Archive for May, 2014

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US energy sanctions on Russia must thread the needle

May 15, 2014

Russia’s resurgent geopolitical power is dependent on it’s vast energy wealth.  That makes the Russian energy sector a juicy target for policies aimed at punishing Russian machinations in Ukraine.

However, America’s European allies are dependent on Russia as their primary energy source.  That creates a dilemma – how to get European support for meaningful sanctions that won’t end up hurting themselves as much or more as the intended targets?

The US is trying to thread the needle by targeting Russia’s energy future while keeping its current productivity intact.   Although it remains a major exporter, Russia’s reserves of conventional oil are in steady decline.  However, as reported here in the past, Russia has immense shale reserves.  Shale oil has resuscitated the US oil industry (oil production in the US hit a 26 year high last year and the Energy Information Agency projects continued growth to a 40 year high next year).  No other nation has been able to leverage their shale resource as effectively as the US, and Russia needs access to US experience and technology if they want to similarly extend their own energy industry.

Therefore, the Atlantic allies are crafting sanctions that will prohibit participation in Russian shale (and Arctic) energy development by Western companies.  Of course, there is nothing preventing the Kremlin from retaliating by squeezing current exports to the allies, anyway.  It would end up just being a test of wills.  And, so far, Putin has demonstrated ownership of much more of that particular resource as well.

Russia's vast but untapped shale resources

Russia’s vast but untapped shale resources

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Will Ukraine crisis push neutral Sweden into NATO?

May 8, 2014

In response to resurgent Russian militarism in Ukraine, two recent analyses have laid out the need for both Sweden and Finland to join NATO.  First, in the online edition of the journal Foreign Affairs, Jan Joel Andersson, a senior research fellow at the respected and influential Swedish Institute of International Affairs (SIPRI), laid out the case for both Nordic nations to finally join the Atlantic Alliance.    This week, Andrei Akulov from the Russian think tank Strategic Culture Foundation, has detailed a number of military and political signals from within the Swedish government that indicate a renewed willingness to examine NATO membership.

 

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China to surpass US as largest economy; what does it mean?

May 1, 2014

According to new figures (and an alternate formula to typical GDP comparison) from the World Bank, China is expected to pass the United States as the world’s largest economy sometime later this year.   The World Bank is comparing Purchasing Power Partity (PPP), which is intended to standardize GDP across currencies and make direct comparisons of how economies work internally.  However, GDP is still the better measure of how economies compare in the globalized world because it takes differences in exchange rates into account.

In any case, China is going to pass the US sooner or later, but what that means remains to be seen.  In the two previous cycles of the world system, France’s GDP likely surpassed England’s in the late 18th/early 19th century and Germany surpassed the United Kingdom in the late 19th/early 20th centuries (see Angus Maddison for reconstruction of early GDP levels) , yet both still lost their challenge for hegemony.

The Six Cycles of the Modern Era copyright EnerGeoPolitics, 2010

copyright EnerGeoPolitics, 2010

Even after China becomes the world’s largest economy, it may not hold that position for very long.  China is facing a severe demographic crisis and, like Japan, will face an declining work force supporting an ever growing retiree population.  Indeed, it may fall off the demographic cliff even before the largest waves of retirees hit – last year, the working age population declined for the first time in history, a decline that will continue.  As the Financial Times notes:

Unless the country can keep lifting the labour force participation rate (for example by getting more women into the workforce or persuading older people not to retire), China will struggle to expand its labour force by even 1 per cent per year. To sustain economic growth of more than 7 per cent, productivity would need to grow by 6-7 per cent a year across the entire economy. This would be a tall order in any country. In China, where the labour-intensive services and agriculture sectors make up half the economy, it is well-nigh impossible.

Of course, a decelerating China does not mean the US will regain the top spot . . . India may well pass both nations.  And my analysis continues to be that India will be the next global hegemon, either in the next immediate cycle, or following one more term by the US.