|
I’ve
long stressed the importance of geopolitical issues and the role they
play in shaping the investment environment. As the world becomes a more
complex place, global political developments are becoming increasingly
important in the investment decision process.
I've established a Geopolitics &
Investing (G&I) report in relation to another product--my
global advisory, The
Silk Road Investor (SRI)--to assist investors in
identifying investment trends that stem from developments in the
geopolitical arena, as well as offer actionable advice.
The
Best Hedge in a Falling Market
Not only have bonds not fallen like a rock as the US stock market has,
but they’ve rallied. And as the Federal Open
Market Committee continues to raise rates, we can expect to see that
rally continue.
This is a prime example of when “conventional wisdom” proves to be
practical: bonds are the perfect hedge against
the market’s doldrums. To find out how an ex-investment banker plans
to make money off this upswing, click
here
www.neilsbonddesk.com/geaugustseventeen
The second G&I
report, “Still Playing The Great Game: Business, Investments And
Politics In Central Asia,” is now available, free of charge, with your
subscription to SRI. The
following is an excerpt from the report. For more information about my
advisory, including my top stocks in India, Japan and Russia, click
here.
Of Bears And Dragons
China is geographically close to Central Asia, sharing common borders
totaling more than 3,000 km with Kazakhstan, Kyrgyzstan and Tajikistan.
China has three long-term strategic interests in the region: Keep
Central Asia stable; use the region as one more way to diversify its
energy resources; and contain separatist movements in its oil-rich
Xinjiang province.
The first, rooted in Chinese history (i.e., the centuries-old debate
over Chinese strategic security between proponents of maritime power and
land power), indicates the pivotal role of Central Asia given its
proximity to China’s western borders.
The second interest has been discussed extensively and has to do with
efforts by the Chinese to stop being totally dependent in Middle Eastern
oil. Furthermore, roughly 80 percent of Chinese oil imports pass through
the 600-mile long Strait of Malacca; the Chinese see that as a weakness,
given that the route can be easily closed down during times of conflict.
This is particularly true where “conflict” involves China and the
US. Consequently, pipelines from Central Asia are viewed as more
reliable and are therefore highly desirable.
It comes as no surprise, then, that the recently completed 1,000-km oil
pipeline connecting Atasu in Kazakhstan to Alashankou in western China
was viewed by China as a great first step, even though China provided
the entire $800 million to fund the project. Nevertheless, the move is
justified by the fact that “between 2010 and 2020 Chinese oil
consumption is expected to rise from 355 million tons to 500 million
tons annually, and China's oil deficit will increase by 240 million
tons.” Construction started in September 2004 and finished in 10
months, record time for such a colossal project.
The third long-term strategic interest--keeping the region stable--has
to do with what the Chinese view as an unstable situation in the
Xinjiang Uighur Autonomous Region (XUAR). The more than 7 million
Moslem, ethnic Turkic Uighurs living in the region identify more closely
with their Central Asian neighbors than with ethnic Chinese. As many
Uighurs seem to desire greater autonomy--and it’s believed that
foreign-based, radical Islamic organizations are instigating a
separatist movement--Chinese leaders often view them as a destabilizing
force. China and the US, as well as Russia, generally see eye to eye
when it comes to dealing with radical Islam.
Even the Japanese feel that a growing radical Islamic movement in
Central Asia would potentially affect Xinjiang and, consequently,
destabilize the rest of China. Such a development would have disastrous
consequences for Chinese relationships with their East Asia neighbors.
This was one of the reasons why the Japanese have contributed monetarily
to stabilizing efforts in Central Asia.
It’s been noted by some political theorists--and I laid out the
argument in my book The Silk Road to
Riches--that due to its economic ascent and smooth diplomacy,
China has been able to start winning the acceptance of the other states
in East Asia as well as in Central Asia. In addition to increasing
economic interdependence, China’s new diplomatic tack is to portray
itself as a rising, responsible power that doesn’t seek to exert
political influence on the respective, domestic situations.
Finally, and maybe most important, China seems to be willing to aid its
friends with real money rather than worldly ideas for change and future
development. Hard cash (along with guidance) has always been extremely
effective when trying to influence political systems, abroad or at home.
Even the most casual observer can see that Russia has embarked--after
the disastrous years of the Yeltsin era--on a coherent foreign policy
plan for Central Asia.
Foreign observers often forget that Central Asia is quite close to
Russia in terms of culture, history and language. Most regional elites
were educated in Russia; majorities speak Russian, listen to Russian
radio and watch Russian TV. Many also have relatives in Russia. In other
words, “there are no obstacles in language and thinking habits between
the elite of Central Asia and Russia.”
Considering the global geopolitical situation as well as the internal
changes taking place within specific countries, my view is that Russia
will remain a major global player in the near future. Its status is
secure for two main reasons: abundant natural resources and military
research and development.
It’s obvious that Russia can’t afford to be a bystander to the
changing military and strategic balance of power in its backyard,
especially since it has traditionally considered the region a strategic
buffer against outside threats.
Russia’s main aim when dealing with Central Asia has been to safeguard
its interests through political, economic and military means (the latter
referring to military assistance for security purposes).
Russia has kept a close eye on the states it considers most critical,
such as Kazakhstan. Kazakhstan is very important for Russia, both
politically and economically. It’s the home of significant ex-Soviet
defense/industrial facilities, including the Baikonur space launch
complex (which recently renewed its lease for the next 50 years) and a
nuclear weapons testing facility. Kazakhstan is also the biggest oil
producer in Central Asia; being one of the providers that controls the
means of transportation affords Russia tremendous strategic and economic
leverage.
Another example of economic dependence is that Russia covers a lot of
its needs for cotton with imports from Uzbekistan. It came as no
surprise when it offered full support to President Islam Karimov of
Uzbekistan when his old allies (the US and EU) decided that he was a
long-term liability after his security forces brutally suppressed a
rebellion in the city of Andijan on May 13, 2005.
Thus, Russia and Kazakhstan signed several economic and military
agreements to “develop a wide-ranging security system that would
tackle terrorism, weapons of mass destruction, narcotics trade and
organized crime.”
Russia has also re-established its presence in Tajikistan in an effort
to “guarantee Russian investments and overall stability in the
region.” It must be noted that when Tajikistan won independence from
the Soviet Union, it fell into civil war between ruling elites and
Islamists; the war lasted from 1992 to 1997. As a result, Russia has
been traditionally seen as a stabilizing force for the government.
Currently, Russia garrisons the 201st Motorized Rifle Division in the
country and helps patrol Tajikistan's border with Afghanistan. And the
Russians are operating a new air base within Tajikistan’s borders.
Russia has also developed significant military and economic ties with
Kyrgyzstan, expanding its military base near the city of Kant in October
2003 in order to provide “security for Kyrgyzstan.” The base is
located 30 km from Manas, where the US--though it’s strictly
prohibited from offering security services to the country--operates its
own base.
© 2006 Yiannis G. Mostrous
Editorial Archive
KCI Communications, Inc.
1750 Old Meadow Road, Suite 301
McLean, VA 22101
703-394-4931
phone 703-905-8100 fax Email
|
