Research Highlights
UK/ENERGY POLICY: Forthcoming proposals for a carbon price floor unlikely to spur nuclear revival
11 August 2010: As the UK coalition government embarks on constructing its energy policy, industry focus is on the proposed introduction of a carbon price floor. Though proposals on the design of the price floor are not expected until September, it is difficult to envision the government pushing for a price floor high enough to spur the build-out of new nuclear reactors. Absent a shift in the government's opposition to providing public subsidies for nuclear reactors, Eurasia Group believes that the UK nuclear program will face delays. Further, the carbon price floor may fail to materialize altogether given its expected ineffectiveness at spurring new nuclear projects and the revenue windfalls such a policy could create for existing nuclear and renewable energy projects. As older reactors and coal projects shut down in coming years, the UK market will continue to favor natural gas as replacement power generation capacity.
RUSSIA: Inflation, social unrest and election concerns drive grain export ban
6 August 2010: Prime Minister Vladimir Putin on 5 August announced a ban on grain exports, in response to a severe drought that could destroy as much as a third of the country's grain harvest. The ban, which takes effect on 15 August and is slated to be in place through the end of the year, stems from government concerns about the potential impact of rising food prices, and possible resultant social unrest, in the run up to the election cycle. Looking forward, regulatory risk is rising for the food production and retail sectors in particular.
TAIWAN/CHINA: Beijing gives Ma a win on Singapore trade negotiations
6 August 2010: In acquiescing to trade negotiations between Taiwan and Singapore, Beijing has given Taiwanese President Ma Ying-jeou and his ruling party a political and an economic victory. Politically, the negotiations mark the fulfillment of a promise made by Ma--one impugned by his opposition--that Beijing would afford Taiwan more "international space" once the Economic Cooperation Framework Agreement (ECFA) deal was signed. Reflecting Beijing's softly, softly approach, the negotiations also mark a positive point in cross-Strait relations--they will help to assuage fears that Beijing seeks to subjugate Taiwan to the Mainland economy. These developments will bolster Ma and the Kuomintang's (KMT) prospects in the lead-up to mayoral elections in November. Economically, the negotiations should also somewhat bolster longer-term growth expectations in Taiwan, as Taipei looks set to pursue other similar trade negotiations--especially in Southeast Asia--in the months and years ahead.
TURKEY: Unprecedented deadlock after 4-day long Supreme Military Council meeting
5 August 2010: As expected, the meeting of the Supreme Military Council (YAS) has turned into a trial of strength in the long-running feud between the staunchly secularist Turkish military and the ruling Justice and Development Party (AKP). Contrary to established practices, the government decided to make its weight felt in the promotions and appointments of the high-ranking military officers by rejecting the armed forces' candidate for the next land forces commander, General Hasan Igsiz. As a result, the top posts of chief of general staff and commander of land forces remain unfilled after four days of wrangling--an entirely unprecedented situation.
CANADA/OIL SANDS: Michigan spill & Keystone XL decision signal rising risks in Washington
3 August 2010: The Canadian oil sands are both a critical contributor to long-term US energy security and a growing target --increasingly the target-- for environmental groups promoting the off-oil agenda and energy transformation in the Obama administration and Congress. For the Obama administration, the balancing act between these two goals was already precarious, but become even more so following the 26 July oil spill in Michigan from a pipeline linking the Alberta oil sands to refining markets in Ontario. The primary signpost for Obama administration policy on the oil sands is the pending approval of the Keystone XL pipeline, which would connect Alberta to the US Gulf Coast refining corridor. On balance, the Administration will still likely approve the pipeline on the basis of energy security but the pressure to block it continues to grow on multiple fronts. Extended delays in approving the Keystone XL pipeline would be a significant setback for the oil sands and for longer-term non-OPEC production growth.
BRAZIL: If elected, Rousseff is poised to benefit from overarching congressional coalition
23 July 2010: Government candidate Dilma Rousseff is not only favored to win the October presidential election, but she is also poised to benefit from an overarching congressional coalition should she win. Our congressional projections suggest opposition parties are likely to lose ground in congress, particularly in the senate where they have held a stronger foothold and been able to delay or even thwart more controversial initiatives. As a result, if Rousseff wins the presidency she will have significant leeway to approve legislation in congress. The diminished size of the opposition also reduces the leverage that the PMDB, her largest ally, can exert over her administration and thus dictate appointments to key state-owned entities. If opposition candidate Jose Serra wins he will also be able to muster a majority coalition with centrist political parties who will ally with whoever wins office, but the growth of both the PT and leftist parties means he will have limited room to approve constitutional reforms.
SOUTH AFRICA/MINING: Interim agreement in iron ore price dispute eases short-term supply risks, but political risks persist
22 July 2010: The iron ore and steel sectors face serious medium-term political risks in South Africa, despite the government-brokered interim supply agreement on 22 July, which will avert major commercial disruption to steel production. Both parties to the commercial standoff--steelmaker ArcelorMittal South Africa (AMSA) and the Sishen Iron Ore Company (SIOC), controlled by AngloAmerican subsidiary Kumba Iron Ore--face considerable political risks in the months ahead. AMSA faces intensifying political pressure on its pricing regime, while Kumba remains embroiled in a murky mineral rights dispute over SIOC. The pending resolution of Kumba's dispute in particular will have a major impact on investor confidence in South African mining.
INDIA: Stormy parliament session ahead, but tax reforms will proceed
22 July 2010: In the month-long monsoon session of parliament between July 26 and August 27, a curious opposition alliance uniting India's right with its Communist left will focus on the problem of high inflation in an effort to embarrass the government. This will not derail the government's policy plans -- some reform bills will be put to a vote, particularly tax legislation. Other bills that will likely be introduced include a law to allow the introduction of national identity numbers as a first step to carefully target subsidies by reducing the scope for fraudulent claims. The contentious civil nuclear liability bill may also be voted on; however, the government is trying to build a consensus around the law which could delay consideration until winter unless the government aims to move it in time for President Obama's November 7 visit to India.