I have always believed that the “tandem” is not an optimal arrangement – for reasons that seem obvious to me. To be credible, a leader of a country must possess – and be seen to possess – the ultimate and unambiguous responsibility for key state functions. Even where competences are not always precisely defined (as is the case in Russia, where the constitution does provide for a powerful prime minister), there must be only one supreme leader, otherwise there will be no clarity over who is really in charge.

In Russia, this supreme official is the President, who, according to the constitution, determines the “basic objectives of the internal and foreign policy of the state”. The President also appoints the Prime Minister. While obviously there will always be turf ambiguities and some overlap, the supreme responsibility clearly lies with the President. This was certainly the case under Putin’s presidency.

How bad is the job market? Tom Weber chronicles the lowest hourly wage that Americans, and others around the world, will accept for an hour of work. Continue reading →

Regarding the editorial on Russia in the Wall Street Journal by Anne Jolis (“Khodorkovsky heads back to Siberia” June 15th), I could not help but notice the significance of the date. Exactly 13 years ago today, on June 15^th, 1998, the mayor of the Siberian oil city of Nefteyugansk sent a letter to Boris Yeltsin and nine of the top officials in the Russian government. The mayor, Vladimir Petukhov, used the letter to assail the “murderous policies” carried out by Khodorkovsky’s YUKOS group in his city, and demanded a tax and criminal investigation into that group and various related (and named) shell companies. In his closing, instead of using the typical “with respect”, he uses the less typical phrase “with hope!” Eleven days later, on Khodorkovsky’s 35^th birthday, Petukhov was shot to death on the street outside his office. Alexei Pichugin, the head of security for YUKOS, reporting to Mikhail Khodorkovsky, was found guilty in 2007 of organizing the murder.

I thought that since today is June 15^th, you might like to see the letter—it is translated into English below. Does the letter constitute legal “evidence” against Khodorkovsky? No. Is it possible that Petukhov had lots of enemies? Yes. Is the letter even real? I cannot be sure; all I can say is that a copy of the “original” in Russian was faxed to me in late June 1998 by . . . a reporter at the Moscow bureau of the Wall Street Journal. I would be happy to fax it back if you would like to see it. I’m sure that if you asked Petukhov’s widow she could confirm or deny its legitimacy. Certainly, no one at the time considered it to be the sharp end of a conspiracy against Khodorkovsky that would bear fruit 7 years later. In general, people took away a different message from the episode.

I mention Al Capone in the subject heading above, because at one point this was an explanation used by the Russian government in reference to the Khodorkovsky case. After howls of derision from the western press, they abandoned this line and adopted the more typical response of Russian bureaucracy:  silence. Not great PR, but I think their comparison has some merit. Why did Al Capone spend 10 years on Alcatraz? Because he cheated on his taxes? Did any other tax cheats (who offered to repay their back taxes, as Capone did) receive such a sentence in the 1930’s? Al Capone went to jail on tax charges because no one was willing to testify against him for murder. Any potential witnesses were either dead or afraid, and he was smart enough not to leave enough evidence sitting around to convict him. The Russian legal system is not perfect, and in many ways is more imperfect than that of the US. However, it seems to me that the approach of the Wall Street Journal (and New York Times) op-ed page has become myopic and hysterical on the topic of Mikhail Khodorkovsky.

Best regards,

Steven Allen

Moscow, Russia

—

To:

President of the Russian Federation (RF), Yeltsin, B.N.

Prime Minister RF, Kiriyenko S.V.

Chairman of Federation Council RF, Stroyev Ye.S.

Chairman of State Duma RF, Selyeznyev G.A.

General Prosecutor RF, Skuratov Yu.I.

Head of the Federal Tax Inspectorate (GNI) RF, Fedorov B.P.

Chariman of the Federal Security Service (FSB) RF, Kovalyev N.

Governor of Tyumen Region, Roketski Yu.Yu.

Governor of Khantii Mansiisk Autonomous Region, Filipenko A.V.

Chairman of Khantii Mansiisk Duma, Sobyanin S.S.

I, the head of the city of Nefteyugansk Petukhov V.A., protest against the cynical actions  and murderous policies carried out by the oligarchs from OAO ‘RospromYUKOS’ and bank ‘Menatep’ in the Nefteyugansk region.

In protest against the inaction of the government of the RF and the policies of suffocation of opposition to the team of Khodorkovsky M.B., which in my opinion leave no other path, I announce an indefinite hunger strike and make the following demands:

1.  To initiate a criminal case based on the fact of large-scale under-payment of taxes by Rosprom-YUKOS in the years 1996 – 1998;

2.  To remove from his post the head of the GNI [State Tax Inspectorate] in the city of Nefteyugansk Naumov L.E., and the head of the GNI of the Khantii-Mansiisk Autonomous Region Efimov A.V., and to unite the tax organs of the city of Nefteyugansk and the Nefteyugansk region;

3.  To activate an investigation of criminal activity surrounding the fact of the swindling of the sum of 450 billion roubles in old prices by the firms ‘Rondo-S’ and ANK ‘YUKOS’, and also the swindling by use of false promissory notes of the firm ‘Eltem’ in the sum of 100 billion roubles which were issued by Rosprom-YUKOS;

4.  To pay off the accumulated tax arrears, interest, and penalties of Rosprom-YUKOS in the amount of 1.2 trillion un-denominated roubles to the city of Nefteyugansk, using financial resources, crude oil, and oil products;

5.  To put an end to the interference by the oligarchs from Rosprom YUKOS Menatep in the activities of the organs of local self-governance;

6.  To conduct the process by which will be annulled the unlawful auction in the purchase of ANK ‘YUKOS’ by Rosprom-YUKOS, and the transfer of the government’s share holding in OAO ‘Yuganskneftegaz’ in exchange for debts to the city of Nefteyugansk, the city of Pyt’-Ykhu, the Nefteyugasnk region, and the Khantii-Mansiisk Autonomous Region;

7.  To restore the economic independence of OAO – production association ‘Yuganskneftegaz’.

With hope!

Head of the city of Nefteyugansk,

Kandidat Texnicheskii Nauk [PhD]

V.A. Petukhov                                   15.06.98

Oil prices pushed up last week, back towards $120 per barrel. Brent crude is now 25pc more expensive than at the start of the year.

The OPEC oil exporters’ cartel, meanwhile, has just failed to agree an official boost to output. And oil markets are getting tighter, as global petroleum demand reaches levels that quite simply have never been seen before.

Prices pressures rose last week after the OPEC summit in Vienna ended with the twelve-member group in discord. Saudi Arabia had led an effort to raise production quotas. But Iran, Venezuela, Iraq and three others refused. Ali Naimi, the veteran Saudi Oil Minister, long-accustomed to getting his own way, called it “one of the worst meetings we have ever had”.

Speculation ahead of the summit suggested the cartel would raise its output quotas from the current 26.2m barrels daily, perhaps by another one of two million. In the event, a renegade group blocked the increase, a position the cartel now says it won’t review for another three months.

What was significant about Vienna wasn’t so much the differences in opinion. The likes of Venezuela and Iran have protested against production hikes many time before. The new development was that the “hawks” were so strong a camp, so galvanized, that Saudi Arabia, the cartel’s largest producer and most dominant decision-maker, couldn’t enforce its point of view.

Before examining the supply-side implications of events in Vienna, it is worth taking stock of the extent of global oil demand. For this is a subject, amidst all the intrigue, drama, conflict and high-politics that surrounds oil extraction, that generates surprisingly little attention. The reality is, though, that worldwide oil consumption is escalating far faster than is commonly understood. The numbers are actually rather shocking.

Global demand in 2011 will go above 90m barrels per day for the first time in history, according to the International Energy Agency, the Western world’s oil think-tank. That would top the previous record-high of 87.4m, set in 2010. Having fallen slightly in 2008 and 2009, crude demand surged last year and in 2011 is surging again.

This is happening even though the Western world is in the economic doldrums. For while oil demand in the OECD “industrialized nations” rose only 0.9pc last year, across the non-OECD nations it rocketed 5.5pc. The emerging markets, including the fast-industrializing giants of the East, are clearly now making the economic weather. And this has major implications on global energy markets.

China and India between them are home to a third of the world’s population. Even in 2009, when the world economy was on its knees, these emerging Asian giants grew 8.7pc and 6.6pc respectively. Last year, almost in defiance of still sluggish Western export demand, China and India expanded by almost 10pc.

As they grow, these countries are investing massively in infrastructure development – roads, buildings, machinery. This is highly energy-intensive. In conjunction with this, their vast and fast-growing populations are becoming wealthier, acquiring cars and consumer goods for the first time, while switching to protein-rich diets.

In 2010, Chinese oil use grew by an astonishing 15pc year-on-year, with the People’s Republic now burning more than 10m barrels daily. And China’s per capita oil usage still remains only at a fraction of Western levels. As incomes grow, in the decades to come, Asian crude use will not only keep rising, but could well accelerate.

New estimates by BP suggest that by 2030 the world will be consuming 40pc more energy than it does today. That’s like adding two more current-day Chinas to global energy consumption. This will happen partly due to on-going industrialization in the East, but also population growth. Almost all the rise in energy use over the coming two decades – no less than 93%, says BP – will come from emerging economies such as China, India, Indonesia, but also the nations of South America and the Middle East. So, even if America and Western Europe manage to conserve energy, and Western demand is flat, global energy demand is still on an upward mega-trend.

In 1970, the OECD countries accounted for around 70p of world energy use. Today the split between “the West and the rest” is more like 50:50. By 2030, BP expects that non-OECD countries will account for two-thirds of total energy consumption. I don’t think that’s right. The more likely date, in my view, is 2020.

We can talk about renewable energy. The emerging markets, particularly the Chinese, also won’t hesitate to burn more of their still-abundant coal. But the world economy, and particularly the West, must brace itself anyway, for previously unheard of levels of global oil consumption, driven up by the emerging markets.

Against this strong demand backdrop, turmoil in the Middle East has sparked immediate supply-side fears. OPEC has lost nearly all output from Libya, which was pumping 1.6m barrels back in January, before its descent into civil war. Given that, there was a widespread expectation in Western capitals, which now looks like wishful thinking, that Saudi would go to Vienna and, as usual, order the rest of OPEC to push up production quotas.

Yet that is to under-estimate the severity of Saudi Arabia’s acute dilemma. Many leading oil producers have been forced to spend more on social programs to placate their restless populations. Saudi’s current “break-even” oil price, at which its domestic budget balances, is now $85/barrel, according to the Washington-based Institute of International Finance, up from $68/barrel in 2010.

As recently as 2003, Saudi break-even was only $30/barrel. The IFF estimates break-even prices for Bahrain, Oman, UAE, Qatar and Kuwait, while having risen less than in Saudi, have also more than doubled over the same period. Demographic pressures mean the Saudi figure will spiral to $110 by 2015, says the IIF.

The mighty Saudi Arabia is also subject to production constraints. Riyadh’s Al-Hayat newspaper just reported that production will rise to 10m barrels daily next month, up from 9m today – despite OPEC’s Vienna tantrum. Yet Saudi also recently announced a 30pc increase in its new rig order book for 2011/2012 simply “to maintain production”.

This is part of a broader pattern among oil producers, namely an increasing reliance on smaller wells. New oil fields brought on stream over the last 3 years have averaged only around 20m barrels of reserves. Back in the 1960s and 1970s, the era of the “giant finds”, the average newly-commissioned well boasted over 520m barrels.

Industry estimates point to a global production decline rate of almost 7pc per annum among existing fields – suggesting reliance on smaller wells will intensify. Such wells, of course, require more rigs, labour, infrastructure and other inputs per barrel of oil produced. In other words, in the face of rising medium-term demand, crude is becoming more difficult and costly to extract.

The Western world used to benefit of a vital economic safety value. When our economies slowed, that would have a decisive impact on global energy demand, causing oil prices to fall back. OPEC’s raison d’etre, back in those days, when they controlled around 40pc of global production, was to stop that happening by attempting to limit supplies.

Today OPEC’s market share is much lower. Oil demand is soaring and will continue to do so whatever the Western world does. The main economic influence on global oil prices is no longer “OPEC-induced supply constraint” but “rampant demand”. OPEC can still drive a headline, and matters at the margins. But when it comes to the long-term trends, the Vienna summit meant nothing.

Liam Halligan is chief economist at Prosperity Capital Management

This article first appeared in The Sunday Telegraph:

http://www.telegraph.co.uk/finance/comment/liamhalligan/8570394/Opecs-Vienna-summit-meant-nothing-for-long-term-oil-price-trends.html

Christine Lagarde is in poll position. Having put her name forward last week, the silver-haired French finance minister may well become the new managing director of the International Monetary Fund (IMF).

Lagarde has, with a depressing inevitability, secured the backing of most European countries. The UK was among the first to endorse her. There are rumours the mighty US could soon throw its weight behind Lagarde – making her bid a fait accompli.

Europe seems determined to retain its prerogative of appointing the boss of the world’s most important financial watchdog.

Throughout the IMF’s 65-year history, all 11 bosses have been from Western Europe. In return for allowing this stitch-up, America has traditionally provided the IMF deputy, while securing the top spot at the World Bank.

Amid such blatant favouritism, there have been promises to make such selection processes more “transparent” and “merit-based”. But Europe is saying “not yet”. IMF voting weights remain so skewed that the US and European Union together – with only 10pc of the global population – can still out-gun the rest of the world combined.

The question of who runs the IMF usually interests financial and economic nerds. Yet huge speculation surrounds the identity of the next Fund boss. One reason is the salacious nature of the previous managing director’s fall. Dominique Strauss-Kahn, while protesting his innocence, remains embroiled in a lurid New York sex scandal. No wonder the current contest has leapt from the business press on to the world’s front pages.

There are bigger reasons, though, why the name of the next IMF chief matters. For one thing, this crucial institution needs to reflect the extent to which the world has changed since it was launched from the ashes of the Second World War.

In addition, global markets could now be teetering on the brink of another “Lehman moment”, similar to that which struck in the autumn of 2008. If ever there was a time for the right person to be in charge of monitoring the global economy, that time is now.

I have previously argued it would be “a historic mistake” if the new IMF boss was a European. I robustly maintain that view. After all, the emerging markets now account for four-fifths of the world’s population and almost half of global GDP. Since 2008, they have also commanded a higher share of world trade than the West.

After years of economic out-performance, these countries now have around three-quarters of the world’s currency reserves and, in stark contrast to debt-mired Western countries, generally boast healthy sovereign balance sheets.

The IMF specializes in fiscal bail-outs. Putting fairness and morality aside, it should be heavily influenced, and regularly run, by well-qualified nationals of the countries with the most fiscal strength. However much we deny it, and whatever the extent to which our ratings agencies are cowed by politicians, that seriously undermines the case for a Western candidate.

When the IMF began, the West perhaps had much to teach the rest of the world about running a capitalist society – and the fiscal muscle and moral authority to impose our will. Those days have gone. Several of the big Western nations are now bankrupt in all but name, their sovereign debt markets reliant on printed money. Commercially, we are losing ground and our moral authority is depleted. We are showing the world how NOT to run a capitalist society. Yet our leaders sail on, oblivious to such realities, claiming the top jobs almost as their birthright.

This week I want to stress that the next IMF boss, while not hailing from the West, also shouldn’t be a politician. Many argue that the case for a politician, especially a European politician like Lagarde, is currently very strong. For the first time ever, much of the IMF’s lending is in Europe – given the continent’s disgraceful sovereign debt crisis. So, we are told, the new Fund boss must understand and pay due deference to the nuances of European politics, in order to defuse the EU’s fiscal time-bomb – a bomb that could easily explode, sending shockwaves across the world.

Such reasoning is the basis of claims that Strauss-Kahn, impeccably connected across Europe and a political animal manqué, was a “superb” IMF boss. Yet such reasoning is absurd. The IMF works properly not when it is loved by the countries it is lending to, but when it is banging political heads together to get myopic, economically illiterate politicians to face up to fiscal realities. Unless the IMF is seen as tough – even unreasonably tough – then it isn’t doing its job.

An IMF that colludes with the political classes isn’t enacting reform. It is simply helping the politicians bury their mistakes and kick any problems into the long grass where they will fester. The IMF should be respected – even feared. It is for the politicians to stand up and face the political music – explaining to their electorates why harsh actions are needed and why nations can’t go on living beyond their means.

Perhaps the most dangerous type of politician to run the Fund is a politician still hankering after high office. Strauss-Kahn, of course, was using the post and the influence it bestowed over trillions of dollars of bail-out cash, as a platform for a French presidential bid. As such, he turned the IMF into a soft-credit society for the eurozone’s periphery nations, holding the single-currency together for the benefit of his Franco-German friends.

Strauss-Kahn’s continued insistence on “just one more bail-out”, rather than forcing Greece, Portugal and the rest to face up to genuine debt-restructuring, also made sure that the losses stayed with plebian taxpayers, rather than being shifted on to Europe’s banks. He could have called in the favour, no doubt, when the need came to finance his campaign for the ultimate prize.

It was not to be for Strauss-Kahn, of course. But what is to stop Lagarde following the same route? She now has that most precious of political factors in her favour – momentum, or “the big mo”. And with only one other candidate in the ring for the IMF job – Mexican Central Banker Agustin Carstens – no wonder she is still odds-on favourite.

Lagarde’s spin doctors are now working overtime. The Indian press is reporting her IMF campaign tour starts on Monday in Delhi – “given her long association with India”. The Brazilian press, meanwhile, is gushing that her first stop will actually be Rio. A future IMF boss shouldn’t be indulging in such “image making” and giving “my life as a mother” interviews. All this reveals how much see craves public acclaim – the kiss of death for someone in line to run a hard-headed institution.

If she lands the IMF job, which seems likely, Lagarde will be well placed, if she can avoid her own judicial pitfalls, to run for the Élysée in 2017. This will be on her mind every single day she spends at the helm of the Fund – which is precisely why she’s unsuitable. Running the IMF, now more than ever, requires economic expertise, massive intellectual authority and a willingness to be deeply unpopular – particularly, if you are a European, on your home turf.

The emerging economies need to stop moaning, put their differences aside, and set their combined authority behind a world-class economic policy-maker to run the IMF. Such nations should be doing everything in their power to wrestle control of this pivotal institution from a Western political elite that is not only intellectually inadequate, but which seems determined to compound the world’s economic problems. The deadline for nominations is June 10.

Liam Halligan is chief economist at Prosperity Capital Management

This article first appeared in The Sunday Telegraph:

http://www.telegraph.co.uk/finance/comment/liamhalligan/8543964/Why-Christine-Lagarde-should-never-be-head-of-the-IMF.html