Foreign Policy In Focus

To say that the response of the editors of the Financial Times to Argentina’s renationalization of a major energy company bordered on the hysterical would be an understatement. They called it “A shabby act of economic piracy,” adding that the country’s President Cristina Fernandez de Kirchner’s action suggests she is, indeed, a “hoodlum,” and an” increasingly shrill president” who has committed “a shabby act of economic piracy,” and warned that she “is placing herself in the same camp as Venezuela’s capricious leader, Hugo Chavez” and “should not be allowed to forget that actions have consequences.”

Meanwhile, on the front page of the same edition in which these accusations appear there appeared an intriguing report.

“Repsol tried to sell a controlling stake in its Argentinean oil company to a Chinese energy group before it was nationalized by Buenos Aires, according to two people familiar with the talks,” reported Miles Johnson from Madrid, Jude Webber from Buenos Aires and Anousha Sakoui from London. “The secret attempt to sell its 57 per cent interest in YPF to the Chinese buyer, which one person involved identified as Sinopec, broke down after the Argentinean government announced on Monday that it would expropriate 51 per cent of the company. Repsol wanted more than $10bn for its stake and did not advise Buenos Aires of the discussions with Sinopec, which the Spanish group hoped to finalize before seeking formal endorsement from Cristina Fernandez, Argentine president.

“The Argentinean government holds a golden share in YPF and any deal would have required state approval. Sinopec holds 40 per cent of Repsol’s Brazilian operations. Repsol declined to comment. Sinopec could not be reached for comment.”

That’s right. The Spanish oil company moguls were negotiating behind the back of the Argentine government to sell Repsol’s stake in the in the country’s energy industry to a third party. They planned to let Fernandez know only after the deal was cinched.

Actually, it wasn’t much of a secret. On April 17, Caixin, the Chinese Financial news service, reported that its source said Sinopec was engaged in talks to buy the Argentine oil and gas company for $15 billion. Caixin said “Sinopec intended to acquire all the shares owned by Repsol, whose board of directors supported the deal, the source said. The deal would need to be approved by authorities in Spain and Argentina.”

“In recent weeks, the relationship between YPF and the Argentine government has been strained. The government headed by Cristina Fernandez de Kirchner has blamed YPF for a lack of investment in the sector, leading to shortages of refined oil,” said Caixin.

The report said Sinopec, China's second-largest oil company and Asia's largest petroleum refiner, “sees huge potential in the oil blocks owned by YPF in Argentina and is confident it can meet the requirements of Kirchner's government to speed up exploration, a second source familiar with the situation said.”

On April 18 the Buenos Aires Herald said Sinopec spokesperson, Huang Wensheng, “came on stage to play down rumors indicating that Argentina's move to nationalize local oil company YPF, controlled by Spain's Repsol, has spoiled years of planning by Sinopec to buy the energy giant.”

“We don't comment on market rumors,” Wensheng said.

The YPF nationalization appears to have killed Repsol’s not-so-secret plan to leave Argentina altogether.

Strange as it may appear, the Chinese connection to the Repsol story has been virtually absent from the major U.S. media. It’s hard to say whether the Times’, Posts and Tribunes didn’t know about it, chose not to reveal it, or didn’t somehow think it important.

The Financial Times returned to the subject April 19 in the concluding paragraphs of a snarky commentary by John Gapper, the paper’s associate editor and chief business commentator. It read: “In the long run, Argentina may get another outsider to fill the gap it has just created – perhaps a Chinese company such as Sinopec, with which Repsol was negotiating a deal before Ms. Fernandez struck. But the price that any multinational will demand to compensate for the political risk will be high.

“If a country is going to indulge in resource nationalism, it should at least act rationally. Ms Fernandez has not.”

Outgoing World Bank President Robert Zoellick, in an interview with Bloomberg Television, branded Argentina an “outlier” in Latin America, but noted the same “populist” pressures that led the government to take control of YPF and close off the economy “are prevalent around the world.”

“The U.S. has been stepping up pressure on Argentina,” reported Bloomberg.

“Last month, President Barack Obama suspended trade preferences for the country in retaliation for the government’s failure to pay damages owed U.S. investors, including Houston-based water utility Azurix Corp.” (The Azurix case is being championed by Rep. John Culberson [R- Texas], a far right winger and a co-sponsor of a bill linked to Obama citizenship conspiracy theories. On March 26, in an unprecedented action, Obama suspended trade agreements with Argentina in support of the Azurix claim and a similar one by Blue Ridge Investment, a subsidiary of Bank of America.)

“While it’s unclear how Spain will respond to Argentina’s action, it’s possible that they could try to censure the country at the G-20, IMF or the World Bank,” Bloomberg news service reported April 19. “Spanish Foreign Minister Jose Manuel Garcia-Margallo said today that his government would coordinate any action with the U.S., Deutsche Presse-Agentur reported, citing comments by the diplomat following a meeting in Brussels with Secretary of State Hillary Clinton.

“The Argentine government’s decision to re-nationalize its formerly state-owned oil and gas company, YPF,  has been greeted with howls of outrage, threats, forecasts of rage and ruin, and a rude bit of name-calling in the international press,” wrote Economist Mark Weisbrot in the Guardian (UK) April 18.

“We have heard all this before,” continued Weisbrot. “When the Argentine government defaulted on its debt at the end of 2001, then devalued its currency a few weeks later, it was all gloom and doom in the media. The devaluation would cause inflation to spin out of control, the country would face balance of payments crises from not being able to borrow, and the economy would spiral downward into deeper recession.”

“Nine years later, Argentina’s real GDP has grown by about 90 percent, the fastest in the hemisphere,” wrote Weisbrot. “Employment is at record levels, and both poverty and extreme poverty have been reduced by two-thirds. Social spending, adjusted for inflation, has nearly tripled.

“All this is probably why Cristina Kirchner was re-elected last October in a landslide victory.”

“Of course this success story is rarely told, mostly because it involved reversing many of the failed neoliberal policies – backed by Washington and its International Monetary Fund – that brought the country to ruin in its worst recession of 1998-2002,” wrote Weisbrot. “Now the government is reversing another failed neoliberal policy of the 1990’s:  the privatization of its oil and gas industry, which should never have happened in the first place.”

“Most of the world’s oil and gas producers – from Saudi Arabia to Norway – have state-owned companies,” wrote Weisbrot. “The privatizations of oil and gas in the 1990s were an aberration – neoliberalism gone wild. Even when Brazil privatized $100 billion of state enterprises in the 1990s, the government kept majority control over Petrobras.

“As Latin America has achieved its ‘second independence’ over the past decade and a half, sovereign control over energy resources has been an important part of the region’s economic comeback. Bolivia re-nationalized its hydrocarbons industry in 2006, and increased hydrocarbon revenue from less than 10 percent to more than 20 percent of GDP (the difference would be about two-thirds of current government revenue in the United States).  Ecuador under Rafael Correa greatly increased its control over oil and its share of private companies’ production.

“So Argentina is catching up with its neighbors and the world, and reversing past mistakes in this area. As for their detractors, they are in a weak position to be throwing stones. The ratings agencies are threatening to downgrade Argentina. Should anyone take them seriously after they gave AAA ratings to worthless mortgage-backed junk during the housing bubble, and then pretended that the U.S. government could actually default?  And as for the threats from the European Union and the right wing government of Spain – what have they done right lately, with Europe caught in its second recession in three years, nearly halfway through a lost decade, and with 24 percent unemployment in Spain?”

“It is interesting that Argentina has had such remarkable economic success over the past nine years while receiving very little foreign direct investment, and being mostly shunned by international financial markets,” continued Weisbrot. “According to most of the business press, these are the two most important constituencies that any government should make sure to please. But the Argentine government has had other priorities. Maybe that’s another reason why Argentina gets so much flak.”

Time magazine reported” "This president is not going to answer any threat, is not going to respond to any sharp remark, is not going to echo the disrespectful or insolent things said," Fernandez said to applause from business, union and political leaders at an official event announcing the proposed law. "I am a head of state and not a hoodlum."

"We are the only county in Latin America, and I would say in practically the entire world, that doesn't manage its own natural resources," Fernandez said. She said her proposal "is not a model of statism" but "the recovery of sovereignty."

In recent days, every effort has been made by the Western mass media to portray Argentina as week, irresponsible and now isolated internationally. The picture won’t wash. Fernandez’s decision to renationalize the country’s energy company has met with sympathetic response Latin America.

"I don't like the arrogance of rich Europe's response," said Uruguayan President José Mujica, adding that the company should never have been privatized in the first place.

Carl Bloice, a member of the National Coordinating Committee of the Committees of Correspondence for Democracy and Socialism, is a columnist for the Black Commentator. He also serves on its editorial board.

Excerpted from Other Words.

Greed for oil
Will make us fight;
Iran has got
Endless barrels in sight.

It seems increasingly likely that the United States will attack Iran. The pretext will be that country's alleged nuclear threat to Western civilization.

Doesn't that sound familiar? We followed the same script in Iraq a decade ago. Of course it's a lie this time, just as before. But once the war starts, the policy will just be about supporting our troops.

The Iraq misadventure, it turns out, was enormously successful. No, not for the hundreds of thousands of U.S. troops and families whose lives have been lost or ruined, nor for the hundreds of thousands of dead Iraqis, nor for the millions of Iraqis who have been displaced or impoverished.

No, the glorious success in Iraq is the return of Western oil companies to that country. Saddam Hussein had chased them out, but now they're back. Although Iraq has yet to open all its fields for development, BP, Shell, and ExxonMobil have all landed big deals that could prove more lucrative in the future.

Surprise, surprise, this routine also seems to be the template proposed for Iran, with additional wrinkles earned in Libya.

To start, Washington will bomb their suspected nuclear sites. Iran will take umbrage and fight back. Then, the Pentagon will bomb every military and economic target in the country, except the oil wells.

To William Collins's column in its entirety, visit OtherWords.

When war against Iran is cautioned against, the choking off of oil traffic through the Straits of Hormuz is often cited. But another portal through which oil passes is also vulnerable. At Reuters, Daniel Fineren quotes Stephan Klein, vice president of oil and gas operations in the Middle East and North Africa for business application software developer SAP.

"We know that the Straits of Hormuz are of strategic importance to the world. …What about the approximately 80 million barrels that are processed through IT systems?"

Fineren explains.

Computers control nearly all the world's energy production and distribution in systems that are increasingly vulnerable to cyber attacks that could put cutting-edge fuel production technology in rival company hands.

Klein elaborates on hackers.

"If they could bring down one of the big players in the oil and gas market you can imagine what this will do for the oil price -- it would blow the market."

Furthermore, writes Fineren, quoting an oil industry, IT security expert:

Hackers could finance their operations by using options markets to bet on the price movements caused by disruptions.

Yet another critical reason for the earth to transition to renewable energy.

In the past months, the South Sudan government has been receiving substantial pressure from the international community to institute greater transparency in its oil industry. This involves full publication of royalties and oil revenue transactions between companies and oil extracting countries. Transparency helps ordinary citizens see exactly how their natural resources are being managed. It helps to prevent corruption, and assist with the avoidance of the resource curse, which is the depreciation of the extractive country’s currency.

Yet, does transparency ensure that South Sudan’s oil assets will be used for advancement? Will transparency initiatives take a back seat to precedence issues like security and violence?

Transparency does not guarantee that the government will use oil revenues for the benefit of the many; however, it will allow publication of oil revenues to be speculated and will hold the government accountable. Transparency is a stepping-stone to supportive governance. South Sudan has already been carrying out the necessary measures to guarantee it does not fall victim to the resource curse. South Sudan plans on becoming a candidate for the Extractive Industries Transparency Initiative (EITI), which increases transparency over payments by companies to governments and to government-linked entities; as well as transparency over revenues by those host country governments. Before South Sudan seeks candidacy for EITI, it first has to establish a Freedom of Information Law, which ensures public access to government records. Providentially, South Sudan has already composed such a proposal.

The world has already seen countries fall victim to absent transparency initiatives. The Republic of Equatorial Guinea is a prime example of a country that relies heavily upon its natural resources for revenue, but counterproductively spends funds much needed in the development of the country. According to EG Justice and Human Rights Watch, the Republic of Equatorial Guinea’s oil revenues makes the country’s per-capita wealth in 2010 equivalent to that of Germany, Japan, or the United Kingdom; however, poor governance and a lack of transparency has caused the country to remain poor and be ranked as the world’s 14^th worst country on UNICEF 2009 indicator.

With the amount of pressure and press that South Sudan has been receiving, it should not be long before South Sudan implements the Freedom of Information Bill and applies for compliance under EITI. On June 16, 2011, the Subcommittee on Africa, Global Health, and Human Rights held a hearing concerning Africa’s newest nation. During the hearing, Dana L. Wilkins, who is the Sudan campaigner for Global Witness, talked about actions that the South Sudan and U.S. governments should take to ensure successful transparency and accountability of South Sudan’s oil revenue. Ninety-eight percent of the nation’s budget is derived from oil, and South Sudan is in line to be the most oil dependent country in the world when it officially becomes a country on July 9. Transparency initiatives are being heavily pushed from civil society watchdog organizations like Global Witness and Publish What You Pay.

Despite the possible long-term implementation, extractive regulations can benefit the country if enforced correctly. Global Witness’ recommendation of an independently monitored oil sector takes into account the possible mishandling and inaccuracy of production information. According to Wilkins, an office should be established separately from the Ministry of Energy and Mining that should report directly to the Legislative Assembly. This office’s sole responsibility would be to monitor and verify the petroleum sector. So that this office can acquire funding, be independent from the government and gain, the United States should provide this independent office with training and political support to make sure that it does an effective and efficient job of getting the necessary, accurate information published to the public.

Unfortunately, an office independent from the government to monitor and publish revenue data will not be enough to provide security for South Sudan. One essential piece to ensuring a strong nation is focus on sectors that the revenue will be able to benefit. Oil revenues should provide a platform for diversification of the region’s economy through development of the private sector and the agricultural sector. According to the Sudan Tribune, Riek Machar, the future vice president of South Sudan, appealed to international partners to prioritize agriculture and livestock in the private sector program. South Sudan has the most fertile land for agriculture in Africa, which he said could turn the region into a breadbasket on the continent, if not, the world.

A key partner for South Sudan on agricultural development is Malawi. The president of the Republic of Malawi, Bingu Wa Mutharika, proposed a partnership with developing nations, like Southern Sudan, to join together and focus on agriculture and food security as the key for growth. This proposal is known as the African Food Basket Project. This growth involves investments in transport infrastructures, energy development, and climate change mitigation through innovative interventions such as subsidies, increased budgetary allocations, private sector investments, and communication technology. Aside from private sector and agricultural development, South Sudan has already been attracting big time investors into their territory. The international brewery company, SAB Miller, established Southern Sudan Beverages Ltd and developed a brewery in Juba in 2009 with a $37 million dollar investment. 

Transparency and accountability initiatives are vital. Yet, these initiatives will take a back seat to other priorities, such as security and violence. Transparency is not the only solution, but it is a major step in the direction of securing a government that earns the support of the South Sudan community.

Simone D'Abreu is an intern at Foreign Policy in Focus. 

The extent to which Libya has rendered the concept of political correctness irrelevant on not only the left, but the right, is breathtaking. For instance, Juan Cole writes:

I am unabashedly cheering the liberation movement on, and glad that the UNSC-authorized intervention has saved them from being crushed.

To Cole -- whom I'm uncomfortable criticizing because of how valuable he usually is -- those who felt otherwise bear a heavy burden. 

If the Left opposed intervention, it de facto acquiesced in Qaddafi's destruction of a movement embodying the aspirations of most of Libya's workers and poor, along with large numbers of white collar middle class people. Qaddafi would have reestablished himself, with the liberation movement squashed like a bug and the country put back under secret police rule. The implications of a resurgent, angry and wounded Mad Dog, his coffers filled with oil billions, for the democracy movements on either side of Libya, in Egypt and Tunisia, could well have been pernicious.

But the Telegraph reported that the rebel forces incorporate elements of al Qaeda.

Abdel-Hakim al-Hasidi, the Libyan rebel leader, has said jihadists who fought against allied troops in Iraq are on the front lines of the battle against Muammar Gaddafi's regime. . . . In an interview with the Italian newspaper Il Sole 24 Ore, Mr al-Hasidi admitted that he had recruited "around 25" men from the Derna area in eastern Libya to fight against coalition troops in Iraq.

Cole:

The libel put out by the dictator, that the 570,000 people of Misrata or the 700,000 people of Benghazi were supporters of "al-Qaeda," was without foundation. That a handful of young Libyan men from Dirna [reflecting the Telegraph piece, no doubt -- RW] and the surrounding area had fought in Iraq is simply irrelevant. . . . All of the countries experiencing liberation movements had sympathizers with the Sunni Iraqi resistance; in fact opinion polling shows such sympathy almost universal throughout the Sunni Arab world. All of them had at least some fundamentalist movements.

However true that may be, it's awkward, to say the least, when supporting a U.S. action requires defending possible al Qaeda involvment. Equally as difficult is defending our intervention in Libya when we've abstained in other hot spots (not to mention the Congo and Darfur). As Conn Hallinan writes in a Focal Points post titled Is the Libya Intervention Directed at China?: "Bahrain, Saudi Arabia, or Yemen, where civilians are also being shot up, beaten, and generally abused." By way of explaining he cites the familiar refrain "It's all about the oil."

Okay, here is the cynical joke: "Is it all about oil? Nope. Some of it is about natural gas."

Not just our access to it either, but blocking China's.

Insuring access to oil and gas is a major focus of Chinese foreign policy, particularly because Beijing is nervous about how it currently obtains its supplies. Some 80 percent are transported by sea, and all of those routes involve choke points currently controlled by the U.S.

Thus, the Chinese, no doubt, understand a key reason

. . . why the U.S. is bombing Libya and not challenging Bahrain and Yemen: Bahrain hosts the U.S. Fifth Fleet [which] controls the Hormuz Straits, through which Saudi Arabian, Iranian, and Omanian oil passes. [Meanwhile] Yemen's port of Aden dominates the Red Sea [and the Fifth] dominates the straits of Bab el-Mandab that control access to the Red Sea and through which Sudan's oil is shipped into the Indian Ocean. In addition the Malacca Straits between Sumatra and the Malay Peninsula is the major transit point for oil going to China. The U.S. Seventh Fleet controls that choke point.

Hallinan concludes

In the end, it is not so much about oil and gas itself, as the control of energy. Any country that corners energy supplies in the coming decades will be in a powerful position to dictate a whole lot of things to the rest of the world.

A part of me wants to believe that because it's international and has, one likes to think, a humanitarian component that the Libya intervention has the potential to be a new model. In fact, the current of energy needs always runs through actions such as this like a transcontinental oil pipeline.