Indian Frustration or War Mania

According to news reports, New Delhi has called off a meeting between the Pakistani and Indian foreign ministers on the sidelines of the United Nations General Assembly, just a day after confirmation.

The reason for cancellation of meeting was stated by Indian External Affairs Spokesperson Raveesh Kumar, "unclean intentions" on Pakistan's side. He said, "It is obvious that behind Pakistan's proposal for talks to make a fresh beginning, the evil agenda of Pakistan stands exposed and the true face of the new Prime Minister Imran Khan has been revealed to the world in his first few months in office," he said. "Any conversation with Pakistan in such an environment would be meaningless."

Pakistan’s Foreign Minister Shah Mahmood Qureshi termed the development "unfortunate", saying, "We had already told India that if they take one step towards us, we will take two. However, it seems that they faltered after taking just one step."

PPP Senator Sherry Rehman sent a Twitter condemning the move, saying, "Shame that on International Peace Day, India has refused to talk peace with Pakistan in even a routine manner at the UN on the sidelines of the General Assembly." "Running from talks won’t change the fact that this time Indian repression in Kashmir has been noticed in a UN report ", she added.

The Indian arrogance can be attributed to a recently signed agreement between the US and India that would pave the way for New Delhi to buy advanced American weaponry and to share sensitive military technology, strengthening their military partnership as both powers warily eyes the rise of China. The countries also promised to hold joint land, sea and air military exercises in India next year.  

On the day Jim Mattis, the US Defense Secretary had said, “Today’s fruitful discussion illustrated the value of continued cooperation between the world’s two largest democracies. We will work together for a free and prosperous Indo-Pacific.”

If I refer back to the visit of Jim Mattis, Defense Secretary and Mike Pompeo, State Secretary, despite the friendly handshakes and flattering remarks exchanged as the two met with their counterparts, their counties remain deeply skeptical of each other.

The US is worried about how willing India will be to openly counter China as the Chinese expand their influence in the waters between the Indian and Pacific Oceans. It is also unhappy about India’s reluctance to cut trade relations with Iran.

India views the Trump administration as erratic, and it is troubled by the United States’ recent barriers to trade, which threaten to impose tariffs on Indian goods and force New Delhi to import more American products.

I would also attribute Indian attitude as assign of frustration, because the US has failed in convincing Pakistan to allow Indian goods to pass through for Afghanistan and Iran. It is irony of fate that the US remains dependent on Pakistan for the passing of NATO supplies. The US has not forgotten the adversities faced after Pakistan put a temporary embargo on the movement of NATO supplies.  

US attempt to contain Iranian oil export aimed at keeping crude prices high

I have often wondered why the US is adamant at containing oil export from Iran. This morning I have found some clue after reading the weekly email sent to me by Oil &Energy Insider, captioned “A Crucial Period for Oil Markets”. It covers many news but two most important for me are: "Oil prices rose this week on the back of continued outages from Venezuela and Iran. The EIA also warned “We are set to enter a 'crucial period' for oil markets”.

The report also gave details that U.S. Energy Secretary Rick Perry held two high-profile meetings, one with his counterpart from Saudi Arabia and the other with his Russian counterpart. These meeting were aimed at ensuring ample supply of crude oil after re-imposition of sanctions on Iran become into effect in November. Perry praised OPEC as a whole and Russia for responding to higher prices by increasing production, even using the word “admiration” as something the cartel and Russia deserved for their efforts to keep oil prices under control. For my readers understanding the US objective will become much clear after reading the following details.

By pulling itself out of the agreement with Iran, the US aims at achieving multiple objectives, the top of the agenda item being initiating the hype for the change in regime in Iran. The sole purpose of the US is to cripple the Iranian economy to an extent that could lead to regime change. However, observers familiar with Iranian politics have warned this is an unlikely outcome. Crippling Iranian economy will also please Saudi Arabia, which has been brainwashed to the level for singing the manta, “Iran is a bigger enemy as compared to Israel”.

Another key US objective is to mend its relationship with Russia. While the US administration has been trying to bring down Iranian oil export to virtually zero, it is encouraging Russia to keep its production at the highest level to ensure there will be enough oil even when Iran’s exports slump. There is a need to understand the shift in the US policy towards Russia. The situation is particularly interesting as U.S.-Russian relations are at a historic low but Russia is one of the world’s top oil producers, enjoying the power to control global oil supply and prices.

According to Russian Energy Minister Alexander Novak, the global oil market remains fragile because of production declines and geopolitical unrest. “This is huge uncertainty on the market – how the countries located in Europe and Asia Pacific region, which buy almost 2 million barrels per day of Iranian oil will act. The situation should be closely watched, to make the right decisions,” said Novak. He also said Russia could step in if the market needs more supply. Russia has potential to raise production by 300,000 barrels per day.

Worries of OPEC, led by Saudi Arabia are multiple. OPEC has cut its 2019 oil demand forecast because of economic uncertainties arising from Sino-US trade war. The 1.41 million barrels per day (bpd) demand growth forecast is 20,000 bpd lower than last month’s figure. “Rising challenges in some emerging and developing economies are skewing the current global economic growth risk forecast to the downside,” said an OPEC report.

The protests and riots in Iraq’s oil-rich southern region are flaring up again, potentially posing a threat to the country’s record oil export levels. Some companies have taken their foreign workers out. Production hasn't been hit yet, but if anyone facility goes down, the production loss could be as high as 800,000 bpd, so it's a big story to watch. Global experts also highlight that the lack of spare capacity makes such an outage especially worrisome. They also say that the real problem right now is limited availability of options to absorb shocks.

Within the US, Hurricane Florence is battering the coast of North and South Carolina, but there very little fallout is expected for the oil market since no oil refineries or upstream production facilities are located in those states. But if the Hurricane travels further inland into the Appalachian region, it could curtail shale gas production.

The US shale companies emerge clear winners. They took advantage of relatively high oil prices in the second quarter to lock in hedges beyond 2019. Permian shale drillers increased 2020 hedging by 431 percent in the second quarter of this year, an indication that E&Ps are worried about pipeline bottlenecks stretching beyond 2019. The quantum of hedging appears unusual. The risk of hedging is that some companies could eliminate upside exposure if pipelines are completed on time and oil prices rise.

It may not be wrong to infer that after minimizing oil exports from Libya and Venezuela, the next likely US targets are Iran and Iraq. It is also evident that in the US pursuit to keep oil prices high, it is fully supported by Saudi Arabia and Russia. A point to be watched microscopically is how many countries succeed in acquiring US exemption to buy oil from Iran?

US: Peace Broker or War Monger

On Friday, 14th September 2018 I was among the audience who were invited by Institute of Business Administration (IBA) Karachi to a talk led by Dr. Moeed Yusuf, Associate Vice President, Asia Centre, United States Institute of Peace. The other two worthy speakers were former Defence Secretary of Pakistan (Rtd) Lt. Gen. Tariq Waseem Ghazi and former Chairman of Pakistan Nuclear Regulatory Authority, Jams­hed Hashmi.

Dr. Yusuf spoke about his latest book ‘Brokering Peace in Nuclear Environments: U.S. Crisis Management in South Asia’, in which he studied environments where nuclear weapons were present which changed the dynamics of any crisis. He also proposed the theory of ‘brokering of peace’, and crisis management in the regional nuclear environment of Pakistan and India.

Dr. Moeed said, “My findings suggest that you will always have stronger third parties who want to influence the crisis because they are worried that things may escalate to the nuclear level. These third parties will show up on their own; for instance the US exaggerates the risk of nuclear escalation because of the lesson it drew from the Cold War which was that nuclear war, if it ever happens, will happen not because countries deliberately want it, but despite them not wanting it.”

“It is not that Pakistan and India want the third party,” he elaborated. “However, when the third party shows up to offer mediation and help mitigate the crisis, Pakistan and India recognize they do not have any dependable bilateral ties to bank on. Also, both states then tend to force the third party to deliver concessions rather than directly engage with the opponent. Both Pakistan and India try to use the third party, in this instance the US, to get concessions.”

Tariq Waseem Ghazi disagreed with this model. According to him, there is a general disregard from India’s side to engage with Pakistan on a bilateral level as well as in the presence of a third party, whether it be the UN, the US or China. “Indians say everybody else is irrelevant and wish to solely dictate the terms of engagement. In the last 10 years we have been trying to do exactly what Moeed has been proposing for crisis resolution and conflict prevention, but no proposal from us has been acceptable to India.”

Jams­hed Hashmi was of the opinion that the US tends to do more harm than good when trying to deescalate crises between Pakistan and India. “The US will continue to ‘broker’ conflicts and we have to accept that. However, nowhere during this brokerage has the biggest point of contention between Pakistan and India — Kashmir — ever been debated on or the crisis resolved.”

Having listened to the worthy speakers, a question came to my mind, is US a peacekeeper or a war monger? With reference to Pakistan I am witness to many frustrating experiences with the US. Some of these include unwillingness of the strongest super power to mediate in the resolution of Kashmir issue, which is often termed flash point. The super power didn’t play any role in stopping East Pakistan becoming Bangladesh. The US first used Pakistan along with Taliban to fight USSR troops in Afghanistan and post 9/11 Pakistan was used against Taliban. Over the years ‘do more’ manta continues. Now Afghans have been brain washed to a level where they consider Pakistan a foe rather than a friend.

During the cold war era, India was provided military hardware by the US to equip it to fight against China. The US also facilitated India to attain the status of regional super power. The program has been further accelerated after the commencement of work on China Pakistan Economic Corridor (CPEC). The relationship between Iran and India are being supported to counter relationship between Saudi Arabia and Pakistan. A closer look in the neighborhood shows proxy wars going on in Afghanistan, Iraq, Syria, Yemen and Lebanon for years.

Based on Pakistan experience and ongoing US proxy wars in the region, one is forced to arrive at a conclusion that US is not a peacekeeper but warmonger. Having said this, I would like to thank Dr. Moeed for providing an opportunity to the newly elected government of Pakistan to understand the paradigm shift in US foreign policy, imposing itself as a peace broker on Pakistan and India. My suggestion to the Indian government is also to engage with Pakistan directly, rather than asking the US to mediate.  

Pakistan Stock Exchange witnesses 22 percent decline in daily trading volume

With a modest recovery in the first couple of days, the benchmark index of Pakistan Stock Exchange (PSX), lost most of the gains posted recently. The week ended 7th September closed at 40,855 points, down 2.1%WoW. Showcasing all the tell-tale signs of a highly volatile, illiquid (average daily trading volume shrinking  by 22%WoW) and dampened near term outlook, investors remained cautious. The news impacting the market included: 1) a number of crucial and time sensitive decisions for the new government where clarity is awaited and 2) growing risk of a cyclical downturn in consumption led demand where monetary tightening and high fuel prices suggest reduced spending. Other news affecting investors’ sentiments were: 1) US Secretary of State Michael Pompeo stating that his visit to Islamabad led to an agreement that it’s time for the United States and Pakistan to deliver on their commitments, 2) the central bank announcing auction of Rs5.15 trillion worth Market Treasury Bills and Pakistan Investment Bonds during the four remaining months of the current calendar year, 3) Prime Minister Imran Khan approving 46% increase in gas prices as proposed by OGRA, along with ordering steps to control annual gas theft of Rs50 billion and 4) President on the advice of the Prime Minister reconstituting the Council of Common Interests (CCI), and constituting the Cabinet Committee on China-Pakistan Economic Corridor (CCoCPEC). Volume leaders for the week were: BOP, KEL, AGL and EPCL. While the gainers were led by: ABL, KAPCO, UBL, KEL, the laggards included: PIOC, DGKC, CHCC and NCL. Volatility is expected to mar investors’ sentiments over the coming weeks because of some difficult to comprehend decision, also lacking prudent thinking. Accumulating positions on dips and tactical sector switching could yield returns. Overall, market participants will be closely monitoring policy decisions, particularly regarding gas and electricity tariff hikes (proposed by OGRA and NEPRA with ECC's formal decisions pending) and near term measures to curtail the external account deficit.

Ballooning current account deficit (CAD) due to the hefty debt repayments have led to a mammoth external financing gap (US$20.42 billion for FY18) as insufficient external inflows (US$14.35 billion loans in FY18) plunged the foreign exchange reserves held by State Bank of Pakistan to US$9.79 billion, down US$6.34 billion during FY18. Going forward, an estimated CAD of US$17.8 billion for FY19 with additional drags from upcoming redemption of Eurobond and commercial borrowing repayments are likely to push gross external financing to US$22.44 billion for FY19. In this regard, inadequate external inflows estimated at US$13.45 billion (excluding bailout financing should translate into a net shortfall of US$8.84 billion by the end of FY19, plunging the reserves to unsustainable levels. Moreover, for recent policy makers, the path to possible remedies for the prevailing BoP shortfall include: 1) approaching international debt market, 2) investments from non-residential Pakistanis, 3) Chinese bailout, 4) 'gifts' from friendly countries, and 5) eventual IMF financing facility. With each mode of financing carrying inherent benefits and associated risks, GoP conceding to another IMF financing facility along with accompanying caveats (with the sole purpose of improving on external vulnerabilities). Under an IMF facility, GoP could likely tap in other external avenues as well as fetch better yields in international debt market to create a blend of financing to bridge the external gap.

Pakistan’s largest exploration and production company OGDC has announced its FY18 earnings at Rs78.74 billion (EPS: Rs18.31) as compared to R63.80 billion (EPS: Rs14.84) for FY17, up 23%YoY. The Board of Directors has also approved payment of a final dividend of Rs2.5/share, taking the cumulative full year payout to Rs10/share for the year. The results are above market expectations on account of higher gross profit, translating into higher profitability. Net sales were up 19%YoY mainly due to the hike in international oil prices by 25%YoY and depreciation of Pak rupee by more than5%, despite falling hydrocarbon volumes. Exploration expense were reported at Rs16.19 billion, may be due to recording of a previously suspended well at Ranipur. The quantum of other income was almost at the level of previous year. During 4QFY18 fourth earnings rose to Rs21.92 billion (EPS: Rs5.10) from R16.21 billion (EPS: Rs3.77), on the back of favorable macro/oil price shifts, overcoming the drop in volumetric output (gas volumes were stagnant but oil volumes declined by more than 7%YoY). At present the scrip is being traded at a heavy discount to its 3 year historical price. While the likely positive is further hike in international oil price, the dry wells in Baluchistan or a decline in global oil prices could pose risks to the profitability of the Company.

The decline in petroleum, oil and lubricants (POL) sales plunged by 18% MoM/46%YoY during August 2018 as volumetric offtake declined to 1.35 million tons, proving to be the lowest monthly for sales since February 2007. The lofty decline was observed in FO sales falling by 46%MoM/79%YoY. Along with this retail fuel segment also tapered (HSD and MOGAS sales also posted decline of 20%MoM/38%YoY and 1%MoM/11%YoY) respectively, the 8MCY18 cumulative volumes also declined by 18% YoY. Among all the products, only MOGAS recorded a 3%YoY increase, while HSD/FO offtake declined 7%MoM/45%YoY, sapping growth from overall sales. Sizeable shifts in market share PSO, APL, and HASCOL during 8MCY18 was observed as smaller unlisted players were seem to be claiming bigger chunk in the pie.

Some of the worth mentioning corporate announcements were: 1) National Foods (NATF) announced its 4QFY18 result posting consolidated EPS of Rs4.37 up 100% YoY as compared to EPS of Rs2.19 for the corresponding quarter last year. Sales improved by 13% YoY, while distribution cost declined by 18% YoY. Earnings were considerably up despite 1) increase in administrative expenses by 75% YoY, 2) hike in financial charges by 37% YoY, 3) decline in gross margins and 4) fall in other income by 65% YoY. NATF also announced cash dividend of Rs3.75 per share along with issue of 20% bonus shares. 2) Engro Polymer and Chemicals (EPCL) informed PSX that the Company has decided to enter Hydrogen per Oxide business through a Greenfield manufacturing facility with a CAPEX of US$23 million, funded through internal cash generation. 3) Pak Suzuki Motor announced that it would stop production of its much sought-after and low-priced Mehran from next year.

Reinvigorating capital market of Pakistan

The newly installed government in Pakistan faces a mammoth task of reinvigorating capital market of the country. This should be among the top five most important items of the economic agenda. The fiscal consolidation requires some other unpopular measures that include: 1) improving tax collection to bridge budget deficit, 2) containing extravaganzas for spending more on development, 3) boosting exports by making Pakistani manufacturers/exporters competitive in the global markets and 4) privatizing state own enterprises to save one trillion rupees which these units swallow annually. Since the role of the government is to facilitate the business community in making fresh investment for the creation of new job, stock exchange is one of the most important institutions that play a key role in the mobilization of capita. An effort has been made to review the factors affecting the performance of Pakistan Stock Exchange (PSX) and suggest the impetus to make it more vibrant. To read details please click http://www.pakistaneconomist.com/2018/09/03/reinvigorating-capital-market-of-pakistan/

Race for the position of next President of Pakistan

 The five-year term of incumbent President of Pakistan, Mamnoon Hussain, elected by the previous ruling party Pakistan Muslim League, Nawaz Sharif faction (PML-N), ends on 9th September 2018. He is eligible for re-election for the second term, but has declined to participate in the election.

The election for new president has been scheduled for 4th September 2018. In Pakistan, president is elected by the Electoral College, which comprises of Senate, National assembly and the provincial assemblies. Each member cast his/her vote at the respective assemblies to elect the next present.

The three candidates, who have filed their nomination papers for the election of president, are Arif Alvi nominated by the ruling party, Pakistan Tehreek Insaf (PTI). He has also won one seat in National Assembly. Aitzaz Ahsan is a former senator of Pakistan Peoples Party (PPP) from Punjab. Maulana Fazal-ur-Rehman, chief of JUI(F) is the joint candidate of Muthaida Majlis-e-Amal (MMA) and PML(N). It is worth mentioning that Maulana was not elected by the voters from two of the constituencies of his own hometown Dera Ismail Khan. It appears that he is playing the final gamble to fetch the post of President of Pakistan to save his dignity, whatever is left.

PTI is not likely to face any competition in winning the presidential elections because the opposition that came in assemblies bragging to be a strong opposition and claiming to give a tough time to PTI and its allies is proving a house of cards. They could not remain on the same page regarding nomination of the joint candidate. The complacency of PTI is based on the fact that it already enjoys support of 346 members of the National Assembly, Provincial Assembles and Senate. PTI is also backed by MQM(P), GDA, PML(Q) and Baluchistan Qaumi Movement.

The irony of the fate is that the opposition failed in arriving at consensus on the name of the joint candidate. To disassociate PML(N) take refuge behind the allegation that Aitzaz Ahsan in one of his public speech during the election campaign used some derogatory remarks Kulsoom Nawaz, wife of convicted prime minister Nawaz Sharif. PPP seems adamant by not pulling out Aitzaz Ahsan to make Maulana a joint candidateof the opposition. If one peeps into the history, Maulana has enjoyed support of both PPP and PML(N), which kept him Chairman of Kashmir Committee.

The lust for power of Maulana is evident from his recent visit to Karachi and seek support from MQM(P). Both the parties extended their hospitality but very politely expressed their stance; they are already in alliance with PTI.

If one examines the prevailing scenario carefully the PTI confidence is not out of the place. Due to the opposition in complete disarray, soon PTI, allied parties and their vote bank throughout the country will be celebrating victory of presidential election. All the credit will not only go to all the alliance parties for supporting PTI, but historian will also write that opposition offered the position to PTI by not showing its unity.

Moral of the story is that Maulana Fazal-ur-Rehman has enjoyed his days and time has come for him to announce retirement from politics and confine himself to religious preaching to develop interfaith harmony, if he can. He accused Pakistan Army for ‘engineered election’ and also made efforts to convince elected members not to take oath.

Time for mending US Pakistan relationship

It is becoming visible that the US administration has already started applying undue pressure on Pakistan. The Foreign Secretary is scheduled to visit Pakistan during first week of September. In the past the US mantra was ‘do more’, which is likely to get louder as the newly elected government has taken charge.

The first evidence came when the US issued instructions to the IMF to be more cautious in lending money to Pakistan. Ironically this announcement came without taking into account many ifs and buts. The recent handout of the US administration further spoiled the already deteriorating relationship. It has therefore become imperative for the US administration to revisit its foreign policy towards Pakistan.

Let it be clearly understood by the US administration that the public pressure on the government has been on the rise to bid farewell to the US proxy war in Afghanistan. The masses now openly ask the reasons for the presence of thousands of troops in Afghanistan, the US had announced to pull out its troops from Afghanistan by 2014. Even at that time I had written a blog that troops will stay in Afghanistan forever and the prediction came true as the number of troops has increased rather than reducing.

I had also written that the US has lost war in Korea and Vietnam in the past and was on losing spree in Iraq, Syria and Afghanistan. The US must accept its defeat in Afghanistan and pull out its troops immediately. The newspaper reports indicate that more and more area of Afghanistan is being recaptured by anti US fighters, enjoying the support of local population. The control of Afghan regime that shrank to Kabul is now shrinking to Presidential Palace only.

Many geopolitical analysts have the consensus that after the decision to pull troops the US administration is getting jittery about the safety of its soldiers as well as military hardware. It can’t be ruled out that the anti-US forces may allow evacuation of troops in exchange for military hardware. The hardware that was accumulated in Afghanistan in more than four decades can’t be moved out in weeks or months. The US had used Pakistan backed fighters in repulsing USSR troops and again expects Pakistan to provide a shield as the retreat of troops and military hardware starts.

The analysts fear that retreat may not be as easy as being perceived by the US administration. I am sure that the US administration is fully cognizant of the fact the Anti US fighters are now backed by global and regional super powers and all of them would not like to miss the opportunity to settle their accounts. The real issue is that the US troops can’t move an inch without the local support as they are not familiar with the terrain. This inadequacy was one of the prime factors of the US defeat in Korea.

Establishing peace in Afghanistan is as not as easy as being perceived by the US administration. The presence of local war lords and fighters supported by the US troops make the jigsaw puzzle more complicated. One of solutions, which may not be acceptable to the US administration, is destruction of all the US owned military hardware in Afghanistan. However, it creates a situation chicken or egg first.

For the safe exit of the US troops and avoid anarchy/civil war after the departure of US troops, the US must consider destruction of military hardware. It is also suggested that Pakistan should not get involved in any adventure. The US has started the war in Afghanistan and it will have to ensure peace after the withdrawal of its troops. Trillions of US dollars, tax payers’ money, have been wasted in four decades. If the British crown can let its colonies get independence why can’t the US accept it defeat and pull out troops from Afghanistan, Iraq and Syria?