Why does BTC Gas Pipeline (Baku-Ceyhan) pass through Tbilisi.

Georgia is located between Russia and Turkey. The country was formerly called the Republic of Georgia, but in March 2009 it changed its name to Georgia. Georgia is a country located at the southern foot of the Caucasus Mountains and its capital is Tbilisi. Tbilisi is adjacent to Baku, the capital of Azerbaijan, and the pipeline for oil and gas is connected between the two. The pipeline is extended to Turkey, allowing oil to be transported over long distances. 

Why Georgia was selected

The purpose of the pipeline is to transport crude oil easily and safely from one another covering long distance. BTC gas pipeline is connected wide range from oilfield, shipping port, and finally to the destination. The initial cost can be overly high but later will save the cost of long-distance transportation. However, there is not only advantage of it. The transportation range is fixed (more pipeline should be installed to expand more route), management is difficult due to hundreds of kilometer length, and can be the easy target of terrors. As you see the map, the pipeline passes through Georgia instead of taking the shortcuts. The reason can be found by observing the recent history. 

There are many oilfields which is rich in reserves near Caspian Sea. The lake is located inland which makes difficult in transportation to European countries. In 1991, after the collapse of Soviet Union, the countries try to seek new pipelines which can supply the oil which later leads Turkey to construct it. In order to get supplies from Baku, Turkey had to select the countries among Iran, Armenia, and Georgia for the pass-through. During the times, Iran had faced economic sanctions from the United States, which made difficult to deal with it. Turkey did not have good relationship with Armenia as there was a case of massacre of Armenians during Osman period. Armenia claims that it is intentional offense, but Turkey has never admitted. Eventually, Georgia remains the only option. 

Conflict between Azerbaijan and Armenia

There is religious conflict between these two countries. Most of the Azerbaijani people Muslims, and most of the Armenians believe in Christianity. Moreover, these two countries are fighting for Nagorno-Karabakh, which belongs to Azerbaijan but located in part of Armenia. Nagorno-Karabakh was regarded as part of Armenian province during Soviet days. In the late 1980s, the territorial conflict for the land was raised later eventually led to military conflict. Gorbachev issued a statement saying Nagorno-Karabakh would not be part of Armenia, which also prompted Armenia to take a tough stance. In December 1988, Azerbaijan The earthquake in Armenia killed more than 20,000 people and damaged more than 400,000. However, Armenia is said to have discarded most of the rescue supplies sent from Azerbaijan. This was a trigger for the bilateral relations to worsen. The recent clash between two former Soviet republics in September fueled deteriorated relationship.

Georgia's geographical advantage

Due to the historical background of Caspian area, pipelines had to pass through Georgia instead of Armenia. Transit via Georgia is costly in terms of time and construction expenses. However, it is politically safe. Eventually Georgia added its dollar earnings through tolls. Pipeline construction started from 2003 and ended in 2005. After the initials of Baku, Tbilisi, and Ceyhan, the pipeline is called BTC. The total length is 1,768 km and the crude oil transport capacity is 1.2 million barrels. On June 4, 2006, after the first ship departed from Ceyhan, 233 million tons of crude oil had been shipped by late 2013. 

However, it seems that economic growth through the laying of pipelines has not been so smooth. This is because Georgia is facing the issue of segregation and independence between South Ossetia and Abkhazia, and Turkey is also involved in the issue of Kurdish independence. The security issues of the BTC pipeline remains till now.

Source: Understanding Economics: A Geographical Approach

Source: NYT, WSJ 

https://www.wsj.com/articles/armenia-azerbaijan-conflict-11601325097?st=dk81fothh67t9zl&reflink=article_copyURL_share

https://www.nytimes.com/article/armenian-azerbaijan-conflict.html?referringSource=articleShare

Bank of Israel is to increase bond purchase and remains interest rate at 0.1%.

The central bank of Israel announced to hold interest rate at 0.1% with expansion of its government bond-purchase by NIS 35 billion ($10.3 billion) to stimulate economic activity and to stabilize the financial market.  

The central bank assumes the nation's GDP to decrease by 5% in this year, and contract by 6.5% in the following year (2021). The forecast applies when the nation is taking effective countermeasures against the pandemic. However, in the worst case, the economy is expected to shrink by 6.5% in 2020, and grow by 1 % next year.

Central bank’s purchase can help Israeli’s small business

Bond purchasing program will expand to NIS 50 billion in the secondary market to ease credit terms and to stabilize and support financial market and economy. Government bond purchases totaled about NIS 33.6 billion until September, according to central bank. The Monetary Committee, which is part of Bank of Israel for achieving the Bank’s objectives (mostly monetary policy), launched new programs of NIS 10 billion to support small business. The bank will provide fixed interest rate of negative 0.1% for commercial banks to encourage the loans for small and micro business. 

The number of unemployed became 470,000 in the first half of September due to the lockdown. The inflation rate in the past 12months has dropped by 0.7%, which is in need of support of policy mix programs.

Source : The Times of Israel

https://www.timesofisrael.com/bank-of-israel-leaves-interest-rate-unchanged-at-0-1-to-increase-bond-purchases/

China halts Australian coal imports due to political conflict.

China is struggling with Australia over coals and cottons. China is taking a series of 'retaliation measures' against Australia after Australia began seeking support from European leaders for an investigation into China’s response to the pandemic. 

Chinese authorities have recently taken steps to virtually halt imports of Australian beef, wine, barley, and recently coal. Now Chinese government is reportedly targeting Australian cotton as well as the target of retaliation according to South China Morning Post. 

Australia’s economy is now under heavy pressure of lockdowns in the country’s second-largest city with its international border closed. According to WSJ, Australia is experiencing its first recession in 28 years. Australia has experience in avoiding global financial crisis hit a dozen years ago thanks in part to China’s stimulus efforts on its infrastructure expenditures which needed Australian iron ore and other minerals to build bridges and skyscrapers.

For the past decade, China has been Australia's largest trading partner and now accounts for 32.6% of its exports. China selected Australia as strategic partner over its rival Brazil for importing Australia's mines such as iron ore, coal and gas which fueled China's growth.  Australia is preferred for their quality and geographic proximity. The deal benefits both nations.

China has already delayed Australia’s iron ore custom clearance in April due to conflict with Australia over the issue of the COVID-19 virus. Commodity experts predict that it will be difficult for China to impose additional import sanctions on Australian iron ore since 60 percent of China’s mining is imported from Australia. There will be sharp rise in iron ore prices if China continues to ban imports of Australian iron ore.

Source

https://www.wsj.com/articles/china-sentences-australian-to-death-as-bilateral-relations-fray-11592045994

https://www.wsj.com/articles/australia-worries-coal-is-chinas-next-target-as-ties-fray-11602665386

https://www.wsj.com/articles/chinas-economic-squeeze-on-australia-extends-to-cotton-11602839413

Increase in global shipment as rebounds on demand surge. [Pandemic restocking]

Idle vessels increased to 2.7 million TEU in May of this year due to the plunge in demand of the onset of the great lockdown but have recently decreased its laid-up vessels to 430,000 TEU, according to Alpha Liner. The container shipping companies reduced supply of shipping services in preparation for deteriorating container transportation demand in 2nd quarter, increasing the proportion of idle ships to 11.6% of total fleets. 

However, as the lockdowns are starting to ease (lifting the blockade), the demand of trade is surging, filling up container ships across the Pacific and operators are restoring cargo-vessel sailings that were cut by as much as a third at the height of the pandemic closures from March to June.

Increased demand is believed to be due to the reason below.

1. Increased demand for medical products as people starts to consider their healthcare.

2. The conversion of some air cargo to maritime cargo. 

3. The conversion of expenditure of the service sector due to Corona 19 into consumable goods.

Moreover, WSJ indicates, shipping executives pin much of the rebound on e-commerce. “The service industries are still paying the price of the lockdowns but there is a surge in online shopping,” said Mikkel Elbek Linnet, a spokesman for Denmark’s A.P. Moller-Maersk A/S, the world’s biggest container operator. “People may not go out for a drink, but they will spend money on a pair of sneakers or to get home appliances.” 

The rebound in demand has pushed up freight rates since U.S is restocking its depleted stocks ahead of holiday season. Please see my blog. 

https://techongstudy.blogspot.com/2020/08/container-shipping-companies-create.html

If demand growth continues in fourth quarter, vessel supply can increase both ocean and air.  The current low fuel price is expected to have a positive impact on shipping firm’s profit.

Source: WSJ, FT

https://www.wsj.com/articles/container-volumes-shipped-to-the-u-s-surge-after-coronavirus-downturn-11599240926

https://www.ft.com/content/4a77fe08-edb4-46b6-a030-f32a404ccdce

Why is economy of Singapore in near crisis.

Singapore's economic is in crisis. The growth in second quarter of 2019 was negative 3.3% which was the lowest in seven years. Non-oil exports shrank 17% compared to the same period last year. Retail sales plunged 8.9% for five consecutive months, car sales shrank 32%, furniture and home appliances fell 15%, computers and technology equipment plummet over 7%, which were the signs of a fall of durable goods. The aftermath of the recession was quickly transmitted to the corporates and led to the cases where the corporate bond transactions have halted. Unprecedented recession has taken over Singapore economy recently.

Singapore is one of the richest countries in Asia. The population of Singapore is about 5.5 million, but it is enough to be the 20th largest economy in the world. Port of Singapore was the world largest trading port (later it was overtaken by Shanghai Port) as a center of transit trade taking advantage of its geological location connecting the Indian Ocean and the Pacific Ocean. And as the world's number one transshipment port, the transshipment volume is responsible about for 20% of the world's transshipment cargo.

Singapore can be regarded to be an economy in which exports and imports are taking over the most part. Singapore's import and export volume exceeds 200% of its gross domestic product. Singapore economy is showing a marked decline in 2019. Since, Singapore's largest trading partner is China, the downturn in China's economy and the outcome of the US-China trade dispute are hurting economy of Singapore directly. Singapore has also served as a financial hub and a gateway to investment in Chinese companies. Indeed, many Chinese real estate developers have raised enormous amounts of financing from Singaporean banks. However, some of which are now in default, which is a factor holding back Singapore's economic growth.

Singapore economy grew through a dictatorship under the leader of Lee Kuan Yew and took advantage of strategic ally of the United States. Also, the economy benefited from globalization for the past 40 years and China’s economic reform. However, while Japan, Korea, and Taiwan have achieved remarkable industrial leaps from automobiles, shipbuilding industry, electronics, and semiconductors. Meanwhile Singapore is mainly focusing on finance, services, and software.

It should be noted that the countermeasures of economic policy makers can create a discriminatory response amid concerns about how the decline in global trade volume due to de-globalization and the US-China trade dispute will have an adverse impact on Singapore's economy.

Source: Big Hit