News from behind the headlines

George Grant : Oil, War and Assets

Libya’s cash-strapped opposition received a welcome fillip from yesterday’s meeting of the international Contact Group in the form of various pledges to unlock frozen funds for their use. Italy has agreed to send $586 million, France $420 million and Kuwait $180 million.

Ali Tarhouni, the Transitional National Council (TNC)’s finance minister has said that in order to stop the lights going out, he’ll need $3 billion over the next four months.

Italy, France and Kuwait have all recognised the TNC as Libya’s legitimate government, thus enabling them to release frozen funds under their control. Other major members of the contact group, including Britain and the United States, have not, so don’t expect similar action from them any time soon.

Unfortunately, persuading the international community to give them cash from these frozen reserves pretty much constitutes the TNC’s economic strategy at the present time. The only economic asset of real worth that they possess is oil, and lots of it. But since attacks by Gaddafi’s forces on the Messla and Sarir oil fields on 4th April, production has ceased and the reserves have dried up.

With no certainty about how long this conflict might last, in spite of reports that NATO has admitted it is now targeting Gaddafi directly, Tarhouni needs to get these fields up and running, and fast.

HJS sources reveal that the reason the fields remain unrepaired is because the TNC cannot protect them against renewed attack from still-active regime forces to the west. Tarhouni has ruled out hiring Private Security Contractors (PSC)’s, saying he doesn’t want a repeat of the experience in Iraq.

Time will tell on this one, but unless something changes soon, it may be that this is an option he’ll need to start taking seriously.

CAAT: Arms trade subsidies

One of the few ways the Government and the arms companies can rally public support for the arms trade is to claim that it keeps people in work (see arms trade jobs pages) and helps the UK economy.

However, rather than being an economic boon, arms exports are subsidised by the taxpayer. In the words of the Financial Times’ international economy editor,

“You can have as many arms export jobs as you are prepared to waste public money subsidising.”

Financial Times, 10 August 2010

The precise level of subsidy for arms exports is hard to quantify, but it is estimated to be several hundred million pounds per year, meaning that each arms export job is subsidised by several thousand pounds a year. This support includes research and development funding, export promotion assistance through UK Trade & Investment and export credit support.

Chris Dillow: 2011 vs 1981

Does history repeat itself? If it does, a large part of the economics profession will yet again look silly.

A few days ago, 52 economists wrote a letter warning that “the government’s strategy is likely to result in a lot more pain.” This is reminiscent of the notorious letter to the Times in March 1981 in which 364 economists claimed that “present politics will deepen the depression.” That letter, though, coincided almost precisely with the start of a strong recovery in output.

Which raises the question: will the 52 look as wrong as the 364*?

In one sense, they might. The consensus forecast is that the economy will grow in coming months – by 1.6 per cent this year and 2.1 per cent next.

In another sense, though, they might not. There are four big differences between now and 1981, which make it harder for the economy to grow in the face of fiscal restraint:[]

FarmLandGrab: World Bank set to finance one of Latin America’s largest farmland grabbers

Robert Louis-Dreyfus, former CEO of the Louis-Dreyfus Group, died in 2009, leaving the reins over the family fortune to his widow Margarita Louis-Dreyfus.

The World Bank appears set to inject $30 million into a fund that buys farmland in Latin America on behalf of some of the world’s wealthiest people.  On June 10, 2011, the board of the World Bank’s International Finance Corporation is scheduled to decide on whether to offer a critical loan to Calyx Agro Ltd that will enable the company to significantly expand its farmland holdings in Brazil, Argentina, Uruguay and Paraguay.
Calyx Agro was established in Argentina by Louis Dreyfus Commodities in 2007 as a vehicle for farmland acquisition in southern Latin America. Louis Dreyfus is owned by the Louis-Dreyfus family in France and is one of the world’s largest traders of agriculture commodities.

The CEO of Calyx Agro, Axel Hinsch, describes his fund as “a vehicle that allows investors to participate in the South American land play.” (Above: worker cutting sugar cane in Brazil.)

In 2008, Louis Dreyfus opened the fund to other investors. One of the first big players to come on board was AIG Investments, which made a $65 million investment in Calyx Agro that year. At the time, it was the asset management arm of insurance company American International Group (AIG). But when AIG nearly collapsed as a result of its involvement in the US sub-prime scandal, the company was forced to sell its investment arm to Hong Kong billionaire Richard Li’s  Pacific Century Group. AIG Investments was renamed PineBridge 2010 and its investments in Calyx Agro were maintained.

According to a 2008 report from Brazil’s Conselho Administrativo de Defesa Econômica, the other major investors in Calyx Agro are:

TRG Management, a New York hedge fund operated by The Rohatyn Group, which was founded by ex-JPMorgan & Co. bankers in 2003 to invest in emerging markets;
Worldstar Ltd, a subsidiary of Said Holdings, which is an investment holding company, incorporated in Bermuda, that belongs to Wafic Saïd, a Syrian-Saudi businessmen living in Monaco and Paris who is a close friend of the Saudi Royal Family;
Pictet Private Equity Investors, a private invesment company based in Switzerland; and
Solvia Investment Management, an investment vehicle for the London-based investment fund Oslow Capital Management.

IFC documents indicate that IFC is considering providing Calyx Agro with a loan of up to $30 million. But the significance of IFC’s involvement goes well beyond cash. The IFC says it “will be the first financier to provide Calyx long-term financing, without which the Company may have to reduce its expansion plans” and it acknowledges that its “Stamp of Approval” will help Calyx Agro if it pursues an initial public offering on a stock exchange. […]

AMEinfo: Saudi energy and utilities shares gain as Kingdom increase oil output

The Saudi Arabian Tadawul market gained for the second day straight and closed 0.61% higher at 6,549.42 points. After the OPEC meeting last week ended in disarray, mostly because Iran refused to agree on a general output hike, Saudi Arabia declared to “go alone” and increase its domestic output by 10m barrels per day. Market bellwether Sabic gained a quarter percent to reach SR102.75. Saudi Electricity Co. added 1.79%, finishing at SR14.25. Ninty-seven stocks gained, 28 lost and twenty closed even.

David BoscoHave India and Brazil blown their chance at Security Council seats?

Brazil today made unhappy noises about a possible Security Council condemnation of the Syria crackdown. “The last thing we want to do is to contribute to exacerbating tensions in what could be considered one of the most tense regions in the world,” said Brazil’s foreign minister. India also appears unconvinced of the need for Council action.  Since Russia and China are contemplating using their veto power to block a draft resolution in any case, the Brazilian and Indian stances may not determine this particular resolution’s fate.[…]

David E Miller: Double whammy for Bahraini peace and prosperity drive

Bahrain’s efforts to restore peace and prosperity received twin blows over the weekend as opposition forces staged their first rally since martial law was lifted and the governing body of world Formula One racing rescinded a decision to hold the Bahrain Grand Prix in October.

A mass demonstration by the country’s majority Shiites on Saturday was peaceful. Under the slogan “Bahrain, a homeland for all,” thousands of protesters gathered in the city of Sar to demand political reforms and a more democratic legislature. But human rights activists warned that the rally was organized by moderates and that demands for more far-reaching reforms would be testing the government’s tolerance. […]

Reuters: INTERVIEW-Iran shipping line fighting EU sanctions in court 

* Iran’s state-owned shipping line hit by new sanctions

* IRISL says pursuing challenge in European Court of Justice

* $1 bln Iranian insurance fund being created

TEHRAN, June 12 (Reuters) – Iran’s state shipping line will challenge the latest round of sanctions at the European Union’s highest court, saying there is no evidence showing that it has been involved in arms trafficking as EU and U.S. officials say.

In written answers to questions from Reuters received on Sunday, the managing director of the Islamic Republic of Iran Shipping Lines also said the IRISL planned to counter financial sanctions that have hampered its access to insurance by the creation of an Iranian P&I (protection and indemnity) fund.

Last month the EU targeted over 30 IRISL holding companies as part of a wider sanctions campaign led by Western states aimed mostly at forcing Tehran to curb its nuclear energy drive, which they suspect is meant to develop atomic bombs. Iran denies this, saying it wants nuclear energy only for electricity or medical treatments.

Sanctions have caused several IRISL vessels to be temporarily seized in foreign ports. The latest clampdown, on its affiliates overseas, pushed a major British shipping agency that used to represent IRISL, Johnson Stevens Agencies Ltd, into administration.

“Since the cancellation of P&I insurance coverage on the company’s vessels by European and British insurers with the intention of grounding the company’s fleet nationally and internationally failed, the European Union, in an unjust move, put on its sanctions list some of the companies that had commercial cooperation with the IRISL,” Mohammad Hossein Dajmar, IRISL’s managing director, told Reuters in his written response.



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