Beijing Blocks European Freight Alliance Out of Concern Over Pricing

        The WSJ reports,"China is flexing its growing power over global deals, after it put the kibosh on a shipping alliance that officials here said would hold too much sway over trade lanes to Europe.

Tuesday's decision by China's Ministry of Commerce came despite approvals for the shipping alliance in Europe and the U.S. It marks only the second time the Chinese regulator has stepped in to block a corporate combination since the country enacted its antitrust law in 2008".

In a statement on its website posted late Tuesday local time, the Commerce Ministry said it believed the proposed P3 alliance that would have included AP Møller-Mærsk A/S's Maersk Line, CMA CGM SA and Mediterranean Shipping Co. would control about 47% of the Asia-to-Europe container-shipping market. The parties, it said, "failed to demonstrate that the alliance would bring more benefit than harm or that it is in line with the public interest."

Ministry officials couldn't be reached late Tuesday.

China's ambition to have greater say in global pricing trends is one factor behind its increasingly expansive use of its antitrust laws. China is the world's largest trading nation in terms of imports and exports, making it a major customer for big shipping lines. It is the world's largest importer of copper, soybeans and iron ore, and it is challenging the U.S. as the world's largest importer of oil.

Chinese officials hadn't previously expressed any skepticism over the shipping deal, and industry officials widely expected Beijing to follow Washington and Brussels in approving it.

A person familiar with the matter said China COSCO Holdings Co. and China Shipping Container Lines,  two of China' biggest shipping companies, opposed the deal because of worry they would lose market share.

Both companies said on Tuesday they weren't involved in the Commerce Ministry's decision.

Zhang Shouguo, executive vice chairman of the China Shipowners' Association, which represents China's major shipping operators, said on Tuesday that the group had expressed concerns about the P3 alliance, which would have given "the world's top three container shipping operators a dominant position" in some of the world's major trade lanes.

Pricing can be a charged issue in China, which has sometimes seen bouts of steep inflation.

"Most other major economies rely much more broadly on the market mechanism for setting prices and allocating resources efficiently," said H. Stephen Harris Jr. , partner at Winston & Strawn LLP. China is moving toward market pricing but "they are doing it in lurches," he said.

Last year Beijing approved the $62 billion deal to combine mining companies Glencore and Xstrata only after Glencore agreed to divest a giant copper mine in Peru. The combined company this year agreed to sell it to a Chinese consortium for $5.8 billion. It also agreed to sell copper concentrate to Chinese customers at specified prices.

China's approach also reflects fundamental differences in its economy versus those in the U.S. and Europe, said Fay Zhou, a Beijing-based partner at law firm Linklaters LLP who formerly worked at the Commerce Ministry, or Mofcom. As well as a massive consumer, China is a major manufacturing and export hub, giving those industries and related government agencies added heft in antitrust discussions.

"China is a large market. It's natural that China may have different interests than other jurisdictions," Ms. Zhou said.

She added, "Mofcom is particularly sensitive to the opinions of the Chinese stakeholder."

That leads to extra scrutiny in fields like mobile devices, in which China is both a major manufacturer for many global players as well as home to a number of ambitious companies that sell their own brands.

Brent Crude Above US$ 113

Brent crude rose to a nine-month high as the U.S. weighed military options against Islamic militants in Iraq.

President Barack Obama told congressional leaders yesterday he will deploy as many as 275 U.S. troops to Iraq to protect the American embassy. He also opened the door to air strikes and increased military aid to help the Iraqi government defeat the Islamic State in Iraq and the Levant, or ISIL. West Texas Intermediate fell amid speculation recent gains were excessive as supplies remained near a seasonal record.

“It takes an extreme amount of fortitude to be able to sell this market right now,” said Stephen Schork, president of the Schork Group Inc. in Villanova,Pennsylvania. “One headline and this market could jump $3. Brent is much more vulnerable to geopolitical events than WTI.”

Brent for August settlement added 51 cents, or 0.5 percent, to $113.45 a barrel on the ICE Futures Europe exchange, the highest closing price for a front-month contract since Sept. 9. The volume of all futures traded was 17 percent above the 100-day average for the time of day.

WTI for July delivery dropped 54 cents, or 0.5 percent, to $106.36 a barrel on the New York Mercantile Exchange. The contract ended last week at $106.91, the highest since Sept. 18. Brent’s premium to WTI widened to $7.09 a barrel, the most since May 28.

Prices pared losses after the American Petroleum Institute was said to report that U.S. crude inventories dropped 5.7 million barrels last week, according to two people familiar with the report. Supplies at Cushing,Oklahoma, the delivery point for the Nymex contract, increased 255,000 barrels. The July contract was down 30 cents at $106.60 at 4:54 p.m. in electronic trading.

Islamic militants last night attacked a prison in Baquba, putting the city on the frontline of a Sunni guerrilla campaign that poses the gravest threat to Iraqi Prime Minister Nouri al-Maliki so far.

Brent gained 4.4 percent last week, the biggest weekly increase since July, as the unrest in Iraq fanned concern that supplies from OPEC’s second-largest producer may be disrupted. WTI climbed 4.1 percent, the most since December.

The nation’s oil output hasn’t been hurt by the violence, the International Energy Agency said today. Iraq’s oil exports from its southern terminals on the Persian Gulf are poised to surge, according to a preliminary loading plan obtained by Bloomberg News yesterday, at a time when fighting has plunged the north into chaos.

Basrah Light

Exports of Basrah Light crude, Iraq’s main grade, may reach about 2.8 million barrels a day next month. That’s 11 percent more than this year’s average and would be close to a three-decade high of 2.799 million barrels that Iraq said were exported from all its ports each day in February.

“At this moment, not a single barrel of oil has been displaced compared with the situation a week ago,” Maria van der Hoeven, executive director of the Paris-based International Energy Agency, said on a conference call today. “But of course we can see that the market is worrying.”

The fighting hasn’t spread to the south, which the U.S. Energy Information Administration says is home to three-quarters of Iraq’s crude output. Iraq pumped 3.3 million barrels a day of crude in May, second in the Organization of Petroleum Exporting Countries only to Saudi Arabia, according to data compiled by Bloomberg.

“What we know now on Iraq has already been taken into the price, so for a further rise there would need to be an escalation that affects supply,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by phone. “We are coming out of an overbought situation so there is a bit of market retracement.”

The EIA, the Energy Department’s statistical arm, will release its weekly petroleum data tomorrow. Crude inventories probably shrank by 750,000 barrels last week, according to the median projection of eight analysts surveyed by Bloomberg News. Supplies increased to a record 399.4 million in April.

Gasoline futures gained 1.93 cents, or 0.6 percent, to $3.0911 a gallon on the Nymex. Ultra-low sulfur diesel climbed 2.01 cents, or 0.7 percent, to $3.0180.

Source: Bloomberg

Oil majors cut staff in Iraq on fears violence will spread

 Some oil companies are pulling foreign staff from Iraq, fearing Sunni militants from the north could strike at major oilfields concentrated in the Shi'ite south despite moves by the Baghdad government to tighten security.

Iraqi officials say the southern regions that produce some 90 percent of the country's oil are completely safe from the Islamic State of Iraq and the Levant (ISIL), which has seized much of the north in a week as Baghdad's forces there collapsed.

The government says 100,000 police dedicated to protecting oil facilities are on high alert and well armed 

But oil firms are taking no chances with the foreign expert staff who could be prime targets for jihadists. And some importers of Iraqi oil are getting nervous about supplies.

"We are just very vigilant in Iraq. Non-essential production people have left, but operations continue," said Bob Dudley, chief executive at BP , a major investor in Iraq through the giant Rumaila field. He was speaking to reporters in Moscow.

Industry newsletter Iraq Oil Report said Exxon Mobil , which is developing another huge field, West Qurna 1, was also cutting staffing levels. Exxon declined comment.

In a mark of concern abroad, Turkey evacuated its consulate in the southern oil hub of Basra on Tuesday. [ID:nL5N0OY4HY]

Though the departure of foreigners would have only limited near-term impact on output, the risk of wider civil war - not restricted to attacks in the south by Sunnis but also a possible revival of friction among Shi'ite factions - could hit production and certainly hold back plans for expansion.


"PLAN B"

Russian firms said they were not reducing staff so far but were working on contingency plans.

At Gazprom Neft , first deputy head Vadim Yakovlev said of its work in the Badra field, on the Iranian border east of Baghdad: "Everything is going according to plan for now but we are working on plan B, including evacuation options."

China’s foreign ministry has advised citizens to avoid Iraq.

In India, which with China is the biggest importer of oil from OPEC's second largest producer after Saudi Arabia, an official said there were concerns about future Iraqi supplies.

The Indian oil ministry official said his department asked refiners to have alternatives: "They should have a contingency plan ready to avoid any supply disruption from Iraq," he said.

In 2013, Iraqi oil accounted for 14.5 percent of Indian needs [ID:nL3N0L13PV]. An official at an Indian refiner said he saw no supply problem at the moment and that Saudi Arabia and the United Arab Emirates could make up any future shortfall.

International oil executives note that their assets in Iraq are a long way from the seat of the troubles in the north: "The people we are dealing with appear to be very much in control of the oil communications that we have," said BP's Dudley.

Yet firms are well aware of the need for vigilance after attacks on facilities in various parts of the world, including one which killed dozens of workers at a BP gas plant deep in the Sahara desert 18 months ago. The speed with which ISIL fighters have routed Iraqi forces underlines their potential to surprise.

Almost all international oil majors work with Baghdad on joint projects including Exxon, BP, Royal Dutch/Shell , ENI , Gazprom Neft , Lukoil and Chinese firms.

Security sources working for the oil industry say companies will proceed with a full evacuation of the hundreds of foreign staff they employ in Iraq only if there is a major escalation of violence - such as a major attack in Baghdad or Basra.

"For each company, the triggers for evacuation are different," one security source said. "They analyse practicalities, how you get people out and how you make sure fields continue to operate, possibly even unmanned."

Basra, on the Gulf, has enormous strategic importance to Prime Minister Nuri al-Maliki's government as the hub for oil exports accounting for over 95 percent of government revenue.

It presents a tough and distant target for Sunni insurgents and saw relatively little of the sectarian violence of the past decade. It has seen bombings, however, including in the past year, and has also been a battleground for Maliki against opponents among fellow Shi'ites, notably during 2008.


RISKS TO PLANS

Iraq wants to double or even triple output from the current level of 3.2 million barrels per day by the end of this decade, but hopes that it will be able to achieve that are fading.

"The bigger question than the immediate threat to production is Iraq’s ability to meet the expectation to meet 60 percent of the world’s oil demand growth needs," said Majid Jafar, chief executive at Crescent Petroleum.

A Barclays research team noted that while oil firms have not yet seen a major impact on operations, oil service firms such as Baker Hughes and Schlumberger suspended work for a time last year after labour unrest.

"Activity is stable, though this area does not appear to be outside the reach of the insurgents given the periodic bombings in and around Basra in recent months," the Barclays team wrote.

The think-tank Energy Aspects said that the rate of activity was likely to slow due to workers being evacuated. Merrill Lynch said Iraqi oil output was unlikely to grow at all this year.

"The risk of a protracted civil war has become all too apparent," its analysts wrote. "Longer term, the risks have also risen as investment projects could be cancelled or delayed."

Source: Reuters

Foes of Canada's Pacific pipeline vow legal blitz

 Opponents of Enbridge Inc's proposed Northern Gateway crude oil pipeline are vowing to ramp up their legal challenge to the politically charged project if Canada lives up to expectations and approves its construction.

With a Tuesday deadline looming, Prime Minister Stephen Harper's Conservative government appears ready to bless the C$7.9 billion ($7.3 billion) project despite fierce resistance from aboriginals and environmental groups.

The pipeline would carry 525,000 barrels of crude a day from Alberta's landlocked oil sands to the Pacific Coast for export. While its capacity would represent a fraction of the 2.5 million barrels that flow each day to Canada's largest customer, the United States, Ottawa sees market diversification as crucial to the industry's long-term health and Canada's economic future.

But Harper may not have the final say. Approval will set the stage for a flood of lawsuits by opponents intent on stopping what they view as an environmental disaster in the making. A wave of protest marches and road blockages is also likely.

"We've been putting together a number of legal strategies," said Art Sterritt, head of the Coastal First Nations, an alliance of aboriginal groups in the Pacific Coast province of British Columbia. "The federal government will get a lesson in democracy if they try to bully their way through this province."

Litigation could hold up development for years, frustrating efforts by Canada's energy industry to ease its reliance on the United States, where a second pipeline project, Keystone XL, is also in jeopardy.

Even so, experts say lawsuits alone are unlikely to kill the project. As a best-case scenario, litigants may buy more time.

"With the challenges we are likely to see ... the best-case outcome for the First Nation litigants is having the matter sent back for further consultation and accommodation, essentially a delay of the project," said Gordon Christie, an aboriginal law expert at the University of British Columbia.

Politics in British Columbia could hold up Northern Gateway, as well, especially if opponents manage to put a referendum on the ballot. Such a vote, while nonbinding, could expose a lack of public support, making it politically difficult for the provincial government to allow the project to proceed.


BY THE LAW

Late last year a federal regulatory panel recommended that the Canadian government approve Northern Gateway despite a massive effort by First Nations and environmentalists to persuade the committee to take their side.

The recommendation resulted in five lawsuits, which the courts have put on hold until after the federal government's final decision, in order to allow for more potential claims. Opponents will likely file injunctions to halt work on the project until all legal actions are resolved.

While Canada's final decision is still pending, Greg Rickford, the federal resources minister, praised the regulator on Monday, saying the government is proud of its work. "Their decisions are driven by science and facts," he said.

After the government ruling, any new claimants will have to file within 15 to 30 days. The Federal Court of Appeal will then decide how to proceed with the cases, and the timetable for those hearings will depend on the number of cases and the complexity of each, said Karen Campbell, a lawyer at EcoJustice, a legal group whose clients are behind one of the existing lawsuits.

Experts say the process is likely to take at least a year, and some cases could end up at the Supreme Court of Canada, further delaying the outcome.

The five existing lawsuits, which seek to quash the regulatory panel's recommendation, focus on the shortcomings of documents studied by the panel and what the plaintiffs say is a lack of meaningful consultation with aboriginals.

Future cases will likely argue that the panel's report was deficient, making it illegal for the federal cabinet to approve the project, experts say.

If the court agrees with that argument, it could send the project back to the panel to reconsider the evidence and demand further consultation with aboriginal communities whose territory is in the pipeline's proposed path.

"In general, meaningful consultation means entering in the process with the expectation that you may have to change your project," said Julie Abouchar, a partner at Willms & Shier, an environmental law firm in Toronto.


FIVE CONDITIONS

British Columbia, which stands to derive just a fraction of the economic benefit of the pipeline while assuming much of the environmental risk, could also play a role in stalling the project by refusing to issue certain construction permits.

The province is officially opposed to Northern Gateway and Premier Christy Clark has set out five conditions that all oil pipelines in the province must meet, including world-class spill response and a bigger slice of economic benefits.

There are about 60 permits that the province must issue for construction, giving it some leeway to control the project.

Experts say Clark is unlikely to go back on her word, despite pressure from Alberta and the federal government. Still, opponents are readying a ballot initiative. In a similar, nonbinding vote held in the coastal town of Kitimat, which would be Northern Gateway's terminus, 58.4 percent of residents said

"no" to the pipeline and 41.6 percent said "yes."

Source: Reuters

Iraq's oil growth at risk as demand, for now, accelerates-IEA

Iraq's oil growth targets look increasingly at risk, the International Energy Agency said, as threats to supplies from political instability and violence grow just as demand is picking up due to a stronger global economy.

Iraq is the second-largest producer in OPEC and its northern
exports have been offline since March. OPEC output has also been hit by unrest in Libya, sanctions on Iran and oil theft in Nigeria.

"Within OPEC, Iraq remains the main source of most of the expected capacity growth, but this expansion looks increasingly at risk," Maria van der Hoeven, the IEA's executive director, wrote in the report's Foreword.

Still, the adviser to the United States and other industrialised countries also said in its Medium Term Oil Market Report on Tuesday that global growth in oil demand may start to slow down by the end of this decade due partly to high prices, and shale oil would start to spread outside the United States.

Oil prices jumped to almost $115 a barrel last week, the highest since September, as advances by Sunni insurgents in Iraq raised concern that more of the country's supply could be disrupted.

At present, the agency expects OPEC to increase its production capacity by 2.08 million barrels per day (bpd) - to 37.06 million bpd by 2019. More than 60 percent of the growth is expected to come from Iraq.

The report contrasts with the IEA's previous medium-term update in May 2013, which forecast U.S. shale oil would help meet most of the world's new oil demand, leaving little room for OPEC to lift output without risking lower prices.
Now, the IEA expects world oil demand in 2014 to average 92.76 million bpd, 960,000 bpd more than expected in May 2013. Global demand growth will accelerate to 1.42 million bpd next year from 1.32 million bpd in 2014, it said.

The Organization of the Petroleum Exporting Countries will need to pump more oil than expected in the previous medium-term report, the IEA said, raising its forecast of demand for OPEC crude plus inventories by 900,000 bpd to 30.1 million bpd in 2014.

"Oil markets are in many ways tighter today than they were at the onset of the U.S. shale and tight oil boom, and considerably tighter than they were a year ago," the IEA said.


WATCHING IRAQ CLOSELY

The Paris-based IEA also coordinates the use of strategic oil reserves held by its members in case of supply shocks.

Van der Hoeven said on a conference call the latest violence in Iraq had not cut its supply, although the agency was keeping an eye on developments there.

"We will continue to monitor the situation closely and keep in close touch with our members, ready to respond in the event of a major disruption in physical supplies of oil," she said. It last tapped the stocks in 2011 during the Libyan war.

In the report, the IEA cut its estimate of Iraq's oil production capacity growth by 470,000 bpd, and now expects capacity to reach 4.54 million bpd by 2019 - much lower than the Iraqi government's plan of up to 9 million bpd by 2020.

While highlighting production risks in OPEC, the IEA also said shale oil would make an impact outside the United States before the end of the decade, with 650,000 bpd of supplies coming by 2019 from Canada, Russia and Argentina.

But the IEA also questioned whether other countries looking to develop shale had the combination of above- and below-ground advantages that enabled the U.S. supply boom, and said that U.S. output growth would tail off.

Underlining the steady shift of oil demand growth to Asia, the IEA said China would overtake the United States as the world's top crude oil importer as soon as this year.

After 2015, the IEA sees a slowdown in global oil demand growth further down the road, citing environmental concerns and cheaper alternatives to oil.

"While 'peak demand' for oil, other than in mature economies, may still be many years away, peak oil demand growth for the market as a whole is already in sight," it said.

Iraqi Government Steps Up Efforts to Defend Baghdad

             The WSJ reports,"Iraq's government stepped up its defense of Baghdad on Tuesday, turning back a bid by Sunni militants to seize the heart of a strategic province north of the capital.

Fighters of the Islamic State of Iraq and al-Sham have been fighting to gain control of two major highways that lead from Sunni Muslim strongholds into Baghdad, where they have pledged to depose Iraqi Prime Minister Nouri al-Maliki and his Shiite-dominated government".

On Tuesday, however, forces loyal to Mr. Maliki repelled the militants' attempt to capture Baquba, the capital of Diyala province and 38 miles north of Baghdad.

At least 28 rebels were killed in an attack on the city's police station, said Abdul Amir Al Zaidi, head of the military command center in the province.

Government soldiers were moving through Baquba to root out ISIS fighters who had infiltrated the city, an Iraqi security source said.

Elsewhere in Iraq on Tuesday, government forces also were mounting an offensive to retake the strategic city of Tal Afar from ISIS militants.

ISIS fighters seized Tal Afar on Monday, as they continued their drive to link areas under their control on both sides of the Iraq-Syria frontier.

   U.N. Secretary-General Ban Ki-moon on Tuesday urged Mr. Maliki to start political negotiations with rival ethnic and religious groups with the aim of creating a national governing alliance.

Mr. Maliki, who has been Iraq's prime minister since 2006, has been accused of the minority Sunni and Kurdish politicians of furthering sectarian tensions in the nation by promoting hard-line Shiite politicians and military officers whose main credential is loyalty to him.

"The Iraqi government should have one state, whether it is Sunni, Shia or Kurds, they should be able to harmoniously live together," Mr. Moon said in Geneva.

In Ankara, Turkish Prime Minister Recep Tayyip Erdogan said that 80 Turkish diplomatic personnel taken hostage last week in Mosul were safe and that the Foreign Ministry was watching their situation closely and in contact with "all involved parties." The hostages were being held in an unknown location by ISIS fighters, Mr. Erdogan said.

Also on Tuesday, a criminal court in Ankara ordered a ban on all news reports and photographs regarding the hostage crisis, which brought withering criticism on the government from opposition parties less than two months from Turkey's critical presidential elections.

The decision, which bans all news material regarding the crisis in print, on television or the Internet, was taken to protect the safety of the hostages, the state-run Anadolu news agency said.

Consumer Prices in U.S. Increase by Most in More Than a Year

The cost of living in the U.S. rose more than forecast in May, reflecting broad-based gains that signal inflation will move closer to the Federal Reserve’s goal.

The consumer price index increased 0.4 percent, the biggest advance since February 2013, after climbing 0.3 percent the prior month, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.2 percent increase. Excluding volatile food and energy prices, the gain was the largest in almost three years.

A pickup in inflation lessens the threat of a prolonged drop in prices that hurts economic growth, giving Fed officials reason to continue to scale back their unprecedented bond-buying program. Continued hiring and faster wage gains will be needed to boost demand and enable consumers to cope with higher prices.

Costs rose 2.1 percent over the past 12 months, the most since October 2012, after a 2 percent year-over-year gain in April.

Another report today showed builders broke ground on 1 million homes in May, indicating the industry is picking up this quarter after a weather-induced slump to start the year.

The number of housing starts last month was in line with the median forecast of economists surveyed by Bloomberg and followed April’s 1.07 million annualized rate that was the most since November, according to figures from the Commerce Department. Permits, a proxy for future construction, decreased, reflecting a decline in the volatile multifamily category.

The Labor Department’s inflation report showed that stripping out volatile food and fuel, the so-called core measure increased 0.3 percent, the most since August 2011, and following a 0.2 percent gain the prior month. Economists had forecast a 0.2 percent advance, according to the survey median.

Source: Bloomberg

Iraq's Maliki defies call to reach out, accuses Saudis of "genocide"

 Iraq's Shi'ite rulers defied Western calls on Tuesday to reach out to Sunnis to defuse the uprising in the north of the country, declaring a boycott of Iraq's main Sunni political bloc and accusing Sunni power Saudi Arabia of promoting "genocide".

Washington has made clear it wants Prime Minister Nuri al-Maliki to embrace Sunni politicians as a condition of U.S. support to fight a lightning advance by forces from the Islamic State of Iraq and the Levant.

But the Shi'ite prime minister has moved in the opposite direction, announcing a crackdown on politicians and officers he considers "traitors" and lashing out at neighbouring Sunni countries for stoking militancy.

The latest target of his government's fury was Saudi Arabia, the main Sunni power in the Gulf, which funds Sunni militants in neighbouring Syria but denies it is behind ISIL.

"We hold them responsible for supporting these groups financially and morally, and for the outcome of that - which includes crimes that may qualify as genocide: the spilling of Iraqi blood, the destruction of Iraqi state institutions and historic and religious sites," the Iraqi government said of Riyadh in a statement.

Maliki has blamed Saudi Arabia for supporting militants in the past, but the severe language was unprecedented. On Monday Riyadh blamed sectarianism in Baghdad for fuelling the violence.

In the latest bloodshed, scores of Iraqis were killed on Tuesday during a battle for a provincial capital, and fighting shut the country's biggest oil refinery, starving parts of the country of fuel and power.

Government forces said they repelled an attempt by insurgents to seize Baquba, capital of Diyala province north of Baghdad, in fighting overnight. Some residents and officials said the dead included scores of prisoners from the local jail. There were conflicting accounts of how they had died.

ISIL fighters who aim to build a Caliphate based on mediaeval Sunni precepts across the Iraqi-Syrian frontier launched their revolt by seizing the north's main city, Mosul, last week and swept through the Tigris valley towards Baghdad.

The fighters, who consider all Shi'ites to be heretics deserving death, pride themselves on their brutality and have boasted of massacring hundreds of troops who surrendered.

Most Iraqi Sunnis abhor such violence, but nevertheless the ISIL-led uprising has been joined by other Sunni factions, including former members of ousted dictator Saddam Hussein's Baath Party and tribal figures, who share widespread anger at perceived oppression by Maliki's government.

Western countries, including the United States, have urged Maliki to reach out to Sunnis to rebuild national unity as the only way of preventing the disintegration of Iraq.

"There is a real risk of further sectarian violence on a massive scale, within Iraq and beyond its borders," U.N. Secretary-General Ban Ki-moon said on Tuesday. "I have been urging Iraqi government leaders including Prime Minister al-Maliki to reach out for an inclusive dialogue and solution of this issue."

But the long-serving prime minister, who won an election two months ago, seems instead to be relying more heavily than ever on his own sect, who form the majority in Iraq.

Hassan Suneid, a close Maliki ally, said on Tuesday the governing Shi'ite National Alliance should boycott all work with the largest Sunni political bloc, Mutahidoon.

"It is not possible for any bloc inside the National Alliance to work with Mutahidoon bloc due to its latest sectarian attitude," he told a TV channel of Maliki's party.


SCRAMBLING ALLIANCES

The sudden advance by Sunni insurgents has the potential to scramble alliances in the Middle East, with the United States and Iran both saying they could cooperate against a common enemy, all but unprecedented since the 1979 Iranian revolution.

Iran, the leading Shi'ite power, has close ties to Maliki and the Shi'ite parties that have held power in Baghdad since U.S. forces toppled Saddam Hussein in 2003. But although both Washington and Tehran are close allies of Baghdad, they have not cooperated in the past.

In a diplomatic rapprochement, U.S. ally Britain said it planned to reopen its embassy in Tehran, two and a half years after a mob ransacked the mission. [ID:nL5N0OY2BA]

U.S. officials say they could discuss Iraq with Iranians on the sidelines of nuclear talks in Vienna this week.

President Barack Obama, under fire at home by critics who say he did too little to shore up Iraq since withdrawing U.S. troops in 2011, is considering options for military action such as air strikes. He has sent a small number of extra marines to guard the U.S. embassy but has ruled out redeploying troops.

"The president will continue to consult with his national security team in the days to come," the White House said, without elaborating. A senior U.S. official said Obama had not yet decided on a course of action.


REFINERY SHUT

Iraqi officials confirmed that the Baiji refinery north of Baghdad had shut down, although they said government troops still held the vast compound. Foreign workers were evacuated by Iraqi government helicopters.

With the refinery shut, Iraq will have difficulty generating electricity and pumping water to sustain its cities in summer. There were already reports of queues for fuel in the north.

During the U.S. occupation, the refinery stayed open, and the threat to it shows how much more vulnerable Iraq is now to insurgents than it was before Washington pulled out troops.

Tens of thousands of Shi'ites have rallied at volunteer centres in recent days, answering a call by the top Shi'ite cleric to defend the nation. Many recruits have gone off to train at Iraqi military bases.

But with the million-strong regular army abandoning ground despite being armed and trained by the United States at a cost of $25 billion, the government is increasingly relying on extra-legal Shi'ite militia to fight on its behalf, re-establishing groups that fought during the 2006-2007 bloodletting.

According to one Shi'ite Islamist working in the government, well-trained fighters from the Shi'ite organisations Asaib Ahl Haq, Khetaeb Hezbollah and the Badr Organisation are now being deployed as the main combat force, while new civilian volunteers will be used to hold ground after it is taken.

The Sunni militants have moved at lightning speed since seizing Mosul last Tuesday, slicing through northern and central Iraq, capturing the towns of Hawija and Tikrit in the north before facing resistance in southern Salahuddin province, where there is a large Shi’ite population.

The battle lines are now formalising, with the insurgents held at bay about an hour's drive north of Baghdad and just on the capital's outskirts to the west.

State television said Iraqi security forces repelled attacks on three neighbourhoods overnight in Baquba, capital of Diyala, an ethnically and religiously mixed province that saw some of the worst violence of the 2003-2011 U.S. occupation.

Militants also attacked a northern Iraqi village, called Basher, 15 km (9 miles) south of Kirkuk, inhabited by Shi'ite ethnic Turkmen. They were repelled, police said.

Kirkuk itself has been taken by forces from the autonomous Kurdish region. In a further sign of ethnic and sectarian polarisation, Maliki allies have accused the Kurds of colluding with Sunnis to dislodge government forces in the north.

The mainly Turkmen city of Tal Afar, west of Mosul, fell to Sunni militants late on Sunday, and the Iraqi military said it was sending reinforcement there. The Iraqi army said on state television it had killed a top militant, named Abu Abdul Rahman al-Muhajir, in Mosul in clashes.

But security officials seemed pessimistic about the situation in Mosul. One Iraqi security officer warned: "There is no clear strategy for the Iraqi government to retake Mosul. And without the US and international community support, the Iraqi government will never retake Mosul."

Source: Reuters

U.S. Housing Data for May 2014

Ukrainian President to Unveil Peace Plan to End Fighting in Eastern Ukraine

     The WSJ reports,"Ukrainian President Petro Poroshenko said Monday that he would unveil a detailed peace plan in the coming days to end fighting with separatists in the east and that a cease-fire could be achieved as early as this week, despite continuing clashes.

Mr. Poroshenko laid out the broad outlines of the peace plan during his inauguration this month, saying he was willing to negotiate and offer an amnesty to fighters who didn't have "blood on their hands." The remarks appeared to backtrack from his call following his May election victory for an accelerated military operation to stamp out the pro-Russia rebellion".

"But the president said that a cease-fire could happen only after Ukraine regains full control of its Russian border, of which the separatists now control wide stretches in the Donetsk and Luhansk regions. Ukraine has accused Russia of allowing arms and fighters to cross the boundary unhindered. Last week, Kiev and the U.S. said they had fresh evidence the Kremlin had armed fighters with tanks and heavy weapons".

"As soon as the border is secured, we shall be able to declare a cease-fire straight away. Declaring a cease-fire now with an open border is irresponsible given the situation that exists in Donetsk and Luhansk," Mr. Poroshenko said at a meeting of Ukraine's National Security and Defense Council.

He said the length of any cease-fire would be limited and the immediate goal would be to guarantee the safety of people living in the separatist-controlled regions and stop looting there. Afterward, the focus would be on disarmament and sorting out an amnesty for those who haven't committed "egregious crimes."

The council's secretary, Andriy Parubiy, said earlier Monday that there are now up to 20,000 separatist fighters in the region and that more than half of them had come from Russia. He also said there were signs that Russian soldiers—whom Russian President Vladimir Putin had ordered back to their bases from the border last month—were returning to their positions along the frontier.

A military spokesman for the North Atlantic Treaty Organization said while there are signs of Russian troop movement on a regular basis, there was no evidence yet of a substantial build up on the border. Russia had stationed an estimated 40,000 soldiers along the border following the ouster of Ukraine's then-President Viktor Yanukovych in February. But NATO says the vast majority appear to have pulled back.

The Organization for Security and Cooperation in Europe said Monday that fighting in eastern Ukraine has damaged a key water pumping station outside the regional capital of Donetsk, threatening water supplies to four million people.

China lowers US debt for third straight month

China cut its holdings of United States government debt in April for the third straight month, which may reflect a continuing move from US assets, according to an analyst.

China, the largest foreign holder of US Treasuries, held $1.26 trillion in US debt as of April, down $8.9 billion from the previous month and below the $1.27 trillion mark for the first time since August 2013, the US Treasury Department said Monday in a monthly report. China's holdings hit a high of $1.317 trillion in November.

Kent Troutman, a research analyst at the Washington-based Peterson Institute for International Economics (PIIE), said the decreases each month could be due to benign shifts in the portfolio.

"April is the first month where there is a larger decrease, but it is still small. What is worth noting, however, is that, even if China's holdings of US Treasuries are flat, its share of overall foreign exchange reserves is declining," Troutman wrote Monday in an email to China Daily.

"What we've seen in the past four months, if we accept that the data accurately reflects China's true holdings of US assets, is the continuation of a shift that began in 2010 of diversifying their portfolio away from US assets," he said.

Japan remained the second-largest US creditor in April, increasing its debt securities by $9.5 billion to $1.21 trillion.

Foreign demand for US assets strengthened as net foreign purchases of long-term securities totaled $24.2 billion in April, compared to purchases of $4 billion in March, the data showed.

The Treasury's monthly release of its Treasury International Capital (TIC) data details foreign ownership of US securities. For transactions and banking data, there is a 1.5 month lag between the release and the as-of date.

Marc Chandler, Global Head of Markets Strategy at Brown Brothers Harriman & Co, a New York-based investment bank and securities firm, said that though there are limits on the accuracy of TIC data, it still provides an "authoritative source" on the domestic and foreign holdings of US securities.

"Some people want to initiate policy based on the TIC data, and maybe you don't want to bet the farm on it," Chandler said Monday in an interview with China Daily. "There are definitely limits on the framework and methodology, but it's the best source we have."

Chandler, who also serves as a contributing writer for Seeking Alpha, a leading online investment research platform, said he does not put too much stock in April's "minor" decline in China's holdings of US securities because there's not enough information to contextualize the drop.

"It is interesting to note that China is still the world's largest holder of Treasury bonds," he said Monday in an interview with China Daily. And despite the lowered Chinese holdings, it did not prevent the US bond market from continuing to rally."

"Right now, Chinese banks are some of the biggest in the world, so maybe they'd want to move away from relying on foreign banks for their commercial transactions," Chandler said.

The last decline of China's Treasury holdings that exceeded three months came in the final five months of 2011, according to a June 16 report by Bloomberg News.

Source: ChinaDaily USA

US should 'attune itself to China's rise'

Singapore FM says two nations must establish an 'accommodation'

The United States must understand and accept that China's rise is inevitable, and both countries, one an established and the other an emerging power, must find an accommodation, Singaporean Minister for Foreign Affairs and Law K. Shanmugam said.

Shanmugam, who has just concluded a visit to China, was interviewed by China Daily in Beijing on Thursday.

History has a number of examples where this type of accommodation has failed to materialize and led to catastrophic consequences.

So the big question is what sort of accommodation can China and the US establish, Shanmugam said.

His comments came as Washington's Asia pivot and China's growing clout in the Asia-Pacific region have resulted in increased regional tension, with countries in the region expressing growing concern about stability.

During the Shangri-La security dialogue in May, a "war of words" erupted between China, the US and other nations with competing maritime claims.

As an Asian country with long-established contacts with the West, Singapore feels it is able to utilize its unique position and act as a bridge for countries in and outside the region.

Calling Singapore a friend of China, Shanmugam said China should try various routes to address issues relating to other countries, while outsiders must realize the huge domestic challenges it faces.

China now faces an aging society, the underdeveloped western region and income disparity, and sovereignty issues that cannot be compromised.

"China doesn't seek or want a troublesome external environment. So how do you make sure it's not troublesome? It is going to require wisdom, tact and diplomacy," Shanmugam said.

The Asia-Pacific region, while becoming the world's economic engine, is seeing profound geopolitical changes. In addition to the impact of the US Asia-pivot policy, Japan, after six decades of the Pacifist Constitution, is reconsidering the role it can play in regional security, amid an islands dispute with China.

China and several ASEAN members have seen their ties stalled over competing maritime claims in the South China Sea.

Shanmugam also warned of a nervous Japan re-arming itself, which is in no one's interests.

"Japan is a technologically very advanced country. It's better that Japan is not nervous and stays under the US nuclear umbrella, and at the same time everything remains stable while there's the economic progress."

He also reminded China of the importance of public opinion in other countries. "You have to accept that public opinion in many countries is being influenced against China. It's not good for China ... once it hardens."

This was Shanmugam's third visit to China in his three years as foreign minister, and he met Vice-President Li Yuanchao and top diplomats, including State Councilor Yang Jiechi and Foreign Minister Wang Yi.

In 2013, Singapore was the largest foreign investor in China and China's second-largest trading partner of the 10 ASEAN countries.

Trade volume between the two countries reached $91.4 billion in 2013, up 11 percent year-on-year, according to International Enterprise Singapore.

Singapore is also the largest offshore RMB clearing center outside the Chinese mainland and Hong Kong.

The year 2015 marks the 25th anniversary of bilateral ties being established between the two countries.

Shanmugam said the two countries want to mark the anniversary with high-level state visits on both sides.

As the coordinating country for China-ASEAN relations from 2015, Singapore will exert itself to push forward bilateral cooperation, he said during a meeting with Yang.

Source: ChinaDaily USA

China will upgrade old and massive underground urban pipelines in five years

The move will require close cooperation among different departments, which will present challenges, experts said.

The country will finish the study on the complex underground pipeline networks in cities by the end of 2015. The governments then will create a new management system for the networks and work out a comprehensive plan on the urban underground pipelines, said the guideline, released by the State Council on Saturday.

In 10 years, the country will have well-functioning underground pipeline networks in cities, it said.

"The national guideline will push the governments at the grassroots to pay more attention to the underground pipelines, enough to reveal problems," said Li Xun, vice-president of China Academy of Urban Planning & Design, based in Beijing.

But he has doubts that the government will finish the national evaluations in more than 660 cities within 18 months, saying that financing will be a major stumbling block.

Yang Hongshan, professor of urban planning at Renmin University of China, agreed with Li on the limited allocation of resources in the underground pipeline networks. The study and upgrades will require a huge amount of money from the governments, while many of them cannot afford it. In addition, some of them are unwilling to do it because the underground pipeline work is not as obvious a political accomplishment as work aboveground.

In addition, the underground pipelines serve different departments, and the multiple management, which is usually not coordinated, poses many obstacles to upgrading, the two experts said.

The guideline needs to specify the responsibilities when setting up the unified management platform, they said.

The massive pipelines running underground play a major role in urban development, carrying the water, sewage, gas, electricity, telecommunications, cable signals and other necessary supplies for daily life as well as the industrial production.

However, along with the rapid urbanization in China, the larger cities with fast-growing populations witnessed more accidents with severe economic losses and casualties.

For example, an explosion in a gas line in Qingdao, Shandong province, in November killed 62 people and injured 136.

Leakage in a petrochemical pipeline contaminated the water supply in Lanzhou, Gansu province, in April.

On May 11, a torrential rain hit Shenzhen, Guangdong province, flooding more than 2,500 roads in the city and causing an economic loss of about 80 million yuan ($12.9 million).

"The main reason for the flooding inside the city is the out-of-date underground sewage pipelines," said Qiao Jianping, chief engineer of Shenzhen Urban Planning & Design Institutes.

He said that the cities expanded to cover some rural areas, while many of them did not have the urban underground network, showing the lack of management from the government.

"When planning such networks, the decision-makers should consider coordination among different regions, especially with rural areas," he said.

Source: ChinaDaily USA

Alibaba Taps Former Hong Kong Figure for Board

      The WSJ reports, "Alibaba passed on holding its initial public offering in Hong Kong. But when it looked for board members, it found one all too familiar to residents of that Chinese city".

"Alibaba Group Holding Ltd. said in a new filing with U.S. securities regulators on Monday that Tung Chee Hwa, 77 years old, had accepted a role as a director of the e-commerce giant, pending regulatory approval of its share-offering documents. Mr. Tung would become one of four independent directors and join the board’s nominating and corporate governance committee".

"A scion of a wealthy shipping family, Mr. Tung is currently a senior official at the Chinese People’s Political Consultative Congress, a political advisory body. The group is largely powerless, as the big decisions in China are made by the Communist Party’s top leadership – though two years ago he did leave the impression that he is in the know about the country’s top leadership, as he described Chinese President Xi Jinping’s back problems to CNN".

"He is most famous for the tumultuous years in which he was Hong Kong’s top official. The U.K.-educated Mr. Tung was appointed by Beijing to be the city’s chief executive in the wake of the 1997 British handover of the territory despite a lack of political experience. He developed a reputation for working hard – one of his nicknames was Mr. 7-Eleven".

"But Mr. Tung’s popularity ebbed following a series of problems, ranging from the Asian financial crisis to his administration’s response to the outbreak of severe acute respiratory syndrome, or SARS. In 2003, he backed down from proposed new internal security law following massive street protests. Turnover among his ministers and opposition to a number of land deals also hurt his standing.

In 2004, he was publicly rebuked by then Chinese President Hu Jintao, who told him at a televised event to “summarize your experience, look for inadequacies and constantly raise your governance ability.” He resigned the next year, two years earlier than scheduled, citing ill health".