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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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The Middle East has demanded Washington’s attention on an almost weekly basis since President Biden took office in January. Since then, the White House has made the decision to speed up the withdrawal of U.S. troops from Afghanistan, has been faced with militia attacks in Iraq, Hamas attacks on Israel, the collapse of Lebanon, political instability in Jordan, OPEC issues, a political crisis in Tunisia, Houthi rejection of diplomacy in Yemen, Iran’s refusal to return to the nuclear deal, and most recently, attacks believed to be perpetrated by Iran against  tanker ships. This of course, is occurring as COVID continues to ravage regional economies and undermine the stability of fragile states. And let’s not forget that Al Qaeda and ISIS remain active throughout the region.

The Cipher Brief tapped Expert Norman Roule for insights into what all of this means for the Biden Administration and the rest of us in the coming months.

The Cipher Brief: Let’s start broadly.  The Biden Administration has had a lot to deal with in the Middle East since the president took office in January.  How are they doing?

Roule:  I think it’s too early to assesses the administration’s performance. The Biden administration arrived with several broad goals. It promised to reduce American military forces in the region, rely more on diplomacy and cooperation with Europe to resolve regional problems, and adjust relations with long-time regional partners like Israel and Saudi Arabia. But the challenges of the region are long-standing and routinely intrude upon Washington’s foreign policy agenda. And U.S. foreign policy in the Middle East has become a sharply partisan issue.

The administration’s response to events that have transpired in the region since the beginning of the year, has reassured those who looked for a greater emphasis on diplomacy. Washington assigned experienced envoys to contain multi-party issues and coordinated with Europe to limit U.S. involvement. The Secretary of State and his deputy have made high-profile visits to the region. The President has hosted such leaders as the King of Jordan and the Prime Minister of Iraq. And National Security Council engagement with Israel is routine. U.S. military shifts have taken place, but the administration still prioritizes security cooperation with regional partners. However, the U.S. withdrawal from Afghanistan is perceived by many as precipitous. Others worry that the U.S. has joined Europe in overlooking Iran’s attempts to change the political DNA of Iraq, Syria, and Yemen. The U.S. response to the Houthi’s use of Iran-supplied missiles and drones against civilian targets remains mainly rhetorical despite the lethal threat this poses to Saudis, Americans, and others living in the Kingdom.

The Cipher Brief:  That’s a sobering review. Is there any good news from the region for this administration?

Roule:  Actually, quite a bit. The administration has found that regional states will collaborate on complex issues beyond the region. Qatar plays a unique role in U.S. Afghan policy. The United Arab Emirates and Saudi Arabia are essential partners in resolving East African crises.

Regional leaders place great value on security cooperation as well as robust engagement with the U.S. private sector. Al-Qaeda and ISIS remain a threat, but at a fraction of their past potency.

Long-overdue political and economic reforms continue, albeit not at the pace or scale some Western observers seek. Saudi Arabia has introduced notable human rights reforms. A growing number of countries in the region have undertaken high-profile efforts to combat corruption and reshape their economies. Oman has begun the long road to restructuring its economy. Iraq and Libya remain intact despite their fractious polities.

I think the administration has also been impressed by the efforts of the Gulf states to diversify their economies, particularly in the area of green energy. The visits by U.S. Climate Envoy Secretary Kerry have been quite popular, probably more than some expected. I see plenty of momentum for growth here. 

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The Cipher Brief: The Iranian nuclear talks appear to have stalled. How did this happen? And what will it take for Iran to return to the deal?

Roule: Iran will return to the nuclear deal when it first believes it has wrung every concession out of the West in order to shield its economy from sanctions that could follow its non-nuclear aggression. It will also seek to ensure that it has fatally compromised the U.S. ability to reimpose sanctions within the nuclear deal itself. The Biden administration pledged a return to the deal as written, an end to the maximum pressure policy of its predecessor, and a rejection of regime change. More broadly, it also announced an intention to reduce the U.S. military presence in the region, a reassessment of Washington’s relationship with Israel and Saudi Arabia, and support for regional engagement with Iran. Some believe that the administration may even have turned a blind eye to Chinese purchases of Iranian oil as a signal to Tehran of Washington’s goodwill. If reasonable leaders ruled Iran, all of this should have produced an early return to the deal. But Iran’s leaders are rarely seen as reasonable. Iran could have chosen a fast return to the deal. Instead, it pushed for what all members of the P5+1 agree are unreasonable demands.

At this point, conditions aren’t favorable for an Iranian return to the deal in the near term. First, Tehran has pocketed all the benefits offered by the Biden administration’s initial approach without any concessions of its own.

We should also consider that Iran’s leaders may not want to return to the deal. Tehran’s primary goal in the 2015 nuclear deal was to obtain sanctions protections against the most vulnerable sectors of its economy in exchange for constraints on its civilian nuclear program. Tehran found that an end of nuclear sanctions did not solve the economic problems which produced domestic unrest, nor did the imposition of sanctions threaten the regime. Sanctions indeed constrained Iran’s ability to support proxies in the region, but even this was tolerable for the regime.

Next, Iran’s economy has stabilized somewhat in recent months. It remains in terrible shape but not so bad that the survival of the system is in question.

Last, we need to remember that Iran has historically offered concessions when confronted by a united international threat. Whatever your views on the nuclear deal, its very existence fragments international unity against Iran, which has always been a critical goal for Iran’s leaders. Support of the deal may bring us closer to Europe, Russia, and China but inevitably make regional partners believe we have ignored their valid security interests since there is little reason to believe Iran will moderate its non-nuclear behavior. Opposition to the nuclear talks may win support from Israel and Iran’s neighbors but it also invites friction with Europe, Russia, and China. These countries generally reject non-economic coercion against Iran and say relatively little about Iran’s regional adventurism.

The Cipher Brief: With a new president, will Iran’s new leadership continue to participate in the nuclear talks?  What will it take for Iran to return to the deal?

Roule: I believe Tehran will remain in the talks, but it will likely use the coming weeks to project defiance and even a willingness to walk away. The developing crisis over Iran’s naval attacks in the Arabian Sea may also postpone engagement. But for Iran, talks are a net positive. In addition to significant sanctions relief, the talks allow Iran – a mid-sized country – to routinely engage the attention of the world’s powers and play these actors against each other. This engagement also brings de facto recognition of the Raisi government, no small thing given his bloody background. The talks allow the Raisi government to argue directly with senior European counterparts that new sanctions for its many non-nuclear crimes would prevent it from returning to the nuclear deal. Last, the talks will give the Raisi government a platform for defiant rhetoric that will unsettle its adversaries and satisfy domestic supporters.

The Cipher Brief:  So, what circumstances would compel Iran to return to the deal?

Roule:  I can think of two paths that lead to an Iranian return once the new regime has vented defiant rhetoric. First, Tehran would need to believe that its rejection of the deal and malign regional actions had unified the international community to collectively support renewed economic pressure. Second, if Iran’s economy or political dynamic suffers a downturn that Tehran’s leaders perceive as leading to the downfall of the Islamic Republic. Either will need to include face-saving concessions.

The Cipher Brief: How should we look at current unrest in Iran?

Roule: The ongoing unrest shows no sign of being a near-term threat to the regime.  The crowd sizes appear manageable and anti-regime violence has so far been minimal. Security forces are relatively well organized and they are unsympathetic to protestors. The main weakness of protest remains that the opposition lacks direction, leadership, and support by labor groups. There appear to be no external or internal power centers capable of challenging the Supreme Leader.

We shouldn’t overlook the fact that many Iranians do support the regime. Despite a historically low turnout and Raisi’s admitted record of blood, eighteen million Iranians voted for him. It has become routine to see videos from Iran in which women argue that they cannot be forced to wear a hijab. But the same videos show other Iranian women (and men) asserting that failure to do so violates Iranian law and culture.

The current unrest did have aspects that likely worry Tehran. Oil workers put down their tools, and sympathy strikes reportedly erupted in major cities, albeit not on a scale that threatened the regime. The grievances of the Iranian people are so reasonable that they are increasingly acknowledged as such by government officials. But conditions in Iran are unlikely to improve. COVID continues to wreak havoc while climate change makes water and electricity shortages more painful. For these reasons, unrest will continue and probably intensify.

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Go beyond the headlines with expert perspectives on today’s news with The Cipher Brief’s Daily Open-Source Podcast.  Listen here or wherever you listen to podcasts.

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The Cipher Brief: What do you expect President Raisi to accomplish domestically, regionally, and internationally in his first 100 days in office?

Roule: Domestically, he will take steps to show how he will sustain Iran’s revolutionary spirit during what many believe to be a period of transition to a new generation of leaders. We will see this initially play out in his ministerial selections as part of a broader campaign to staff the bureaucracy with ideologically sound personnel, especially those with a background in the Revolutionary Guard. Security services and the military are very likely to see strong support. He will want to show that he is taking steps to address COVID and the economy. Programs directed at the poor are likely to be a priority, but he will have no sympathy for protestors. I wouldn’t be surprised if he announced an anti-corruption campaign and targeted members of the Rouhani administration for its initial investigations. We will also continue to see efforts to prepare Iran’s oil sector so that Tehran can quickly ramp up oil sales once sanctions end. Last, he is likely to support growing regime control of the internet. A bill calling for such control is currently before the parliament.

The Cipher Brief:  What about foreign policy?

Roule:  I don’t anticipate many changes in foreign policy. Raisi will mouth support for regional engagement but will maintain a defiant attitude towards the West, animus toward the U.S., support for proxies, and suspicion – but likely not rejection – of the nuclear talks. We need to be clear that he sees any sanctions relief as a transactional issue. Much as in 2015, Tehran will be clear that it will not allow a new deal to transform Iran’s society or its relations with the West.

The Cipher Brief: What are your thoughts on what would constitute an effective U.S. strategy to deter Iran’s regional activities, such as continued attacks on maritime trade, proxy support for attacks on Saudi Arabia, and activities in Yemen and Syria?  Can you imagine a scenario when the U.S. might engage militarily?

Roule: Our strategy must involve our international partners. We should avoid anything that makes it appear as if this is a U.S-Iran conflict instead of Iranian actions that threaten multiple countries and their citizens. The question becomes, will the international community join us or stand back while the U.S. takes the hard steps needed to contain Iran. Sanctions certainly deprive Iran of resources it would use for its proxies, but sanctions alone will not end Iran’s belligerence. The

The Cipher Brief:  What are Iran’s likely plans in Afghanistan in the wake of the U.S. withdrawal? What worries you the most?

Roule: There is plenty about Afghanistan to worry everyone, but I won’t dwell on the issues that are covered well in The Cipher Brief by others.  Iran has enjoyed the security stability that came with our presence. Now they have the Taliban on their border. Qods Force commander Esmail Qaani has considerable experience in Afghanistan. Iran’s security forces will likely engage the Taliban, Afghan governments, and warlords in equal measure to ensure that Iran can exert some influence over each. Iran is likely to transfer some portion of its Afghan proxies in Syria to western Afghanistan to protect Iran’s interests.

One issue that concerns me is the fate of the al-Qaeda cell in Iran. Tehran has enabled an Al-Qaeda presence on its territory for years without any international cost. That presence may well choose to migrate back to Afghanistan to reconstitute its former power center. The international community should hold Iran responsible if this happens. After all of the blood and treasure spent in the war on terror, we cannot tolerate Iran enabling al-Qaeda’s resurgence.

The Cipher Brief:  It feels like that would be an incredible regression.  Let’s shift to energy issues. Where do energy markets stand in the wake of the OPEC deal? And what do you think are the main drivers?

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Roule: Three baskets of drivers now define energy markets. First, the fundamentals. Here we are watching steady draws on stockpiles, production remains below what the market could absorb, and supplies will be tight for the remainder of the year. U.S. producers appear generally focused on return on equity vice expansion, which will likely mean that we will produce around two million BPD of oil less this year than last year. U.S. rig count is about double what it was a year ago at this time but is growing only slowly. It likely dropped slightly a week ago. Capital investment in the oil industry plummeted in 2020. Shareholders are pressing company leaders to use profits from restored oil prices to invest in green technology. OPEC policy remains conservative in the face of variables including; when Iran and Venezuela will resume production, the question of whether inflation has returned, and the impact of investor speculation.

Second, COVID is here to stay even in the best-case scenarios. The international community has failed to come close to a uniform approach to social distancing, travel, and economic reopening. We tend to look at this through a national perspective, but it may be insightful to look regionally to see how COVID-D shuts down specific industries as it spreads globally. Fresh COVID lockdowns in China have combined with signs of a decline in Chinese manufacturing to restrain prices.

Finally, geopolitical developments have generally had only a temporary impact on price pressures, but I worry about events in the Middle East. Expansion of Iranian attacks in strategic waterways with significant commercial and energy traffic may be more consequential. Insurance costs may increase for an industry with tight profit margins. Worse, attacks against only a few large container ships would disrupt global supply chains. We are moving into a new age when the importance of the Middle East may be as significant in terms of transportation security as it is in terms of energy.

The Cipher Brief:  So, let’s put you on the spot. What is your outlook for prices in the coming months?

Roule: Let me give this my best shot. Absent a sudden economic downturn, widespread COVID lockdowns, or conflict in the Middle East, we should see a continuation of the upward price velocity seen over recent months. This trend should sustain prices in the mid $70s and even low $80s. Several factors make upward movement beyond that problematic. First, OPEC leaders would be reluctant to invite the inflationary (and thus political) pressures such a spike would entail.  The Saudis will continue to push for market stability which dominates their strategy.  Second, India – and possibly China – would draw upon their strategic reserves if prices moved that high. Finally, such a price would draw out producers in the U.S. and OPEC + who would not be able to pass on a chance for a spike in revenue.

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The EU’s drug regulator has backed the emergency use of Merck’s pill for the treatment for clinically vulnerable Covid-19 patients as cases surge across the continent.

On Friday, the European Medicines Agency (EMA) “issued advice” backing the emergency use of the drug developed by Merck in collaboration with Ridgeback Biotherapeutics, although it has not yet been authorized by national authorities.

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In a statement, the drug regulator said the medicine called Lagevrio – also known as molnupiravir or MK 4482 – “can be used to treat adults with Covid-19 who do not require supplemental oxygen and who are at increased risk of developing severe Covid-19.”

It said the treatment should be administered as soon as possible after Covid-19 is diagnosed and within five days of the start of symptoms. The medicine should be taken twice a day for a period of five days.

The EMA listed the potential side effects of the capsules, including mild or moderate diarrhea, nausea, dizziness and headache. The treatment is not recommended for pregnant women.

The watchdog announced earlier on Friday that it had begun reviewing Pfizer’s medicine Paxlovid for Covid-19 with the same goal “to support national authorities” who may decide on its early use prior to marketing authorization in light of rising cases and deaths in Europe.

On Friday, Austria announced it would enter a new nationwide lockdown from Monday and make vaccination mandatory, while Germany’s health authorities claimed the country had turned into “one big outbreak.”

Both Pfizer and Merck have requested approval for their coronavirus medicines from the US Food and Drug Administration, but it is unclear when it might be granted.

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Amid a surge in Covid-19 cases, Gibraltar has canceled official Christmas events and “strongly” discouraged people from hosting private gatherings for four weeks. Gibraltar’s entire eligible population is vaccinated.

The government of Gibraltar recently announced that “official Christmas parties, official receptions and similar gatherings” have been canceled, and advised the public to avoid social events and parties for the next four weeks. Outdoor spaces are recommended over indoor ones, touching and hugging is discouraged, and mask wearing is advised.

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“The drastic increase in the numbers of people testing positive for Covid-19 in recent days is a stark reminder that the virus is still very prevalent in our community and that it is the responsibility of us all to take every reasonable precaution to protect ourselves and our loved ones,” Health Minister Samantha Sacramento said. 

Gibraltar, a tiny British Overseas Territory sharing a land border with Spain, has seen an average of 56 Covid-19 cases per day over the last seven days, up from fewer than 10 per day in September. The rise in cases, described by the government as “exponential,” comes despite Gibraltar having the highest vaccination rate in the world.

More than 118% of Gibraltar’s population are fully vaccinated against Covid-19, with this figure stretching beyond 100% due to doses given to Spaniards who cross the border to work or visit the territory every day. Masks are still required in shops and on public transport. 

The initial vaccine campaign on the British outpost came to a conclusion in early spring 2021, with a large proportion of the population fully inoculated against Covid-19. It became one of the first places in Europe to reduce restrictions following a winter of lockdowns, in what was dubbed ‘Operation Freedom’.

Gibraltar is currently doling out booster doses to the over-40s, healthcare workers, and other “vulnerable groups,” and administering vaccines to children aged between five and 12.

Similarly well-vaccinated countries have also reported surges in Covid-19 infections recently. In Singapore, where 94% of the eligible population have been inoculated, cases and deaths soared to record highs at the end of October, and have since subsided slightly. In Ireland, where around 92% of the adult population is fully vaccinated, cases of Covid-19 and deaths from the virus have roughly doubled since August.

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Once you’ve reached optimal cat lady status, there comes a time in your life where you think it’s necessary to start massaging your cat’s head. Luckily, someone has already created a cat head massager, and it is most likely the most specific niche product you could think of. You can get it on Amazon or AliExpress.

If your cat didn’t love you before, rest assured he will love you now. Your cat will be so thankful for the head massage that he might even ignore you for less time throughout the day, and if you’re really lucky, your cat may even acknowledge your existence. …Or you can use it on yourself if you have a particularly small head.

In case you feel like you should have this thing in your (and your cat’s) life, you can get it on Amazon or AliExpress.

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Behind the Headlines brings you expert perspectives on today’s headlines by telling you more than what happened, but also what it means.  You can also listen to The Cipher Brief’s Daily Open-Source Collection Podcast wherever you listen to podcasts.

Russia’s multi-pronged support of Myanmar is a microcosm of its strategy in Southeast Asia.

In the months since Myanmar’s February military coup, Russia and China have been the junta’s most powerful allies, but Russia has exploited regional instability to position itself as a third path between China and the West. While China was closer with the former Myanmar government than the military, it was also concerned about the government’s ties with the West and potential interference in its development efforts, particularly its Belt and Road Initiative. Russia, on the other hand, doesn’t depend on stability in Southeast Asia to the same degree as China and can instead take advantage of warring factions. Last month, on his first trip outside of the immediate region since February, Myanmar’s junta leader Min Aung Hlaing went to Moscow to meet with high-level Russian defense officials instead of heading to Beijing. Hlaing has reportedly visited Russia seven times within the past decade and previously stated that over 6,000 Myanmar officers have studied at Russian military academies. According to data from the Stockholm International Peace Research Institute (SIPRI), Russia was responsible for almost 40% of arms sales to Myanmar from 1999-2018, second only to China. SIPRI data further indicates that Russia has been Southeast Asia’s largest arms supplier over the past two decades, counting Vietnam and Laos as top customers. But Russia is offering the region more than arms and has promised Myanmar two million Covid-19 vaccines and assistance in the nation’s own vaccine production efforts. Russia has also been trying to expand free trade agreements between its Eurasian Economic Union (EAEU) and Southeast Asian countries, most recently getting Indonesia to sign on to the deal. Stepping even further into soft power efforts, last week Russia’s foreign minister met with his Bangladeshi counterpart and agreed to encourage Myanmar to engage in dialogue with Bangladesh on the Rohingya crisis.

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Leftist, former schoolteacher Pedro Castillo is declared President of a divided Peru, projected economic growth could play in his favor. 

Peru, like many of its neighbors, has been battling the triple and interwoven threat of Covid-19, social unrest, and severe economic downturn. But for the past several years Peru has also been challenged by sharp divisions between its executive and legislative powers. Last November, Peru’s unicameral legislature voted to impeach then-President Martín Vizcarra, citing mismanagement of the pandemic and corruption, in a move that outraged thousands. The June presidential elections were likewise fraught. Castillo’s right-wing rival Keiko Fujimori, who is also under investigation for corruption, alleged electoral fraud and the Peruvians initiated a six-week long investigation, eventually finding Castillo the rightful victor. The EU, U.S. and 14 electoral missions deemed the elections legitimate, and the U.S. called the election a “model of democracy” for the region. Castillo, who previously worked as an elementary school teacher and has never held public office, will be greeted by a political establishment that is almost entirely against him. Peruvian citizens are also deeply divided, and many urban elites reportedly moved their money overseas out of fear for Castillo’s economic policies. But Castillo’s Peru Libre party holds fewer than 40 of 130 seats in the legislature and Castillo has already recruited several moderate advisors. Further, he has backed away from talk of nationalizing Peru’s lucrative multinational mining, oil, gas, and hydrocarbon companies, instead pledging to raise taxes on mining firms. Prices of copper and gold, two of Peru’s most critical exports, remain high and Covid-related trade obstacles are expected to ease over the coming months. While it is uncertain how effective Castillo will be, or where he will ultimately fall on his policies, positive projections for Peru’s export-based economy will likely play in his favor.

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Enjin becomes first blockchain platform to gain acceptance into the United Nations Global Compact, signaling widespread range of corporate sustainability efforts.

On Tuesday, Enjin, an innovative blockchain technology company focused on non-fungible tokens (NFTs), became the first such company to join the United Nations Global Compact. Upon admission, Enjin stated that it hopes to use NFTs to promote sustainability and equality in line with the UN pact that encourages businesses and firms worldwide to adopt more environmentally friendly and socially responsible practices. NFTs have surged in popularity in the past two years, and during the first quarter of 2021 NFT sales reportedly exceeded US $2 billion. In essence, an NFT is a way to prove ownership of a unique virtual item. It’s a unit of data that’s stored on a blockchain, or digital ledger, that certifies exclusive ownership of digital files ranging from photos to sports trading cards. Enjin, which is headquartered in Singapore, has focused its NFT efforts on games and apps and is reportedly able to operate with a lower carbon footprint than Bitcoin due to a slimmed-down verification model that requires less energy. This week, the UN Global Compact not only included Enjin as a member, but gave the company its highest membership rank, sending a signal that it’s interested in promoting such an environmental effort by crypto and blockchain entrepreneurs. For its part, Enjin has stated that it wants to employ the technology in carbon capture companies, fighting climate change in the process. The Head of the UN AI and Robotics Center remarked that during the global struggle to recover from the pandemic we should take advantage of new technologies like AI and blockchain to better equip ourselves for the future.

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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.

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“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.

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People around the world will need to get a jab against Covid-19 once a year, at least when it comes to the Pfizer vaccine, BioNTech’s CEO Ugur Sahin said in an interview on Sunday, as he praised the quality of its booster shot.

In an interview with Germany’s Bild newspaper on Sunday, Sahin said he considers the vaccine, co-developed by his company, to be “very effective.”

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When asked whether people should be worried about the “breakthrough infections” – in which those vaccinated with the Pfizer-BioNTech vaccine still developed Covid-19 symptoms – he dismissed such concerns, saying that the jab offers a “90 percent protection” against cases that require intensive care in those aged over 60.

A “very high” level of protection against severe illness lasts for up to nine months, the BioNTech CEO maintained. He said this level starts decreasing “from the fourth month,” however. To maintain the protection, Sahin strongly pushed for booster shots, arguing that they would not just restore levels of antibodies but would potentially help “to break … chains of infection.”

He also encouraged doctors to be “as pragmatic as possible” when it comes to greenlighting vaccination and “not to send people home unvaccinated even though they could be vaccinated without any problems.”

In the future, people might need to get booster shots once a year, the BioNTech CEO believes. He said that he expects protection from a booster shot to “last longer” than the initial immunity one acquires after getting two doses of the vaccine.

“Subsequent … vaccinations may only be needed every year – just like [with] influenza,” he said. Currently, the German Federal Center for Health Education – an agency subordinated to the Health Ministry – recommends a booster shot six months after one gets the second dose of a vaccine. It also says that “booster vaccination makes sense after a minimum interval of about four months.”

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Sahin’s interview comes days after it was revealed that Pfizer, BioNTech and Moderna are making a combined profit of $65,000 every minute – all thanks to their Covid-19 jabs. That is according to estimates made by the People’s Vaccine Alliance (PVA) – a coalition demanding wider access to vaccines.

The PVA estimated that the three companies are to earn a total of $34 billion in combined pre-tax profits this year alone, which roughly translates into more than $1,000 a second and $93.5 million a day.

PVA has slammed the three companies over their refusal to allow vaccine technology transfer despite receiving a combined $8 billion in public funding. Such a move could increase global supply and save millions of lives as well as drive down prices, the coalition said.

“Pfizer, BioNTech and Moderna have used their monopolies to prioritize the most profitable contracts with the richest governments, leaving low-income countries out in the cold,” said Maaza Seyoum of the African Alliance and People’s Vaccine Alliance Africa.

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Just three days after restrictions were announced for unvaccinated Austrians, a provincial governor is pressing for a nationwide lockdown of all residents as Covid-19 infections continue to hit record highs.

“If no national lockdown is ordered tomorrow, there will definitely have to be a lockdown of several weeks in Upper Austria, together with our neighboring province Salzburg as of next week,” Upper Austria Governor Thomas Stelzer told lawmakers on Thursday.

That will mean at least two of Austria’s nine provinces will be in full lockdown mode just days after the nation created a two-tier society by locking down approximately two million unvaccinated Austrians.

“We must raise the vaccination rate. It is shamefully low,” Chancellor Alexander Schallenberg said on Sunday, announcing that unvaccinated residents would only be allowed to leave their homes for “essential” purposes, such as to buy groceries or go to a doctor’s office.

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Police are now doing random checks for proof of vaccination on Austrian streets. Those unvaccinated residents who are found to be in violation of the lockdown order face steep fines of up to €500. Those who refuse to go through a vaccination status check will have to pay about three times as much.

Stelzer and other Austrian governors are scheduled to meet with Schallenberg and Health Minister Wolfgang Mueckstein on Friday, when a full lockdown will likely be considered.

New Covid-19 cases in the country passed the 15,000 mark for the first time on Thursday, far surpassing 2020’s daily high of 9,586, set when no vaccines were available. Upper Austria and Salzburg have been hit the hardest, putting hospitals at risk of bed shortages. With some 66% of its population fully vaccinated, Austria lags behind other Western European countries in terms of the Covid-19 vaccination rate.

While Austria is the first to impose a lockdown on the unvaccinated, other EU countries – including Slovakia, the Czech Republic and Greece – have imposed increasingly tight restrictions on people who haven’t accepted a Covid vaccine.

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When you think the internet can’t get any more niche, it finds a way to get even more specific. We’re, of course, talking about an Instagram account @BagDogs that is solely dedicated to sharing people’s photos of dogs chilling in bags as they are being transported from point A to point B. Scroll down to see some of their best photos!

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