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An Argentinian woman has become the second-ever HIV-infected person whose immune system helped defeat the virus without requiring additional medical treatment. She was first diagnosed with the AIDS-causing infection in 2013.
Scientists have dubbed the 30-year-old mother the “Esperanza patient,” after her hometown. The word ‘esperanza’ translates to ‘hope’ in English. Publishing their findings in the Annals of Internal Medicine journal on Monday, the researchers said the discovery boosts hope for a “sterilizing cure” for the estimated 38 million people with the life-long infection.
“I enjoy being healthy,” the Esperanza patient told NBC News over email. “I have a healthy family. I don’t have to medicate, and I live as though nothing has happened. This already is a privilege.”
The study found no intact remnants of the virus in the 1.5 billion blood and tissue cells the researchers analyzed – confirming the discovery first announced in March at an international meeting of HIV experts.
No additional information about the woman has been made public, but she was described at the time as “athletic and beautiful” and revealed to have an HIV-negative boyfriend and newborn baby.
Only one other person, identified in August 2020 as 67-year-old Loreen Willenberg from San Francisco, has been confirmed to have overcome the virus without medical intervention. The two women have been labeled ‘elite controllers’, referring to a rare subset of HIV patients who show no signs of the infection despite not undergoing antiretroviral treatments.
Typically, an HIV-infected person requires constant drug therapy to prevent the virus from attaching to their immune cells’ DNA and replicating. But, in the eight years since she was diagnosed, the Esperanza patient only received medication for six months during pregnancy to ensure her baby would be healthy.
In all, there have been four patients cured of HIV, two of whom – the ‘Berlin patient’ Timothy Ray Brown and the ‘London patient’ Adam Castillejo – were also cancer patients who received risky bone marrow transplants from donors with HIV-resistant genes. However, the success of their procedures is yet to be replicated.
“This is really the miracle of the human immune system that did it,” Dr. Xu Yu, an immunologist at the Ragon Institute in Boston, who co-authored the study, told NBC.
The city council in Austria’s second-largest city, Graz, has elected a new mayor. Communist Party member Elke Kahr has become the first Communist leader of a major city in the country.
The 60-year-old politician, who has been working in the municipal government for more than 15 years and previously served as vice mayor of Graz, was elected as the new city leader on Wednesday. A member of the Austrian Communist Party (KPÖ, Kommunistische Partei Österreichs) for almost 30 years, she won the election with 28 of 46 votes. Kahr succeeded the previous long-standing mayor Siegfried Nagl of the center-right, liberal-conservative People’s Party.
“Who would have thought that the daughter of a locksmith, a Communist, would become mayor,” she said in her first speech following the vote.
Having acknowledged a number of issues to deal with in the city, especially during the Covid-19 pandemic, the new mayor highlighted a housing policy, pledging to put a stop to profit-driven construction in Ganz.
The Communists have also already formed a coalition with the Greens and the Social Democratic Party (SPÖ), and another precedent in European city governance was made – two women serving as mayor and deputy. Green leader Judith Schwentner was chosen as Graz’s vice mayor, with the new governing coalition saying they would support not only social, but also environmental changes, aiming to improve living standards especially for low-income groups. Providing a bicycle for every child in the city from the municipality is in their program.
However, not everyone in the local government is happy with the new Communist rule. A member of the right-wing Freedom Party of Austria (FPÖ), Alexis Pascuttini, described the choice as “unpleasant,” having accused the Graz Communists of empty catchphrases in their program and refusing to participate in what he described as “left-wing nonsense.” Kahr herself has been exposed to strong pressure to justify her party, being repeatedly asked about her position on “the crimes of communist parties around the world since 1917,” according to Austrian media.
A gunman injured two civilians, one of them fatally, and two police officers before being shot dead by security forces near Jerusalem’s Western Wall on Sunday morning, Israeli police said.
The civilian victims were taken to Shaare Zedek Medical Center. One, who was in his 30s, succumbed to his injuries at the hospital. The other, a 46-year-old, is said to have suffered moderate injuries. Two police officers were hurt by shrapnel.
Two civilians were critically and seriously wounded this morning, Sunday, and two policemen were lightly wounded in a shooting attack in the area of the Chain Gate near the Western Wall and the entrance to the Temple Mount. pic.twitter.com/MRN6MLckj3
In a video clip shared on social media and purportedly filmed at the scene, multiple gunshots could be heard amid agitated shouting. Security officers could then be seen standing around what appears to be a dead body. Witnesses speculated it was that of a “terrorist.”
Scenes and sounds of shooting in the Old City of Jerusalem captured on Live Cam. Initial reports are attack is near the Temple Mount area 2 Israelis wounded one apparently seriously the terrorist has been neutralised pic.twitter.com/UKWSOqCu8D
— ElBluemountain MossadDolphin 🇮🇱🐬🇮🇱🐬🇮🇱 (@EBluemountain1) November 21, 2021
The gunman, whose identity was not immediately disclosed, was killed during the incident. Police said he had used a homemade submachine gun.
(Editor’s Note: This article was first published by our friends at Just Security and is the fourth in a series that is diving into the foundational barriers to the broad integration of AI in the IC – culture, budget, acquisition, risk, and oversight. This article considers a new IC approach to risk management.)
OPINION — I have written previously that the Intelligence Community (IC) must rapidly advance its artificial intelligence (AI) capabilities to keep pace with our nation’s adversaries and continue to provide policymakers with accurate, timely, and exquisite insights. The good news is that there is strong bipartisan support for doing so. The not-so-good news is that the IC is not well-postured to move quickly and take the risks required to continue to outpace China and other strategic competitors over the next decade.
In addition to the practical budget and acquisition hurdles facing the IC, there is a strong cultural resistance to taking risks when not absolutely necessary. This is understandable given the life-and-death nature of intelligence work and the U.S. government’s imperative to wisely execute national security funds and activities. However, some risks related to innovative and cutting-edge technologies like AI are in fact necessary, and the risk of inaction – the costs of not pursuing AI capabilities – is greater than the risk of action.
The Need for a Risk Framework
For each incredible new invention, there are hundreds of brilliant ideas that have failed. To entrepreneurs and innovators, “failure” is not a bad word. Rather, failed ideas are often critical steps in the learning process that ultimately lead to a successful product; without those prior failed attempts, that final product might never be created. As former President of India A.P.J. Abdul Kalam once said, “FAIL” should really stand for “First Attempt In Learning.”
The U.S. government, however, is not Silicon Valley; it does not consider failure a useful part of any process, especially when it comes to national security activities and taxpayer dollars. Indeed, no one in the U.S. government wants to incur additional costs or delay or lose taxpayer dollars. But there is rarely a distinction made within the government between big failures, which may have a lasting, devastating, and even life-threatening impact, and small failures, which may be mere stumbling blocks with acceptable levels of impact that result in helpful course corrections.
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As a subcommittee report of the House Permanent Select Committee on Intelligence (HPSCI) notes “[p]rogram failures are often met with harsh penalties and very public rebukes from Congress which often fails to appreciate that not all failures are the same. Especially with cutting-edge research in technologies … early failures are a near certainty …. In fact, failing fast and adapting quickly is a critical part of innovation.” There is a vital difference between an innovative project that fails and a failure to innovate. The former teaches us something we did not know before, while the latter is a national security risk.
Faced with congressional hearings, inspector general reports, performance evaluation downgrades, negative reputational effects, and even personal liability, IC officers are understandably risk-averse and prefer not to introduce any new risk. That is, of course, neither realistic nor the standard the IC meets today. The IC is constantly managing a multitude of operational risks – that its officers, sources, or methods will be exposed, that it will miss (or misinterpret) indications of an attack, or that it will otherwise fail to produce the intelligence policymakers need at the right time and place. Yet in the face of such serious risks, the IC proactively and aggressively pursues its mission. It recognizes that it must find effective ways to understand, mitigate, and make decisions around risk, and therefore it takes action to make sure potential ramifications are clear, appropriate, and accepted before any failure occurs. In short, the IC has long known that its operations cannot be paralyzed by a zero-risk tolerance that is neither desirable nor attainable. This recognition must also be applied to the ways in which the IC acquires, develops, and uses new technology.
This is particularly important in the context of AI. While AI has made amazing progress in recent years, the underlying technology, the algorithms and their application, are still evolving and the resulting capabilities, by design, will continue to learn and adapt. AI holds enormous promise to transform a variety of IC missions and tasks, but how and when these changes may occur is difficult to forecast and AI’s constant innovation will introduce uncertainty and mistakes. There will be unexpected breakthroughs, as well as failures in areas that initially seemed promising.
The IC must rethink its willingness to take risks in a field where change and failure is embraced as part of the key to future success. The IC must experiment and iterate its progress over time and shift from a culture that punishes even reasonable risk to one that embraces, mitigates, and owns it. This can only be done with a systematic, repeatable, and consistent approach to making risk-conscious decisions.
Today there is no cross-IC mechanism for thinking about risk, let alone for taking it. When considering new activities or approaches, each IC element manages risk through its own lens and mechanisms, if at all. Several individual IC elements have created internal risk assessment frameworks to help officers understand the risks of both action and inaction, and to navigate the decisions they are empowered to make depending upon the circumstances. These frameworks increase confidence that if an activity goes wrong, supervisors all the way up the chain will provide backing as long as the risk was reasonable, well-considered and understood, and the right leaders approved it. And while risk assessments are often not precise instruments of measurement – they reflect the quality of the data, the varied expertise of those conducting the assessments, and the subjective interpretation of the results – regularized and systematic risk assessments are nevertheless a key part of effective risk management and facilitate decision-making at all levels.
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Creating these individual frameworks is commendable and leading-edge for government agencies, but more must be done holistically across the IC. Irregular and inconsistent risk assessments among IC elements will not provide the comfort and certainty needed to drive an IC-wide cultural shift to taking risk. At the same time, the unique nature of the IC, comprised of 18 different elements, each with similar and overlapping, but not identical, missions, roles, authorities, threats and vulnerabilities, does not lend itself to a one-size-fits-all approach.
For this reason, the IC needs a flexible but common strategic framework for considering risk that can apply across the community, with each element having the ability to tailor that framework to its own mission space. Such an approach is not unlike how the community is managed in many areas today – with overarching IC-wide policy that is locally interpreted and implemented to fit the specific needs of each IC element. When it comes to risk, creating an umbrella IC-wide framework will significantly improve the workforce’s ability to understand acceptable risks and tradeoffs, produce comprehensible and comparable risk determinations across the IC, and provide policymakers the ability to anticipate and mitigate failure and unintended escalation.
Critical Elements of a Risk Framework
A common IC AI risk framework should inform and help prioritize decisions from acquisition or development, to deployment, to performance in a consistent way across the IC. To start, the IC should create common AI risk management principles, like its existing principles of transparency and AI ethics, that include clear and consistent definitions, thresholds, and standards. These principles should drive a repeatable risk assessment process that each IC element can tailor to its individual needs, and should promote policy, governance, and technological approaches that are aligned to risk management.
The successful implementation of this risk framework requires a multi-disciplinary approach involving leaders from across the organization, experts from all relevant functional areas, and managers who can ensure vigilance in implementation. A whole-of-activity methodology that includes technologists, collectors, analysts, innovators, security officers, acquisition officers, lawyers and more, is critical to ensuring a full 360-degree understanding of the opportunities, issues, risks, and potential consequences associated with a particular action, and to enabling the best-informed decision.
Given the many players involved, each IC element must strengthen internal processes to manage the potential disconnects that can lead to unintended risks and to create a culture that instills in every officer a responsibility to proactively consider risk at each stage of the activity. Internal governance should include an interdisciplinary Risk Management Council (RMC) made up of senior leaders from across the organization. The RMC should establish clear and consistent thresholds for when a risk assessment is required, recommended, or not needed given that resource constraints likely will not allow all of the broad and diverse AI activities within organizations to be assessed. These thresholds should be consistent with the IC risk management principles so that as IC elements work together on projects across the community, officers have similar understandings and expectations.
The risk framework itself should provide a common taxonomy and process to:
Understand and identify potential failures, including the source, timeline, and range of effects.
Analyze failures and risks by identifying internal vulnerabilities or predisposing conditions that could increase the likelihood of adverse impact.
Evaluate the likelihood of failure, taking into consideration risks and vulnerabilities.
Assess the severity of the potential impact, to include potential harm to organizational operations, assets, individuals, other organizations, or the nation.
Consider whether the ultimate risk may be sufficiently mitigated or whether it should be transferred, avoided, or accepted.
AI-related risks may include, among other things, technology failure, biased data, adversarial attacks, supply chain compromises, human error, cost overruns, legal compliance challenges, or oversight issues.
An initial risk level is determined by considering the likelihood of a failure against the severity of the potential impact. For example, is there is a low, moderate, or high likelihood of supply chain compromise? Would such a compromise affect only one discrete system or are there system-wide implications? These calculations will result in an initial risk level. Then potential mitigation measures, such as additional policies, training, or security measures, are applied to lower the initial risk level to an adjusted risk level. For example, physically or logically segmenting an organization’s systems so that a compromise only touches one system would significantly decrease the risk level associated with that particular technology. The higher the likelihood of supply chain compromise, the lower the severity of its impact must be to offset the risk, and vice versa. Organizations should apply the Swiss Cheese Model of more than one preventative or mitigative action for a more effective layered defense. Organizations then must consider the adjusted risk level in relation to their tolerance for risk; how much risk (and potential consequence) is acceptable in pursuit of value? This requires defining the IC’s risk tolerance levels, within which IC elements may again define their own levels based upon their unique missions.
Understanding and considering the risk of action is an important step forward for the IC, but it is not the last step. Sometimes overlooked in risk assessment practices is the consideration of the risk of inaction. To fully evaluate potential options, decision-makers must consider whether the overall risk of doing something is outweighed by the risks of not doing it. If the IC does not pursue particular AI capabilities, what is the opportunity cost of that inaction? Any final determination about whether to take action must consider whether declining to act would cause greater risk of significant harm. While the answer will not always be yes, in the case of AI and emerging technology, it is a very realistic possibility.
And, finally, a risk framework only works if people know about it. Broad communication – about the existence of the framework, how to apply it, and expectations for doing so – is vital. We cannot hold people accountable for appropriately managing risk if we do not clearly and consistently communicate and help people use the structure and mechanisms for doing so.
Buy-in To Enhance Confidence
An IC-wide AI risk framework will help IC officers understand risks and determine when and how to take advantage of innovative emerging technologies like AI, increasing comfort with uncertainty and risk-taking in the pursuit of new capabilities. Such a risk framework will have even greater impact if it is accepted – explicitly or implicitly – by the IC’s congressional overseers. The final article in this series will delve more deeply into needed changes to further improve the crucial relationship between the IC and its congressional overseers. It will also provide a link to a full report that provides more detail on each aspect of the series, including a draft IC AI Risk Framework.
Although Congress is not formally bound by such a framework, given the significant accountability measures that often flow from these overseers, a meeting of the minds between the IC and its congressional overseers is critical. Indeed, these overseers should have awareness of and an informal ability to provide feedback into the framework as it is being developed. This level of transparency and partnership would lead to at least two important benefits: first, increased confidence in the framework by all; and second, better insight into IC decision-making for IC overseers.
Ultimately, such a mutual understanding would encourage exactly what the IC needs to truly take advantage of next-generation technology like AI: a culture of experimentation, innovation, and creativity that sees reasonable risk and failure as necessary steps to game-changing outcomes.
A Canadian teenager has been arrested after allegedly stealing $36.5 million in cryptocurrency from a person in the US. The police claim it was the largest such heist involving one victim ever registered in North America.
Police in the city of Hamilton, Ontario, arrested the unidentified perpetrator on Wednesday, after over a year investigating what they have described as the biggest-ever cryptocurrency theft from a single person in either the US or Canada. Local police began a joint investigation with the Federal Bureau of Investigation and the US Secret Service Electronic Crimes Task Force in March 2020, when the theft was reported.
The Hamilton Police Service said it had made “multiple” seizures in excess of CA$7 million (US$5.5 million) during the arrest, which came after investigators noticed some of the stolen money had been used to buy an online username considered “rare” in the gaming community, according to a police statement.
The victim was apparently targeted by a cell phone hijack known as SIM swapping. This method involves manipulating cellular network employees to duplicate phone numbers in order to let the scammer intercept the two-factor authorization requests that allow them access to a victim’s account.
This method is considered especially potent because a lot of people use the same password for multiple sites, according to Detective Constable Kenneth Kirkpatrick, of the Hamilton Police’s cybercrimes unit. He added that cyber and cryptocurrency crimes were becoming increasingly common, but noted that the figures involved in this case were “very surprising.”
“It’s a large amount of money in anybody’s opinion,” Kirkpatrick said, adding that the case was currently in the Hamilton court system.
The police haven’t revealed the age or gender of the youth, the username they purchased, or whether they were acting alone.
The annual migration of red crabs has brought traffic to a standstill on an Australian island. Apart from the epic journey, the species is also notorious for eating its own young.
Tens of millions of crustaceans are swarming Canberra-governed Christmas Island, which is almost a thousand miles northwest of the Australian mainland. Parks Australia, a government body in charge of wildlife conservation on the island, has deployed its staff to manage traffic, rake crabs off roads and provide advisories to local residents regarding road closures. Authorities are well-prepared to deal with the epic crab march as it repeats every year, usually in October and November. There are even special bridges and tunnels in place, built over and under busy roads so as to minimize the number of crabs crushed by cars. The sight of millions of these creatures making their perilous trek has become one of Christmas Island’s main tourist attractions.
The exact timing of the red crabs’ journey from forest to ocean is defined by rainfall and lunar phases. The march is led by male crabs, which are later joined by females. On reaching the ocean, they mate and spawn, with each female capable of producing as many as 100,000 eggs. However, most of the young crabs never make it back to the forest as they end up being eaten by fish and whale sharks for whom this is a veritable feast. To make matters worse, the crab larvae that do make it to the beach are often devoured by returning adult crabs of the very same species, hence one of their names – the cannibal crab.
Denmark’s air force showed off its brand-new electric-powered planes on Thursday, saying its test flights have so far proven that the cheaper-to-run, more eco-friendly technology has potential.
It had obtained the two Velis Electro jets from Slovenian manufacturer Pipistrel, becoming the first military in the world to operate this type of hardware.
“The aircraft are 100% emission-free, very quiet, and otherwise cheap to operate,” Lieutenant Colonel Casper Børge Nielsen of the Defense Ministry’s material and procurement agency said. Initial tests indicate “there may be perspectives in using electric aircraft when the technology becomes mature,” he added.
Denmark has leased the planes for two years, rather than buying it, to avoid the “risk of ending up with equipment that we can’t really use,” Børge Nielsen said. During the lease period, the Danish Air Force hopes to gain an insight into the benefits and disadvantages of the jets’ technology to decide how it can be applied in the future.
The pilots described flying the one-man light electric planes, which are powered by two lithium batteries, as “exciting,” saying they were “built well and fly well.”
Last year, the United States military said it had been keeping an eye on the development of electric-powered planes, describing their ability to approach targets silently as “tremendous.” However, their battery capacity isn’t currently sufficient to meet the US Air Force’s needs.
Work on electric aircraft has been underway since the 1970s, but the battery issue has been a stumbling block in the way of wider adoption of the technology. Global military interest could change all that, stimulating research and investment.
The switch to electric power is likely to be a win-win across the board, as it will drastically reduce CO2 emissions and also make flying much cheaper for commercial carriers and their passengers.
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The European Union’s top court has ruled that Hungary’s 2018 law aimed at criminalizing aiding illegal immigrants who are claiming asylum violates the “rights safeguarded” by the bloc’s legislature.
The Hungarian legislation, passed in 2018, sought to punish anyone “facilitating illegal immigration” with a year in prison, under a bill dubbed the “Stop Soros” law. Hungary’s government justified it at the time by arguing that migrants illegally entering the country threatened its national security.
In the ruling, handed down on Tuesday, the European Court of Justice declared that “criminalizing such activities impinges on the exercise of the rights safeguarded by the EU legislature in respect of the assistance of applicants for international protection.”
The EU’s advocate general, Athanasios Rantos, had urged the court to make such a judgement back in February, claiming the introduction of the legislation meant that “Hungary has failed to fulfil its obligations under the [bloc’s] Procedures Directive.”
It became known as the Stop Soros law after billionaire philanthropist George Soros became a vocal opponent of the Hungarian government’s opposition to migration. The administration, in turn, accused Soros of orchestrating migration to Europe, with the Open Society Foundation, run by the philanthropist, closing its operation in the country in response.
Hungary, under the leadership of right-wing Prime Minister Viktor Orban, has repeatedly clashed with the EU in recent years over its strong stance on immigration and concerns from the bloc about threats to the rule of law in the country.
At the end of 2020, a dispute between Hungary and Poland and the EU risked derailing the bloc’s budget, as both member states were threatening to veto it over their view that the EU was attempting to interfere in their domestic affairs. Ultimately, the EU backed down, agreeing to a compromise with Budapest and Warsaw to ensure the budget secured the support of all 27 member states.
Despite acknowledging the EU court’s ruling, Hungary’s government defended its right to challenge any foreign-funded non-government organizations that are attempting to “promote migration.”
“Hungary’s position on migration remains unchanged: Help should be taken where the problem is, instead of bringing the problem here,” Hungarian government spokesperson Zoltan Kovacs said, adding that the country will challenge outside entities “seeking to gain political influence and interference.”
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Colder weather is settling in around much of the globe and after a year and a half of managing a global pandemic, energy markets are more complicated than ever. The U.S. petroleum inventory is at its lowest level since 2015, the UK is experiencing a severe energy crisis, Russia continues to push Germany on the Nordstream II pipeline and winter has already come to China, which has experienced weeks of rolling blackouts. What does all of this mean as both state and non-state cyber actors continue to take aim at energy infrastructure?
The Cipher Brief spoke with energy expert Norm Roule, a top adviser on energy issues, to get a sense of where we’re headed.
Norman T. Roule served for 34-years in the Central Intelligence Agency, managing numerous programs relating to Iran and the Middle East. He served as the National Intelligence Manager for Iran (NIM-I) at the Office of the Director of National Intelligence from November 2008 until September 2017. As NIM-I, he was the principal Intelligence Community (IC) official responsible for overseeing all aspects of national intelligence policy and activities related to Iran, to include IC engagement on Iran issues with senior policy makers in the National Security Council and the Department of State.
The Cipher Brief: Give us a brief snapshot of the global energy market today and what you think we will see in the coming months.
Roule: The energy market is working through what will hopefully be the final phase of a perfect storm of market distortions ignited by the pandemic and influenced by shifts in capital markets and climate change initiatives. I say the final phase because most countries are returning to growth and pre-pandemic energy consumption. Most of the drivers of this final phase will likely push prices upward in the near term. A few involve long-known issues that are now coming into play. A few remain unpredictable. Ancillary industries that rely on oil, gas, or distillates as significant feedstocks will either raise prices or shift production to areas with less exposure to hydrocarbons. In short, in the coming weeks, consumers should expend to not only pay more at the gas pump but at the supermarket and mall. We are likely to see relief in the Spring as the pandemic and supply chain distortions wane, seasonal demands on oil and gas pass, and energy producers ramp up operations to exploit high prices. China’s economy also shows signs of slowing, and financial packages meant to jump-start global economies will run their course.
The Cipher Brief: Energy markets seem more complicated than ever. What are the primary variables at play?
Roule: Global oil consumption is now back to 100 million barrels per day, a statistic last seen when the pandemic hit. Production is up, but the most crucial trend in recent months has been the deep draw on the glut of oil stocks during the pandemic. Producers – especially OPEC – have constrained production to reflect their cautious approach to market stability and their desire to reduce the stockpiles accumulated during the pandemic. As a result, stocks are now lower than before the pandemic. If you exclude the strategic petroleum reserve, the U.S. petroleum inventory is at a level not seen since 2014-2015. Stockpiles at Cushing are at a similar level. U.S. gasoline stocks are around five million barrels below pre-pandemic seasonal averages.
U.S. producers have consolidated, and the industry prioritizes return on equity over expansion, particularly in a political environment that is increasingly hostile to hydrocarbon production. As a result, U.S. oil production is still about 1.7 million barrels a day below pre-pandemic levels. Add to this the push to reduce carbon emissions, gas supply cuts, and some supply chain distortions, and you get a surge in gas prices and a need for oil (and coal) to replace gas in electricity production, as we see in China.
The Cipher Brief: The administration seems to be blaming OPEC plus for high oil prices. What’s happening within the cartel? How does the cartel see the current energy market?
Roule: OPEC’s role in oil markets remains deeply significant. The cartel produces 40 percent of the world’s oil, but 60 percent of the world’s total traded exports. That inevitably gives it an important voice. It is also clear that OPEC+ leaders remain confident in their strategy to maintain market stability and benefit from prices that are not so high that they ignite demand destruction. OPEC discipline during this turbulent period has been quite good, especially given that it is far from a monolith of views and capabilities. For example, the UAE would likely support additional production. Moscow makes positive noises about its willingness to increase production, but it follows Riyadh’s lead for the revenue and political advantage it derives from the current market.
Riyadh remains the architect of OPEC’s approach. Kuwait and Baghdad seem comfortable with this strategy. Production restraint is made easier because about half of OPEC’s members reportedly are unable to meet production quotas due to technical problems, mismanagement, or a lack of capital investment. This list includes Angola, Gabon, Equatorial Guinea, Nigeria, Libya, and Venezuela.
OPEC decision-making likely rests on a handful of variables, some predictable, others not. The cartel has done well in its assessments of global recovery and pandemic impact. But questions remain on aviation recovery. Likewise, even their best analysts have a tough time predicting the impact of speculators, weather trends, and the future of sanctions on Iran and Venezuela. Riyadh and Abu Dhabi will do what they can to avoid the financial and political consequences of inflation and any energy-instigated recession.
The strains in US-Saudi relations appear to have undermined Riyadh’s sympathy for Washington’s challenges. The Saudis are tired of being a political target within the U.S. They also seem to believe that while the U.S. touts itself as being interested in only renewable energy sources, it has no problem criticizing the Kingdom when high gas prices become a political issue. Last, we should recall that it was only in May 2020 that a group of Republican Senators publicly called on Saudi Arabia, demanding that it stabilize the energy market. From Riyadh’s perspective, it has done precisely that.
The Cipher Brief: Are the Gulf oil producers serious about renewable energy?
Roule: Absolutely. Regional leaders certainly understand the consequences of climate change for their people. In recent years, the region has experienced some of the highest temperatures on record, causing concern that, if unchecked, the trend could make portions of the Middle East unlivable.
But their approach is different from ours and as we all know, Gulf economies rely heavily on revenues from hydrocarbons. To varying degrees, all the Gulf states are trying to diversify their economies. But they also want to avoid a situation in which they are stuck with stranded strategic assets. In the West, our climate narrative tends to focus on ending the use of hydrocarbons. As with Norway, Gulf producers claim that they will use the resources from their oil revenues to fund the transition to a new energy economy.
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Their focus tends to be a balance between a reduction of emissions and reduction of hydrocarbon use. Recent weeks have seen multiple significant events in the Gulf in which they tried to highlight their decision to expend resources and political bandwidth on green technologies, hydrogen production, and carbon capture solutions. We will also see increasing efforts to plant trees and to rely on natural gas instead of oil for power generation. They also claim they will try to end gas flaring and reduce methane emissions. I don’t think these efforts will satisfy Western environmental activists who demand an end to oil use, but the trend is undeniable.
The Cipher Brief: What is happening with U.S. oil and gas producers? How are they responding to changing conditions?
Roule: Much has changed in the last two years. First, the sector underwent significant consolidation. The larger publicly-held companies must satisfy investors and financial institutions with a steady return on equity over the growth. Washington has cooled on its support for the industry. The decision to kill the Keystone Pipeline and limit drilling on federal property has contributed to industry reluctance on expansion. Last, some investors are pushing for companies to devote more attention to renewable energy sources. During the pandemic, this reduced capital investment to about half of average expenditure, thus producing our current limited production capacity. U.S. rig count has significantly improved over the past year, but not on a scale that would return U.S. production to pre-pandemic levels. In the near term, smaller privately-held firms are likely to spend the resources to expand production with public firms following once they get a sense of what 2022 will bring.
The results speak for themselves. At the beginning of the pandemic, the U.S. produced around 12.8 million barrels of oil per day (BPD). By May 2020, production declined to 9.7 million BPD, and with recovery is now approximately 11.3 million BPD. We are once again a net importer, bringing in about 1.3 million BPD in October.
We have seen a broader recovery in gas production, particularly in Texas. But a lack of production, low stockpiles, and unprecedented demand from abroad means consumers will face high bills if winter is severe or the risk of short supplies. Beyond heating, gas-fired power plants produce more than 50% of New England’s electricity, for example, so that any price spike will play out elsewhere in the economy.
The Cipher Brief: Is there a policy response to this situation?
Roule: I think policymakers globally are praying for a mild winter. But beyond this, policy options are few in the near term. A release from the strategic petroleum reserve (SPR) is conceivable. Still, we should remember the SPR was established for national emergencies and not a piggy bank to manage gas prices in an election year. Domestic producers will take a while to ramp up production, but policymakers will find this tough to seek in the current political environment. The administration could ban oil and gas exports or allow Congress to pass legislation enabling the federal government to sue OPEC for its cartel activities. Either step would invite predictable and unwelcome diplomatic consequences.
Although the American public demands cheap energy, it isn’t enthusiastic about supporting the infrastructure needed to achieve this, even if the power is produced elsewhere. Let me cite a couple of recent examples:
• Maine voters just rejected the construction of a billion-dollar electric line that would have delivered Canadian hydro-power electricity to New England.
• The administration is wrestling with a decision as to whether it should shut a pipeline that carries crude oil from Canada to refineries across Wisconsin, Michigan, and the Great Lakes region.
If the administration hopes to convince OPEC members to increase production, it will improve relations with Gulf Arabs. It might be possible to convince Saudi Arabia, Kuwait, and the UAE to lift production to cover the exports of OPEC members unable to meet their production quotas. In an extreme situation, the administration might consider a temporary oil export waiver to Iran as a sign of goodwill. I think the political blowback on the latter rules it out, but the possibility is there.
The Cipher Brief:The United Kingdom seems to be working its way through a severe energy crisis. How did this happen, and what are its policymakers doing in response?
Roule: The United Kingdom’s energy challenge is significant. As with other countries, it faces consequences of production limitation and the need to turn to more climate-friendly energy sources.
A few basics. Gas produces about 40% of the country’s electricity and heats many of its homes. Once London could rely on the North Sea for its gas; it now imports about half of its gas requirements. Norway is its primary gas source, but it also depends on gas producers in the U.S., Russia, Qatar, Belgium, and the Netherlands. To add to its woes, the U.K.’s storage capacity would survive only a short period of peak consumption. In 2017, London closed a massive Rough, which accounted for 70% of the country’s entire gas storage system. At the time, London believed it could rely on the global LNG market for reliable and cheap gas. Unfortunately, most LNG tankers head to Asia, a trend that can only increase as power-hungry Asian countries wean themselves from coal and oil.
The exploitation of new energy sources in the U.K. is no less contentious than in the U.S. A good illustration of this would be the tussle over the development of the Cambo oil and gas field in the waters near Scotland. Opposed by environmentalists who cite the inevitable carbon emissions the project and its oil would produce, the project offers to ease London’s energy woes and provide around a thousand jobs. The Johnson government has yet to indicate whether it will approve the project.
London’s options are few and leaving the country reliant on market conditions means risking shortages. For this reason, it has reportedly asked Qatar to agree to become the “supplier of last resort” in case global suppliers are unavailable.
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The Cipher Brief:What’s the Russian angle to the energy story?
Roule: Upfront, I think we should worry whether Russia will perceive the energy crisis as offering an opportunity for aggression. What if Moscow decides its gas hold over Europe allows it to invade Ukraine without penalty? Or as a means of pushing German regulators to accelerate their approval of the Nordstream II pipeline?
Moscow insists that it is meeting contractual obligations and that its exports have increased in the past year. At the same time, there are routine reports that Russia’s gas supplies to Europe have not only not met requirements, but that gas flow reversed in the Yamal-Europe pipeline. Russia also maintains eight gas storage sites in Europe to help manage supply during high-demand periods. Gas levels at these sites are currently low. Critics claim Gazprom diverted production to Russian domestic storage and that exports in October fell to the lowest level since 2014. When pressed, Moscow explains shortages saying that it must fill its winter supply stocks and expects to send Europe additional gas this week.
But if the current energy dynamic seems to be in Russia’s interest, Moscow’s long-term prospects are dim. A global shift to renewable energy sources forces Moscow to reckon with the prospect of holding a massive oil infrastructure of little commercial value. If so, future historians may look at the recent Glasgow climate summit as a significant step in accelerating Russia’s decline, possibly a new era of aggression as it seeks to accumulate power ahead of this decline or a more competitive race for market share against OPEC members.
The Cipher Brief: What about China?
Roule: No major country has endured such energy problems in recent months as China. After weeks of rolling blackouts, China looks well on its way to solving its coal problems that partially contributed to this situation. That won’t delight environmentalists, but it should ease China’s electricity problems and ensure its citizens stay warm this winter. Winter arrived early, and Beijing is about to see its first snow of the season. China’s efforts will be put to the test in a winter that many expect to be colder than 2020.
Longer-term, China still must work through the causes of this crisis. If the global economy continues to surge demand for Chinese products, its energy requirements will grow. Weather problems cut wind production; floods shut mines. We shouldn’t be surprised if such problems continue. Inevitably, China can only meet its climate goals by shifting from coal to natural gas, raising prices for other consumers.
The Cipher Brief: Let’s shift to North Africa. Algeria recently closed a long-established pipeline that transited Morocco to deliver gas to Spain. Will this impact Europe’s already tight gas situation? What’s the story here?
Roule: Over the past year, Algerian relations with Morocco have steadily deteriorated. In addition to their traditional disagreement over the status of Western Sahara and the Polisario, Algiers criticized Morocco’s renewed ties with Israel and accused Rabat of supporting an opposition group that Algeria claims ignited forest fires. Algiers closed its airspace to Moroccan flights and accused Morocco of killing several Algerian citizens in the Sahara region.
Here’s how it touches the energy picture. On 31 October, Algiers closed an 800-mile pipeline that carried Algerian gas to Spain via Morocco and the Strait of Gibraltar. The closure cost Morocco a portion of the gas it used from the pipeline. Morocco used this gas to produce about a tenth of its electricity. Rabat claims it can use other energy sources for this purpose. However, Spain has little gas and derives a significant portion of its electricity from that which it must import. Algiers claims it will make up the loss through a secondary pipeline, but the loss of gas will compound the energy problems of Spain and Europe in general.
The Cipher Brief: Any other issues on the horizon we should consider?
Roule: A growing number of aging refineries in the West will be closed in the coming years. However, Asia is the new center for refinery construction. This expansion will draw even more crude to the region for processing with the inherent impact on local economies and global consumers.
The Cipher Brief: Last, let’s touch on wild cards. What are the grey swans that might impact markets in 2022?
Roule: With low stockpiles and supplies, the energy topography is ill-prepared to sudden shocks to its production or distribution architecture. Yet, it faces three threats that have grown in the last decade.
First, we have climate change issues. Increasingly harsh weather events have shut down large portions of the production and refinery sectors in the United States and Mexico, sometimes taking weeks to restore normal production. Second, we have the universe of cyber threats. State and non-state cyber actors routinely probe or attack every aspect of the energy industry. Last, we have new geopolitical pressures. Tensions are rising with China as well as Iran and its proxies. Three of the world’s six most significant shipping channels are in the Middle East and a fourth in Asia.
Join us for a Members Only Brief with Norm Roule on Thursday, November 18 at 1:30p. Cipher Brief Members receive invitations via email.
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