War & Terrorism Update: The View from London

Posted by on January 17, 2013 | Be the First to Comment

The Political Violence market remains in a flat and stable state. Minor reductions are still being offered on the least exposed of risks, dependent on situation and occupancy, for the tightened coverage of Sabotage and Terrorism only. Higher rating continues to be realised on the broader cover in delicate and volatile countries for Full Political Violence.

Although not reported in the news on a regular daily basis as has been commonplace in recent months, the uprising in Syria continues to escalate, with the UN estimating that over 60,000 people have been killed. With no peaceful end in sight, more than 2,500,000 people have now been displaced from their homesteads, with humanitarian efforts to assist them being hindered by the dire risks being faced by the aid workers trying to secure safe passage for the Syrian people fleeing the hostilities.

The fighting in major cities such as Damascus, Homs and Aleppo continues unabated, where in almost 2 years of fighting in Syria, these cities in particular have seen intense conflict between Government and opposition forces, with neither side being able to force the other to retreat.

In other parts of the world on January 15th 2013 a powerful suicide car bomb struck the local headquarters for the party of a key Kurdish leader in the disputed Iraqi city of Kirkuk, killing at least four people and injuring dozens of others. The Kurdish Democratic Party is led by Massoud Barzani, the president of Iraq’s largely autonomous Kurdish region, who has frequently sparred with Iraq’s central governor in Baghdad. The blast comes amid rising tensions among Iraq’s ethnic and sectarian divide, between  Arabs, Kurds and Turkomen, who all have competing claims to the area which contains vast reserves of oil.

The ceasefire between Israel and Gaza continues but with periodical pockets of trouble erupting. In early January a 21 year old Palestinian was shot dead by Israeli troops while trying to cross the barrier near the Southern West Bank town of Dura. Israel maintains that the barrier is meant to protect it from militant attack. Palestinians regard it as a means to take land inside the West Bank.

Outside of the Middle East a roadside bomb killed 14 Pakistani soldiers and wounded 20 more in the troubled north-western province of North Waziristan, an area said to be a stronghold of Taliban militants. Pakistan’s tribal regions have long been used as bases by both local militants and al-Qaeda.

In Colombia Tarc rebels say that their ceasefire will end on Sunday 20th January, as peace talks with the Government of Colombia start up again.

The most recent news however, involves the taking hostage of several foreign nationals in a gas facility in Amenas, Algeria. The complex is operated by the Algerian state oil company, Sonatrach, along with BP and Norways’s Statol.

A heavily armed “terrorist group”  Belmohtar – the Khaled Abu al-Abbas brigade and the Signed-in-Blood Battalion are believed to be behind the kidnapping. However, al-Qaeda links are also said to be a possibility. Before the hostages were held in the east wing of the compound, the attackers ambushed a bus killing a Briton and an Algerian. UK Foreign Secretary William Hague confirmed the captives included “a number of British nationals”, adding that this was a “very dangerous situation and the UK Government was working around the clock to resolve the crisis.” As this Market Update was filed, there were further press reports of an escape and the numbers involved remain unclear, but some 30-40 Algerians and 15-20 foreign nationals are believed to have escaped.

In Africa, Mali is the latest failed state of choice for the discerning al-Qaeda terrorist subsidiary but (re)insurance markets are likely to escape the current turmoil largely unscathed since large corporations including a number of mining giants have previously announced  that they had no political risk cover in the region. In the long-term, however, Mali may offer cover and training to Islamist terrorist organizations in much the same way that Afghanistan did to Osama Bin-Laden. Mali will no doubt come under increasing scrutiny from national security establishments, assuming of course that France and her allies fail to drive al-Qaeda-linked groups out of the territory over the coming months.

Contact me for more information on the global War and Terrorism insurance market.

 

 

 
 

 

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Troubles Increase for Political Risk and Trade Credit in Argentina, Egypt and Spain

Posted by on May 2, 2012 | Be the First to Comment

Argentina

The Argentine government’s expropriation of YPF from the Repsol YPF joint venture with the Spain’s Repsol YPF SA is unprecedented for a G20 country member.  Several G20 members have stated their disagreement with the action of the government.  It is important to take a look as to the rationale for the government’s actions.

The Argentina economy has several significant headwinds. Argentina cannot access financials markets except at exorbitant rates due to the default history of the country.  The very high inflation level of the country roughly 25% exacerbates this difficult financing environment.     The response of the government has been to control the import and export of goods and currency transactions associated with those trades. The squeeze is on between the access to cash and credit and the cost of goods.    Currently wages are indexed to offset the inflationary environment, this is not sustainable if the economy continues to contract. 

The answer from the government on inflation in Argentina is to control costs by taking over the largest energy provider and control the price of energy.   The government’s chief economist, the man behind this strategy, is taking a page from Keynesian economics.  Argentina’s economy will suffer as credit is further closed off to those who wish to trade with Argentina.  The government’s attempts to control costs and reduce inflation without a real ability to impact monetary supply are insufficient.  Argentina needs to create a business friendly environment for GDP growth, not price growth.  Argentina’s best hope for that growth is focusing on its core export businesses.  At the end of the day, the YPF situation is all about politics.  Banks, credit insurers and political risk markets are closing off capacity in this country as result. 

Egypt

Egypt continues to lurch toward a new government, but this week the economic environment took a surprising turn.   Egypt’s interim military government has annulled a gas contract with Israel.  The Egyptian Natural Gas Holding Company (EGAS) has stopped transmission to Ampal-American Israel Corporation.  It remains to be seen the outcome of this decision.  The Egyptian side states this is a contract dispute due to payment issues, the Israeli side reports that the action was taken in bad faith.  Either way, it is a surprising move for an interim government to disrupt a long-standing agreement even if that agreement had many ongoing ‘disputes.’    All clients trading with state owned entities should pay heed, the political winds are beginning to blow and the outcome may not always be clear.  

Spain

 In my last update, I wrote about Spain’s ability to borrow at still reasonable levels (under 7%).  Today, Spain received a two-notch downgrade from S&P.   The markets did not even take it as blip, no movement.  Why should we worry? 

Spain is a massive economy, this is not Greece, this is one of the largest economies in the European Union.  Spanish companies and banks are core to the economy of the EU and the world. Furthermore, this downgrade came after the ECB’s LTRO was implemented, implying the safety net is not big enough.  Spain has several large global banks that support the growth in other Spanish speaking regions across Latin America.  

Spain has an unemployment rate of roughly 25%, if you look at those under 25 years of age the rate is astronomically higher.  The Spanish government has approved an austerity plan to address things.  Here is the problem; you cannot cut your way to growth, not in business or in governments.  Spain’s plan is reasonable, but it cannot generate the GDP growth and revenue income (taxes) to help the country in the near term avoid the abyss.  People without jobs don’t usually generate tax income for their government. 

What will happen remains to be seen. The EU partners and central bank will likely step in again but this round of liquidity will be tougher to generate.  Germany cannot politically or economically bail this country out on its own.  In fact, none of the EU members can bear this weight.  France is facing a new Socialist government who is not that enthused about helping the rest of Europe.   The key question is how much more will the German people, economy or government bear?   If the contagion spreads to France, the world feel the impacts globally as French banks that provide credit all over the world are impacted.  

So is the it the end of the world, as we know it?  Probably not, it will be a period for much of Europe to digest the over rich meal, pump in more liquidity and languish for another 12-36 months. Given the political environment, France may not be there for support and other key partners like the Netherlands are facing new governments.  It makes the US political gridlock seem like smooth sailing.  Hang on it is going to be a bumpy ride.

 

 

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