Friday, February 02, 2007

Who's the loser in a stand-off between Malaysia and the United States over Iran?

DISCLAIMER: I'm neither an economist nor a political analyst. I'm merely an engineer trying to find an answer to a curious question.

I've highlighted a simple but massive discrepancy between the news reports by TheStar and BBC. Although it is only a slight difference in wording, the meaning and potential effects are *totally* different. The article is on the statement made by our dearest Prime Minister regarding a request by the United States to break our energy deal with Iran.

First of all, I would have to agree with the fact that Malaysia is a sovereign nation and we have the freedom to do business and trade with anyone that we wish to. And when it comes to a $16 billion dollar deal, developing LNG plants in Iran, I would think that PETRONAS would be very sad (and our country very much poorer) if we just gave up on the deal because of a veiled threat from the World Bully.

However, the discrepancy is with regards to whom is actually threatening whom. According to the BBC article, Malaysia is threatening to end free trade talks with the US if we're forced to break the deal with Iran. But according to TheStar, the US is threatening to end free trade talks with us unless we break the deal with Iran. I've always known that politics was convoluted, but this convoluted??!!!

Both reports are probably correct. If we continue to deal with Iran, the US will probably drop any FTA with us. And if we're forced into breaking the deal with Iran, we will probably drop any FTA talks with them. However, the slight difference in reporting shows the biases presented by the different news media. TheStar obviously paints us as David and the US as World Bully Goliath, while the BBC paints Malaysia as the stupid little upstart.

Either way, the FTA is on the line and is going to be broken. So, the only question is which threat is more credible. At first glance, it may seem that we're in serious trouble if we defy the US. However, if we wish to retaliate, we do have the means to do so, via ASEAN, OIC and other groupings. The US needs the support of OIC to help deal with the escalating problems in the middle east. It also needs open access to the developing ASEAN markets as well. Let's look at things in a slightly finer detail.

From the CIA, our two largest export partners are US (19.7%) and S'pore (15.6%). Our largest import partners are Japan (14.6%) and US (13%). Plugging in the actual values from 2006, we end up with a total trade of $47.8 billion and a net deficit of $14.8 billion if *all* bilateral trade with the US is cut off. Incidentally, the Iran deal is capable of covering up this deficit. And I doubt that they'd be silly enough to cut off *all* trade seeing that a large chunk of our exports are computers and electronics.

From ASEAN, our regional market provides the US with a $120 billion annual trade deal. Now, we're talking some real money. The total import and export values of the US for 2006 is $2.9 trillion. So, our market only affects about 4.1% of their trade. Not big enough to cause any real harm. However, if we consider that the US is a net importer and ASEAN a net exporter, things look different.

However, my conclusion is that this is purely political posturing. Neither side has much to lose if the FTA talks break down. Now, the question is on soft influence. If the US gets it's regional allies to apply economic pressure as well, we might have a problem. However, the first question is whether we have sufficient clout over our regional allies to get their support and the second is whether we have enough clout among the Islamic countries to get their support as well. I'm not a political analyst, so, I don't really know.

So, seeing that neither party has much to lose, I think that we should stir up the nest and kick some ass. It's about time that our dearest PM got some balls. I just hope that his statements weren't a spur of the moment thingy and he really has the nuts to back them up with action. It will be extremely lame if he backtracks on his statement.

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