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Tuesday, 2 February 2016

Chaos, disorder and a new equilibrium - part 2

On 31 January 2016, Nigeria asked the World Bank and the African Development Bank for a $3.5 billion emergency loan (eg, FT). On 1 February 2016, the FT announced that Russia is lining up seven major state companies, including Aeroflot, Alrosa, the diamond miner, and Rosneft, for potential privatisation as the Kremlin debates drastic options to replace dwindling oil revenues.

Early 2016, the FT announced that "Saudi Arabia is considering listing shares in state-owned Saudi Aramco, the largest oil producer, in a move that would be likely to create the most valuable listed company in the world. The world’s largest oil-exporting nation struggles to contain a burgeoning deficit of nearly $98bn following the oil price’s spectacular 70% collapse over the past 18 months. The Saudi government recently unveiled spending cuts for this year, subsidy reforms and called for privatisations to rein in its widening deficit"

The continued low oil price is the main reason for the money issues of Nigeria, Russia and Saudi Arabia and also other countries like Venezuela. The low oil price is partly the result of a lower demand due to the continued "slow" world economy (eg, China) but mainly because of additional oil production (eg, Africa, Brazil, Canada, USA), increased oil production (eg, Saudi Arabia), and also substitution of oil for other energy sources (eg, gas, nuclear, solar, wind).

China is a big oil consumer but despite the lower oil price, its economic woes have increased. The imminent Chinese implosion has been mentioned in my 9 January and 31 January 2016 blogs and - indirectly - also in my 5 January 2015 blog on "Chinese pollution - the cost of doing business". 

The USA is witnessing one of its weirdest presidential elections ever. On 8 November 2016, people may have a choice between a candidate on the extreme right (Cruz, Trump) and the extreme left (Sanders). Whatever the outcome will be, it's quite likely that the USA will lose respect and trust amongst its friends and foes - and even more than it already did for the past decades.

Europe is moving from one crisis to the next without even wrapping up the earlier ones. Its latest and worst crisis ever - the labour migrant / refugee crisis - appears to be beyond (damage) control and repair. National standalone solutions may result into European disintegration. The dubious roles of Greece, Russia and Turkey in this crisis will become clear in forthcoming years.

The emerging power vacuum is worrisome. The USA may still fill that vacuum for some decades but its focus is increasingly inwards and homebound. Turkey's ambitions to restore the Ottoman Empire make it a dangerous outsider. Russia and Iran are likely to contain Turkey's aspirations.

Mid January 2016, Professor Stephen Hawking announced that humanity has to be very careful for at least the next 100 years (BBC). "Although the chance of a disaster to planet Earth in a given year may be quite low, it adds up over time, and becomes a near certainty in the next thousand or ten thousand years". He wasn't referring to economic disasters but they could cause other disasters.

The worldwide chaos and disorder that we have seen building up for the past several decades is likely to bring a new equilibrium but quite possibly only after a new (world) war.

Note: all bold and Italic markings are mine.

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