After Oil: Money, Food and Polymers – New Business Activities for the Middle East

I wrote this article for the Al Jarida newspaper and it was published on Saturday 7 February 2015.

This article took a full page as I was developing an argument for Kuwait and other oil rich countries after demand for crude oil declines. It is published here: Al Jarida Article 7 Feb 2015 (Go to page 12)

After Oil: Money, Food and Polymers – New Business Activities for the Middle East

Fourteen years ago the former Minister of Oil for Saudi Arabia, Sheikh Ahmed Zaki Yamani said that by 2030 oil would remain in the ground because people would not want it. One oil rich country, Iran, is discussing their future budgets without oil. I have written previously about how dramatic falls in energy creation from solar radiation is now a direct competitor to burning fossil fuel. So what can economies that are heavily reliant on oil revenues such as Kuwait do in a post oil world? This is what I will discuss in today’s article.

Based on experience, for a change to take place in any market there must be three major forces that come together at the same time. These three forces are: Economic, Social and Technical. If a market or industry sector has these forces in play, then it will change. Let us look at the oil market and see if these forces are present.

Economically? Yes. Falling prices have made many oil reserves uneconomic. Falling prices of other energy sources drives consumers towards them.

Socially? Yes. Climate change issues are affecting the entire world and reducing carbon dioxide production is now a topic of common discussion. The United Nations Framework Convention on Climate Change (UNFCCC) and the Intergovernmental Panel on Climate Change (IPCC) are both very vocal in the need to curb carbon dioxide emissions immediately. Not next year, but now. Today. Yesterday if they could do it.

Technically? Also yes. Energy can be produced as efficiently from the sun and the wind as it can from fossil fuels (coal, oil and gas).

So it seems the forces are aligned. Hence the market will move. Then the question remains, what does this mean for countries that are heavily reliant upon fossil fuels, especially crude oil, for their state revenues? Something needs to change. Business will have to divest and reinvest in order to create new revenue streams.

There is a catch however, a complex economic catch. In countries where oil revenues provide a lot of state revenues, oil production is also very cheap. For example in Russia, oil production cost is around $15 per barrel. It’s about $10 per barrel in Iran and less than $5 per barrel in Saudi Arabia, Iraq and Kuwait. New revenue streams however will come with higher operating costs, high retooling costs (more capital investment) and high human capital retraining costs. Margins will be less. Hence there must be significant increases in revenue by these lower margin activities to cover the revenues lost by a fall in oil demand. It will be difficult.

So with that groundwork laid, I boldly predict that for oil rich states such as Kuwait that once oil demand declines there are three areas that can replace oil revenues. These are:

1. Finance, equity and debt investments, investment yields 2. High value polymer production, taking it beyond low value petrochemicals 3. Aquaculture for high efficiency protein production

These income streams can either occur through private ownership, in which case taxation regimes would be required to provide state revenues. Or the ventures would be state owned and continue to operate much like the oil and gas sector operates now. The later would be a tall order. The economic efficiencies necessary in these new industries will not allow traditional work ethics common with the high margin, easy to produce revenues from crude oil. Therefore state governments will get smaller. The private sector will grow, if it can. Private sector needs three factors in it’s favour to thrive: 1) great infrastructure – transport, communications, access to liquidity; 2) excellent legal systems; 3) low taxes. This is something Dubai has been developing and they appear to be doing well.

Let’s go through each one of these three new revenue options in turn, using Kuwait as an example and the benchmark of $50b – Kuwait’s gross income with crude oil price at $45 per barrel.

1) Finance, Equity and Debt Investments, Investment Yields

Sovereign wealth funds of the Middle East are in an ideal position to expand their operations to replace falling oil revenues. Since 1953, the Kuwait sovereign investment fund has accumulated an estimated $550b in assets. Therefore, quite simply, a 10% yield on investment would replace all present revenues from crude oil.

But can you get such a high yield on so much capital? You can. You can even get more.

Berkshire Hathaway, the very well known investment group established by Warren Buffet in the 1960’s, holds net assets of $484b. Their net revenues have averaged 20% per year for the past 50 years.

This demonstrates that high yields are achievable.

Employing 330,000 people, Berkshire Hathaway presents a viable model for Kuwait moving forward after oil. Raising the level of investment knowledge therefore is an important skill to develop amongst Kuwaitis. The management of such investment could be achieved by creating 100 investment groups each allocated $5b. Each group would be set the target to achieve 20% or more net annual revenues. It would be survival of the fittest. Consolidation, knowledge transfer and then further expansion would increase the performance of the funds and the skills of the investment management teams.

From first hand experience, investment yields greater than 50% are possible when carefully selected and expertly executed.

So the management of money is a viable solution to entirely replace revenues from falling oil demand.

2) High Value Polymer Production, Taking It Beyond Low Value Petrochemicals

Here is a perspective of the use of crude oil in today’s world:

From Renewable Energy World

The chart shows that 44% of crude oil is consumed as gasoline, 21% as diesel, and 9% as jet fuel. That means that 74% of crude oil is burnt every day, never to return, non-renewable.

Notice that only 2.7% of all production is consumed in the polymer industry – petrochemicals. This is an industry that takes a product with a market value of $0.30 per kg (crude oil), and then, with complex chemical and mechanical processes, produces products that sell for $1, 5, even $17 per kg. This industry is is the petrochemical industry, producing plastics and polymers.

Value adding to crude oil is a straightforward way to increase revenues once you have installed the necessary equipment and have the required numbers of trained personnel.

I have put together the table below to show different polymers with their prices, their world market share and how much of Kuwait’s revenue this would represent.

For example polycarbonate, a transparent, highly impact resistance plastic common in the automotive industry, sells for about $5 per kg.

PTFE, a high tech fluorocarbon polymer sells for about $17.5 per kg.

But the demand for both of these polymers is low compared to crude oil volumes. Even if Kuwait was producing all of the worlds requirements for these two high value polymers, it would not provide any where near the replacement revenue for the State.

Polymer	World Production (million tonnes per year)	Bulk Market Price ($ per kg)	World Market Value ($ billion per year)	% of World Crude Market Value	Profit at 20% Margin	% of Kuwait Income ($45b)
Polyethylene	80	1.7	136	10%	27	60%
Polypropylene	60	1.5	90	7%	18	40%
PVC	43	2.5	108	8%	22	48%
Polyester (PET)	28	2.2	62	5%	12	27%
Polyurethanes	12	2.5	30	2%	6	13%
Acrylonitrile-Butadiene-Styrene (ABS)	7.3	2.5	18	1%	4	8%
Polycarbonate	3.7	5	19	1%	4	8%
PTFE (Teflon)	0.2	17.5	3.5	0.3%	1	2%
Crude Oil (Kuwait)	150	0.30	45	3%
Crude Oil (World)	4,025	0.33	1,328	100%

Prices and quantities are from various years eg 2012, 2013, and 2014 and are indicative only for the purposes of general trends and forecasting for this article. Further details analysis would be necessary to undertake investment level decisions.

When considering what products the petrochemical industry should focus on, the table highlights that advanced polymers are high value but are not high volume. It also highlights the large scale of investment needed to produce a viable revenue source from advanced polymers. Also there is no one single polymer that would replace crude revenues. Instead a mix would be required, determined by market demand, capital expenditure, and feedstock availability.

Let’s consider two countries in the region, Saudi Arabia and Iraq. Saudi Arabia presently produces 75% of all Petrochemicals in the Middle East (and 10% worldwide). In 2013 Saudi petrochemical production was 86.4 million tonnes and the total value was $66.9b. Note that this equates to only $0.77 per kg, so it’s not in high value polymers, but in mid value intermediate polymer feedstock. In Iraq, Shell has just signed a $11b deal with the Iraqi government to build the Basra Nibras complex (operating by 2021). This is a petrochemical facility with a modest 1.8 million tonne per year capacity. Also, it is not making high value polymers, only intermediary polymer feedstock. Further capital investment is required to do higher value adding.

For an exercise, let’s assumed that the profit margin for a basket of high value polymers is 20% and that that basket sells for $2.5 per kg. This includes all capital investment, operations, maintenance and replacement allowance for the equipment (depreciation). Therefore the net profit will be $0.50 per kg. Thus, with 1,000,000 barrels per day of oil (123 million tonnes per year) converted into a high value polymer would yield $26b in net profits per year, or about half of Kuwait state requirements.

So this is possible, though with considerable capital investment and the time to establish it.

3) Aquaculture for High Efficiency Protein Production

What else can these countries do when oil is no longer wanted for burning? Well, it will still remain a low cost source of energy, and that means that other industries can be supported with it. One such industry is aquaculture, the most efficient form of protein conversion of any animal husbandry practice, as the table below highlights:

Feed Conversion Ratios

Animal	Kilograms of Animal Feed to Produce 1 Kg of Animal Meat
Beef	20
Sheep	4
Chicken	2
Fish	1.4
Shrimp	1.1

This is food for thought for oil rich nations with abundance of sunshine, water, and hence cheap energy. Growing fish and shrimp for hungry expanding world markets is a possible viable investment path, especially as the forecasts of collapsing wild fish and shrimp stocks come more frequently into the news.

One of the fastest growing food industries due to it’s high feed conversion ratio is shrimp farming. Iran has increased shrimp production to 8,000 tonnes per year in only about 15 years, and Saudi Arabia is producing about 25,000 tonnes of shrimp per year over a similar time frame.

There are plans for a 9,000 tonne per annum shrimp farm in Iran which will double production from that country and put it on level with Saudi Arabia.

WorldFishCentre.org

However, growing shrimp is not a replacement for crude oil sales. It’s a supplement.

Here’s why.

The market price for shrimp is around $5 per kg and they cost about $2 per kg to produce. Hence the net margin is $3 per kg.

To produce $1b net profit per year requires 300,000 tonnes of shrimp.

Note that world shrimp production is about 4 million tonnes per year.

About 40,000 Ha is required to produce this much shrimp (if growing white tail vannamei).

The Kuwait land area is 1.782m Ha, so 2.2% of Kuwait’s total area would have to be converted to shrimp ponds.

Incidentally this much land would also produce about 100 GW of electricity if photovoltaic cells where installed. This is the same amount that both China and India are committing to install by the early 2020’s.

So the volume of resources required is large whilst the net return is comparatively low, despite the fact that it is healthy and expanding.

So, there you have it. A stool with three legs provides the greatest stability:

1. Finance 2. Polymers 3. Food

Perhaps fishing and textiles will again be the mainstay for the region in years to come as it was before oil.

Author Deck Mr. Jeremiah Josey is an Australian who has been living in the Middle East for 7 years. Knowledgeable in the energy markets, he is the Chairman and Director of Oil & Gas of Swiss based Meci Group, a business and investment consultancy operating across the Middle East, Central Asia and Russia.

2015: The Year For the Downside of Solar Energy and the Upside of Banking

Photographer: Chris Sattlberger/Getty Images

Downside of Solar? Yes, downside.  The side where you slide down and things get easier and more efficient, and lower priced, and better, and people want more of it. That’s what is happening with solar power.  Look at this slope for US energy pricing:

Source: EIA, CIA, World Bank, Bernstein analysis

(Henry Hug, is natural gas, Brent is crude oil, LNG is liquefied natural gas)

This solar slope is definitely a diamond double black run.  (Yes I love skiing).

Notice how the other energy sources are climbing.  That’s cross country skiing and really, a lot of work. The scenery is great though.

So what’s been happening in solar that is different in the other energy sectors: technical advances are improving output, reducing costs. As more people want it, they leave established alternatives and make it main stream.

I’m saying that that is what has happened to solar recently.  I’m just choosing the start of 2015, since, well, its the start of 2015. I’m also suggesting that oil prices may not return to previous highs.  Has the down side been seen yet, no I don’t think so, but it is getting close.

Oil prices may rise again, but not for very long.

Demand for electric vehicles is expected to rise rapidly from 2017.

Nafeez Ahmed and Tony Seba explain why here How Solar Power Could Slay the Fossil Fuel Empire by 2030.

Said in June 2000, by Sheikh Zaki Yamani, former Oil Minister of Saudi Arabia (1962–86), “Thirty years from now there will be a huge amount of oil—and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the Oil Age will come to an end not because we have a lack of oil.”

Are we are  getting to about that time the Sheikh mentioned?

See that 44.1% blue pie piece below?  That’s all burnt in passenger cars.

From Renewable Energy World.

The falling solar prices will lead to distributed energy generation and this will break the hegemony of centralized energy production and reticulation.  This the heart of the world financial system presently. A good example is Africa. It cannot be tamed primarily because it doesn’t have centralized energy infrastructure.  This may appear a little complicated, but stay with me.

This is what I mean by the upside of banking.

The financial system is having it’s own problems and seems on the brink of collapse, as James Quiin, Executive Business Editor of the Telegraph elegantly put it two days ago.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11321497/Why-2015-could-spell-the-end-for-the-hegemony-of-the-big-banks.html

He covers it well, though I would add that fractional reserve banking is the core of profit generation for the modern banking system, coupled with excessive derivative trading. These two systems are under heavy strain presently.

Changing direction a little further to discuss the upside of banking, I see that the people of China and Russia have a great deal of contiguous history, both recent and ancient: Russia, 1,000 years and China, 5,000 years. This means lots of lessons learnt from the mistakes of their ancestors. For instance in the early 1,000’s and for 500 years China tried and failed with paper money systems 5 times before the people ignored the government and switched to silver for their medium of exchange.  Each successive Chinese government had tried to print their way out of debt. China also has recent living memory failures, similar to Russia.  So I see that they are acting as a group of interested people, as a collective, rather then the haves and havenots system of a monarchical, plutocratic system common in the west presently. For instance, China has a history of executing bankers caught defrauding customers and investors and Vladimir Putin has an approval rating of almost 90%.  So, ostensibly Russia and China are for working for their people and will adopt technologies and social systems that benefit everyone.  So I foresee solar and new financial systems quickly being adopted in these countries.

Moving on…

2015 is also good year to start on the down slope of oil demand, so a new currency won’t be petrodollars.  It will be remain  commodity based, however more likely onto gold and silver. Meanwhile, Russia, Iran and China are active in forging closer ties.  It’s not about competing with the USA business model. These alliances form natural blocks for US companies accessing resources.  For instance Afghanistan has over $1T in gold and lithium deposits…  This is part of the reason why Russia was interested back in the 80’s.

http://sputniknews.com/columnists/20141231/1016436434.html,

http://www.livescience.com/47682-rare-earth-minerals-found-under-afghanistan.html

Tom Randle over at Bloomberg made this interesting article about 8 weeks ago:

Every time fossil fuels get cheaper, people lose interest in solar deployment. That may be about to change.

After years of struggling against cheap natural gas prices and variable subsidies, solar electricity is on track to be as cheap or cheaper than average electricity-bill prices in 47 U.S. states — in 2016, according to a Deutsche Bank report published this week. That’s assuming the U.S. maintains its 30 percent tax credit on system costs, which is set to expire that same year.

Even if the tax credit drops to 10 percent, solar will soon reach price parity with conventional electricity in well over half the nation: 36 states. Gone are the days when solar panels were an exotic plaything of Earth-loving rich people. Solar is becoming mainstream, and prices will continue to drop as the technology improves and financing becomes more affordable, according to the report.

The chart below shows how far solar will come out ahead in each state in 2016, assuming a worst-case scenario of lower tax credits. The blue bars show the anticipated cost of solar energy (assuming a conservative 20-year lifespan for the panels) minus average electricity prices. Positive numbers indicate the savings for every kilowatt hour of electricity.

Grid Parity to Reach 36 States in 2016

Source: Deutsche Bank, EIA. Graph shows LCOE minus average electricity price

Solar has already reached grid parity in 10 states that are responsible for 90 percent of U.S. solar electricity production. In those states alone, installed capacity growth will increase as much as sixfold over the next three to four years, Deutsche Bank analyst Vishal Shah wrote in the Oct. 26 report.

The reason solar-power generation will increasingly dominate: it’s a technology, not a fuel. As such, efficiency increases and prices fall as time goes on. The price of Earth’s limited fossil fuels tends to go the other direction. Michael Park, an analyst at Sanford Bernstein, has a term for the staggering price relationship between solar and fossil fuels: the Terrordome. I’m not sure exactly what that means, but it doesn’t sound very forgiving.

The price of solar will soon undercut even the cheapest fossil fuels in many regions of the planet, including poorer nations where billion-dollar coal plants aren’t always practical.

Solar will be the world’s biggest single source of electricity by 2050, according to a recent estimate by the International Energy Agency. Currently, it’s responsible for just a fraction of one percent.

Because of solar’s small market share today, no matter how quickly capacity expands, it won’t have much immediate impact on the price of other forms of energy. But soon, for the first time, the reverse may also be true: Gas and coal prices will lose their sway over the solar industry.

http://www.bloomberg.com/news/2014-10-29/while-you-were-getting-worked-up-over-oil-prices-this-just-happened-to-solar.html

So, there you have a few changes on the world stage, conveniently coming together at about the same time: the fall of oil, the rise of solar, and the shakeup of the financial system. A good time to plan new investment and business strategies for yourself and your family.

Jeremiah Josey

Meci-Group

Seasons Greetings and Financial Events for 2015

Hello!

As we close the chapter on 2014 and turn our attention to what lies ahead for 2015, I think I can safely say that 2014 has been like no other.

I’ve been studying the financial markets for several years and the signs are approaching quickly now that indicate it is important to consider new investment strategies and different attitudes as we move into 2015 and the longer term.

Events like:

– Drop in oil price

– Sanctions against Russia

– US economy no longer able to maintain the look good image

– Trouble in the EU

– Impending collapse of world financial system

This video captures key events coming up:

Watch “Signs US Economy in Trouble, Russian Bear Not Wou…” on YouTube –

http://youtu.be/fAGksbTWdwo

This is scary news however there is a plan that can be followed:

This is what I recommend for 2015.

– Get as much excess cash and equity into silver and gold as you can.  75% silver. 25% gold.

– Focus on maintaining your income and reducing expenses.

– Expect deflation in the short term.  Very low interest rates.  A few months.

– There time enough to get organised.

– Borrow against your availabile equity and buy gold and silver.

– Then hyperinflation will kick in.  Slowly then very fast.  Everywhere.

– Property values will fall in real terms but the hyperinflation will hide it.

– Then sell some of the newly valued gold and silver to pay off the debt.  Because that amount of debt won’t change.

– Then wait for the right time to convert the gold and silver back into cash flow producing assets.

That will be in about 2 or 3 years as long as there is no war with Russia.

Otherwise 10 years…

The video above captures the key events coming up in the next few months:

– Weapons to Ukraine.

– Expected depression in the US xmas spending figures.

– A bankrupt EU.

The signs are indicating that it is time to change investment strategies.

I wish you the best for 2015 and let’s remember that good investors are making money when the markets are up and making much more when markets go down.

Best regards,

Jeremiah Josey
Meci-Group.com

The Speech that Signals the Change of the World and Setting the Scene for the 21st Century.

Address by President of the Russian Federation

Vladimir Putin addressed State Duma deputies, Federation Council members, heads of Russian regions and civil society representatives in the Kremlin.

 

PRESIDENT OF RUSSIA VLADIMIR PUTIN: Federation Council members, State Duma deputies, good afternoon. Representatives of the Republic of Crimea and Sevastopol are here among us, citizens of Russia, residents of Crimea and Sevastopol!

Dear friends, we have gathered here today in connection with an issue that is of vital, historic significance to all of us. A referendum was held in Crimea on March 16 in full compliance with democratic procedures and international norms.

More than 82 percent of the electorate took part in the vote. Over 96 percent of them spoke out in favour of reuniting with Russia. These numbers speak for themselves.

To understand the reason behind such a choice it is enough to know the history of Crimea and what Russia and Crimea have always meant for each other.

Everything in Crimea speaks of our shared history and pride. This is the location of ancient Khersones, where Prince Vladimir was baptised. His spiritual feat of adopting Orthodoxy predetermined the overall basis of the culture, civilisation and human values that unite the peoples of Russia, Ukraine and Belarus. The graves of Russian soldiers whose bravery brought Crimea into the Russian empire are also in Crimea. This is also Sevastopol – a legendary city with an outstanding history, a fortress that serves as the birthplace of Russia’s Black Sea Fleet. Crimea is Balaklava and Kerch, Malakhov Kurgan and Sapun Ridge. Each one of these places is dear to our hearts, symbolising Russian military glory and outstanding valour.

Crimea is a unique blend of different peoples’ cultures and traditions. This makes it similar to Russia as a whole, where not a single ethnic group has been lost over the centuries. Russians and Ukrainians, Crimean Tatars and people of other ethnic groups have lived side by side in Crimea, retaining their own identity, traditions, languages and faith.

Incidentally, the total population of the Crimean Peninsula today is 2.2 million people, of whom almost 1.5 million are Russians, 350,000 are Ukrainians who predominantly consider Russian their native language, and about 290,000-300,000 are Crimean Tatars, who, as the referendum has shown, also lean towards Russia.

True, there was a time when Crimean Tatars were treated unfairly, just as a number of other peoples in the USSR. There is only one thing I can say here: millions of people of various ethnicities suffered during those repressions, and primarily Russians.

Crimean Tatars returned to their homeland. I believe we should make all the necessary political and legislative decisions to finalise the rehabilitation of Crimean Tatars, restore them in their rights and clear their good name.

We have great respect for people of all the ethnic groups living in Crimea. This is their common home, their motherland, and it would be right – I know the local population supports this – for Crimea to have three equal national languages: Russian, Ukrainian and Tatar.

Colleagues,

In people’s hearts and minds, Crimea has always been an inseparable part of Russia. This firm conviction is based on truth and justice and was passed from generation to generation, over time, under any circumstances, despite all the dramatic changes our country went through during the entire 20th century.

After the revolution, the Bolsheviks, for a number of reasons – may God judge them – added large sections of the historical South of Russia to the Republic of Ukraine. This was done with no consideration for the ethnic make-up of the population, and today these areas form the southeast of Ukraine. Then, in 1954, a decision was made to transfer Crimean Region to Ukraine, along with Sevastopol, despite the fact that it was a city of union subordination. This was the personal initiative of the Communist Party head Nikita Khrushchev. What stood behind this decision of his – a desire to win the support of the Ukrainian political establishment or to atone for the mass repressions of the 1930’s in Ukraine – is for historians to figure out.

What matters now is that this decision was made in clear violation of the constitutional norms that were in place even then. The decision was made behind the scenes. Naturally, in a totalitarian state nobody bothered to ask the citizens of Crimea and Sevastopol. They were faced with the fact. People, of course, wondered why all of a sudden Crimea became part of Ukraine. But on the whole – and we must state this clearly, we all know it – this decision was treated as a formality of sorts because the territory was transferred within the boundaries of a single state. Back then, it was impossible to imagine that Ukraine and Russia may split up and become two separate states. However, this has happened.

Unfortunately, what seemed impossible became a reality. The USSR fell apart. Things developed so swiftly that few people realised how truly dramatic those events and their consequences would be. Many people both in Russia and in Ukraine, as well as in other republics hoped that the Commonwealth of Independent States that was created at the time would become the new common form of statehood. They were told that there would be a single currency, a single economic space, joint armed forces; however, all this remained empty promises, while the big country was gone. It was only when Crimea ended up as part of a different country that Russia realised that it was not simply robbed, it was plundered.

At the same time, we have to admit that by launching the sovereignty parade Russia itself aided in the collapse of the Soviet Union. And as this collapse was legalised, everyone forgot about Crimea and Sevastopol ­– the main base of the Black Sea Fleet. Millions of people went to bed in one country and awoke in different ones, overnight becoming ethnic minorities in former Union republics, while the Russian nation became one of the biggest, if not the biggest ethnic group in the world to be divided by borders.

Now, many years later, I heard residents of Crimea say that back in 1991 they were handed over like a sack of potatoes. This is hard to disagree with. And what about the Russian state? What about Russia? It humbly accepted the situation. This country was going through such hard times then that realistically it was incapable of protecting its interests. However, the people could not reconcile themselves to this outrageous historical injustice. All these years, citizens and many public figures came back to this issue, saying that Crimea is historically Russian land and Sevastopol is a Russian city. Yes, we all knew this in our hearts and minds, but we had to proceed from the existing reality and build our good-neighbourly relations with independent Ukraine on a new basis. Meanwhile, our relations with Ukraine, with the fraternal Ukrainian people have always been and will remain of foremost importance for us. (Applause)

Today we can speak about it openly, and I would like to share with you some details of the negotiations that took place in the early 2000s. The then President of Ukraine Mr Kuchma asked me to expedite the process of delimiting the Russian-Ukrainian border. At that time, the process was practically at a standstill. Russia seemed to have recognised Crimea as part of Ukraine, but there were no negotiations on delimiting the borders. Despite the complexity of the situation, I immediately issued instructions to Russian government agencies to speed up their work to document the borders, so that everyone had a clear understanding that by agreeing to delimit the border we admitted de facto and de jure that Crimea was Ukrainian territory, thereby closing the issue.

We accommodated Ukraine not only regarding Crimea, but also on such a complicated matter as the maritime boundary in the Sea of Azov and the Kerch Strait. What we proceeded from back then was that good relations with Ukraine matter most for us and they should not fall hostage to deadlock territorial disputes. However, we expected Ukraine to remain our good neighbour, we hoped that Russian citizens and Russian speakers in Ukraine, especially its southeast and Crimea, would live in a friendly, democratic and civilised state that would protect their rights in line with the norms of international law.

However, this is not how the situation developed. Time and time again attempts were made to deprive Russians of their historical memory, even of their language and to subject them to forced assimilation. Moreover, Russians, just as other citizens of Ukraine are suffering from the constant political and state crisis that has been rocking the country for over 20 years.

I understand why Ukrainian people wanted change. They have had enough of the authorities in power during the years of Ukraine’s independence. Presidents, prime ministers and parliamentarians changed, but their attitude to the country and its people remained the same. They milked the country, fought among themselves for power, assets and cash flows and did not care much about the ordinary people. They did not wonder why it was that millions of Ukrainian citizens saw no prospects at home and went to other countries to work as day labourers. I would like to stress this: it was not some Silicon Valley they fled to, but to become day labourers. Last year alone almost 3 million people found such jobs in Russia. According to some sources, in 2013 their earnings in Russia totalled over $20 billion, which is about 12% of Ukraine’s GDP.

I would like to reiterate that I understand those who came out on Maidan with peaceful slogans against corruption, inefficient state management and poverty. The right to peaceful protest, democratic procedures and elections exist for the sole purpose of replacing the authorities that do not satisfy the people. However, those who stood behind the latest events in Ukraine had a different agenda: they were preparing yet another government takeover; they wanted to seize power and would stop short of nothing. They resorted to terror, murder and riots. Nationalists, neo-Nazis, Russophobes and anti-Semites executed this coup. They continue to set the tone in Ukraine to this day.

The new so-called authorities began by introducing a draft law to revise the language policy, which was a direct infringement on the rights of ethnic minorities. However, they were immediately ‘disciplined’ by the foreign sponsors of these so-called politicians. One has to admit that the mentors of these current authorities are smart and know well what such attempts to build a purely Ukrainian state may lead to. The draft law was set aside, but clearly reserved for the future. Hardly any mention is made of this attempt now, probably on the presumption that people have a short memory. Nevertheless, we can all clearly see the intentions of these ideological heirs of Bandera, Hitler’s accomplice during World War II.

It is also obvious that there is no legitimate executive authority in Ukraine now, nobody to talk to. Many government agencies have been taken over by the impostors, but they do not have any control in the country, while they themselves – and I would like to stress this – are often controlled by radicals. In some cases, you need a special permit from the militants on Maidan to meet with certain ministers of the current government. This is not a joke – this is reality.

Those who opposed the coup were immediately threatened with repression. Naturally, the first in line here was Crimea, the Russian-speaking Crimea. In view of this, the residents of Crimea and Sevastopol turned to Russia for help in defending their rights and lives, in preventing the events that were unfolding and are still underway in Kiev, Donetsk, Kharkov and other Ukrainian cities.

Naturally, we could not leave this plea unheeded; we could not abandon Crimea and its residents in distress. This would have been betrayal on our part.

First, we had to help create conditions so that the residents of Crimea for the first time in history were able to peacefully express their free will regarding their own future. However, what do we hear from our colleagues in Western Europe and North America? They say we are violating norms of international law. Firstly, it’s a good thing that they at least remember that there exists such a thing as international law – better late than never.

Secondly, and most importantly – what exactly are we violating? True, the President of the Russian Federation received permission from the Upper House of Parliament to use the Armed Forces in Ukraine. However, strictly speaking, nobody has acted on this permission yet. Russia’s Armed Forces never entered Crimea; they were there already in line with an international agreement. True, we did enhance our forces there; however – this is something I would like everyone to hear and know – we did not exceed the personnel limit of our Armed Forces in Crimea, which is set at 25,000, because there was no need to do so.

Next. As it declared independence and decided to hold a referendum, the Supreme Council of Crimea referred to the United Nations Charter, which speaks of the right of nations to self-determination. Incidentally, I would like to remind you that when Ukraine seceded from the USSR it did exactly the same thing, almost word for word. Ukraine used this right, yet the residents of Crimea are denied it. Why is that?

Moreover, the Crimean authorities referred to the well-known Kosovo precedent – a precedent our western colleagues created with their own hands in a very similar situation, when they agreed that the unilateral separation of Kosovo from Serbia, exactly what Crimea is doing now, was legitimate and did not require any permission from the country’s central authorities. Pursuant to Article 2, Chapter 1 of the United Nations Charter, the UN International Court agreed with this approach and made the following comment in its ruling of July 22, 2010, and I quote: “No general prohibition may be inferred from the practice of the Security Council with regard to declarations of independence,” and “General international law contains no prohibition on declarations of independence.” Crystal clear, as they say.

I do not like to resort to quotes, but in this case, I cannot help it. Here is a quote from another official document: the Written Statement of the United States America of April 17, 2009, submitted to the same UN International Court in connection with the hearings on Kosovo. Again, I quote: “Declarations of independence may, and often do, violate domestic legislation. However, this does not make them violations of international law.” End of quote. They wrote this, disseminated it all over the world, had everyone agree and now they are outraged. Over what? The actions of Crimean people completely fit in with these instructions, as it were. For some reason, things that Kosovo Albanians (and we have full respect for them) were permitted to do, Russians, Ukrainians and Crimean Tatars in Crimea are not allowed. Again, one wonders why.

We keep hearing from the United States and Western Europe that Kosovo is some special case. What makes it so special in the eyes of our colleagues? It turns out that it is the fact that the conflict in Kosovo resulted in so many human casualties. Is this a legal argument? The ruling of the International Court says nothing about this. This is not even double standards; this is amazing, primitive, blunt cynicism. One should not try so crudely to make everything suit their interests, calling the same thing white today and black tomorrow. According to this logic, we have to make sure every conflict leads to human losses.

I will state clearly – if the Crimean local self-defence units had not taken the situation under control, there could have been casualties as well. Fortunately this did not happen. There was not a single armed confrontation in Crimea and no casualties. Why do you think this was so? The answer is simple: because it is very difficult, practically impossible to fight against the will of the people. Here I would like to thank the Ukrainian military – and this is 22,000 fully armed servicemen. I would like to thank those Ukrainian service members who refrained from bloodshed and did not smear their uniforms in blood.

Other thoughts come to mind in this connection. They keep talking of some Russian intervention in Crimea, some sort of aggression. This is strange to hear. I cannot recall a single case in history of an intervention without a single shot being fired and with no human casualties.

Colleagues,

Like a mirror, the situation in Ukraine reflects what is going on and what has been happening in the world over the past several decades. After the dissolution of bipolarity on the planet, we no longer have stability. Key international institutions are not getting any stronger; on the contrary, in many cases, they are sadly degrading. Our western partners, led by the United States of America, prefer not to be guided by international law in their practical policies, but by the rule of the gun. They have come to believe in their exclusivity and exceptionalism, that they can decide the destinies of the world, that only they can ever be right. They act as they please: here and there, they use force against sovereign states, building coalitions based on the principle “If you are not with us, you are against us.” To make this aggression look legitimate, they force the necessary resolutions from international organisations, and if for some reason this does not work, they simply ignore the UN Security Council and the UN overall.

This happened in Yugoslavia; we remember 1999 very well. It was hard to believe, even seeing it with my own eyes, that at the end of the 20th century, one of Europe’s capitals, Belgrade, was under missile attack for several weeks, and then came the real intervention. Was there a UN Security Council resolution on this matter, allowing for these actions? Nothing of the sort. And then, they hit Afghanistan, Iraq, and frankly violated the UN Security Council resolution on Libya, when instead of imposing the so-called no-fly zone over it they started bombing it too.

There was a whole series of controlled “colour” revolutions. Clearly, the people in those nations, where these events took place, were sick of tyranny and poverty, of their lack of prospects; but these feelings were taken advantage of cynically. Standards were imposed on these nations that did not in any way correspond to their way of life, traditions, or these peoples’ cultures. As a result, instead of democracy and freedom, there was chaos, outbreaks in violence and a series of upheavals. The Arab Spring turned into the Arab Winter.

A similar situation unfolded in Ukraine. In 2004, to push the necessary candidate through at the presidential elections, they thought up some sort of third round that was not stipulated by the law. It was absurd and a mockery of the constitution. And now, they have thrown in an organised and well-equipped army of militants.

We understand what is happening; we understand that these actions were aimed against Ukraine and Russia and against Eurasian integration. And all this while Russia strived to engage in dialogue with our colleagues in the West. We are constantly proposing cooperation on all key issues; we want to strengthen our level of trust and for our relations to be equal, open and fair. But we saw no reciprocal steps.

To be continued…

March 18, 2014, 15:50

The Kremlin, Moscow

http://eng.kremlin.ru/news/6889

We are the Russians – Here We Come!

Ever wonder about the psychology of the Russian people?

Let’s look at where they come from.

What are some headlines about Russia as a country?  (Just a few, because there are many):

Russia

• Largest landmass on earth, and by population density, one of the least populated  – only 8 people per square kilometer.   Singapore has over 7,500 people per square kilometer.
• With these large unpopulated spaces very generous reserves of gold, oil, coal, gas, iron, nickel, tungsten and so on, where most other countries have piles of dirt.
• A great agricultural base – both in land and farming techniques – for production of organic food  😀

So lots of space for people, lots of space for food for the people and lots of resources for the people to work with.

And what about the people? (Also just a few points, because there are many):

• Never conquered in over 1,000 years, with a contiguous culture throughout that time, layered with incredible fortitude built from a primarily serfdom society.
• A recent memory war that took away 26,500,000 people concurrent with an equally recent memory regime that removed another 20,000,000 souls from the earth.  Remember that present day Russian population is only 143,000,000.
• Within the most recent generation an entire society literally thrown onto the street as they moved from one economic system and were thrust into another.

And what is the net result. In one word: Survivors – practical, pragmatic survivors. With a whole lot of resources to apply themselves to.

One can see this in this Inglehart Value Map below.   There’s Russia: high on the upper left: High Survival values and high in Secular-Rational values: “what will it/you/they do for me now, today, not tomorrow or after?”

Inglehart Values Map

 Having a very high “Secular-Rational Value” means the people are very practical, very pragmatic.  They are not prone to superstition (or faith without action), though many have deep devout faiths.  Compare this to the USA, where a call to align with “traditional values” by any politician, Republican or Democratic – calling for God, or labour or liberalist idealism – will be swept into power with a rambunctious swearing of allegiances and oaths to serve – and die for no reason in strange far off lands – for God and country.  In Russia it’s simple: “show me”.

Considering the history of the Russian people, on Survival Values they rank very high also.  This makes for tenacity, perseverance, industriousness.  No room for BS please.

Lots of good potential in this combination. Driven, dedicated, results focused. A little bit of entrepreneurial training and away they will go.

Have you ever heard of Maslow and the “Hierarchy of Needs”. That helps explain what is behind the Values Map. The idea is as you sort out your base, you can rise up the pyramid to, eventually, self actualisation.

That’s a country for you – on the launch pad.

Maslows Hierarchy of Needs

Jeremiah Josey