Right Scenario, Wrong Waterway

Over the past six weeks oil prices and their inextricable correlated dollar cousin have been allegedly responding to the reported threat of Iran’s interruption of the Straits of Hormuz. As tired as this war-game scenario is, for some inexplicable reason, it still seems to scare globally myopic investors into playing volatility games with currency and energy. Actually, the explicable part of the scenario is the timeless adherence by Evangelical Christians and their apocalyptic allies to manifest their desire to see certain horseman bridled for some prophetically mandated showdown in Israel. And given the number of Prince-of-Peace advocates who fantasize about the bloodbath orgy that will usher in their new earth – a fanaticism that cannot be discounted given how many prayer breakfasts portend would-be tactical launch code initiations – the relevance of the geography in the global economic scheme of things is correlated to religious blinded ‘gundamentalists’ (a term coined by my dear Egyptian friend Moustapha Sarhank). While I have long ago tired of trying to tackle this sociopathology, I find it amazing that the global markets are overlooking the true waterways that could truly disrupt global trade.

One of the most problematic contributors to global economic instability are marginalized – frequently financially disenfranchised – communities who, in desperation fueled by the world’s collective blindness to their plights, turn to asymmetric violence to gain recognition. And while the number of groups thus defined are too numerous to count as we continue to ignore ever widening swaths of humanity, there are a few geographies that, unless we awaken to their destitution in 2012, will be catalysts for epic instability in the near term. So, on this first day of the New Year, let me encourage you to wake up and at least figure out where these places are. Better yet, learn about the people that live in the vicinity and see what you can do to make a difference for them before they make an explosive difference for the world.

Somalia. Now if it weren’t for the collective intelligence and media co-opting during the Bush-Cheney regime, we would all be conversant about the increasing volatility coordinated by individuals – armed by Europeans, Russians, MENA interests, Asians and, yes, military suppliers from the U.S. – who have callously seen the starvation and torture of their fellow countrymen as expedient tactics to build allegiances built on terror aimed squarely at the base of Maslow’s hierarchy of human needs. Al-Shabaab and their extensive sectarian adherents and competitors continue to expand while we spent hundreds of billions chasing our Congressional and CIA-supported (yes, remember when we were arming ‘Freedom Fighters’ during the Soviet occupation of Afghanistan before they turned into modern-day, al-Qaeda militants) ‘enemies’ into the hinterlands of Pakistan, Afghanistan and countless other countries. Had we invested a bit in feeding Somalis and insuring that starvation caused by infrastructure failures wasn’t such an effective recruiting tool for militants, we could have lessened the risk now posed in the Indian Ocean and the Gulf of Aden. Rather than the Straits of Hormuz, the more relevant risk is expanded technical sophistication – proven in the successful U.S.S. Cole attack – in Yemeni and Somali operatives who, armed with unmanned undersea vehicles can disrupt 30% of global shipping and well over 50% of energy shipments from the Middle East. Do something as a blog reader? You bet. Look at who is arming the conflict and who’s benefiting from the East African instability – particularly the banks that are funding deals in the region and become a voice to inform your investment managers and your friends.

Indonesia, Malaysia, Singapore. No place in the world represents a greater single point failure than the Straits of Malacca. In the relatively accessible areas of the waterway – like Rupat, Alor Gajah, and Meral Tebing – well placed naval strikes could not only disrupt seafaring trade but could profoundly disrupt key economies that rely on transshipment – Malaysia and Singapore. Sinking freight ships or blowing up LNG or CNG vessels thereby creating massive kinetic and thermal damage would have a long-tail effect on the flow of trade into and out of the Bay of Bengal, the Gulf of Thailand and the South China Sea. While the security infrastructures of Singapore and Malaysia are acutely aware of these geopolitical risks, little is being done to address growing micro-insurgency in Indonesia and the growing ties between them and other disaffected groups. Once again, failure to address factors that contribute to recruitment now will spell disaster later. And since there’s no radio preacher in Virginia or Texas yapping about the return of a savior in this part of the world, we’re ignorant of issues impacting this region at our collective peril.

California. Whether it’s the unmanned subs transporting drugs from Mexico and Central and South America or the undetectable, anti-cavitation, silent propulsion subs owned by Pakistan and other nations within range of the Pacific, the West Coast of the U.S. is remarkably vulnerable. While we’ve focused unfathomable naval attention on the Middle East, we’ve largely ignored our vulnerability in Southern and Central California. Drug dealers can penetrate our defenses with narcotics and guns. It wouldn’t take much to have other payloads onboard and, for the right price everything from Long Beach to San Francisco is in range.

Our government – at every level – has demonstrated remarkable blindness to our real vulnerabilities. We’ve got more Achilles’ heels than we have feet which is not a good position in which to find ourselves. This leads me to my recommendation that we very publicly, very intentionally focus conversations and attention on matters that are camouflaged by 24-hour talking head media puppets of the regime. Companies are entering their season of Annual Meetings. They all ship goods and energy through the waterways of import. They all rely on goods and services that transship these regions. They all have supply chain vulnerabilities that are impacted in material ways by these issues. And you, some of whom are shareholders who get anonymous proxy statements and invitations to Annual Meetings can become active in asking the questions that we all ignore at our collective risk of great instability and destruction. The system isn’t too big to address. It just needs a few people with the courage to pose the question nobody is asking. Be one of those people. Understand the supply chain of the companies in which you’ve invested BEFORE you blindly return your pro forma proxy and ask questions about what your investments are doing to mitigate the human factors that, if ignored, will spell calamity for more than just the markets. In this New Year, make a resolution to be informed and act on that information. Maybe we can dodge the bullet meant for the Archduke Ferdinand. Look it up!


Images courtesy of Google Earth