ITS PIRATES OF SOMALIA NOT CARIBBEAN

Piracy in Somalia is a highly organized,lucrative and ransom driven business. On many ocassions pirates were paid millions of dollars. These juicy payoffs have attracted gunmen from across somalia and the number of pirates are in thousands now. However, Indian navy recently registered a victory in one of the anti-pirate operation in the Gulf of Aden.But is this the solution of the problem? The United States and several european countries,particularly France have been talking about ways to patrol the waters together. The United Nations is even considering something like a maritime peacekeeping force.

This is nothing but piracy by henchmen of Somalia warlords(trying to capture power in Somalia)who are locked in fierce battle on the mainland and who are increasingly using the funds from piracy for their land operations. One of their biggest success was hijacking of Saudi Arabian supertanker "Sirius Star",with its $100 million worth of crude oil.

The question is how all this started?No one expected war hit Somalia to be the centre of such activities. The piracy industry started about 10 to 15 years ago as a response to illegal fishing. Somalia's central government imploded in 1991,casting the country into chaos. With no patrols along the shoreline,Somalia's Tuna rich waters were soon plundered by commercial fishing fleets from around the world. Somali fishermen then armed themselves and turned into vigilantes by confronting illegal fishing boats and demanding that they pay a tax. By the early 2000s,many of the fishermen had traded in their nets for machine guns and were hijacking any vessel they could catch. This is how piracy originated in Somalia.

Now,point is that where exactly this money of plunder going? One route ofcourse goes towords warlords on the mainland. Another route is KHAT. This money is also been used in trafficking Khat,a mild narcotic leaf that is very popular in the region. Banned in many western countries,khat is a flowering plant that is native to East Africa and the Arabian peninsula.

The immediate problem is that more than 20,000 vessels pass through the Gulf of Aden each year and this has resulted in insurance premiums shooting upto as much as $20,000 for a shipment of cargo.

NATO and U.S says that they cant be everywhere(Obviously,as there is no oil there).They are urging for private security. Mere statements wont do. If this problem is to be solved then a collective effort is required,not just India and France but everyone needs to contribute.

OPEC AND OIL PRICES

OPEC brings together most of the world's oil exporting countries to coordinate their petroleum policies and provide them with technical and economoical aid. OPEC was established in september 1960 at Baghdad,Iraq and was formally constituted by Iran,Kuwait,Saudi Arabia and Venezuela in 1961. OPEC was susequently joined by Qatar(1961),Indonesia and Libya(1962),Abu Dhabi(1967;membership was transferred to UAE in 1974),Algeria(1969),Nigeria(1971),Ecuador(1973) and Gabon(1975). The headquarters initially at Geneva was shifted to Vienna in 1965.

Today OPEC accounts for 40% of world's oil producton(In 1973 it was 55% and in 1980 it was 45%; the decline is due to increased role of Russia and Kazakistan). The supreme authority of the organisation is the conference consisting of reprentatives (generally oil ministers) of all the member states,each with one vote. It meets twice a year to formulate policies. All decisions (except those concerned with procedural matters)are adopted unanimously. The resolutions of the conference become effective 30 days after the conclusion of the meeting at which they are adopted,unless one or more members submit their opposition to the resolution.

However,an absence of effective coordination with non-OPEC oil producing countries has lead to much tensions in the world oil market. Four members-Kuwait,Qatar,Saudi Arabia and UAE-have large oil reserves in relation to thier population. The largest producer is Saudi Arabia, second largest being Iran.

OPEC decisions have been of great significance in the world oil market. OPEC gave FIRST OIL SHOCK to the world in October 1973(using oil prices as a political weapon against western nations for supporting Israel in the war of 1973).The organisation again raised prices to 130% in December 1973 and an embargo was placed on oil shipments to the US and Netherlands at the same time.

However,today condition is very different. Oil prices are going down like anything. It has reached below $34 a barrel (as in the third week of December 2008). The main reason of this is price cycle. First demand in western countries was huge(mainly in US which stands at no.1 position when it comes to oil consumption).However,OPEC kept on increasing oil prices. Then suddenly recession came into action and hence demand decreases,especially in western countries(this decrease in demand was due to the fact that people now want to spend less). As a result of decrease in demand, oil prices started coming down.

Recently,OPEC met in Oran, Algeria on December 17, 2008, and decided to cut 4.2 million barrels per day (mmbd) from their actual September production level of 29.045 for the OPEC subject to production quotas, effective January 1. This amounts to an additional cut of approximately 2.4 mmbd from the October production quota level of 27.308, and a cut of 2.9 mmbd from estimated November production, if the cuts are fully implemented.

While this is a somewhat confusing way to present their decision, the Algerian announcement would imply a new OPEC production goal of 24.845 mmbd from January 1. When combined with the October agreement, this latest cut represents a cumulative 4.0 mmbd decline from the September quota agreement, and a 4.2 mmbd cut (or 14.4%) in actual OPEC production from September levels. Non-OPEC producers Azerbaijan and Russia, who attended the meeting as observers with great fanfare, declined the opportunity to join OPEC and did not make a formal pledge to cut production and exports. Mexico and Norway declined to participate, saying that their production was already declining as a result of depletion.

OPEC is trying its best to increase world oil prices. However experts believe that oil prices are unlikely to go above $70 a barrel in 2009. Experts also believe that US President-elect Barack Obama’s stated policy of supporting development of alternate energy sources will also impact oil prices. At current crude oil prices developing alternate energy sources is no viable. But if the new US government subsidises alternate energy, and gives concessions, then companies will think about it.

Its difficult to predict anything with 100% accuracy. However world believes that countries like China and India have the potential to play some role in this context as demand for oil in these countries is constantly increasing. So this time not just OPEC, but India,China,Russia,kazakistan and many others have a major role to play. Lets hope whatever happen would be good for everyone.

GAME THEORY

Game theory is a technique for analysing how people,firms,and governments should behave in strategic situations and in deciding what to do,must take into account what others are likely to do and how others might respond to what they do. For ex-competition between two firms can be analysed as a game in which firms play to achieve a long term competitive advantage. The theory helps each firm to develop its optimal strategy for,say pricing its products and deciding how much to produce.It can help the firm to anticipate in advance what its competitor will do and show how best to respond if the competitor does something unexpected.It is particularly useful for understanding behaviour in monopolistic competition.

In game theory,which can be used to describe anything from wage negotiations to arm races,a dominant srategy is one that will deliver the best results for the player,regardless of what anybody else does. One finding of game theory is that there may be a large "first mover advantage" for companies that beat their rivals into a new market or come up with an innovation. One special case identified by the theory is the "zero sum game"where players see that the total winnings are fixed;for some to do well,others must lose. Far better is the "positive sum game" in which competitive interaction has the potential to make all the players richer.

CLEARENCE TO FOREIGN NEWS MAGAZINES

Foreign news magazines can now come out with Indian editions with union cabinet clearing an information and broadcasting ministry proposal to review the print media policy to this effect. Till now,only indian editions of foreign scientific,technical and speciality periodicals & journals were allowed. However,unlike in the case of niche publications like scientific,technical and speciality periodicals-where cent percent foreign investment is allowed,publishers of Indian editions of foreign news magazines will be eligible only for 26% foreign investment. Only Indian companies registered under the "Indian companies Act,1956"will be allowed to bring out Indian editions of foreign news magazines.

WORLD ECONOMIC CRISIS

The world is facing a situation close to that of 1929,if not exactly the same. Paulson proposed bailout package of $700 billion mainly to purchase toxic assets off the books of the financial firms. However the total consumer debt in U.S. is now about $2.6 trillion(22% more than in 2000),while the mortgage debt is around $10.5 trillion. The problem is that this debt will not be written off by bailout plan. The estimated credit default swap market alone is about $62 trillion. This poses a considerable danger.This is particularly the case as the major banks and investment houses now consolidate into 4 companies (J.P morgan chase,citicorp,Bank of America and Wachovia wells fargo). The toxic fictitious sector and the equally unstable consumer debt bubble are within the balance sheets of these 4 entities.The bailout does not address this toxicity,which will inevitably corrode the remaining banks.

This all started with sub-prime crisis,housing bubble and finally its effects on banks. On october 15 the federal reserve released the BEIGE BOOK which showed that in september consumer spending had declined in retailing,auto sales and tourism. This is the first formal indication of the impact of the crisis.Things are so bad that GENERAL MOTORS released a statement that"bankruptcy is not an option"for the company.

One of the main reason of all this is the complex structure of the U.S. economy,which gives extremly high profits to the financial sector. The number of bank failures in U.S. increased after 1980s;the savings and loans crisis was precipitated by financial behavior induced by liberalisation;and the collapse of long term capital management pointed to the dangers of leveraged speculation. Afterwards came the effects of housing bubble. Because of the complex chain,institutions at every level assumed that they were not carrying risk or they were insured against it. But risk did not go anywhere and resides somewhere in the system. Given financial integration,each firm was exposed to many markets and most firms were exposed to each other as lenders,investors or borrowers. Any failure would have a domino effect that would damage different firms to different extents and unfortunately the same happened.

FAILED BAIL-OUT PLAN

The house of representatives has deafeated a $700 billion emergency rescue package for staggering U.S.financial industry.The vote against the rescue was 228 to 205,with 133 Republicans turning against president Bush to join 95 Democrats in opposition.The bill was backed by 140 Democrats and 65 Republicans.The vote was a poloitical defeat for president Bush who tried to muster national support for a recovery plan in a televised address recently,then lobbied wavering Republican legislators in intensely personal telephone calls before voting.Bush and his economic advisors,as well as congressional leaders in both parties had argued that plan was vital to insulate ordinary Americans from the effects of wall streets' bad bets.The version that was up for vote was the product of marathon closed door negotiations on capitol hill.It is alarming,how quickly tables can turn.Leading U.S.commercial bank WACHOVIA CORP.which was looking to acquire MORGAN STANLEY till a few days back,has now ended up being swallowed by CITIGROUP.

ANOTHER FEATHER IN THE CAP OF RELIANCE

Reliance industries has begun crude oil production from the nation's first deep sea oil field in the krishna Godavari basin. Reliance is the first to produce crude oil in the private sector. It is also worth mentioning that Reliance is the only player in the private sector that owns oil refinery(at jamnagar),rest all are owned by government of India.