25 March 2013

Securitisation of the BRICS

Since independence India has traditionally shied away from joining security based pacts or military blocks. Chanting the same mantra, India refused to join ASEAN when membership of the ASEAN was being offered to India as a founding member. India’s political leadership at that time naively but wrongly assumed that the ASEAN is a successor organisation to SEATO (South East Asia Treaty Organisation). A non-aligned and pacifist India used to reflexively sermonise against military pacts in international fora. In the last decade or so, we have surprisingly grown fond of calling every bilateral relationship as “strategic partnership” devaluing the concept of strategic relations.However, this initial geo-strategic reticence and subsequent schizophrenia of Indianforeign policy is bound to change after the fifth summit of the BRICS in Durban, South Africa on March 26-27th 2013.

Starting from a catchy acronym (BRIC) coined in 2001 by Jim O’Neill, an international banker from Goldman Sachs, the grouping of 4 emerging economies has evolved and enlarged. Russia under Putin became the prime mover of the BRIC as previously in 1990s, former Russian Premier Yevgeny Primakov had already suggested formation of RIC (Russia, India, China) grouping directed against the US. Owing to divergences in respective national strategic interests, RIC never became prominent. Primarily the BRICS has remained merely as a “talking shop” with economic agenda hoping to replace the Western dominated Bretton-woods institutions. India has persistently articulated the need to establish a “BRICS Developmental Bank” but differences in perceptions and power motives have prevented it from materialising.

Last enlargement of BRIC to BRICS was smartly schemed by China during the Beijing Summit in 2011 in order to make IBSA (India, Brazil, & South Africa) grouping irrelevant. South Africa aspired to join the BRIC but was nowhere near any of the 4 emerging economies club members economically. China had felt excluded from the group of three large “developing democracies” and unilaterally invited South Africa to the BRIC summit. There are others who may be interested in joining the BRICS. Egyptian President Mohammad Morsi came recently to New Delhi seeking economic and defense cooperation with India. He also advocated for enlargement of the BRICS to include Egypt as well thereby changing the grouping to E-BRICS.

Divide Loyalties and Heterogeneity

BRICS is a serendipitously created international grouping without any serious initial thoughts about its charter. Having said that it is a reality now and we must maximise our participation and derive maximum geo-political benefit from it. The five members grouping inadvertently have two tiered membership de facto. Russia and China are the permanent members of the UNSC and the other three are aspiring candidates for permanent membership. Both Russia and China are major partners in the Shanghai Cooperation Organization (SCO) an anti-West multilateral security framework in Central Asia. Both of them conduct joint annual military exercises under the framework of the SCO to develop inter-operability of armed forces. Russia is still China’s largest arm supplier as China remains under Western arms embargo following the Tiananmen Square massacre of protesting students. India has only an observer status with the SCO and has been made to wait on sidelines. China has steadfastly refused to increase the active membership of the SCO with a view to denying India a larger sphere ofinfluence. Since the strategic interests of these two dominant members of the SCO converge and their policies are much more harmoniously coordinated in the UNSC by virtue of their being permanent members, one wonders if these two SCO members will become the puppet masters of the BRICS driving its strategic and security agenda.


Pakistan has done it again. In its continuing hybrid war against India (about which I have already written in this column), two terrorists belonging to Hizbul Mujahedeen, which is based in Pakistan and aided as well as abetted by Pakistan’s military establishment, killed five CRPF jawans, who were guarding a school in Srinagar, on March 13. In fact, this attack came exactly four days later the chief operational commander of the al-Qaeda linked Punjabi Taliban Asmatullah Muawiya had threatened openly in Lahore—and this was prominently reported in the Pakistani media - that there would be major terrorist incidents in India to avenge the hanging of Ajmal Kasab and Afzal Guru. Muawiya, incidentally, is a former commander of Jaish-e-Mohammed, to which Guru belonged.

As has been its trademark over the last nine years, the Manmohan Singh government has issued a strong statement over the latest Pakistan-based terrorist attack. But that is all. There will be no strong countermeasures against Pakistan at the ground level. In fact, Manmohan Singh has systematically de-hyphenated terrorism from diplomacy with Pakistan. As a result, without Pakistan’s commitment to deny the anti-India forces from using its territory and resources, Indian officials and ministers have been meeting

their Pakistani counterparts. Our foreign minister on March 10 did everything possible to make the private visit of the Pakistani Prime Minster Raja Pervez Ashraf to Ajmer Sharif comfortable, despite the fact that the patriotic head priest there boycotted him for his failure to apprehend and punish those who had beheaded our soldiers recently. If there was any protocol involved, it should have been handled by some one of the ministers of state rank as is the normal practice to look after the personal needs of any head of the state or government coming on an official visit to India. But the Pakistani premier got a special treatment, that too during a private visit!

The Manmohan regime seems to believe that India’s “soft power” will deliver goods. But that is not exactly happening, particularly with almost all our neighbours. Sri Lanka has distanced itself from us. The tiny Maldives is literally threatening us. Nepal’s official establishment is overwhelmingly anti-India today. China continues to belittle us in every possible way. If there is going to be change in regime in Bangladesh, which seems most likely, we will have another neighbour, which, like Pakistan, will export Islamic fundamentalism to us. Of course, the present regime in Dhaka led by Awami League leader Sheikh Hasina has been sensitive to our security concerns. She has been really cooperative. That is why our government is keen to conclude the sharing of Teesta river water accord as well as bring about a constitutional amendment to facilitate the hitherto contentious territorial exchanges with Bangladesh.

While one understands the government’s urgency with regard to Bangladesh, the problem with Manmohan Singh’s working style is that he and his Cabinet colleagues do not believe in building national consensus by sharing all the facts with the opposition and public. If the issue is legitimising the exchanges of enclaves that will affect West Bengal only, then there is no need for any new Constitutional amendment, bill to which effect the government is going to introduce during the current session of Parliament; to take care of that we already have the 9th Constitutional Amendment already in place. Let me cite the brief history of the case.

India’s 8% Enigma

March 25, 2013 by admin2
Filed under Analysis

Ravi Shanker Kapoor 

Three days after presenting Budget 20114, Finance Minister P. Chidambaram wondered why Indian companies, both public sector undertakings (PSUs) as well as private enterprises, were not investing. “PSUs are sitting on piles of cash, private business houses are also sitting on piles of cash. I am in constant touch with bankers. While some enquiries have begun to come to bankers, I am told there is not a flood of enquiries.”

The Finance Minister’s wonderment reminds me of Ghalib’s famous couplet: Is saadgi pe kaun na mar jaaye ai khuda/ladte hain aur haath mein talwar bhi nahin (Who would not be floored by the simplicity of my beloved’s panache, Oh Lord/She fights and she doesn’t even have a sword in her hand). For it is clear why companies are not investing in India: the Congress-led government has fostered rules, regulations, myths, mindsets, and activists that are manifestly anti-business. And, of course, corruption has scaled new peaks. 

So, according to an expert estimate, PSUs alone have investible surplus of Rs 2.5 lakh crore, of which Coal India has got Rs 60,000 crore. If the government is not able to coerce even PSUs, it has much less chance of coaxing business tycoons invest in the country.

But the equally big problem is that even if the finance ministry and other UPA functionaries who are said to be pro-reforms are able to convince the captains of industry to play ball, chances are that the projects would get stuck somewhere on the way to completion. According to a news report in The Times Of India (March 21), “Projects worth over Rs 7 lakh crore—which is equivalent to almost half the government spending in the current financial year—are held up in the absence of environmental and forest clearances, land and fuel, putting strain on the creaky infrastructure in the country and becoming an obstacle for an economy striving to get into a high growth trajectory.”

The report is based on the data compiled by state-run banks; “the amount is locked up in 215 projects spread across power, roads, ports, cement and steel, each with an estimated cost of Rs 250 crore or more. Any delay will push up the overall cost of setting up the projects, bankers said. It also increases the risk for the public sector banks, which have already disbursed loans amounting to Rs 54,000 crore.”

The worst hit is the power sector, with projects worth Rs 5.39 lakh crore languishing; Rs 1.23 lakh crore are stuck in roads and over Rs 32,500 crore in steel. This is as amazing as it is depressing in a country which desperately needs improvement in infrastructure. Policy grandees have emphasized the important of infrastructure on so many occasions. There is even a Cabinet Committee on Infrastructure (CCI). The result, though, is (to paraphrase Churchill) a big cipher, wrapped in officialese, inside pompous claptrap.

Even HDFC chairman Deepak Parekh, who is very close to the Establishment, told The Economic Times(March 31), “I do not see Indian or foreign companies making large investments. The Cabinet Committee on Infrastructure has not acted as fast as expected.”

Max India chairman Analjit Singh was more precise: “On the one hand, there are segments/ministries of government which are very keen to promote business and investment; on the other, there are departments and individuals who get a perverse pleasure in harassing industry and sabotaging growth plans.”

Singh has hit the nail on the head. The individuals he mentioned are Left-leaning activists who (doctrinally) regard private enterprise as evil which needs to be combated at any cost. They also man many government organs—the most notorious of them being the Ministry of Environment. 

Moreover, their antics are of great use for the venal: the hurdles they put in the path of businessmen are removed at considerable cost. So, while the pleasure is perverse for some, it is pecuniary for others. And those who raise their voice against the hurdles are dubbed as stooges of Big Business by the politician-intellectual complex.

India, meanwhile, wonders what would restore the 8% growth.

Was the War in Afghanistan Lost in Pakistan.

March 24, 2013 by Team SAISA
Filed under Analysis
Maj Gen Vinod Saighal 

The book Restructuring Pakistan* came out in January 2002. Had 9/11 not intervened it was originally scheduled for launch around November 2001. The epilogue of the book with the heading Dealing with the Afghanistan-Pak Cauldron: the Global Perspective relates to a talk delivered at the United Service Institution of India, New Delhi to an international audience almost exactly a year (August 9, 2000) before the September 2001 attack on the United States The trajectory for Pakistan for the ensuing decade has by and large turned out to be true. The reason for recalling the August 2000 talk is that it predicted – some people called it presciently – the unfolding of events a year later. What is more, the book also suggested as to what the US should do if it were to be impelled to directly retaliate in Afghanistan. Karl F. Inderfurth, then Assistant Secretary of State for South Asia had the talk circulated in the State Department. Many other details of relevance to what follows are contained in the book Restructuring Pakistan.

Immediately after the 9/11 attacks, such was the shock that the event created, that its ripples were felt around the world, because the US was the unquestioned superpower of the day. At that point in time nobody in the world had any doubt about it – the US was simply too mighty to buck. Hence, when President George W. Bush stated that the US would pursue its attackers wherever they might be, practically every country in the world decided to give way in the face of the anger that had welled up in the United States of America. NATO straightaway put out that an attack on America was an attack on theAlliance. Even China and Russia decided that it was prudent to conform. India was no exception. Besides deployments in Central Asia, where bases were readily made available, the US decided to tackle Pakistan head on.

General Pervez Musharraf, who had become the military dictator of Pakistan barely two years earlier found himself facing the Americans with a gun to his head. It is said that had there been a civilian government they would have prevaricated for some time, as is usually the case with civilian governments anywhere. However, the ex-commando who was the single point authority in Pakistan wilted almost immediately. He capitulated to almost every demand that was made on him. He would take his revenge on the Americans later.

After the Indian Army had been mobilized consequent to the terrorist attack on the Indian Parliament, General Musharraf was forced, both on account of the extremely dangerous situation that had developed on the Indo-Pak border, as well as due to the insistence from Washington that he give way, to eat humble pie. In his famous speech in January 2004, where ostensibly he agreed to change course, he stated that he would ensure that Pakistan territory thenceforth would no longer be a base for terrorism against India. He also realised that radical departure from a cherished policy of long standing required that the nation, particularly the Army-ISI combine and the tanzeems sending terrorists across the border, had to be assuaged. In his speech, that was perfectly understood by the elements that needed to be mollified he gave an example from the life of the Prophet, when the latter retreated from Mecca to Medina in order to recoup and re-emerge stronger, i.e., live to fight another day. While some American analysts understood the reference to context the establishment inWashington did not grasp its full import. Musharraf in the portion of his speech that referred to the Prophet practically gave away the strategy that he would be following thereafter with the Americans as well as with the Indians.

Pakistan’s Energy Crisis : From Conundrum to Catastrophe?

By Michael Kugelman
March 13, 2013


Pakistan’s acute energy crisis is posing a serious predicament for its feeble economy and volatile national security environment. The country’s energy problems are deep and complex, being rooted more in shortages of governance and political will than of pure supply. This stems from (1) the absence of a comprehensive and integrated energy strategy, resulting in interagency turf wars and a lack of coordination, (2) insufficient revenue to support energy generation and infrastructure, owing to low liquidity in Pakistan’s struggling economy and high rates of tax default, and (3) the leadership’s unwillingness to implement politically unpopular changes to address the situation.

Resolving Pakistan’s energy crisis will thus require political will, additional funding, and new power-generation sources. As the country lacks significant internal sources of revenue, opportunities exist for international donors to finance its energy recovery. The United States already provides a considerable amount of energy assistance to Pakistan, with Congress having released nearly $300 million in new energy aid last summer alone. However, indigenous energy solutions should not simply be discarded, and the Pakistani government should explore the Thar coalfields and alternative energy sources, among other options.

Policy implications:

Pakistan should consolidate its many energy-related institutions into a single ministry. This will bring some urgently needed order and efficiency to its dysfunctional energy sector.

A short-term fix that could bring immediate relief is to request a new loan from the International Monetary Fund (IMF). However, because the IMF would probably impose politically delicate conditions, Islamabad is unlikely to make such a request until after this spring’s elections.

Tax reform is imperative and should be designed to provide Islamabad with more revenue to address the energy crisis.

Pakistan can initially better diversify its energy mix by importing clean coal, which is often cheaper than imported oil and gas.

Pakistan will not be able to implement the reforms needed to resolve its energy crisis unless Pakistanis elect leaders this spring who genuinely desire to serve the interests of their country.

Pakistan’s Energy Conundrum

Pakistan is mired in an acute energy crisis—one with immense implications for both the nation’s floundering economy and its volatile security situation. According to some estimates, energy shortages have cost the country up to 4% of GDP over the past few years. They have also forced the closure of hundreds of factories (including more than five hundred alone in the industrial hub city of Faisalabad), paralyzing production and exacerbating unemployment. Additionally, they imperil much-needed investments in development and infrastructure. Meanwhile, the nation has been convulsed by energy riots. Protestors, angered by unscheduled outages, have often resorted to violence. They have blocked roads and attacked the homes and offices of members of both the ruling Pakistan Peoples Party and the Pakistan Muslim League, the chief opposition party. Significantly, in February 2013 Pakistan’s minister for water and power warned that the energy crisis has become a national security issue. For all these reasons, energy poses one of Pakistan’s most critical challenges.

Resolving this crisis will require far more than power-generation expansion and other supply-side quick fixes, the de facto policy of the country’s political leadership. Pakistan’s energy problems are deep and complex, and are rooted more in shortages of governance and political will than of pure supply. If the nation is to overcome this crisis, it will need to begin with whole-scale institutional energy sector reform—a politically unwelcome, yet utterly essential, prerequisite for energy relief. Necessary reforms can then follow. The success of such efforts, however, will hinge on the existence of leaders willing to prioritize long-term national development and well-being over short-term political considerations.

Origins and Nature of the Current Crisis

The origins of Pakistan’s energy crisis can be traced back to the 1990s. A major energy crisis was actually averted in the 1970s, when the government launched the massive Mangla and Tarbela dams, leading to a short-lived period of robust hydro-driven energy generation that ably responded to demand. However, after a period of strong economic growth in the 1980s, energy demand soared, and supply and infrastructure could not keep up. The government sought to ramp up generation but was unable to satisfy demand. As Pakistan’s population has risen, and as urbanization has spawned the rise of new industries and other corporate energy customers, the situation has continued to worsen to the present day. Electricity shortfalls reached a peak of 8,500 megawatts (MW) in June 2012—more than 40% of national demand.

Can Pakistan’s Neighbors Help Deal with Pakistan?

Mahin Karim

Although the United States and NATO have announced their intentions to draw down their forces in Afghanistan, the question of maintaining some presence in the region to prevent the re-emergence of terrorist-friendly forces and preserve regional stability is tied up with questions of state instability in Pakistan. The recent downturn in U.S.-Pakistan relations only adds to the complexity of this issue. A year after the U.S. raid and subsequent killing of Osama bin Laden on Pakistani territory, domestic grievances in both countries toward the other continue to plague the relationship, bringing into question not only its future but perhaps also its continued value.

Despite these challenges, the United States is understandably reluctant to pull the plug on its relationship with Pakistan. The prospect of state failure in a nuclear power poses a significant geopolitical and security challenge not just to U.S. interests but also to peace and stability in South and Central Asia. Democratic transition in Pakistan remains a weak political process, hampered by the often contradictory interests of a strong and deeply entrenched military establishment with ties to religious extremists. Efforts of civilian-led administrations for institutional reform and improved relations with India have often been sabotaged by a powerful military-intelligence establishment defined by an anti-Indian agenda.

Yet while concerns over Pakistan’s future stability drive an imperative within U.S. policy corridors to “re-set” the relationship, perhaps the solution to the conundrum lies instead with Pakistan’s neighbors. India, China, and Iran share vulnerable strategic borders with Pakistan, and risk a spillover effect should Pakistan collapse. All three have a strong stake in containing any instability emerging from Pakistan, and in some respects may be in a better position than the United States to influence the country’s future.

The Rise of India and China

India’s rise as an Asian power and its aspirations to be a global player offer an intriguing opportunity. Recent trends in Indian relations with the smaller South Asian countries indicate a significant shift in New Delhi’s approach toward its neighborhood—as exemplified by improved relations with countries such as Bangladesh and Sri Lanka—from India’s historical role as a “big brother” to a renewed focus on regional integration and growth. This shift signals an awareness that India cannot assume its place on the global geopolitical stage without first resolving issues in its immediate neighborhood. Likewise, India’s smaller neighbors realize that closer ties with New Delhi allow them to benefit from India’s economic growth and ascension as a global power.

While India-Pakistan hostility poses the biggest challenge in resetting traditional South Asian antipathies, there are hopeful signs of change on that front. For once, the political leadership in both countries seems committed to rebuilding the relationship, with a willingness to temporarily table the Kashmir issue in favor of promoting greater economic integration as well as stronger cultural and people-to-people ties. The decision by the Pakistan Peoples Party (PPP) to grant India most-favored nation status, despite the military establishment’s objections and the party’s precarious political status, and the Pakistan business community’s support of that move indicate a political will that India and the international community would do well to nurture. Pakistan’s powerful “shadow” establishment still has the potential to derail these efforts, as it has done in the past. But indirect intervention on this front by the United States and other international stakeholders may be helpful, providing both carrots and sticks to strengthen Pakistan’s civilian institutions against pressure from the country’s military.

Coal in Asia and the Impact of the Shale Gas Revolution

An Interview with Mark Thurber
March 21, 2013
By Lynann Butkiewicz

This April, NBR and the Asia Pacific Foundation of Canada will co-host the 2013 Pacific Energy Summit in Vancouver, Canada, on “Forging Trans-Pacific Cooperation for a New Energy Era.” The Summit will explore the role that deeper trade and investment ties between Asia and North America could play in helping Asia meet its energy demand while safeguarding the environment.

In advance of the Summit, NBR talked to Mark Thurber, Associate Director of the Program on Energy and Sustainable Development at Stanford University and an Advisor for the Pacific Energy Summit, on his research regarding the future of coal use in Asia and implications for coal given the development of North American unconventional gas production. Coal has been one of the main energy resources in the United States during the past 30 years because of its abundance and low cost. However, the surge in domestic unconventional gas production has significantly lowered the price of gas, causing natural gas to displace coal in many power-generation plants. As a result, U.S. coal companies are increasingly looking globally—especially to Asia—for a market.

How has the shale gas revolution affected coal use in the United States?

Cheap domestic gas—the result of the revolution in techniques for extracting gas from shale—has led to the displacement of huge amounts of coal in the U.S. power sector. From 1990 through 2010, coal plants supplied 50% of U.S. electricity generation on average. Figures from the Energy Information Administration show that coal’s share of generation has fallen into a tie with natural gas as of April 2012, at 32%. (Tighter EPA rules on mercury and air toxics are further reducing the attractiveness of coal consumption in the United States.) This stunning rise of gas at the expense of coal is a major cause of the 7.7% reduction in U.S. greenhouse gas emissions observed since 2006—more than any other country achieved in that period according to the International Energy Agency.

What does this trend mean for U.S. coal production and infrastructure, especially in the Powder River Basin?

If the United States is the “Saudi Arabia of coal,” the Powder River Basin (PRB) is its Ghawar Field—a massive source of cheap supply. With the depletion and associated cost escalation of traditional resources in Appalachia, PRB coal has extended its reach throughout the United States, helped along by railroad deregulation and sulfur restrictions (since PRB coal is very low in sulfur). PRB coal now dominates the U.S. market for steam coal (coal that is used in power plants). But the declining competitiveness of coal as a fuel for electricity generation in the United States leaves PRB coal looking for a more robust market. Asia, especially China and India, could fit the bill.

What are the implications of exports of PRB coal for the global coal market in general and Asia in particular?

The United States has long exported appreciable quantities of coking coal (high–energy value coal used in metallurgical applications) from Appalachia, but large-scale exports of steam coal from the PRB would be a new development. China’s power producers seek low-cost coal imports that can help keep power prices down, and projections show India running a widening coal deficit in the future, which it will need to plug with imports. Indonesia, Australia, and South Africa are the largest exporters to Asia at present. Modeling work at Stanford University’s Program on Energy and Sustainable Development suggests that if port constraints are removed and demand from Asia continues to grow, PRB exports to Asia can surpass those of South Africa (though still remaining shy of export totals from Indonesia and Australia).

Introduction: Oil and Gas for Asia

Mikkal E. Herberg

September 20, 2012

May 11, 2012

Asia has become “ground zero” for growth in global energy and commodity markets. The region’s rapid economic growth is driving an enormous rise in the consumption of oil and liquefied natural gas (LNG) to fuel booming motorization and industrial growth. This energy boom has been centered in China, but energy demand is rising dramatically across developing Asia and is being shaped by shifting economic, environmental, and geopolitical factors.

In the case of oil, Asia has accounted for 66% of growth in global oil demand over the past two decades. Moreover, according to the 2011 World Energy Outlook by the International Energy Agency, Asia is likely to account for over 85% of the entire increase in demand over the next twenty years—with virtually all demand growth occurring in developing Asia. Furthermore, Japan and South Korea remain 100% dependent on oil imports, China now depends on imports for more than half of its oil needs, and India and Southeast Asia also depend on imports for three-fourths of their oil needs.

At the same time, Asia’s demand for oil imports has chronically bumped up against a very tight global oil-supply environment. New growth in oil supply around the world has barely exceeded declining production in the world’s large older oil fields, leading to very slow overall net supply growth. Moreover, the geopolitics of oil are deeply worrisome, characterized by strong resource nationalism, shrinking access to new oil resources that is driven by political factors, chronic geopolitical instability in key exporting regions, and what many call the end of the era of “cheap oil.” The oil price spike of 2006–8 intensified this view of an increasingly zero-sum future oil environment, which Asian countries fear could seriously threaten economic prosperity. Although oil prices declined with the U.S. and European Union (EU) financial crisis after 2008, prices are again on the rise with the gradual, albeit uncertain, global economic recovery.

Asia’s natural gas consumption has also been rising strongly over the past decade to fuel booming industrial needs and power generation. Asia accounts for 70% of the worldwide LNG market, and global demand for LNG has been growing in excess of 10% per year. In effect, strong demand, combined with oil-linked LNG pricing, has driven prices higher in the Asia-Pacific. This phenomenon has been severely aggravated by a spike in demand from Japan as the country scrambles to meet its electricity needs in the wake of the virtual total shutdown of its nuclear generation capacity. The so-called Asian premium for LNG has been driven to extreme levels. There is also growing concern about LNG supply availability, particularly until 2016, when new projects around the region will begin to expand supply.

Consequently, angst over high and volatile prices, as well as over the availability and reliability of future energy supplies, is a critical driver of the strategic and economic agendas of Asia’s powers. The region’s major states have responded with a state-driven approach, characterized by national competition to control future supplies through governmental support of investments abroad by their own national oil companies (NOC), expanding oil diplomacy, oil pipeline projects to feed national markets, growing competition for potential future offshore supplies, and concern over the security of sea lanes. Rather than seeking ways to cooperate to find common regional solutions to these problems, the region’s powers have increasingly embarked on a national competitive approach that intensifies distrust, worsens maritime tensions, and aggravates key strategic rivalries. Asia’s scramble for resources also risks pushing oil and LNG prices even higher and strengthens producers in using energy for political and diplomatic leverage.

The region’s quest for more secure oil and LNG supplies is also driving it toward greater dependence on and engagement in key oil- and gas-exporting regions, most importantly the Persian Gulf and Middle East. This reliance is drawing Asia, especially China, into much more powerful diplomatic roles in these regions. The tug of war over Iran’s nuclear ambitions is a perfect example of how Asian powers are being pulled into critical diplomatic roles: Japan, South Korea, India, and China are the major buyers of Iranian crude oil, and U.S. goals on oil sanctions cannot be achieved without their participation. More broadly, U.S. dependence on oil imports from the Persian Gulf and Middle East is likely to continue to decline as available supplies in the Western Hemisphere are increasing. How will these shifting dynamics reshape the global geopolitics of oil and gas? The United States has historically been the major power in shaping Middle East and Persian Gulf developments, but it will increasingly depend on Asian powers, especially China, to achieve its goals in the region. What are the implications of this trend for U.S. strategic interests and foreign policy?

To address these issues, the National Bureau of Asian Research (NBR) and the Woodrow Wilson International Center for Scholars co-hosted NBR’s eighth annual Energy Security Workshop in Washington, D.C., on May 11, 2012. Building on NBR’s ongoing initiative to bring together policymakers, industry leaders, and key stakeholders concerned with Asia’s energy geopolitics, the annual workshop convenes senior specialists for high-level discussions on the future of Asian energy markets. The arguments presented at this event are then used to inform discussion throughout the year, as well as this final report. This year’s program—“Oil and Gas for Asia: Geopolitical Implications of Asia’s Rising Demand”—focused on the implications of Asia’s oil and energy security challenges and their impact on U.S. geopolitical and energy security interests. We are grateful for the generous support of our sponsors—Chevron, ConocoPhillips, ExxonMobil, and the Japan Oil, Gas and Metals National Corporation—whose contributions enable us to examine the central energy security challenges facing the United States and the Asia-Pacific today.

The Geopolitics of Asia’s Rising Oil and Gas Demand: Conclusions and Implications for the United States

Mikkal E. Herberg

September 20, 2012

May 11, 2012

The essays, discussions, and analysis from this year’s Energy Security Program offer a wide range of perspectives on Asia’s booming oil and gas demand, as well as on the effect of the region’s inevitably growing role in global energy geopolitics. The choices that Asian stakeholders make about how to manage their energy needs will have vital implications both for U.S. energy security and for broader U.S. strategic power and posture in the Middle East. Additionally, the essays and discussions cast new light on emerging and growing concerns about supply availability and pricing in the Asian markets for liquefied natural gas (LNG), particularly in the wake of Japan’s nuclear energy crisis and the “shale gale” of booming natural gas production in the United States.

At the center of the 2012 research program are the changing geographic patterns in oil and gas demand and the implications for U.S. and Asian engagement in the Middle East. A key component of U.S. interests in the Middle East—and in particular, the U.S. commitment to the maintenance of a post–World War II “Pax Americana”—has centered on the country’s use of strategic power to ensure the access of Western industrial countries to Persian Gulf oil. Yet both North America’s and Europe’s need for Middle East oil is declining rapidly as U.S. oil production rises with the deployment of new technologies, other Western Hemisphere producers boost their output and exports, and Russia grows as a supplier to Western Europe. In the place of the United States and the European Union, Asia is now overwhelmingly the predominant buyer of Persian Gulf oil, driven by strong demand growth from China and India. Consequently, one of the foundations of U.S. interests in the gulf is weakening as global oil flows shift dramatically toward Asia.

Ultimately, do these shifts suggest fundamental changes in the United States’ commitment to the Middle East? Program discussions generated more questions than answers. Central to this debate are issues that go beyond the scope of energy geopolitics and that concern the extent to which the United States is willing and able to continue an overarching strategic commitment in light of deepening fiscal woes, a war-weary public, and broader rebalancing toward the Asia-Pacific. However, as John V. Mitchell and others aptly highlighted, even if the United States does not directly receive any oil from the Middle East, the stability of global oil markets remains in the vital interest of the United States. Today’s oil markets are deeply integrated, and any disruption of Middle East supplies would severely undermine world and U.S. economic growth. Yet no Asian state has demonstrated the strategic power or inclination to exercise a stronger role in ensuring the stability of the Middle East or the reliable flow of gulf oil to world markets. As the world’s sole strategic superpower, the United States remains the dominant power in the Persian Gulf.

Yet continued U.S. commitment to the Middle East should not obscure the enormous tectonic shifts that are underway in the geopolitics of oil and gas. The workshop discussion of Iran sanctions demonstrated how the growing role of the Asian states as huge buyers of oil from the Persian Gulf is already beginning to complicate efforts by the United States to achieve key diplomatic and strategic goals. Washington has expended enormous diplomatic capital to pressure Asian states to collaborate on oil sanctions. As of July 2012, India has yet to convincingly reduce imports, and China maintains that it is already meeting international obligations and that a case has not been made for further sanctions, as described by Zha Daojiong. And while Japan and South Korea have enacted additional sanctions, both previously imported a significant amount of their oil from Iran, which has created dilemmas as each strives to balance competing policy and economic interests. Japan, for example, cannot ignore that these cuts are occurring at a time when it already needs to compensate for enormous shortfalls in power generation from a downturn in its use of nuclear energy. In the context of broader U.S. strategic rebalancing, this issue raised questions for some specialists about whether the United States should be doing more to support its allies and partners on energy, and if there are complementary policies—on LNG exports from North America or in other collaborative fields—that may reduce insecurity and reinforce strategic partnerships. How these changes will evolve remains unclear. What is becoming clearer, though, is that the United States’ ability to shape strategic developments in the Middle East will increasingly depend on cooperation from Asian oil importers.

The “Fracking” Revolution Comes to China

March 24, 2013
By Elliot Brennan

With some predicting China will import 79% of its oil by 2030, could domestic shale gas extraction help China meet its energy needs?

As shale gas fever sweeps through Beijing, analysts are looking at the costs and benefits of extracting what is increasingly a controversial source of energy. But for China, with its growing middle class, the immediate and long-term demand for energy has the potential to spark a revolution in shale gas before sufficient and safe technological know-how and regulations are developed.

A very vocal debate continues to rage in the U.S. and Europe as to the environmental consequences of shale gas extraction. Meanwhile, China’s National Oil Companies (NOCs) continue to purchase and buy into North American oil and gas companies with specific expertise in shale gas extraction. For better or worse, China’s shale gas revolution looks set to be thrust into the public spotlight, both at home and abroad.

Extracting shale gas is tricky. Shale, a sedimentary rock that is typically highly porous and has low permeability, traps hydrocarbons as it is formed. To remove the gas, shale formations must be stimulated, most commonly using hydraulic fracturing, or “fracking.” The technique involves pumping water, sand and chemicals at high pressure into the shale formation, cracking the rock and allowing the gas to be released to the surface. The 1 to 3 million gallons of water that are pumped into the shale formation must then either be recycled or pumped into water disposal wells in subsurface rock formations.

In addition to these skill-intensive practices, the extraction process also demands three-dimensional seismic surveying, which evaluates potential subsurface resources, and horizontal drillingtechnology. Both demand expertise and experience, yet the capability of most companies outside of North America, including China’s National Oil Companies (NOCs), to safely and effectively perform such high-tech extraction is limited.

The emergence of shale gas is a game changer. Countries that have traditionally relied on hydrocarbon exports for political clout (the Persian Gulf, Russia, Venezuela) will inevitably lose some of their petro power. Europe could become less energy dependent on Russian supply by importing liquid natural gas (LNG) from North America and by exploiting the potentially significant shale gas deposits in Poland and other countries. Australia, which has significant deposits and much of the pre-existing infrastructure to begin extraction, could see its clout in the energy politics of the region increase– forcing a significant redraft of Canberra’s “Australia in the Asian Century” White Paper.

In effect, the “shale revolution” signals the end of the peak oil debate. New technology means new resources, which in turn could mean a new geopolitical map. However the mere presence of the resources doesn’t mean that their extraction in the short-term is viable, a problem China knows all too well.

China’s oil fields are drying up. The International Energy Agency’s (IAE) World Energy Outlook for 2010predicts China will import 79% of its oil by 2030, a figure that demonstrates the pressing need for China to develop new energy sources. Enter shale gas and the “unconventionals.”

BRICS Nothing But a Chinese Front Group

With China's President Xi Jinping planning to make his first foray into international diplomacy since his election at the BRICS annual summit in Durban and his singer wife slated to perform, the organization will hit the headlines. Again, there will be talk about this loose grouping of Brazil, Russia, India, China and South Africa filling the emerging void left by the troubled US and European Union. But yet another summit and ritual show of unity won't hide the emptiness at the core of BRICS. The strong display of China's newfound power by its president will only underline the organization's lopsided nature and lack of actual clout.

Representing around 40 percent of the world's population and nearly a quarter of its economic output, BRICS does offer promise of clout. The economic profile of the five nations, especially that of China, has continued to grow with suggestions that BRICS collectively could become bigger than the US by 2018 and by 2050 even surpass the combined economies of G7 states.

Yet a major challenge for ongoing influence from BRICS is China's dominance over the other four members. For all its promise, BRICS has remained a talk shop aspiring for greatness.

The first formal summit meeting was held in Russia in June 2009 with South Africa joining the group in December 2010, changing the nomenclature from BRIC to BRICS. The Yekaterinburg summit called for "a more democratic and just multipolar world order based on the rule of international law, equality, mutual respect, cooperation, coordinated action and collective decision-making of all states." Since then the joint statements of the various BRICS summits have repeatedly underscored need for a realignment of the post-World War II global order based on the untrammelled supremacy of the US. As the US is preoccupied with internal troubles and the eurozone is mired in a debilitating debt crisis, a vacuum is increasingly being felt in the international system. This presents an opportunity for the BRICS to emerge as major global players. Plans are underway for some joint projects. The New Delhi summit resulted in a proposal to create a joint BRICS development bank that would finance investments in developing nations, and this year's summit is expected to conclude negotiations for setting up this bank.

But overall momentum for BRICS, a much-hyped initiative, seems to be flagging. Growth-rate estimates for all the BRICS are steadily declining. Fluctuating economic trends, however, are not the leading reason behind the unworkability of the BRICS idea, but rather the structural disparity at the heart of the grouping.

China's rise has been so fast and so spectacular that others are still trying to catch up. The Chinese economy is not only the second largest in the world but also larger than the economies of the other four members combined. China's power makes the other members nervous, leading them to hedge bets by investing in alternative alliances and partnerships even as China's rapid accretion of economic and political power adds to its own challenges to make friends. Given the leverage that China enjoys in BRICS, it should come as no surprise that Beijing has suggested that IBSA - the grouping of democracies India, Brazil and South Africa - be shut down in favor of BRICS.


BySean Mirski
FEBRUARY 12, 2013


In an all-out war with China, the United States could impose a naval blockade to pressure Beijing with minimal risk.


The mounting challenge posed by China’s military modernization has highlighted the need for the United States to analyze its ability to execute a naval blockade. A blockade strategy is viable, but it would be limited to a narrow context: the United States would have to be engaged in a protracted conflict over vital interests, and it would need the support of key regional powers. The United States would also need to implement a mix between a close and distant blockade in order to avoid imperiling the conflict’s strategic context. If enacted, a blockade could exact a ruinous cost on the Chinese economy and state. 


Since World War II, the United States has aimed to preserve military primacy in the Asia-Pacific region. Rather than using this ascendancy for expansionist purposes, the United States sought to maintain regional stability through deterrence. For over five decades, its forces largely preserved command over the global commons in the pursuit of this mission. Even to this day, the United States remains the region’s most powerful military actor. But American military dominance is steadily eroding thanks to the breakneck pace of China’s military modernization, and, as a result, the military balance in the region is shifting.1 Since the mid-1990s, the People’s Liberation Army (PLA) has been in the process of creating a formidable anti-access and area denial (A2/AD) complex in China’s near seas.2 As China continues to upgrade its A2/AD system, it presents a serious and sustained challenge to the United States’ operational access to the region. In wartime, some American forces may initially be prevented from operating in China’s near seas. Even in peacetime, China’s A2/AD complex arguably attenuates the United States’ ability to defend its interests and its allies from potential Chinese coercion, and with it, the American-organized system of deterrence and regional stability. 

The mounting challenge presented by China’s military modernization has led the United States to review existing military strategies and to conceptualize new ones. In the universe of possible strategies, the idea of a naval blockade deserves greater scrutiny. By prosecuting a naval blockade, the United States would leverage China’s intense dependence on foreign trade—particularly oil—to debilitate the Chinese state. A carefully-organized blockade could thus serve as a powerful instrument of American military power that contributes to overcoming the pressing challenge of China’s A2/AD system. A blockade could also provide the United States with several gradations of escalation control and be easily paired with alternate military strategies.3 

Even if a blockade is never executed, its viability would still impact American and Chinese policies for deterrence reasons. The United States’ regional strategy is predicated on the belief that a favorable military balance deters attempts to change the status quo by force, thus reassuring allies and upholding strategic stability. The viability of a blockade influences this calculus, and can accordingly affect American and Chinese actions—both military and non-military—that are based on perceptions of it. If a naval blockade is a feasible strategy, it strengthens the American system of deterrence and dilutes any potential attempts by China to coerce the United States or its allies. Moreover, if a blockade’s viability can be clearly enunciated, it would also enhance crisis stability and dampen the prospects of escalation due to misunderstandings—on either side—about the regional balance of power. 


 March 22, 2013: 

With the heavy fighting over in Iraq and Afghanistan, the U.S. Air Force (along with the navy, marines, and army) are all moving away from using air power against terrorists and irregular troops, towards what they all refer to as “The Big One.” Less discreet air power planners describe their current work directed at developing winning techniques for “Bombing Beijing.”

This is a major change from how American air power has been used for the past two decades. In that time there has been a lot of bombing but not much opposition to the American aircraft. Since GPS smart bombs and targeting pods were introduced in the 1990s, bomber pilots have had their job reduced to that of a bomb-truck driver.

The targeting pods contain FLIR (video quality night vision infrared radar) and TV cameras that enable pilots flying at 6,300meters/20,000 feet to clearly make out what is going on down there. The pods also contain laser designators for laser guided bombs and laser range finders that enable pilots to get coordinates for JDAM (GPS guided) bombs.

Safely outside the range of most anti-aircraft fire, pilots can literally see the progress of ground fighting and have even been acting as aerial observers for ground forces. But these new capabilities also enable pilots to more easily find targets themselves and hit them with highly accurate laser guided or JDAM bombs. While bombers still get target information from ground controllers for close (to friendly troops) air support, they can now go searching on their own, in areas where there are no friendly ground troops. The first such targeting pods were used in the 1991 Gulf War. Those LANTRIN pods had, by current standards, poor camera resolution for the pilots looking at what's down there. But over ten years of technological progress have given the pilots a much sharper vision of what's on the ground.

JDAM smart bombs were developed in the 1990s, shortly after the GPS network went live. These weapons entered service in time for the 1999 Kosovo campaign and have been so successful that their use has actually sharply reduced the number of bombs dropped and the number of sorties required by bombers. The air force generals are still trying to figure out where this is all going. Now the big effort is directed towards using all this new tech to shut down a more feisty opponent like China (or Iran or North Korea, two more feisty but less well equipped foes).

Meanwhile, the U.S. has built up a huge arsenal of smart bombs. After the invasion of Iraq, the U.S. Air Force ordered a sharp increase in JDAM production, aiming for 5,000 JDAM a month. They ended up needing far less. In 2005, about 30,000 JDAM were ordered. That fell to 11,605 in 2006, and 10,661 in 2007. In 2008, only 5,000 were ordered. Most of those ordered in the past few years are being put into the war reserve. Only a few thousand a year are actually being used, and this includes those expended during training. The war reserve contains over 100,000 kits, to be used in some unspecified, but big, future conflict. Air warfare planners see the most likely major conflict as one involving China.

The appearance, and impact, of JDAM has been sudden. While guided bombs first appeared towards the end of World War II, they did not really become a factor until highly accurate laser guided bombs were developed in the 1960s. A decade later TV guided bombs came into service. But these guided bombs were expensive, costing over $100,000 each. Even as late as the 1991 Gulf war, only 16 percent of the 250,000 bombs dropped were guided. But analysis of the battlefield later revealed that the guided bombs had done 75 percent of the actual damage. The guided bombs were still too expensive and lasers were blocked by many weather conditions (rain, mist, sand storms). Something new was needed to replace dumb bombs completely. The solution was GPS guided bombs.

China’s Foreign Policy Changing Faces

The Economist

Mar 23rd 2013 -- With only a single dissenter among nearly 3,000 delegates, on March 14th the National People’s Congress (NPC), China’s legislature, vested Xi Jinping with the formal title of state president. He had already been made head of the Communist Party and of the armed forces in November. Now Mr Xi is ready for a new role as global statesman—and the world is wondering how he will act. One of the few clues may be found in his decision to go to Moscow on March 22nd (he will continue to Africa, see article). At a time when the Americans are talking of reordering their security priorities with a so-called “pivot” towards Asia, some Chinese commentators have interpreted Mr Xi’s decision to visit Russia first as a gesture aimed at America. China, after all, sees the pivot as menacing, despite American efforts to persuade it otherwise. First trips matter: leaders meet friends before those with whom they have trickier relations. China and Russia, antagonists a few decades ago, are now on remarkably good terms. President Vladimir Putin has been assiduous in cultivating Mr Xi. Both countries resent American global dominance, as well as Western intervention in others’ affairs, notably in Syria. And as a new report by the Carnegie Endowment for International Peace points out, with tensions between China and Japan rising alarmingly over island disputes, Mr Xi may want to reaffirm smooth relations on China’s long Russian flank. 

Staying cordial with Russia is a priority for China. A Sino-Soviet split in the late 1950s taught both countries how draining tensions can be along a border that today stretches more than 4,000km (2,500 miles). Yet for all their “strategic friendship”, relations are not as good as they could be. To Chinese chagrin, the Russians have supplied advanced weaponry to India and Vietnam, two countries that are not on stellar terms with China. From Russia’s perspective, whereas China was until recently a chief buyer of Russian arms, it has now become a chief competitor—often with copied Russian designs. Energy also reveals the limits to Russian and Chinese cosiness. The two countries have bickered long and hard over China’s request for access to more of Russia’s oil and gas. Proposals to pipe natural gas from Russia to China have been stalled for years because of haggling over prices (see article). Hopes were raised last month when Gazprom, a Russian energy giant close to Mr Putin, said it would sign a gas deal with China by the end of the year. There have been false dawns before, though recent negotiations have been unusually intense. 

Mr Xi is certainly fond of nationalist rhetoric. On March 17th, at the end of the 13-day annual session of the NPC, he repeated some favourite catchphrases. The country had to “strive to achieve the Chinese dream of the great renaissance of the Chinese nation”. The army issued a circular to troops promising to provide “robust support” for this endeavour. That will not reassure neighbours who worry about China’s growing assertiveness in disputed regional waters, and who turn to America for help. However, Mr Xi is not intending to turn his back on America. President Barack Obama’s new treasury secretary, Jack Lew, visited Beijing this week. Mr Xi assured him that ties with America were of “great importance”. His trip marks a resumption of high-level contact between the two countries after a hiatus of several months, while America was absorbed by its presidential election and China by the handover to Mr Xi. The new secretary of state, John Kerry, is likely to visit Beijing in April. These visits are a sign that both countries are anxious to resume normal business. They have urgent matters to discuss, from growing American concern about Chinese state-sponsored computer hacking to the perilous state of relations between China and Japan, which could draw in America if shots are ever fired. 

The Invasion of Iraq: A Balance Sheet

March 22, 2013

U.S. Marine Corps

Historically, wars were fought primarily for material gain: livestock, treasure, tribute, or territory. More recently, however, the profit motive for war has declined as life has become more precious and conquest and plunder have become less acceptable, although conflicts waged for control of diamonds and other precious commodities continue in parts of the world. International law generally prohibits military action by one state against another except for reasons of self-defense. In modern warfare, “gains” must be measured in less-tangible forms, such as preserving national security, liberating threatened populations from tyranny, protecting human rights. Military action to achieve such ends is considered unavoidable and is rarely assessed as an investment.

The invasion of Iraq was a war of choice, however, and therefore should be assessed in terms of costs and benefits. Neither the United States nor its allies had been attacked by Iraq, and there was no evidence that any attack was imminent. Saddam Hussein was a brutal tyrant, and his regime was an affront to human rights, but the country had suffered under his rule for many years. Iraq's liberation was not the reason for going to war. The official purpose of the invasion was to remove any threat posed by Iraq's presumed arsenal of weapons of mass destruction. Regime change was a consequence, not a cause. And although Iraq's citizens are freer now, they are by no means more pro-American.

The costs are easier to quantify than the gains. The Iraq War cost the lives of 4,480 U.S. soldiers and at least 3,400 U.S. contractors. (U.S. allies lost 318 soldiers.) In addition, 31,928 American soldiers were wounded in action, many suffering serious disabilities that will impose a continuing burden on their families and long-term costs for health care and support. Between 110,000 and 150,000 Iraqis were killed in the war, and estimates of total conflict-related deaths run as high as 1 million.

Estimates of the direct and indirect costs to the United States range from $1.7 trillion to $3 trillion. Moreover, a recent report estimates that the total cost could reach $6 trillion over the next four decades, factoring in benefits owed to war veterans. The war in Iraq did not cause the global recession, but it certainly exacerbated America's financial difficulties.

No weapons of mass destruction were ever found — a lesson that even an all-out intelligence effort can get things wrong. But this lesson comes at a cost to U.S. credibility. In the future, it will be more difficult to persuade the American public or mobilize international support for action, even when the evidence appears convincing.The initial invasion was a spectacular demonstration of U.S. military might, but Iraq's subsequent insurgency tarnished that reputation. U.S. commanders finally got the measure of their foes, but learning came late, just as withdrawal became a political necessity. War-weariness is another cost.

STAYING ALIVE- Eurozone’s recovery depends on Germany’s leadership

Timothy Garton Ash

Second chance

“The crisis of the euro is over. Crisis in the euro is strong.” Thus said a senior French politician. A looming collapse in Cyprus, which Eurozone leaders would have discussed at the summit dinner of the European Union in Brussels on March 14-15, may yet prove him wrong. My hunch, though, is that he is probably right, at least for a year or two.

Germany and the European Central Bank have done just enough to convince the markets that the Eurozone will survive, for now. But many Eurozone economies remain on the critical list. Some have made heroic efforts, with results already visible. In Spain, for example, unit labour costs are already down and exports are at a 30-year high. The pain has been immense, with 50 per cent youth unemployment and house prices falling by 30 per cent to 40 per cent, but somehow people are getting through it. This has had political spin-off effects — literally so, encouraging Catalans to want to spin off from the Spanish state — but in terms of conventional party politics, the centre has held. There has been very little xenophobic rhetoric and virtually no scapegoating of immigrants.

What has happened in Spain is a remarkable testimony to the resilience of the European political mainstream, with its almost instinctive commitment to moderation, bound up in a deep-rooted desire to remain part of a larger European project. But for how long? For how many more years can these societies endure such levels of socio-economic stress, before their own democratic politics lurch to extremes?

We have seen the danger already with the electoral success of the ultra-nationalist, xenophobic and (for once, the label is justified) neo-fascist Golden Dawn party in Greece. Quite different in kind, but larger in its political impact, is the Italian political impasse, which results from votes being split between the protest movement of comedian Beppe Grillo, Silvio Berlusconi and the Left, plus a smaller vote for Mario Monti’s “Monti for Italy” grouping, with the votes splitting differently in the two houses of parliament. With a stalemate between the two chambers, reform is currently stymied in the Eurozone’s third largest economy.

Some of this was inevitable, but it has been made worse by human error in general and German error in particular. I can entirely understand German voters’ initial angry reaction to being asked to bail out other Europeans — who had been much less disciplined, hard-working and productive than them — in order to save a currency which the Germans never voted to join. (In bringing down its unit labour costs, Spain is doing, in an involuntary crash course, what Germany started doing a decade ago, on its own initiative.) I would have felt that way myself. I can understand Chancellor Angela Merkel and her colleagues hanging tough.

But facts are stubborn things. When the facts change, or at least become clearer, policies must be adjusted accordingly. The duty of politicians in a well-functioning liberal democracy is to recognize those facts and then explain them to voters, not to string voters along with waffle and false promises. Here is an example: the so-called ‘fiscal multipliers’, that is, the impact on gross domestic product of a cut (or increase) in public spending. In normal times, when most of the countries with which you do business are faring alright, this multiplier may be as low as 0.2 or 0.4 — that is, GDP declines by some 0.2 per cent to 0.4 per cent for every 1 per cent you cut on public spending. But when everyone around is in recession, the effect is dramatically increased. This was the case during the Great Depression 80 years ago, as the Oxford economic historian, Kevin O’Rourke, and his collaborators have clearly established. It is the case again today, in our Great Recession, as the economists at the International Monetary Fund, the EU and other institutions are now acknowledging. In conditions of allround recession, the fiscal multipliers can soar above 1, so a 1 per cent cut in public spending may cause a 1.5 per cent drop in GDP. That significantly alters the calculus of austerity.