by Damon de Laszlo, ERC Chairman

Damon de Laszlo

Damon de Laszlo

It seems a long time since March when I last put pen to paper. The level of worry has remained high – newspapers, television, etc. are full of “concerns” but very little has really changed since Christmas so most news can be classified as “noise” or motion signifying action. Underlying the noise, however, some serious political trends are developing.

The Middle East is polarising along sectarian lines and the borders, as government control deteriorates, have become porous. The borders of Libya, Iraq, Iran, Syria and Turkey are crossed with impunity by militias and, so-called, Jihadist fighters. Shia groups supported by Syria, Iraq and Lebanon, in turn loosely supported by Russia and its allies, are pitted against Sunnis whose primary support comes from Saudi, Turkey and the United Arab Emirates, who in turn are supported by the US and its allies. Within this mix there are many other players, the major ones being al-Qaeda and Kurds, making the whole area remarkably complex. The breakdown of the old order and the growth of what is basically a religious war is so complex and alien that it is rarely reported on in the Western news media. It is, however, probably the most dangerous development of the last ten years, posing a major threat to the world’s oil and gas supplies and, more particularly, Europe’s.

The European elections which made the headlines, and their outcome which produced no surprises is, while absorbing and fascinating, of little moment compared with the energy crisis potentially brewing in the Middle East and the danger of a gas supply crisis precipitated by the lack of a cohesive strategy in dealing with Russia and the Ukraine crisis. The governments of Europe and the UK are totally failing to come up with a comprehensive energy strategy to replace the ageing fleet of coal and atomic power stations and addressing the insecurity of supply of gas and oil from Russia and the Middle East.

The European elections came out predictably as a protest vote against government policies across the area that have failed to address the economic downturn and appear to most people to produce nothing but bureaucracy and intrusive legislation. Very little of the legislation in recent years has been by “popular” demand! Most would appear to be generated by special interest groups who have worked out how to hijack the complex legislative systems.

We subsidise windmills but fail to build base-load power stations. We facilitate borrowing to buy houses but fail to roll back the bureaucracy that hinders house-building. On the European front, the protest vote is unlikely to have much impact on the bureaucrats in their cocooned environment. Brussels can safely ignore the result, as those elected to the European Parliament are unlikely to be able to agree on any policies.

There is, however, underlying the major medium term worries as above, a lot of good news. The US economy continues to grow steadily. The US is re-industrialising as it takes advantage of its very cheap energy supplies and stable, if dysfunctional, political climate. A great example of no legislation being the best legislation!

China, as I have often commented, the only major government with the intellectual and political ability to mange its affairs, is slowing by design. This is helping to keep commodity prices low – a good thing in general. Credit restraints throughout the banking sector are restraining regional government expenditure and dampening the property boom. The continuing crackdown on corruption and the commitment to administrative reforms of the legal and regulatory systems proceed steadily. These are truly remarkable changes that will, if the government succeeds, auger well for stability and prosperity. While courageous, they are, however, difficult to manage and there is a high possibility that the reforms will precipitate unrest in some areas.

Russia under Putin is a fascinating phenomenon. A country which, for the first time in many decades, has got a leader who commands almost universal respect at home and is exercising his power as a world leader more and more. Putin’s power base in Europe is based on energy. Gas is a much more subtle instrument for projecting power than guns. Gas is also giving President Putin influence in China, far more powerful than any other influence that he could have in that region. Closer Russian-Chinese relations are also being encouraged by politicians grandstanding in the US and EU.

From an overall point of view, changes in China are for the good, economic development in America is going well and, while painfully slow, economic progress is being made in Europe in spite of its overburdening political system.

Barring a political miscalculation in the Ukraine and provided the conflict in the Middle East does not spread further into Saudi, the Gulf States and Turkey, we should see a steady improvement to the economic world for the time being.

Damon de Laszlo 29th May 2014

Posted by Aimée Allam