Rare Earth Elements: Are They the Petroleum of the New Century?

Recently, the US, EU and Japan filed a case against China at the World Trade Organization alleging that China was unfairly restricting trade in Rare Earth Elements (REEs or "Rare Earths" as they are sometimes called).

Despite the rarity of such unified action at WTO, I am sure very few people noticed it. And I am guessing, you are asking the obvious question: why do you think we are interested in trade disputes?

Well, there is something quite important about these metals and we need to keep an eye on them to understand a lot of neo-colonial incidents that are taking place and will continue to do so in the near future..

Rare Earths are 17 chemical elements in the Periodical Table: Scandium, Yttrium and 15 lanthanides. They are essential for the manufacture of most high tech equipment:

Rare earth metals are crucial in the manufacture of a range of high-tech commercial and military products, from cell phones to gasoline-electric cars, wind turbines, catalytic converters, avionics devices, and advanced weapons.

Despite their moniker "rare" with the exception of promethium, these elements are not particularly scarce. They can be found all over the world, notably Mongolia, Brasil, India, Central and South Africa, the US, Australia and a host of other regions. Oddly, China has roughly 37 percent of proven reserves but it supplies 97 percent of the global demand.

In recent years, it curtailed its exports to other countries and in a few instances it stopped selling them as a retaliation to unrelated incidents. So, the rationale of the WTO case is to force China to give up its arbitrary control over these metals. And, you are right, in and of itself a trade dispute would not be a big deal.

What interests me is the cut-throat race to grab these resources behind this case. There is also a whole new application for one of these metals and this could turn the whole thing into an even bloodier fight.

First a bit of background.

Egypt's Brotherhood and the New Palestinian Approach

As my tiny but loyal readership knows, I have been claiming that some of the changes that have taken place in the Middle East in the last year or so included steps and measures to prepare the ground for a historic Israeli-Palestinian peace deal.

The most recent cobblestone in that peculiar road was a dramatic power struggle within Hamas and an unexpected realignment with Fatah.

Today a big chunk of that long and winding road was paved in one fell swoop:

Officials of the Brotherhood, Egypt’s dominant Islamist movement, are pressing its militant Palestinian offshoot, Hamas, which controls Gaza, to make new compromises with Fatah, the Western-backed Palestinian leadership that has committed to peace with Israel and runs the West Bank. (...)

Brotherhood officials say that they are pulling back from their previous embrace of Hamas and its commitment to armed struggle against Israel in order to open new channels of communications with Fatah, which the Brotherhood had previously denounced for collaborating with Israel and accused of selling out the Palestinian cause. Brotherhood leaders argue that if they persuade the Palestinians to work together with a newly assertive Egypt, they will have far more success forcing Israel to bargain in earnest over the terms of statehood. 

In case there is any doubt about which faction within Hamas they are supporting:

The Brotherhood’s supreme guide, Mohammed Badie — effectively its chairman — had personally told Hamas’s top political leader, Khaled Meshaal, to be “more flexible,” Mr. Fahmy said, and at recent talks in Doha, Qatar, Hamas had agreed for the first time to let Fatah’s leader, Mahmoud Abbas, preside over the first six months of a unity government for the Palestinian territories until new elections could be held. 

In other words, it looks like the Muslim Brotherhood pressured Meshaal to accept Mahmoud Abbas and his stance of peaceful coexistence with Israel. They also told them that they will put a lot of pressure on Israel to come to the negotiating table in earnest once the transition in Egypt is a done deal.

That means Haniyah who is backed by Iran is effectively out and Meshaal and his newly realigned perspective is in. Because without the Brotherhood Hamas could not survive in Gaza. This is a very important development.

What is interesting is that, last year, no one was expecting the Brotherhood to be this savvy and to act with this much forethought. And to push for a comprehensive regional peace with such enthusiasm and vigor.

Well, no one, other than some contrarians, that is.

Tragic Events in Toulouse and France's Muslims

You probably heard of the French gunman who killed seven people in Toulouse. His name was Mohamed Merah and he was a French citizen of Algerian descent and a self-proclaimed member of Al Qaeda.

No one seems to know why he killed these people and there is considerable doubt that he is indeed a member of Al Qaeda.

U.S. officials declined comment on any role in handling Merah in Afghanistan but said they believed he was probably not affiliated with what remains of the core al Qaeda organization created by the late Osama bin Laden and led now by Ayman al Zawahiri. Instead, they believe he is probably a lone wolf, or almost-lone-wolf, with at most a handful of associates including perhaps his brother.

When I first of the murder of three army officers I was puzzled.  Nothing of this kind ever happens in France. For one thing, this is not a violent country or a violent culture. Secondly, it is very difficult to get guns without getting the police alerted. Thirdly, the French state knows pretty much everything about everybody. For instance -and this may sound strange to North American ears- you cannot move to a new place without registering with the local authorities. They will duly note your new address and change your national ID card accordingly.

When I heard of the killing of Jewish people (tragically, three of whom were children) I was saddened and shocked. I am not Jewish but I understand how it feels to be blamed for everything under the sun and to be a universal target for every deranged idiot who wants to lash out at something. And to endure this practically everywhere and for several millenia. I am a student of history and I know how much they suffered and I have nothing but sympathy for them.

I was shocked because, as I said, acts of terrorism are extremely rare in France. The last antisemitic terror incident was in 1982, which consisted of a bomb that exploded in Goldenberg restaurant in the Marais district in Paris. And it was probably done by the Abu Nidal group. The last general act of terrorism was in 1995: a shadowy Algerian group called GIA (Groupe Islamique Armé) recruited some disaffected young people and convinced them to kill one moderate imam and place bombs in several metro stations.

Two Additional Items on Iran-Israel Conflict

After I posted my contrarian analysis of Israel's unlikely attack on Iran's nuclear targets, the New York Times published a dark warning that echoed my analysis:

A classified war simulation held this month to assess the repercussions of an Israeli attack on Iran forecasts that the strike would lead to a wider regional war, which could draw in the United States and leave hundreds of Americans dead, according to American officials.      

Jack Straw, the former British Foreign Secretary added this warning:

"It could lead to a major realignment in international relations of a kind that we have not seen up to now," he says. 

"You'd get huge divisions in the international community between the US and maybe the United Kingdom, on the one hand; other European countries somewhere in the middle; Russia and China, Brazil, India on the other." 

He didn't mention my prediction about a new arms race but given the highly polarized world he describes, I consider it a given.

As for my contention that the real goal is to destroy Iranian economy (and that it is working much better than any strike could), Reuters has reported that Iran was unable to pay for even those goods that are sold under a humanitarian license, like diapers and drugs.

"Everything from aspirin to multivitamins - you name it - it's all jammed up," said Cari Stinebower, an international trade lawyer with Crowell & Moring, a Washington, D.C.-based law firm, and a former counsel for the Treasury Department's Office of Foreign Assets Control (OFAC). 

The payments gridlock is a testament to the effectiveness of the latest round of financial sanctions, which aim to force Iran to curb its nuclear program and which have made the Iranian banking sector even more radioactive for major global banks. (...)

 "That has had a huge ripple effect," said Douglas Jacobson, a Washington attorney who focuses on sanctions work.

"On the one hand, you can get a license. The government is saying, 'OK you can sell.' But the practical reality is that you can't get paid," he added.

 And all of this predates the SWIFT expulsion:

The decision on Thursday by Belgium-based SWIFT, the world's biggest electronic payment system, to expel all Iranian banks blacklisted by the European Union, may make it even harder to conduct transactions, sanctions lawyers said.

I realize that sanctions represent a terrible hardship for the civilian populations but I doubt that a large scale bombing by the US and a protracted regional war are better alternatives.

If there is a modicum of rational though left in the world, no such attack should take place.

Despite the ravages of post-modernity, I am still hoping that this is the case.

Will Israel Attack Iran?

A good friend of mine asked me why I was not commenting on Israel's very public air strikes countdown against Iranian nuclear facilities.

I told him that I didn't say anything because I didn't think a strike is a real possibility and I still don't. I already explained my reasoning in a detailed manner last November and I believe my points are still valid.

He was not moved. But, he said, how do you explain the extreme sound and fury that surrounds this issue. How do you explain the fact that eminent experts got together to establish an Iran War Clock and it is ten minutes to midnight (i.e. 48 percent chance of a strike).

The panel is indeed impressive:

Daniel Byman, Shahram Chubin, Golnaz Esfandiari, Azar Gat, Jeffrey Goldberg, Amos Harel, Ephraim Kam, Dalia Dassa Kaye, Matthew Kroenig, John Limbert, Valerie Lincy, James Lindsay, Marc Lynch, Gary Milhollin, Trita Parsi, Paul Pillar, Barry Rubin, Karim Sadjadpour, Kenneth Timmerman, Shibley Telhami, Stephen Walt, and Robin Wright.

To break my complacency, my friend added that just yesterday, it was reported (in Hebrew) that Netanyahu held a vote in his cabinet and eight ministers voted in favor of a strike without American support and six against.

I have pushy friends.

I suppose there are enough new developments to warrant a revisit. Just to defend a contrarian position to contradict that eminent panel might be worth the effort.

First, let me recap some of the recent highlights.

One More Thing About Sarkozy

A week after my contrarian claim that Sarkozy might get reelected despite opinion polls showing François Hollande handily defeating him, Le Monde published the first opinion poll that shows him overtake Hollande in the first round.

Previously, it was a statistical dead-heat of about two percentage point in Hollande's favor and now it is the other way around (28.5% vs 27%).

The poll still found that Hollande would win in the run off elections but "by a narrower margin of nine points, down from 13 points a fortnight ago ."

Credit is given to his anti-immigration and anti-EU rhetoric.

I still maintain that he is moving to get the white working classes behind him and now we see that some of these who were tempted to vote for the extreme right wing candidate Marine Le Pen are moving back to Sarkozy as a more palatable and viable candidate.

The poll came after Sarkozy had an uncharacteristically successful appearance on France 2 last Tuesday. To me, that marked a shift in the way the media handles him. In fact, there has been a subtle but noticeable change in the way television channels reflect and package his candidacy.

If the trend continues (and I believe it will) you can expect the run off election to yield a surprising result.

Ottoman Roots of Nicolas Sarkozy

Nicolas Sarkozy was a prominent politician who served as mayor of Neuilly-sur-Seine, an affluent suburb of Paris and twice as Interior Minister. Yet, until he became President in 2007, not much was known about his family history.

Then an article appeared in a Le Monde blog called "La Turquie pour les nuls" (Turkey for Dummies) telling the stroy of his maternal great uncle, Ascher Mallah Effendi. I think it was penned by a researcher and high school teacher by the name of Olivier Chartier. The blog no longer exist but the article got reproduced hundreds of times. It became popular because it shed light to Sarkozy's Ottoman and Jewish ancestry. The former pleased Turks for the irony it represented with Sarkozy's opposition to Turkey's EU membership and the latter seemed to tickle antisemites of all kind.

The French text is more or less reproduced here.

I subsequently realized that most of the information came from a couple of articles that appeared earlier in an online publication called European Jewish Press. The later piece expanding on the introduction provided by the first one.

This is the Sarkozy Family Story

Sarkozy's maternal grand father Benedict (born Aaron, nicknamed "Beniko") Mallah was born in Thessaloniki (Salonika) in 1890 as an Ottoman citizen. Mallah sounds like it has something to do with Allah but it means angel in Hebrew, as Malak does in Arabic. The family is Sephardim as they were forced out of Spain (Sepharad in Hebrew, hence the denomination) with the Alhambra Decree in 1492. They first moved to Provence in France and then to Salonika.

Contrarian Notes on French Elections

If you have seen any recent news item on French elections, you probably know that the Socialist Party candidate François Hollande has what appears to be an unbeatable lead over the incumbent, Nicolas Sarkozy.

Actually, last month, I was shown a couple of internal polls taken by major polling firms and they indicated that, especially in the run-off elections, Hollande would beat Sarkozy with a double digit lead. And this was true for all possible scenarios and combinations.

Besides presiding over what looks like a failed presidency, two thirds of the population has a highly negative opinion of Sarkozy. There is chronic high unemployment in a stagnant economy, consumer confidence is at an all time low,  France lost its coveted Tripe A credit rating and there is a widespread perception that, during his first term, Sarkozy did nothing but party with his rich friends and his posh wife.

Just a few days ago, while campaigning in Bayonne, he had to take refuge in a bar for an hour as the crowds turned against him, hurling insults and eggs. It is no exaggeration to say that a majority of French people really, truly, madly hate him.

The French simply dislike him.(...)

Mr Hollande said that on his travels around France there were always, of course, supporters who came up and said how much they wanted him to be president. 

But far, far greater were the number who came up to Francois Hollande and said they just wanted to be rid of Nicolas Sarkozy. 

That is perfectly believable.

Yet, given my contrarian nature, I think that Nicolas Sarkozy might just pull off the seemingly impossible and get reelected.

Arab Spring Catching Rays from Turkish Summer

I read this morning that a new party has just been formed by the Libyan Muslim Brotherhood. It is called Justice and Development Party: 

As you might know, this is the name of the ruling AKP party in Turkey, the originator of the so-called Turkish model and the Libyan party is now the fourth political party to share the name and the platform of AKP in the region:

The party will be the fourth in the region having both a name and a platform similar to Turkey’s ruling Justice and Development Party (AKP). 

In Egypt, the political wing of the Muslim Brotherhood movement, known as the Justice and Freedom Party (JFP), whose party platform largely copies the AKP’s, has won about half the seats in parliamentary elections and dominated the upper house elections.

In Morocco, the moderate Islamist Justice and Development Party (PJD), also modeling itself on the AKP, won the parliamentary election last November. The party’s leader and Prime Minister Abdelilah Benkirane has been likened to Turkish Prime Minister Recep Tayyip Erdoğan, because their political parties have the same name, their emblems are very similar – Erdoğan’s party uses a light bulb, while the PJD uses a gas lamp – and both claim to favor moderate Islam. 

In Tunisia as well, Rached Ghannouchi, chairman of the moderate Islamist Ennahda Party, which took most of the votes in the country’s first free elections after the ouster of veteran President Zine el Abidine Ben Ali, claims to take its inspiration from the AKP. 

In and of itself this is not very noteworthy, as the motivation to imitate a successful arrangement is perfectly understandable, especially in places where the military plays an important role.

It will be a lot more interesting to see whether Muslim Brotherhood and similar organizations will follow the brand of Islam emanating from the Turkish model.

I think it will be important to keep an eye on the Gulen movement.

Two Notes on Greek Debt Issue

I have two unrelated news items on the Greek debt. One indicates how the debt issue cannot be analyzed without reference to the banksters.

The other is an interesting development, one which would have been unthinkable even a decade ago.

First the banksters.

A Haircut is Not a Default: ISDA

On my last post on the Greek debt issue I mentioned the fact that International Swaps and Derivatives Association (ISDA), which is the professional body looking after Credit Default Swaps (CDS), has long refused to call any "haircut" to Greek sovereign debt, a trigger event. That is because declaring so would have forced banks that issued these derivatives to pay investors the full face value of the bonds they hold.

They have just issued a new ruling after the latest agreement on Greek debt:

As part of Greece’s restructuring, bondholders will be required to take a 70 percent loss on their holdings. When first announced, the deal was proposed as a voluntary exchange, which would not have activated the credit-default swaps. 

But in recent weeks, Greece has prepared to require all private bondholders to accept the losses through legal means. This would make the exchange involuntary and almost certainly set off the swaps. (...)

But so far I.S.D.A. has not been swayed. On Thursday, the organization said a committee had “unanimously determined” in both cases that a credit event did not occur. 

This is quite similar to you telling your bank that the fact that you only intend to pay half of your mortgage does not constitute a default on your part. And the bank cheerfully accepting this argument. Try it to see if that works for you.