On May 8, 2018, President Donald J. Trump announced that The United States would unilaterally withdraw from the July 2015 JCPOA Treaty.
The P5 + 1 Treaty had defined a strong limitation of Iran’s production of fissile material, in exchange for a partial lifting of trade sanctions, not only in the oil sector.
On November 5, 2018, the USA reintroduced a vast series of sanctions against Iran, with the obvious and immediate effect of pushing the Brent barrel price to 73.17 US dollars.
It should be recalled that the Brent Crude is one of the three oil price benchmarks, which derives from the trading criteria of the oil extracted in the North Sea, for which there are other types such as Forties, Osemberg and Ekofisk, known with the generic name of BFOE.
Brent is the easiest oil to refine and also to transport and is therefore the most commercialized type.
The other benchmarks are the West Texas Intermediate (WTI) and the Dubai-Oman. But there are also others, which are less widespread and commercialized.
Hence the criterion of US sanctions against Iran – which have never been so harsh – is eminently political.
This happens despite the fact that the International Atomic Energy Agency (IAEA) – the UN agency located in Vienna, which monitors the proper implementation of the JCPOA, from which the USA has unilaterally walked out -maintains that, before the US withdrawal, Iran did not infringe the rules of the 2015 agreement on the extraction and production of enriched uranium and plutonium.
Therefore the United States wants to reach an economic crisis of such intensity that the Iranian people themselves cannot fail to turn against the Shiite regime to overthrow it definitively.
Hence an “Arab spring” in a non-Arab country, triggered not by returning jihadists – as happened in Cyrenaica against Gaddafi’s Libya – but by a very severe economic crisis.
What if the oil sale crisis triggered a new production mechanism in Iran? And what if the energy geopolitics of Central Asia were not so prone to US wishes?
As certified by the International Monetary Fund, Iran went into recession precisely because of renewed US sanctions.
Can we believe that, in the Internet era, the Iranian people do not know it?
Vaste programme en effet, as General De Gaulle used to say. A vast program indeed was the one of the “Arab spring” induced by the economic crisis – like all the others, which failed miserably. As demonstrated by Germany in the 1930s, by the USA after 1929, by Italy after the Euro, by Argentina after Economy Minister Domingo Cavallo and by many other dollarized and later abandoned countries, the political effects of a severe recession are never predictable.
President Trump and his ruling class said they wanted “to reduce Iranian oil exports to zero”.
Well, but how? Preventing the USA, China, Russia and India from buying the Iranian oil, right now that oil contracts denominated in renmimbi are starting in China – some of them precisely with Iran?
What would happen if – as history has taught us, even recently – the people united even more with the Iranian political elite?
This could also happen, considering that the sanctions enable the Iranian Shiite regime to become the only de facto distributor of prebends, income and support for all the Iranian crowds.
Only with tolerance for the parallel shadow economy, which is already thriving in Iran, can the Shiite regime stay in power without much trouble.
On top of it, the project of the Iranian Shiite regime could be to widen the already great divide between Europe and the United States, so as to later use the EU to avoid the US sanctions altogether.
France, Germany and Great Britain have recently registered a Special Purpose Vehicle (SPV) to avoid the US sanctions.
How does this SPV work? In essence, it is a company specialized in a securitization operation.
The SPV becomes the transferee of groups of homogeneous securities to be allocated to the service of what it issues to fund the operation itself.
The INstrument in Support of Trade EXchanges (INSTEX) concretely operates to provide services that favour trade between the EU and Iran.
It is not a bank, but it coordinates all EU payments to Iran, given that the Iranian exporters want and buy Euros to trade, obviously, with the EU, but the European banks are very reluctant to accept Euro funds originated in Iran.
Considering that the US sanctions affect anyone who trades with Iran, the EU banks are in fact afraid of being totally excluded from the North American market, as would actually be the case according to the rules recently enacted by President Trump.
Certainly the European States, which are always so fearful of the USA, even when it would not be needed, have not set up such a company for nothing.
And indeed, in early 2017, European food exports to Iran were worth 298 million euros, while EU similar imports from Iran totaled 292 million euros.
EU medicine exports amounted to 951 million euros and imports were slightly lower.
In short, INSTEX should work well, although for small amounts. However it will operate, above all, as a mask for EU contracts with Iran and as supplier of euros to Iran, after the creation of derivatives.
Will this be enough? We do not believe it.
But let us revert to oil.
With the new US sanction regime, the United States has accepted – with a six-month renewal to be negotiated at each expiry date – that only six countries can still buy oil and its by-products from Iran.
These countries are China, Japan, South Korea, Taiwan, India, Turkey, Greece and Italy.
Italy – a diligent child with some need for US funding and political support to avoid being sanctioned – has already canceled purchases from Iran.
Iraq hasalso been given a specific 90-day time limit, as from March 2019, to keep on buying energy from Iran, considering the stable electricity and energy crisis in that country.
It should be recalled that, in 2017, the above mentioned six countries received over 75% of Iranian oil and by-products exports of that year. Nevertheless, after the second cycle of US sanctions, only three countries have continued to buy much oil from Iran, namely Turkey, China and India.
Thus Iranian oil production fell from 3.8 million barrels a day in May 2018 to 2.7 million barrels a day in December 2018.
We will analyze the current data, which has strong geopolitical relevance.
Cui prodest? Probably only Russia.
In all likelihood, the growth of oil exports requested to OPEC by President Trump will be accepted both by Saudi Arabia, which always needs to sell, and – above all – by the Russian Federation, which follows the fluctuations of the Saudi OPEC and also needs to cash fresh liquidity quickly.
Japan, however, is satisfied with the pace of oil imports from Russia.
Furthermore, China is also right in expecting an increase in Russian natural gas imports via the “Power of Siberia” pipeline.
We cannot still rule out the possibility of a further pipeline bringing Russian gas from the North, through North Korea, to South Korea.
Another piece of the Iranian puzzle, given the excellent relations between North Korea and Iran – also at military level.
The bank assets frozen as a result of the current US sanctions are above all 1.9 billion US dollars of the Central Bank of Iran in US banks, as well as additional 50 million US dollars strictly owned by diplomats. Also the proceeds of the British Assa Company, which controls the interests and stakes of Bank Melli in New York, are still frozen in the United States, with many real estate properties owned in various US States, as well as the funds to compensate the victims of Iranian terrorism – an asset which is worth 46 billion dollars.
After the second and current cycle of sanctions, in the USA there are still 38 entities, mainly dealing with oil and gas, which are officially and collectively named Execution of Imam Khomeini Order (EIKO).
However, the “policy line” of Iran’s Revolutionary Guards that dominate much of the Iranian economy is still in place.
It should be recalled that the Pasdaran policy line is to widen the economic and political gap between the EU and the USA.
In fact, shortly the Iranian government will announce that it has granted to Iran’s Revolutionary Guards as many as five of the seven oil exploration areas not yet officially disclosed.
One of these areas will be a substantial portion of the large oil site of Yadavaran.
With Sinopec, China has already stopped oil exploration in Yadavaran, because it wants Iran to pay all the fines that may possibly be imposed by the USA for any breaking of sanctions.
Obviously the funds coming from the exploitation of the new section of the Yadavaran oil site can be used by the Pasdaran to finance the Hezbollah and all the other Shiite guerrilla activities in the Middle East and in the rest of the world.
It should be recalled that the Pasdaran control as many as 27 Iranian oil companies and the Revolutionary Guards’ network also controls as many as 200 Iranian companies, which have many different goals.
The idea of the above mentioned European “vehicle” will be the main instrument of the Pasdaran operation on oil and natural gas.
They will accumulate euros in the EU importers’ coffers to reach such a level of EU currency to be received in bilateral trade as to stimulate Iran’s economy, including the oil-based one.
From the substitution of imports to the substitution of the trading currency – this is the Revolutionary Guards’ project.
The EU, however, has always maintained that Iran has never broken the terms of the JCPOA Treaty and this is what also CIA states.
The triangular trading system, however, has already been organized.
The USA has promised Germany – the actual EU leader – that, if Europe accepts US sanctions on Iranian oil, it will never impose sanctions on Iran’s natural gas, which is also the EU’s real commercial target.
Hence if the gas and petchem trade between Iran and the EU increases, the likelihood of a US military attack against the Islamic Republic of Iran will decrease proportionally, unless the USA materially closes the strategic route of the Iranian oil and gas trade, namely the Strait of Hormuz.
Otherwise, the way out for Iran would be standard sales to Russia, with a 50 billion US dollars of annual payments by the latter, to have preference over Iran’s entire oil and gas sector, as well as increase military collaboration, and finally achieve Russia’s de facto control over Iran’s oil and gas production.
Iranian exports, however, keep on rising.
In March, Iranian oil exports reached 1.7 million barrels a day, with a 70% increase compared to the previous three months.
The peak was reached in April 2019, with 2.8 million barrels a day – an average of 2.4 million crude oil barrels per month over the previous three months.
One of the main reasons for this peak in Iran’s oil is the Chinese demand – oil that China can now buy at a discount thanks to the US sanctions.
With the second cycle of US sanctions China is allowed to buy 360,000 crude oil barrels.
Obviously it will continue to buy what it needs even after the US sanctions being fully effective.
However – as the Saudi intelligence services claim -whatever happens, at the end of the sanction regime, the reduction in Iranian oil sales is expected to be40% on oil and by-products.
This is a minimum, but stable limit for the Iranian Shiite regime to stay afloat.
But this will not substantially change the relations between the Shiite government and the big crude oil importers that will still be able to change, divert and silence the new US sanctions.
Modi’s India a flawed partner for post-Brexit Britain
With just two weeks to go until Britain is scheduled to exit the European Union, Boris Johnson and his ministers are understandably focused on the last-minute dash to formulate a workable Brexit deal with the EU. Once this moment has passed, however, either Johnson or whoever replaces him as PM will come under intense pressure to deliver the trade deals Brexit side supporters have so talked up since 2016.
One such envisaged deal is with India. Seven decades after securing independence from Britain’s colonial empire, New Delhi has the world’s seventh-largest economy and one of its fastest growth rates. The prospect of deeper trade ties with Asia’s third-largest economy has been a major feature of the pitch for a “Global Britain” that extends the UK’s reach beyond the continent, and Johnson himself made a big thing of expanding economic ties with India while campaigning to become PM.
Unfortunately, any plans to kickstart trade agreements with India will run into problems, and not just over immigration and visa issues. India is on the verge of a serious economic downturn, hit by job losses and decreasing levels of foreign investment. With growth slowing down, Indian PM Narendra Modi has fallen back on his aggressive brand of Hindu nationalism to galvanise public support, a gambit that has most recently resulted in his government’s controversial move to strip automony from Kashmir.
Bad time for a UK-India trade deal
Whereas only a few years ago India was held up as one of the world’s fastest growing economies and an enticing prospect for global trade and investment, Moody’s new projection of a 5.8% growth rate represents a danger to Narendra Modi’s promise of a $5 trillion economy. Recently released figures show India’s GDP growth falling for the fifth successive quarter, to a six-year low of 5.2%.
India’s economic woes are reflected in patterns of foreign investment. Around $45 billion has been invested in India from abroad over the last 6 years. The downturn in the country’s economic fortunes has seen a record $4.5 billion of shares sold by foreign investors since June this year. These economic problems are linked to Modi’s failure to carry through on economic reforms promised when he came to power in 2014, when a number of structural problems were seen as inhibiting external trade relationships.
India currently has over 1,000 business regulations and more than 3,000 filing requirements, as well as differing standards for social, environmental and human rights. These have been sticking points in the moribund trade deal negotiations between India and the EU, and Brexit advocates have not explained how they plan to overcome these hurdles.
Hostility to foreign companies
Structural issues are only part of the problem. Another key concern is the Indian government’s adversarial attitude towards foreign investors. Despite Modi’s promises to make India an attractive place to do business, his government has continued protectionist policies that throttle the country’s ability to attract outside capital.
One issue is retrospective taxation. Under Modi’s predecessor, Manmohan Singh, several British and international firms were hit with sizeable, legally dubious tax bills by the Indian government. Modi came to power on a promise of ending retrospective tax bills being imposed on overseas companies, and yet British firms such as Vodafone and Cairn Energy still find themselves pursued through the courts for back-dated tax bills, despite the protections they should enjoy under the bilateral investment treaty between India and the UK.
Vodafone’s case involved its 2007 acquisition of a stake in cellular carrier Hutchinson Essar. While the deal did not take place in India, New Delhi determined Vodafone still owed $5 billion in taxes on the overseas transaction. After the Indian Supreme Court dismissed the claim in 2012, India’s previous government introduced a new law to tax transactions of this nature that retroactively applied to cases going back to 1962. Modi attacked this “tax terrorism” at the time, but his government has continued its dogged pursuit of Vodafone in the courts.
Cairn Energy has faced an equally arduous struggle with the Indian Ministry of Finance, which in 2014 blocked the British firm from selling its 10% stake in Cairn India and subsequently demanded $1.6 billion in taxes. Indian officials used the 2012 law to justify their actions, violating the bilateral investment treaty and breaking one of Modi’s own campaign promises in the process.
Immigration laws a further sticking point
This recent history should already give British businesses pause, but the most obvious obstacle in any trade negotiations between UK and India will be the issue of immigration. The Centre For European Reform has argued post-Brexit trade will be closely linked to opening up UK borders to workers from partner countries, but a UK Commons Foreign Affairs Select Committee report in June highlighted how Britain’s immigration restrictions on Indian workers, students and tourists has already impacted bilateral trade relations. The report noted how the UK has slipped from being India’s 2nd largest trade partner in 1999 to 17th in 2019, adding that skilled workers, students and tourists are deterred from coming to the UK by the complicated, expensive and unwelcoming British migration system.
It is unlikely the Modi government will agree to any UK-India trade deal that doesn’t guarantee a relaxing of immigration rules that will allow a free flow of people as well as goods and capital between the two countries. The question is whether the British government, which has veered ever more closely towards a Brexit-fuelled populism at odds with relaxed border controls, will be flexible enough to sign up to this.
Given these issues, are Britain’s hopes for a post-Brexit dividend in Indian trade dead on arrival? Unless Modi’s government starts living up to international standards and honouring his country’s investment agreements with British companies, “Global Britain” may not get much further with India than it has with the US.
A more effective labour market approach to fighting poverty
is still the most reliable way of escaping poverty. However, access to both
jobs and decent working conditions remains a challenge. Sixty-six per cent of
employed people in developing economies and 22 per cent in emerging economies
are in either extreme or moderate working poverty, and the problem becomes even
more striking when the dependents of these “working poor” are considered.
Thus, it is not just unemployment or inactivity that traps people in poverty, they are also held back by a lack of decent work opportunities, including underemployment or informal employment.
Appropriate labour market policies can play an important role in the fight to eradicate poverty, by increasing access to job opportunities and improving the quality of working conditions. In particular, labour market policies that combine income support for jobless people with active labour market policies (ALMPs).
The new ILO report What works: Promoting pathways to decent work shows that combining income support with active labour market support allows countries to tackle multiple barriers to decent work. These barriers can be structural, (e.g. lack of education and skills, presence of inequalities) or temporary (e.g. climate-related shocks, economic crises). This policy combination is particularly relevant today, at a time when the world of work is being reshaped by global forces such as international trade, technological progress, demographic shifts and environmental transformations.
that combine income support with ALMPs can help people to adjust to the changes
these forces create in the labour market. Income support ensures that people do
not fall into poverty during joblessness and that they are not forced to accept
any work, irrespective of its quality. At the same time, ALMPs endow people
with the skills they need to find quality employment, improving their
employability over the medium- to long-term.
New evidence gathered for this report shows that this combination of income support and active support is indeed effective in improving labour market conditions: impact evaluations of selected policies indicate how people who have benefited from this type of integrated approach have higher employment chances and better working conditions.
One example of how this combined approach can produce results is the innovative unemployment benefit scheme unrolled in Mauritius, the “Workfare Programme”. This provides workers with access to income support and three different types of activation measures; training (discontinued in 2016), job placement and start-up support. The programme was also open to those unemployed people who were previously working in an informal job. By extending coverage to the most vulnerable workers, the scheme has helped reduce inequalities and unlock the informality trap.
Another success came through a public works scheme implemented in Uruguay as part of a larger conditional cash transfer programme, the National Social Emergency Plan (PANES). The programme was implemented during a deep economic recession and carefully targeted the poorest and most vulnerable.
Beneficiaries of PANES were given the opportunity to take part in public works. In exchange for full-time work for up to five months, they received a higher level of income support as well as additional job placement help. This approach reached a large share of the population at risk of extreme poverty and who lacked social protection. The report indicates that providing both measures together was critical to the project’s success.
The effects of these policies on poverty eradication cannot be overestimated. By tackling unemployment, underemployment and informality, policies combining income support with ALMPs can directly affect some of the roots of poverty, while enhancing the working conditions and labour market opportunities for millions of women and men in emerging and developing countries.
CPEC vs IMF in Pakistan
International Monetary Fund (IMF) was created just after World War II (WWII) in 1945. The IMF is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Pakistan has been knocking doors of IMF since 1958, and it has been 21 agreements with IMF. Generally, the IMF provides loans at very low-interest rates and provides programs of better governance and monitoring too. But for the last 6 decades, Pakistan has suffered a lot, in terms of good governance. Especially last 2 decades, corruption, nepotism, poor planning, bribery, weakening of institution, de-moralization of society, etc were witnessed. We may not blame the IMF for all such evils but must complain that the IMF failed to deliver, what was expected. Of course, it is our country, we are responsible for all evils, and wrongdoings happened to us. We have to act smartly and should have made the right decision and at right times.
IMF also dictates its terms and condition or programs like: devaluation of local currencies, which causes inflation and hike in prices, cut or draw-back of subsidies on basic utilities like fuel, gas, electricity, food, agriculture etc, which causes cost of life rather higher for local people, cut on development expenditures like education, health, infrastructure, and social development etc, which pushes the country even more backward. IMF focusses only on reducing expenditures and collection of taxes to make a country to meet the deadlines of payments. IMF does not care about the development of a country, but emphasizes tax collections and payment of installments on time, to rescue a country from being a default.
While CPEC is an initiative where projects are launched in Power Generation, Infrastructure development under the early harvest program. Pakistan was an energy trust country and facing a severe shortage of Electricity. But after completion of several power projects under CPEC, the shortfall of electricity has been reduced to a great extent. One can witness no load shedding today, while, just a few years back the load shedding was visible throughout the country for several hours a day. Several motorways and highways have been completed. Gwadar port has been operational partially. Infrastructure developments are basic of economic activities.
Projects under CPEC has generated jobs up to 80,000. CPEC was the catalyst to improve GDP by around two percent during 2015-2018. CPEC has lifted the standard and quality of life of the common man in Pakistan. CPEC was instrumental to move the economic activities and circulation of wealth in society. Under CPEC, early harvest projects, 22 projects have been completed at the cost of approximately 19 billion US dollars.
It is understood that early harvest projects were heavy investment and rather slow on returns. But, these projects have provided a strong foundation for the second phase, where Agriculture, Industrialization and Social Sector will be focused. Return on Agriculture and Industrial produce is quick and also generates more jobs. The second phase will contribute toward the social development of Pakistan as well as generate wealth for the nation. Pakistan’s agriculture sector has huge potential as cultivatable land is huge, workforce is strong and climate is favorable. Regarding Industrialization, Pakistan is blessed with an abundance of mines and minerals. The raw material is cheap and the labor cost is competitive. Pakistan has 70% of its population under the age of 40 years, which means an abundance of the work force. Pakistan’s domestic market is 220 million and the traditional export market is the whole of the middle-east and the Muslim world.
The major difference between the CPEC and IMF is that CPEC generates wealth, while IMF focuses on tax collection and reducing the developments and growth. China is the latest model of developments in the modern days, China is willing to replicate its experience with Pakistan for its rapid development.
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