Echoes of the Past: Syria, Chemical Weapons, and Civilian Targeting

Everyone should read this as a reminder of the brutality that states may employ for political ends, whether Ethiopia (1935), Chechnya (1995), Iraq (1998) or Syria (2017). Chemical weapons such as sarin or mustard gas leave horrific injuries, but any deliberate targeting of civilians — such as bombing of hospitals and residential neighborhoods — should IMO be treated as a war crime.

Luke O’Brien is a U.S. Army officer assigned to Aberdeen Proving Ground and is currently a Countering Weapons of Mass Destruction Graduate Fellow at National Defense University:

…..Perhaps the most notorious example of this from recent memory, however, was the Iraqi chemical attack on the Kurdish town of Halabja in March 1988, as part of the Anfal Campaign at the end of the Iran-Iraq War. This attack struck the small Kurdish village with both conventional and chemical bombs, including sarin, just as Assad’s forces would nearly 30 years later. The first attacks used normal high-explosive bombs, which both drove civilians into basement shelters as well as broke open the villages windows and doors. These initials attacks were then followed up with chemical munitions, which quickly filled the basement shelters and killed their occupants.

Such brutality was intentional. The attacks were intended to break the back of the Kurdish peshmerga militia by depopulating its support. Commenting on the matter at the time, Iraqi Gen. Ali Hassan al-Majid bragged that he would “kill [all the Kurds] with chemical weapons.” The chemical bombardment of Halabja had its desired effect, with a stream of surviving civilians abandoning the town and fleeing to nearby Iran. This use of chemical weapons, moreover, had another added benefit: driving away civilians and insurgents who had become numb to the effects of conventional weapons…..

Read more at: Echoes of the Past: Syria, Chemical Weapons, and Civilian Targeting

No Plan? No Strategy? No Problem! Syria and Trump’s Russia Policy

Michael Kofman is an Analyst at CNA Corporation and a Fellow at the Wilson Center’s Kennan Institute:

….Past American attempts at coercive diplomacy with Russia have typically lacked actual coercion, and a theory of how to gain leverage over Moscow. It will be rather startling if 59 cruise missiles turn out to be the answer to this problem. Thankfully, the previous administration tested a lot of theories that didn’t work, from empty threats at the United Nations, to disproven assumptions on what influences Russian behavior, to narratives about quagmires. It would be best for Trump’s White House not to set us on this journey, mounted on that very same broken wheel (or one just as broken in a different way).

In a contest of wills, Trump needs a plan to establish coercive credibility rather than hoping to scare the Russians with expensive fireworks. The number one mistake previous administrations made with Moscow is that, rather than deal with the Russia that is, they all imagined a Russia that suited them more, and then tried to have relations with that imaginary country.

The reality is, this administration’s only current leverage with Russia is the notion inside the Kremlin that a cooperative agenda with the United States is still possible. That’s a dubious proposition which offers the U.S. some advantages. Russia still hopes that there are carrots the United States might offer, or at the least it could get respite in the current confrontation and consolidate gains. If the administration is able to drag out this perception, rather than demonstrating that the White House is rapidly reverting to classical archetypes that Moscow anticipates, then there is an opportunity to obtain concessions.

Given that a cooperative agenda between the United States and Russia is well-nigh impossible, where does that leave us?

Source: No Plan? No Strategy? No Problem! Syria and Why Trump’s Russia Policy Is Off to a Rough Start

How to survive the next four years

Donald Trump

We are entering a time of uncertainty.

Donald Trump started his presidency with a continuation of the confrontational approach that he exhibited throughout his campaign, with scant regard to unifying the country and governing from the middle. Instead he has signed off on two controversial oil pipelines that, while they would create jobs, have met fierce opposition and are likely to polarize the nation even further.

Subtlety is not Trump’s strong point. Expect a far more abrasive style than the Obama years.

Trump also signed off on constructing a wall along the border with Mexico. Again, this will create jobs and slow illegal immigration — two of his key campaign promises — while harming relations with the Southern neighbor.

Another key target is the trade deficit. The US has not run a trade surplus since 1975. Expect major revision of current trade agreements like NAFTA, which could further damage relations with Mexico, and a slew of actions against trading partners such as China and Japan who have used their foreign reserves in the past to maintain a trade surplus with the US. Floating exchange rates are meant to balance the flow of imports and exports on current account, minimizing trade surpluses/deficits over time. But this can be subverted by accumulating excessive foreign reserves to suppress appreciation of your home currency. Retaliation to US punitive actions is likely and could harm international trade if not carefully managed.

Apart from wars, Trump and chief strategist Steve Bannon also seem intent on provoking a war with the media, baiting the press in a recent New York Times interview:

Bannon delivered a broadside at the press…. saying, “The media should be embarrassed and humiliated and keep its mouth shut and just listen for a while.” Bannon also said, “I want you to quote me on this. The media here is the opposition party. They don’t understand this country. They still do not understand why Donald Trump is the president of the United States…..”

Trump and Bannon’s strategy may be to provoke retaliation by the media. One-sided reporting would discredit the press as an objective source of criticism of the new presidency.

On top of the Trump turmoil in the US, we have Brexit which threatens to disrupt trade between the UK and European Union. If not managed carefully, this could lead to copycat actions from other EU member states.

Increasingly aggressive steps by China and Russia are another destabilizing factor — with the two nations asserting their global power against weaker neighbors. Iran is another offender, attempting to establish a crescent of influence in the Middle East against fierce opposition by Saudi Arabia, Turkey and their Sunni partners. Also, North Korea is expanding its nuclear arsenal.

We live in dangerous times.

But these may also be times of opportunity. Trump has made some solid appointments to his team who could exert a positive influence on the global outlook. And confrontation may resolve some long-festering sores on both the economic and geo-political fronts.

How are we to know? Where can we get an unbiased view of economic prospects if confrontation is high, uncertainty a given — the new President issuing random tweets in the night as the mood takes him — and a distracted media?

There are two reliable sources of information: prices and earnings. Stock prices reflect market sentiment, the waves of human emotion that dominate short- and medium-term market behavior. And earnings will either confirm or refute market sentiment in the longer term.

As Benjamin Graham wrote:

“In the short term the stock market behaves like a voting machine, but in the long term it acts like a weighing machine”.

In the short-term, stock prices may deviate from true value as future earnings and growth prospects are often unclear. But prices will adjust closer to true value as more information becomes available and views of earnings and prospects narrow over time.

We are bound to experience periods of intense volatility over the next four years as hopes and fears rise and fall. These periods represent both a threat and an opportunity. A threat if you have invested on hopes and expectations rather than on solid performance. And an opportunity if intense volatility causes prices to fall below true value.

It will pay to keep a close watch on technical signals on the major indexes. As well as earnings growth in relation to index performance.

Also, keep a close eye on long-term indicators of market risk such as the Treasury yield curve and corporate bond spreads. These often forewarn of coming reactions and will be reviewed on a regular basis in future newsletters.

How to Counter the Putin Playbook | The New York Times

Michael A. McFaul, director of the Freeman Spogli Institute and a senior fellow at the Hoover Institution, both at Stanford, served as United States ambassador to the Russian Federation from 2012 to 2014:

…We will not find security in isolationism. No missile defense shield, cybersecurity program, tariff or border wall can protect us if we disengage. Menacing autocracies, illiberal ideas, and antidemocratic and terrorist movements will not just leave us alone or wither away. The threats will grow and eventually endanger our peace, as we saw in Europe and Japan in the 1930s, and Afghanistan in the 1990s.

Conversely, the growth of democracy around the world serves American interests. Democracies do not threaten us; autocracies do. Democratic allies also vote with us at the United Nations, go to war with us, support international treaties and norms, and stand with us against tyranny.

So we must push back, in new ways. Just as the Kremlin has become more sophisticated at exporting its ideas and supporting its friends, so must we.

We should think of advancing democratic ideas abroad primarily as an educational project, almost never as a military campaign. Universities, books and websites are the best tools, not the 82nd Airborne. The United States can expand resources for learning about democracy……

I agree with the sentiment but not the execution. Win friends by promoting education and building infrastructure abroad. These have practical, tangible benefits to citizens of developing nations. Democracy can come later. In many parts of the world it is as foreign a concept as gay marriage.

Source: How to Counter the Putin Playbook – The New York Times

Something Fishy (humor)

Trouble brewing

SYDNEY — Five men with cancelled passports were Wednesday accused of planning to sail to Indonesia from Australia en route to join jihadist groups in Syria.

The men included notorious Australian Islamic preacher Musa Cerantonio, who was detained in the Philippines in 2014 and deported for reportedly urging people to join jihad in Iraq and Syria, the Australian Broadcasting Corporation said…. (JT)

Don’t Blame Sykes-Picot for the Middle East’s Mess | Foreign Policy

By Steven A. Cook, Amr T. Leheta:

The weaknesses and contradictions of authoritarian regimes are at the heart of the Middle East’s ongoing tribulations. Even the rampant ethnic and religious sectarianism is a result of this authoritarianism, which has come to define the Middle East’s state system far more than the Sykes-Picot agreement ever did.

The region’s “unnatural” borders did not lead to the Middle East’s ethnic and religious divisions. The ones to blame are the cynical political leaders who foster those divisions in hopes of maintaining their rule. In Iraq, for instance, Saddam Hussein built a patronage system through his ruling Baath Party that empowered a state governed largely by Sunnis at the expense of Shiites and Kurds. Bashar al-Assad in Syria, and his father before him, also ruled by building a network of supporters and affiliates whereby members of his Alawite sect enjoyed a privileged space in the inner circle. The Wahhabi worldview of Saudi Arabia’s leaders strongly encourages a sectarian interpretation of the country’s struggle with Iran for regional hegemony. The same is true for the ideologies of the various Salafi-jihadi groups battling for supremacy in Syria, Iraq, and Yemen…..

Source: Don’t Blame Sykes-Picot for the Middle East’s Mess | Foreign Policy

Hilary Benn’s moving speech on Syria

Hilary Benn, Labour’s shadow foreign secretary’s speech in support of air strikes in Syria reduced MPs to tears and drew applause from members on all sides of the House of Commons.

White House ignored intel which did not fit re-election “narrative”

Retired Lt. Gen. Michael Flynn, former director of the Defense Intelligence Agency, interview on CNN.

What ISIS doesn’t want you to hear | Waleed Aly

Australian newsreader Waleed Aly deconstructs ISIS on Channel Ten – The Project.

Hat tip to David Llewellyn-Smith at Macrobusiness.com.au.

Crude testing support

Crude futures (Light Crude December 2015 – CLZ2015) are testing support at $44.50 per barrel. Follow-through below $44.00 would signal another test of primary support at $40. Supply continues to exceed demand with the Saudis and Russians cranking up production and cutting prices to secure key markets in the US and China. Breach of $40 would offer a (long-term) target of $30*. Recovery above $50 per barrel is most unlikely unless there is a serious disruption to supply.

WTI Light Crude December 2015 Futures

* Target calculation: 40 – ( 50 – 40 ) = 30

Oil market showdown: can Russia outlast the Saudis?

Dalan McEndree writing in Oilprice.com :

While the sharp decline in crude prices has saved crude consuming nations hundreds of billions of dollars, the loss in revenues has caused crude exporting countries intense economic and financial pain. Their suffering has led some to call for a change in strategy to “balance” the market and boost prices. Venezuela, an OPEC member, has even proposed an emergency summit meeting.

In practice, the call for a change is a call for Saudi Arabia and Russia, the two dominant global crude exporters, which each daily export over seven-plus mmbbls (including condensates and NGLs) and which each see the other as the key to any “balancing” moves, to bear the brunt of any production cuts…….

Despite the intense pain they are suffering in the low price Crudedome, both the Russian and Saudi governments profess for public consumption that they are committed to their volume and market share policies.

This observer believes the two countries cannot long withstand the pain they have brought upon themselves — and this article only scratches the surface of the negative impact of low crude prices on their economies. They have, in effect, turned no pain no gain into intense pain no gain and set in motion the possibility neither will exit the low price Crudedome under its own power.

Read more at Oil market showdown: can Russia outlast the Saudis? | Oilprice.com

Sen. John McCain on Russia’s airstrikes in Syria

Shades of Churchill in 1938:

Winston Churchill, denouncing the Munich Agreement in the House of Commons, declared:

“We have suffered a total and unmitigated defeat … you will find that in a period of time which may be measured by years, but may be measured by months, Czechoslovakia will be engulfed in the Nazi régime. We are in the presence of a disaster of the first magnitude … we have sustained a defeat without a war, the consequences of which will travel far with us along our road … we have passed an awful milestone in our history, when the whole equilibrium of Europe has been deranged, and that the terrible words have for the time being been pronounced against the Western democracies: “Thou art weighed in the balance and found wanting”. And do not suppose that this is the end. This is only the beginning of the reckoning. This is only the first sip, the first foretaste of a bitter cup which will be proffered to us year by year unless by a supreme recovery of moral health and martial vigour, we arise again and take our stand for freedom as in the olden time.”

On 3 October 1938, Churchill added:

“England has been offered a choice between war and shame. She has chosen shame, and will get war.”

Cold wind blows for crude oil producers

Long-term June 2017 Nymex Light Crude futures (CLM2017) broke support at $60/barrel, offering a target of $54/barrel*.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 60 – ( 66 – 60 ) = 54

In the short-term, September 2015 futures (CLU15) are testing support at their March low of $50/barrel. Breach is likely, given the long-term down-trend, and would offer a target of $40/barrel*.

Nymex Light Crude September 2015 Futures CLU15

* Target calculation: 50 – ( 60 – 50 ) = 40

Declining prices will hurt the Energy sector in the short/medium-term, but the benefit to the broader economy will outweigh this in the longer term. Lower fuel prices will especially benefit the Transport sector. Highly industrialized exporters like Germany, Japan, China and the broader EU, will also benefit. While oil exporters like Russia, Iran, the Middle East, Nigeria, Angola, Venezuela, and to a lesser extent Norway, face hard times ahead.

Crude breaks support

Nymex light crude (April 2015 contract) broke support at $45/barrel, warning of a decline to $35/barrel*.

Nymex WTI Crude

* Target calculation: 45 – ( 55 – 45 ) = 35

Grantham: Lower oil price is new normal | Macrobusiness

By Houses & Holes
Reproduced with kind permission from Macrobusiness.com.au

From Jeremy Grantham:

1234

The simplest argument for the oil price decline is for once correct. A wave of new U.S. fracking oil could be seen to be overtaking the modestly growing global oil demand.

It became clear that OPEC, mainly Saudi Arabia, must cut back production if the price were to stay around $100 a barrel, which many, including me, believe is necessary to justify continued heavy spending to find traditional oil.

The Saudis declined to pull back their production and the oil market entered into glut mode, in which storage is full and production continues above demand.

Under glut conditions, oil (and natural gas) is uniquely sensitive to declines toward marginal cost (ignoring sunk costs), which can approach a few dollars a barrel – the cost of just pumping the oil.

Oil demand is notoriously insensitive to price in the short term but cumulatively and substantially sensitive as a few years pass.

The Saudis are obviously expecting that these low prices will turn off U.S. fracking, and I’m sure they are right. Almost no new drilling programs will be initiated at current prices except by the financially desperate and the irrationally impatient, and in three years over 80% of all production from current wells will be gone!

Thus, in a few months (six to nine?) I believe oil supply is likely to drop to a new equilibrium, probably in the $30 to $50 per barrel range.

For the following few years, U.S. fracking costs will determine the global oil balance. At each level, as prices rise more, fracking production will gear up. U.S. fracking is unique in oil industry history in the speed with which it can turn on and off.

In five to eight years, depending on global GDP growth and how quickly prices recover, U.S. fracking production will start to peak out and the full cost of an incremental barrel of traditional oil will become, once again, the main input into price. This is believed to be about $80 today and rising. In five to eight years it is likely to be $100 to $150 in my opinion.

U.S. fracking reserves that are available up to $120 a barrel are probably only equal to about one year of current global demand. This is absolutely not another Saudi Arabia.

Saudi Arabia has probably made the wrong decision for two reasons:

First, unintended consequences: a price decline of this magnitude has generated a real increase in global risk. For example, an oil producing country under extreme financial pressure may make some rash move. Oil company bankruptcy might also destabilize the financial world. Perversely, the Saudis particularly value stability.

Second, the Saudis could probably have absorbed all U.S. fracking increases in output (from today’s four million barrels a day to seven or eight) and never have been worse off than producing half of their current production for twice the current price … not a bad deal.

Only if U.S. fracking reserves are cheaper to produce and much larger than generally thought would the Saudis be right. It is a possibility, but I believe it is not probable.

The arguments that this is a demand-driven bust do not seem to tally with the data, although longer term the lack of cheap oil will be a real threat if we have not pushed ahead with renewables.

Most likely though, beyond 10 years electric cars and alternative energy will begin to eat into potential oil demand, threatening longer-term oil prices.

Exactly right, though in my view the equilibrium price will be more like $50 than $30 for the next half decade.

Don’t miss the full report.

A Solution for Afghanistan’s Opium Crisis? | The Diplomat

Sohrab Rahmaty makes a strong case for changing the strategy to control illicit opium production in Afghanistan:

….In the 1970s, Turkey was a major source of illicit opium for the drug trade. In just four years, and with the help of an American-led initiative, Turkey was able to transform its illegal opium trade into a viable and profitable legal industry. The Turkish government instituted a program that offered to license farmers’ crops for medical purposes, resulting in Turkey becoming a leader in the opiates-based medical field. There is no reason why Afghanistan should not pursue a similar path….

The cost of establishing a legitimate industry would be a fraction of the cost of “containment” of the illicit industry and would also strengthen central government control over outlying regions.

Read more at A Solution for Afghanistan’s Opium Crisis? | The Diplomat.

Crude oil: A zero-sum game?

“The current fall in price does nothing to offset the squeeze on the total economy from rising costs,” Grantham writes. “It merely transfers massive amounts of income from one subgroup (oil producers) to another (oil consumers), in a largely zero-sum game….”[Business Insider]

The above quote from Jeremy Grantham made me do a double-take. His “largely zero-sum game” refers to the global playing field. Oil producers such as the Saudis, Russia, Venezuela, Nigeria and Iran will earn less per barrel, while oil consumers like China and the EU will gain an equivalent amount per barrel. More importantly, oil consumers will receive a substantial boost to their economies. The “zero-sum game” assumes that crude production will remain constant. But consumption is likely to rise significantly as plunging oil prices deliver more savings to consumers, providing a massive stimulus to local economies. That in turn will lead to increased production of crude oil. A win-win for producers and consumers.

The Nymex Light Crude monthly chart shows a breach of long-term support at $75/barrel. Brent crude is in a similar down-trend. Target for the (WTI) decline is $40/barrel*.

Nymex Crude

* Target calculation: 75 – ( 110 – 75 ) = 40

Plunging prices may slow the establishment of new wells, but existing wells are likely to continue pumping as long as the price per barrel of crude is higher than the marginal cost. Marginal costs ignore sunk (or fixed) costs like exploration and establishing a new well. They are merely the variable costs that would be saved — like wages and consumables — if production is halted. Marginal costs are far lower than the producers’ total cost and are not yet threatened.

As for the long-term viability of producers at lower prices, the following chart is worth repeating. Prior to the 2005 “China boom”, the ratio of crude prices to CPI oscillated between 0.1 and 0.2. Over the last few years it has soared to between 0.4 and 0.6. A fall back to 0.2 would harm new, marginal producers (i.e. US fracking) but should not affect core producers. Whether governments reliant on “oil-welfare” — like Russia, Iran and Venezuela — are sustainable is an entirely different matter.

Nymex Crude

Get Ready for Iraq War IV

Retired army officer John A. Nagl writes:

The United States is now at war in Iraq for the third time in my lifetime, and after being in the middle of the first two I’m planning to sit this one out.

The first Iraq war was necessary and conducted well, as wars go; the second was unnecessary and conducted poorly at first, but ended up in a reasonable place given what a fiasco it had been at the start. This third war was entirely preventable, caused by a premature departure of U.S. troops after the second. Although it’s too soon to say how it will turn out, it is not too early to say that unless we get the endgame right, the United States will fight yet another war in Iraq before too long.

Read more at Get Ready for Iraq War IV.