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Just three months ago, the world celebrated was celebrating Apple’s achievement of a historic milestone: becoming the first company in the world to reach a $1 trillion market capitalization.

Now, after an unimpressive product launch and poor Q3 earnings report in which the company quietly revealed its controversial decision to stop breaking out sales unit numbers for iPhones, the narrative surrounding the company’s stock has changed remarkably and, as Lumentum shareholders no doubt remember, difficulties associated with lackluster sales of the three new iPhone models are trickling down to Apple’s beholden suppliers, who were the first to hint at the trouble in paradise by cutting their guidance due to declining demand at their biggest customer(s), an obvious reference to Apple.

Smelling blood in the water, Goldman Sachs slashed its price target to $209 from $222 (based on a P/E of ~16x), citing expectations of slowing demand in emerging markets – and China in particular, where Baidu searches for the new iPhone modes (a surprisingly accurate leading indicator for demand) have fallen dramatically (though this isn’t all that surprising considering the outrageous prices of the new phones, coupled with a weakening currency that is making Apple products more expensive in yuan terms).

And one week after shares of Apple suppliers imploded following Apple’s latest earnings report (while Apple shares tumbled into bear market territory, erasing $200 billion in value from their October highs), the Wall Street Journal has published a deep dive into the reactions of Apple’s long-suffering suppliers, who were willing to countenance the company’s controlling style and its inflexible demands while sales were hot. But as Apple’s complex three-tiered product offerings create logistical nightmares and the company’s expensive handsets start turning off some customers, suppliers are beginning to rebel. In the past, Apple thrived on “the beauty of simplicity,” said,” said one executive at an Apple supplier. “It was very few models at massive volumes.”

With the company’s latest generation of phones, that has changed. And according to WSJ, over the past three weeks, Apple has slashed production orders ahead of the crucial holiday sales season, leaving at least three of the company’s largest suppliers – Lumentum, Qorvo and Japan Display – with unused production capacity and inventory, and hinting at more turmoil ahead.

Lower-than-expected demand for Apple Inc.’s new iPhones and the company’s decision to offer more models have created turmoil along its supply chain and made it harder to predict the number of components and handsets it needs, people familiar with the situation say.

In recent weeks, Apple slashed production orders for all three of the iPhone models that it unveiled in September, these people said, frustrating executives at Apple suppliers as well as workers who assemble the handsets and their components.

Forecasts have been especially problematic in the case of the iPhone XR. Around late October, Apple slashed its production plan by up to a third of the approximately 70 million units it had asked some suppliers to produce between September and February, people familiar with the matter said.

And in the past week, Apple told several suppliers that it cut its production plan again for the iPhone XR, some of the people said Monday, as Apple battles a maturing smartphone market and stiff competition from Chinese producers.

Apple declined to comment.

During an interview earlier this year with The Wall Street Journal, Apple Chief Financial Officer Luca Maestri said that trying to determine demand for its devices based on reports from suppliers can be misleading because the suppliers also make products for competitors.

At Foxconn, Apple’s largest supplier (which is famously building a factory in Wisconsin that it’s hoping to staff with Chinese workers) some workers are voluntarily cutting their shifts. Some are questioning Apple’s decision to raise prices on some phones to $1,000 and above, while also choosing to sell older models in stores. While Apple is hoping to compensate for slowing sales with higher revenues, since peaking in fiscal 2015, the number of iPhones sold annually has fallen 6% to 217.7 million units.

“The more choice you introduce, the harder it is to pinpoint who will buy what,” said Steven Haines, chief executive of Sequent Learning Networks, which has advised companies such as FedEx Corp. and Verizon Communications Inc. on product management.

And while Apple reported its largest-ever annual revenue for the fiscal year ended in September, investors and analysts have proven again and again that the unit sales figures are paramount. This goes doubly for the company’s suppliers, because while companies like Lumentum were willing to put up with Apple’s domineering tendencies as long as yoy comps were growing, now that they’re not, some are starting to question aspects of this relationship that they had previously taken for granted.

Apple has offset slowing growth by raising iPhone prices and focusing more on software and services. The strategy helped the company report its best-ever year of revenue and profit for the fiscal year ended in September; for the current quarter, it projects revenue of $89 billion to $93 billion. Its growing services business has also offset the company’s contracting hardware margins, industry analysts say.

But while Apple has been enjoying record revenue and profit for the past year, the same can’t be said for many of its suppliers. That is because unlike Apple, they can’t benefit from services and software and they rely heavily on handset volumes, suppliers and analysts say.

“The freeway of Apple suppliers is littered with roadkill,” said Timothy Arcuri, an analyst with the investment bank UBS who tracks the iPhone supply chain. “That’s one thing when units are growing and another when units aren’t going to grow. There’s an argument to be made now: Why take the risk?”

Ultimately, a supplier rebellion could create huge headaches for Apple by further eroding the company’s bottom line if these suppliers decide that they shouldn’t be so amenable to Apple’s demands when the iPhone maker has consistently treated their relationship more like a privilege than an economic necessity.  In summary, with Apple hiding its iPhone sales numbers for reasons that should be obvious to all…

…Expect to see more headlines like this one “Does Apple’s Sales Slump Mean The Company Has Finally Peaked?”.

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Authored by Cyril Widdershoven via Oilprice.com,

The full impact of U.S. sanctions on Iran is still to be assessed, as major underlying factors remain opaque…

OPEC’s current fear of an oil glut in 2019, as indicated by investment banks, IEA, EIA and others, might not materialize. Market fundamentals are still strong, especially taking into account that U.S. refineries are ramping up production after maintenance season, while Iranian floating oil will end soon as sanctions are about to hit. Still, one of Iran’s major lifelines could be the current EU approach, which is largely trying to mitigate the effects of U.S. sanctions on European companies and financial operators. The rosy future painted by EU officials however shows severe cracks, while reality on the ground is extremely bleak.

European efforts to protect trade with Iran, as an answer to mitigate U.S. sanctions, are hitting a brick wall. European politicians seem to be out of touch with reality not only in the markets, but also concerning the attitude of several of its member countries. European politicians, mostly working from their shiny offices in Brussels and Strassbourg, seem to be living in an ivory tower, as no real practical support for all their measures has been shown in the respective member states.

The last factor showing the weakness of the EU Iran approach is the fact that no single European country is willing to host a so-called Special Purpose Vehicle (SPV) as they fear the wrath of the U.S. Washington’s influence in real politics and markets is still much larger on a global and even bilateral stage than Brussels wants to admit. Leading European powers – Great Britain, Germany and France – are currently putting pressure on minor league EU member Luxembourg to host the SPV. The latter however is already doomed, as not only is the influence of London on Luxembourg minimal, but the small EU member can hide behind the refusal of Austria to host the SPV too. Brussels is showing a brave face, but it’s likely that Eastern European and Balkan member countries will reject the SPV plans, while Italy and Spain are still in limbo. Statements made by EU Justice Commissioner Vera Jourova that the EU cannot accept that a foreign power takes decisions over our legitimate trade with another country, seem to be very hollow and empty.

The SPV at present is seen as the lynchpin in the EU moves to save not only their trade with Iran but also the overall JCPOA agreement. At present, Brussels and its main supporters, Paris and Berlin, are trying to keep the JCPOA agreement in place, risking a direct confrontation not only with the U.S. but with most of the Arab world. The SPV has been set up as a kind of clearing house that could be used to help match Iranian oil and gas exports against purchases of EU goods in an effective barter arrangement circumventing U.S. sanctions. The main issue European companies are facing with Iran are currently based on the position of the US dollar in international trade.

Even with full EU support, the SPV, according to most analysts, will not shield EU companies and banks from US sanctions. These will be hefty, for sure much more than the current Iran-EU trade volumes could counter.

A possible failure of the EU SPV proposal would for sure heat up the market very soon. Iran’s main lifeline at present is very weak, Asian markets continue to buy Iranian crude and products, but seem to be heading to zero crude imports when the current U.S. waivers will end. At the same time, the effects of the decision by international financial system SWIFT not to allow any-more deals with Iran already has significantly slowed down trade with Europe.

For Iran, the future is looking dark. A European failure would be seen a betrayal, and possibly the end of the JCPOA agreement. An Iranian reaction to this should be expected, as such a failure would strengthen the hardliners in Tehran.

For global oil markets, taking the position of the devil’s advocate, this could be bullish. More clarity on Iranian volumes and possibilities of circumventing the U.S. sanctions, is necessary to assess the perceived oil glut scenarios. OPEC’s leaders will already be taking this into account to set up a production cut agreement early December in Vienna. Iran’s situation will be clearer by that date, leaving Saudi Arabia, Russia, UAE and others, more space to pro-actively counter a real oil glut in 2019. Fundamentals are at present diffuse, but once Europe’s position is clear, one large destabilizing factor is removed with a bang.

The fact that already some major Iranian oil importers in Asia have been very compliant to U.S. threats, such as South Korea, should be a sign that even without a multilateral sanctions approach, Washington is still able to wreak havoc on Iran. Oilprice.com reported this week that no Iranian oil has been imported in South Korea for a second straight month due to the re-imposition of US sanctions. For the first 10 months of 2018, South Korea’s Iran crude imports halved in real terms. South Korea is also having a waiver from the U.S. in place, but reality seems to be different.

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A new study by Bloomberg Economics claims that US sanctions have knocked as much as 6% off Russia’s economy over the past four years. The findings highlight the general devastation that Washington and E.U. sanctions against Moscow wreaked in the aftermath of the Crimean crisis in 2014. 

According to the authors the estimate is based on a growth forecast that would be reasonably expected according to indicators at the end of 2013 if the crisis had never happened. The study found that while some of the blame is due to the slump in oil prices, sanctions have been the bigger driver, and perhaps partly the introduction of inflation targeting and a sell-off in emerging markets could be other factors. 

According to the report, “The underperformance has been much bigger than crude alone can explain.” 

Scott Johnson, study author and analyst at Bloomberg Economics in London, concluded “Part of the gap is likely to reflect the enduring impact of sanctions both imposed and threatened over the last five years.”

Bloomberg reports of Moscow’s reactionary measures in the face of sanctions:

Policies aimed at protecting the nation from future sanctions by building up reserves have made it more resilient, but they have come at the expense of growth. Still, the Kremlin argues that the sanctions haven’t had an impact on its foreign policy.

Perhaps more notably the Russian economy will continue to slide, according to analyst predictions:

However, the fact that the gap in potential versus actual growth continues to widen implies that sanctions are having a prolonged impact, the analysts said. The lingering effect puts under question Russian government forecasts that policy changes and investment will push GDP growth above 3 percent by 2021.

“It’s possible, but that pace won’t be sustainable without a dramatic pick-up in productivity gains,” Johnson wrote. “If sanctions remain in place, as seems likely, that’s one more reason to expect the economy to come up short.”

Meanwhile the U.S. State Department announced this week it’s actually considering further rounds of draconian sanctions related to the Skripal case. 

US Assistant Secretary of State for International Security and Nonproliferation Christopher Ford said on Wednesday: “Under statute… there is a menu of options if you will, things that need to be considered. As part of that, we do not have an inter-agency decision answer on what those pieces are yet. It is under active consideration.”

He threatened further: “The second round of sanctions under the statue is a more draconian menu than the first round.”

And later in the week on Friday Secretary of State Mike Pompeo promised efforts toward a further squeeze on Russian energy export efforts, saying on Friday, “We will keep working together to stop the Nord Stream 2 project that undermines Ukraine’s economic and strategic security.” Nord Stream 2 is expected to be put into operation by the end of 2019 and is seen as a vital European lifeline Russia needs to halt its economic slide, and an issue where Europe has shown itself unwilling to bow to US demands. 

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Authored by Daniel Lacalle via dlacalle.com,

Eurozone banks have fallen dramatically in the stock market despite the results of the stress tests carried out by the ECB. EU Banks Index is down 25% on the year despite year-long bullish recommendations from almost every broker. This should not surprise anyone because we have seen in the past that these tests are only a theoretical exercise. Moreover, stress tests’ results are widely challenged, and rightly so, because the exercise starts with the most ridiculous premise in economics: Ceteris Paribus, or “all else remaining equal”, which never happens. Every asset manager knows that risk builds slowly and happens fast.

Disappointing earnings, rising risk in the eurozone as well as in their diversification markets such as emerging economies, weak net income margins and low return on tangible equity are factors that have contributed to the weak performance of European banks. Investors are rightly suspicious about consensus estimates for 2019 with expectations of double-digit EPS growth rates. Those growth rates look impossible in the current macroeconomic scenario.

Eurozone banks have done a good job of strengthening their capital structure, reaching almost a one per cent per annum increase in Tier 1 core capital. The question is whether this improvement is enough.

Two factors weigh on sentiment.

1. More than EUR104 billion of risky “hybrid bonds” (CoCos) are included in the calculation of core capital.

2. The total volume of Non-Performing Loans across the European Union is still at around EUR 900 billion, well above pre-crisis levels, with a provision ratio of only 50.7%, according to the European Commission.  Although the ratio has declined to 4.4%, down by roughly 1 percentage point year-on-year, the absolute figure remains elevated and the provision ratio is too small.

This is what I call the “one trillion eurozone timebomb”. One trillion euro risk when the MSCI Europe Bank index has a total market capitalization of around EUR790 billion.

(Source: Bloomberg, Bologna, Miglietta, Segura)

Let us focus on the CoCos, because it is a less commented issue.

The EUR104 billion of CoCos can be a double-edged sword. On one side, they have been one of the favourite instruments to improve core capital rapidly. It was a very popular instrument in recent years to reinforce capital and diversify funding sources. On the other hand, it is a highly risky asset that can create a domino effect on the equity and the other bonds of the entity. Let us face it, the idea that a CoCo can default with no contagion risk to the rest of the capital structure is simply ludicrous.

These CoCos are hybrid bonds. Rating agencies assign them up to a 50% of ‘equity’ component because the investor can lose the entire coupon, as well as part or all the principal if the issuer’s capital ratio falls below 7% or 5%.

These high-risk bonds have been issued widely and with great success in a world in which investors were hungry for some yield in the face of falling interest rates when many assumed the rising strength of banks. It was almost a “no brainer”. Core capital was rising, banks were stronger than ever, and the yields of these Co-Cos ranged between 4 and 7%. Except the risk was much higher.

In 2011, European banks issued 10 billion euros in these products with returns that reached 10%. It seemed a safe business with almost no risk of default.

The policy of central banks and financial repression, once again, led investors to take more risk for lower yields.

By 2017, Eurozone banks had issued more than 70 billion euros with yields that fell to 4%.

From 10% to 4% yield as risks were gradually building, bank stocks were falling and economic data began to disappoint.

These products were extremely popular because few investors thought that the banks would have no problem meeting the required 10% Tier 1 core capital figure. The risk of breaching the core capital threshold seemed impossible.

“Impossible” and “no risk” are very dangerous words in any asset class. In hybrid bonds, it is reckless to believe in no risk.

A recent paper (Contagion in the European CoCos market) by professors Pierluigi Bologna, Arianna Miglietta and Anatoli Segura, concludes: “The recapitalisation of the banks as a going concern provided by CoCos cannot be detrimental for the stability of the rest of the market. Should the operational features of CoCos keep on proving destabilising in future stress situations, rethinking their role as bank regulatory capital tools would be necessary”.

Unsurprisingly, CoCos have fallen sharply and created a domino effect that impacts equities as well.

The idea that a bond can default with no threat to the equity or solvency of the issuing bank could have only occurred to central planners with no clue of risk and contagion.

Eurozone banks bounced in late August while forward earnings estimates were falling (see above).

Risks in CoCos are evident. In NPLs, concerns are mounting:

• Weaker earnings from the borrowers due to the slowdown. According to the BIS, the percentage of large zombie companies (those that cannot pay interest expenses with operating profits) has soared to 9% of quoted names.

• The need to accelerate recapitalization to avoid the next crisis will make it less easy to refinance NPLs.

• The impact of the global slowdown in banks that had opted to grow in emerging markets, commodities and public infrastructure financing.

Anyone who believes these two problems will be solved by extending quantitative easing and low rates has learnt nothing from the past years.

What these risks show is that eurozone banks need to implement a much more aggressive recapitalization plan. Capital increases and eliminating cash dividends will likely have to return. Managers do not want to do it because shares are too low according to them. However, waiting for a bounce has proven to be a big mistake. 2018 was the year of the perfect combination to drive banks shares higher: Confidence in the eurozone, the likelihood of rate hikes, improvement of fundamentals and earnings growth. None of it happened. Waiting for things to get better for asset classes is not enough.

Eurozone banks are better than three years ago. They are nowhere close to having solved their challenges.

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Friday’s release of the draft Brexit agreement couldn’t have gone much worse for the prime minister.

Having been met with staunch opposition from all sides, the push back peaked with the resignations of Brexit secretary Dominic Raab and Work and Pensions Secretary Esther McVey, followed by the influential Jacob Rees-Mogg sending a letter of no confidence – potentially paving the way for her removal.

But, as Statista’s Martin Armstrong asks, what about feelings outside of Westminster – do the public share the MPs negativity?

Put simply, yes.

You will find more infographics at Statista

A poll conducted by YouGov in the wake of yesterday’s events revealed that, while a lot of people say they do not know, a plurality of the public across the political spectrum, do not support the draft agreement.

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Authored by Arkady Savitsky via The Strategic Culture Foundation,

The EU has had a lot of trouble on its hands, as its members, such as Poland and Hungary, are openly challenging the established order. This time it’s a very serious situation, because Brussels is facing defiance from Italy, the 3rd largest national economy in the eurozone and the 8th largest global economy in terms of nominal GDP. It has a population of over 60 million. It is also a Europhile country and the bloc’s founding member.

The Italian government has rejected the EU’s calls to revise its draft budget for 2019 that includes a 2.4% deficit of GDP, which could dangerously boost the nation’s public debt. The ruling coalition in Rome, which is made up of the League and the populist Five Star Movement, has decided to increase borrowing so that it can fund its campaign promises, such as lowering the retirement age and increasing welfare payments.

Last month the European Commission claimed that these spending targets went against EU rules. Rome is burdened by the second-highest amount of public debt in the eurozone. There’s a 131.8% difference between borrowing and economic output there, but the government believes it will achieve substantial economic growth, while the EU’s predictions for Italy are rather gloomy. Nov. 13 was the deadline for submitting a revised draft budget. Rome did not comply. Now the EU leadership is threatening it with sanctions it until it falls into line. Italy could be slapped with a fine of €3.4 billion.

The Italian government takes an independent stance on a multitude of issues. It is seen as Russia-friendly in its calls for lifting, or at least easing, the sanctions against the Russian Federation. Italian Prime Minister Giuseppe Conte believes Moscow should be re-admitted to the G7. The Italian PM visited Moscow in late October,  hailing Russia as an essential global player and inviting Putin to visit Italy. Despite the EU-imposed punitive measures that are in place, Mr. Conte signed a slew of trade and investment agreements. Last year, Russia’s parliamentary majority party, United Russia, and Italy’s Lega Nord (Northern League), a ruling coalition member, signed a cooperation agreement. The regional council in Veneto, where Deputy Prime Minister Matteo Salvini holds a strong position, recognized Crimea as part of Russia in 2016.

Austria is another Russia-friendly EU member. Even the recent “spy scandal” that was obviously staged by outside forces to spoil that bilateral relationship, has failed to damage that rapport. “We are a country that has good contacts with Russia, we are aimed at dialogue, it will not change in the future,” said Austrian Chancellor Sebastian Kurz, speaking to reporters on Nov .14. The conservative People’s Party and the far-right Freedom Party — the members of the ruling coalition — are well-disposed toward Moscow. They don’t support the EU sanctions policy.

Hungary is another Russia-friendly EU member. Last month, the European parliament voted to initiate the Article 7 sanctions procedure against Hungary. The government led by PM Victor Orban has been accused of silencing the media, targeting NGOs, and removing independent judges. Launching the procedures stipulated under that article  opens the door to sanctions. Hungary could eventually be temporarily deprived of its EU voting rights. In reality, the country is being punished for refusing to take in migrants.

This is the second time Article 7 procedures have been launched. The first time was last year, when the European Commission set that article into motion against Poland over its judicial reforms. A unanimous vote is required to suspend Hungary’s voting rights and introduce sanctions. That move is likely to be blocked by Poland. It turn, Hungary said it would stand by Warsaw should the EU launch procedures to punish it. The two nations are united in their efforts to support each other and fend off Brussels’ encroachments at a time when the bloc is undergoing the most difficult times in its history.

Hungary, Poland, and Russia are trying to draw Europe’s attention to the threat to democracy and peace emanating from Ukraine — a problem that has been largely hushed up by the EU leadership.

Slovakia is another EU member state to nurture what some call “special ties” with Russia. It has never been happy with the sanctions against Moscow and has openly said so. Last month, its new prime minister, Peter Pellegrini, called on the EU to revise the sanction policy.

A diplomatic row was also staged in Greece but, as in case of Austria, it may have clouded those historically close ties but has failed to sever them. Cyprus has always been friendly toward Moscow, but Nicosia and Athens are not in a position to protect their independence, as both are heavily indebted and dependent on foreign loans.

The battle between Brussels and Rome comes at a time when Europe is preparing for the European Parliament elections in May 2019. Punitive measure taken by the EU against Italy will most certainly lead to growing public support of that government that is standing up to pressure in order to defend its people. It will increase the number of Italian Eurosceptics who win seats. With so many countries dissatisfied with the EU leadership, it’s hard to predict the outcome. There will soon be other people at the helm who hold quite different views on the problems faced by the EU, as well as on the bloc’s future. Everything may change, including the relationship with Russia and the sanctions that have become so unpopular and have resulted in many national leaders openly challenging the wisdom of such policy imposed by a powerful few.

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An extremely rare moment of US-China military to military cooperation? Ironically it’s in the area of emergency response and disaster relief at a moment when both sides are marching towards increasingly unpredictable encounters in the South China Sea, which could at any moment result in a catastrophe in its own right. 

At a moment when U.S. officials are urging China to halt militarization of the South China Sea, Reuters reports this unusual tiny bright spot in Washington-Beijing relations:

Soldiers from China and the United States wrapped up a week of joint disaster relief drills on Saturday, in a display of cooperation against a backdrop of worsening ties between the two countries over trade, the disputed South China Sea and self-ruled Taiwan.

This comes as tensions are soaring between the world’s two largest economies and ahead of President Trump’s meeting with Chinese President Xi Jinping at the G20 summit in Argentina starting November 30th. 

The exercise was held in the eastern Chinese city of Nanjing, where Chinese and American soldiers simulated natural disaster response and relief. Drills included practice rescuing people from earthquake-destroyed buildings and treating survivors’ injuries at a People’s Liberation Army (PLA) military hospital. 

Military officials on both sides see the drills as crucial in building the kind of mutual understanding and respect that could avoid the type of unintended military action that could be the spark that leads to war, such as recent Chinese military intercepts of American and Western vessels in the South China Sea.

One top Chinese commander, Qin Weijiang, deputy commander of the PLA’s eastern theater command, told reporters:

Only through more contacts, more exchanges and cooperation in areas of common interest can we effectively increase mutual trust and effectively reduce misjudgments.

So I think bilateral exchanges can start from humanitarian and disaster relief exchanges and expand to other areas of common interest.

And the US side issued similarly rare amicable statements. Robert Brown, Commanding General of the U.S. Army Pacific, called the exchange “extremely important” and described: “Just as our top leaders work towards building a strong working relationship and understanding, we through confidence-building measures like this DME [Disaster Management Exchange] must also at our level build a strong understanding of each other,” according to Reuters.

Such disaster relief exchanges have been held on an annual basis, with this year’s being the 14th time US and Chinese troops teamed up for the joint training. Last year the event took place in the United States; however, relations are currently their lowest level. But China’s defense ministry issued a statement expressing hope that such rare military cooperation can become a “stabilizer” for overall ties with Washington. 

Michael Chase, a specialist in China and Asia-Pacific security at the RAND Corp, was quoted by Reuters as saying, “These exchanges remain important in that respect even if they aren’t going to solve broader problems in the relationship.”

Meanwhile on the same day the rare, cooperative drills were wrapping up, Chinese President Xi Jinping addressed the Asia-Pacific Economic Cooperation forum in Papua New Guinea with US Vice President in attendance. The two leaders traded barbs in their speeches, with the Chinese president saying in response to White House accusations of Beijing using debt-trap diplomacy:

No-one has the power to stop people from seeking a better life. We should strengthen development cooperation.

And the Chinese president warned further against ramping up the trade war as well as potential military escalation, saying, “hot, cold or trade [war]” could spell catastrophe. “Mankind has once against reached a crossroad,” he said. “Which direction should we choose? Cooperation or confrontation, openness or closing one’s door?”

It will be interesting to see if the US-Chinese humanitarian response drills will still occurring next year, or if relations hit rock bottom by then. 

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Authored by Pepe Escobar via The Asia Times,

Moscow hosted talks last week to promote peace in Afghanistan as neighbors and regional heavyweights eye the rewards of stability in the long-troubled land…

In the “graveyard of empires,” Afghanistan never ceases to deliver geopolitical and historical twists. Last week in Moscow, another crucial chapter in this epic story was written when Russia pledged to use its diplomatic muscle to spur peace efforts in the war-torn country.

Flanked by Afghan representatives and their Taliban rivals, Russian Foreign Minister Sergei Lavrov talked about “working together with Afghanistan’s regional partners and friends who have gathered at this table.”

“I am counting on you holding a serious and constructive conversation that will justify the hopes of the Afghan people,” he said.

Back in the 1980s, the Soviet Union launched a disastrous war in the country. Thirty years later, Russia is now taking the lead role of mediator in this 21st-century version of the Great Game.

The line-up in Moscow was diverse.

Four members of the High Peace Council, which is responsible for attempting a dialogue with the Taliban, took part in the talks. Yet the Afghan foreign ministry went the extra mile to stress that the council does not represent the Afghan government.

Kabul and former Northern Alliance members, who form a sort of “protective” circle around President Ashraf Ghani, in fact refuse any dialogue with the Taliban, who were their mortal enemies up to 2001.

The Taliban for their part sent a delegation of five, although spokesman Zabiullah Mujahid was adamant there wouldn’t be “any sort of negotiations” with Kabul. This was “about finding a peaceful solution to the issue of Afghanistan.”

Diplomats in Pakistan confirm the Taliban will only negotiate on substantial matters after a deal is reached with the United States on a timetable for complete withdrawal.

Russian foreign ministry spokeswoman Maria Zakharova stressed this was the first time a Taliban delegation had attended such a high-level international meeting. The fact that the Taliban is classified by Moscow as a “terrorist organization” makes it even more stunning.

Moscow also invited China, Pakistan, India, Iran, the five Central Asian “stans” and the US. Washington sent just a diplomat from the American Embassy in Moscow, as an observer. The new US special envoy for peace in Afghanistan, Zalmay Khalilzad, widely known in the recent past as “Bush’s Afghan”, has not exactly made much progress in his meetings with Taliban officials in Qatar in the past few months.

India – not exactly keen on a Pakistan-encouraged “Afghan-led peace” process – sent an envoy at a “non-official level” and received a dressing down from Lavrov, along the lines of  ‘Don’t moan, be constructive’. 

Still, this was just the beginning. There will be a follow-up – although no date has been set.

Enduring so much freedom

Since the US bombing campaign and invasion of what was then Taliban-controlled Afghanistan 17 years ago, peace has proved elusive. The Taliban still has a major presence in the country and is essentially on a roll. 

Diplomats in Islamabad confirm Kabul may exercise power over roughly 60% of the population, but the key fact is that only 55% of Afghanistan’s 407 districts, and perhaps even less, submit to Kabul. The Taliban are on the ascendancy in the northeast, the southwest and the southeast.

It took a long time for a new head of US and NATO operations, General Austin Scott Miller, to admit the absolutely obvious. “This is not going to be won militarily … This is going to a political solution,” he said.

The world’s most formidable military force simply cannot win the war.

Still, after no less than 100,000 US and NATO troops plus 250,000 US-trained Afghan army and police failing over the years to prevent the Taliban from ruling over whole provinces, Washington seems determined to blame Islamabad for this military quagmire. 

The US believes Pakistan’s covert “support” for the Taliban has inflamed the situation and destabilized the Kabul government.

No wonder the Russian presidential envoy for Afghanistan, Zamir Kabulov, went straight to the jugular. “The West has lost the war in Afghanistan … the presence of the US and North Atlantic Treaty Organization [NATO] hasn’t only failed to solve the problem, but exacerbated it.”

Lavrov, for his part, is quite concerned by the expansion of Daesh, known regionally as ISIS-Khorasan. He warned, correctly, that “foreign sponsors” are allowing ISIS-K to “turn Afghanistan into a springboard for its expansion in Central Asia”. Beijing agrees.

A grand plan by China-Russia

It’s no secret to all the major players that Washington won’t abdicate from its privileged Afghan base in the intersection of Central and South Asia for a number of reasons, especially monitoring and surveillance of strategic “threats” such as Russia and China.   

In parallel, the eternal “Pakistan plays a double game” narrative simply won’t vanish – even as Islamabad has shown in detail how the Pakistani Taliban have been consistently offered safe-havens in eastern Afghanistan by RAW (Indian intelligence) operatives.

That does not alter the fact that Islamabad has a serious Afghan problem. Military doctrine rules that Pakistan cannot manage the South Asian geopolitical chessboard and project power as an equal of India without controlling Afghanistan in “strategic depth.”

Add to it the absolutely intractable problem of the Durand Line, established in 1893 to separate Afghanistan and the British India empire. A hundred years later, Islamabad totally rejected Kabul’s appeal to renegotiate the Durand line, according to a provision in the original treaty. For Islamabad, the Durand line shall remain in perpetuity as a valid international border.

By the mid-1990s, the powers in Islamabad believed that by supporting the Taliban they would end up recognizing the Durand line and on top of it essentially dissolve the impetus of Pashtun nationalism and the call for a “Pashtunistan”.

Islamabad was always supposed to drive the narrative. History, though, turned it completely upside down. In fact, it was Pashtun nationalism plus hardcore Islamism of the Deobandi variety that ended up contaminating Pakistani Pashtuns.

Yet Pashtuns may not be the major actors in the, perhaps, final season of this Hindu Kush spectacular. That may turn out to be China.

What matters most for China is Afghanistan becoming part of the China-Pakistan Economic Corridor (CPEC). That’s exactly what Chinese envoy Yao Jing told the opening session of the 4th Trilateral Dialogue in Islamabad earlier this week between China, Pakistan and Afghanistan.

 “Kabul can act as a bridge to help expand connectivity between East, South and Central Asian regions,” Jing said.

Pakistani Senator Mushahid Hussain Sayed said: “The Greater South Asia has emerged as a geo-economic concept, driven by economy and energy, roads and railways and ports and pipelines, and Pakistan is the hub of this connectivity due to CPEC.”

For Beijing, CPEC can only deliver its enormous potential if Pakistan and India relations are normalized. And that road goes right through Afghanistan. China has been aiming for an opening for years. Chinese intel operatives have met the Taliban everywhere from Xinjiang to Karachi and from Peshawar to Doha.

The China card is immensely alluring. Beijing is the only player capable of getting along with all the other major actors: Kabul, the Taliban, the former Northern Alliance, Iran, Russia, Central Asia, the US, the EU, Saudi Arabia, Turkey and – last but not least – “all-weather” brothers Pakistan.

The only problem is India. But now, inside the Shanghai Cooperation Organization (SCO), they are all on the same table – with Iran and Afghanistan itself as observers.  Everyone knows that an Afghan Pax Sinica would involve tons of investment, connectivity and trade integration. What’s not to like?

So this is the ultimate goal of the ongoing Moscow peace talks. It’s part of a concerted SCO strategy that has been discussed for years. The long and winding road is just starting. A Russia-China-driven peace process, Taliban included. Stable Afghanistan. Islamabad as guarantor. All-Asian solution. No Western invaders welcome.

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Over a dozen top US energy firms have agreed to devote $100 million towards much needed improvements in West Texas and New Mexico, in order to help the regions cope with shortfalls in health care, education and civic infrastructure in the wake of the shale oil and gas boom, the group said on Sunday. 

Chevron, EOG Resources, Exxon Mobil and Royal Dutch Shell are among 17 companies backing the Permian Strategic Partnership, as the consortium is called, Don Evans, a former U.S. government official and energy executive helping launch the group, told Reuters on Saturday. –Reuters

The funds will be used to address labor and housing shortages, according to Reuters, along with traffic congestion caused by companies converging on the Permian Basin – the nation’s largest oilfield, where billions of dollars’ worth of oil and gas are expected to be extracted over the next several decades, according to experts. 

“t’s a significant amount of money, but these are huge challenges,” said Evans, former US Secretary of Commerce from Midland, Texas. “We don’t have enough teachers. We don’t have enough doctors,” he added. 

The consortium will work with regional and federal officials, as well as nonprofit groups, companies and educators in Texas and New Mexico. Evans – who became CEO of producer Tom Brown Inc. after starting his career in the Permian, joined the George W. Bush administration as Secretary of Commerce. 

The group is assembling plans to hold meetings in communities across the region, so “everyone have a voice” in the undertaking. There is no timetable or plan for how the initial contribution will be spent. The group is recruiting staff and searching for office space, he said.

In the last decade, the region’s many pockets of oil and low production costs have led to gold rush-like conditions in the Permian. Companies are pouring staff and equipment into the oilfield, which is expected to pump 3.7 million barrels of oil per day by December, four times its rate in 2010, according to the U.S. Energy Information Administration. –Reuters

The unemployment rate in Midland hit 2.1 percent in October, vs. the national rate of 3.7 percent, leaving local employers – including schools and restaurants – under pressure as staff leaves for oilfield jobs. 

As we reported in June, a battle has been playing out in Midland between employee-starved local businesses and multinational energy companies who are poaching local residents left and right for high-paying jobs as the latest Permian Basin shale-oil boom accelerates.

Midland Mayor Jerry Morales has said that the boom is a double-edged sword; while the energy industry has increased sales-tax revenue by 34% year-over-year as of June, the 2.1% unemployment rate has resulted in a severe shortage of low-paying jobs around town – such as the 100 open teaching positions, according to Bloomberg.

Morales, a native Midlander and second-generation restaurateur, has seen it happen so many times before. Oil prices go up, and energy companies dangle such incredible salaries that restaurants, grocery stores, hotels and other businesses can’t compete. People complain about poor service and long lines at McDonald’s and the Walmart and their favorite Tex-Mex joints. Rents soar. –Bloomberg

“This economy is on fire,” said Morales – who is also the proprietor of Mulberry Cafe and Gerardo’s Casita. Unfortunately, the fire is so hot that the Mayor is scrambling to fill open jobs – from local government positions, to cooks at his restaurants. 

In the country’s busiest oil patch, where the rig count has climbed by nearly one third in the past year, drillers, service providers and trucking companies have been poaching in all corners, recruiting everyone from police officers to grocery clerks. So many bus drivers with the Ector County Independent School District in nearby Odessa quit for the shale fields that kids were sometimes late to class. The George W. Bush Childhood Home, a museum in Midland dedicated to the 43rd U.S. president, is smarting from a volunteer shortage.

And it doesn’t take much to get hired by the oil industry – which, as Bloomberg summarizes, “will hire just about anyone with basic training“… and it will quickly double, triple or x-ple their pay in the process. “It is crazy” said Jazmin Jimenez, 24, who flew through a two-week training program at New Mexico Junior College about 100 miles north of Midland. Jimenez was hired by Chevron as a well-pump checker. “Honestly I never thought I’d see myself at an oilfield company. But now that I’m here — I think this is it.“

Meanwhile, the shale boom has also resulted in school overcrowding, a spike in traffic fatalities, drug abuse, and a massive strain on the power grid. 

“Our roads are not designed to handle the amount of truck traffic we have,” said Jeff Walker, transportation training coordinator at New Mexico Junior College in Hobbs.

Drug charges in Midland more than doubled between 2012 and 2016, to 942 from 491, according to police data. Traffic accidents also jumped 18 percent between 2016 and 2017 in Midland County, and 29 percent in nearby Ector County, according to Texas Department of Transportation data. –Reuters

“They all agree that scaling up infrastructure is going to be a huge challenge,” said oil industry adviser Bob Peterson. “There’s a common agreement that there’s a whole bundle of problems.“

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