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0230 GMT June 30, 2008

Pakistan Our update today is 12 hours late as we have been trying to verify details of what's happening in Peshawar with some success, but each answer seems to open more questions.
Essentially, the Pakistan offensive against insurgents around Peshawar and the Khyber Agency is less an offensive than a warning by the authorities that the insurgents are not to try and attack the city.
Background: Mangal Khan Afridi heads several thousand fighters of Lakshar-i-Islam. Khyber Agency is one of the seven political divisions of Pakistan's Federally Administered Territorial Areas, which are located in the North West Frontier Province, one of Pakistan's five provinces (Punjab, Sindh, NWFP, Kashmir, Baluchistan). It is in FATA that Islamists have more or less taken over in recent years. This is a direct consequence of Second Afghanistan, but of course, if it had not been for local factors that have nothing to do with the US, anger against the US would not have played out the way it has. Second Afghanistan is a catalyzing event, not the cause of what's happening.
The FATA Islamists have been steadily advancing into other areas of the NWFP and building organizations and ties with other Islamists in Pakistan's other provinces.
Their minimum aim has been achieved. This was to create their own governments in the FATA.
Their second aim is now being pushed, i.e., and expansion into the rest of the NWFP.
Their third aim is distant from now, i.e., taking over Pakistan. But how distant is one of the ten key questions we are trying to get a handle on. As best as we understand, the pace depends on the US. The US has been squeezing Pakistan for 8 years on maters related to Afghanistan. Pakistani push-back began ~3 years ago, with the Pakistan military reviving/rebuilding insurgent groups to fight in Afghanistan. That these groups should start taking over the border area is natural.
As nearly as we can tell, if the US begins direct, independent action against insurgents based in the NWFP, it will weaken the civil government and permit a correspondingly rapid rise of the Islamists.
But please: that this story is happening this particular way and not another has definitely to do with the US, but the underlying factors, as we've said, have nothing to do with the US. Islamization is a worldwide movement: Pakistan was from inception a theocratic state, Islamization began in earnest in the 1970s, and even if the US were not a factor, Islamization would be growing.
The Pakistan military is behind Lakshar-i-Islam, as it is behind most indigenous Islamic militant groups. The object is to retake Afghanistan, something Pakistan had succeeded in doing by 1996, but then was reduced to zero when the US took over Afghanistan. Again, because this is simply a narrative piecing together many developments in an attempt for coherency, we dont want to get into lengthy discussion about what we mean by Pakistan taking over Afghanistan. Lets get the outline first, and then we can tackle these questions, and reshape the outline to finer detail.
The object is also to take Indian Kashmir, but that has nothing to do with Peshawar, so we will let it go.
Please also remember that the current civil government is NOT an independent entity, leave alone the controlling entity, in this new Pakistani military attempt to reshape South Asia. The military is still very much the real power in Pakistan. Moreover, you must not think the civilians and military are banging heads over the new strategy: all Pakistan supports the new strategy. The sole issue when the new government came to power is who was ultimately responsible for national security, and the matter has been resolved: the Pakistan military will remain responsible for national security.
So please don't waste time on headlines such as this from Washington Post, June 29: "Offensive in Northwest Pakistan May Signal Strategic Shift For Rulers". The media, not just western media, are off on this because they seek the quick, easy, black-white way of defining the narrative, and this means defining it in a western way. Pakistan's official rulers are the civil government, but its real rulers are the military. For now the military has ceded to the civil authority purely civil matters such as the economy. But that does not mean the civilians OPPOSE the military on national security. They would have liked to control the strategy, which is another matter altogether.
The key question we are grappling with is this. We know the Pakistan Army has accepted Islamization of Pakistan and will not act to block it. A big mistake westerners and even Indians make is you go to visit the Pakistan Army and it is all British flash and crisp and straight-talking and all that, and that unless you make it your point to get the religious views of the persons you are talking with, you will remain unaware that Pakistan's military is very religious. Even then if you are white-skinned (i.e., foreign) they will tell you one thing and if you are brown-skinned they will tell you another.
The issue is not Islamization, that is settled. The issue is: are the new Taliban groups tools the Army plans to use in its external strategy or are they now a defacto additional arm of the Pakistan military?
The second issue is: how likely is President Obama to give in to US hardliners and order independent operations inside Pakistan - we aren't talking about the little covert stuff that's been happening for seven years. We feel he is 100% likely because he has no credibility - in his own mind - on national security. JFK was very different, by the way: he brought a huge, huge understanding of diplomacy, history etc. to the job. Remind us to tell you another time.
We have no doubt President McCain will order stepped up operations not because he cant stand up to the hard liners, but because he is a hardliner.
Some readers will say "Oh no, editor has derailed again. Send in the wrecker train and get him back on track." Others will say: "There he goes again, arguing a distinction without a difference." How you react depends on your frame of reference
Most readers will say "Interesting," and then reach for another cold one. Obviously 99.999% of humankind does not spend its time worrying about matters such as the above, they have a real life to lead.
But whatever your perspective, please be warned: one way or the other, there is trouble brewing in Afghanistan, Pakistan, and Indian Kashmir.

0230 GMT June 29, 2008

More Headache Inducing News From Pakistan's NWFP This is one of those days when your editor feels he is living on Pluto for all that he knows what is happening on Earth, which seems to be about nil. We have often complained about the paucity of our sources. With the commercial part of Orbat.com on life support we have lost approximately 80 of our correspondents and almost all of our network. We had several people in Pakistan - five to be be precise - and now we have zero. It's sad that whereas we know how to get information but have no money, mainstream media which has money seldom knows how to get cost-effective news. For what a western media agency pays to keep one person in Pakistan, we could give you original, up-to-date news on about 60% of the world.
Anyway, enough self-pity. Media says Pakistan Frontier Corps has attacked Pakistan Taliban positions around Peshawar. According to International Herald Tribune the Frontier Corps commander says the operation was launched because people were demanding the government do something, and right there you can see how pathetic is the whole scene. Why do you have to wait till the public demands you do your job before you do your job? Has the Pakistan government really become that ineffective in Peshawar, which is a major Pakistan city and the capital of the NWFP?
Apparently the answer is "yes". We knew the Pakistani Taliban was closing in on Peshawar; we had no clue it has already closed in on Peshawar. We thought this development was two years away. So you can understand why your editor is weeping and moaning about not knowing a thing.
Background: there is a gent who in the last three years has built up a force of several thousand fighters and has taken over so much of Peshawar's surrounding areas that the government has ceased to function. He is allied with another gent, a foreigner, who has a force of unknown size composed of foreign fighters who keep busy attacking the US/partners. The other day the first gent raided the city itself, kidnapped 16 Christians, later released after negotiations. Read $$$$. so the city's inhabitants are understandably feeling insecure.
Okay, so lets put all that aside and go behind the scenes. Point The First: The last three years happens to coincide with the period the Taliban have rebuilt themselves and taken over large parts of Afghanistan. It also coincides with the period Taliban has openly taken over much of NWFP.
Point The Second The garrison city of Peshawar is home to HQ XI Corps, which controls about 60-70,000 troops in the NWFP. We do not know the exact position right now, but when the Pakistan government was supposed to be fighting the insurgents, the Corps had 14 brigades - its own and from other Pakistani corps. Now some of those brigades are in the process of going back to their cantonments because of the peace deal.
Is it not a bit odd that the Taliban now have a choke hold on Peshawar, which is hardly short of troops? What have the troops been doing all this time? And why are they STILL not taking the offensive against Taliban, if for no other reason than which army wants ~5 divisions worth of troops rendered ineffective in their home province?
Pakistan Frontier Corps has been repeatedly defeated in battle by Pakistan Taliban. Please understand this is not a case where the FC has fought and been defeated. The FC has refused to fight. It is officered by regulars from the Pakistan Army, who happen to be overwhelmingly Punjabi. We are willing to bet that when the FC has fought, it is because the men have not dared defy their officers. So understandably, it has made of a show than a real fight. FC doesnt want to fight because it does not see what wrong the Taliban are committing. The Talibs are their brothers - this is not a figure of speech - and the Taliban simply represent majority thinking in the very conservative NWFP. The Frontier folk like neither the Pakistan Government, nor modernization, and they absolutely, completely, utterly hate America. So why should FC fight america's war, especially when the high professional Pakistan Army is increasingly refusing to fight America's war.
Point The Third IHT quotes a state ruling party member (the party is moderate) as saying he believes the Taliban group around Peshawar has been created by Pakistan ISI.
You can take it that any Pakistan group fighting in Afghanistan is ISI. The original Taliban were ISI and so are the new Taliban.
Now we come to Point 4 and this is the part that is seriously disturbing us - but not surprising us. We want you to hold on to your chair because you are going to fall off. Before you hold on to your chair, we'd like to explain something. US likes to pretend that ISI is some kind of independent power in Pakistan and that parts of it are rogue. Please understand that the the ISI is no independent power. It 100% represents the Pakistan Army and to a lesser extent the other services. There are NO rogue elements worth mention in the ISI: almost everything it does is sanctioned by the army's commanders.
This does not mean there are no factions jockeying to advance the power of this general or that general. These are internal disagreements and of no relevance to outsiders. With that in mind:
On information received very recently by your editor (okay, so he is not totally out of it): The Pakistan Army has decided the Islamization of Pakistan will proceed.
Pakistan is already a theocratic state, but it has generally been fairly moderate compared to our Best Friends Forever the Saudis, fairly live and let live. We know our Pakistan readers are going to scoff and say "the Islamization of Pakistan has been going on for 40 years, so what do you mean by "fairly moderate". But a trend can start at one time and take decades to become overwhelming.
But now the Pakistan military has decided its time to go the whole hog. If we go into why, we'll never get this article done. Suffice to say that (a) Pakistan as a nation was a traumatized at the outcome of Partition in 1947-48 (b) it had a breakdown after losing East Pakistan in 1971; and (c) the American intervention in Afghanistan/Pakistan has completed the process. In brief, the Pakistanis are saying clear and loud "we will not be pushed around any more, least of by the US". For a variety of complicated reasons, they see neccessary to redefine their identity, this time as Islamists.
Whoa, whoa, whoa! will say our friends on State's Pakistan desk. You are jumping the gun: trends are there but by no means is what you are saying inevitable. You are wildly exaggerating.
Okay, first lets admit we no longer have any friends in any American government body. We are lying about friends at State, we have no friends anywhere, of any kind.
Second, lets go back to what we say many a time. US to this day talks to those Pakistanis who they can talk to. These are not authentic Pakistanis, they represent an intelligent, widely-read and traveled semi-secular, and humanistic lot who are a tiny, tiny minority in Pakistan. We are not blaming the US, there are all sorts of reasons 99% of countries get things wrong.
We cant go into details, but "our" Pakistanis are authentic and you can believe us or not, but we can assure you that the balance between Islamists and non-Islamists in the Pakistan Army has decisively, perhaps irrevocably tipped in favor of the Islamists. (Yes, yes, we know the balance has been tipped for a long time, but unless our readers stop intervening in this debate for now, we'll never get done.) What we are trying to say that what was previously kept hidden in the last eight years for fear of America is gradually coming into the open, though the Pakistanis are still scared of America.
We told you about signals we are picking up that Pakistan is preparing to take its new war against India to the next level; it has already done that in Afghanistan. You can disbelieve us, but you cant disbelieve what your own government is telling you about Pakistan's new intervention in Afghanistan. Talk to any Indian intelligence officer and he will say what we are about Pakistan and India. The war has been on for some years, we have been talking about the next level, this really is not a topic that causes much disagreement in India.
Similarly, you can say Orbat.com is exaggerating about the big wave of Islamization that is going to hit Pakistan. But remember: when it hits, we told you first.

0230 GMT June 28, 2008

This Is How US Fights Energy War

US Government has declared what will likely be a 2-year moratorium on new solar plants on government owned land so that it can conduct an environmental review (New York Times)
Now, even the solar power industry agrees environmental standards need to be set and it wants a uniform set of rules. The government's concerns include water availability for solar thermal generation plants which use concentrated rays to heat water for power turbines. This is a valid concern.
At the same time, what part of "Energy Emergency" does the US government not understand. We are not about to reach crisis point, we are in crisis.
The editor's example suffices. When your editor had three people living at home, including himself, he paid $20-30 month for gas for cooking and the hot water boiler. He now lives alone. He has two quick showers a day, and uses the stove for less than 10 minutes a day. He pays $30 a month - in the summer. You've already heard how the editor made it through the winter on 200 gallons of fuel oil and even that he paid for with difficulty (~$800). He managed by keeping the thermostat at a high of 50F and often at 40F. He would like the members of the ruling class to come live with him for a week with the thermostat at 40F and see how they like it. The editor drives 600 miles a month, of which 300 is for work - he has passed over several better paying jobs because his commuting bill will rise - and 100 if for the gym. He has a mandatory gym time of a minimum of 60 minutes every day, no breaks, imposed by his doctor. Last year he paid $50/month for gas; this year he is paying $100/month and rising. Please note the editor drives a 1300cc car and his discretionary miles are 200 per month. In the Washington DC area you can't drive much less. When three people lived in the house, the summer electricity bill was $180/month peak mainly for air conditioning. He now sets the thermostat at 80F, is the only person in the house, and pays $350 at peak. It all comes out to $4000/year for energy. That is an entire month's paycheck after taxes - the editor saves not one penny. So he pays 8% of his income for energy, after going no nowhere and living in extreme discomfort. And he lives alone.
We don't need to tell you that if that's what happening to the editor, people who make less than he does - the US median household income is $48,000 before taxes, whereas he makes $48,000 after taxes - are in very serious trouble. If you have old people in the house you cannot cut back on air-conditioning and heating. If you have children you cannot economize on cooking. If you are like most Americans, your job is far away from your residence, and there are few neighborhood shops. You editor has to drive 7-miles round trip to the closest inexpensive grocery store, and 14-miles round trip to his HMO. This is on the low side for many families. Again, he emphasizes 8% of his net income goes for his energy costs when he lives alone and in considerable discomfort. People with families are probably starting to pay twice as much as he does.
If this is not an energy crisis, what is? And please, we keep saying this, this is only the start of the crisis.
Because of energy costs, food has gone up. Fifteen years ago the editor used to feed his whole family of three on $60/week. Okay, so he scrimped like mad. But you know what? He still scrimps like mad, has only himself to feed, and pays ~$70/week for: 1 gallon milk, oatmeal, one box cereal, two boxes of spaghetti, 2 pounds of luncheon meat/cheese, two loaves of brown bread, half gallon of juice, 1 pound of cheap chocolate, 1 pound of green salad, 6 cans Diet Pepsi, 10-ounce bag of chips and a couple of odds and ends. BTW, Washington is a lot more expensive than most other US metros, in case the above figures make no sense to you.
If this is what he pays, he wonders how the median family - which makes less than he does - is managing with, say, two adults and two children.
Because of the economic situation, the editor will get no COLA, and will get a 4% step increase in his job. Well, general inflation in the Washington metro is 5%, and most everyone agrees the government figures understate real inflation. So he will see a reduction of 1% on his standard of living, a situation that has more less been constant two years of three in his 20 years in Washington.
And at that, he is far better off than the majority of Americans who are seeing their standard of living falling much faster. And - don't forget - the editor is lucky to have a job where short of moral turpitude he will not get fired. The school population keeps going up (it will peak in 2016) and highly-qualified secondary math teachers are not exactly thick on the ground in our part of the world. Tens of millions of Americans not just live on paycheck from disaster, they can get fired at any moment.
So there you have it: the editor is actually incredibly lucky compared to at least 50% of Americans. He does not even want to think what the lower 50% is going through. (By the way, editor spends average of $100/year on clothes, never goes on vacation, has no cable, etc etc etc - no luxuries of any sort.)
The United States government should have been on top of the energy thing on a war footing five years ago. It has done nothing - and we've explained yesterday (below) that it is not to the advantage of the ruling class to do anything.
Even then, we are taken aback that the US Government is actually hindering what private companies are doing toward the goal of energy independence and affordable energy.
A two-year moratorium may mean ~2-GW capacity less - this is a very rough guesstimate, we are no experts. Okay, so that is "only" two coal-fired plants. But this is an industry that is just on the verge of profitability with government subsidies and only 5-years away from competing without subsidies. You cannot just turn the tap on and off at will. The 1-year moratorium will have repercussions for five years particularly because the smaller companies in the business cannot survive a 2-year downturn.
Cant companies build on private land? The ban applies only to government land. Well, it so happens that the government land is in region ideal for solar power, and private land happens to be expensive. The ban will by no means stop all new plants. But it will knock a big hole in growth at a time when instead of slowing down, we should be devoting ten times more effort to this energy form alone. US needs to replace 20-GW generating capacity annually (assuming 50-year life) as well as allow 10-GW increase for the increasing population. We should be looking at 10-GW worth of conservation, and 20-GW of alternates, which means wind/solar. And none of that begins to touch on the problem of replacing/reducing oil/gas dependence.
We are certainly not going to get anywhere near, say, 10-GW/annual solar the way the government is going.
This government has done more for the environment than its critics acknowledge, but at the same time, it is not a particularly environmentally-drive government. It seems a bit odd to us that the government should choose this of all times to weaken energy independence and non-carbon sources.
Sure there is environmental damage associated with solar. But you know what? There is environmental damage associated with the 1% population annual increase. There is environmental damage associated with coal. And there is colossal environmental damage associated with our insatiable need for oil.
That damage is not taking place here. But have you been to the Niger Delta lately? We haven't, not for 35 years because we dont travel anymore. But we talk to people who visit the Delta, and Orbat.com readers need to be aware that the magnitude of the environmental disaster there will boggle your mind. Ditto Angola/Cabinda. Ditto Russia. Ditto Iraq, because of our war. Will the US government please explain why it is is moral for us to worry about the desert squirrel or whatever will be affected by solar power development and not to worry about the environmental damage being caused around the world by our need for oil?
Will the government kindly explain why it is in our national interest to give even more money to Saudi Arabia when it is the world's greatest single exporter of extremism? We saw an estimate the other day of $75-billion from Saudi alone supporting/exporting Wahabisim. This is for madrassas and the like, not for actual terror activities. Where is the money coming from for the already-started takeover of America by sovereign wealth funds - and you aint seen nothing yet, good buddy. The money is coming from your pocket and mine: we are paying the Arabs to buy us up.
Think for a moment, folks. At $200/barrel and 12.5-million bbl/day - 2010 figures, Saudi will earn a gross $2-billion a day or $750-billion a year. (Assume 2.5-million barrels domestic use). Russia will earn $800-million a day.
BTW, folks, we are not counting gas exports for Saudi and Russia.
If the US government/ruling class doesn't see the problem, can they at least get out of the way of people who are trying to do something about alternates, in this case the solar power people?

Saudis Say They Don't See Oil At $200: May We Please, Please Kiss Your Fat Butts In Gratitude?

This oil thing is getting tres boring, but to our surprise, most media of any size doesn't seem to be getting what's going on. So we're going to try and explain once again, and if we bore you because you already know, our apologies.
Yesterday oil went to $140 despite Saudi saying it will increase output, in part because Libya says it may cut output. So let's go behind the scenes.
When oil reached $120, the Saudis had already died and gone to heaven. In February 2007, oil dropped to $50 after a brief flirtation with $78 in August 2007. No one at the time thought that prices were unreasonably low. In June 2008, prices are $140, and there is no way they are not going to $150, or a tripling of price within 16 months. Now, whatever the elasticity of oil may be, a tripling of prices when demand increased by ~5% has no economic justification. We'd suggest our readers forget the theories freely floated by oil interests that demand is driving the prices.
What Saudi did yesterday was not aimed at reassuring the market. It is aimed at trying to get a floor price of $150. The Saudis are only throwing out the figure of $200 to see how consumers react. It is a trial balloon, but pretty soon it will become a self-fulfilling prophecy; we'd be foolish to assume that unless governments act to enforce structural changes in the way oil is traded the price will NOT go to $200. The only argument is the exact time it will go to $200. End of this year? Mid next year? Please be assured that if matters continue as now, next year same time people are going to be discussing $250 oil.
Okay. Time for some basic economics. Suppose Sony doubles the prices of its flat screen monitors overnight. What will happen? Sony wont sell a single monitor because there are a dozen other monitor powerhouses who will not increase prices.
But could Sony make an increase stick if it formed a cartel with the other major manufacturers? Lets leave legal issues aside to simplify. Yes, the cartel could make the price stick - for about 18 months, which is about what it will take 10 others not in the business to enter and start shipping monitors. In the meanwhile, demand for monitors will plunge dramatically because people will simply put off buying a new monitor till new companies start shipping.
Of course, if the top monitor companies formed a cartel, their CEOs would be doing the Perp Walk Tango mighty quick.
Back to oil. We already have a cartel, and its been a pretty effective one. Are the CEOs of the cartel doing perp walks? Obviously not. And its not because they are foreigners and we cant get our hands on them. Its not a complicated business for oil consumers to order the arrest on sight of any major executive of a foreign company, or to stop issuing visas to those nationals, or to seize their national, corporate, and individual bank accounts overseas.
The reason we don't see perp walks is because western oil companies are part of the cartel. Not officially, but in reality. When you unravel the cross holdings of oil companies, you will likely be shocked at how much of so-called foreign oil western oil companies handle, in the form of owned crude, crude on which they pay royalties, crude they market, crude they refine and so on. We've been waiting for a reader to send us an informed estimate of that figure, alas, we haven't received it yet.
So we have a tight cartel. Can 10 other mega corporations not in the oil business enter the market to take advantage of cartelization by selling at well below cartel prices, as will be case for flat screen monitors?
The simple answer, as you have already guessed, is no. The official reason is: it takes 10 years to bring already discovered fields on line, and it will take 20 years from scratch.
The best thing you can do to these estimates is to use them for toilet paper. OECD has a GDP of ~$30-trillion. All OECD has to do is invest $2-5 trillion on a war footing in the next five years, and all the so-called bottlenecks will be irrelevant. The world has an a truly amazing industrial capacity. Its not geared for rapid oil production because till recently there has been no economic reason to do so. Oil at $50-60 is affordable, perhaps even higher.
Now that oil is $140 going on $200 isn't there enough incentive for a massive increase in conservation, alternates, and new oil? Actually, no. There will be steady increases in investment every year, but people will still operate within a framework of decades, not five years.
The reality is that every stage people will keep a wary eye on the certainty that with a massive program oil prices will fall dramatically and destroy their future profits. And the reality is the oil cartel will quickly absorb any new producer. Brazil, for example, is getting set to become a major exporter in the next 10-20 years. You can bet your pink undies that Brazil will soon become an open cartel member and will act in concert with other members to keep prices high.
The unpleasant reality is the world has ~4-trillion barrels of oil left. If you count heavy oils, it's several trillion barrels more. We've said before: the world is running out of cheap oil, oil that can be produced for - say - $20/bbl. The world is a long, long way from running of conventional oil leave alone heavy oil.
To get this oil on line in an orderly manner, you'd need only to increase the price by 5% inclusive of inflation. Remember, as price increases demand will reduce - fore example, people are now working on plastics that are not produced from oil, in 20 years the majority of vehicles could be battery or alt fuel powered etc etc. So an increase of 5%, equating to a real increase of 2% a year, is probably all that can be justified. Using $60 as a base, that still gives you $240 then-year oil - but in 2030, not in 2010.
But when a cartel controls oil, and when there is no chance of breaking the cartel, the potential availability of oil is of no relevance. The only thing of relevance is how much can the cartel squeeze out of consumers.
Sad to say, the cartel can certainly squeeze $250 out of consumers. The developed/rapidly developing world will spend less money on McDonald's, Nike shoes, and Play Stations, but it will maintain its standard of living even at $250. The other 4-billion people will take a big hit - the bottom 2-billion will be back to living a subsistence life if they aren't already.
By the way: did we mention that there's more cartels on the way? Food, for one. People are already very seriously exploring the idea - it's no longer a theoretical concept. You will likely get iron ore, cement and coal cartels next, which will work on the same principle as the oil cartel: make it worthwhile for producers not to produce, and they will not produce. The free market for essential stuff will no longer exist, just as already no longer exists for oil.
You and I don't have the power to oppose cartels because unlike flat screen monitors, you and I must have oil, food, steel, coal, cement right now.
In a sense you can say that what's coming is the logical culmination of capitalism. Please note with the exception of whackos like Cuba and DPRK, everyone but everyone is a capitalist now. So there will be the upper 10% who will control the vast majority of production, the next 40% who in varying degrees will live a middle-class life, and 50% will be poor.
You will say why only 50%? The upper 10% could take 90% for themselves and leave 10% for the bottom 90%.
Actually, no. At more than 50% poor, poor people start getting their guns out. The upper 10% may be greedy, it is not suicidal.