United States and China entangling in a new type of cold war

Over the last more than two months many countries were told by World Health Organization (WHO) to opt for lockdown to fight wide spreading coronavirus pandemic. In the mean time one of the equally fast developing narratives is that it is an ongoing biological war between United States and China.

If one can recall Saddam Hussein of Iraq was accused for the production of weapons of mass destruction. A few sites were identified and destroyed, but soon it became evident that the entire propaganda was very well concocted. However, some observers went to the extent of saying that these sites produced material which was used against Iran in a war spread over more than a decade.

Coming back to my topic, it may be suspected that United States was not happy, rather afraid of growing economic might of China. Initially to keep a close watch the US companies were allowed to make huge investment in China and Chinese were allowed to invest in United States. Growing deficit in balance of trade prompted United States to impose restrictions on the entry of Chinese good, but all in vain.

One of the conspiracy theories is that United States leaked a virus in Wuhan, to ultimately reach the industrial hub of Shanghai. The move backfired as China saved its industrial hub, but virus spread to almost all the countries on the plant, except a few.

Scanning the content printed one is inclined to arrive at a conclusion that this is not a pandemic but a biological war. After more than four decades of engagement, the two superpowers have been unable to bridge the ideological gulf that separates them. A global pandemic might have served as an occasion for more cooperation; instead it has only made the divide more obvious. The two countries now stand on the brink of a new type of cold war.

The level of trust between China and the United States is at its lowest point since diplomatic ties were established in 1979. The deterioration in US-China ties began long before the pandemic and even before the Trump presidency. A fundamental shift in the relationship has taken place. American interests now diverge more than they converge.

China’s return towards communist orthodoxies since Xi Jinping became president in 2013 has had a crucial impact. Tthe fundamental difference in ideology between the US and China can be summed as, “Between 1978 and 2012, the Communist party put aside its communist roots and focused on developing economic strength. Once China succeeded economically, the CCP went back to refocus on its original intentions of building socialism. For decades, this bargain delivered impressive commercial gains; making China the prime engine for global growth.

Tens of thousands of US companies set up business in China and bilateral trade last year amounted to US$541 billion.  China is often accused of showing less willingness to accept US global leadership and began carving out its geographical spheres of influence. One critical breach of trust was termed deployed huge military infrastructure on the islands by China.

 The insecurities of United States started mounting on rising military might of China. Images of sailors standing on the deck of a Chinese guided-missile destroyer were clear signs of defiance by China. As China’s economy grew, it showed progressively less willingness to accept US hegemony.

In US-China commercial relationship accusations of violation of intellectual property rights became a big hurdle. This prompted Washington to impose tariffs on a range of Chinese goods, triggering a 20-month trade war that was put on hold in January this year with a truce deal that remains extremely fragile.

Reportedly, total Chinese investment in the US fell to US$5 billion last year, from a recent peak of US$45 billion in 2016, when Chinese companies were much more free to acquire US businesses. On top of that Trump administration and lawmakers on Capitol Hill have been considering other moves against China, including more stringent export controls, curbs on investment flows and limits on integrated supply chains between the two countries — all in the midst of a deep global recession.

Trump also threatened to terminate the January trade deal with China, which could lead to a new flare-up in tariffs, because of skepticism over China’s willingness to honour its pledge to buy billions of dollars of American goods. 

Apparently, both sides claim that good progress is being made and fully express willingness to meet their obligations under the agreement in a timely manner, but ongoing blame game becomes the biggest dampener. Some observers predict continued tension, with nationalist sentiment and recession supporting hardliners in both countries. It appears extremely difficult to contain deteriorating relationship. Strategic competition will remain the dominant factor.

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United States “an uninvited guest” in Persian Gulf

An International affairs expert, Sabah Zanganeh has termed the United States “an uninvited guest” in the Persian Gulf region. “The United States’ security and military forces have understood that Iran is serious about defending its interests. Iran is the owner, but the United States is an uninvited guest. If any incident occurs, it is this guest who will be harmed,” he told IRNA in an interview published on Tuesday.

Zanganeh added that the United States knows that it should not make a mistake and endanger regional security. “It was a time when Portugal and Britain were in the Persian Gulf region, but they left. The United States must learn a lesson and leave the region,” he noted.

President Hassan Rouhani said on 29^th April 29 that the US must know that the waterway in the West Asia region is the Persian Gulf and not the New York or Washington Gulf.

“They must understand the situation by the name of the place and the people who have protected it for thousands of years and stop hatching plots against the Iranian people,” Rouhani said in a cabinet meeting.

He said, “The United States has witnessed the Iranian people’s success in all areas and also in protecting the Persian Gulf waterway. Our soldiers in armed forces, the Guards [the Islamic Revolutionary Guard Corps], Basij, Army and police forces have always protected and will protect the Persian Gulf.”

Rouhani also described the Persian Gulf as very “important” and “sensitive” region.

“The Persian Gulf belongs to the Iranian nation and has always been and will be the Persian Gulf,” the president noted.

IRGC Navy chief Alireza Tangsiri also said on 27^th April that the United States is an “uninvited guest” in the Persian Gulf region.

The chief of the Iranian Army Command and General Staff College (DAFOOS) has said that the United States is an “uninvited guest” in the Persian Gulf region.

“The Persian Gulf is like a big old house which has eight doors and independent rooms and also a yard which is shared by these eight neighbors. If a guest comes, he has to leave after a while, because a guest should not stay permanently,” General Hossein Valivand told reporters on the sidelines of a ceremony held to mark the national day of the Persian Gulf.

Valivand noted that Iran wants the US and all other foreign forces to leave the Persian Gulf region.

“We guarantee security of the Persian Gulf by the Army’s Navy and the Guards [the IRGC] and also by cooperation with other neighbors and the countries we have formed a military coalition with,” he said.

Foreign Ministry spokesman Abbas Mousavi said on 20^th April that foreign forces’ presence in the region is the source of insecurity, instability, and tension.

“We consider presence of the foreign forces, especially forces of the United States, in the region a source of tension, instability, and insecurity. Their presence is illegal and illegitimate. This is our region and our armed forces must be able to patrol without hurdle,” Mousavi said in a press conference held through video conference.

He said, “This issue led to our forces’ response. It has been for thousands of years that Iran is in this region and the regional security must be provided by the regional countries, especially Oman which is in the Strait of Hormuz region.”

The spokesman urged foreign forces to leave the region and not make Iran give them warning.

Foreign Minister Mohammad Javad Zarif wrote on his Twitter page on April 23 that “US forces have no business 7,000 miles away from home, provoking our sailors off our OWN Persian Gulf shores.” 

It came after US President Donald Trump said he had ordered the US Navy to destroy Iranian boats “if they harass” US ships in the Persian Gulf.

“I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea,” Trump said in a tweet on 22^nd April 22.

The IRGC has rejected US description of the Iranian boats’ behavior in the Persian Gulf, saying such a depiction is like “Hollywood scenarios”.

Chevron books larger profit but opts for fresh capex cuts

Oil major Chevron booked a larger profit in the first quarter of 2020 compared to the same period last year on the back of asset sales, favorable tax items, and forex gains, but decided to further cut its apex guidance for the year. Chevron also set a new quarterly production record.

Chevron has reported earnings of US$3.6 billion for the first quarter of 2020 as compared to earnings of US$2.6 billion for the first quarter of 2019.

Included in the current quarter was a gain of US$240 million associated with the sale of upstream assets in the Philippines and favorable tax items aggregating to US$440 million.

Foreign currency effects increased earnings in the first quarter of 2020 by US$514 million.

Sales and other operating revenues in the first quarter of 2020 were reported at US$30 billion, as compared to US$34 billion for the same period a year ago.

“First-quarter earnings were up from a year ago,” said Michael K. Wirth, Chevron’s chairman of the board and chief executive officer, “driven by downstream margins and increased Permian production. However, commodity prices fell significantly in March and the weakness continued into the second quarter, primarily due to reduced demand resulting from the COVID-19 pandemic.”

Wirth also added that the company’s financial results in future periods are expected to be depressed as long as current market conditions persist.

Chevron decided to further reduce its 2020 capital expenditure by up to US$14 billion.

The company has already reduced its 2020 capital spending plan by $4 billion.

In addition, the Company estimates that 2020 operating costs will decrease by US$1 billion. This follows the previously announced suspension of share repurchases and the completion of additional asset sales.

“Together these actions are consistent with our longstanding financial priorities: to protect the dividend; to prioritize capital that drives long-term value, and to maintain a strong balance sheet,“, said Wirth.

Chevron’s worldwide net oil-equivalent production was 3.24 million barrels per day in the first quarter of 2020, an increase of over 6 per cent from a year ago, and a new quarterly record.

An agreement signed with United States in 1945 will continue to haunt House of Saud for ever

I wrote a blog titled “And finally Saudi Arabia bows down before US mantra” on April 10, 2020, where the bottom-line was that Saudi Arabia has bent to knees before United States. Since then I wanted to explore what turned Saudi Arabia too feeble. 

Now I share with you the crux of my finding very briefly.

In my opinion, Saudi Arabia was put to its knees after United States put showed it the details of an agreement in 1945 between Franklin D. Roosevelt, President of United States and the Saudi King at the time, Abdulaziz, which defined the relationship between the two countries for the years to come. 

The deal that was struck between the two men at that time was that the US would receive all of the oil supplies it needed for as long as Saudi Arabia had oil in place, in return for which the U.S. would guarantee the security of the ruling House of Saud.

The deal was altered slightly since the rise of the US shale oil industry. The US also expects the House of Saud to not only supply the US with whatever oil it needs for as long as it can but also that it will also facilitate the US shale industry to continue to function and to grow.

President Donald Trump has used this agreement to the US benefit. He has sensed a lack of understanding on the part of Saudi Arabia for the huge benefit that the US is doing the ruling family. He went to the extent of saying that [Saudi King Salman] would not last in power for two weeks without the backing of the US military. He also made it clear that without the US protection, either Israel or Iran and its proxy operatives and supporters could very soon end the rule of the House of Saud.

Trump has also said, “I will do whatever I have to do... to protect... tens of thousands of energy workers and our great companies,” and added that plans to impose tariffs on Saudi Arabia’s oil exports into the US were “certainly a tool in the toolbox.”

 Putting tariffs on Saudi oil rather than Russian oil made a lot of sense from two key perspectives. First, the US imports around 95% more oil from Saudi than it does from Russia, so sanctioning Russian oil would have little effect on supply glut prevailing in the US. Second, it was also a understanding in the US that Russia was in much better economic shape than Saudi to handle any shocks to its oil-related streams of revenue.

It is also the fact that Saudi currently provides one of the few large-scale sources of sour crude to the US, which is essential to its production of diesel, and to which purpose WTI is less suited. Gulf Coast refinery system of the US has invested heavily in coking systems and other infrastructure to better handle heavier crudes from the Middle East in recent decades.

The other major historical sources are not in a position to fill the gap, with US sanctions still imposed on oil imports from Venezuela, Mexican flows unreliable, and Canada’s pipeline capacity to the US not able to handle anymore exports south until the long-delayed Keystone pipeline is up and running till 2023.

It was strongly believed that Trump would use the threat of such tariffs to convince the Saudis that he is unpredictable enough to impose such taxes, regardless of the short-term economic consequences. As president, he was required to do something as around 44 million barrels of Saudi crude was expected to reach the US over the next four weeks. This was around four times the most recent four-week average, according to EIA records, and it was mostly due to be delivered to the already overwhelmed Cushing delivery point.

Reportedly, Republican Senator Kevin Cramer of North Dakota, who advises Trump on energy issues, has been calling on the White House to take action to stop the very large crude carriers from unloading and several senators and congressmen have threatened to vote to withhold military aid to Saudi Arabia.

Keeping in view the burgeoning ill-feeling towards the Saudis, sources in theUS Administration were desperate to exploit ‘No Oil Producing and Exporting Cartels Act’ (NOPEC). Pressure was building on Trump to finally sign off the NOPEC Bill ever since the Saudis announced to increase output.

The NOPEC Bill would make it illegal to artificially cap oil (and gas) production or to set prices, as OPEC, OPEC+, and Saudi Arabia do. The Bill would also immediately remove the sovereign immunity that presently exists in US courts for OPEC as a group and for each and every one of its individual member states. This would leave Saudi Arabia open to being sued under existing US anti-trust legislation, with its total liability being its estimated US$ one trillion of investments in the US alone.

The would have also entitled the US administration to freeze all Saudi bank accounts in United States, seize its assets in the country, and halt all use of US currency by the Saudis anywhere in the world. It would have also allowed the US to go after Saudi Aramco and its assets and funds, as it is still a majority state-owned production and trading vehicle, and ment that Aramco could be ordered to break itself up into smaller, constituent companies that are not deemed to break competition rules in the oil, gas, and petrochemicals sectors or to influence the oil price.

The Bill came very close indeed to being passed into a law in February of last year, when the House Judiciary Committee passed the NOPEC Act, which cleared the way for a vote on the Bill before the full House of Representatives. On the same day, Democrats Patrick Leahy and Amy Klobuchar and – most remarkably – two Republicans, Chuck Grassley and Mike Lee, introduced the NOPEC Bill to the Senate. Its progress was only halted after President Trump stepped in and vetoed it when the Saudis did what he told them to do, but the option is still available for a relatively quick turning it into law.