Thursday, July 14, 2016

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The Travesty Of Teacher Tenure

The civil rights of disadvantaged children are at stake.


By George Will 
The National Review
July 14, 2016

The mills of justice grind slowly, but life plunges on, leaving lives blighted when justice, by being delayed, is irremediably denied. Fortunately, California’s supreme court might soon decide to hear — four years after litigation began — the 21st century’s most portentous civil-rights case, which concerns an ongoing denial of equal protection of the law.

Every year, measurable injuries are inflicted on tens of thousands of already at-risk children by this state’s teacher-tenure system, which is so politically entrenched that only the courts can protect the discrete and insular minority it victimizes. In 2012, nine Los Angeles students recognizing the futility of expecting the legislature to rectify a wrong it has perpetrated asked California’s judiciary to continue its record of vindicating the rights of vulnerable minorities by requiring the state’s education system to conform to the state’s constitution.

After ten weeks of testimony, the trial court found the tenure system incompatible with the California supreme court’s decision, now almost half a century old, that the state constitution, which declares education a “fundamental” state concern, guarantees “equality of treatment” to all K-12 pupils. It “shocks the conscience,” the trial court said, that there is “no dispute” that “a significant number of grossly ineffective teachers” — perhaps more than 8,000, each with 28 students — are doing quantifiable damage to children’s life prospects.

Technically, California teachers are granted lifetime tenure after just two years. Actually, they must be notified of tenured status after just 16 months. (Thirty-two states grant tenure after three years, nine states after four or five. Four states never grant tenure.) When incompetent or negligent teachers gain tenure, dismissal procedures are so complex and costly that the process can take up to ten years and cost up to $450,000. The trial court called the power to dismiss “illusory.” Each year approximately two teachers are dismissed for unsatisfactory performance — 0.0007 percent of California’s 277,000 teachers.

Instead, school districts are forced to adopt what is called the “dance of the lemons,” whereby grossly ineffective teachers are shuffled from school to school. Another facet of the tenure system — the teachers last hired are the first fired when layoffs are required — reinforces the powerful tendency for incompetent teachers, who must teach somewhere, to accumulate in schools with the most teacher vacancies. These are disproportionately schools attended by low-income minority children.

Abundant research demonstrates that teacher quality is the most important school variable determining academic performance. This is why there is more variation in student achievement within than between schools. This variation is especially dramatic among students from educationally disadvantaged families. A single grossly ineffective teacher can deprive students of a full year of learning, with consequences that include lower graduation and college-attendance rates, and lifetime earnings more than $250,000 lower than for pupils without a single incompetent teacher. Because teachers’ unions insist that financial appropriations are the all-important determinants of schools’ successes, they are perversely reluctant to acknowledge the importance of quality teachers.

The appeals court responded with a judicial shrug to the trial court’s factual findings. It said California’s tenure system does not constitute a denial of equal protection because the identifiable class of people being injured have no “shared trait.” Oh? What about their shared injury? The injured pupils share a susceptibility to injury because of their shared trait of being economically disadvantaged. This trait concentrated them in schools that themselves have a shared trait — disproportionately high numbers of bad teachers.

The appeals court breezily said the injured were merely an “unlucky subset” of pupils, a “random assortment” produced not by the tenure laws but by the administration of them. This, however, is a distinction without a difference: The tenure laws’ purpose is to dictate outcomes by depriving administrators of discretion. Systemic results cannot be dismissed as “random.” Even if the tenure laws were neither written with a discriminatory motive nor administered with a discriminatory intent, the system is now known to produce — not invariably but with a high probability — predictable patterns of disparities.

Liberal and conservative legal luminaries, from Harvard’s Laurence Tribe to Stanford’s Michael McConnell, have urged California’s supreme court to do what the appeals court neglected to do — apply heightened scrutiny to the tenure laws that prioritize teachers’ job security over pupils’ constitutional right regarding education. California’s supreme court will have national resonance if it affirms that public schools are established to enable children to flourish, not to make even dreadful teachers secure.


Article Link to the National Review:

Proof That Fancy Job Perks Can’t Keep Millennials Happy

That’s not all they care about.


Fortune
July 14, 2016

It’s been exciting to see the recent surge in startups in America over the past several years. This boom, coupled with the emergence of millennials as the largest generation in the workforce, has led to a much-needed reexamination of what building a good team looks like and how to draw in the best available talent. This reexamination is important for everyone, but especially for the hiring entrepreneur in the early stages of a startup. The type of team you surround yourself with will ultimately determine the ceiling and success of your business. It’s something you can’t afford to get wrong.

When it comes to attracting the best candidates, one of the toughest things to figure out is exactly how important it is to have employee perks as a selling point. Watching shows like Silicon Valley or movies like The Social Network gives the impression that perks are a necessary piece for the new startup looking to hire quality people.

This might be true on some level, but there’s a major caveat: If perks don’t tie into cause and culture, they don’t mean anything in the long run.

If you’re looking to attract the best of the best, a Ping-Pong table in the break room won’t do it. At Vanderbloemen, we didn’t receive recognition for top company culture for having an employee of the month award, and we don’t have a sliding board for a staircase or a Pac-Man machine in the break room.

What we do have is a cause—a “why” behind the “what we do.” And to serve our cause, we have established a clearly articulated set of cultural values that we have baked into every part of our team’s life and work.

In my experience, perks are often doled out in order to keep millennials—who are constantly changing jobs—around longer. But if those millennials aren’t tied to core values, they’ll leave. It doesn’t matter if you have lunch brought in on Fridays. You have to embrace the reality that building a culture that people want to be a part of is the best way to attract and retain quality and effective people.

People, especially millennials, are looking for a blend of behaviors, beliefs, and values that groups of people share. They’re looking for a job that does more than just pay bills. They want a team. They want a company that is contributing something to make the world a better place. They want collaboration. Setting up a big TV that airs SportsCenter can’t offer this. It must come from the type of culture that you, the entrepreneur, set forth to build.

All of that being said, we do have employee perks at Vanderbloemen, but every single one of them is tied back to one of our cultural values. The best perks we have are the cheapest ones.

For instance, we get together once a month on a Friday afternoon to eat, hang out, and discuss theology and things happening in the church world that can make our work more effective. Not only does this help to build our company and its culture, but it instills our trust in one another and encourages the entire team to share ideas.

In the company’s early days, we had a pretty good sense of the type of work environment we wanted. Every decision you make that pertains to hiring or providing employee perks should be through the lens of that culture you originally envisioned. If you get the culture piece right, top-notch candidates will soon follow.


Article Link to Fortune:

Grid Attack: How America Could Go Dark

Dozens of break-ins examined by The Wall Street Journal show how orders to secure the power grid have still left tens of thousands of utility substations vulnerable to terrorist saboteurs


By Rebecca Smith
The Wall Street Journal
July 14, 2016

An early morning passerby phoned in a report of two people with flashlights prowling inside the fence of an electrical substation in Bakersfield, Calif. Utility workers from Pacific Gas & Electric Co. later found cut transformer wires.

The following night, someone slashed wires to alarms and critical equipment at the substation, which serves 16,700 customers. A guard surprised one intruder, who fled. Police never learned the identities or motive of the burglars.

The Bakersfield attacks last year were among dozens of break-ins examined by The Wall Street Journal that show how, despite federal orders to secure the power grid, tens of thousands of substations are still vulnerable to saboteurs.

The U.S. electric system is in danger of widespread blackouts lasting days, weeks or longer through the destruction of sensitive, hard-to-replace equipment. Yet records are so spotty that no government agency can offer an accurate tally of substation attacks, whether for vandalism, theft or more nefarious purposes.

Most substations are unmanned and often protected chiefly by chain-link fences. Many have no electronic security, leaving attacks unnoticed until after the damage is done. Even if there are security cameras, they often prove worthless. In some cases, alarms are simply ignored.

The vulnerability of substations was broadly revealed in a Journal account of a 2013 attack on PG&E’s Metcalf facility near San Jose, Calif. Gunmen knocked out 17 transformers that help power Silicon Valley; a blackout was narrowly averted. The assailants were never caught.

The following year, the Federal Energy Regulatory Commission, which regulates the country’s interstate power system, began requiring that utilities better protect any substation that could disable parts of the U.S. grid if attacked.

FERC’s new rule, however, doesn’t extend to tens of thousands of smaller substations, including Metcalf and the one in Bakersfield. Security experts say a simultaneous attack on several of these substations also could destabilize the grid and cause widespread blackouts.

Gerry Cauley, head of the North American Electric Reliability Corp., —which writes standards for the grid—was asked at a FERC hearing in June on grid security what kept him up at night. He said the prospect of “eight or 10 vans going to different sites and blowing things up.” Recovery from a coordinated attack, he said, could take weeks or months.

The Metcalf substation, while undergoing security upgrades, was hit again in August 2014. Intruders cut through fences and burglarized equipment containers, triggering at least 14 alarms over four hours. Utility employees didn’t call police or alert guards, who were stationed at the site, according to a state inquiry.

Three days after the break-in, Stephanie Douglas, PG&E’s senior director of corporate security, sent a memo to the utility’s president saying security was in a fail mode, and her department lacked clout and resources: She had 26 full-time jobs to protect 900 substations, as well gas pipelines and other utility assets.

Ms. Douglas, no longer with PG&E, declined an interview request. PG&E spokesman Matt Nauman said the utility has responded with a $200-million program that includes better security equipment, more training and hiring.

The sprawling U.S. electric system is regulated by government but mostly owned and operated by utility companies and grid operators that monitor electricity supply and demand every minute, every day. The system is always on—and for years few thought anyone would try to turn it off.

The motive of most substation break-ins appears to be theft. Intruders and, potentially, terrorists also could be trying to hack into control systems through computer equipment in substations—either to cause immediate damage or to gather information for later use.

“A substation is not an obvious target for criminals like a bank,” said Joseph Weiss, a security consultant to utilities. “Common sense says they want to get into the electric system.”

Complex system

The U.S. power grid is like a giant puzzle that can be configured in different ways to deliver power where and when it is needed.

Major power sources—gas-fired generators and nuclear-power plants, for example—connect to substations that raise voltages to ferry electricity long distance over a network of power lines. At cities and other destinations, substations lower the voltage to safely deliver electricity to homes and businesses. Substation computers help grid operators control those electrical flows.

The grid was cobbled together during the electrification of the U.S. over the past 125 years. It is a fragile, interdependent system generally more vulnerable in summer when it is running closer to its limits. It is also at risk during low-demand periods, when power-plant operators and linemen perform maintenance. Fewer plants and transmission lines operating mean fewer options for delivering electricity during emergencies.

There is so much variability in the grid that what causes a catastrophe one day might not the next, which makes security issues complex. Small problems can quickly spiral out of control.

On Sept. 8, 2011, equipment problems and human error caused a large transmission line in Arizona to trip out of service. The grid is supposed to withstand the loss of any one line. On this day, electric current shifted to nearby lines and overloaded them; that overtaxed transformers at two small substations, which shut down defensively to prevent equipment damage, and disruptions spread.

San Diego was blacked out 11 minutes later. Traffic snarled. Flights were canceled. Raw sewage flowed into the ocean. Altogether, 2.7 million utility customers lost power in California, Arizona and Mexico.

Federal officials have long known about the vulnerability of electrical substations. A 1990 report from the federal Office of Technology Assessment warned that “virtually any region would suffer major, extended blackouts if more than three key substations were destroyed.”

A 2012 report from the National Research Council of the National Academies of Sciences looked at different parts of the electric system and concluded that substations were “the most vulnerable to terrorist attack.”

“We’ve known we had an issue for a long time and have been very slow to do anything about it,” said M. Granger Morgan, a professor of engineering at Carnegie Mellon University who studied the San Diego blackout.

Security adviser James Holler said his company, Abidance Consulting, inspected nearly 1,000 substations over the past year for utilities in 14 states. “At least half had nothing but a padlock on the gate,” he said. “No cameras. No motion sensors or alarms.”

One utility lost a set of substation keys that were in a truck stolen for a joy ride. After the truck and keys were recovered, Mr. Holler said, the utility didn’t change the substation locks.

Richard Donohoe, director of security for the consulting firm Black & Veatch, said the security departments of utility companies are often so low in the pecking order that “the rest of the organization ignores them half the time.”

After the gunfire attack on the Metcalf substation, FERC required enhanced protection for individual substations “that if rendered inoperable or damaged could result in widespread instability,” or cascading blackouts in any of the three separate sections of the U.S. power grid.

That is a high bar. Utility experts aren’t sure how many substations the new rules cover but estimate it is fewer than 350 out of approximately 55,000. They say more protections are needed at smaller substations that could trigger blackouts if attacked in combination.

The exact combinations depend on energy demand and the direction of electricity flow. In spring, for example, hydroelectric power plants send electricity from the Pacific Northwest to California. In winter, electricity flows in the opposite direction, mostly from gas-fired and nuclear power plants in California and Arizona.

One security-focused nonprofit group called the Foundation for Resilient Societies has called for an analysis of the impact of simultaneous attacks, both physical and cyber.

Thomas Popik, chairman of the group, told FERC in June that existing grid protections were inadequate and his group believed the grid was “a battlefield of the future” that required military-type defenses for key infrastructure.

Michael Bardee, director of the Office of Electric Reliability at FERC, said the agency could do more to study security vulnerabilities at the thousands of substations not covered by the new rule. FERC expects a progress report on the new rule later this year.

“Clearly, there’s some sense that as events go on we may need to re-evaluate the applicability of this standard,” Mr. Bardee said, and possibly expand its reach.

The Vermont Electric Power Co. approved a $12 million program to beef up security at 55 locations after substations were penetrated more than a dozen times by thieves stealing copper during break-ins from 2012 through early 2014.

“We haven’t seen a theft in over a year,” said Kerrick Johnson, a spokesman. The utility installed more secure fencing and better security cameras.

Most utilities are reluctant to spend money on security unless under government orders. They must justify their expenses to regulatory agencies to pass on the costs to ratepayers, said John Kassakian, an emeritus professor of electrical engineering at the Massachusetts Institute of Technology.

Security upgrades generally include cameras, lights and motion sensors, as well as password-controlled doors and gates that electronically monitor entries and exits. Terror threats, Mr. Kassakian said, probably seem less pressing than spending to comply with federal environmental rules.

Alarms unheeded

Utilities don’t always report attacks despite a legal requirement to notify the Energy Department within six hours of any event that could interrupt electricity or if a break-in targets security systems.

No utility has been fined for failing to comply as far as he knew, said David Ortiz, deputy assistant secretary at the Energy Department: “I don’t have an enforcement team.”

The Journal found nine substation break-ins over the past two years where theft wasn’t the apparent motive. The tally and details of the break-ins were gleaned from interviews and public records requests. The count included attacks affecting the federally owned Liberty substation in Buckeye, Ariz.

The substation, about 35 miles west of Phoenix, is a critical link in the southwest power corridor, delivering electricity to heat homes in northwestern states during winter and cool buildings in the southwest during summer.

On Nov. 5, 2013, someone slashed fiber-optic cables that serve Liberty, as well as the larger Mead substation near Hoover Dam. It took workers about two hours to re-establish proper communications and normal controls.

Liberty is operated by the Western Area Power Administration, which controls 17,000 miles of high-voltage power lines used by utilities serving 40 million people in 15 states. If this system suffered a catastrophic failure, it would take down other utilities with it, experts said.

Alarms signaling trouble at Liberty began ringing at a utility operations center in Phoenix 13 days after the communications outage. Dozens of alarms sounded over two days before an electrician was dispatched.

The electrician expected a false alarm. Instead, he found the perimeter fence sliced open and the steel door to the control building “peeled back like a sardine can,” said Keith Cloud, the utility’s head of security.

The substation’s computer cabinets were pried open. The substation’s security cameras proved useless: eight of 10 were broken or pointed at the sky, Mr. Cloud said. Most had been out of operation for a year or more.

Two months later, on Jan. 30, 2014, Liberty was hit again. Two men with a satchel cut the gate lock and headed to the control building. They left after trying, unsuccessfully, to cut power to a security trailer outfitted with cameras and blinking lights, which were installed after the first break-in.

This time, Mr. Cloud said, utility officials found 16 of 18 security cameras had failed. Most were installed after the first break-in and hadn’t been properly programmed. Investigators retrieved a single fuzzy video from a thermal-imaging camera.

Mark Gabriel, WAPA’s administrator, said the utility has “taken steps to improve our physical security program and processes,” including creating the security department in 2013 that Mr. Cloud now heads.

A federal audit faulted WAPA in April for violations of security regulations, including broken or obsolete equipment, lax control over keys to critical substations and failure to install intrusion-detection systems.

Mr. Gabriel said WAPA spends a couple of hundred million dollars on capital improvements annually, which includes money for security improvements. “The bigger story is how that break-in and others in the industry changed the thinking,” he said.

Mr. Cloud said he has received about $300,000 for security upgrades at a handful of WAPA’s 328 substations, including Liberty. To protect the system’s 40 most important substations and control centers, he said, he needs $90 million: “I don’t have the authority or budget to protect my substations.”


Article Link to the Wall Street Journal:

Oil Rises After Big Losses; Glut Concerns Likely To Persist

By Aaron Sheldrick
Reuters
July 14, 2016

Crude prices rose on Thursday to recoup some of their big losses from the previous session, but gains are likely to be limited by mounting concerns the global glut in oil is not going away soon after two major agencies issued bearish reports.

Brent crude was up 48 cents at $46.74 a barrel at 0633 GMT. U.S. crude rose 43 cents to $45.18 a barrel.

A bearish assessment on the oil market from the International Energy Agency (IEA) on Wednesday sent both benchmarks down more than 4 percent by the close of trading.

The glut in the global oil market is persistent and is putting a lid on crude prices despite strong demand growth and steep declines in non-OPEC production, the IEA said.

"We know the process of rebalancing is taking place now, but there is still an overhang in oil and this will time," said Avtar Sandu, senior commodities manager at Phillip Futures in Singapore.

"The market had moved up to $50 quite fast, so we might go down and see whether there is anything below $40," he said.

Surging crude stocks have pushed floating storage to seven-year highs, the IEA said.

Crude stockpiles in the United States were down less than expected last week, while distillate inventories rose the most since January and gasoline stocks unexpectedly increased, the Energy Information Administration (EIA) said on Wednesday.

The data portrayed a traditionally busy summer driving season beset with unusually weak demand, when many had expected record driving trips amid lower oil prices.

The EIA said crude inventories fell 2.5 million barrels last week, less than the 3 million-barrel drop forecast in a Reuters poll.


Article Link to Reuters:

Thursday, July 14, Morning Global Market Roundup: Asian Shares Hover Near Eight-Month Peak On BoE Rate Cut Hope

By Hideyuki Sano and Nichola Saminather
Reuters
July 14, 2016

Asian shares hovered near eight-month highs on Thursday as investors bet the Bank of England will cut interest rates to ward off the risk of recession following Britain's vote to leave the European Union.

Financial spreadbetters and futures also pointed to a higher open for European stock markets, though U.S. S&P futures ESc1 were slightly lower.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 percent, hovering near the highest level since November it reached on Wednesday. Japan's Nikkei .N225 closed up almost 1 percent, helped by a weaker yen.

The Japanese currency, which slid 3.9 percent over the first three days of this week, dropped a further 0.8 percent to 105.33 to the dollar JPY= after Bloomberg reported former Federal Reserve Chairman Ben Bernanke had floated the idea of perpetual bonds during discussions with one of Japanese Prime Minister Shinzo Abe's advisers in April.

Abe called for fiscal stimulus, expected to reach about 2 percent of GDP, following his election victory on Sunday.

Chinese stocks, however, were lower, with the CSI 300 index .CSI300 and the Shanghai Composite .SSEC both slipping 0.4 percent. Hong Kong's Hang Seng .HSI advanced 0.2 percent.

U.S. stocks ticked up on Wednesday, just enough for the S&P 500 and Dow industrials to set record highs, with investors expecting upbeat earnings to keep the rally going.

Wall Street shares have quickly recovered the losses triggered by Britain's vote on June 23 to leave the European Union, driven by solid U.S. economic data.

"Brexit doesn't mean a breakdown of the global financial system after all, nor a major slowdown in the economies outside the UK," said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank in Tokyo.

"Investor activity is slowing down after June 24 but uncertainty is gradually easing."

Concerns that Brexit could disrupt European economies have effectively taken a Federal Reserve rate hike off the agenda in the near future, and boosted expectations of more monetary stimulus from central banks from Europe to Japan.

Financial markets expect the Bank of England to announce a rate cut later on Thursday. Governor Mark Carney has hinted he may ease policy to cushion the economy from the Brexit shock.

The British pound GBP=D4 extended gains to 0.8 percent to $1.3258 on Thursday. Sterling climbed to this week's high of $1.3340 on Wednesday as political uncertainty eased following the appointment of Theresa May as prime minister.

But it ended the day down 1.4 percent from that peak after May named leading Brexit supporters to key positions in her new government, including former London mayor Boris Johnson as foreign secretary, and attention shifted toward a possible BOE rate cut.

"The Brexit vote appears to be having a psychological effect as informal measures of consumer confidence have already fallen precipitously," David Lafferty, chief market strategist at Natixis Global Asset Management, wrote in a note.

"Having argued that Brexit may lead to recession, it may be difficult for (Carney) to justify postponing a rate cut."

The euro EUR= was stuck in its familiar range and last stood up 0.2 percent at $1.1115.

While the European Central Bank is expected to keep policy on hold at its meeting next week, the euro's overnight index swaps were pricing in further rate cuts over coming months. EUROIS.

Oil prices bounced back after losses of over 4 percent on Wednesday that erased most of the previous session's gains, as a run of bearish U.S. inventory data heightened concerns about a global glut.

Global benchmark Brent crude futures LCOc1 gained 0.9 percent to $46.69 per barrel.

The revival in risk appetite weighed on gold. Spot gold XAU= extended losses to 0.6 percent, last trading at $1,333.71 an ounce.


Article Link to Reuters:

No More Tesla Buyback Guarantee As Company Cuts Price Of Model X

By Alexandria Sage and Paul Lienert
Reuters
July 14, 2016

Tesla Motors Inc has ended a program that guaranteed the resale value of its cars, and lowered the starting price of its Model X crossover, the high-profile electric vehicle maker said on Wednesday.

The discontinuation of the buyback program, as of July 1, allows Tesla to free up cash that had been set aside to buy back Model S cars after three years at a value of at least 50 percent of the base purchase price.

The changes come after Tesla warned earlier this month it will miss its vehicle delivery target for a second consecutive quarter.

It faces other challenges, including a regulatory investigation of its Autopilot technology following a May 7 fatal crash and more scrutiny of its financials after a proposed merger with SolarCity Corp.

Within the next 12 months, Tesla has disclosed it could pay a maximum of $192.4 million to cover resale value guarantees on 4,209 vehicles. That amounts to a maximum liability of $45,711 per car, although Tesla could offset payouts by reselling repurchased vehicles.

Tesla valued the total liability created by the resale value guarantee at $1.58 billion as of March 31, according to its latest quarterly filing with the Securities and Exchange Commission, up over 20 percent since the end of 2015.

The program, begun in 2013, was intended to help Tesla control its secondary market and reassure buyers purchasing vehicles using its novel technology that resale values wouldn't drop substantially.

A Tesla spokesperson said the program was discontinued to "keep interest rates as low as possible and offer a compelling lease and loan program to customers."

In effect, Tesla is now doing what most established auto makers do: allow market forces to set trade-in values.

Less Cash In Reserve


Only a very small number of Model S sedans are sold through used vehicle auctions, and so far the vehicles "seem to be going for a pretty strong premium in the second hand market," said Patrick Min, an analyst with Automotive Lease Guide.

Ending the guarantee could allow Tesla to hold less money in reserve, Min added. In contrast, resale values for mass market electric vehicles such as the Nissan Leaf are depressed, Min said. A three-year-old Leaf is selling on average for about 20 per cent of its price when new, he said.

As more Model S vehicles enter the market, however, resale values could eventually fall, analysts said.

Tesla has outlined an ambitious and costly plan to speed up the launch of its Model 3 sedan, and boost total production to a rate of 500,000 vehicles a year by 2017. The company is also gearing up to launch production of batteries at a giant factory in Nevada.

Tesla shares closed down nearly 1 percent at $222.53.

Investors are keeping a close eye on Tesla's balance sheet after Chief Executive Elon Musk proposed it acquire solar energy company SolarCity, where he is chairman and a large shareholder.

Musk tweeted on Sunday he planned to soon publish part two of his "top secret Tesla masterplan," prompting speculation he might reveal more details about the possible merger, which has been met with market skepticism.

On Wednesday, Barclays analyst Brian Johnson gave Tesla a D grade for financial stewardship, noting that Musk's original 2006 masterplan "dug a $4.2 billion hole" for the company.

Also on Wednesday, Tesla said a new version of the Model X crossover, the 60D, will be priced from $74,000, $9,000 less than the Model X 75D. Equipped with a 60kWh battery, the 60D has less torque and a shorter range than the 75D.

The Model X price cut follows a similar price reduction for the Model S, whose base price was lowered to $66,000 last month.


Article Link to Reuters:

U.S. Launches Quiet Diplomacy To Ease South China Sea Tensions

By Lesley Wroughton and John Walcott
Reuters
July 14, 2016

The United States is using quiet diplomacy to persuade the Philippines, Indonesia, Vietnam and other Asian nations not to move aggressively to capitalize on an international court ruling that denied China's claims to the South China Sea, several U.S. administration officials said on Wednesday.

"What we want is to quiet things down so these issues can be addressed rationally instead of emotionally," said one official, who spoke on the condition of anonymity to describe private diplomatic messages.

Some were sent through U.S. embassies abroad and foreign missions in Washington, while others were conveyed directly to top officials by Defense Secretary Ash Carter, Secretary of State John Kerry and other senior officials, the sources said.

"This is a blanket call for quiet, not some attempt to rally the region against China, which would play into a false narrative that the U.S. is leading a coalition to contain China," the official added.

The effort to calm the waters following the court ruling in The Hague on Tuesday suffered a setback when Taiwan dispatched a warship to the area, with President Tsai Ing-wen telling sailors that their mission was to defend Taiwan's maritime territory.

The court ruled that while China has no historic rights to the area within its self-declared nine-dash line, Taiwan has no right to Itu Aba, also called Taiping, the largest island in the Spratlys. Taipei administers Itu Aba but the tribunal called it a "rock", according to the legal definition.

The U.S. officials said they hoped the U.S. diplomatic initiative would be more successful in Indonesia, which wants to send hundreds of fishermen to the Natuna Islands to assert its sovereignty over nearby areas of the South China Sea to which China says it also has claims, and in the Philippines, whose fishermen have been harassed by Chinese coast guard and naval vessels.

'Unknown Quantity'

One official said new Philippine President Rodrigo Duterte remains "somewhat of an unknown quantity" who has been alternately bellicose and accommodating toward China.

Philippine Defense Secretary Delfin Lorenzana said that ahead of the ruling he had spoken to Carter, who he said told him China had assured the United States it would exercise restraint, and that the U.S. government made the same assurance.

Carter had sought and been given the same assurance from the Philippines, Lorenzana added.

China, for its part, repeated pleas for talks between Beijing and Manila, with Foreign Minister Wang Yi saying the it is time to get things back on the "right track" after the "farce" of the case.

On Thursday, the official newspaper of China's ruling Communist Party said China had shown it can fix territorial issues via talks, pointing to agreement reached with Vietnam over their maritime boundary in the Gulf of Tonkin and ongoing talks with South Korea.

"China is a faithful defender of the principle that countries large and small are equal and has consistently upheld using consultations to resolve border issues on the basis of sovereign equality and mutual respect," the People's Daily said in a commentary.

Meanwhile, two Chinese civilian aircraft landed on Wednesday at two new airports on reefs controlled by China in the Spratly Islands in the South China Sea, a move the State Department said would increase tensions rather than lower them.

"We don't have a dog in this fight other than our belief ... in freedom of navigation," State Department spokesman Mark Toner told a briefing on Wednesday. "What we want to see in this very tense part of Asia, of the Pacific, rather, is a de-escalation of tensions and we want to see all claimants take a moment to look at how we can find a peaceful way forward."

Contingency Plan

However, if that effort fails, and competition escalates into confrontation, U.S. air and naval forces are prepared to uphold freedom of maritime and air navigation in the disputed area, a defense official said on Wednesday.

Democrat Ben Cardin of Maryland, a senior member of the Senate Foreign Relations Committee, said confrontation is less likely if the Philippines, Indonesia, Vietnam and other countries work with the United States rather than on their own.

"I don't think China wants a confrontation with the United States," he told reporters. "They don’t mind a confrontation with a Vietnamese fishing boat, but they don’t want a confrontation with the United States."

The court ruling is expected to dominate a meeting at the end of July in Laos of the 10-member Association of Southeast Asian Nations (ASEAN), which includes the Philippines, Malaysia, Indonesia, Myanmar, Vietnam and Thailand.

U.S. Secretary of State John Kerry, and his Chinese counterpart, Foreign Minister Wang, will attend the ministerial.

Sino-American relations suffered two fresh blows on Wednesday as a congressional committee found China's government likely hacked computers at the U.S. Federal Deposit Insurance Corporation and the United States challenged China's export duties on nine metals and minerals that are important to the aerospace, auto, electronics and chemical industries.


Article Link to Reuters:

U.S. Launches Quiet Diplomacy To Ease South China Sea Tensions

History Should Vindicate David Cameron

By Editorial Board
The Bloomberg View
July 14, 2016

History’s verdict on David Cameron, who stepped down as the U.K.’s prime minister on Wednesday, is likely to be harsh. By calling a referendum on Britain’s membership in the European Union, it will be said, he gambled the country’s prosperity for partisan political advantage. What’s worse, he lost -- and history has no sympathy for losers.

He did gamble, he did lose, and the consequences for the U.K. are going to be serious. Even so, that verdict would be much too harsh. In important ways, Cameron was an impressive leader.

Future historians first ought to note that when it came to Europe, Cameron had no good options. Discontent with the EU runs broad and deep in Britain, as the referendum result confirmed. For that reason, planning on business as usual in U.K.-EU relations would have been a gamble, too, and not just for Cameron’s Conservative Party. Cameron could have postponed the U.K.’s EU vote, but that wouldn’t have resolved the U.K.’s EU crisis.

Trying to resolve such complex matters by popular vote is nearly always unwise -- representative democracy is the better model -- but failing to notice or respond to widespread disaffection is dangerous too, sometimes more so. A political class that sets its face against a settled majority of voters puts democracy itself in jeopardy (and by failing to register the strong anti-EU sentiment in their own electorates, it’s a risk some European leaders are courting even now).

So Cameron miscalculated. Yet his virtues shouldn’t be overlooked. He led a successful coalition government -- the first of the post-war era, and an arrangement that doesn’t come easily to British politics. Despite setbacks and controversy, he steered the U.K. economy to a better recovery from the crash than the rest of Europe achieved. He then defied the polls and won re-election, this time with a parliamentary majority.

He can fairly claim to have modernized conservatism in Britain, giving it a more pragmatic and humanitarian slant -- greatly increasing foreign aid, for example, and working to make gay marriage legal. Cameron’s Tory party was pro-market, pro-enterprise, environmentally aware and socially tolerant. That’s an appealing combination. At last year's Tory party conference he said:

"Opportunity doesn’t mean much to a British Muslim if he walks down the street and is abused for his faith. Opportunity doesn’t mean much to a black person constantly stopped and searched by the police because of the color of their skin. Opportunity doesn’t mean much to a gay person rejected for a job because of the person they love. It doesn’t mean much to a disabled person prevented from doing what they’re good at because of who they are. I’m a dad of two daughters – opportunity won’t mean anything to them if they grow up in a country where they get paid less because of their gender rather than how good they are at their work. The point is this: You can’t have true opportunity without real equality. And I want our party to get this right."

No standard-issue Tory, he got a standing ovation. Cameron’s career ended in failure, but let the record also show: He changed British politics, and for the good.


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The Obama-Clinton Legacy: A More Aggressive China

So much for the famous pivot.


By Peter Navarro
The National Interest
July 14, 2016

If shots are fired in the wake of the decision of the United Nations Permanent Court of Arbitration to categorically reject China’s expansive territorial claims in the South China Sea, Beijing will have only itself to blame. However, former secretary of state Hillary Clinton and President Barack Obama must also share responsibility.

The Clinton-Obama culpability seems to have been totally lost in the current debate over this issue—virtually every pundit focuses on how to respond to China’s next aggressive move. However, this regrettable situation is a poster child of weakness inviting aggression—with all the unintended consequences such aggression can bring—so it is important to frame this crisis in its appropriate historical setting.

This crisis began with China’s forcibly taking Scarborough Shoal from the Philippines in 2012. This shoal is a triangular-shaped chain of reefs, rocks, and small islands barely thirty-four miles in circumference and about 115 nautical miles off the Philippines’ Zambales Province on the western side of Luzon Island. It is well within the Philippines’ two-hundred-mile Exclusive Economic Zone, where an EEZ entitles a country to natural resources like fish and petroleum with it; and only one of its land features, South Rock, is above water at high tide.

China’s taking of Scarborough Shoal began in April of 2012 with an incursion into the shoal by a flotilla of Chinese fishing vessels. Manila attempted to arrest the fishermen. A tense standoff involving paramilitary Chinese Coast Guard vessels ensued.

During the course of this standoff, a series of violent protests erupted in both China and the Philippines while Chinese hackers launched a series of cyber attacks against key Philippine government agencies. In addition China rolled out a particularly punishing boycott of Philippine exports to China and a de facto ban on Chinese tourism.

In June of 2012, a group of U.S. diplomats led by Assistant Secretary of State Kurt Campbell thought they had successfully mediated a resolution that required both China and the Philippines to withdraw from the area and negotiate a peaceful settlement. However, while the Philippines kept its end of the deal, China never left—a move Philippines president Benigno Aquino would compare, albeit with some hyperbole, to Nazi Germany’s annexation of the Sudetenland in 1938.

The following month China further escalated the crisis by blockading a portion of the shoal where Filipinos have fished for generations. It then proceeded to issue a fifteen-mile fishing ban around the area in question.

Now here’s the truly remarkable thing: after Clinton’s State Department brokered the peace deal that China promptly broke, the United States did absolutely nothing. To Beijing, this was an open invitation, and not just to hold on to Scarborough Shoal. America’s response set in motion a chain of events that have gotten us to this point.

For starters, the Philippines, abandoned as it was by America and without the naval resources to enforce its claims against China, filed a complaint in January of 2013 before the United Nations’ Permanent Court of Arbitration. And here’s the kicker: the Philippines did not limit its case to Scarborough Shoal. Instead, it went directly after China’s infamous “nine-dash line” claim to more than 80 percent of the South China Sea—a territorial line that includes not just Scarborough Shoal but the Spratly and Paracel Islands, as well as waters through which more than one-third of all global shipping passes.

In addition, the Philippines challenged China’s right to claim a two-hundred-mile exclusive economic zone around small, uninhabitable islands like Mischief Reef and Fiery Cross Reef in the Spratlys, where China has been busy building fortress garrisons on tons upon tons of dredged up sand.

Now the court decision is in for a case that never would have been filed if the United States had simply called China on its reneging of the Scarborough Shoals deal. The verdict: a stinging rebuke of Chinese aggression and territorial claims in the South China Sea.

The only question now is whether a belligerent and revanchist China once again “humiliated” by a Western court will obey international rules or react badly—and most analysts and pundits are voting on the react badly option, and falling over each other trying to offer good advice about a bad situation that never would have arisen if not for the failure of Clinton and Obama to deal with Scarborough Shoal.

Hillary’s Failed Pivot and Barack’s Incredible Shrinking Navy


In this regard, it is equally important to note for the historical record that the failure of U.S. policy in the Scarborough Shoals incident is not the whole reason Clinton and Obama must share a significant blame for the hot mess now in the South China Sea. There is also the matter of Hillary’s failed “pivot to Asia” policy along with the Obama administration’s culpability in shrinking the U.S. navy to its lowest number of ships in decades.

In fact, the pivot entails shifting 60 percent of the naval fleet to the western Pacific. On paper, this pivot seems like an appropriate policy that recognizes the importance of the western Pacific. Opined Hillary:

“The Asia-Pacific has become a key driver of global politics. Stretching from the Indian subcontinent to the western shores of the Americas, the region spans two oceans — the Pacific and the Indian — that are increasingly linked by shipping and strategy. It boasts almost half the world’s population. It includes many of the key engines of the global economy, as well as the largest emitters of greenhouse gases. It is home to several of our key allies and important emerging powers like China, India, and Indonesia. At a time when the region is building a more mature security and economic architecture to promote stability and prosperity, U.S. commitment there is essential.”

In practice, Hillary’s pivot has not just been a huge failure but also yet another catalyst for the current crisis. One problem is that China immediately (and correctly) saw Hillary’s pivot as a Cold War-style tactic meant to “contain” China. Beijing’s leaders immediately reacted by escalating their expansion in the South China Sea, particularly the artificial “island building” that has been so alarming across the Spratly Island chain.

The bigger problem is that while Hillary was “talking loudly,” Obama was slashing defense spending and undermining the very navy needed to enforce the pivot—and thereby providing Hillary a “small stick” that China promptly ignored. The following “pivot math” underscores the problem: by the year 2020, the United States will have the same amount of combat power as when the pivot began in 2011. This is because while the relative distribution of ships may indeed shift to the Pacific, the absolute numbers are declining. In math terms, 60 percent of a smaller fleet will lead the U.S. pivot exactly back to the grossly inadequate place in Asia where it started.

The emerging Chinese hegemon appears to understand the implications of this pivot math far better than Hillary Clinton and Barack Obama. In response to America’s “talk loudly and carry a small pivot stick” rhetoric, Chinese warships, paramilitary Coast Guard boats, and massive flotillas of “People’s War At Sea” fishing boats have filled the void left by the Obama-Clinton failure of American power projection.

Now, the region faces its most serious conflict since the Taiwan Strait Crisis of 1995–96. While commentators will have much to say about this turn of events over the next weeks and months, it is indeed important to remember how we got here in the first place—which has been the sole purpose of this missive.

The primary historical lesson is this: weakness does indeed invite aggression. It has been sheer folly for the Obama-Clinton team to pursue its “talk loudly, small stick” pivot in the face of an increasingly credible Chinese navy.

As to where we go from here, hopefully, it will be to a new president who understands that a policy of peace through strength not only requires rebuilding our military, and particularly our navy. It also means revitalizing an economy that is now incapable of generating the growth and tax revenues needed to pay for an adequate defense of America’s global interests.


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World War II Isn't Quite Over For Poland And Ukraine

By Leonid Bershidsky
The Bloomberg View
July 14, 2016

World War II isn't quite over in what historian Timothy Snyder called the Bloodlands. The nationalist government in Poland is eager to confront Ukraine about an ethnic cleansing episode in 1943, and the Ukrainian authorities, whose own nationalism is a sometimes violent reaction to Russian aggression, are torn between glorifying the perpetrators of those crimes and apologizing to the Poles, their closest allies in Europe.

In the Volhynian massacre, the Ukrainian Insurgent Army (UPA), the military wing of Stepan Bandera's Organization of Ukrainian Nationalists, killed up to 100,000 Poles mainly in the Volhynia, or Volyn region that is part of today's western Ukraine but was part of Poland before World War II. The reasons the Ukrainian nationalists did this were twofold. Between the two world wars, Poland had oppressed Ukrainians living in the area, forcibly converting them to Catholicism and generally treating them as second-class citizens. And in 1943, many Volhynian Poles sympathized with the Red Army, which had turned the tide against Nazi Germany's onslaught, and cooperated with Moscow-backed guerrilla units.

By 1943, Bandera himself was in a German concentration camp, and his allies in Ukraine were disillusioned with Germans as allies who would help them set up an independent Ukraine. They also hated the Soviets with a passion (after the war ended, they kept up resistance against them in the woods for another four years). They realized they would have to fight alone, without any foreign support, and they moved to destroy what they saw as a fifth column. In his book about the region's bloody history, Snyder, who is sympathetic toward modern Ukraine, thus described the chain of violence:

"The OUN-Bandera, the nationalist organization that led the partisan army, had long pledged to rid Ukraine of its national minorities. Its capacity to kill Poles depended upon German training, and its determination to kill Poles had much to do with its desire to clear the terrain of purported enemies before a final confrontation of the Red Army."

Snyder goes on to explain how the ethnic conflict launched by the anti-Communist UPA's actions only strengthened Stalin's hand. Stalin attached the contested territories to Soviet Ukraine and continued purging them of Poles.

Last week, the upper house of the Polish parliament, the Senate, recommended that the lower house, the Sejm, pass a resolution describing the Volhynian events as genocide. Jaroslaw Kaczynski, leader of the ruling Law and Justice party, has promised that the Sejm would comply; he can probably be trusted on that since his party dominates the parliament.

The Sejm has long hesitated to do this. In a 2009 resolution, it used a milder formula: "ethnic cleansing with the characteristics of genocide." Attempts to toughen it were shot down by the previous centrist government. Former Foreign Minister Radoslaw Sikorski argued that though the massacre had all the markings of genocide, saying so would weaken Ukraine's recent pro-European bent.

He had good reasons to think so: Since the "Revolution of Dignity" in 2013-2014, the veneration of Bandera and his nationalist collaborators has become part of the new Ukrainian ideology that has helped unite the country against the Russian aggression in Crimea and eastern Ukraine. To some of the volunteer battalions fighting in the east, Bandera is an indisputable hero: All he and his supporters did was in the cause of national liberation. Last year, the Ukrainian parliament passed a law that made it illegal to "disrespect" the memory of UPA fighters. Last week, as part of its "decommunization" policy that envisages the removal of Soviet statues and symbols and the mass renaming of towns and streets, the Kiev city council voted unanimously to rechristen the capital city's Moskovsky Prospekt (Moscow Avenue) after Bandera.

That was a move designed to irk Russian President Vladimir Putin, to whom Bandera is a Nazi butcher, in keeping with the Soviet tradition. Moscow reacted immediately: The Russian Foreign Ministry's Konstantin Dolgov called the renaming "a direct mockery of the memory of those who died fighting Nazism," and Putin's press secretary Dmitri Peskov expressed "regret," adding that "the historical kinship between Russia and Ukraine cannot be eradicated" in this way.

Yet the timing of the name change was woefully insensitive: It came just before the Polish commemoration day, July 11, angering many in Poland. "With their move, Kiev politicians have weakened the position of Ukraine's friends in Warsaw and worsened the situation of their compatriots in Poland," wrote Olena Babakova, a Ukrainian journalist who works for Radio Poland in Warsaw. "If Ukrainians don't want to refrain from potentially conflict-generating decisions, they could at least take care to pick less inopportune moments for them."

The timing was all the more unfortunate because last weekend, Warsaw hosted a North Atlantic Treaty Organization summit. Ukrainian President Petro Poroshenko was in attendance, seeking aid against Russia.

The Ukrainian leader sought to mollify his Polish hosts, kneeling before a memorial to the victims of the Volhynia massacre. The gesture failed to satisfy Polish nationalists. Witold Listowski, president of a patriotic organization of the "Borderlands," as Volhynia is often described in Poland, called it "a hypocritical propaganda gesture." Ukrainian lawmakers, for their part, are preparing an angry response to the Polish Senate's resolution, which Boris Tarasyuk, deputy chairman of the Ukrainian parliament's foreign affairs committee, has called "essentially anti-Ukrainian."

With nationalists in power in both countries, a conflict over history is poisoning a natural relationship: Ukrainians and Poles can even understand each other's language, and Poland is the shining example for pro-European politicians in Ukraine. To official Kiev, condemning Bandera would be a concession to the Kremlin. To official Warsaw, Bandera veneration is incomprehensible: The Volhynia massacre ranks with the worst of Soviet atrocities against Poles.

Kiev could still take a conciliatory step toward its Polish neighbor: Mayor Vitaly Klitschko has not yet signed the decree renaming the avenue. It could do more to acknowledge the massacres and teach that shameful side of the history, correcting school textbooks that commemorate Bandera and his followers as heroes. "Banderism has become part of state ideology," former Polish Prime Minister Leszek Miller wrote recently, "and the genocidal Volhynia murders serve the formation of a new Ukrainian identity."

Poland and Ukraine are still drawn together by pragmatic considerations and a common fear of Russia's assertiveness in the region. Yet the spat over the Volhynia murders shows that when nationalists come to power, pragmatism can take a back seat to the refighting of old wars and bitter arguments over history. National identities built on blood perpetuate such conflicts, dragging them into the present regardless of how impartial historians apportion blame.


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Russia's Regional Master Plan Stretches From Turkey To Indonesia

Seeing Eurasia as a whole has been to Moscow’s benefit.


By Nikolay Pakhomov
The National Interest
July 14, 2016

The political earthquake of the Brexit referendum has already changed international relations in many ways. While the majority of experts in the United States dwelled on the parallels between the anger of British and American voters and the possible negative consequences for the global economy, only a few considered the referendum’s implications for American foreign policy, naming, as an example, a possible end to the American “pivot” towards Asia. At the same time, several events showed that Russia, proclaimed by the same experts as one of the biggest winners of the Brexit vote, does not have to rush to any pivots: the Eurasian vector of Russia’s foreign policy is already present, and becoming more significant with every year.

Yet, one thing should be made clear from the very beginning: this Eurasian policy has little to do with the very amorphous ideology of Eurasianism, whose influence is constantly overestimated by Western experts. Having had a not-so-positive experience with foreign policy influenced by ideology (initially by communism during the Cold War and, later, by liberalism during the last decade of the twentieth century), Russia’s foreign policy is rather pragmatic. It treats Eurasia as the macro-region where Russia is located and, for centuries, a natural priority area for Russia’s international relations.

It so happened that, exactly after the Brexit referendum, several events provided more grounds to analyze Russia’s diplomatic efforts in this space. Some of them, like Putin’s visit to Uzbekistan for the anniversary meeting of the Shanghai Cooperation Organization’s Heads of State Council and visit to China, were planned, while others—such as Turkey’s apology for shooting down the Russian plane in November 2015—definitely were not. However, all of them gave reasons to argue that Russia’s diplomacy delivers results in establishing Moscow as a powerful player with a truly Eurasian outreach.

To see this, let’s analyze the abovementioned events as they were happening. On June 23, Vladimir Putin arrived to Tashkent for the Shanghai Cooperation Organization summit. Certain observers have been writing on Chinese dominance and Russian-Chinese differences for years within the SCO, but a thorough analysis of the latest developments provides enough argument to question these conclusions. Most notably, in Tashkent, with Russian support, India became a full member of the organization, which alone is a reason to reconsider statements about Chinese dominance in the organization. Furthermore, we should not forget that, despite the existing focus on security, with Islamic extremism being the main threat, economic cooperation is gaining weight on the SCO agenda, and Russia strongly supports this trend.

The latter might be explained mainly by the fact that neither Moscow nor Beijing considers, at the very least publicly, the Central Asian region to be an area of competition. The reasons for that are, first, that efforts by both powers to demand “exclusivity” from countries of the region would not be met by Central Asian rulers, who prefer balancing between two major powers; and, second, all promising projects here are costly for outside players, whether Russia or China. The reason for this is the limited ability of Central Asian republics to tackle various challenges, whether social, economic, political or security. Even Kazakhstan, far more successful compared to its struggling neighbors, has to deal with security threats. This all means that the five former Soviet republics are looking for the support of major powers and, while Russia has been deeply involved in the region for the last several centuries, it is not obvious that Beijing is ready, or eager, to take on this load.

In any case, with an active Russian support, the Shanghai Cooperation Organization is turning into a forum to address regional challenges—be it security or the economy. Lately, the economic cooperation has become a legitimate item on the SCO agenda, competing with discussions on security challenges. The Tashkent summit was not an exception: besides further steps to implement plans of economic cooperation, integration with the Chinese Silk Road Belt initiative was discussed. For years this idea was considered to be, if not aimed against Russia, at least weakening Russia’s influence in Eurasia. For example, Ukraine was eager to participate in this project in order to bypass Russia. It is obvious now that Moscow might actually win by embracing this idea of Beijing’s: if China is simply looking for better ways to connect with Europe, nothing will prevent Russia from participating in this project.

After Tashkent, President Putin traveled to Beijing, where, among numerous projects of economic cooperation, he discussed aligning the Silk Road Belt and the Eurasian Economic Union, the Kremlin’s favored cooperation format in the post-Soviet space. Considering Russian plans to develop cooperation between the EEU and not only the SCO, but also ASEAN, it is difficult to argue that Russian plans have an impressive, truly Eurasian scale. Of course, a case can be made that these plans are far from being implemented; however, they are an integral part of Russia’s foreign policy agenda. At the very least, we can see that Russia has this strategically designed, long-term policy and does not have to “pivot” to the region pressured by the bombardment of crises, which are incessant in today’s world politics. Considering the Russian president’s latest visits, we can see that Putin himself is very active in implementing these plans.

When Putin returned to Russia, on June 27, Russia’s policy produced results on the other side of Eurasia: Turkey’s President Erdogan sent a letter apologizing for the shootdown of the Russian plane last November. Again, foreign and domestic critics of the Kremlin’s moves during the crisis will find enough legitimate arguments to support their opinion, but it is difficult to dispute that Turkey eventually did what, first, would be normal for any responsible state and, second, what was expected, if not demanded, by Moscow since the beginning of the standoff provoked by the shootdown of a Su-24M on November 24, 2015.

It is obvious today that the Turkish F-16’s attack on the Russian plane was either a very unfortunate incident, basically a failure of Turkish military decisionmaking, or a reckless attempt by Ankara, with little chance for success, to assert itself in the region and on the world stage. Historians will know the truth, but at this point it is important that, whatever happened, Turkey had to backpedal and apologize.

What is more important, Russian policy basically left Ankara no other option. Russian consumers are very important for the Turkish economy, especially for the tourism, agriculture and food sectors. Currently Turkey has no alternative to Russian natural gas. Russia’s position in the region, reinforced by its involvement in Syria, provides enough stimulus for any regional power to look for cooperation with Moscow. The Russian reaction to Turkish saber-rattling after the incident was balanced and, as Erdogan’s apology shows, efficient. On one hand, Turkish businesses, benefiting the most from cooperation with Russia, were targeted. On the other hand, Moscow abstained from the drastic measures demanded by some “hawks” in Russia. The Kremlin even let everybody know that long-time, widely promoted bilateral projects, whether the construction of a nuclear plant in Turkey or a pipeline for Russian gas through Turkey to Europe, are beyond consideration for sanctions.

The reason for this restraint was simple: both projects are more significant than just Russian-Turkish cooperation. The Akkuyu plant is basically an example of what Russia can sell to other countries, which have money and are in need of nuclear plants. And a pipeline called “Turkish Stream” was meant to bring more Russian gas to South and Central Europe. No surprise that following Erdogan’s letter, a normalization process between two countries began: after a phone conversation between the Russian and Turkish leaders, Russia launched the procedure to lift its sanctions against Turkey. The foreign ministers of two countries met and rumors started circulating that Turkey might let Russia use the base in Incirlik for operations in Syria.

Therefore, within a week, after Putin’s swing to the east and the Turkish move to normalize relations with Russia, observers could see the strength of Russian positions in Eurasia—from Bosporus to the Moluccas, where Russian intentions to launch a free trade zone between the Eurasian Economic Union and the ASEAN might soon bear fruit. What conclusions can other world powers make assessing this line of Russian foreign policy?

First, that the Eurasian rim, despite all its problems, is a quite natural, familiar environment for Russia. Whatever pressure the West, especially the United States (located, as a matter of fact, in another hemisphere) is trying to apply against Russia, Moscow has enough space to counterbalance this pressure with ties to numerous countries along its Eurasian borders backed by centuries-long country-to-country relations.

Second, Russia’s strategy in Eurasia is based on the fact that its relations within the region are multidimensional. For almost any major player in the region, if needed Russia can offer an promising format of relations. It can be security cooperation on various issues, from nuclear control to the threat of Islamic fundamentalism, from antidrug efforts to cybersecurity, or economic partnerships—again, in many formats, be they energy resources or investments, infrastructure development or consumer markets, production or technology research.

All these factors should be acknowledged when analyzing Russian foreign policy. The Kremlin has its significant share of difficulties in the Eurasian macroregion; often the goals Russia establishes are beyond its current means. However it would be a mistake not to consider Russian moves in Eurasia very carefully. Famously, President Obama said that Russia is “a regional power.” Even if this assessment is correct, when the region is Eurasia, Moscow’s actions here cannot help but have global repercussions.


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