The Green Rev­o­lu­tion and Saudi-Iran ten­sions

Daily Sabah (Turkey) - - Money -

Whether you call it the strug­gle for lead­er­ship in the Mid­dle East or sec­tar­ian ten­sion or the sovereignty race, Turkey is closely fol­low­ing the con­sis­tently in­creas­ing com­pe­ti­tion and ten­sion be­tween Saudi Ara­bia and Iran - a process highly ben­e­fi­cial for the U.S. and Rus­sia, al­low­ing the U.S. and Rus­sia to pen­e­trate and set­tle deeper into the Mid­dle East and the Mediter­ranean. It also of­fers them sig­nif­i­cant op­por­tu­ni­ties to con­trol the global fos­sil fuel mar­ket be­cause the Green Rev­o­lu­tion - the tremen­dous progress in re­new­able en­ergy, in­tel­li­gent en­ergy and non-car­bon en­ergy tech­nolo­gies - will trig­ger and ac­cel­er­ate sig­nif­i­cant breaks in terms of de­mand and price for global car­bon and fos­sil fuel-based en­ergy mar­kets from 2030 on­ward.

Thus, the U.S. and Rus­sia want a world where, all im­por­tant fos­sil en­ergy deriva­tive pro­duc­ers in the Mid­dle East are weak­ened, the arms and wings of Iran and Saudi Ara­bia are bro­ken, and China and In­dia can­not meet the en­ergy de­mand from the Strait of Hor­muz; thus, large en­ergy con­sumer coun­tries and re­gions (Europe, China, In­dia, and Africa) will de­pend on them. The main point: The world will in­vest $10.2 tril­lion from 2020 to 2040 in in­tel­li­gent en­ergy tech­nolo­gies - re­new­able en­ergy tech­nolo­gies and non-car­bon en­ergy tech­nolo­gies for sub­se­quent de­mand. In 20 years, half of the world’s an­nual en­ergy needs will be pro­duced in power plants and fa­cil­i­ties based on re­new­able en­ergy tech­nolo­gies. By 2050, the num­ber of elec­tric cars in the world will ex­ceed 1 bil­lion. To max­i­mize profit on a global scale from oil and nat­u­ral gas, from now to 2040, the U.S. and Rus­sia want to keep a large por­tion of the fos­sil fuel earn­ings of the next 20 years by­pass­ing all com­peti­tors.

As a threat to Iran and Rus­sia, the U.S. merely pro­voked, some­times threat­ened Saudi Ara­bia; sim­i­larly, Rus­sia seeks to use Iran as a threat against the U.S., Saudi Ara­bia and Is­rael. Against Saudi Ara­bia’s Crown Prince Mo­hammed bin Sal­man’s state­ments that it will greatly re­duce its pro­duc­tion, even if it will not com­pletely dis­ap­pear as China’s oil pro­ducer over the next five years, Rus­sia’s re­sponses are that its oil pro­duc­tion will rapidly de­crease in 19 years and that it is tak­ing steps to in­crease non-oil rev­enues for the coun­try; and U.S. Pres­i­dent Trump’s re­marks on Saudi Ara­bia are its come­back. We must be very aware at this point that if a war - some are strug­gling to make it hap­pen - breaks out be­tween Saudi Ara­bia and Iran, this will hurt the diplo­matic ef­forts in Turkey’s re­gion.

CEN­TRAL BANKS MUST PRO­TECT THE REAL SEC­TOR

For the global econ­omy, the last quar­ter of 2018 and 2019 point to a five-quar­ter pe­riod in which the pri­mary and sec­ondary ef­fects of the trade and cur­rency wars be­ing waged by the U.S. and dur­ing which the dan­ger of the U.S. es­ca­lat­ing geopo­lit­i­cal risks with Rus­sia, China, the EU and Turkey re­main high. In this pe­riod, top­ics that will be care­fully fol­lowed for the global econ­omy will fo­cus on the pos­si­ble hike in global com­mod­ity and petroleum prices fu­eled by global de­mand and geopo­lit­i­cal ten­sions and on prom­i­nent cen­tral banks’ man­age­ment of pres­sure that might arise from global in­fla­tion. At this point, we ob­serve a process in which Mr. Trump’s strong ob­jec­tions to the Fed’s stance in rais­ing in­ter­est rates are get­ting a re­ac­tion.

Cen­tral banks’ per­cep­tions of “pri­or­ity” mis­sions for the fight against in­fla­tion, for price sta­bil­ity, with the risk of global in­fla­tion, has the po­ten­tial to lead to new points of com­pres­sion for the world econ­omy, es­pe­cially for 2019. In par­tic­u­lar, a con­sid­er­able num­ber of econ­o­mists are wor­ried that the Fed’s de­ter­mi­na­tion to re­duce its bal­ance sheet and sus­tain the rise in in­ter­est rates, will in­crease the cost of fi­nanc­ing in the U.S. econ­omy, neg­a­tively af­fect­ing the prof­itabil­ity and in­vest­ment ap­petite of the real sec­tor, in par­tic­u­lar, and that this will drag the U.S. into a deep re­ces­sion. The pos­si­bil­ity that the Fed’s stance would se­ri­ously raise the value of the U.S. dol­lar will dis­rupt the Trump Ad­min­is­tra­tion’s op­er­a­tion to com­pel ri­val coun­tries with trade wars. The fi­nan­cial tight­en­ing steps that the Fed will join, along with the Euro­pean Cen­tral Bank (ECB) as well in 2019 au­tumn pos­si­bly, will in­crease bor­row­ing costs for dol­lars and eu­ros.

The In­ter­na­tional Mone­tary Fund’s (IMF) lat­est Global Fi­nan­cial Sta­bil­ity Re­port points out that with re­gards to in­creas­ing com­pres­sion in global fi­nan­cial con­di­tions, risks are in­creas­ing at the as­pect of trans­form­ing or manag­ing the global debt stock, the prob­a­bil­ity that the real sec­tor’s prof­itabil­ity will be neg­a­tively af­fected from this sit­u­a­tion, and if the prof­itabil­ity of both the real sec­tor and the fi­nan­cial sys­tem is neg­a­tively af­fected, sig­nif­i­cant value losses may hap­pen in cap­i­tal mar­kets at the global scale. How­ever, one of the pre­lim­i­nary con­di­tions for sus­tain­able growth for coun­tries and the global econ­omy is a sat­is­fac­tory profit en­vi­ron­ment for the real sec­tor. Thus, we are en­ter­ing a con­junc­ture where cen­tral banks, by re-eval­u­at­ing their tra­di­tional or con­ven­tional at­ti­tudes, must con­cen­trate on a set of mone­tary poli­cies that pro­tect real sec­tor prof­itabil­ity. I want to re­mind read­ers that dis­cus­sions are be­ing made about the pos­si­bil­ity of a loss of be­tween 10 per­cent and 15 per­cent in the real sec­tor in Europe if no con­sen­sus is es­tab­lished on the is­sue.

Kerem Alkin

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