Tuesday, July 28, 2020

Iran-China Mega Deal | Game-changing Bargaining Chip for Iran

This partnership is going to act as a bargaining chip for Iran as it will get some much-needed wiggle room and breathing space, irrespective of the next occupant in the White House...

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Sunday, April 26, 2020

COVID-19 | A Boon and Boost to the Surveillance State

Date of publication: April 25, 2020

Ultimately, democratic freedom is lost not by a sudden attack carried out by a larger force, but by attrition rooted in a cacophony of silence and a passive consent to oppression. By the time we realise the same, the strategic pressure points of democracy would have been compromised beyond repair and healing. It is mass testing for detecting the virus that is the answer, not mass-surveillance. The collective resources of the planet should be directed towards this end.

COVID-19: Why is it Still Unwise to Bet against America?

Date of publication: April 17, 2020

The issues faced by the US are so grim that many observers intuitively feel it is almost time to write off the United States of America, whatever that means. The US is on ventilator support, they feel. Perhaps, nothing could be farther from the truth. This is because many of them forget that the present corona pandemic in the US is not a crisis of capability but one characterised by utter negligence and zero preparation. The general characterisation and belief of the pandemic as, ‘this is just a seasonal flu; it will go away’ flew in the face of America. Millions of Americans got it wrong, just like the transatlantic people.

Read the complete article here at the website of Kochi based think-tank, Centre for Public Policy Research: https://www.cppr.in/centre-for-strategic-studies/covid-19-why-is-it-still-unwise-to-bet-against-america

India’s Lockdown: Partial Success is Total Failure

Date of publication: Friday, April 03, 2020

And in the times of corona pandemic, partial success is complete failure. It is like a total, all-out war. Win or lose, there is no halfway house. Because, even a single carrier of the virus can wreak havoc.

Read the complete article here at the blog of Kochi based think-tank, Centre for Public Policy Research:

Wednesday, March 12, 2014

India-US relations and Iran Crude Oil: Chords of discord warrant polite chimes

12 Mar 2014
When he was the President elect in 2009, Barack Obama, as per reports planned to appoint Richard Holbrooke as a special envoy for India-Pakistan- Afghanistan region. The then Foreign Minister of India, and the current Indian President Pranab Mukherjee strongly opposed it and made it unequivocally clear that the move “smacks of interference and would be unacceptable [to India].”

Mukherjee was concerned that envoy with a mandate for the three nations would also take it on his part to “interfere” in Kashmir issue in which India has kept a third party away from meddling.

“Mukherjee was deeply concerned about any move toward an envoy with a broad regional mandate that could be interpreted to include Kashmir. Such a broad mandate would be viewed by India as risky and unpredictable, exposing issues of vital concern to India to the discretion of the individual appointed,” a Wikileaks cable noted.

Subsequent to intense lobbying by India, Hoolbrooke’s (who is no more) Job Description was devoid of India and thereby Kashmir.

In his second term, the Obama administration found itself on the defensive side when an Indian diplomat Devyani Khobragade was arrested and subjected to strip and cavity searches on charges of certain visa violations by authorities there, despite she was enjoying diplomatic immunity, according to India. India paid back to US in a different coin revoking certain diplomatic privileges enjoyed by its officials. Finally John Kerry expressed his regrets on the Devyani incident.

Since, then, the US-India relationship is teetering on the edge of an abyss. From snooping on India, to solar dispute, to pharma patent rows, to the civil nuclear liability issue, the chords of discord have been multiplying.

Iran Oil

On a latest note, US has ‘asked’ India to curtail oil imports from Iran to 1, 95,000 barrels as a part of the deal signed by Iran and six nations to which India is not a party.

A nuclear armed Iran is not in the interests of India. And past reports suggest that Iran, by undertaking certain enrichment efforts has violated Non Proliferation Treaty provisions to which it is a signatory. By supporting the deal and prodding for diplomatic solutions, India’s tune and tone has always been conducive for a peaceful solution.

Now take a look at this Reuters exclusive:

“India, with the increases already made in the January-March loading plans from Iran, has to cut its purchases of the crude to about 110,000 barrels per day (bpd) to drop its intake average to 195,000 bpd for the six months to July 20.

Under the November 24 agreement between Iran and six world powers, the OPEC member [Iran] was to hold oil exports at “current volumes” of about 1 million bpd, and a message delivered by a top U.S. energy policy official to Indian ministries in February was the first clear sign of low tolerance for any increases.”

While one cannot know of the content of the message or its tone the reply of an Indian official provides for enough clues that it was not a pleasant one.

"It is a fact that they (the United States) have asked us that Iran's exports to India should not exceed 195,000 bpd between January to July and we have said that we'll take care of that," said one of the government sources, all of whom requested anonymity because of the sensitivity of the issue.”

Taking into consideration the global stakes involved in this deal between Iran and world powers, energy strapped India should do everything it can to attain the necessary outcomes even if it means curtailing sourcing of crude from Iran.

By asking India (and not requesting) who is not a party to the deal, one would also doubt if US would use the same language when communicating with China, Japan and South Korea, who have also stepped up their oil imports from Iran since the interim deal was signed.

In the context of so many disputes proliferating between India and US, the authorities in US would do well if they show a bit more of politeness and discretion in approach when dealing with India.

This is a suggestion applicable for every other issue, present and future.

After all, arrogance is not American! (rakesh.neelakandan@gmail.com)

Yu’e Bao or people’s money of China

12 Mar 2014
Imagine that you belong to a Chinese middle class family and is the mother of only child whose father is employed in a factory in some Chinese province. You have a sewing machine and therefore some neighbourhood business and you also own a smart phone. You have an account in a Chinese bank that returns you meagre interests. Then you hear of Alibaba and its Alipay providing you with Yu’e Bao, a financial product.

You have an account in Alipay—a Paypal like system-- and once you transfer the titbits of money you have with you from the State-owned bank’s account to Yu’e Bao, you start receiving 17 times interest compared to traditional savings opportunity! Besides, you can withdraw the money anytime you want from Yu’e Bao! At approximately 6% of annualised interest rates, your life changes all of a sudden. You can save more and shop more using the Alipay system from Alibaba’s e-commerce sites, if that be your choice.

Thus, suddenly you are in a wonderland!

Alibaba—world’s largest online Bazaar does more business in the e-commerce sector than Amazon and Ebay combined. It has Alipay service which in turn launched Yu’e Bao in June 2013.The fund takes deposits from laymen and businesses and funnels them to interbank market.

“Up to 90 percent of Yu’e Bao funds are invested in interbank deposits at 29 large banks, including the big state-owned ones,” notes IB Times in an article.

Given the size of deposits—Yu’e Bao raised $90 billion in 8 months—it can negotiate for better interest rates from banks unlike other customers.

However, behind the success of Yu’ e Bao lays some penchant realities in the Chinese banking sector.

The Chinese banks are primarily state-owned enterprises. Like any other banks, they take deposits from people and dishes out loan to the needy enterprises and individuals. But the banks are also tightly regulated in that the interest rates on deposits and loans are determined not by market forces, but by People’s Bank of China (PBoC), the Chinese equivalent of India’s Reserve Bank.

For decades, the state-owned banks were provided with a huge spread between interests on loans and deposits helping them to rake in gigantic amount in profits. The layman in China having no other avenues to save his precious money always resorted to deposit options provided by banks.

This meant they received just 0.35% interest in savings account and to secure a loan, had always had to attend to sky-high interest rates. Meanwhile the state-owned banks in China channelled this easy money from deposits—it stands somewhere around $12 trillion—to various state-owned enterprises and other industries.

Communist rate of growth

In a bid to keep the Communist growth rate of 8% for GDP, reckless lending measures ensued in China. In addition to legitimate lending, banks also opted for shadow lending as well. This phenomenon resulted in an excessive infrastructure boom. Buildings were built which were never occupied; malls were built where there were no footfalls.

All these resulted in a commodity consumption boom and along with trillions of Yuan in stimulus measures in the wake of Great Recession, assumed a ghastly dimension in terms of credit situation in China. Consequently, the past year in June saw a freezing of interbank lending in China.

The same month also witnessed the launching of Yu’e Bao!

In short, Yu’e Bao was derived from the financial arsenal of China to keep in check the liquidity crunch in the interbank lending using people’s money. By shooting this dart, China valiantly deployed the interbank credit freezing and resultant financial crisis risks on to broader shoulders of Chinese public.

With surplus money in the interbank lending system courtesy of Yu’e Bao, China is in a position to manage credit risks better, one may think. Hold your breath.

News reports today said of a Chinese solar company defaulting on onshore corporate bonds; the bond market is regulated by PBoC since 1997. Unlike the presumed bailout it carried out in case of a trust company, this time around, nobody came to the rescue of Chaori Solar Energy Science and Technology Company. Obviously, Chinese banks are exposed to this credit default risk.

If more of such news follow, and banks grow more cautious in lending to each other, it would help Yu’e Bao to demand excessive interest rates by any standards which could be passed on to customers. The growth momentum of GDP fixed at 7.5% by Xi Jinping means China will have to continue moving on its growth trajectory. This would put pressure on banks to lend voraciously. But waves of default may make lending by Yu’e Bao run to dead end.

While the users of Yu’e Bao can withdraw money in a swish using their smart phones, Yu’e Bao may not be in a position to take out money with such speed as the same would be locked-in within the system. This means, the promoters of Alibaba may have to face the heat; it would possibly face severe financial crisis and in case of a Yu’e Bao default reckless public fury.

Given that Yu’e Bao can continue to grow for the time being, this risk may not emerge until the bubble pops. Chinese e-commerce companies like Baidu and WeChat are also on the move to aggressively promote products like Yu’ e Bao. When they assume a sizeable chunk of the economy the popping of the bubble can contribute to a nightmarish scenario: trigger a financial meltdown, spur an economic failure and spark a political crisis of lethal dimensions.

Perhaps, in a bid to avoid that mishap China is mulling the introduction of private banks on a trial basis which would address the credit requirements of individuals and SMEs. The authorities are also contemplating further de-regulation of the banking sector.

The sooner, better! (rakesh.neelakandan@gmail.com)

Monday, March 10, 2014

Russian military, Gas prowess: Ukraine over, Poland and Belarus next?

If Russian President Vladimir Putin states that he has a dream, the ex-Soviet Republics would either have nightmares or have sleepless nights. Putin does have a dream and that dream is the resurgence of Soviet might, perhaps adjusted to current day realities. And Russian gas and oil have pivotal roles in helping him realise his dreams.

What he wants is not a centralised Soviet Union dominating the former Republics. That would be impossible to achieve in current day circumstances. But he can still maintain defacto control over former Soviet republics; Ukraine and especially Crimea is going to be an example in this regard.

Why Russia has decided to annex Crimea?

The Russian naval presence, its largest offshore, is a compelling reason for Russia to annex Crimea. Let us not nurse the illusion that Russian leader is interested in protecting the welfare of Russian speakers in Crimea.

If he has not heeded the calls of his own citizens in matters related to transparency and accountability of governance in Russia, how can he be deemed to represent Russian interests in Russian soil in a democratic sense? Now, if that be true, how can we ever expect the Russian President to represent and fight for Russian speaking Crimeans in foreign soil and that too, against the wishes and amid threats from international community?

Hence the argument that Russia is trying to protect the interests of Russian speaking Crimeans by annexing Crimea carries no weight.

Currently Crimea is an Autonomous Republic within Ukraine, a sovereign territory of Ukraine and therefore indivisible from Ukraine. However, according to an intergovernmental agreement between Russia and Ukraine, the latter had allowed Russian Navy at Sevastopol in Crimea with strict provisions that limit the soldiers from crossing a certain perimeter.

By annexing Crimea, Russia can use the base for its own ends—already the base is the largest one offshore Russia—with no restrictions, in other words like a blank cheque of significant strategic leverage.

This will have two dividends. Russia, depending on its strategic intentions, can go for a limitless troop surge and hardware augmentation in Crimea. Secondly, annexation can result in the dangling of a permanent sword hung over Ukraine, thereby forcing it to behave in line with commands in Russian.

Given the massive troop presence in Crimea, Ukraine would lose its strategic autonomy and its decisions on multiple policy fronts would be shaped by the Russian presence subconsciously. Crimea would thus be a valve that would allow Russia to step up pressure on Ukraine at its will and pleasure. By exercising sovereign control over Crimea, Russia can maintain defacto control over Ukraine.

The gas question

Russia is still the largest energy supplier to Europe. And many a pipeline network established in Soviet era passes through Ukraine and nations like Poland and Belarus. Russia has on different occasions turned off the gas to Ukraine and thereby Western Europe before. That was mainly due to conflicts arising out of pricing of gas. Recent reports suggest that if cash-strapped Ukraine were not to pay its dues on gas purchases, Gazprom—Russia’s monopoly on gas—would once again turn the valves off stepping up pressure on Ukraine. But this would have had its consequences, if not for pipelines—Nord Stream--extending to Western Europe underneath the Baltic Sea.

There are only a few pipeline networks that carry gas from Russia to other parts of Europe. Until the Nord stream got online, the pipeline network to Western Europe was mainly through Ukraine. This meant that by turning off supplies to Ukraine, Russia would in turn and without intention, turned off supplies to Western Europe as well. But with the Nord Stream operational, Russia can afford to do that although it may involve ‘costs’ renting-in on the words of Obama.

By annexing Crimea and pumping gas to Western Europe through Nord Stream, Russia can virtually isolate Ukraine, Belarus and Poland. The latter two are also dependent on Russia for energy needs. Now, with South Stream gas supplies in the pipeline--yet another gas transit extravaganza underneath the Black Sea—Russia could supply gas to other parts of Europe while leaving Ukraine and other nations shiver in European winter and simmer in summer thereby exerting defacto control over Poland and Belarus.

Now one may ask how someone can control and derive strategic dividends from Poland using gas supplies as a tool. My humble suggestion to them would be to closely study the map of Europe.

Between Lithuania and Poland, Russia does have an exclave called Kaliningrad. It is the home of Russian Baltic Sea fleet, yet another strategic outpost. No wonder, states like Estonia, Latvia and Lithuania summoned NATO jets on spotting Russia overtures over the Baltic coast recently.

The long term issue

Annexation of Crimea under the pretext of defending Russian speaking Crimeans, is just the beginning. Putin does have an expansionist design when it comes to restoring Soviet glory. But he knows too well that territorially annexing the Baltic nations would be quite difficult, if not impossible. The only provision left is to maintain defacto control over these nations. And a mix of gas, diplomacy, military presence and masked soldiers sporting nil insignia would contribute to a new model. Putin is just running a test of the same in Crimea with text book precision.

However, in this context one should also note that this future of Soviet prowess is being portrayed assuming many other factors would remain static. But that is never going to be the case. For every action, there would be an equal and comparable reaction, although unpredictable. NATO would be there, so would be the Organisation of Security and Cooperation in Europe assessing, planning and responding to Russian actions.

But the Great Recession that kicked the US in its soft underbelly, not to speak of self-defeating Congressional tussles and debilitating military cuts would not be least helpful in contributing to a solution. In a sense, we would see the Cold War getting heated up, going forward.

The only bright spots are the US’ shale energy boom and the togetherness in the European Union; both achievements could play a pivotal role in shaping the multilateral equations.(rakesh.neelakandan@gmail.com)