaluable assets. All such strategic assets would be in grave peril if Mr Trump were to be president.

The biggest contrast between the US and China is that the former has so many powerful allies. Even Vladimir Putin is not a reliable ally for China. America’s allies support the US largely because they trust it. That trust is based on its perceived commitment to predictable, values-based behaviour. Its alliances have not been problem-free, far from it. But they have worked. Mr Trump’s cherished unpredictability and transactional approach to partnerships would damage the alliances irreparably.

A vital feature of the US-led global order has been the role of multilateral institutions, such as the IMF, the World Bank and the World Trade Organisation. In binding itself by the rules of an open economic system, the US has encouraged others to do the same. The result has been extraordinary growth in prosperity: between 1950 and 2015, average global real output per head rose sixfold. Mr Trump does not understand this system. The results of repudiation could be calamitous for all.

The Iraq war has damaged trust in US wisdom and competence. But the global financial crisis has been even more destructive. Many have long suspected US motives. But they thought it knew how to manage a capitalist system. The crisis devastated that confidence.

After all this damage, election of a man as unqualified as Mr Trump would call into question something even more fundamental: belief in the capacity of the US to choose reasonably well-informed and competent leaders. Under a President Trump, the democratic system would lose much of its credibility as a model for the organisation of a civilised political life. Mr Putin and other actual or would-be despots would cheer. Their belief that talk of western values is just hypocrisy would be vindicated. But those who see the US as a bastion of democracy would despair.

If Mr Trump were to win, it would be a regime change for the world. It would, for example, end efforts to manage the threat of climate change, possibly forever. But even his candidacy suggests that the US role in the global order risks undergoing a transformation. That role depended not only on American economic and military prowess, but also on the values it represented. For all its mistakes, the ideal of a law-governed democratic republic remained visible. Hillary Clinton is an imperfect candidate. Mr Trump is something else altogether. Far from making America great, his presidency might unravel the world.

Read more: How the west might soon be lost — FT.com

Energy Supplies: Oil - Its all about Geopolitics

The Oil and Energy Insider reports that when it comes to geopolitical events affecting oil prices, there is no shortage of possibilities. Whether it is the outbreak of a war, a terrorist attack, a massive industrial accident, or a financial crisis, these events usually take the oil markets by surprise. It is not too often that there is a major geopolitical event that will have enormous influence over oil prices yet is known ahead of time. But we are in the midst of one of those rare moments: we are arriving at the deadline for the negotiations over Iran’s nuclear program, with the clock running out at midnight on March 31. The two sides are furiously negotiating, trying to overcome their differences to make history. A comprehensive agreement between Iran and the West was always going to be extraordinarily difficult and would involve painful concessions on both sides. But there is some indication that a deal is there to be grabbed if the major world powers want it.

The Russian Foreign Minister had previously bailed on the talks, saying that he would only return if a deal looked realistic. However, he did in fact decide to fly back to Switzerland and rejoin the talks on March 31 as there were signs of progress. “The chances are high. They are probably not 100 percent but you can never be 100 percent certain of anything. The odds are quite 'doable' if none of the parties raise the stakes at the last minute,” Russian Foreign Minister Sergei Lavrov told Russian media in Moscow.

The outcome of the negotiations will have an immediate effect on the price of oil, one way or another. If the parties come to terms – and reach a truly historic resolution to such an intractable problem – it could lead to the removal of sanctions on Iran and the return of Iranian oil to the global market. Iran could probably ramp up production by an additional several hundred thousand barrels per day over the course of a few months with the potential to ultimately add around 1 million barrels per day. Still, if a deal is sealed in Switzerland, the oil markets will react immediately, most likely falling by several dollars per barrel. If the two sides fail to come together, that would be bullish for oil, although perhaps not quite as dramatically, since it would essentially continue the status quo regarding Iran over the last three years. Another possibility that is looking increasingly likely is that Iran and the West reach a rough outline of an accord, and push off the thorniest issues until June when the final agreement must be reached. That would leave the oil markets in a status of limbo over the next three months regarding Iranian oil.

Speaking of a flood of oil, the Energy Information Administration released new data that showed that the growth in oil production in the U.S. in 2014 was the highest in over 100 years. The United States has long been an oil producer – dating back to the 19th century. It was even the world’s largest oil producer in the early 20th century. By the 1970’s however, its vast oil fields appeared to be tapped out, and production went into decline. We have all read about how new drilling techniques have unlocked shale oil, but for drillers to be able to ramp up production to such a degree in a very oil-mature country is impressive. Last year, the U.S. added 1.2 million barrels per day to its output, the largest production gain since record-keeping began in 1900.

But the next chapter is uncertain. Low oil prices are forcing big-time cutbacks. The question is where oil prices go next. The looming oil storage “crisis” threatens to crush oil prices much further. However, the worst may be avoided as U.S. consumers and refiners pick up the slack. In fact, refiners churned through 15.5 million barrels per day in mid-March, a record for the time of year when many units are taken offline for maintenance. With unusually large margins right now, refiners are taking advantage and buying up oil, paying enough to keep some oil out of storage. Refining demand is now stronger than expected, and that may divert oil away from storage in Cushing Oklahoma, as refiners pull oil down to the Gulf Coast. It is not just because refining margins have improved, but also because U.S. drivers are hitting the roadways, pushed on by low gasoline prices. Gasoline demand in the U.S. jumped by 6 percent in January, the largest surge in demand in over 20 years. If that keeps up, oil markets may find an equilibrium not just through supply rebalancing – which is where market analysts have kept most of their attention – but also through a pickup in demand.


EU-Digest

Geopolitics most dangerous since WWII, Lord Rothschild warns investors

The world now faces greater geopolitical risks than since the end of the Second World War as unemployment threatens European welfare and chaos engulfs the Middle East, Lord Rothschild warned investors in the £2.3 billion RIT Capital fund.

World GDP grew at “a disappointing and uneven rate in 2014” following six years of monetary stimulus and extraordinarily low interest rates, the chairman of RIT Capital Partners, Lord Rothschild said in the investment trust’s 2014 annual report.

He also described stock market valuations at near an all-time high with equities benefiting from quantitative easing. The value of paper money has been debased as countries sought to compete and generate growth by lowering the value of their currencies, according to Rothschild. The euro and the yen depreciated by over 12 percent against the US dollar during the course of the year and sterling by 5.9 percent.

The unintended consequences of monetary experiments on such a scale are impossible to predict, the banker says.

Read more: Geopolitics most dangerous since WWII, Lord Rothschild warns investors — RT Business

EU: The New Drivers of Europe's Geopolitics - by George Friedman

The story is well known. The financial crisis of 2008, which began as a mortgage default issue in the United States, created a sovereign debt crisis in Europe. Some European countries were unable to make payment on bonds, and this threatened the European banking system. There had to be some sort of state intervention, but there was a fundamental disagreement about what problem had to be solved. Broadly speaking, there were two narratives.

The German version, and the one that became the conventional view in Europe, is that the sovereign debt crisis is the result of irresponsible social policies in Greece, the country with the greatest debt problem. These troublesome policies included early retirement for government workers, excessive unemployment benefits and so on. Politicians had bought votes by squandering resources on social programs the country couldn’t afford, did not rigorously collect taxes and failed to promote hard work and industriousness. Therefore, the crisis that was threatening the banking system was rooted in the irresponsibility of the debtors.

Another version, hardly heard in the early days but far more credible today, is that the crisis is the result of Germany’s irresponsibility. Germany, the fourth-largest economy in the world, exports the equivalent of about 50 percent of its gross domestic product because German consumers cannot support its oversized industrial output.

The result is that Germany survives on an export surge. For Germany, the European Union — with its free-trade zone, the euro and regulations in Brussels — is a means for maintaining exports. The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.

Read more: The New Drivers of Europe's Geopolitics