MEXICO: The ROI (return on investment) for disruption

"Investment likes silence" Mexican Economy Secretary Carlos Arce on the negative impact these attacks could have on foreign direct investment (FDI) in Mexico.

New ROI estimates for the September attacks on Mexican natural gas pipelines:

• Over 2,500 business will suffer severe harm in 11 of Mexico's 32 states. 1,100 companies have shut down production. Key industries impacted: Auto, glass, food, and cement. For example: Volkswagen (1,780 cars a day, 81% of which is for export).
• Revised estimate of $200 million a day in costs.
• Impact expected to last for a week.

ROI for an attack that cost less than estimated $10,000 to accomplish? Rough estimate: 1.4 million percent. Welcome to modern war.

Comments

[P-]

Guerrilla warfare hasn't been that rewarding for the amount of risk. They've got plenty of playground to dance on. We're hinged precariously to the hilt on oil. This Mexico thing is a omen for something much worse and more evolved as far as frequency(time) and size.

I don't see PEAK OIL as a phenomenon in the future. As far as I'm concern PEAK is already here! NOW! If Rodgers is any indicator we just got started into a 20-year commodity bull cycle. I don't think they'll ever acknowledge peak oil. Not governments not politicians. We've just got to take oil out of the equation! 50 years on oil is just too long to pray for something not to happen! It is just too long.

Senators have relegated their frank assessment on oil until the late hours of the session and even if you do hear one NOBODY'S ON THE FLOOR to listen. You've got to hand it to them as far as tactical approach. We get Canada and Mexico to sign the Nafta contracts, knowing that we can always craft a roadblock when we need one as they did for the throughways for trucks for heading to Canada from Mexico.

invest_mavin

[adam]

1,400,000% sounds like quite a lot. Plus of course there are the intangible effects.

When the cheeky chappies from the IRA bombed Bishopsgate more than £1bn worth of damage was done (and people were killed). The cost of the attack - 1 dump truck, some petrol and about 1 ton of fertiliser.

http://news.bbc.co.uk/1/hi/programmes/panorama/3704943.stm

The resulting damage was so expensive that it effectively bankrupted the Terrorism insurance market; government intervention in the form of Pool RE was required for any loss over £150m.

http://www.poolre.co.uk/

Of course this kind of war is cheap. Now, lets look at the other face of modern war - the really expensive one - as run by the American government.

When reading the numbers below bear in mind that Iraq's GWP is about $90bn (US government figures, probably overly optimistic but what the heck). We'll jump past the issue of the dead Iraqis, because as has been made clear this week the war in Iraq, in Iraq is pretty much over - the war about Iraq, in America is now the issue.

Current estimates of the total cost of the US invasion over the next century or so go to around $2.5 trillion dollars ($2,500,000,000,000). This estimate still makes some fairly major assumptions - the US withdrawal starts soon, it is handled competently, has the good will of the locals, and is complete by no later than 2015. If any of these factors are not in place then the costs go up.

The single biggest cost in Iraq to date is the loss of military equipment. According to the Washington Post 40 per cent of the US Army's equipment, is currently in Iraq. Iraq is horrifically unfriendly to sophisticated equipment - tanks, fighting vehicles and helicopters wear out at six times the normal (European) rate. The fact that the Iraqis are unfriendly does not help either - as of December 2006 the US Army (not including the Marines) had lost 20 M1 tanks, 50 Bradleys, 20 Strykers, 20 M113s, hundreds of Humvees, and more than a hundred aircraft - mainly helicopters - have been combat-lost.

Its hard to recall now but back in 2002 the planning for the invasion had some fairy-tale figures attached - CENTCOM predicted in its war plan that only 5,000 US troops would be required in Iraq by the end of 2006, others stated that Iraq could finance its own reconstruction (Paul Wolfowitz, who was so inept at figures they made him the head of the World Bank). Most famously Larry Lindsey, an assistant to the president on economic policy, warned that the Iraq war might actually cost as much as $200bn. Of course in Lindsey's case, Bush sacked him for the suggestion - the man was clearly mad.

On planet reality the Iraq war costs $200m a day, $6bn every month, to date cost is around $450bn - give or take about twice what someone was fired for. And as we've noticed this week the war is a long war from being over, its just moved into a different stage.

Even once US troops leave Iraq the costs will not fall to zero. In the short term a lot of equipment needs to be replaced. In the long term this cost is due to the number of crippling injuries that have been taken by US troops.

Back in the First World War cripples were cheap, and dead soldiers were cheaper - for each soldier wounded, another was dead. It meant that post-war very little care was needed - a few schillings for charity and heartfelt advice to stay out of sight. Today the number of dead:wounded is roughly 1:8 (or 1:13, if we accept the pre-10th January 2007, VA figures). This is because of the arrival of advanced body armour which was once seen as a good thing as it reduced casualties as part of the Powell Doctrine. Looking at it from the perspective of today's general staff the casualty rate is not looking too good. The long term costs of a 19 year old with brain damage or multiple limbs missing (needing round the clock support) runs into the millions of dollars over the next five to seven decades. The bullet that hit him? 10 cents.

To date around 200k Iraq / Afghanistan veterans have gone into the VA system. Of these around 40k have brain or spinal injuries, or the loss of multiple limbs. Another 40k have single amputations, permanent blindness / deafness or severe burns. The figures sound high, but bear in mind the fate of the first Gulf War veterans - who had less than 100 hours of combat - to date almost half of these troops, mostly in their mid to late 30s, have filed disability claims (with an 88% success rate). In other words US casualties from the first Gulf War currently stand at around 600,000.

So it seems that the US invasion cost $2.5 trillion dollars to take over a country that makes $90bn - a loss on investment of 97%.

Of course that $2.5tn jumps past the issue that's really going to hurt (other than the massive credit card bill which the kids and grand-kids can pay sometime in 2050) which is the current government failure to deal with the often traumatised troops returning home. There will, inevitably, be the usual post-war complications among aimless young men - unemployment, family violence, crime, alcoholism and drug abuse. None of these are amusing to have, although what's going to be particularly interesting is when the National Guard, which recruits heavily from the police (around half of all police services in the US have officers in uniform in Iraq), starts returning PTSD police officers to the streets. Not all of the costs to America will be financial, sooner or later its going to be social as well.

[P-]

http://news.independent.co.uk/business/news/article2966842.ece

This ostrich head in the sand thing is just what i was trying to say. There may come to a point whereby globalized platforms exacerbates these disadvatages to a point whereby chaos becomes reaches sustainable equilibrium. You could call it perfect chaos.

[Cavolonero]

What, Where and When ~ but ~ Who and Why ???

[gmoke]

"All Liquids: the peak is still July 2006 at 85.43 mbpd, the year to date average production in 2007 (2 months) is 84.26 mbpd, up 0.2 mbpd from 2006."

http://www.theoildrum.com/tag/update

There's a nice graph to go along with the numbers as well.

Looks like Peak Oil already happened and nobody really important has noticed yet.

[Duncan Kinder]

Apparently Mexico lacks the resources to both protect the pipelines and to combat drug cartels:

quote:

MEXICO CITY, Sept 17 (Reuters) - A left-wing guerrilla group that bombed fuel pipelines last week has indirectly helped Mexico's drug cartels by diverting police and army resources away from combating trafficking, the attorney general said on Monday.

Mexico has reinforced guards at its roughly 19,000 oil installations since the explosions, which followed similar attacks in July claimed by the same group, known by its Spanish initials EPR.

But warding off another attack by the shadowy organization would draw army and intelligence personnel away from President Felipe Calderon's crackdown on drug gangs, which now has some 20,000 troops and police deployed in troublespots.

"We have no indication of an organic link with narcos," said Attorney General Eduardo Medina Mora.

"What is certain is that these activities distract personnel assigned to the fight against organized crime, which is (our) chief priority, and in this sense they are doing a service for drug trafficking," he told foreign journalists.
:end_of_quote

http://uk.reuters.com/article/oilRpt/idUKN1737082820070918

[Marcello]

"The fact that the Iraqis are unfriendly does not help either - as of December 2006 the US Army (not including the Marines) had lost 20 M1 tanks, 50 Bradleys, 20 Strykers, 20 M113s, hundreds of Humvees, and more than a hundred aircraft - mainly helicopters - have been combat-lost."

Battle losses are small potatoes compared to wear and tear.The production run for the Abrams was 8000 units, while the current force structure needs fewer than 2000 of them IIRC. Most the remaining 6000 are in storage, which means that the US can afford to lose them at the current rates for several centuries without breaking a sweat. The same goes for the Bradley and M113s. Armored cars are lost in greater numbers but are cheaper and the production lines are still fully open.

"This is because of the arrival of advanced body armour which was once seen as a good thing as it reduced casualties as part of the Powell Doctrine."

There are a few issues with this analysis.
First of all while it may turn an otherwise KIA into a expensive cripple it also prevents a lot of grave wounds. A lot of people who would have been killed or heavily wounded can get away with minor wounds and be put back in combat. Second I would not be too much sure that said expensive cripples are more a consequence of body armor rather than improved battlefield medical teqniques.

[adam]

Marcello,

Your usual excellent points. The issue of the body armour was taken from a conversation with a Royal Marine Commando medic I ran into. I have to confess I more or less assumed that he knew what he was talking about.

[Marcello]

"I have to confess I more or less assumed that he knew what he was talking about."

I do not doubt he did. The issue is: yes a few people that would have been dead are now expensive cripples thanks to body armor (and better medicine). That's is not the whole story though.

[Duncan Kinder]

"MEXICO CITY, Sept. 19 -- Mexican drug cartels now operate in almost every region of the United States and bring in as much as $23 billion a year in revenue, according to a Government Accountability Office report that will be released Thursday.

U.S. assistance has helped Mexico combat cartels, the report says, but those efforts have been hampered by Mexican government corruption and by the failure of key players in the United States, including the White House Office of National Drug Control Policy, to coordinate better with Mexican law enforcement. The White House drug policy office, the report says, has prepared a counter-narcotics plan but has not discussed portions of the initiative that require Mexican cooperation with authorities in Mexico. "

http://www.washingtonpost.com/wp-dyn/content/article/2007/09/19/AR2007091902442.html