Pakistan: Uncertainty continue to mar economic performance

The Supreme Court of Pakistan has announced its verdict in favor of Ch. Pervaiz Elahi, who has finally assumed the charge of Chief Minister Punjab.

Punjab’s economic and political importance is unparalleled for any party looking to form a government in the center. The province has a population of about 110 million, making up 52% of the country’s populace.

In the FY23 budget, Punjab had budgeted a surplus of PKR125 billion, and federal allocations of PKR1.7 trillion were envisaged for the province (50% of the divisible pool). Any alterations to the budgeted provincial surplus, though unlikely, can result in trouble for future tranches from the IMF.

PTI Chairman, Imran Khan, has repeatedly asked for fair and free elections ever since his ouster in April this year. Following the recent events, PML-N Chief, Nawaz Sharif, also stated that he was in favor of holding early general elections as delaying the same would be disadvantageous to the country.

With Punjab firmly under the PTI coalition and its nominee Pervaiz Elahi at the helm of the provincial government, PTI is now expected to make a move towards the National Assembly and make its government in the center.

The political crisis in the country which started after the dismissal of Imran Khan from his office has seen Pak Rupee depreciate by 27% against the Greenback.

The current political uncertainty comes at a time when the country is already struggling with soaring current account deficit and colossal foreign debt repayments which in confluence with the political uncertainty had put serious pressure on the currency.

The current political and economic uncertainty has resulted in markets starting to price in default risk, resultantly the yields on Eurobonds/Sukuks have reached all-time high, with the December 2022 maturity instrument yields soaring to 45.6%.

At the same time, the PKR depreciation has continued unabated, despite Pakistan having reached an SLA, where concerns over filling a US$4 billion funding gap identified by the IMF remain.

Analysts expect the IMF program to resume soon irrespective of political developments, toning down the uncertainties surrounding Pakistan’s external vulnerability.

However, domestic issues (elections, inflation, interest rates) are likely keep Pakistan’s equities market under pressure.

Eroding foreign exchange reserves rendering State Bank of Pakistan helpless

One of the prime mandates of the central banks around the world, particularly of the third world countries, is to manage exchange rate efficiently and effectively, and State Bank of Pakistan (SBP) is no exception.

However, the recent free-fall of parity raises many questions that include:

1) Isn’t SBP allowed to intervene?

2) Has SBP lost capacity to intervene?

3) Aren’t some groups having vested interest responsible for the present trauma?

 With the utmost disgust, I have to say that the SBP is helplessly watching from the sidelines as the rupee is registering from one all-time low to another low.

Even a Pakistani of ordinary wit understands that in the absence of enough foreign exchange reserves, the SBP can only watch the trauma helplessly.

Please allow me to say that purposely created political turmoil has become the source of all kinds of shocks, pushing Pakistan to imminent default.

Added to political instability are: 1) structural weaknesses of the external sector, 2) higher global prices of fuel and food commodities, 3) geopolitical pressures rendering Pakistan helpless and 4) delay in the revival of the International Monetary Fund (IMF) program.

Between April 7 and July 22, rupee has lost more than 21% value against US$.

Now, the most disturbing question is how long will the rupee continue to decline?

I am afraid neither the Government of Pakistan (GoP), nor the SBP has the reply. Copybook reply being presented is, “Things will become better when US$ 1.17 billion tranche is released, hopefully in last week of August”.

However, analysts say Pakistan needs around US$35 billion for debt serving etc. Therefore, IMF tranche is peanuts and inflows from China, Saudi Arabia and UAE will provide a temporary breathing space only.

One needs not be a genius to understand that if Pakistan’s import bill of goods and services continues to eat up more than 90% of the foreign exchange earnings through remittances, export proceeds and foreign investment then hardly anything is left for external debt servicing.

I am forced to infer that the GoP will continue to borrow for debt servicing and will never attain comfortable level of foreign exchange reserves in the foreseeable future.

Dishonest western media not reporting correct situation of oil market

Over the years I have been saying that Western media often rum ‘tinted’ reports. This morning I got yet another proof to support my attribution.

It has been reported that for the second straight week, the main oil futures contracts have seen a marked rejuvenation in open interest, primarily coming from bullish long positions.

It was inferred that despite ongoing fears of an economic recession, traders believe that the selloff earlier this month was overdone.

This means the markets are largely ignoring the return of Libyan oil. In addition, Europe’s natural gas woes have strengthened demand prospects for middle distillates, with diesel switching in the winter months now a very real possibility.

The spread between the world’s two leading crude benchmarks, Brent and WTI, is as wide as it has been in more than three years, moving as far as US$8.50 per barrel recently.

Previous strength in WTI has been tangibly beaten down by weakening gasoline demand and several consecutive stocks builds.

US crude exports have seen a substantial drop compared to record highs seen in April-May, but the wide Brent-WTI spread will provide a huge boost to European buying of the American benchmark.  

The OPEC+ group had a massive shortfall of 2.84 million barrels per day (bpd) in June between actual production and the target oil output level as part of the deal. 

As OPEC+ is unwinding its cuts, more and more members are falling further behind their quotas due to a lack of capacity or investment in supply.

In June, the compliance rate at the OPEC+ group soared to 320% from an estimated 256% in May, according to Argus’s sources, suggesting that the gap between nameplate production per the agreement and actual production continues to widen. 

Per an Argus survey from earlier this month, OPEC+ pumped more than 2.5 million bpd below its target in June, despite a rebound in Russia’s oil production that helped the group’s output rise by 730,000 bpd from May. 

Russia’s oil production rose in June and was approaching the levels last seen in February, just before the Russian invasion of Ukraine. Most of the rebound was due to higher intake from domestic refiners.  

The ten OPEC producers in the OPEC+ pact pumped 24.8 million bpd of crude oil in June, with production falling one million bpd short of the target levels.

Top OPEC producer Saudi Arabia naturally raised its crude oil production by the most in June compared to May.

Yet, per OPEC’s secondary sources, even the Saudis were lagging behind their quota for June. Saudi Arabia’s oil production rose by 159,000 bpd to 10.585 million bpd. To compare, the Saudi target was 10.663 million bpd, the Kingdom was 78,000 bpd below its quota last month using secondary source figures.

OPEC+ is expected to continue to underperform by a lot compared to its production targets for July and August after the group decided to accelerate the rollback of the cuts and have those completely unwound by the end of August. 

Would Hezbollah risk war with Israel over Karish gas rig?

Less than a month before the Karish gas rig is set to start operations, Hezbollah’s Secretary General Hassan Nasrallah has upped his rhetoric to use force to stop Israel from extracting gas.

“If the extraction of oil and gas from Karish begins in September before Lebanon obtains its right, we would be heading to a problem and we will do anything to achieve our objective,” Nasrallah said in an interview on al-Mayadeen TV on Tuesday night.

“No one wishes for war and the decision is in Israel's hands, not in our hands,” he said. But his opponents say, “It is in Nasrallah’s hands, and the leader of the Lebanese terror group knows it. They say, “He is making a calculated gamble that the negotiations over the disputed maritime border will end in favor of Lebanon.

Nasrallah warned, “All fields are under threat and that no Israeli target at sea or on land is out of the reach of the resistance’s precision missiles.”

While tension has risen significantly between Israel and Hezbollah, the intelligence community does not think that Nasrallah would drag the entire region into war over the rig. But, the intelligence community is not always right. 

They refer to the Second Lebanon War. Haaretz’s Amos Harel, a senior officer said that a day before the ambush of troops and kidnapping of two reservists in 2006, we didn’t have a clue.

Another example where the military did not expect war was last year in May when Hamas launched a barrage of rockets toward Jerusalem. That led to 11 days of conflict between Hamas, Palestinian Islamic Jihad and the IDF and over 4,000 rockets and mortars fired into Israel.

Israel knows Hezbollah is not like Hamas. Over the last 15 years, since the Second Lebanon War, Hezbollah has significantly increased its capabilities which will cause untold damage and cause significant casualties in Israel.

With the help of Iran, the group has rebuilt its arsenal and it is estimated that Hezbollah has between 130,000-150,000 rockets and missiles, many that can reach deep into Israel, including ballistic missiles with a range of 700 kilometers and a handful of precision missiles that are expected to be fired toward strategic sites.

It is believed that in the next war, Hezbollah will try to fire some 1,500-3,000 rockets per day until the last day of the conflict. 

Threats from Nasrallah are nothing new; it’s almost as if whenever he says something it’s to threaten Israel and the IDF.

But recently, Israel has taken the threats more seriously, and Defense Minister Benny Gantz told Alon Ben David of Channel 13 that the situation on the northern border is sensitive.

 "The person who made the lives of Lebanon's citizens worse is Nasrallah, I hope he stops while he still can. He understands that he needs to be careful,” Gantz said, adding, "If he challenges us, we will take off our gloves and we will hurt them.”

Israel sees the Karish rig as a strategic asset several kilometers south of the area over which negotiations are being conducted, and has warned that it will defend it.

But Nasrallah, who sees himself as the defender of Lebanon, also wants to defend it from Israel, even if that means dragging the already crumbling Lebanese state into war with the IDF.

When asked if the group could win a future war with Israel, Nasrallah said that the Lebanese should be confident in the resistance’s capabilities.

 Nasrallah, who answers to Tehran and not to Beirut, added that while the group has not asked anyone to join a future war on our side, it is not known if other forces might join such a war, and this a strong probability.

Hezbollah has made it clear that they will continue to challenge Israel over the rig, despite the real risk of deteriorating into a full-blown war. 

Unlike previous wars, this would be a war over a strategic economic asset. Lebanon has been suffering from a crippling economic crisis since 2019 that has only gotten worse with the global food and fuel crisis. A ruling in favor of Lebanon would allow the country to finally have some breathing room for its population which has not had a break in years.

Israel, of course, is not immune to the crisis and the Karish was set to be an answer to the country’s expanding demand for energy. The excess gas would also be available for export, such as for Europe, which is reeling from Russia’s war in Ukraine and its threat to shut off or reduce supply to the continent over its support for Kyiv.

Isreal anticipates that it would not look like a war with Hamas and it would not look like the war between Russia and Ukraine. A war with Hezbollah would drag the entire region into a war that would also see all terror groups and Iranian proxies take part. And the complete destruction and deadly consequences of the war would be on Nasrallah, not the IDF. 

China sends troops and tanks to Russia to participate in military games

Reportedly, Chinese People’s Liberation Army has sent a delegation to Russia to take part in Moscow’s International Army Games next month, the first time the event has been held since Russia invaded Ukraine.

A train carrying personnel, military tanks and vehicles recently left Manzhouli, Inner Mongolia in China’s north, headed to Zabaikalsk in Russia’s Far East, the military channel of state broadcaster CCTV reported on Monday, without giving further details.

The Chinese team is expected to compete against counterparts from 37 countries and regions at the event – Russia’s largest multinational military exercise. It will take place between August 13 and 27 across 12 countries, including Russia, Iran, India, Kazakhstan, Uzbekistan, Azerbaijan and Armenia.

First held in 2015, this year’s International Army Games is being held amid heightened tensions between Russia and the West after Moscow attacked Ukraine on February 24.

Venezuela – which broke off relations with the United States in 2019 after President Nicolas Maduro assumed a second term in an election that Washington considered a “sham” – is to host a sniper competition as part of the war games.

It will be the first time the Russian-led exercise has been held in the western hemisphere. That could be a “strategic move” for China, Russia, Iran and Venezuela “to preposition forward-deployed military assets in Latin America and the Caribbean”, the Centre for a Secure Free Society, a Washington-based think tank, said in a recent report.

Meanwhile, Niger and Rwanda will be the first African countries to make their debut at the games, according to the Russian defence ministry.

China has been a regular participant since 2015 and will host three competitions, including an infantry fighting vehicles game and a frigate race.

Chinese and Russian forces have stepped up joint military exercises since 2005, both bilaterally and through multilateral platforms, and these have become more regular in recent years as both countries face increasing acrimony from the West.

China’s PLA is also looking to learn from its Russian counterparts, which have carried out military operations in a number of regions in recent years, from the North Caucasus and Georgia to Ukraine and Syria.

While Beijing and Moscow have said their military cooperation does not target any third country, it has prompted growing suspicion from the West.

In its latest defence white paper released on Friday, the Japanese defence ministry said the deepening of military cooperation between China and Russia, including joint air and navy drills in Northeast Asia, “will have a direct effect on the security situation surrounding” Japan.

The International Army Games, organized by Russia’s defence ministry, brings together the militaries of dozens of countries every year in an event it says is to sharpen their skills in combat operations, including a 50km (31-mile) march through the snow.

It comes as 14 NATO allies last month took part in a 13-day joint exercise in the Baltic. Among those taking part were the United States, Norway, the United Kingdom, Germany, France and Belgium. Finland and Sweden – which applied for Nato membership after Russia’s invasion of Ukraine – also joined the exercise.

It involved more than 45 ships, 75 aircraft and 7,500 personnel and covered amphibious operations; anti-submarine and air defence drills that NATO said would demonstrate the flexibility of the maritime forces.

  

Global food crisis demands urgent response

Russian President Vladimir Putin’s invasion of Ukraine shocked the world, forced Western countries to respond, and is driving up the cost of energy and food across the globe. 

However, the most urgent economic, social, and human crises are unfolding in poorer countries where populations face war, spillover-driven inflation, and more expensive foreign-currency debt.

Together these dynamics put populations in Asia, Africa, and some parts of Latin America and the Caribbean at risk of shortages, riots, unrest, and famine. The conflict in Ukraine is directly affecting supplies of food. News of a deal between Russia and Ukraine to allow grain exports is welcome. Russia and Ukraine together account for nearly a third of global wheat supplies, so any stoppage or constriction in trade affects access to basic foodstuffs for many.

Wheat prices are up while sunflower oil, meat, poultry, and a raft of other staples have also risen, driven by higher fuel and fertilizer costs. The United Nations' Food Price Index, which captures the effects of war and supply disruptions, recently reached an all-time high of 156, up from 103 in 2020.

The alarming economic and political crisis in Sri Lanka shows what may occur elsewhere. Long-standing poor governance and corruption in the South Asian country has combined with economic crises, price hikes, and fuel and food shortages to snap the threads of economic and societal stability. The result is unrest, riots, and a collapse of the government.

Sri Lanka is unlikely to be the last country to face economic and governmental strife. Other poorly run, indebted, and stressed states - and their populations - could be weeks or months from similar turmoil. As Kristalina Georgieva, Managing Director, International Monetary Fund, points out, food crises “can unleash social unrest, (yet) … hunger is the world’s greatest solvable problem”.

As the rich in the West grumble, governments in poorer states are reacting by placing restrictions on food exports, according to World Bank President, David Malpass. While inflation is bad for all, the poorest were already spending at least half of their income on food. They have extraordinarily little room to absorb price increases before they go hungry and their children face malnutrition.

Oxfam estimates as many as 323 million people are on the brink of starvation; the United Nations reckons 869 million are facing hunger. Unfortunately, the leaders of the world’s wealthy states are so far doing too little to avert the developing food emergency. In June the G7 group of nations, led by the United States, pledged US$4.5 billion to address the looming food shortage, but this is not enough to avoid disaster.

It’s not the first time insufficient pledges by the world’s richest economies have delivered worse outcomes for the planet. Two years ago epidemiologists estimated that vaccinating the populations of lower-income countries against Covid-19 would cost just US$2 billion. The costs of a failure to equitably distribute the vaccine are conversely massive. 

It is estimated that the negative impact for lower-income countries was US$156 billion in 2021–2022 and US$216 billion the following year. Yet rich nation donors came up with only US$700 million, while providing economic support worth US$15 trillion for their own populations.

The food crisis requires rapid action and resources of at least US$22 billion, according to the UN World Food Program. Delay will only increase the human, economic, and societal costs.

The invasion of Ukraine has hobbled the G20, whose members include Russia. The group’s recent meeting in Indonesia ended in discord. Yet the pandemic also demonstrated that when crisis strikes only state actors, acting collectively, can marshal the necessary resources, spur private and public policy action, and get fast results.

The International Monetary Fund, World Bank, and regional multilateral development banks in Asia, Latin America and Africa should be charged with managing the food and fuel crisis and equipped to step in urgently. These bodies, although consensual in nature, can direct resources and relief without a veto from Russia or its allies. This institutional room to act must be used swiftly.

We believe the response cannot wait until the World Bank and IMF hold their annual meetings in October. The leadership of these and other pillars of the global financial system must be empowered and act now.

First, they should monitor the fiscal and economic stability of countries facing increased distress from debt and rising food prices.

Second, they should redirect existing and additional multilateral and bilateral resources. Current promises, such as the US$2.3 billion committed by the World Bank, are insufficient.

Third, leaders whose countries are in or nearing a crisis should receive multilateral support, with no shaming of that necessary step from public or private creditors and credit ratings agencies.

Finally, public and private creditors should exercise restraint and be willing to take haircuts on their debt to secure stability. No one should profit from malnutrition and misery. Lenders must be part of the solution, not the problem.

National political and financial leaders still must work to avoid a food price crisis, famine, and human catastrophe. Recent history suggests politicians often lack the will to act, even though they know what is needed and that the upfront financial costs are manageable.

What is the reality of Zelensky being portrayed as nobler than Winston Churchill, saintlier than Mother Theresa?

Despite campaigning on a peace platform, Zelensky provoked war with Russia by a) enacting a major troop buildup in eastern Ukraine in February; b) increasing shelling of eastern Ukraine in violation of ceasefire agreements; and c) calling for the retaking from Russia of Crimea and city of Sevastopol, which houses the Russian Navy’s Black Sea fleet.

Before the Russian invasion, CIA reports linked Volodymyr Zelensky to an oligarch so dirty and so mired in significant corruption that the State Department banned him from entering the United States. Now CIA propaganda portrays Zelensky as nobler than Winston Churchill and saintlier than Mother Theresa.

In 2019, the CIA-run Radio Free Europe reported on Ukrainian President Volodymyr Zelensky’s connection to Ihor Kholomoisky, a Ukrainian oligarch whom the State Department banned from entering the US in March 2021 due to his significant corruption.

It is ironic that, since Ukraine’s war with Russia began over four months ago, Radio Free Europe along with the rest of the Western media has depicted Zelensky as something equivalent to a reincarnation of Winston Churchill and Mother Teresa, driving a campaign for his nomination for the Nobel Peace Prize and inspiring a flamboyant musical tribute during the 2022 Grammy awards.

In January 2022, the US Department of Justice filed a civil forfeiture complaint —the fourth against him—which alleged that Kholomoisky and Gennadiy Bogolyubov, who owned PrivatBank, one of the largest banks in Ukraine, embezzled and defrauded the bank of US$5.5 billion which went missing.

The two allegedly obtained fraudulent loans and lines of credit from 2008 through 2016 and laundered portions of their criminal proceeds using an array of shell companies’ bank accounts, primarily at PrivatBank’s Cyprus branch, before they transferred the funds to the US where they continued to launder them illegally through an associate operating out of offices in Miami.

According to a profile in The American Spectator, Kholomoisky laundered millions in Cleveland, Ohio, and across the Midwest where, as one of the region’s biggest real-estate landlords. H e steered one of the biggest Ponzi schemes in world history.

Born in Soviet Ukraine in 1963, Kholomoisky was among those to benefit after the Soviet collapse in the early 1990s from the sale of formerly state-owned enterprises like steel plants and gas wells at fire-sale prices.

According to The American Spectator, Kholomoisky had two advantages over other nascent oligarchs. First, he had a background in metallurgy—in the science of making and molding metals and alloys in demand. Second, Kholomoisky displayed a ruthlessness that made even other oligarchs, no strangers to violent crime, blanch.

According to Oleg Noginsky, the president of the Suppliers Customs Union, after Ukraine’s February 2014 Euro-Maidan Revolution, Kholomoisky “hired the guys who carried out the Odessa massacre”— the killing of several dozen supporters of deposed Russian-allied President Viktor Yanukovych who were holed up in a trade union building.

As Governor of Dnipropetrovsk Oblast from 2014 until 2016, Kholomoisky bankrolled anti-Russian units operating with the Ukrainian army in Donetsk and Luhansk—which voted to secede after the post-Maidan government tried to impose the Ukrainian language on them.

These units included the neo-Nazi Azov Battalion which terrorized the people of eastern Ukraine, along with the Dnipro and Aidar battalions, which were sometimes deployed as personal thug squads to protect Kholomoisky’s financial interests.

The New York Post reported that Kholomoisky had a controlling interest in Burisma Holdings—the Ukrainian energy company which employed Hunter Biden as a board member for US$50,000 per month. Russian media, quoted in State Department emails, referred to Burisma as part of Kholomoisky’s financial empire.

Six months after Hunter Biden departed, Burisma appointed Cofer Black to its board—a position that he maintains. Black was a career CIA officer who served as Director of the CIA’s Counterterrorism Center following the September 11 attacks.

This appointment raises questions as to whether Burisma served as a CIA-front operation that was designed to help finance the anti-Russia militias in eastern Ukraine.

Kholomoisky’s relationship with Zelensky goes back to around 2012, when Zelensky and his partners in a television production company, Kvartal 95, began making regular content for TV stations owned by Kholomoisky.

A comedian and actor who had been famous since the 2000s, Zelensky began his political rise a few years after taking on a starring role in the political satire “Servant of the People,” which began airing on Kholomoisky’s network in 2015.

The show starred Zelensky as a humble history teacher whose anti-corruption rant in class is filmed by a student, goes viral online, and wins him national office.

In a case of life imitating art, Zelensky ended up winning the real-world Ukrainian presidency just three-and-a-half years after the show’s launch, with more than 73% of the vote.

Zelensky capitalized on widespread public anger at corruption, but his 2019 campaign was dogged by doubts over his anti-graft bona fides given his connection to Kholomoisky.

In the heat of the campaign, an ally of incumbent Petro Poroshenko, Volodymyr Ariev, published a chart on Facebook purporting to show that Zelensky and his television production partners were beneficiaries of a web of offshore firms, which they had set up beginning in 2012 that allegedly received US$41 million in funds from Kholomoisky’s Privatbank.

Ariev did not provide smoking-gun evidence, though the Pandora Papers—11.9 million leaked documents published by a consortium of investigative journalists in October 2021—show that at least some of the details in this alleged scheme correspond to reality.

In specific, the Pandora Papers reveal information on ten companies in the network that match structures detailed in Ariev’s chart, and show that Zelensky and his partners used companies based in the British Virgin Islands (BVI), Belize and Cyprus.

Forbes magazine currently places Zelensky’s net worth at between US$20 and US$30 million—a total he could not have earned simply as a TV performer and comedian.

Zelensky allegedly owns lavish properties in central London, Italy and Miami Beach—to which he could retire if he is forced to flee Ukraine.

Two of Zelensky’s associates in the offshore network, who were also part of his TV production company, have held powerful positions in his government. Serhiy Shefir is Zelensky’s top presidential aide, while Ivan Bakanov headed until very recently the feared Security Service of Ukraine (SBU), which is Europe’s largest security agency and nearly the same size as the FBI despite Ukraine being 16 times smaller than the United States.

Besides providing financial support during Ukraine’s 2019 election, Kholomoisky supplied Zelensky with a car and lent his personal lawyer to him to be campaign adviser and promoted his candidacy on various media outlets that he owned.

The close ties between the two were apparent in 2018 when Zelensky traveled to Geneva Switzerland, for Kholomoisky’s birthday, and then afterwards back to Geneva another ten times.

When Kholomoisky moved to Tel Aviv, Israel, Zelensky traveled there to visit with him three times, according to Radio Free Europe.

Zelensky claimed that his relationship with Kholomoisky was not political; rather he had gone to visit him because of TV work.

However, Zelensky made sure to reward him when he became president. He removed Kholomoisky’s opponents, the Prosecutor General, the Governor of the National Bank of Ukraine, and his own prime minister, who tried to regulate Kholomoisky’s control of a state-owned electricity company.

Ukraine’s parliament also passed a measure that prevented Kholomoisky from having to pay higher taxes on his mining operations.

Zelensky’s long-standing ties to Kholomoisky belie the pristine public image of a man hailed by US politicians as a “lion of a leader” and person of “incredible bravery”.

A neoliberal who advanced a sweeping privatization initiative, Zelensky has banned eleven opposition parties and carried out a reign of terror against political opponents.

The victims include the former leader of the Ukrainian left forces, Vasily Volga, and the Kononovich brothers, leaders of Ukraine’s Young Communist League who were accused of being pro-Russian.

Despite campaigning on a peace platform, Zelensky provoked war with Russia by a) enacting a major troop buildup in eastern Ukraine in February; b) increasing shelling of eastern Ukraine in violation of ceasefire agreements; and c) calling for the retaking from Russia of Crimea and city of Sevastopol, which houses the Russian Navy’s Black Sea fleet.

Map showing Ukrainian troop concentrations on eastern Ukraine’s border on eve of the Russian invasion of February 24, 2022. According to the Russian Deputy Foreign Minister, Ukraine had massed 122,000 troops on the border with Donbass. The Duma furthermore has claimed to have intelligence indicating that these troops were planning an offensive into Donbas, which the Russian invasion preempted.

Since the fighting began, Zelensky has eschewed negotiations and instead begged the West for more and more weapons while inviting foreign mercenaries into Ukraine.

Swiss journalist Guy Mettan has written that Zelensky will ultimately be held responsible for Ukraine’s devastation in the war as he preferred the ruin of his country to a timely compromise.

This assessment is at odds with the current media hagiography of Zelensky, which also obscures his ties to Kholomoisky that the CIA itself has acknowledged.

Journalist John Helmer points out that Hillary Clinton, Victoria Nuland and Christine LaGarde, the former IMF Directors, ignored the evidence of Kholomoisky’s corruption and the squandering of IMF loan money in a ponzi scheme; probably because of the political imperative underlying the IMF’s policy towards Ukraine after the Maidan coup.

Russia and China Creating New Global Reserve Currency

Some analysts have been talking about the possibility of Russia and China challenging the US dollar’s global reserve status. Now, it’s happening. As often happens with consequential news in the United States and the West, no one seems to notice or even care.

It shouldn’t be any surprise to those paying attention that Russia and China are strengthening their economic ties amidst continued Western sanctions on Russia.

Russia and the BRICS countries, including Brazil, Russia, India, China, and South Africa, are officially working on their own “new global reserve currency,” RT reported in late June. Nobody even seemed to notice.

“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” Vladimir Putin said at the BRICS business forum in June.

Russia has been cut off from the SWIFT system; it is also pairing with China and the BRIC nations to develop “reliable alternative mechanisms for international payments” in order to “cut reliance on the Western financial system.”

In the meantime, Russia is also taking other steps to strengthen the alliance between BRIC nations, including re-routing trade to China and India, according to CNN

President Vladimir Putin said last Wednesday that Russia is rerouting trade to "reliable international partners" such as Brazil, India, China and South Africa as the West attempts to sever economic ties.

"We are actively engaged in reorienting our trade flows and foreign economic contacts towards reliable international partners, primarily the BRICS countries," Putin said in his opening video address to the participants of the virtual BRICS Summit.

In fact, “trade between Russia and the BRICS countries increased by 38% and reached US$45 billion in the first three months of the year 2022”, the report says. Meanwhile, Russian crude sales to China have hit record numbers during spring of this year, edging out Saudi Arabia as China’s primary oil supplier.

Putin said last month, "Contacts between Russian business circles and the business community of the BRICS countries have intensified. For example, negotiations are underway to open Indian chain stores in Russia and to increase the share of Chinese cars, equipment and hardware on our market."

Putin accused the West of ignoring the basic principles of the market economy" such as free trade. "It undermines business interests on a global scale, negatively affecting the wellbeing of people, in effect, of all countries," he said.

President Xi echoed Putin’s sentiments, according to a June write up by Bloomberg:

“Politicizing, instrumentalizing and weaponizing the world economy using a dominant position in the global financial system to want only impose sanctions would only hurt others as well as hurting oneself, leaving people around the world suffering. Those who obsess with a position of strength, expand their military alliance, and seek their own security at the expense of others will only fall into a security conundrum.”

There is a coordinated global challenge taking place to the US dollar - and it would be the biggest news story in decades. Now, remember that both countries have been working on, and preparing for, this situation for years.

De-dollarization has been a priority for Russia and China since 2014, when they began expanding economic cooperation following Moscow's estrangement from the West over its annexation of Crimea. Replacing the dollar in trade settlements became a necessity to sidestep US sanctions against Russia.

It seems to that the BRIC nations understand exactly how precarious of a financial situation the US and US dollar - is in. Despite the dollar’s recent strengthening, these nations have been in the midst of a multi-decade-long plan to de-dollarize.

Even before the Ukraine conflict started, both China and Russia were stockpiling gold and working on denominating transactions outside of the US dollar. It was another “secret” that was out there in the open.

Since the BRIC conference, ties between Russia and China continue to tighten, with Japan even warning this week about the pair’s strengthening of military ties - at the same time China has closely scrutinized a planned trip by House Speaker Nancy Pelosi to Taiwan.

 “As a result of the current aggression, it is possible that Russia’s national power in the medium to long term may decline, and the military balance within the region and military cooperation with China may change.

In the vicinity of Japan, Russia has made moves to strengthen cooperation with China, such as through joint bomber flights and joint warship sails involving the Russian and Chinese militaries, as well as moves to portray such military cooperation as strategic coordination.”

Japan said this alignment between the two countries “must continue to be closely watched in the future.”

While the economic gears turn behind the scenes, China is also becoming increasingly cagey about Taiwan. The country has sent warplanes into Taiwan's self-declared air defense zone identification zone many times in recent months, according to CNN, and recently alluded to the idea of a no-fly zone over Taiwan ahead of a planned visit by Nancy Pelosi.

President Biden commented on Pelosi’s travel plans this week, stating, “The military thinks it’s not a good idea right now. But I don’t know what the status of it is.”

We’re sure Pelosi will wind up going anyway. Remember, this is the same woman who danced her way through Chinatown while Covid was spreading to the US, from China, to prove she wasn’t racist.

Governor SBP, we beg to differ with you

On Saturday, Acting Governor, State Bank of Pakistan (SBP), Dr. Murtaza Syed talked about unwarranted market concerns about Pakistan’s financial position and assured the crisis will be over in a few weeks.

This is to remind him that analysts are not concerned about Pakistan’s capacity to overcome the temporary hiccups, but have objections on the way the problems are being handled by the incumbent government. The overwhelming concern is that the decision makers are pushing the country towards default, rather than acting upon the advice of International monetary Fund (IMF) to avoid the eminent default.

To be honest, even a man on street knows that the top priority of the government should be to get the tranche released from the IMF, but the economic managers have been playing their own mantra. They not only failed in submitting a plan for increase in electrify and tariffs and petroleum prices, on top priority. On the contrary, they kept on refusing to comply with the IMF requirements, till it became unavoidable. On top of that they also kept on maligning the IMF for the miseries being faced by Pakistanis.

Now talking about the numbers upsetting Pakistanis, they are fully cognizant that the country faces adverse balance of payment crisis and the need to bridge the gap by containing imports, particularly by stopping import of the luxury goods and enhancing exports. Let me put it on record that the incumbent government has failed on both the fronts, miserably.

To establish my point allow me to refer to the decision to increase electricity and gas tariffs and also curtailing supplies to textiles and clothing industry. The industry highlighted that as a result of following this absurd policy they fear losing export orders worth millions of US dollars and even closure of production facilities, as they are losing competitiveness in the global markets.

This is also to remind Syed Sahib that the incumbent government is on borrowing spree at whatever rate the dollars are offered. However, it is not following the priority, which is causing the crunch. They have been told bluntly that unless IMF issues ‘fitness’ certificate, multi-lateral and even bilateral lending will not be possible. However, their focus remains on foreign visits for ‘borrowing’.

Go two steps forward; the incumbent government has not been able to put together: 1) moratorium request and/or 2) impose quantitative restrictions on imports under Article-6 of World Trade Organization (WTO).

This compels the experts to draw the conclusion: either the economic team is incompetent and just can’t make prudent decisions or it is adamant at pushing the country towards eminent default.  

Saga of Turkish Flotilla Continues to Haunt

Twelve years after the Mavi Marmara incident caused an unprecedented diplomatic crisis between former allies Israel and Turkey, the ties between the two countries are warming up again.

Ankara broke off relations with Jerusalem following a raid by Israeli commandos on a Gaza-bound ship trying to break the naval blockade of the Hamas-run enclave. Ten pro-Palestinian Turks who were part of Turkey’s Humanitarian Relief Foundation (IHH) were killed after they attacked the commandos.

The Mavi Marmara was part of a flotilla heading to the blocked Gaza Strip to deliver humanitarian aid.

 It was the largest in a six-vessel convoy that tried to break the siege imposed by both Israel and Egypt that was designed to prevent Hamas and other groups from importing weapons and other goods that could help their military build-up.

The blockade was imposed in 2007 after Hamas took over the coastal enclave, making all goods that enter Gaza be imported under Israeli supervision through land crossings. Several ships had, over the years, attempted to break the blockade, but were stopped by the Israeli Navy and deported from Israel.

 “We can’t let anyone in. If we let one in, we will lose control and if we did that, within three months, we would see Iranian ships in Gaza,” said Eliezer Marom, commander of the Israeli Navy from 2007–2011.

Marom was commander at the time of the Mavi Marmara and, now part of Habithonistim, a movement of Israeli defense officials who advocate for the country’s future security needs, he sat with the Magazine to tell his story.

“I spoke with the Turkish, Greek, and Italian navy chiefs and warned that there could be blood,” he said. “A military operation was our last resort. Violating our maritime borders violates our sovereignty.”

“Whoever wants to bring aid to Gaza, that’s OK. But it must be by land,” he said. “We won’t let anyone into Gaza by sea. A land and sea border is the same, even though there is no physical barrier.”

But those aboard the Mavi Marmara were different. “All of them were terrorists who belonged to IHH, and wanted to kill Israeli soldiers.”

 “It was a different story and needed to be treated seriously,” noted Marom. “It was a civilian ship that decided that it wanted to provoke and challenge Israel.”

He explained that following diplomatic and legal measures taken by Israel to stop the flotilla, the IDF and other security bodies prepared a military operation.

The operation to stop the flotilla, he said, “was the largest Navy operation” with thousands of soldiers at sea, a thousand more in Ashdod and 30 maritime vessels.

“The operation was to take over all the ships simultaneously,” he said. “I wanted to do it at night, when it’s more comfortable to act. And we wanted it to be fast” he added, explaining that Israel knew that the ships had antennas to broadcast what was happening aboard.

The navy initially made contact with the ships in the flotilla late on Sunday evening, going ship to ship and ordering them to follow them to Ashdod Port or be boarded at dawn.

The boarding of the ships started at 2 a.m. the next morning and at 4 a.m. Israeli commandos descended on ropes from helicopters onto the Mavi Marmara and were immediately attacked with clubs, knives, and metal rods. Three soldiers were taken captive.

Troops opened fire after a protester, later identified as Ken O’Keefe, a former US marine aboard the Mavi Marmara, seized a gun from one of them. When it was all over, nine of the flotilla activists were killed and dozens more were wounded, including Israeli troops. Another activist died in hospital, four years later.

“All of them were terrorists who belonged to IHH, and wanted to kill Israeli soldiers,” said Marom, adding that “they planned to do it.”

According to the former navy chief, “we didn’t have enough intelligence. If we knew that they were IHH, we would have acted differently.”

And just like Israel wasn’t expecting such violence, neither was Turkey, said Dr. Hay Eytan Cohen Yanarocak, an expert on Turkey and Turkish history at the Jerusalem Institute for Strategy and Security, and Tel Aviv University’s Moshe Dayan Center for Middle Eastern and African Studies, “In hindsight, Turkey did not expect casualties, physical damage like during a street fight maybe, but in my opinion, they didn’t expect casualties and the incident forced them to downgrade relations.”

“None of the organizers want to take responsibility. After seeing 10 people killed, none of the organizers can do such an initiative because they can be accused of leading people to their death. These flotillas were departing from European countries; it’s not easy to take such an initiative because they have to face the consequences of the act.” 

US hegemony in Middle East is a thing of past

The Jeddah Summit, requested by the United States, should have been Joe Biden’s show, “America is back”. Instead, it was a spectacle that showed America as a spent force desperately trying to stay relevant. Biden’s arrival to the region was probably comparable to Biden’s departure from Afghanistan. 

No one has managed to expose the US superpower fallacy than Russia’s Putin. And no one described that fallacy better than China’s Mao, describing the US as a, “paper tiger”, decades ago.   

Up to this week, no one managed to demonstrate that fallacy, more evidently, that Mohammed Bin Salman, the seemingly unremovable heir to the Saudi throne, who sat rejoicing his incarceration as a statesman, leading a real nation, and negotiating with his defeated US nemesis across the table. That wasn’t enough.

Then came an American reporter, shouting at Joe Biden, who sat in stone silence, whether the Saudi is still a pariah. There’s no way of knowing whether that loud dagger was plunged and twisted into Biden by MBS’ himself. It might as well have been. 

Worst still, the Superpower leader and his delegation were made to listen, in obvious shock, to the young prince across the table loudly refusing to increase oil output beyond 13 million barrel per day, which was the only reason that brought Biden to the Saudi capital.

Why MBS had to wait until Biden sat across the table to deal that humiliating blow, is open to speculation. The body language among the American delegation was interesting, to say the least. Even before MBS dealt this blow, his father, king Salman, decided to disappear after a quick handshake with Biden, giving a clear message. You deal with my son, or you don’t deal.  

America’s previous hegemony in the region is a thing of the past. Earlier, MBS received the US leader at the palace, unlike all other leaders attending, whom he met warmly at the airport. Whether that was another intended message or part of the protocol shouldn’t matter anymore.

Biden would have been better served staying at home. Trump must be relishing the spectacle and comparing it to his own welcome, complete with Saudi folk dances and a US$110 billion arms deal.  

Clearly, Biden’s declaration that America is back found no welcoming party. 

It can never be more personally humiliating than this for a sitting US president being forced to eat his words by a political operator more than 50 years his junior. Neither can the superpower fallacy be more humiliatingly exposed than this. 

No superpower worth the name can be brought to its knees in such fashion by a dependent power. If Putin or MBS have no other benefits from Ukraine’s disaster, this victory is enough for them. A previous oil searching visit to Riyadh, by Joe Biden’s ally, British Prime Minister Boris Johnson, who was recently disgracefully removed, was followed almost immediately by MBS’ trip to China. What will happen to Biden come 2024, assuming the Democrats are foolish enough to nominate him, is anybody’s guess. 

All this humiliation could have been avoided. The “emperor” could have kept his clothes.  The fallacy could have continued. Instead, the US and its NATO allies were intoxicated by past impunity when they bullied weak nations: Afghanistan, Iraq, Yemen, Vietnam, Somalia, Libya and Syria.

Perhaps that’s how far they should have limited their colonial offensive. Against weak nations that couldn’t retaliate, offensives they got away with successfully. Perhaps they should have listened to Russia’s leaders, from Mikhail Gorbachev to Vladimir Putin, and even listened to many of their own political scientists, all of whom have been repeatedly warning for 30 years, not to cross the red lines with an eastward NATO expansion to Russia’s borders.

Many of those warning about the probable consequences reminded the US how President John Kennedy dangerously reacted with DEFCON 2 to Nikita Kruchev’s decision to put Soviet missiles on America’s southern borders in Cuba. That potential holocaust was only averted after the Soviet agreed to climb down, but only when the US itself agreed to withdraw its own missiles from Soviet borders in Turkey. 

Now the US decided to take on real world powers, Russia, with a plan for China on the drawing boards. The result is not just the disastrous predicament faced by Ukrainians, but also the political debacles we have been witnessing in the past months, leading to the mother of all humiliations, when cap in hand, the US came begging MBS, that murderous outlaw leading a “pariah”, for his charity, and he, you can be certain, extorting a pound of flesh in return, before also refusing to go higher than 13 million barrel per day.  

Noteworthy, Biden’s regional tour didn’t include the UAE, a key regional player, where Biden’s Russian and Chinese counterparts were given welcomes fit for reigning emperors, not so long ago.

The UAE is progressively showing a cunning survival ability to balance not just world powers, but regional ones as well, to its own advantage. Reconciliation with Turkey, while retaining strong economic relations with Iran, the two competing major regional powers, are key to the UAE balancing act. Something that Saudi’s MBS has started to emulate. 

Biden’s single seeming success was in Israel, where he managed to hold a virtual quartet summit that included UAE’s Bin Zayed, who earlier walked away from the F35 deal after discovering the plane’s technological compromise aimed at retaining Israel’s superiority, and India’s Narendra Modi, whose government recently warned the US not to interfere with India’s sovereign decisions and its relationship with Putin’s Russia. 

There were expectations that Saudis will welcome America’s re-entry into the region and seek an offensive against Iran. No one hear that language from MBS and his spokespersons. Instead, they heard language that indicated America’s weakness and unreliability as an ally and a regional desire to find solutions with Iran.

Saudi political commentators, who never speak without their government’s approval, portrayed United States as a spent force whose time is up. The region has changed, evolved and moved on. And it can do without America. Whether that vacuum will be filled by Arabs themselves, by Iran or by America’s heirs in Tel Aviv is the question that will keep them busy in the months ahead. But America’s previous hegemony in the region is a thing of the past. 

Back home, there is a lot of soul searching required from Americans to discover how they can adjust and peacefully coexist with a changing world in which America’s word is no longer divine. More importantly, try to learn how not to be extravagant in estimating America’s position, and to instead understand the new limits of its global power. 

 Courtesy: The Tehran Times

Russia and Ukraine agree to allow food shipments out of the Black Sea

Russia and Ukraine agreed to a deal Friday to open Ukrainian ports on the Black Sea, releasing stalled grain shipments into world markets to help alleviate an ongoing food crisis and bring down global prices.

The deal between the two countries was mediated through Turkey, which helped to broker the agreement under the auspices of the United Nations. The ongoing war between Russia and Ukraine has led to a de facto blockade of Black Sea ports that have been unable to export agricultural goods like fertilizer and grain.

United Nations Secretary-General Antonio Guterres, speaking at the signing ceremony in Istanbul, hailed the deal as a “beacon of relief in a world that needs it more than ever.”

“To the representations of the Russian Federation and Ukraine, you have overcome obstacles and put aside differences to pave the way for an initiative that will serve the common interests of all. Promoting the welfare of humanity has been the driving force of these talks,” he said.

The deal will open a passage for significant volumes of commercial food export from the ports of Odessa, Chernomorsk and Yuzhne, Guterres said. Russian Foreign Minister Sergei Lavrov has said that naval mines in Ukrainian ports had been an issue for exports in the past.

“The shipment of grain and food stocks into all markets will help bridge the global food supply gap and reduce pressure for high prices,” Guterres added.

Turkish President Recep Erdogan said at the ceremony the agreement would help to ease pressure on global food prices.

“We are also helping with controlling food inflation, which has become a global problem,” Erdogan said.

Speaking to reporters later Friday, White House national security spokesman John Kirby said that the United States welcomes the development but said officials would be watching it closely, noting that Russia will need to actually comply with the agreement in order for it to be effective.  

Kirby described the Biden administration as both hopeful and “clear-eyed” about the deal.  

“If it’s fully implemented and complied with it will have an impact, but it’s just too soon to know,” Kirby said.

Other international leaders hailed the agreement.

“Putin’s barbaric invasion of Ukraine has meant some of the poorest and most vulnerable people in the world are at risk of having nothing to eat. It is vital that Ukrainian grain reaches international food markets, and we applaud Turkey and the UN Secretary General for their efforts to broker this agreement,” United Kingdom Foreign Secretary Liz Truss said in a statement from the UK foreign ministry.

Global food prices are up more than 23% since last year, according to the United Nations Food and Agriculture Organization (FAO), though they have been ticking down since May. In the US, food prices are up more than 10% annually.

Global prices for grains have fallen more than 4% since a recent high in May but are still more than 27% higher than they were a year ago, according to the FAO. Wheat prices are nearly 50% higher than they were last year.

A logistical coordination center will also be set up as part of the agreement to monitor its implementation, Guterres said.

Sheer hypocrisy of United States

Imposes sanction on sale of Russian energy products but no restrictions on buying fertilizer 

A tanker carrying a liquid fertilizer product from Russia is about to arrive in the United States, sources and vessel tracking data shows.

It is worth noting that President Joe Biden administration has not blacklisted Russian agricultural commodities, including fertilizers, in the aftermath of the Ukraine invasion.

Still, many Western banks and traders have steered clear of Russian supplies for fear of running afoul of rapidly changing rules.

Russia and Ukraine are major exporters of fertilizer, key to keeping corn, soy, rice and wheat yields high. Farmers have scaled back fertilizer use due to high prices, and cut the amount of land they plan to cultivate.

Washington sanctioned Russian crude, refined products, coal and liquefied natural gas (LNG).

The Liberia-flagged tanker Johnny Ranger was scheduled to arrive in New Orleans on Monday carrying about 39,000 tons of urea ammonium nitrate solution, a fertilizer produced by combining urea, nitric acid and ammonia, the sources and Refinitiv Eikon data showed. The vessel loaded last month at St. Petersburg, according to Eikon data.

Details on the seller and buyer were not immediately available. The US Treasury Department and the US Customs and Border Protection agency declined to comment.

A State Department spokesperson said the United States has never sanctioned food or agricultural goods from Russia. "Unlike the Russian government, we have no interest in weaponizing food to create humanitarian crises at the expense of vulnerable populations."

US non-food sanctions will remain in place until Russian President Vladimir Putin stops the war in Ukraine.

In 2021, the United States imported US$262.6 million worth of urea ammonium nitrate fertilizers from Russia, according to the Commerce Department.

This week, the US International Trade Commission revoked hefty anti-dumping and anti-subsidy duties on urea ammonium nitrate fertilizers from Russia in an effort to ease fertilizer shortages and price increases.

Fertilizer cargo from Russia heads to US as many worry about food shortages

In recent days, there are widespread worries that sky-high global fertilizer prices could lead to food shortages.

 

Arab public opinion turning against normalization with Israel

A recent poll by an American think tank has confirmed what every independent expert knows: Arab public opinion does not support the controversial policy of normalization between Israel and Arab states.

Almost two years into the signing of the controversial Abraham Accords between Israel and some Arab states, the already shaky support for normalization among Arab public opinion has dropped further, a poll by The Washington Institute showed. 

“The wave of Arab countries officially normalizing relations with Israel over the past several years stands in contrast with a growing lack of public support for the Abraham Accords in the Persian Gulf,” the Institute said, noting that those who favorably view normalization with Israel are now a “minority” in Saudi Arabia, Bahrain, and the United Arab Emirates (UAE).

It added, “TWI polling from March 2022 demonstrates that more than two thirds of citizens in Bahrain, Saudi Arabia, and UAE view the Abraham Accords unfavorably less than two years out.”

The polling stands in contrast to another one from November 2020, in which some percentage of Emiratis, Bahrainis, and Saudis showed relative optimism about normalization.

While in November 2020, nearly 40 percent of Saudis and Qataris supported the Accords, support for these agreements is now hovering between 19% to 25% in Saudi Arabia, Bahrain, and the UAE, according to the new polling. 

The number of those in Lebanon viewing the Abraham Accords “very negative” has increased from 41% in November 2020 to 66% this March, while support in Egypt has dropped from about a quarter to 13%.

Attitudes toward sub-state business and sports relations with Israel have also been remarkable in the Persian Gulf Arab countries. A further 50% of Saudis and 47% of Emiratis strongly disagreed with allowing such ties. With the exception of Kuwait, disapproval rates of allowing business or sports ties with Israelis now edge closer to half (Bahrain – 58%, KSA – 60%, UAE – 55%), the Institute said. 94% of Kuwaitis and 93% of Lebanese surveyed disagreed with the notion—and a further 77% of Lebanese and 88% of Kuwaitis strongly rejected it.

The figures from the poll bear witness to a widely held belief that ordinary Arabs do not support their leaders in establishing ties with Israel. The Abraham Accords might have succeeded in generating a limited base of support in countries that normalized ties with Israel, but they absolutely failed to bring about a drastic change in Arab public opinion. And even that limited base is now evaporating.

The polling also gives substance to the remarks by Ayatollah Seyed Ali Khamenei, the Leader of the Islamic Revolution, in his meeting with Turkish President Recep Tayyip Erdogan. 

In the meeting, Ayatollah Khamenei described the Palestinian cause as being the number one issue in the world of Islam. “Despite certain governments’ interest in the Zionist regime, nations totally oppose this usurper,” he noted. 

Independent polls confirmed that Arabs do not support normalization with Israel. And even in 2020, most polls evinced that the majority of Arabs view normalization unfavorably. A poll conducted in October 2020 by the Arab Center of Research and Policy Studies showed an unequivocal Arab opposition to normalization. It was conducted in 13 Arab countries with 28,000 respondents. The polling showed that 88% of Arabs refused the idea of recognizing Israel.