THE CASPIAN REGION: A FUTURE WAR ZONE?

AZERBAIJAN AND THE TRANS - ADRIATIC ENERGY PROJECT

Via Stratrisks

Geopolitical importance of the CASPIAN basin is reaching new levels amid growing conflict zones throughout the world.

Regional countries` are showing off their naval muscles at sea, increased military exercise activities cause several questions as regards to the future of the region. Experts analyze these processes from different aspects, with the threat of war looming in the region.

Background Information: 

THE WINNING FORMULA TO DESTABILIZE RUSSIA’S CAUCASUS AND THE MIDDLE EAST http://geopoliticsrst.blogspot.co.at/2012/09/dagestan-syria-comes-to-russia.html

Geopolitical processes around the CASPIAN basin appear to be intensifying. The region has always been a focal point of the superpowers, in recent past however the issue has reached a new geopolitical level and it`s what attracts the attention of experts. Firstly, the battle for the region`s energy resources has in fact begun. This started after AZERBAIJAN expressed preference for the Trans-Adriatic energy project.

AZERBAIJAN`S eco - strategic decision changed the geopolitical dynamics in the CASPIAN basin. Some countries look enviously at this project, which opens ample opportunities, including CENTRAL ASIA for energy resource distribution to the West. In reality, these entities are concerned about the fact that they have no mechanisms of pressure against AZERBAIJAN, which is pursuing its independent policy.

Tension caused by the struggle for energy recourses of the region was evident by the behavior of some neighboring countries one or two years ago. Last year, for example, Deutsche Welle said that “TURKMENISTAN confirmed its participation in the militarization of the CASPIAN” (by conducting exercises – Newtimes.az). The major reason behind this was “the IRANIAN crisis and contradictions among CASPIAN littoral states”.

CASPIAN BASIN: INCREASED FOCAL POINT OF WEST AND EAST

Certainly geopolitical developments with respect to IRAN have influence of what is going on in the CASPIAN basin. However, it would not be right to link all factors to only this. Energy recourses of the USA, EUROPEAN UNION, RUSSIA and CHINA as well as their struggle for geopolitical dominance should also be taken into account, for they play a central role in the geopolitical processes taking place in the CASPIAN basin.

Western media reports have recently said that RUSSIA and IRAN plan to hold a combined naval exercise in the CASPIAN SEA. Richard Weitz, a senior fellow and director of the Center for Political-Military Affairs at Hudson Institute, believes that “Caspian complexities block RUSSIA-IRAN naval axis” (see: Richard Weitz. Global Insights: Caspian Complexities Block Russia-Iran Naval Axis // “World Politics Review”, 2 July, 2013).

QUARREL OVER CASPIAN SEA EXCLUSIVE ECONOMIC ZONE

But why has the situation turned so complex? The central issue here is the fact that the superpowers have failed to reach consensus with respect to the issues of regional security and the use of energy resources of the region. Against this backdrop, the situation has become tense in the CASPIAN region and the superpowers started showing off their military muscles in the basin.

Another potential for conflict is the growing competition in the region by CASPIAN bordering states` failure to define a CASPIAN SEA exclusive economic zone (EEZ). The main reason as to why the CASPIAN SEA EEZ has not yet been defined is that each littoral state has its own view of the division of the sea. Their positions have been thoroughly analyzed so far. CASPIAN bordering states have failed to reach consensus since the problem emerged. Although RUSSIA, AZERBAIJAN and KAZAKHSTAN signed some document on delimitation, TURKMENISTAN and IRAN remain opposed to it.

In general there is not a shared stance on how to divide the oil-rich sea bed among the littoral states. What deters RUSSIA and IRAN is that dividing the sea into “national sectors” will give AZERBAIJAN full independence. TURKMENISTAN, which seeks the biggest share of energy resources, is opposed to Baku`s proposal.

GEOPOLITICAL STORM IN THE CASPIAN SEA

There are two main factors causing tension in the CASPIAN SEA basin. First, certain regional states are concerned about AZERBAIJAN`S strengthening policy of independence. This is why they raise the issue of TURKMENISTAN. Secondly, RUSSIA, CHINA and the USA cannot define who will be playing the role of the regional leader. This paves the way towards a dangerous trend – namely showing off military muscles in the CASPIAN. It`s no coincidence that RUSSIAN media publishes headlines such as “A geopolitical storm in the CASPIAN SEA”. 

RUSSIA and KAZAKHSTAN launched military exercises in the CASPIAN SEA. President Putin, during his visit to AZERBAIJAN, was accompanied by DAGESTAN missile ships. Military experts believe that there are three reasons why the navy ships accompanied Mr Putin to AZERBAIJAN`S capital. Firstly, RUSSIA intends to protect its geopolitical interests in the wake of the WEST`S increasing role in the region. Secondly, Moscow pursues certain economic interests in the region. Thirdly, there is a growing necessity for a joint venture in fighting terrorism.

INCREASED INFILTRATION OF RADICAL ELEMENTS IN THE REGION 

Many political analysts believe that combating radical groups on an international scale has become a pressing issue for the region. Various sources believe that Al-Qaeda is divided into several small uncontrolled cells which are becoming an increasing threat. Interestingly to note is that one of the possible approaches to the new threat of terrorism is to try to convince local governments to fight the terrorists.

This means that the USA are not the only focal point of radical religious groups for even  countries with considerable amount of Muslim citizens are increasingly becoming targets themselves, a trend which could have fatal consequences. In this context it is understandable that RUSSIA is starting to take serious anti-terror measures near its southern borders. However, there is another issue worthwhile to notes:

For the West, the geopolitical aspect and anti-terror war are closely interconnected. Thus it is extremely difficult to define where to cross the line between these two notions. Furthermore, when talking about the “fight against terrorism”, the West refers mostly to Muslim radical groups, which seems to casts a shadow on a threat like the ARMENIAN terror. It appears that countries like AZERBAIJAN are unilaterally involved in the anti-terror war in the interests of Western powers which causes provoking consequences. Western as well as Eastern entities, for geopolitical reasons, want to bring young independent countries under their geopolitical umbrella under the pretext to fend off terrorism. In this sense, efforts like conducting military exercises in a region like the CASPIAN basin and provoking new controversies over energy transportation routes are becoming extremely dangerous.

The aforementioned analysis showcases that it is well worth considering that against the background of the strengthening competition in the CASPIAN basin, showing military muscles is a priority. The region`s geopolitical importance has undoubtedly increased. And the fact that this process is taking place amid the geopolitical struggle between the USA and RUSSIA points to the existence of certain threats. Resorting to weapons can provoke serious negative impacts in the CAUCASUS-CENTRAL ASIA region.

ARGENTINA: THE GEOPOLITICS OF INTERNATIONAL MONETARY AND FINANCIAL SYSTEMS

IIlustration by Jon Krause

THE VULTURES VICTORY:

VULTURE FUNDS HAVE RAISED GREED TO A NEW LEVEL

By Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, was Chairman of President Bill Clinton’s Council of Economic Advisers and served as Senior Vice President and Chief Economist of the World Bank. His most recent book is The Price of Inequality: How Today’s Divided Society Endangers our Future.

A recent decision by a UNITED STATES appeals court threatens to upend global sovereign-debt markets. It may even lead to the US no longer being viewed as a good place to issue sovereign debt. At the very least, it renders non-viable all debt restructurings under the standard debt contracts. In the process, a basic principle of modern capitalism – that when debtors cannot pay back creditors, a fresh start is needed – has been overturned.

The trouble began a dozen years ago, when ARGENTINA had no choice but to devalue its currency and default on its debt. Under the existing regime, the country had been on a rapid downward spiral of the kind that has now become familiar in GREECE and elsewhere in EUROPE. Unemployment was soaring, and austerity, rather than restoring fiscal balance, simply exacerbated the economic downturn.

DEVALUATION AND DEBT RESTRUCTURING WORKED. 

In subsequent years, until the global financial crisis erupted in 2008, ARGENTINA’S annual GDP growth was 8% or higher, one of the fastest rates in the world.

Even former creditors benefited from this rebound. In a highly innovative move, ARGENTINA exchanged old debt for new debt – at about 30 cents on the dollar or a little more – plus a GDP-indexed bond. The more ARGENTINA grew, the more it paid to its former creditors.

ARGENTINA’S interests and those of its creditors were thus aligned: both wanted growth. It was the equivalent of a “Chapter 11” restructuring of AMERICAN corporate debt, in which debt is swapped for equity, with bondholders becoming new shareholders.

Debt restructurings often entail conflicts among different claimants. That is why, for domestic debt disputes, countries have bankruptcy laws and courts. But there is no such mechanism to adjudicate international debt disputes.

Once upon a time, such contracts were enforced by armed intervention, as MEXICO, VENEZUELA, EGYPT, and a host of other countries learned at great cost in the nineteenth and early twentieth centuries. After the ARGENTINE crisis, President George W. Bush’s administration vetoed proposals to create a mechanism for sovereign-debt restructuring. As a result, there is not even the pretense of attempting fair and efficient restructurings.

Poor countries are typically at a huge disadvantage in bargaining with big multinational lenders, which are usually backed by powerful home-country governments. Often, debtor countries are squeezed so hard for payment that they are bankrupt again after a few years.

FINANCIAL FIRMS PUT THEIR OWN INTERESTS AHEAD OF THOSE OF THE COUNTRY – AND THE WORLD. 

Economists applauded ARGENTINA’S attempt to avoid this outcome through a deep restructuring accompanied by the GDP-linked bonds. But a few “vulture” funds – most notoriously the hedge fund Elliott Management, headed by the billionaire Paul E. Singer – saw ARGENTINA’S travails as an opportunity to make huge profits at the expense of the ARGENTINE people. They bought the old bonds at a fraction of their face value, and then used litigation to try to force ARGENTINA to pay 100 cents on the dollar.

AMERICANS have seen how financial firms put their own interests ahead of those of the country – and the world. The vulture funds have raised greed to a new level.

Their litigation strategy took advantage of a standard contractual clause (called pari passu) intended to ensure that all claimants are treated equally. Incredibly, the US Court of Appeals for the Second Circuit in New York decided that this meant that if ARGENTINA paid in full what it owed those who had accepted debt restructuring, it had to pay in full what it owed to the vultures.

LENDERS ARE SUPPOSED TO BE EXPERTS ON RISK MANAGEMENT AND ASSESSMENT

If this principle prevails, no one would ever accept debt restructuring. There would never be a fresh start – with all of the unpleasant consequences that this implies.

In debt crises, blame tends to fall on the debtors. They borrowed too much. The creditors are equally to blame – they lent too much and imprudently. Indeed, lenders are supposed to be experts on risk management and assessment, and in that sense, the onus should be on them. The risk of default or debt restructuring induces creditors to be more careful in their lending decisions.

THE REPERCUSSIONS OF THIS MISCARRIAGE OF JUSTICE MAY BE FELT FOR A LONG TIME. 

US Judge Thomas Griesa: Impartial or lackey of Financial Institutions?

After all, what developing country with its citizens’ long-term interests in mind will be prepared to issue bonds through the US financial system, when AMERICA’S courts – as so many other parts of its political system – seem to allow financial interests to trump the public interest?

Countries would be well advised not to include pari passu clauses in future debt contracts, at least without specifying more fully what is intended. Such contracts should also include collective-action clauses, which make it impossible for vulture funds to hold up debt restructuring. When a sufficient proportion of creditors agree to a restructuring plan (in the case of ARGENTINA, the holders of more than 90% of the country’s debt did), the others can be forced to go along.

The fact that the International Monetary Fund, the US Department of Justice, and anti-poverty NGOs all joined in opposing the vulture funds is revealing. But so, too, is the court’s decision, which evidently assigned little weight to their arguments.

For those in developing and emerging-market countries who harbor grievances against the advanced countries, there is now one more reason for discontent with a brand of globalization that has been managed to serve rich countries’ interests (especially their financial sectors’ interests).

In the aftermath of the global financial crisis, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System urged that we design an efficient and fair system for the restructuring of sovereign debt. The US court’s tendentious, economically dangerous ruling shows why we need such a system now.

ARGENTINA ANTICIPATED ADDRESSING ‘VULTURE FUNDS’ ISSUE AT G20 SUMMIT

The Argentine leader said Greece is going for its third debt restructuring with ‘shaves’ and yet has been unable to pay, “and to us who have agreed with 93% of bondholders and have been paying regularly since 2005, they want to beat us down”.

After arriving in RUSSIA for the two-day G20 summit, ARGENTINE President Cristina Fernández stressed she will be addressing the “vulture funds issue” during the summit despite the US rejected to mention it in the final statement.

The ARGENTINE president said ‘vulture funds take advantage of everyone”

“Vulture funds take advantage of everyone, not only ARGENTINA” she told reporters adding ARGENTINA will discuss “employment creation, production and investment “which are” the elements which will save the global economy amid a context of crisis”.

“I was reading that in GREECE the government has allowed the sale of food with expired dates and over a million government staff despite not having been paid for the last year, still go every day to work fearing the loss of jobs”, added the ARGENTINE president.

ARGENTINA WILL HOLD BILATERAL TALKS WITH RUSSIAN AND CHINA.

“These are the things we should talk about and deal with the ‘vulture funds’ which take advantage of countries close to defaulting or indebted as us” insisted Cristina Fernandez. “This has happened to the GREEKS and the SPANIARDS and the PORTUGUESE and in SPAIN vulture funds also purchased junk sovereign bonds at rock bottom prices and will be asking for full face payment”.

The Argentine leader said GREECE is going for its third debt restructuring with ‘shaves’ and yet has been unable to pay, “and to us who have agreed with 93% of bondholders and have been paying regularly since 2005, they want to beat us down”.

“The St Petersburg summit is very special since it takes place at a delicate and serious moment of world affairs, not only because of the economic crisis but also because of the complicated global institutional situation such is security in the MIDDLE EAST”

The ARGENTINE head of state is expected to hold bilateral meetings with RUSSIAN leader Vladimir Putin and CHINA’S Xi Jinping.

Secretary General to the presidency Oscar Parrilli also informed Cristina Fernández will be meeting INDIAN and JAPANESE leaders Manmohan Singh and Shinzo Abe respectively as well as SOUTH AFRICAN head of state Jacob Zuma in the margins of the multilateral reunion.

With her CHINESE counterpart, the ARGENTINE leader will be signing three agreements that aim at strengthening bilateral ties in strategic areas such as economy and food.

Background Information:

BUSINESS CLIMATE IN LATIN AMERICA REACHES 18-MONTH HIGH 

http://geopoliticsrst.blogspot.co.at/2013/03/latin-american-economics.html

http://geopoliticsrst.blogspot.co.at/2013/09/us-and-china-battle-it-out-for-latin.html

http://geopoliticsrst.blogspot.co.at/2013/03/latin-america-and-europe.html
http://geopoliticsrst.blogspot.co.at/2013/02/argentinean-politics-under-claw-of.html

Paul E. Singer

Cristina Fernandez will also receive at a special meeting the new chief of the World Trade Organization, Roberto Azevedo.

According to government sources, Cristina Fernández de Kirchner will be taking to the G20 table the official decision to reopen the debt swap (which already has half-approval and is supported by the opposition) –facing a 1.3 billion dollar legal dispute against US-based vulture funds-, calls to reform the international financial system, the fight against tax havens, and the creation of employment as a key element both to face and overcome the global crisis hitting the world since 2008.

RUSSIA occupies this year the rotating chair of G20 and is hosting the St Petersburg summit at the St Constantine Palace. Putin said that the summit agenda will concentrate on uniting efforts to prop global economic growth and promote employment by creating jobs.