Khamis, 13 November 2014

Oil, Smoke and Mirrors: Containing Putin’s Petro-state

Putin delivered one of his most important speeches of his career at Sochi this year (picture courtesy of Russia Today)

By Wan Ahmad Fayhsal

The oil market is entering a bearish phase. It sends shivers down the spine of many oil-producing countries as they rework their federal budgets, which are massively dependent on oil and gas revenue. Malaysia is not spared from this and stands to lose billions of ringgit if crude prices remain as low as $85 USD per barrel.  

Is this another regular jitter in the oil cycle or is something being manufactured to push down the price of oil? The cue perhaps can be found in the latest speech made by the embattled Russian premier, Vladimir Putin, in Sochi last month.

Putin's recent rhetoric at an event organized by the Valdai International Discussion Club – an annual elite gathering among statesmen, scholars and entrepreneurs to discuss Russia's role in the international arena – pretty much sums up the tense geopolitical climate between the Western powers, especially the US and the rising Sino-Russian alliance.

Noted by many as his most important speech on international affairs, Putin made a clarion call to the international community on the need to have a balance of power in counterweighing Washington’s global influence. Putin believes that US-centricity and unipolarity have permeated into various international bodies like UN, WTO, World Bank – bringing with it more disorder than before, challenging the very foundation of the Wesphatlian international system that characterizes our modern world.

The rhetoric in truth is just an icing on the cake for Putin. Earlier this year, he made a few strategic moves that really ruffled Washington’s feathers. Besides the establishment of BRICS international bank that many sees as a challenge to US and Euro-led World Bank and IMF, Putin has also struck a deal with China for a 3-year rouble-yuan currency swap deal and a 30-year agreement for China to purchase Russia’s natural gas, both amounting up to $25 billion and $400 billion USD respectively.

Such moves are definitely signs of a growing Sino-Russian alliance, aimed at allowing both states to decouple themselves from an international monetary system that has always been dominated by the US dollar. Washington views these developments as a significant threat, knowing very well that the two giants wield massive influence in Eurasian politics and the world economy.

While maintaining the traditional physical containment via NATO-led forces around Russia’s backyard, Obama has now resorted to an economic containment policy by sanctioning Russia, but with very minimal impact. US-led economic sanctions have backfired, as its EU allies seem unsupportive of further tightening. Russia – being the single largest supplier of European energy needs, from gas to coal – will surely have the last laugh this coming winter if the EU presses ahead with sanctions. They dare not fight an economic war with Russia when they know they badly need Russian gas to warm their homes. Putin has now checkmated Obama’s sanctions.

Enter Saudi Petrodollars

All is not lost, as Washington still has one card to be played that can really devastate Russian economy: the Petrodollar. Half of Russia's massive federal budget is derived from the revenue generated by its oil and gas-related activities. According to the US Energy Information Administration, oil and natural gas sales accounted for 68% of Russia’s total export revenue in 2013. This makes Russia as one of the largest oil and gas producers in the world, or a petro-state like other OPEC behemoths.

As its EU allies show glaring vulnerabilities, the US is in need of a more powerful ally to pry open the chink on Russia’s economic armor. It is natural for Washington to turn to their long-time ally - Saudi Arabia - to finish what the EU has failed to do. The Saudis are the best party to perform this job, as they have proven to be Washington’s most loyal and able ally in the Middle East, but also pretty much isolated from Russia’s virulent energy politics.

On top of the surge in US shale oil and the resuming of Libya's oil production, the real factor that drives down global oil prices is none other than the move made by the Saudis, who have ramped up production, despite knowing fully well as an OPEC swing producer that its production profile wields massive influence in determining the supply and demand equilibrium, hence the global oil price.

The calls of other OPEC members for Saudi Arabia to halt its uneconomic moves only fell on deaf ears. Citing the reason of ‘reclaiming market share’, Riyadh’s incessant oil production will surely jeopardize and destabilize the oil market further.

This deliberate act is something that both the US and Saudis can stomach economically. Most importantly, it represents strong, underlying geopolitical interests aimed to contain their common petro-state adversaries: Russia and Iran, who dare to challenge the hegemony of the US dollar in oil trade – better known as the petrodollar.

As oil production increases, the US dollar is simultaneously being printed and will find its way to the international market. As the demand for oil grows, so does the demand for US dollars. Washington’s hard power grows in tandem with the rise of US dollar as the sole-preferable, a lockstep currency in oil trading.

At this stage, Russia has suffered tremendously and the impact is more severe than the imposed economic sanctions. Just by reducing the price of crude by $12 USD, experts estimate that Russia will lose $40 billion USD in oil revenue.

This act prompts a reminder of the same geopolitical strategy used by the US, through the role of the Saudis, to weaken the then Soviet Union's economy in 1985 by flooding the market with cheap oil that pushed the price as low as $10 USD per barrel. The dwindling down of the USSR’s export revenue, which many believe was dependent on oil exports, was one of the precipitating factors that lead to the collapse of the Soviet empire in the early 90s.

Putin has every right to question interventionist US policies, not only in the former Soviet republics that surround Russia’s borders, but also in the hegemonic role of US dollar in an international trading system that only serves Washington’s strategic interests at the expense of other nation’s growth and prosperity. Indeed, this move by Washington and Riyadh is another act to preserve the present world order, which has been largely shaped by the unipolar policies of the US as the main victor of World War II.

The author is a Fellow at Putra Business School, Malaysia.

(this article was published by The Malaysian Reserve, 12th November 2014)

The Myths of Petrostate: Is cheap petroleum a blessing or curse?

Picture of an oil field in Norway, one of the petro-states in the world today (picture courtesy of Bloomberg)

By Wan Ahmad Fayhsal

It is not an exaggeration to claim that 20th century civilizations are hydrocarbon-based. Maybe many are not aware of this fact of how we as a species, are so dependent, or to be more precise 'addicted' towards this 'Black Gold'. We eat, sleep and live by consuming and using petroleum.

In the age where modern science and technology reign supreme as observed by Lewis Mumford, a renowned historian of technology, mankind now lives in the age of Paleotechnic where every nook and cranny of our lives have been mechanized. Modern food production requires huge machineries in and rampant usage of pesticides in agribusiness. This has made almost 90% of our food to have direct and indirect linkages to petroleum.

This massive usage of petroleum as basic chemical is more prevalent in our daily products. The usage and application of petroleum are almost endless due to the fact of its cost-effectiveness in fulfilling the demand of our consumer culture.

In spite of that fact, we must know that such addiction is relatively new to mankind civilizational existence. The rise of "Petrostate” – nation-state that depends so much on hydrocarbon for its politico-economic growth – begins earnestly in the era of Industrial Revolution that kick-started in Victorian England circa late 18th century.  

Post-colonial countries like Arab Gulf states and even Malaysia, which are blessed with this Black Gold, have been beholden to the same political and economic models of their former colonial masters. The mantra of prosperity and progress preached by these leaders of Petrostates are full of promises and hopes, but they also come with what many economists called "resource curse" and "myths" that are being coupled to it.

Recent unpopular move made by Putrajaya to continue the quest of rationalizing subsidies has really become a storm in a teacup. To understand the dejection and anger felt by citizens of Petrostates the likes of Malaysia on this socio-economic issue, it is very important for us to critically assess such myths to get better views of the misconceptions on the ground.

Myth #1: Petroleum can easily be found as before

One of the main characteristics of Petrostate is that its people will always think that this natural resource called Petroleum is considered to be a source of ‘income’ that will last till end of time. The truth is rather bleak. Petroleum is not and cannot be regarded as a source of income to our nation, rather it is an 'asset' which cannot be replaced once it is used.

Citizens of Petrostates consume things more than their forefathers of pre-Industrial Revolution due to the fact they regard such resources like petroleum to be their inalienable birth-right to be consumed here and now - at the expense of sustainable future for next generations. They are totally oblivious of the fact that the era of cheap petroleum is over, or known as Peak Oil. The theory which was first discussed by M. King Hubbert in 1956 has now becoming a reality.

Hubbert, who was a geologist at the Royal Dutch Shell had crunched huge amount of data, which he analyzed in thorough manner on the petroleum production profiles of oil and gas companies. From the analyzed data, he made a conclusion that all matured petroleum productions will encounter a 'bell curve' production graph in which the production of oil fields will first reach plateau before heading for a rapid decline.

At first Hubbert's theory was not properly accepted by the industry players especially when those oil companies made huge discoveries of new oil fields which were larger than what they had discovered before especially the newly-discovered oil fields of Middle East and Alaska in 1968. Such discoveries have made leaders of Petrostates to be more lackadaisical in preserving those precious natural resources because at the back of their mind oil production will last longer down the road.

Association for Study of Peak Oil and Gas (ASPO) based in Sweeden is one of the leading organizations that continue to support and propagate Hubbert's legacy. All this while their concern was simply dismissed by the oil and gas giants but lately the captain of industries have started to pay serious attention towards Hubbert's theory.

More evidences surfaced recently that lend credibility to the Peak Oil theory. In Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, Matthew R. Simmons, an expert in oil and gas discussed in great detail on the conundrum besetting petroleum production in matured oilfields of Saudi Arabia which is the largest petroleum producer in the world.

The chain reaction to this problem is no other than the increase of production cost that rose sky high even though technology in oil and gas has breaking many new grounds. Former CEO and President of PETRONAS, Tan Sri Hassan Merican had aired the same concern some time ago on this paradox. He lamented that though the revenue stream of oil and gas companies have improved tremendously, exploration cost also went up more than two hundred percent.

Some of these challenges, and concerns raised by the authorities of the oil and gas industry should ring an alarm to governments and the people at large that Petrostates can no longer be basking under the same sun as the good old days of oil barons like Rockerfeller and Andrew Mellon.

Myth #2: Petrostate views history as a linear progression in human development

People of Petrostates perceive the world progress in linearity. They view the present as culmination of linear progressions in all areas of human life: education, economic, even religion. This idea has its genesis in what the historians called Whig historiography: an idea that has its genesis from Anglo-Saxon conception of history that assumes the whole world by far and large will evolve towards the path of European Enlightenment where scientific progress and liberal democracy will take root in all civilizations including the non-European ones.

Consequence of subscribing to this idea or vision of historiography will lead to homogenization and commodification of culture which also begets similar consumer pattern. For example, GDP has become the ultimate standard to measure material 'development' of one's country that many easily equated to be the same as ‘wellbeing’. This parochial view of wellbeing sometimes went at odd against traditional and religious values.

Having rich petroleum resources will not guarantee a genuine independence from Western modernity that underpins the ethos of more advanced Western-Petrostates. This can be seen on how non-European Petrostates behave in managing their development which for them the only way to capitalize and monetize such assets is by adopting the same production of model of Western-Petrostates which means logically is also to follow and adopt their consumer culture or what Thomas Veblen called “conspicuous consumption”.

Myth #3: Government and Petroleum companies are solely responsible for petroleum price hike.

Citizens of Petrostates have been acclimatized with cheap gasoline at the pump. What most of them do not realize is that such cheap price is very much artificial and does not reflect the real value of petroleum. Since gasoline has become artificially cheap due to government subsidies, citizens of Petrostates could not bear the brunt of market force and harsh economic realities of today where blanket subsidies that are normally given to all users of automobiles is no longer sustainable to government's coffer.

Much of the money spent on subsidies is in actual fact more strategic to be channeled to pressing developmental needs of the citizens of Petrostates themselves especially with regard to public amenities. Unbridle usage of petroleum for automobiles have created unfavorable condition in preserving petroleum for future generation. Rampant consumerism and modern lifestyle of today in truth are being fueled (pun intended) by the illusion of cheap petroleum.

A closer examination into the politico-economic fabric of Petrostates is no other than neo-liberalism which was made famous by President Reagan and Prime Minister Thatcher. Spike in petroleum price in our times could not be viewed simply from the elementary supply and demand rule. Commodity future exchanges like the one in New York Mercantile Exchange (NYMEX) have become the playground for unscrupulous traders who profited from people's sufferings.

Greedy traders tend to look at the balance sheet above all else. At NYMEX, regulators found out many cases where traders broke many rules by manipulating transactions of petroleum; case in point JP Morgan’s ‘wash trades’ fiasco in 2013. There was a huge discrepancy between the real quantity of physical production of petroleum and the one being traded at NYMEX.

This malpractice of futures trading in mercantile exchange where petroleum crude is regarded to be one of the lucrative trading commodities have created negative ripple effects where consumers worldwide - including nations who are members of Petrostates. Perhaps due to this same reason most developing countries have to fork out huge subsidies to cushion the impact of that unethical trading although we all know very well such move will not solve the real problem because the root cause is still untreated.

There is no piecemeal solution

People of Petrostates must accept the hidden cost of having its own petroleum industry as a bitter pill to swallow. The earlier we accept it, the easier we will able to address the problem better. The price of crude oil will always be fluctuating erratically especially at the higher level due to direct and indirect influence from contemporary challenges faced by oil producers.

Geopolitical instability the likes of ISIS who able to gain control of strategic oil fields in Middle East, territorial dispute in South China Sea and the ever depleting and hard to recover oil wells should put this whole mess into the real perspective: the Golden Age of Petrostate is approaching its end.

The long-term solution must not be altered solely at the level of production notably the players of oil and gas industry but most importantly it must be equally embraced by those who consume it excessively in the name of freedom, progress and development.

By right the newly member of Petrostates like Malaysia who still holds unto significant religious and Asian traditions should reflect carefully of our modernized lifestyle that hinged on cheap petroleum: Is our lifestyle sustainable? Can we do justice to future generations by having all of them now? Is the current economic and governance model of contemporary Petrostates could really provide us the happiness and prosperity that we are looking for? Can we not learn how non-Petrostates like Japan and Korea or even the more welfare-based Petrostate like Norway in managing their resources prudently without sacrificing the qualities of modern livelihood?

Malaysians should scan the globe and see that there is a strong correlation between failed states and the curse of being too much dependent on having cheap petroleum at hands. The curse must be avoided for us to attain true blessings and build a more sustainable and humane future or in Lewis Mumford’s vision, an ecotechnic civilization that predated Petrostates era.

The author is a fellow at Putra Business School, Malaysia

(this article was published by The Malaysian Reserve in two-parts series on the 15th and 16th of October 2014)

Ahad, 9 November 2014


Oleh Wan Ahmad Fayhsal

Masyarakat dunia ketika ini sedang berhadapan dengan cabaran yang besar berhubung pengagihan kekayaan. Pertumbuhan ekonomi yang pesat telah melahirkan golongan yang diberi jolokan oleh penganalisis antarabangsa terkenal, David Rothkopf sebagai "superclass" - golongan minoriti tetapi amat kaya dan berpengaruh dalam struktur kekuasaan negara-negara dunia. Mereka menerajui industri dan menghasilkan peluang pekerjaan serta menjana kekayaan peribadi yang luar biasa dalam kadar pertumbuhan yang tidak pernah terlintas separuh abad yang lalu.

Kemakmuran ekonomi ini walaupun membawa dampak positif, ianya tetap dan masih dibayangi oleh masalah pengagihan kekayaan yang masih menjalar hingga ke peringkat akar umbi. Tidak hairanlah gerakan kesedaran ekonomi tumbuh seperti cendawan selepas hujan yang tidak diterajui oleh mana-mana pemimpin seperti "Occupy Wall Street" (Rampas Kembali Wall Street) yang mengakui mewakili golongan "99%" yakni majoriti dalam menuntut hak mereka terhadap golongan "1%" yakni "superclass".

Tidak cukup dengan gerakan massa, terdapat juga gerakan intelektual yang mengarus perdanakan semula wacana pengagihan kekayaan yang kini menjadi buah mulut pemerhati ekonomi seperti buku "Capital in 21st Century" karangan Thomas Pikkety, seorang sarjana Perancis  yang telah membuka mata masyarakat dunia berhubung jurang kekayaan yang semakin melebar dalam sejarah ekonomi, khususnya di Barat.

Walaupun sistem ekonomi kapitalisme dan politik demokrasi liberal menjanjikan semangat kesamarataan (egalitarianism), natijah yang wujud dalam sejarah moden Barat hinggalah saat ini tidak langsung mencerminkan hakikat itu. Sebaliknya Pikkety dengan data-data ekonomi yang padat, telah membuat kesimpulan bahawa pertumbuhan ekonomi dan peningkatan pendapatan yang ada di Barat sepanjang ratusan tahun ini hanya menyajikan habuan berlipat ganda kepada si kaya dan kaum pemodal, dan golongan bawahan dan pekerja hanya mendapat kerak-kerak daripada pertumbuhan ekonomi sahaja.

Arus ini kini telah disambut di Malaysia melalui karya terbaru Dr Muhamed Abdul Khalid bertajuk "The Colour of Inequality: Ethnicity, Class, Income and Wealth in Malaysia" (2014). Beliau yang merupakan ahli ekonomi yang mendapat gelar Kedoktoran daripada Institute detudes Politiques de Paris (SciencesPo) di Perancis ini bukan sahaja mengangkat tema yang sama dengan karya Piketty malah Dr Muhamed, di samping analisa dan olahan data sosio-ekonomi Malaysia secara saintifik, telah berjaya juga membawa semangat dan jalan cerita yang amat penting, yang telah melatari sejarah sosio-ekonomi orang Melayu khususnya, dan juga kaum-kaum lain.

Sering kali persoalan ini gagal dibahaskan secara ilmiah sebaliknya dijaja oleh parti-parti politik sekadar modal politik. Kegagalan untuk meletakkan tajuk ini secara adil agar mampu diterima oleh semua pihak tidak kira bangsa apa pun telah menghantui pelbagai tajuk lain yang berkaitan dengannya khususnya berhubung Hak Keistimewaan Melayu, Dasar Ekonomi Baru sampailah kepada yang terbaru isu hutang PTPTN. Kehadiran karya Dr Muhamed ini seharusnya mampu dijadikan pemandu arah buat pemikir-pemikir ekonomi dan ahli politik untuk meluruskan kembali wacana yang amat penting ini.

Akar masalah yang menjadi teras kepada perbahasan dalam karya ini ialah "keadilan ekonomi" di Malaysia masih belum tercapai. Walaupun dampak positif DEB telah dirasai oleh ramai orang Melayu, jurang pendapatan (income) masih melebar pasca 1990-an dan dapatan Dr Muhamed dalam karya ini adalah lebih menyedihkan bilamana jurang pendapatan warga kota dan desa (yang sudah tentu ramainya Melayu) menyamai dengan jurang pendapatan sama yang wujud ketika negara ini mendapat kemerdekaan daripada British pada 1957.

Kisah di sebalik data

Data-data terkumpul yang disusun atur oleh Dr Muhamed bagi menunjukkan ketidak setaraan peluang dan pemilikan aset oleh golongan Bumiputra juga dapat disahkan kalau mana kita membaca memoir dan biografi tokoh-tokoh Melayu yang hidup sebelum era adanya DEB. Antara yang menarik dapat kita teliti kisah yang dirakam dalam biografi Allahyarham Tan Sri Ainuddin Wahid, mantan Naib Canselor Universiti Teknologi Malaysia (UTM) yang pertama bertajuk "Ainuddin Pejuang 'Degil' Melayu",  tulisan Datin Fatini Yaacob.

Antara kisah yang melatari perjuangan beliau sebagai pendidik Melayu di era itu ialah bagaimana anak-anak Melayu dipinggirkan secara sistematik (disenfranchised) dalam sistem pendidikan di Universiti ketika itu. Bukan sahaja yuran belajar yang mahal, pelajar Melayu ketika itu bersaing dalam satu padang yang tidak rata.

Dikisahkan oleh Ainuddin bahawa ketika menjelangnya musim peperiksaan, para pensyarah ketika itu membawa pelajar-pelajar bukan Melayu ke tanah tinggi Bukit Fraser tanpa pengetahuan pelajar Melayu di mana mereka diberi panduan dan tips untuk menjawab kertas peperiksaan bagi mata pelajaran yang diajar oleh pensyarah tersebut. Terdapat juga kes di mana para pensyarah amat tegas dan berusaha mencari kesalahan agar pelajar Melayu gagal mendapat keputusan yang baik ataupun lebih teruk 'digagalkan' secara sistematik.

Begitu juga kisah yang dititipkan oleh Za'ba, Ungku Aziz, dan ini menunjukkan kisah-kisah ini bukanlah sesuatu yang kejadian terpencil (isolated cases) tetapi merupakan hakikat yang pernah berlaku sebelum dasar pengatur caraan semula masyarakat melalui DEB dilaksanakan.

Negara berpendapatan tinggi, makmur?

Menarik sekali kalau ditinjau, apakah usaha kerajaan yang ada kini melalui Program Transformasi Ekonomi (ETP) yang mendapat dokongan dan sokongan Program Transformasi Kerajaan (GTP) benar-benar mengambil kira cabaran dan masalah yang telah digaris lebarkan oleh Dr Muhamed?

Yang sering dilaungkan kepada rakyat tempatan serta dunia ialah Malaysia bakal menjadi sebuah negara maju yang "berpendapatan tinggi" (high income nation). Tetapi melalui kajian Dr Muhamed, masalah sebenar bukan pada isi pendapatan tetapi pemilikan aset atau ekuiti.

Jadi kalaupun "key performance indicators" (KPI) yang digubah oleh PEMANDU berjaya mencapai targetnya, apakah dengan pendapatan tinggi ini secara mudah dapat diterjemahkan kepada hakikat pemilikan aset buat golongan yang terkebawah, khusus dikalangan Melayu dan Bumiputera?

Hal ini merupakan antara pengajaran utama yang dapat dipetik daripada karya Dr Muhamed: perlunya pemimpin Melayu bermuhasabah kerana kegagalan orang Melayu mencapai sasaran yang diletakkan DEB lebih banyak terletak pada bahu pemimpin Melayu yang telah gagal membendung masalah "rent seeking" atau "alibaba" yang sepatutnya membina kemampuan usahawan Melayu tetapi tidak menjadi kerana sekadar menyerahkan peluang tersebut kepada bangsa lain dalam melunaskan kerja-kerja dan kontrak-kontrak yang diperturunkan kerajaan yang pada asalnya untuk membantu menaik taraf kebolehan usahawan Melayu, bukan semata-mata sebagai habuan kekayaan bak bulan jatuh ke riba.

Kesan daripada faham "musharahakah" (model kerjasama) yang tempang ini telah meletakkan golongan usahawan Melayu kini pada tahap yang masih lemah untuk bersaing dengan sihat dengan bangsa lain yang telah lama bersusah payah mempelajari dan memanfaati peluang dalam perusahaan yang disediakan kerajaan.

Sesungguhnya kita perlu berasa risau melihat pertembungan ragam pemikiran dalam persoalan pengagihan kekayaan yang diperdebatkan di ruangan umum negara ketika ini. Sudah ada suara-suara sumbang yang melihat ketirisan yang berlaku dalam DEB sebagai alasan untuk memansuhkan terus segala macam bantuan terhadap orang Melayu dan Bumiputera.

Lebih ditakuti, golongan ini menjadikan agenda kerajaan seperti ETP sebagai landasan untuk menyebarkan dakyah tersebut. Silap hari bulan, takut-takut kalau mana menjadi pun ETP ini, yang kaya bertambah kaya dan yang miskin menjadi kurang atau lebih miskin. Berdasarkan kesimpulan awal Dr Muhamed dalam karyanya ini, tampaknya kekhuatiran ini semakin tersembul dan tiada mampu diselindung lagi di balik nombor-nombor dan Powerpoint warna-warni yang zahirnya tampak cantik akan tetapi sekadar fatamorgana di atas kertas.

Dengan kadar kitaran ekonomi dunia yang semakin meruncing akibat pelbagai tekanan geopolitik, perubahan iklim dan masalah kehausan sumber bumi cabaran pengagihan ekonomi di Malaysia semakin mendapat himpitan daripada luar dan dalam. Strategi untuk memberikan aset kepada usahawan bumiputera tanpa ada kefahaman yang jitu berkenaan makna "amanah" dan "tanggungjawab" tidak jauh seperti harapkan pagar, pagar makan padi.

"The Colour of Inequality" menyajikan pesanan tersirat dengan mesej kritis hormat kepada para pembesar negara bahawa dalam kesungguhan untuk menyama ratakan padang permainan ekonomi, pendidikan serta lain-lain bidang demi mencapai taraf negara maju pada tahun 2020 kelak, masalah dan amanah mengurus bantu orang Melayu dalam hal pengagihan kekayaan adalah jihad yang masih tertangguh.

Penulis adalah Felo di Putra Business School, Malaysia