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Tuesday, 1 December 2015

“New Kid in town”: the Su-24 incident shows that Turkish president Erdoğan's rise to power might have dangerous implications for the world.

There's talk on the street; it sounds so familiar
Great expectations, everybody's watching you

If Time Magazine would have had a contest for the most influential politician of the last two weeks, it would be a neck-on-neck race between the French president François Hollande and the Turkish president Recep Tayyip Erdoğan.

Although both politicians effortlessly drew the international spotlights during the last fortnight, the reasons for their “claim-to-fame” couldn’t have been more different.

François Hollande cashed his ‘president’s credit’ in the aftermath of the terrible attacks in Paris by making a ‘Tour de Monde’, bringing him in close contact with the global leaders including the Russian president Vladimir Putin. 

With his panache and finetuned French diplomatic skills, Hollande sought participants for his attack coalition against IS in Syria, after declaring them war. And although the results of Hollande’s tour are not crystal clear yet, the odds are quite considerable that the attacks upon IS-bases in Syria will be extended in the coming period.

However, the real man of the last two weeks was undoubtedly Turkish president Recep Erdoğan.

With one well-aimed missile of an F16 fighter plane, Erdoğan’s Turkish airforce downed a Russian Sukhoi Su-24 bomber aircraft during its attack stint over North-Syria, after it passed the Turkish border for a very brief, yet fatal period. Although both pilots could escape using their ejector seats, one pilot was fatally shot in mid-air by Turkmenish insurgents, who had been under attack by the same airplane.

Thus Erdoğan gave Russia a powerful signal that there is ‘a new kid in town’, when it comes to both global politics and regional use of power. That the signal had been very well understood became clear from the governmental and public outrage in Russia, as well as from the shedload of economic measures and boycott actions against Turkey and Turkish companies and citizens, that were declared overnight by Vladimir Putin and his henchman Foreign Minister Sergey Lavrov.

Although the reason for the Turkish attack against the Russian bomber plane is not yet clear, voices speak softly that there is more behind it than a simple, fatal cross-border incident with a jet plane. Insiders speak that Erdoğan wanted to teach Russia a lesson for:
  • attacking their Turkmenian brothers in Northern Syria, who many Turks consider to be closely related to their people, instead of only attacking IS;
  • their enduring protection of the Turkish archenemy, Syrian president-under-fire  Bashar al-Assad, thus letting him stay in power during the now almost five year lasting civil war in Syria.

And according to the Australian newssite ABC (and various other international media) Vladimir Putin himself stated that Turkey had attacked the Russian plane in order to protect the alleged Syrian and Iraq oilstreams to Turkey, managed by IS. This is a possibility that may not be so implausible as it seems at first glance.

Stil, I have a hunch that these are not the only reasons for this quite brutal and probably unnecessary attack against the Russian plane, which probably did intrude Turkey for a very short period, but crashed (and had been shot (?)) when it was already back in Syria.

In my humble opinion, the state of mind and the enormous ego of president Erdoğan might also play a role. As a matter of fact, both Vladimir Putin and Recep Erdoğan are quite similar persons.

Both share an undeniable intelligence with a considerable amount of ruthlessness, as well as disdain for their opposition, for the free press in their countries and – as a matter of fact – for their population as a whole.

Where Vladimir Putin has been president and shadow-president (i.e. Prime Minister) for more than 16 years in a row already, the reign of Erdoğan lasted from 2003 (when he became PM) until now and it will probably last much longer.

Erdoğan’s latest ‘tour de force’ was his second election victory in 2015, in which he reclaimed the absolute majority in Turkey after he lost it in earlier elections during this same year. During these elections the Turkish AK Party government did not scare away from sending personalized letters to Turks living all over Europe and other forms of soft and hard intimidation of his opponents and grassroots.

Both Putin and Erdoğan turn more and more into solar kings, who see their country’s wealth and income as their personal achievement and thus their personal property. Their slogan is seemingly: “Ask not what I can do for my country, but ask what my country can do for me”.

Putin put this slogan to life by earning shedloads of money through all kinds of state participations in oil, gas and other commodity-driven companies and by ‘simply being the top dog in Russia’.

Erdoğan has done so by building a new presidential palace for himself with a ‘petty’ 1150 rooms, costing the Turkish citizens billions of dollars and by other ways to enrich himself and the clan around him.

Their self-complacency, insensitivity for self-criticism and ruthlessness becomes blatantly clear from the way that they deal with the ‘darkish’ past of their respective countries and in the manner that they treat(ed) their adversaries. 

What Putin did with his Chechnian adversaries in Russia or with the people in Georgia, is exactly what Erdoğan does with the Kurds in Turkey and – as a matter of fact – Iraq: when deemed necessary enforcing (bloody) confrontations and/or bombing the living daylights out of them.

Further, Turkey  is more and more changing from a country with basically free press into a country in which press representatives are turning into fair game for government officials: some are arrested, while others are probably murdered (see also this link).

Yet both Putin and Erdoğan are strong, outspoken men, who are appreciated by the majorities of their countries for their tough politics and rocksolid goals.
Both have grand visions of their country becoming famous and mighty again. 

Where Putin can’t sleep at night due to endless pondering upon his ‘Great Russia’ vision, Erdoğan dreams of the revival of an ‘Ottoman-ish’ empire, in which Turkey is the greatest regional power with an influence stretching from Eastern Africa in the West to Afghanistan and Pakistan in the East.

The latter is probably the reason that Turkey (i.e. Erdoğan) really hated the Russian intervention in Syria, in favour of their ‘old friend’ Bashar al-Assad: an intervention that could eventually diminish the Turkish influence and damage Turkish interests in the region, as well as their (perhaps) above average relation with the leaders and representatives of IS. This might after all be the reason that Turkey took its chance, when the Russian plane crossed its borders.

Nevertheless, whether this all was indeed the motive for Erdoğan to shoot down the Russian plane or not, does not matter much in the end.

What matters, however, is that it has been a reckless and extremely dangerous move of Turkey, which could have dramatically increased the international tensions in the world (and it still could do so in the near future). 

To make things worse: both the ego’s of presidents Recep Erdoğan and Vladimir Putin prevent them from simply saying ‘sorry’ and admitting that they have acted ‘wrongly’ in this matter.

No, instead they turn into an international ‘cockfight’ in which they try to punish each other with inconsiderate economic measures (‘an eye for an eye’), loud sabre rattling and political charivari. This would not be a very big problem, when Turkey would not be one of the most prominent NATO members with arguably the most strategic position in the Middle-East, as heeder of the entrance to the Black Sea (through the Bosporus seagate – see map).

Map of Turkey, emphasizing its strategic
position in the Middle East
Picture courtesy of Google Earth
Click to enlarge
Even though the NATO is probably absolutely not willing to risk an ‘all out’ war with Russia, on behalf of Turkey, the odds for this are increasing when the tensions between Russia and Turkey keep on mounting. In one of the most unstable regions in the world, this is almost equal to committing suicide.

Perhaps one of the biggest problems is that both the NATO and the European Union cannot force Turkey to ‘shut up’ and sweet-talk itself into a regained mutual understanding with Russia.

The NATO desperately needs Turkey as an operating base for the Middle East and as entrance for its seafleet to the Black Sea. Arguing with Erdoğan could lead to undesired reactions of the Turkish president.

The European Union, on the other hand, desperately needs Turkey to solve its refugee problem going awry. This was the reason that European Commissioner Frans Timmermans went to Ankara with a fistful of (empty) promises about a future EU membership, visa-free entering into the EU for Turkish citizens and €3 billion in cash to help Turkey solve the refugee-crisis. “Don’t mention the plane, Frans... Don’t mention the plane!”

The savvy FD journalist Marcel de Boer argued that the uncertain forecast for the Turkish economy could be an extra uncertain factor for the political future of Turkey.

Tweet by Marcel de Boer, journalist of
Picture courtesy of
Click to enlarge
Marcel:  I am especially curious what will happen when the Turkish economy will collapse (which is inevitable, as the country hoarded too much debt).

My reaction was “that Erdoğan would probably become even more dominant and authoritarian than he already is, in order to distract attention from the failing Turkish economy”.

To collect some data, illustrating the assumptions of Marcel about the Turkish economy, I collected some statistics from the Worldbank about Turkey.

The first thing that struck me was the growing influence of Tourism in Turkey: from roughly 1.2% of Gross National Income (GNI) in 1995 until 5.6% in 2013. This makes the country extremely vulnerable for Russian touristical boycotts, as more than 4 million Russians visited the Turkish mega-hotels and touristical hotspots each year.

Although the Turkish GNI and the GNI per capita showed a healthy development during the last twenty years (first chart) and the non-performing loan portfolio is currently back at a decent level of 2.8% (second chart), it is especially the development of publicly guaranteed bond loans in Turkey that shows reason for cautiousness. According to the World Bank there are currently over $3.5 billion in publicly guaranteed bond loans, which seems like a considerable amount in comparison with the past.

Chart of the development of the Turkish GNI (per capita)
Chart by Ernst's Economy for you
Data courtesy of Worldbank
Click to enlarge

Turkish development of bonds, commercial loans
and non-performing loans
Chart by Ernst's Economy for you
Data courtesy of Worldbank
Click to enlarge
It is hard to tell from this data whether the Turkish economy will indeed collapse soon, as honestly most data – except for the soaring bond loans – look quite normal.

One thing is clear, however. The Russian boycott will hit the Turkish tourist industry below the belt, as well as the Turkish building industry, which acquired enormous building contracts in Moscow, St-Petersburg and other Russian cities. Also the vast trade flow between the two countries will probably collapse to the bare minimum, which is a ‘lose-lose’ situation for both countries and especially for Russia, of which the population already suffers from the enduring trade boycott between Russia and the EU, after the MH17 incident.

So it would be healthy for both countries to get this incident out of the way a.s.a.p.

Yet, president Putin is not the man to easily forgive the Turks for what they did. A first attempt of president Erdoğan to privately speak with Putin at the Paris’ climate summit was bluntly refused by the Russian president. And as I said before: the ego’s of both presidents will stand in the way of mutual excuses.

Yet, it is important that both leaders keep their cool, in order to prevent this incident from growing to epic and dangerous political proportions.

And perhaps president Erdoğan should get his act together regarding IS.
One cannot be both president of arguably one of the most strategically important NATO members and a silent endorser and trade partner(?) of one of the most dangerous terrorist groups in the Middle East.

One person can simply have just too many conflicting interests to remain a credible leader!

Sunday, 29 November 2015

More sides to every story: is the current fall of the oil price the consequence of excess supply or disappointing development of demand?

One of the best economic journalists that I know is macro-economist Marcel de Boer of Het Financieele Dagblad in The Netherlands: he is well-informed, has a very large network with "the top-dogs in the business" and he dares to think out-of-the-box, which brings him to the not-so-obvious solutions. Marcel de Boer is always a good and though-provoking read and a darn nice guy on top of it.

This week, in his regular column in the FD, he spoke about the three most decisive (economic) days during the last twenty years.

Besides picking ‘9/11’ and the ‘collapse of Lehman Brothers’ as the most decisive days – a choice which I can fully understand even without endorsing this selection to the fullest –  he chose as a third pick the decision of the OPEC made on November 27, 2014 to leave the oil tap fully open and not shrink the production of oil.

Here is a (translated) snippet of his very interesting column:

Yesterday, exactly one year ago, the members of the oil cartel OPEC came together in a cold and grey Vienna in order to take a decision with far-reaching consequences. Under pressure of Saudi-Arabia, the oil ministers agreed to leave the oil tap fully open. The historical policy of the OPEC had always been to shrivel up production when prices came under pressure, but now the OPEC chose for a different strategy. It would try to force producers of relatively expensive kinds of oil – deep sea oil, polar oil and oil from tar sands and shale – out of the market. A few months of low prices would be sufficient, they thought... Afterwards, the oil price would recover.

Well, the plan ended in a fiasco. The oil price further deteriorated, but the expected rebound never showed up. This was not only due to the fact that China bought less oil, but also because Iraq started to pump up more oil and the record production in the US stayed at the high level, due to gargantuous cost savings. All these circumstances made that supply remained exceeding demand. The oil price dropped from $ 110 to $45 per barrel.

Well, after reading this though-provoking story, one would think that the increasing divergence between supply and demand of oil was merely caused by the excessive global production of oil, due to the ill-conceived strategy of the OPEC countries, as well as the excessive production in Iraq and the US.

Yet, I was curious if the excess supply in oil was – except for the diminished oil consumption of China – really the only cause for the extremely low oil prices of this very moment.

As the testing of the pudding is in the eating, I gathered some charts and statistics from the International Energy Agency and other sources and put the latter in a tell-tale chart.

The first chart which I want to show is the one containing the price development of crude and WTI oil. This development has indeed been dramatical in 2015, tumbling from $92 per barrel to a mere $45 per barrel: a drop of more than 50%.

The development of the oil price in 2015
Chart courtesy of
Click to enlarge
And the first question to be answered is: is the current oil production indeed extremely high from a historical point of view?! The answer: yes it is! 

Two charts show this: the oil supply during the last fifty years (chart 2) and the supply during the last 2.5 years ( chart 3).

The development of the oil production from 1965 - 2010
Chart courtesy of
Click to enlarge

The development of the oil production from 2013Q1 - 2015Q3
 Chart courtesy of
Click to enlarge
However, the rise (!) of the oil production during the last five years – although impressive – has not been extremely dramatic: on the first chart of the aforementioned two charts, it is visible that in the period between 1965 and 1975 the oil production increased from 30 million barrels per day (bpd) to 60 million bpd. This was an increase of 3 million bpd every year!

As both these charts show, the oil production rose by approximately 12 million bpd during the last five years (2010 – 2015): an average of about 2.4 million bpd per year. High, but not extremely dramatic, when compared to the period between 1965 and 1975.

What made these production changes of the last five years so dramatic, on the other hand, was a. the fact that the oil production between 1975 and 2010 rose by an average of 0.7 million bpd and b. that these rises in production took place during the worst economic crisis of the last eigthy years.

The following two charts show the development of the aggregate demand for oil during the last few years and a composite comparison between supply and demand, based upon these charts:

The development of the oil demand from 2013Q1 - 2015Q3
 Chart courtesy of
Click to enlarge

The development of the oil demand and
production from 2013Q1 - 2015Q3
 Composite chart courtesy of
Click to enlarge

This composite chart makes perfectly clear that the divergence between the oil supply and demand is as much caused by the increased production capacity as by the “disappointing” development of the global demand for oil. In my humble opinion, this makes 27 November 2014 a slightly less historical day than Marcel de Boer argues in his column, as the increase in oil supply has not been dramatically (!) higher since 2014Q4.

Suffice it to say, that the OPEC policy has not been sensible in my point of view. The “war of attrition” that especially Saudi-Arabia fought with the other (new) oil producing countries has blown up in their faces, as the oil price is still extremely low and there are few signals that it will start to rise very soon. Especially, as Iran is returning to the international limelight.

The fatal flaw that Saudi-Arabia and the other oil producing countries made, perhaps, is believing in the fairytale of the everlasting Chinese growth with the ‘magic’ 7% per year and that for a population of 1.3 billion people. 

The growth of the oil production has perhaps been based upon an expected demand, that was partially a figment of Chinese governmental imagination.

The following table and charts are based upon Chinese statistical data from the International Energy Agency, regarding the development of the Chinese oil consumption between 2000 and 2015. 

Going by the (imho) realistical preassumption that a Chinese growth of 7% per year would lead to a growth in oil consumption of roughly 7% per year or even (much) more, there has only been a 7%+ economic growth in China between 2003 and 2007, as the following three charts show.

The development of the Chinese oil demand from 2000 - 2015
 Chart courtesy of
Click to enlarge

Table comparing the growth of the Chinese oil
consumption from 2000 - 2015 with their "magic" 7% growth rate
and with a more realistical 6.2% growth rate
 Data courtesy of
Click to enlarge

Chart comparing the growth of the Chinese oil
consumption from 2000 - 2015 with their "magic" 7% growth rate
and with a more realistical 6.2% growth rate
 Data courtesy of
Click to enlarge
The rest of the period between 2000 and 2015, the Chinese growth has been meandering around 6.2% as the aforementioned table and charts show beyond a reasonable doubt. Or even much less...

And to defend my preassumption about the correllation between economic growth and oil consumption: in a country with a developing middle class all coming from a rather poor standard of living, it seems logical that the oil consumption would grow as hard or even much harder than the economic growth, as more and more middle class people can afford to buy a car, a motor cycle or other oil consuming means of transport and/or production. 

The fact that the oil consumption in China grew “only” by 6.2% per year in average, shows that the economic growth has seldomly been north of the magic 7% in China, in my humble opinion.

This is a point that has been defended over and over again, by the savvy macro-economist of BNR Newsradio, Kees de Kort, based upon similar charts regarding imports and exports and production capacity. 

The moral of this story is that the decision of the OPEC to keep the oil tap fully open was not a wise one, as it led to an oil glut of impressive proportions.

Yet, I don’t think that November 27, 2014 was the decisive historical day that Marcel de Boer called it in his column. The divergence between the global oil production and consumption started already earlier and was also caused by people believing the Chinese fairytale of the magical 7% growth per year... every year! 

A fairytale that has been debunked over and over again, by people who just watch the independent statistics on China, like Kees de Kort does, and don't believe the ones provided by the Chinese government...

Saturday, 14 November 2015

Will “Paris” turn out to be the first leg of a real asymmetric, religious war between Europe and Islamic State? European goverments must act to prevent this from happening.

“Now is more frightening than in January. Anybody can be a target”
Romain Edieux, citizen of Paris to BNR News Radio  [name can be written incorrectly - EL]

Friday, November 13th seemed to be a Friday like any other. Many Europeans were relaxing at home after another week of hard work and other people were inhabiting the numerous restaurants, sports venues and theaters all over Europe.

In the French capital Paris, however, the Friday was destined to be totally different, alas. For the second time in 2015, the city came under lethal fire of several terrorist attacks.

Murderous gangs with representatives from (allegedly) Islamic State started a killing spree at seven different spots in Paris, among which restaurants and pubs, the football stadium “Stade de France” and music theater “Le Bataclan”. Especially the attack at Le Bataclan became a gruesome massacre, with approximately 100 fatalities and numerous other seriously wounded victims, of which still many are fighting for their lives.

The whole attack breathed the former ‘Al Qaida’ signature of having synchronized and closely cooperating, but yet independent cells of fighters, who created as much havoc as possible at various spots within their target zone. Probably, this Al Qaida signature of attacks has been adopted by Islamic State, since their rise to notoriety.

Like Paris’ citizen Romain Edieux stated in his somewhat cynical, but nevertheless spot-on analysis to Dutch newsradio station BNR: 

‘January [ the attacks at the editors of Charlie Hebdo and several Jewish targets in Paris – EL] was also a big shock for us of course, but then the attackers seemed to have a motive. Yesterday was a bigger and more frightening event than in January. Anybody could become a target’.

What made these attacks particularly frightening for Europeans, was how unsophisticated, low profile and randomly targeted these attacks seemingly were...

The terrible 9/11 attacks in New York and Washington showed a clear hi-tech approach and had probably taken years of preparation. Besides that, although many innocent citizens perished in these disgusting attacks – especially in New York – they were highly symbolical in nature and aimed at the most blatant symbols of American power and invincibility: the White House (probably) and the Pentagon in Washington, as well as the Twin Towers in New York.

Even the gruesome attacks in Madrid (March 11, 2004) and London (July 7, 2005), although much more randomly aimed against common commuters and therefore even more frightening than the New York attacks, were by itself quite sophisticated and demanded a non-common knowledge of the creation of small, but nevertheless extremely lethal explosive devices.

The Charlie Hebdo attacks (7 & 8 January, 2015) were also very low-tech like yesterday’s attacks, but had more clearly recognizable targets and were therefore not so frightening to the common Parisien, as French citizen Romain Edieux stated so bluntly.

To these eyes, the November 13th attacks were not only very low profile, but they seemed to be totally randomly targeted. Yesterday evening, it was suddenly as if every brainwashed idiot, with a (religiously/politically inspired) vision and massive resentment against the French society or the West as a whole, could grab a Kalashnikov machine gun and a few relatively easy-to-acquire hand grenades or IED’s (i.e. improvised explosive devices)  and start his own private war against randomly targeted citizens, with numerous casualties as a result: the perfect, asynchronous war against the West and Western values.

Of course there was a masterplan behind it, but it was probably a fairly simple one, which could be executed at any minute without much preparation. This was as close to “every neighbour could become one’s enemy” as one could get. And that is a very frightening concept, to be honest.

This particular fact makes it also quite hard to see these November 13th attacks as a ‘one-off’, which 9/11 obviously was; albeit due to the fact that it would be virtually impossible to hijack new airplanes in the days or months after these attacks had taken place.

“Paris”, however, could be repeated at will: every day and in every European city of choice. The structure of Western societies with their open borders, their hi-tech electronic infrastructure and their total freedom of movement and assembly are almost impossible to defend against these kinds of attacks; for the simple reason that you can’t lock up any person with radical views at will and without a formal complaint.

What will happen unfortunately, in my humble opinion, is that the already rising distrust and resentment between large parts of the population in Europe will further increase and that as a consequence tensions will mount further in European societies.

Especially the compassion, patience and hospitality towards refugees from the Middle East and Africa might dramatically suffer from these attacks, as some citizens might see some of those refugees as a ‘fifth column’ for the warriors of IS in Syria and Iraq. Even more as rumours have been spread recently that IS has sent warriors to Europe through Turkey and/or refugee boats from Libya. Rumours that have neither been confirmed nor denied.

What scares me – and probably many other people – most is that these attacks might be the first leg of a real asymmetric, religiously motivated war between common European citizens and (sympathizers of) Islamic State – or other religious/political splinter groups – in Europe and the Middle East: a war, which is so low-tech that it is virtually impossible to defend citizens in an open society against it, for the aforementioned reasons.

Like always, there will be people (i.e. the ‘tinfoil hat’ brigade) who will see these attacks as a ‘false flag’ operation of obscure semi-governmental organizations and/or power groups in the European society. These people see the whole world as one giant conspiracy and see danger lurking behind every corner.

And others will demand drastical measures against the open societies and open borders of the EU nations, as well as against large groups of minorities in these European societies. However, those measures will make an effective end to everything for which the EU, Europe and the European nations stand, as beacons of freedom, openness, friendship and cooperation. That would be the end of Europe as a concept.

What should therefore happen, according to me, is that the military and civic Secret Services, as well as Criminal Investigation Departments in all European countries, will regain their indispensable role as ‘society protectors of last resort’.

This should not per sé be carried out by increasing their practices of eavesdropping and ubiquitous online tracking of losely targeted groups of suspects and private citizens.

Nowadays, there is already a massive amount of eavesdropping going on, as Edward Snowdon has showed during the last few years. If the Paris attacks have proven one thing, it is that these now common practices of Secret Services all over Europe are eventually unable to prevent such attacks from happening.

In my opinion, the only real answer could be the infiltration of secret agents and cops in dangerous splinter groups all over Europe. This is of course very dangerous and ungrateful work, as doing a great job for these agents means that nothing will happen and virtually all of their work will remain invisible for the general public.

However, European society cannot rest on its laurels when it wants to keep its open, compassionate and hospitable atmosphere; I am simply too afraid that more of such low-profile and low-tech attacks might follow in months and years to come, when nothing changes.

France, the EU and Europe must act and they must do so very quickly: not by targeting already less popular groups in European society and by further reducing the rights of common citizens among such minories.

No, Europe must find such groups of extremely dangerous radicals the hard way, by finding, infiltrating and arresting such people. Like ‘we’ did in the Seventies and Eighties of last Century with the Rote Armee Fraktion (Germany), the Brigate Rosse (Italy), IRA (United Kingdom) and the ETA (Spain)...

While writing this article I am very much aware that I use the word ‘war’. This is a word that is often abused – since the days of president Richard Nixon’s  ‘war on drugs’ – and by itself quite hyperbolic in nature, when there is not a ‘real’ declared war going on.

However, yesterday’s attacks were so randomly executed and so much aimed at hitting common French citizens at extremely low-profile target spots, that it seemed like a guerilla war crime to me. 

In this ‘Paris’ case, it is an undeclared war of a yet unidentified group of people with infiltrators all over Europe for reasons unknown; a group of people who don’t scare away from targeting common citizens at common places in one of the largest and most beloved cities of Europe. And that is a terrible, yet undeniable truth!