Economics and Irregular Warfare

[slapout9]

Link to some real economic thinking, explodes the myth of so called free markets. Talks about the superiority of the Military business model applied to the civilian economy. Good stuff.

http://www.youtube.com/watch?v=wUfYGl40KqE&feature=sub

[Surferbeetle]

From the WSJ, by DAVID LUHNOW Saving Mexico

Today, the world's most successful drug trafficking organizations are found in Mexico. Unlike Colombian drug gangs in the 1980s, who relied almost entirely on cocaine, Mexican drug gangs are a one-stop shop for four big-time illicit drugs: marijuana, cocaine, methamphetamines and heroin. Mexico is the world's second biggest producer of marijuana (the U.S. is No. 1), the major supplier of methamphetamines to the U.S., the key transit point for U.S.-bound cocaine from South America and the hemisphere's biggest producer of heroin.

This diversification helps them absorb shocks from the business. Sales of cocaine in the U.S., for instance, slipped slightly from 2006 to 2008. But that decline was more than made up for by growing sales of methamphetamines.

In many ways, illegal drugs are the most successful Mexican multinational enterprise, employing some 450,000 Mexicans and generating about $20 billion in sales, second only behind the country's oil industry and automotive industry exports. This year, Forbes magazine put Mexican drug lord Joaquin "Shorty" Guzman as No. 401 on the world's list of billionaires.

Unlike their rough-hewn parents and uncles, today's young traffickers wear Armani suits, carry BlackBerrys and hit the gym for exercise. One drug lord's accountant who was arrested in 2006 had a mid-level job at Mexico's central bank for 15 years.

Recently, Mexico's deputy agriculture minister, Jeffrey Jones, told some of the country's leading farmers that they could learn a thing or two from Mexican drug traffickers. "It's a sector that has learned to identify markets and create the logistics to reach them," he said. Days later, Mr. Jones was forced to resign. "He may be right," one top Mexican official confided, "but you can't say things like that publicly."

[Surferbeetle]

From Bloomberg by Anthony DiPaola and Grant Smith on December 10, 2009, Iraq’s Second Oil Bidding Round Bolstered by Exxon, Eni Deals

From Bloomberg by Anthony DiPaola and Maher Chmaytell on December 11, 2009, Shell, CNPC Win Iraq Oil Contracts, Adding to Earlier Deals


From the website Iraq and Gulf Analysis by Reidar Visser on December 13, 2009 The Second Licensing Round in Iraq: Political Implications

The second licensing round for Iraqi oilfields was carried out by the oil ministry in Baghdad over the weekend. On the one hand, the contracts won by foreign companies will prove controversial because Iraq remains in the middle of a chaotic process of political transition and has yet to agree on a legal framework for the oil sector. At the same time, however, the relatively straightforward nature of the technical service contracts under offer as well as the emerging broader picture of a reasonably balanced mix of foreign and Iraqi participation in developing the country’s oil sector mean that these deals are on the whole less vulnerable to criticism than those previously entered into by foreign companies on extremely lucrative terms with the Kurdistan Regional Government – and therefore also stand a greater chance of surviving in their existing form in the long term.

[Surferbeetle]

From the 9 Jan '10 WSJ Chavez Devalues Venezuela's Currency By JOHN LYONS and DARCY CROWE

President Hugo Chavez, harried by recession and declining popularity, announced a major currency devaluation late Friday to shore up government finances and stimulate economic growth before key elections this year.

The move cuts Mr. Chavez's two-year-old "strong bolivar" currency by half – to 4.3 per dollar from 2.15 per dollar – for most imports and transactions. The central bank will also subsidize a stronger 2.6-per-dollar rate for imports of food, medicine and other essential items, Mr. Chavez said.

The move reflects the increasingly difficult economic and political trade-offs faced by Mr. Chavez, who has been in power for more than a decade and veered the country's economy sharply to the left through steps like nationalization of key industries, rampant government spending, and currency and price controls.

For years, Venezuela has been able to defend an overvalued currency thanks to currency controls. Venezuelan citizens and companies can get dollars at the official rate only with government permission. That has led to a thriving black market, where those who don't get government permission buy the U.S. currency. Even the Venezuelan government uses the black market to some degree, economists say.

On Friday, that black market rate stood at about 6.25 per dollar – well below the former official rate of 2.15 and still below the new rate of 4.30. Economists say one of the reasons for the move was an attempt to deflate the black market, a catalyst for inflation that has also spawned a frenzy of schemes to defraud the central bank of dollars.

Official devaluations are nothing new for Venezuelans, with many getting their first taste of currency controls in 1961. The peg imposed then was kept for 22 years but a decline in oil revenue forced the government to devalue in 1983, marking the beginning a downward spiral that included several adjustments to the foreign currency rate. A devaluation in 1994 amid a deep economic crisis spurred a wave of popular unrest that Chavez eventually tapped to win the presidency five years later.

[Surferbeetle]

Unfortunately little quantitative data is provided on how much $ by line of operation

From the January 10, 2010 LA Times,
In West Bank, conditions 'not ripe' for Palestinian uprising
by Edmund Sanders

But in a not-so-subtle reminder that Israel can reseal the borders again, construction is underway on a new, expanded checkpoint. Meanwhile, Nablus residents -- from businessmen to teenagers -- say they are enjoying the broadest freedom of movement they have experienced in years.

Israel takes part of the credit for the apparent softening of Palestinian resistance through a carrot-and-stick approach under which it has eased checkpoints and permitted economic growth even as it has maintained an army presence and cracked down on militants.

"You have to have a very complex, nuanced approach of strengthening moderates, building the economy but not giving in to the terrorists," said Israeli Deputy Foreign Minister Danny Ayalon. "The [Israeli army] presence right now is not only necessary, it's diminished the chances of a third intifada."

Critics say Israel's strategy amounts to "beautifying" the occupation by relieving just enough pressure to weaken resistance and by making the West Bank dependent on billions of dollars in foreign aid.

"We are 'for sale' now," Kassem said, adding that some Palestinians today place a higher priority on jobs, education and lifestyle. "We are spoiled. People might get angry, but in a week they reach in their pockets and do nothing. We don't feel the occupation as much."

He noted that the Palestinian Authority, largely funded by the U.S. and other countries, now employs 180,000 people who "are not ready to sacrifice their jobs for another intifada."

[Steve the Planner]

Steve:

Financial Times had the latest on the opening of the Northern Route, and hearty encouragement for the line through Afghanistan to India via Pakistan:
"From hell, through hell, to hell."

Strange but typical business arguments about united all stakeholders, and long-term benefits if Taliban will join up with Pashtun brethren to reap the benefits...

Seems out of place for a couple of reasons: First, corruption---How are all these long-term stakeholders supposed to perceive/receive a benefit in the current climate? Second, another reason to unite Taliban and Pashtuns for an inter-border "benefit" for Pashtunistan. No?

http://www.ft.com/cms/s/0/0e09d8fa-f...44feab49a.html

Makes sense, but there are plenty of reasons why it hasn;t moved forward yet.

[Surferbeetle]

Steve,

Appreciate the article it's an interesting one.

Financial Times had the latest on the opening of the Northern Route, and hearty encouragement for the line through Afghanistan to India via Pakistan:
"From hell, through hell, to hell."

Strange but typical business arguments about united all stakeholders, and long-term benefits if Taliban will join up with Pashtun brethren to reap the benefits...

Here are some more Afghanistan energy centric jigsaw pieces:

Wikipedia on the Trans-Afghanistan Pipeline (TAP)

On 24 April 2008, Pakistan, India and Afghanistan signed a framework agreement to buy natural gas from Turkmenistan.[6]

The pipeline will be 1,420 millimetres (56 in) in diameter with a working pressure of 100 standard atmospheres (10,000 kPa).[7] The initial capacity will be 27 billion cubic meter (bcm) of natural gas per year of which 2 bcm will be provided to Afghanistan and 12.5 bcm to each Pakistan and India. Later the capacity will increase to 33 bcm.[8] Six compressor stations would be constructed along the pipeline.[7] The pipeline was expected to be operational by 2014.[9]

The cost of the pipeline is estimated cost at US$7.6 billion.[6] The project is to be financed by the Asian Development Bank.[10]

The Afghanistan Energy Profile from the EIA. The estimate for natural gas reserves is in the neighborhood of 1,750 billion cubic feet. (website acessed on 11 Jan '10) (1 cubic meter = 35.3146667 cubic foot)

The Afghanistan Country Study, Foreign Area Studies, The American University, Edited by Richard F. Nyrop and Donald M. Seekins, Research completed, January 1986.

Chapter 3 covers the Economy and Mining info starts on page 192 (55 of the pdf).

Natural gas was the most important mineral resource and industrial product. The country was thought to possess 110 to 150 billion cubic meters of total reserves. With Soviet assistance, production began in 1967 at the Kwoja Gugerdak field, 15 kilometers east of Sbeberghan in Jowzjan Province. The field’s reserves were thought to be 67 billion cubic meters. The Soviets also completed in 1967 a IOO-kilometer gas pipeline, 820 millimeters in diameter, linking Keleft in the Soviet Union with Sheberghan. Other fields were discovered at Kwaja Bolan, Yatim Taq, and Jousik, with reserves of about 2.5 billion cubic meters. Gas production rose from I.68 billion cubic meters in 1968 to 2.8 billion in 1980. In 1982 a new field at Jarquduk, also in Jowzjan, started production, again with Soviet aid

For scale the EIA (website acessed on 11 Jan '10) Qatar Energy Profile estimate for natural gas reserves is in the neighborhood of 910,520 billion cubic feet and the Turkmenistan Energy Profile estimate for natural gas reserves is at 71,000 billion cubic feet. (1 cubic meter = 35.3146667 cubic foot)

Bloomberg tracks commodity futures here. As of 11 Jan '10 the NATURAL GAS FUTR (USD/MMBtu) 5.485 and 1 std.cu.feet of natural gas = 1000 BTU = 252 kilocalories per this website (Energy Policy & Planning Office, Ministry of Energy, Thailand) while Wikipedia notes that "1 standard cubic foot of natural gas yields ≈ 1030 BTU (between 1010 BTU and 1070 BTU, depending on quality, when burned)" and that 'MMBTU represent one million BTU'.

Seems out of place for a couple of reasons: First, corruption---How are all these long-term stakeholders supposed to perceive/receive a benefit in the current climate? Second, another reason to unite Taliban and Pashtuns for an inter-border "benefit" for Pashtunistan. No?

As you know from Iraq identifying and empowering moderates is very tricky business. Our DoS friends have their work cut out for them

Steve

[S2MSSI]

All, sorry to budge in on this post and take it back some posts, but I saw some areas/questions that were not really addressed and I may be able to shed some different thinking.

Initially, the post addressing Economics was brought up to assess an area. Through the posts it came to Illicit Activities as perhaps another more viable approach to COIN and IW-related activities.

I'd like to draw you back to the systems-approach of understanding an ecosystem of the immediate and outskirts of an environment. Economics is certainly a part of this, and as many have posted--the local level is core. But going back to a dynamic systems approach where one looks at the associations and intersections of activity, you may see that in fact when it comes to hunting finance and value exchanges the core may be informal economies---not illicit. Also not economics but the micro and macro version of the formal and informal economic transactional structure and how value exchanges take place from social favors and obligations to commodity items (livestock, produce, clothes, land, ...) to actual monetary items through the banking system (again informal and formal where hawala meets 1st Bank of X).

Again, it comes back to the human terrain and social culture and history to know how life takes place on a daily basis and how sub-systems of an illicit activity blend into normal every day life because for locals it is part of every day and is not illicit in their eyes. A porter carrying raw opium across a border may not be conducting an illicit activity as much as in his eyes is doing his daily porter job within his tribal ties but today someone has asked him to carry an item involved in narcotics trade (whatever that may be to him) vs. a tv the day before. Note: rough example as many are fully aware of the legal aspects involved in drugs and the higher wage they can gain. But the point is, yes, economics and dark transactions all need to be assessed but not in a vacuum and instead as the whole environmental on-goings if one is to really spot obvious or subtle indicators and anomalies. Good example is Trade Based Money Laundering where one needs to know the baseline of goods and services in a country or local market before one can see if the overs/unders make sense.

Back to systems approach one can also see the Power players of an area to see where real power does indeed rest through catalyst areas of influence and centers of gravity. Profits can also be better understood because through full ecosystem mapping you can break almost all activity down to supply chain processes, which can be augmented, improved, or my favorites--destroyed and disrupted.

Anyway, my 2 cents in an effort to fill a couple holes.