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‘Economic wars’ and national strength

The seventh annual edition of the ThinkFest literary event was held in Lahore this past weekend. Dr Yaqoob Bangash – whose day job as a historian makes him especially sensitive to the importance of shaping the present – s the brains behind ThinkFest and has curated a remarkably consistent and high-quality event in incredibly challenging circumstances.

I had the privilege to attend the event and participate in a few interesting discussions, none of which were as important for Pakistan as the book launch of Maximilian Hess’s ‘Economic Wars: Ukraine and the Global Conflict Between Russia and the West’.

To really appreciate this important book, I think readers would benefit from Javier Blas and Jack Farchy’s seminal demystification of the global commodities traders’ business practices, ‘The World For Sale’. As it happens, when I asked Max about this connection, he lit up and told me about his strong affinity for to the book’s content and authors.

Why is the Hess book about Putin’s aggression in Ukraine, and the Blas and Farchy book about commodities traders important for Pakistan? For this, we must turn to Faseeh Mangi, Bloomberg’s intrepid reporter who covers Pakistan, and his colleague Stephen Stapczynski. Stapczynski and Mangi wrote a Businessweek magazine story on December 14, just a month ago. Titled ‘How Energy Traders Left a Country in the Cold’, its sub heading was: “Pakistan, one of the world’s poorest nations, thought it had secured natural gas to fuel its economy. Commodities firms had other ideas.”

The story is about how Gunvor Group Ltd (a Swiss commodities trading firm) and Eni S p A (an Italian oil company) essentially cheated the Pakistani people and were rewarded with massive profits. How they did this is the subject of an arbitration filed by the Pakistani government against the two companies, but essentially Gunvor and Eni redirected LNG that was contractually owned by Pakistan to other countries. They did so to take advantage of the massive price arbitrage available due to Russia’s invasion of Ukraine and the disruption of global economic and energy security. The massive spike in the prices of LNG prompted these companies to sell the gas headed to Pakistan to other clients who were willing to pay in some cases as much as four or five times as much as what Pakistan had signed up to pay when it agreed long-term contracts with these firms.

Ironically, every serious analysis of those long-term LNG deals, as well as the decision to transition part of Pakistan’s energy needs away from traditional sources and towards LNG, treats former Prime Minister Shahid Khaqan Abbasi with immense admiration. In the Economic Wars book, Hess dedicates a chapter to the Eni and Gunvor episode, explaining how an already vulnerable country like Pakistan was deeply damaged by the Russia-Ukraine situation. This is what Hess writes about the Pakistani relationship with LNG, which began in 2015:

“One of the first countries to be thrown into turmoil by the economic war was Pakistan, which had been a leader in preparing for a natural gas-powered future. Islamabad began importing LNG in 2015, and, within three years, such purchases were providing 19 per cent of the country’s power generation and enabling the construction of a slew of new power plants. It proved an adept player at negotiating gas contracts, playing suppliers against one another to secure advantageous long-term supply agreements.”

As you keep reading, don’t forget what reward Pakistani institutions and politics delivered to former PM Abbasi for making Pakistan ‘a leader’ in something related to energy. A slew of ridiculous accusations about the very deals that Hess describes as “advantageous long term supply contracts” were made, and wide swathes of supposedly responsible and seasoned folks in the media amplified those accusations, and Mr Abbasi spent months in jail.

The part of Hess’s book that becomes instructive at this point is his description of the global economic architecture, who it is made for, and whom it serves. Right in the introduction, Hess lays out a broad thesis about the so-called ‘rules-based international order’:

“The difference between Russia and the United States is that the West has been able to take action over Russia’s violations, whereas the West is impervious. There is no ‘rules-based international order’ – but there is an international economic order, and understanding the West’s privileged position in it is key to understanding what would come to be at stake in the economic war.”

In our discussion at ThinkFest and throughout the book itself, Hess repeatedly cites three important informants of what shapes the Western and especially American domination of the ‘international economic order’: formal multilateral institutions led by the IMF and the World Bank, the market for bonds, perhaps most crucially, the continued centrality of the US dollar in all global and local trade – nearly everywhere.

Where does Pakistan get the cheapest kind of external debt (USD-denominated) from? From the Paris Club countries led by the US (and Japan), from the IMF, and from the World Bank and Asian Development Bank.

Where is the arbitration case that Pakistan is conducting against Swiss Gunvor and Italian Eni taking place? In London.

When the civilian and military leadership had a falling apart in the summer of 2021 over the leadership of the intelligence community, how many times did either side consider the implications of an all-out institutional contest between an elected leader and those he deemed his adversaries?

Today, Pakistan faces an almighty inflation crisis that has completely gutted Pakistan’s poor and its middle class. The policymaking architecture is incredibly stable through all the passions and trials of the wider discourse. Rent-seeking industry lobbyists and key industrialists are awarded the portfolio of industries and commerce – during military regimes, during reformist civilian regimes, during status quo civilian regimes, and even during caretaker setups. In this ecosystem, constant appeals to reason and rationality feel feeble and meek. But the alternative to such reason and rationality is the meekness and feebleness of the country as it has to contend not only with the Gunvors and Elis of the world, but also with terrorists that keep pouring over the borders and into Pakistani territory, and fake news and disinformation that keeps seeping into the brains of unwitting consumers of hype – you and I and all of us together.

According to Businessweek, just Gunvor alone earned $600 million for the LNG that it owed to Pakistan for $200 million. Commodities traders are notoriously opaque about their financial transactions and profitability, so these estimates are likely conservative. Torbjorn Torqvist – the man who founded Gunvor – is quoted in the Javier Blas and Jack Farchy book as having said that corruption is so deeply rooted in the commodities industry and that “there are a lot of skeletons and most of them will never be surfaced”. This is a direct quote from the founder of the company that stiffed Pakistanis for billions (in terms of cumulative economic impact) saying this about his own industry and business.

At the ThinkFest book launch for Max Hess, I was joined on stage by Senator Musaddik Malik who was tasked with managing the fallout of the sickening profiteering of Eni and Gunvor. He worked tirelessly to secure new sources of fuel to mitigate the impact – from Azerbaijan, from Turkmenistan, and famously from Russia. Those efforts prevented a likely much worse crisis than the one the country endured. Yet any serious Pakistani should be deeply stirred by what the summer of 2022 exposed about the deep corrosion of the country’s autonomy over the last quarter century.

Senator Malik is as serious as any politician in the country, and his responses to my repeated queries about what this means for the future of the country were sobering. He was crystal clear: the only solution to a country’s vulnerability is for such a country to develop internal coherence, unity and strength.

Strong countries are able to resist the deviousness of companies like Eni and Gunvor. They are also able to resist the bullying and aggression of revisionist regimes that seek to impose their hegemony on their respective regions and beyond. Weak countries are only able to complain about the drive-by shooters that whizz past taking whatever shots they want, whenever they want.

Pakistan sits at the vortex of many competing vectors. There are intense crises awaiting the country’s military and civilian leaders every morning when they get to work. If the starting point of their jobs is to seek mere survival, the country will remain on the slippery slope of weakness and vulnerability. It is past time for leaders to start thinking about national strength instead of national survival. There is no survival for the weak.

Mosharraf Zaidi, "‘Economic wars’ and national strength," The News. 2024-01-16.
Keywords: Economics , Economic order , Economic war , Business , Companies , Javier Blas , Stephen Stapczynski , Ukraine , Russia , LNG