Left Flank

I'm not Neville Chamberlain's grandson, just to refute what any fans of Georgian aggression might want to claim.

Many commentators have neglected the legacy of economic reform in Russia in the 90s. Whether it augurs a recrudescence of realism, the debate is couched in military terms. However, I would refer to the debate between Joseph Stiglitz, in Globalization and Its Discontents, and Anders Aslund, in Russia's Capitalist Revolution. Stiglitz would argue that shock therapy in the 90s was a mistake and advocates gradualist reforms. Aslund argues that shock therapy succeeded, but democratization failed.

Aslund characterizes Putin's administration's weakness as an elite problem, not a popular one. Putin can retard political democratization, but only by «surprises». Like Grozny, this view would argue that this Georgia invasion is another desperate attempt to keep Putin in power, and nothing more.

There is also the Kosovo precedent.

Georgia is certainly no victim, and is arguably the aggressor (and, only the Georgians and CNN would disagree). Matthew Lee reports on the Georgian delegation's rationale for acting at the United Nations Security Council, backed by the US and UK, and it's a conspiratorial strategy, not the action of innocents.

Western geopolitical commentators stick to cold war simplicities about Russia bullying plucky little Georgia. However, anyone familiar with the Caucasus knows that the state bleating about its victim status at the hands of a bigger neighbour can be just as nasty to its smaller subjects. Small nationalisms are rarely sweet-natured.

Worse still, western backing for «equip and train» programmes in Russia's backyard don't contribute to peace and stability if bombastic local leaders such as Saakashvili see them as a guarantee of support even in a crisis provoked by his own actions. He seems to have thought that the valuable oil pipeline passing through his territory, together with the Nato advisers intermingled with his troops, would prevent Russia reacting militarily to an incursion into South Ossetia. That calculation has proved disastrously wrong.

Taking Russia as the villain, though, Ambassador Richard Holbrooke argues that «PM» Vladimir Putin realized that, with a new administration in the US due on January 20, he had a window of opportunity to deal with Georgia. As Michael Merritt puts it, «...all we’ve heard from the U.S. leadership regarding this conflict is essentially tough talk...», because the US «...just isn’t willing to possibly bring on Cold War II to try and bail out an ally that’s so close in location to one of its biggest rivals.» Does that mean there's a conspiracy, where Putin is shrewdly disposing of Georgia’s leadership, annexing Abkhazia and Ossetia, and possibly securing his rights for the Black Sea fleet from a humbled Ukraine, all to give himself another few years of popularity to rule. It’s Grozny redux. Maybe Putin isn’t all that clever after all, just a one-trick pony. Even as reported by CNN, how «President» Dmitry Medvedev's has «ordered» the cessation of hostilities looks like a scripted transfer of «Grozny» credits from the master to the apprenctice, assisted by the villain's, in this case Mikhail Saakashvili's, sneering rejoinder.

Furthermore, especially with any mention of President Bush's role (which looks pathetic in light of US actions at the UN), what this «Georgia as victim» meme demonstrates is not so much a Russian crisis as a crisis within the US about where to go in a post-Cold War world. The comfortable manichaeanism of the Cold War, with the lucrative returns of the military-industrial complex, is a safety blanket for addled defense intellectuals and hack politicians.

The Oil Drum's Jerome a Paris argues both why speculation affects the price of oil and why demand for oil consumption must be destroyed.

Many don't agree with my assertion that speculation has little or nothing to do with the run-up in oil prices, and consider that the brutal price increases, followed by just as brutal price decreases, cannot be explained by fairly small changes in supply or demand figures.

Let me try to explain again why, in today's conditions, small variations have precisely such consequences.

In a market where supply is plentiful, balancing the market will be done by supply adjusting, i.e., the price will be such that just the required volume of oil is extracted to fulfill demand, and no more. In that case, competition between suppliers plays in full, and the price will the be the marginal cost of supply, is the cost of the most expensive barrel needed to fulfill exactly demand. All cheaper producers will get that same price (and will make a nice profit the cheaper their costs are), and those that are more expensive won't produce. In such circumstances, variations in demand (or new supply coming online) can only cause price to move slowly along the production cost curve, and bigger price movements usually come from «above ground» factors, ie geopolitical crises that include a risk of major disruption of supply.

But if you move to a market where supply is fully used to satisfy demand, you enter a whole new world. In that case, if potential demand still increases, there is no supply in the short term to fulfill such demand, and the absolute requirement for physical balance of the market translates (beyond using stocks, which can only be temporary) into a need to destroy demand, i.e., for some potential users to forgo using oil. As we all know, oil is really convenient, and we are all unwilling (and, in many cases, unable) to stop using it. And yet the demand destruction needs to happen. In the short term, that requires prices to go high enough to convince someone to stop using the stuff, either because s/he can't afford it, or because s/he chooses an alternative which is less convenient but cheaper and, at such level of saving, worth the hassle. In such circumstances, short term price movements can and will be quite violent. In fact, any event that disturbs supply, any news that shows that demand was higher than expected, or supply less than hoped, or that suggest that demand will be higher than thought, or supply lower than expected, will push prices up immediately (and the opposite news, down, of course), because thee news translate into a unbalance between supply and demand and a bigger need for demand destruction (conversely, a lower need for such).

* So, a pipeline blows up in Nigeria - bam, 200,000b/d of (high quality) oil off the market, demand destruction is needed!

* Ben Bernanke suggests that a recession is unavoidable - psssh, prices go down as a slower economy will translate into less demand for oil, and thus less demand destruction will be required;
* Oil storage goes up - aha, demand was lower than we thought (or supply higher) in the last month, and there will be less need for demand destruction in the next one!
* Bush agrees to direct talks with Iran - bam, the war premium goes down, as the probability of an oil-supply-endangering conflict (which would cause a massive and brutal need for demand destruction, unless strategic storage is tapped) goes down.

In fact, in the past month, these was a succession of news that all went in the same direction. In the same week, Bernanke was extremely bearish on the economy, oil stocks were higher than expected, and talks with Iran happened. Each of these took about 3-4% each from the price of oil, bring the price down by more than $15 in 3 days.

And any time this happens, speculators are wrong footed and they need to close out their positions, which usually reinforces temporarily the underlying movement (haha! so there are speculators! And they push prices around! Well, yes, there are speculators - but, for the most part, they follow the market rather than driving it. Any price overshoot is usually temporary. And they do provide valuable services, by bringing in liquidity to prices - and by providing willing counterparties to those that want to buy hedges - you know, like airlines that buy futures or options for their supply over the next few months or quarters at prices to protect themselves - and their fares - from yet higher prices).

One point that needs to be made again is that demand destruction in the US (or even in Europe, where it is happening too) is not enough on its own to bring prices down, because it needs to be larger than the supply growth in the rest of the world to limit the requirement for further demand destruction and price rises, given that production is still largely stagnant. And the problem is that demand is not growing just in China and India, thanks to rapid growth, it is also growing massively in oil producing countries themselves (Saudi Arabia, Iran, Russia, Venezuela), which often subsidize gas and which can afford it given that they have a natural hedge against (the subsidy gets bigger when oil prices are higher, i.e., when their own income is bigger, and the income growth is larger than the subsidy growth for those that export any volumes). In fact, most of the demand destruction happens in price sensitive places, like the poorest oil-importing countries (but they weren't burning much of it anyway), and the rich world (which can still afford oil, but consumes lots of it). But we can't be sure it happens fast enough to actually cause prices to go down because of what's going on in the rest of the world.

And, that means daily news, like the Georgian-Russian war in South Ossetia, or the pipeline fire in Ceylan, Turkey, will send the prices at the pump reeling with annoying precision.

What a horribly unpropitious start for 2008 Beijing Olympics. The Russians settle scores with the Georgians over South Ossetia, and the father-in-law of the US Men's Indoor Volleyball team is murdered.

John Hoberman deflates all the positive aspects associated with the Olympic movement, and concludes:

«Admirers of the Olympic “movement” can point to the success of a show business internationalism that has survived a tumultuous history. An institution this hardy, one might argue, must offer something of value. This year, perhaps, it is a starring role in celebrating China’s astonishing economic success story. Just don’t ask about human rights.»

The Duck's Charli Carpenter rebuts the claim, that the Olympic movement is about human rights at all:

I am no expert on the IOC's history or on any large-N studies that may or may not confirm Hoberman's claim that the Olympics have a negative or at best zero effect on the frequency or intensity of interstate war. But I am able to see an important conceptual problem in Hoberman's argument: he treats «internal human rights» as synonymous with «interstate peace.» For example, the first sentence of his abstract begins with the foil: «The Olympic Games were founded to bridge cultural divides and promote peace.» But the article primarily refers to the internal human rights abuses of certain Olympic-hosting states as evidence that this goal has not been met by the IOC. Hoberman derides the IOC's official policy of political neutrality and Olympic diplomacy as an «old cliche»:

«What the Olympics promote instead is a form of amoral universalism in which all countries are entitled to take part in the games no matter how barbaric their leaders may be.»

But it is precisely this amoral universalism that has the capacity to promote peace - among, not within, countries. It is no different from the political neutrality espoused by humanitarian organizations who, like the IOC, lack coercive instruments and instead peddle universal norms; or by the United Nations, an organization founded on the sovereign equality of states moreso than on a commitment to clean up their internal politics. In fact, the tension between these two noble goals - international stability between states, and human rights within them - underlies many of the key debates about UN reform today. Hoberman treats these two goals as if they are the same and can be conflated, when in fact, achieving one often depends on undermining the other.

So, let's be easy on the Olympics? Can we just agree on «Do no harm!» Or, how about, «Get off your asses and play a game yourselves» Why bother defending an institution only trying to refurbish its own reputation, rather than confront its own scandals or improving amateur sport? Has the spackled-on glitz halted the Russians, or kept a tourist safe? The nation-states of the world might not be as aristocratically honorable as the Greeks of the ancient Olympic era, but then the Greeks never had to contend with corporate sponsors and corrupt politicians. Can we just stop selling hope and dreams until someone delivers on past debts?