Diminishing Marginal Utility

Source: Associated Press

Monday October 15, 1:03 pm ET
By John Wilen, AP Business Writer
Crude Prices Surge As OPEC Estimates Supplies Are Falling While Demand Is Growing

NEW YORK (AP) -- Oil prices surged above $85 a barrel Monday for the first time after OPEC said crude production by non-member countries is likely falling even as global demand for oil is rising.

Prices were also supported by concerns Turkish forces will pursue Kurdish rebels into Iraq, disrupting oil supplies, and by technical buying by investment funds.

Despite the Organization of Petroleum Exporting Countries' decision last month to boost its production by 500,000 barrels per day beginning next month, the rest of the world will likely produce 110,000 fewer barrels of oil per day than expected in the fourth quarter, OPEC said in a report.

At the same time, fourth quarter demand for crude oil will grow by 100,000 barrels a day over last year, OPEC said.

The estimates add to sentiment that crude supplies are tight. Last week, the Energy Department reported that domestic crude inventories fell during the week ended Oct. 5 when they had been expected to rise. And the International Energy Agency concluded that oil inventories held by the world's largest industrialized countries have fallen below a five-year average.

"The fact that U.S. crude inventories fell yet again ... reinforced the market's underlying concern that demand has yet to slow down sufficiently to allow stocks to build, while supply is also perceived to be struggling to catch up," wrote Edward Meir, an analyst at MF Global UK Ltd., in a research note.

Light, sweet crude for November delivery rose $1.72 to $85.41 on the New York Mercantile Exchange after rising as high as $85.49, a record trading price.

Despite the gains, oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

In other Nymex trading, gasoline futures rose 4.97 cents to $2.1348 a gallon, while heating oil futures rose 3.95 cents to $2.2859 a gallon.

Nymex natural gas futures rose 34 cents to $7.314 per 1,000 cubic feet on forecasts for cooler weather next week in the Northeast and Midwest, and on worries a storm in the Caribbean Sea will move north and develop in strength, threatening key oil and gas infrastructure in the Gulf of Mexico.

In London, Brent crude futures rose $1.61 to $82.16 a barrel on the ICE Futures exchange.

At the pump, gas prices fell 0.4 cent overnight to a national average of $2.757 a gallon, according to AAA and the Oil Price Information Service.

The Turkish government's decision on Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked worries that hostilities will disrupt oil supplies, analysts said.

"Oil out of the northern (Iraq) fields has been erratic for some time," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. "But complete disruption would definitely be bullish for this market."

Technical buying by investment funds is also driving oil's record run, analysts say. Data released Friday show that speculative buying of oil contracts increased last week.

Many investment funds automatically buy or sell oil futures when prices hit certain levels. In recent days, as oil has pushed into new record territory, several of these resistance prices levels have been broached. That triggers new buying, driving prices even higher.

"Funds tend to trade more on the technicals," Rafield said.

Associated Press Writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

Posted by Hugo Albert Orwell at 03:21 PM | Permalink | TrackBacks (0)

Source: The Prudent Investor

The Federal Reserve Dollar may be in for another big punch. Gulfnews banking editor Babu Das Augustine has raised the possibility that OPEC may switch from dollars to another currency, furthermore reducing the demand for the Dollar which gets shunned by more and more oil producing countries. Iran only accepts Euros or Yen and Venezuela dumped the greenback while countries in the gulf region move their funds away from it too.
According to Das Augustine,

"Asset diversification by the Gulf sovereign wealth funds and the possibility that the Organisation of Petroleum Exporting Countries (OPEC) will change the pricing of oil from the dollar to another currency could mean more trouble for the dollar."

Quatar and Vietnam announced only a few days ago that they were shifting away from the ailing currency that was never worth less than nowadays.

Analysts see the admission by Qatar as a signal that regional state-owned funds are moving away from the dollar.

Qatar has admitted that its investment fund has been diversifying their portfolios to compensate for the decline of the dollar. It would be naive to think that other Gulf funds are loyal to the dollar at the cost of heavy portfolio losses," said a Dubai-based investment banker.

During the past 12 months, companies, mainly state-owned investment arms and private equity firms from the GCC, have quietly acquired more than $50 billion in assets worldwide with Asia's and Europe's shares together accounting for more than 55 per cent.

The state-owned Kuwait Investment Authority, with assets of more than $150 billion, last year increased the Asian share of its portfolio to 20 per cent from 10 per cent.

Although gulf central banks have been discussing asset diversification in the past two years, there hasn't been any evidence of a major shift. The size of assets held by Gulf central banks are relatively small compared to the funds managed by the state-owned investment funds.

According to IMF estimates, global investment funds managed by governments control an estimated $2.5 trillion, outstripping hedge funds. Morgan Stanley estimates these assets could rise to $12 trillion by 2015, roughly the size of the US economy. Gulf countries account for a major share of these funds.

Currency market analysts believe that the gulf sovereign funds' gradual move away from the dollar is a precursor to OPEC opting for a different currency in which to price oil.

"If the dollar were to lose its lustre as a reserve currency this could prove disruptive to the global financial system," Merrill Lynch said in a research note.

"Pricing oil in dollars might have made sense when there was a paucity of other relatively stable currencies and when the Middle East imported more from the US - but not any-more," said an analyst.

I guess it is safe to say that the exodus from the first completely unbacked reserve currency in the world's history has begun - and will not stop. A strong reason for this is the fact that the USA has very little to offer in terms of sought-after export goods besides weapons, aircraft and gas guzzling oversize cars whose low MPG ratios can only be afforded by oil producing countries anymore.

Anybody counter my bet that another fiat currency experiment will be coming to an end in the next decade?
Before you lose your money; remember that ALL fiat currencies of the past 350 years have returned to their intrinsic value. Gold has NEVER lost its value in the past 3,500 years!

For some background about the role of the Federal Reserve Dollar in commodities markets click here.

Posted by Hugo Albert Orwell at 04:00 PM | Permalink | TrackBacks (0)

Source: The Oil Drum

Posted by Prof. Goose on September 26, 2007 - 10:00am

I have intentionally paraphrased this wonderful Christmas song because it has much to say about the future after peak oil which I am now ready to say has already happened. As energy declines, we will indeed go to our grandmother's house--one without electricity and running water, sewer or septic and deep, mechanically pumped water wells. At least that was MY grandmother's house. She lived on the Kansas prairies of the 1890s. In the 1960s I asked my grandmother what the greatest invention of her life had been. She said electricity because before they had lights, everyone went to bed shortly after sun down because it was simply too dark to do to much. There was no air conditioning, so the summers were very hot. In the winter, trips to the outhouse were cold (and brutally awakening if during the middle of the night). While she had wood where she lived, about 100 miles west of her home, people had to burn dung as is done in Tibet today. See the picture below of the dung plastered against the house. When one wants to cook, one retrieves a patty.

Without cheap energy, we go back to my grandmother's house or one quite like it...

Yes, folks, peak oil is here, that thing that politicians don't speak of; that event which cornucopians (those who believe that we will not run out of energy) believe is a fraud or misunderstanding is here. The cornucopians believe we are wrong because many have predicted that we would run out of energy before and have been wrong. What they lacked was the 20-20 that hindsight gives one. Today, we can see the peak behind us.

First, how do we recognize when peak oil is about to happen or has happened? The first thing is that it always comes with a gradual decline in production. Steep changes in production curves are due to political or economic decisions. Let's look at Saudi production from 2001 to the present. (NB: Click all graphics throughout this post to expand them to full size.)

The first thing we notice is that it is declining from January 2001 to January 2002. That is the recession resulting from the collapse of the tech stock bubble, causing a worldwide reduction in oil demand. The world then began to recover. In January, 2003 political events in Venezuela shut in that country's oil. We find this

"January 12, 2003: OPEC held its 123rd meeting to review oil markets in Vienna, Austria. OPEC decided to raise its production quotas from 23 million barrels per day to 24.5 million barrels per day, effective February 1, 2003, in order to ensure adequate supplies of crude in response to the oil supply shortfall in Venezuela" http://www.eia.doe.gov/cabs/opec.html

This was a short-lived, very steep increase in production, followed a couple of months later by a nearly equivalent sharp drop in production. This is not a sign of peak oil; it is a sign of political manipulation of production. The next thing we notice is the sharp rise in production in April, 2004. This was due to the rise of price above $40/bbl, a level which OPEC had previously thought would cause a recession. They opened the taps to try to damp down the price. What they didn't count on was that China's and India's consumption had taken off like a rocket because of their economic growth. The price continued to rise, showing that scarcity of oil had come.

After a year and a half of all out production, we see the first signs of decline, normal natural decline in the Saudi production. The plateau of production is followed by a gradual decline in output. One might be tempted to say that the decline in production was due to declining prices, but this isn't true for the period from Oct. 2005 until July 2006. The price rose but the production declined. The gradualistic tail on Saudi production is what an oil field decline looks like.

Just as I was finishing writing this page, I saw this report.

Nicosia, Sept 8: Saudi Aramco in its Annual Review 2006 said that last year the company's crude oil production declined by 1.7 percent, while exports declined by 3.1 percent, compared with the previous year.

Crude oil production in 2006 averaged 8.9 million barrels of oil a day (b/d) and exports 6.9 million b/d. (http://www.dailyindia.com/show/172345.php/Saudi-Aramco-reports-oil-outpu... ) To me, the interesting thing about this is that with a 3.1 decrease in exports, this means that there is a reduction of 266,000 barrels per day available to the rest of the world. Production doesn't really matter to the rest of the world. Only exports matter. If the Saudi's used all of their oil, there would be nothing left for us to use. This data confirms that their exports are decreasing faster than their production is decreasing.

Let's take another example, the United Kingdom.

From 1995 until 1999, the UK production was a plateau. But in mid-1999, the monthly production began to gradually decline. I moved to the UK in August 2001, looked at the curves and told a colleague and fine geologist, Steve Daines, that the UK had peaked production. He disagreed. We made a bet for a lunch that at the end of 2000, the UK would produce no more than 130,000 tonnes of oil. I took below that figure, he took above. Instead of a lunch, he and his wife had me and my wife over for a wonderful Malaysian dinner cooked by his beautiful Malay wife. We ate that meal with gusto along with a Turkish couple, that they knew. The sad thing was that the UK production decline has continued even into this year. When I left the UK, I told one young geologist that if she wanted to have a career in the oil business, she was going to have to leave the UK. While that day hasn't come for her yet, it will. No one will pay geologists to manage fields that aren't producing. The above curve is what peak oil looks like for a country--a plateau followed by a gradual decline that is inexorable.

Now that we know what peak oil looks like, lets look at the current global production of both black oil (crude) and Total Liquids (crude plus condensate--a liquid that comes out of natural gas wells which is usually clear).

What we see here is that following the post-911 recession, there is the ramp up of production to supply the increasing demand from China and India. By late 2004, the rate of increase in world crude production (blue curve) slowed, reaching a peak of 74.3 million barrels per day in May 2004, marked by an arrow. The trend from that time has been down, gradually I would admit, but down none the less.

So, why do I call this the peak of world crude production? Isn't it possible that new production will come on line and lift that number above the 74.3 million bbl/day? Possible, barely, probable, no. Why? All the world's biggest fields are in decline, and they produce a large percentage of the world's oil. We saw Saudi Arabia's production, and that represents 10% of world oil. So, we know that 10% of the world's oil in in decline. But the Saudi's are the second largest producer. Russia, the largest producer of oil, is, at best, flat in production now. The U.S. is the third largest producer of oil (something that surprises everyone) and we have been declining in oil production for 30 years. These three countries account for 28% of the world's production, all in decline.

Mexico has the 3rd largest oil field and that one field represents 2/3 of its crude production. It is in decline, plummeting 20% last year. The UK, Norway, Indonesia, Oman and China are all in production declines. The only places on earth that are undergoing significant increases in crude production are Angola, Kazakhstan and Brazil. Kazakhstan will always be limited to the size of the pipeline it has available. Pipelines have fixed capacity.

Given all this, it is hard to see how the future is going to bring forth vast new quantities of daily production.

Another objection: Above I said that peak oil was a plateau followed by a decline. Could we be in the plateau of world production? Yes, that is certainly possible but for the reasons I list above, the current levels of production simply can't be maintained. Annually, the world loses 5 million bbl/day of productive capacity. The curve above shows that we are not adding to world productivity rates even 5 million bbl/day per year of productive capacity since 2005, which would have keep us absolutely flat.

Now, one other thing makes me think that this is the peak of world crude production. The price response in relation to the supply. Usually if price is going to bring forth new supplies from OPEC (who supposedly has all these vast untapped oil fields just waiting to be turned on), it would happen in sharp steps. The Saudi's have not increased production since late 2004 or early 2005. Yet, because the price has gone up from that time, if they had the oil, they could have made lots and lots of money. But they don't seem to be able to take additional advantage of the oil price. In spite of high prices, indeed, increasing prices, no one on earth seems to have the excess capacity sell more oil into this rising price environment. Given the past history of cheating on the part of the OPEC members, the lack of new supplies coming to market must say something important about its availability

Another interesting feature is the total liquids curve (the red curve). This is both black oil plus the clear condensate from natural gas wells. This curve also seems to have peaked, but peaked a year later, in July 2006. Thus, we are 2 years out from peak crude oil, but only one year out from a probable peak liquids.

What are the implications?

The most important thing we need to know is the rate of decline, which of course, we don't know and won't know for a while. We can delimit it a bit. a 1 million bbl/day decline from May 2005 until May 2007 represents approximately a .75% decline per year. Hardly something to worry about right? The first year of UK decline was only about .5%. The second year of decline was 9%, but then, the UK is a much smaller place than the world, so it is unrealistic to expect the world to follow precisely the UK pattern of decline. We can expect the world crude production to decline much faster in the next few years than it is right now. How fast remains to be seen, but even a 5% decline will mean that in 10 years we will be producing only 60% of what we do today! Instead of having 85 million barrels per day of total liquids, we would only have access to 50 million barrels per day.

Driving

Clearly that kind of restriction in oil supply means that either mass transit must come to America as it is in China, or we must only go to work 3 days per week. In 10 years, having only 60% of the oil we have today means 40% less driving for everyone. Going to work only 3 days per week, would mean the destruction of the economy. Most jobs can't be handled across the internet. How does one do the job of grocery store stocker by telecommuting? Even today though, the relatively mild oil prices we have experienced have altered the driving habits of the American public. I sent this chart to a friend last summer. The chart shows the change in mileage driven on US highways from last year. If we drive more this year than last year, the number will be positive; if we drive less, then the number is negative. As you can see, the response to the rise in the price of oil (green curve) has been that for the first time in 27 years Americans are driving less than the previous year. The last time this happened was during the Iranian hostage crisis!

Expect more of this in the future.

Another implication is that automakers shouldn't make gas guzzlers. Those old enough to remember the Iranian hostage crisis, when everyone had to take turns getting gasoline on alternate days, knows a bit of what it will feel like. Back then, people stopped buying big cars. The V8 went out of style in the 1970s; it was too expensive. I expect the Hummer will meet a similar fate.

Suburban sprawl won't work

American cities will need to restructure to be more like European cities, where one can walk to the stores. In Aberdeen, Scotland, most Aberdonians shopped daily because they had tiny refrigerators. But that didn't matter, if they forgot something, they could walk to the store in about the same time it takes me to drive to the store here.

Flying

Flying will become like it was when I was a child--the province of the rich. I did not get on a commercial jet until I was 25 years old. My children grew up with flying and have seen far more of the world than I have at an equivalent age. But, as oil prices rise, fuel costs will bury many airlines. As far as I know, I own no airline stocks either directly or indirectly through mutual funds. They are not going to have a growing clientele as energy costs go up. We have already seen one of the impacts of the energy costs to this sector. Years ago, I was speaking with my wife's brother-in-law who used to work with Boeing. Boeing had made the choice to go energy efficient with their planes, while Airbus had decided to go BIG. I told my wife's brother-in-law that Boeing had made the correct choice. This is from a Business Week web site:

"Instead, the show could highlight a growing list of woes at the company, based in Toulouse, France. On June 1, Airbus acknowledged that the first deliveries of the A380 will be delayed up to six months, from mid-2006 until early 2007, due to unspecified production difficulties. Then Emirates airlines, which had been expected to announce a big order for the A350 at the air show, said it was not ready to make a decision. Airbus sales chief John J. Leahy, who said earlier that he might announce more than 100 orders for the A350 in Paris, now says big orders could come "a week or two after."

Has Airbus lost its mojo? The past few months have been rough. Boeing, after trailing Airbus on orders for the past three years, has racked up 255 orders as of the end of May, compared with only 196 for Airbus. Even more worrisome, Boeing's new 787, which boasts better fuel efficiency thanks to lightweight composite materials and next-generation engine design, is proving a hit with airlines. They have placed orders and commitments for 266 of the jets, while Airbus has yet to announce a major deal for the competing A350. Meanwhile, the A380's order book has been stuck at 154 since last year." Why Airbus is Losing Altitude," June 20, 2005, http://www.businessweek.com/magazine/content/05_25/b3938069_mz054.htm

And a more recent news source notes that Boeing has won 706 orders for its Dreamliner while Airbuss has only 154 for the A350. Energy is king in the airline industry, even if a government run airplane manufacturer thinks they can change the laws, both of the land and of physics.

Food

One percent of world energy use goes to fertilizers. High energy prices will affect fertilizer use. Indeed, we can see that now. This is a plot of inflation adjusted oil price divided by 100 (so it will fit on the same chart) with the barrels of oil equivalent energy of fertilizer applied per acre of wheat. One can see that when oil prices are high, fertilizer use is low; and vice versa.

Few city people know that an acre of wheat has 1.3 million wheat plants--a density hard to achieve if one is throwing seed by hand. Corn is sown at 30,000 plants per acre. Such densities require mechanical sowers. To sow corn at these densities by hand would require 42 hours (5 seconds per seed). This kind of puts into perspective the utility of energy for our tractors. If the price of oil goes up, there will be fewer bushels per acre because of the combined effects of less mechanization and less fertilizer. Now clearly for a while efficiencies will help. People will figure out how to apply fertilizer more effectively; but eventually not having fertilizer will come into play.

I am fond of citing a little known fact I got from a Walter Youngquist article. Mechanization allows a farmer to spend 4 hours per acre and produce 160 bushels of corn per acre. Back in the 19th century, it was 500 hours per acre an 30 bushels of corn per acre. This of course brings an interesting conundrum to those expecting corn-based ethanol to fuel the world. Without petroleum-based fertilizers, there won't be enough corn to feed us much less fuel the world. A five fold drop in corn yields would leave many in the world starving.

It is unlikely that we will be able to have air-shipped strawberries from Argentina in the winter, so food will once again become seasonal, like it was in my childhood before globalization.

Water

Water and food are entirely linked. Without water, many crops won't grow, but we also need water to drink. A few weeks back the Wall Street Journal gave a couple of interesting facts about farming in India.

"Since the 1990s, India has been a major net exporter of rice, shipping nearly 4.5 million tons last year.
"But annual yield increases began to slow over the past decade. Farmers cranked up fertilizer and water use, draining the water table. Many began planting two crops a year, taxing the soil. Punjabi area officials discouraged farmers from planting two crops and in some places outlawed it, but many farmers ignored them."
"I'm doing mischief against the government,' concedes Kanwar Singh, a second rice crop recently on a stretch of flooded land near the northern India city of Karnal. He says he now has to pump water from 300 feet below the surface, compared with 70 feet 10 years ago." 'In a year or two, maybe it will be finished,' he says." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p. A10

and

"Lakhbir Singh, 35, this year planted aerobic rice for the first time. He says his costs have tripled over the past decade. His well was about 60 feet deep 10 years ago; now, it's down to 450 feet, and he has to use a special submersible engine to help haul the water to surface. The health of his soil has deteriorated, so he's using more fertilizer." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p.A10

One simply MUST have energy to pull that water up from depths of 300 to 450 feet. Without it, there will be no water. Which raises the question, what will these poor guys do when the electricity isn't there to run their pumps?

But this isn't a problem for poor Indian farmers. When the electricity is off, the water pumps, which pump water out of deep wells will not be running. That means that agricultural irrigation will be interrupted. That means that city water supplies won't flow either. Both wells and surface water systems require electricity to move the water from source to your favorite drinking fountain.

Energy source

Another implication is that coal will have to play a larger role in the US energy budget over the near term. We can use coal to make diesel, electricity and thus mitigate, for a while, the coming problems. Coal can be used to manufacture fertilizer and avoid the problems (for a while) cited immediately above. We will use coal or our economy will not function. We will simply have to lose our aversion to coal and the CO2 it produces. I have asked many greens this question: If it comes to a choice between your child freezing in the dark or burning coal, which would you choose. I have yet find one so pure to their principles that they tell me they would let their kid freeze in the dark of a winter night. They all will burn coal to keep warm. Having lived in a society (China) where coal is the major source of energy, the smog is almost unbearable. There were days I could taste the sulfur in my mouth as I walked to work in Beijing. But we are no different than they. Their choice is also one of burn oil or have no heat in the winter or cooked food. The only alternative would be to chop down all the trees (which has almost been done in wide areas of China).

Yesterday there was an article in the Wall Street Journal talking about the coming electricity problems for Texas. Due to the success of the Greens at stopping TXU from building coal-fired power plants, in 3-4 years, Texas will probably start having similar problems to those California is having. California, and now Texas, stupidly decided that we would rather freeze in the dark rather than burn coal. We get 60% of our electricity from fossil fuels, coal, oil and natural gas! The decisions we make today will have immense impacts on your ability to go to work (how is your computer going to function without electricity? Do you really want to be able to drink water from the fountain on your 27th story office? Won't you just love walking those 27 stories each morning to get to work, which will put you in great shape if you don't have a heart attack during that first month of climbing). I suppose deodorant sales will increase in such a situation.

Conclusion

I will finish with personal story from my life overseas. When I lived in the UK, I saw what happens when the oil is shut off. In Sept 2000, the lorry drivers blockaded the refineries. My wife and I were brand new in the UK and driving back from a play in Aberdeen one night, we saw huge lines at the petrol stations. We wondered what was going on, but we drove on home not wanting to be in such long lines anyway. Unfortunately, those people in line, knew that the refineries had been blockaded, I didn't. By the time we realized it, the petrol was gone. That led to many interesting experiences. In one week, the food on the store shelves was gone. By two weeks, police and fire and ambulance were having trouble responding. Farmers were about to have to slaughter chickens because they couldn't get feed after only 2.5 weeks. Construction sites shut down. I learned through that experience that a society has about 3 weeks after the oil is shut off. Food ceases to moveinto the cities.

How can economic growth continue if each day into the future we have less energy than we had the day before??? This is a historic moment in human history. For the first time in 10,000 years, we have less energy than we had yesterday. And that will continue into the foreseeable future.

Posted by Hugo Albert Orwell at 05:26 PM | Permalink | TrackBacks (0)

Source: Telegraph.co.uk

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 8:39am BST 20/09/2007

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

China threatens 'nuclear option' of dollar sales

"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

The Fed's dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP.

Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years.

"They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said.

"This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said.

Mr Redeker said the biggest danger for the dollar is that falling US rates will at some point trigger a reversal yen "carry trade", causing massive flows from the US back to Japan.

Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.

The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.

"If Ben Bernanke starts running those printing presses even faster than he's already doing, we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems," he said.

The Federal Reserve, however, clearly calculates the risk of a sudden downturn is now so great that the it outweighs dangers of a dollar slide.

Former Fed chief Alan Greenspan said this week that house prices may fall by "double digits" as the subprime crisis bites harder, prompting households to cut back sharply on spending.

For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc.

The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.

Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.

Posted by Hugo Albert Orwell at 08:21 AM | Permalink | TrackBacks (0)

Source: Middle East Times

September 13, 2007

TEHRAN -- Iran's foreign currency reserves held in banks abroad have risen to $65 billion as of the end of June 2007, on the back of high crude oil prices, media reported Thursday.

The figure represents a jump of 37 percent on the same period, a year earlier, Iran's central bank said in a statement quoted by the Hamshahri newspaper.

Iran, the world's fourth-largest oil exporter, and the second in the Organization of Petroleum Exporting Countries (OPEC), has been helped by soaring crude prices that are helping the country weather domestic economic problems.

Amid US threats of further sanctions action over its nuclear program, Iran has announced it is switching its foreign reserves out of US dollars into euros and other currencies, to prevent damage to its economy from the US pressure.

However, the central bank is still accounting the total foreign currency reserves in US dollars.

Posted by Hugo Albert Orwell at 01:34 PM | Permalink | TrackBacks (0)

Source: AP Writer via Yahoo

Wednesday September 12, 3:09 pm ET
By John Wilen, AP Business Writer

Oil Prices Reach $80 a Barrel for First Time After Government Reports Decline in Inventories

NEW YORK (AP) -- Oil futures prices rose sharply Wednesday, briefly climbing above a record $80 a barrel after the government reported a surprisingly large drop in crude inventories and declines in gasoline supplies and refinery activity.

The report from the Energy Department's Energy Information Administration suggested oil supplies are tightening as demand remains strong. That's why oil prices are rising despite OPEC's decision on Tuesday to boost crude production by 500,000 barrels per day this fall, analysts said.

Despite Wednesday's jump, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Oil's recent advance has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months, Ritterbusch said.

"This is a market that wants to run up on the slightest bit of information," Ritterbusch said.

Prices were also being supported by worries a tropical depression that formed in the western Atlantic on Wednesday will become a hurricane and hit critical Gulf of Mexico oil and gas infrastructure.

"The National Hurricane Center says there's a good chance that could get into the Gulf," Ritterbusch said.

Light, sweet crude for October delivery rose $1.68 to settle at a record $79.91 on the New York Mercantile Exchange after rising as high as $80.18 earlier. October gasoline rose 3.49 cents to settle at $2.016 a gallon.

Nymex heating oil futures rose 3.64 cents to settle at $2.2191 a gallon, while natural gas futures jumped 50.4 cents to settle at $6.438 per 1,000 cubic feet. Natural gas prices typically react strongly to news of tropical weather due to the concentration of gas infrastructure in the Gulf.

At the pump, meanwhile, the average national price of a gallon of gas inched higher by 0.1 cent overnight to $2.815, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May.

In its weekly report on petroleum inventories, the EIA said crude oil supplies fell by 7.1 million barrels in the week ended Sept. 7, more than twice the 2.7 million-barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected.

Gasoline inventories fell by 700,000 barrels, slightly more than the expected 500,000 barrel decline.

Refinery utilization fell by 1.6 percentage points to 90.5 percent of capacity. Analysts had expected a 0.1 percentage point decline. And inventories of distillates, which include heating oil and diesel fuel, grew by 1.8 million barrels, more than the 1.4 million-barrel increase analysts had expected.

Crude imports fell by 674,000 barrels a day on average last week to 9.56 million barrels, while gasoline imports fell an average of 298,000 barrels a day to 1.02 million barrels a day.

Demand for gasoline averaged about 9.6 million barrels a day over the last four weeks, about 0.9 percent above last year, EIA said.

Oil's run-up has perplexed some analysts, who expect demand for oil and petroleum products to cool this fall.

"We're at records, but it doesn't appear to be sustainable," said Chip Hodge, energy portfolio manager at John Hancock Financial Securities in Boston.

Indeed, the Paris-based International Energy Agency on Wednesday slightly lowered oil demand forecasts for this year and next.

Posted by Hugo Albert Orwell at 03:22 PM | Permalink | TrackBacks (0)

Source: The Wall Street Journal Online

By JUDY SHELTON
August 30, 2007; Page A10

American fighter jets scrambled to intercept Russian bombers earlier this month near the island of Guam. It was the first time since the end of the Cold War that the Kremlin sought to provoke a U.S. response. It likely will not be the last. Fueled by revenues from energy exports, Russia appears bent on ratcheting up tensions.

But don't expect the next foray to take place over international waters. Vladimir Putin laid bare his ambitions at the St. Petersburg International Economic Forum in June by calling for a "new international financial architecture" to provide a base for economic development. Russia's next move is to challenge U.S. supremacy in world financial markets.

The notion of nudging America off its central perch in global economic affairs hardly seems plausible. But Russia's leader strikes a chord with other emerging-market economies -- Brazil, China, India -- when he describes current monetary and financial arrangements as "archaic, undemocratic and unwieldy."

Given the recent turmoil in world financial markets, Mr. Putin can expect heightened interest in his pitch for new regional alliances "based on trust and mutually beneficial integration" versus continued dependence on global institutions like the International Monetary Fund. Both Europe and Asia blame U.S. credit woes for their own unsettled markets. And newly independent nations on the periphery of established trade and security blocs have their own reasons to align with powerful patrons.

Mr. Putin even suggests that central banks should begin to hold reserves in a wider selection of currencies than dollars and euros in recognition of the "existing balance of power." It's hard to miss the implication: the ruble as a global reserve currency.

Is the man serious? The only reason the European Central Bank, say, or China's central bank, might hold reserves in rubles would be to pay for purchases from Russia. Today it is possible to buy Russian oil and gas using dollars or euros. The leading market exchanges for conducting international energy transactions are located in New York and London. But that is why officials at the White House, the Federal Reserve and the U.S. Treasury should be scrambling right now.

Mr. Putin is more than serious. He is determined to establish a world-class oil exchange on Russian territory and shift energy business away from existing global financial centers. A new facility is being readied in St. Petersburg's historic Bourse -- an imposing, white-colonnaded Greek Revival building that dominates the majestic sweep of the Strelka, or Spit, of Vasilievsky Island in the Neva delta and which is visible from the Winter Palace -- that will open to market traders within months and where transactions will be denominated in rubles.

It's a daring gambit and it constitutes no less than a demand for new international monetary arrangements on the scale of the post-World War II Bretton Woods agreement. "The global economy has experienced a transition," Mr. Putin notes pointedly. "Fifty years ago, 60% of world gross domestic product came from the Group of Seven industrial nations. Today 60% of world GDP comes from outside the G7."

Mr. Putin's plan to confront the privileged global role of U.S. currency resonates with Russians eager to recapture nationalist pride. Lampooning the sickly American dollar is popular with members of the Kremlin-financed youth group Nashi (meaning "ours"). And it potentially accommodates the burgeoning economic aspirations and swelling egos of Russia's partners in the Shanghai Cooperation Organization: Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and China.

China, like Russia, bristles at its second-tier status within the global financial architecture. Harangued by the U.S. over exchange-rate policies, China has recently been flexing its monetary muscle by hinting that it might dump a portion of its considerable dollar reserves. The prospect of such a shock to the U.S. economy in the midst of a housing slump threatens to bring the whole edifice crashing down. Throw in statements of support from oil-producers Venezuela and Iran, and you have the makings of a devastating dollar rout.

If Russia insists that its energy clients pay in rubles, we cannot expect our allies to strenuously resist. Europe purchases nearly 30% of its energy from Russia. Rising energy demand in Asia will likewise boost demand for rubles as Russia targets China, India and Japan. Last month, Japan quietly acquiesced to Iran's request that it switch from dollars to yen in payment for Iranian oil.

Can U.S. leaders and financial authorities meet the challenge from the Kremlin? Is America prepared to offer its own proposals for establishing more stable currency and financial conditions for global trade? Or are we just interested in protecting our turf?

The next Bretton Woods should be launched as an earnest initiative from the nation that gave birth to democratic capitalism. Not as an act of aggression from a pumped-up Russian pretender.

Ms. Shelton is an economist and author of "Money Meltdown" (Free Press, 1994).

Posted by Hugo Albert Orwell at 07:48 AM | Permalink | TrackBacks (0)

Source: Oh My News

When will the country's oil bourse finally start trading?

Angelique van Engelen (clixy123)
Published 2007-08-15 15:08 (KST)

Iranian President Mahmoud Ahmadinejad is reshuffling the oil ministry. He says, this way, he hopes to deliver on his promise to redistribute wealth. He's also sacked the industry minister. And next on the agenda is the Foreign Affairs Ministry.

It's not the first time Ahmadinejad's gone about rearranging the furniture back home. But so far, he's tended to project his zest for change to officials dealing with the outside world. Shortly after coming into power two years ago, his replacing 40 ambassadors sent out a strong message -- the Iranian president was unlikely to budge over the nuclear program his country was running.

The replacement of the oil and industry ministers is explained as a tactical move by the Iranian president to increase his control over areas that he believes key to economic prosperity. So now, there's no outside world that he can pitch the rationale for his action against. What's more, the move draws attention to one of Ahmadinejad's failures as president. Having been elected on a highly populist agenda, he's not delivered many of the goodies he promised in his election campaign in 2005. His luring promises to a young population faced with high levels of unemployment, were to the average Iranian just what the country needed.

Ahmadinejad offered to drag the fledgling economy out of the mess it was in and oil revenues were going to be a key factor in this plan. However, Ahmadinejad's plan to reshape the oil sector has been met with strong resistance from within the industry. The oil minister that was sacked, Kazem Vaziri Mahaneh, is known to be highly opposed to restructuring the industry.

Plans to open an Iranian oil bourse to compete with NYMEX in New York and the IPE in London have been continuously deferred for the past two years. At least three deadlines have expired without any progress being made. The bourse, which will be located in the Iranian Free Trade Zone on the island of Kish, is meant to attract international oil trading to the Middle East.

Outside observers say the potential for an oil-trading platform in the Middle East is promising but its main risk will be stability. Oil markets, like currency markets, react much more intensely to political instability than other capital markets. The Iranian nuclear issue won't do the country any favors in creating the best circumstances for a successful oil bourse.

According to many observers, Saddam Hussein's plan to swap dollars into euros was the main reason behind the U.S. invasion of Iraq.

Posted by Hugo Albert Orwell at 02:12 PM | Permalink | TrackBacks (0)

Source: Reuters

Fri Jul 20, 2007 3:20PM EDT
By Lucia Mutikani

NEW YORK, July 20 (Reuters) - Iran's decision to switch some dollar-based oil revenues to the Japanese yen was negative for U.S. government bond market sentiment, but would not make a dent on the flow of petrodollars into Treasuries.

Analysts said although Iran held a small fraction of government bonds, its initiative to ditch the falling dollar was further confirmation of diversification away from the currency and related assets.

"It's negative for Treasuries overall because it does fit with the idea that there is a diversification away from the use of the dollar by various means," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co. in New York.

Iran, the world's fourth biggest oil producer, confirmed this week it had asked Japanese customers to pay for crude oil in yen instead of dollars, a move it said was aimed at maximizing oil export revenue. It is locked in a row with the United States over its nuclear program.

Foreign purchases of Treasuries by institutions such as central banks and oil producing countries have helped keep government bonds yields lower in recent years even as the Federal Reserve raised its benchmark overnight lending rate to 5.25 percent.

But the dollar's poor performance has resulted in a gradual diversification in the composition of foreign central bank currency reserves.

"The proportion of money held by central banks in dollars is shrinking. It was once 70 percent and now it's in the mid-60s. Diversification is a key theme that is negative for the dollar and Treasuries, and that has been the case this year," said Crescenzi.

IDEAglobal currency strategist David Powell estimates Iran supplies about 15 percent of Japan's oil imports, roughly translating into $10 billion annually and suggesting little or no impact on petrodollar flows.

"It does not have a huge implication. They probably weren't keeping this $10 billion in Treasuries, more likely in short-term instruments. Iran is not a country that is flush with cash as other oil producing countries are," said Powell.

U.S. government data on Tuesday showed oil exporting nations raised their Treasury holdings by $9.1 billion to $121.3 billion in May.

When British holdings, viewed as including Middle Eastern accounts using London-based accounts, are factored in, about $42.2 billion worth of petrodollars were pumped into Treasuries in May.

"That is more than four times the annual sales in oil from Iran to Japan. Iran is not leading the trend for oil producing or Middle Eastern countries as far as the data shows us," said Powell.

Posted by Hugo Albert Orwell at 08:31 AM | Permalink | TrackBacks (0)

Source: Bloomberg

By Megumi Yamanaka

July 13 (Bloomberg) -- Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it's cutting holdings of the U.S. dollar.

Iran wants yen-based transactions ``for any/all of your forthcoming Iranian crude oil liftings,'' according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments ``effective immediately,'' according to the letter, dated July 10 and obtained by Bloomberg News.

The yen rose on expectations for an increase in demand for the currency to buy shipments from Iran, Japan's third-largest oil supplier. Central bankers in Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets because of the weakening currency, while the United Nations Security Council is preparing for another round of sanctions against Iran because of the nation's nuclear research.

``What else can Japan do but to accept the request, once the oil producer sent its wish?'' said Hirofumi Kawachi, an analyst at Mizuho Investors Securities Co. in Tokyo. ``The tensions between the U.S. and Iran are escalating, and it's Iran's measure to hedge risk.''

A spokesman for Iran's oil ministry in Tehran said he could neither confirm nor deny that the letter had been sent. Most Japanese oil refiners have until now used U.S. dollars to pay Iran for oil, said the spokesman, who declined to be identified by name because of government policy.

Yen Advances

The yen advanced to 122.15 per dollar at 10:34 a.m. in New York, from 122.42 late yesterday.

The Islamic republic, holder of the world's second-largest oil and gas reserves, has refused to halt uranium enrichment that it says is for use in nuclear power plants to produce electricity. The U.S. says Iran seeks instead to develop an atomic bomb. Enriched uranium can be used to make nuclear fuel or build nuclear weapons.

The government in Tehran has failed to suspend its nuclear activities after the imposition of two sets of United Nations- sponsored sanctions since December.

Iran isn't alone in wanting to drop the dollar for pricing oil. Russia has been examining plans to price the Urals oil export blend in rubles to curb currency risks. The nation plans to open the Energy Stock Exchange in St. Petersburg in the first half of next year to trade oil in rubles, UBS AG reported June 14.

`New Payment Mechanism'

Iran asked the refiners to use the yen exchange rate quoted at the Bank of Tokyo Mitsubishi UFJ on the date oil cargoes are loaded. The use of yen-based letters of credit for oil ``has finally been approved'' by the Iranian central bank and the NIOC, according to the letter, titled ``New payment mechanism for Iranian Crude Oil Cargoes.''

Payments from Japanese refiners to Iran rose 12 percent last year to 1.24 trillion yen ($10.1 billion), according to the finance ministry in Tokyo. Japan imported 1.59 million kiloliters of Iranian crude oil in May, the least since June 2006, according to government data.

Iran is cutting its U.S. dollar reserves to less than 20 percent of total foreign currency holdings, and will buy more euros and yen as tensions with the U.S. increase, Central Bank Governor Ebrahim Sheibany said on March 27.

Only Saudi Arabia and the United Arab Emirates are larger oil suppliers to Japan than Iran.

To contact the reporter on this story: Megumi Yamanaka in Tokyo at myamanaka [a] bloomberg.net .
Last Updated: July 13, 2007 10:59 EDT

Posted by Hugo Albert Orwell at 11:22 AM | Permalink | TrackBacks (0)

Source: AlterNet

By James Howard Kunstler
Posted April 4, 2007

The following is James Howard Kunstler' recent speech to the Commonwealth Club of California. An audio stream of the speech is available.

Two years ago in my book The Long Emergency I wrote that our nation was sleepwalking into an era of unprecedented hardship and disorder -- largely due to the end of reliably cheap and abundant oil. We're still blindly following that path into a dangerous future, lost in dark raptures of infotainment, diverted by inane preoccupations with sex and celebrity, made frantic by incessant motoring.

The coming age of energy scarcity will change everything about how we live in this country. It will ignite more desperate contests between nations for the remaining oil and natural gas around the world. It will alter the fundamental terms of industrial economies. It will ramify and amplify many of the problems presented by climate change. It will require us to behave differently. But we are not paying attention.

As the American public continues sleepwalking into a future of energy scarcity, climate change, and geopolitical turmoil, we have also continued dreaming. Our collective dream is one of those super-vivid ones people have just before awakening, as the fantastic transports of the unconscious begin to merge with the demands of waking reality. The dream is a particularly American dream on an American theme: how to keep all the cars running by some other means than gasoline. We'll run them on ethanol! We'll run them on biodiesel, on synthesized coal liquids, on hydrogen, on methane gas, on electricity, on used French-fry oil... !

The dream goes around in fevered circles as each gasoline-replacement is examined and found to be inadequate. But the wish to keep the cars going is so powerful that round and round the dream goes. Ethanol! Biodiesel! Coal Liquids. ...

And a harsh reality indeed awaits us as the full scope of the permanent energy crisis unfolds. The global oil production peak is not a cult theory, it's a fact. The earth does not have a creamy nougat center of petroleum. The supply in finite, and we have ample evidence that all-time global production has peaked.

Of course, the issue is not about running out of oil, and never has been. There will always be some oil left underground -- it just might take more than a barrel-of-oil's worth of energy to pump each barrel out, so it won't be worth doing.

The issue is not about running out -- it's about what happens when you head over the all-time production peak down the slippery slope of depletion. And what happens is that the complex systems we depend on for everyday life in advanced societies begin to falter, wobble, and fail -- and the failures in each system will in turn weaken the others. By complex systems I mean the way we produce our food, the way we conduct manufacture and trade, the way we operate banking and finance, the way we move people and things from one place to another, and the way we inhabit the landscape.

I'll try not to dwell excessively on the statistics since I am more concerned here with the implications for everyday life in our nation. But it is probably helpful to understand a few of the numbers.

Oil production in the US peaked in 1970. We're now producing about half of what we did then, and our own production continues to run down steadily at the rate of a few percentage points of recoverable reserves each year. It adds up. In 1970, we were producing about 10 million barrels a day. Now we're down to less than five -- and we consume over 20 million barrels a day. We have compensated for that since 1970 by importing oil from other nations. Today we import about two-thirds of all the oil we use. Today, the world is consuming all the oil it can produce. As global production passes its own peak, the world will not be able to compensate for its shortfall by importing oil from other planets.

Nor is there any real likelihood that new discoveries will be adequate to compensate. Discovery precedes production, of course, because you can't pump oil that you haven't discovered. Discovery of oil in the US peaked in the 1930s -- and production started declining roughly 30 years later. Discovery of oil peaked worldwide in the 1960s, and now the signs suggest the world has peaked. Discovery of new oil worldwide in recent years has amounted to a tiny fraction of replacement levels. In fact, we may be burning more oil just in our exploration efforts than we will get from the oil we're discovering.

The oil industry has been dominated by what are called supergiant fields. The four reigning supergiant fields of oil our time were discovered decades ago and are now in decline. The Burgan field of Kuwait, the Daqing of China, Cantarell of Mexico, and Ghawar of Saudi Arabia. Together in recent decades they were responsible for 14 percent of the world's oil production, and they are now in decline. All except Ghawar of Saudi Arabia have been declared officially past peak by their own governments and Ghawar is showing clear signs of trouble -- though Aramco itself won't say so. Ghawar has provided 60 percent of Saudi Arabia's production. Saudi Arabia's total production is down 8 percent in the year past, despite a massive increase in drilling rigs, and the incentive of high prices.

Last year, the Mexican national oil company, Pemex, declared its supergiant field, Cantarell, to be officially past peak and in decline. As in the case with Ghawar and Saudi Arabia, Cantarell has been responsible for 60 percent of Mexico's oil production. Cantarell is now crashing at an official decline rate of at least 15 percent a year -- perhaps steeper. Mexico has been our No. 3 source of oil imports (after Canada and Saudi Arabia). The crash of Cantarell means in just a few years Mexico, our No. 3 source of imports, will have no surplus oil to sell to the US. It also means that the Mexican government will be strapped for operating revenue -- and you can draw your own conclusions about the political implications.

The North Sea and Alaska's North Slope were some of the last great discoveries of the oil era. Plentiful North Sea and Alaskan production took away OPEC's leverage over the oil markets. This led to the oil glut of the 1990s, driving oil prices down finally to $10 a barrel. It is also what induced the American public to fall asleep on energy issues. It seemed as if cheap oil was here to stay. Forever.

Both The North Sea and Alaska are now past peak and in depletion. Prudhoe Bay proved to be Alaska's only super giant oil field. Several other key fields were discovered. None were even 1/6th the size of Prudhoe Bay.

North Sea oil was produced using the latest-and-greatest new technology for drilling and guess what: it only allowed the region to be drained more rapidly and efficiently. Now 57 of Norway's 69 oil fields are past peak and the average post-peak decline rates average 17 percent a year. The UK's share of the North Sea has declined to the extent that England is now a net energy importer.

Russia, despite current high levels of post-Soviet-era production, peaked in the 1980s, and may now be past 70 percent of its ultimate recoverable reserves. Iran is past peak. Indonesia, an OPEC member, is so far past peak it became a net oil importer last year. Venezuela is past peak. Iraq and Nigeria are consumed by political insurrection. The companies developing Canada's tar sands have announced this past year that their costs will double original estimates -- in other words, whatever comes out of the ground there will be very expensive.

Meanwhile, in the background, completely ignored by the US media, an additional problem is developing on the oil scene. Net world production is going down by just under 3 percent a year, but total exports from the top ten exporters are going down at an even steeper rate. Geologist Jeffrey Brown, among the excellent technicians at TheOilDrum.com website, writes that the top ten exporters are showing a net export decline rate of 7 percent the past year, trending toward a 50 percent export decline over the coming ten years. Why? Because on top of production decline rates, nations like Saudi Arabia, Iran, and Venezuela are using more of their own oil at home with rising populations and more automobiles.

A few additional background items. Most of the easy-to-get, light and sweet crude oil is gone. We got that out of the ground in the run-up to peak [oil]. We found that high quality oil in temperate places onshore, like Texas, where it was easy and pleasant to work, and the stuff was relatively close to the surface. The remaining oil is, each year, proportionally made up more of heavy and sour crudes that are hard to refine and yield less gasoline. Most of the refinery capacity in the world cannot process these heavy and sour crudes and there is no world-class industrial effort to build new ones -- and on top of that, existing world refinery infrastructure is old and rusty. Finally, most of the remaining oil in the world exists either in geographically forbidding places where it is extremely difficult and expensive to work, like deep water out in the ocean or in frozen regions, or else it belongs to people who are indisposed to be friendly to us.

The natural gas situation is at least equally ominous, with some differences in the technical details -- and by the way, I'm referring here not to gasoline but to methane gas (CH4), the stuff we run in kitchen stoves and home furnaces. Natural gas doesn't deplete slowly like oil, following a predictable bell curve pattern; it simply stops coming out of the ground very suddenly, and then that particular gas well is played out. You get your gas from the continent you're on. Natural gas is moved to customers in the US, Canada, and Mexico in an extensive pipeline network. To import natural gas from overseas, it has to be liquefied, loaded in a special kind of expensive-to-build-and-operate tanker ship, and then offloaded at specialized marine terminal, all adding layers of cost. The process also obviously affords us poor control over not-always-friendly foreign suppliers.

Half the homes in America are heated with gas furnaces and about 16 percent of our electricity is made with it. Industry uses natural gas as the main ingredient in fertilizer, plastics, ink, glue, paint, laundry detergent, insect repellents and many other common household necessities. Synthetic rubber and man-made fibers like nylon could not be made without the chemicals derived from natural gas. In North America, natural gas production peaked in 1973. We are drilling as fast as we can to keep the air conditioners and furnaces running.

That's the background on our energy predicament. Against this background is the whole question of how we live in the United States. I wrote three books previously about the fiasco of suburbia. There are many ways of describing it, but lately I refer to it as the greatest misallocation of resources in the history of the world. Why? Because it is a living arrangement with no future. Why doesn't it have a future? Because it was designed to run on cheap oil and gas, and in just a few years we won't have those things anymore.

Having made these choices, we are now hobbled by a tragic psychology of previous investment -- that is, having poured so much of our late-20th century wealth into this living arrangement -- this Happy Motoring utopia -- we can't imagine letting go of it, or substantially reforming it.

We have compounded the problem lately by making the building of suburban sprawl the basis of our economy. Insidiously, we have replaced America's manufacturing capacity with an economy based on building evermore suburban houses and the accessories and furnishings that go with them -- the highway strips, the big box shopping pods, et cetera -- meaning that our economy is now largely based on building more and more stuff with no future -- on a continued misallocation of resources. Roughly 40 percent of the new jobs created between 2001 last year were in housing bubble related fields -- the builders, the real estate agents, the mortgage brokers, the installers of granite countertops. If you subtracted the housing bubble from the rest of the economy in recent years, there wouldn't be much left besides hair-styling, fried chicken, and open heart surgery. Much of this housing bubble itself was promulgated by an equally unprecedented lapse in standards and norms of finance -- a tragedy-in-the-making that has now begun to unwind. What are we going to do about our extreme oil dependence and the living arrangement that goes with it?

There's a widespread wish across America these days that some combination of alternative fuels will rescue us; will allow us to continue enjoying by some other means what has been called "the non-negotiable American way of life." The wish is perhaps understandable given the psychology of previous investment.

But the truth is that no combination of alternative fuels or systems for using them will allow us to continue running America the way we have been, or even a substantial fraction of it. We are not going to run Wal Mart, Walt Disney World, Monsanto, and the interstate highway system on any combination of solar or wind energy, hydrogen, nuclear, ethanol, tar sands, oil shale, methane hydrates, thermal depolymerization, zero-point energy, used french-fry oil, or anything else you can name. We will desperately use many of these things in many ways, but we are likely to be disappointed by what they can actually do for us, particularly in terms of scale -- apart from the fact that most or all of them are probably net energy losers in economic terms.

For instance, we are much more likely to use wind power on a household or neighborhood basis rather than in deployments of Godzilla-sized turbines in so-called wind farms.

The key to understanding what we face is that we have to comprehensively make other arrangements for all the normal activities of everyday life. It is a long, detailed "to do" list that we can't afford to ignore. The public discussion of these issues is impressively incoherent. This failure of the collective imagination is reflected in the especially poor job being done by the mainstream media covering this story -- in particular, The New York Times, which does little besides publish feel-good press releases from Cambridge Energy Research Associates, the oil industry's chief public relations consultant.

These days, the only aspect of these issues that we are willing to talk about at all is how we might keep all our cars running by other means. We have to get beyond this obsession with running the cars by other means. The future is not just about motoring. We have to make other arrangements comprehensively for all the major activities of daily life in this nation.

We'll have to grow our food differently. The ADM/Monsanto/Cargill model of industrial-scale agribusiness will not survive the discontinuities of the Long Emergency -- the system of pouring oil-and-gas-based fertilizers and herbicides on the ground to grow all the cheez doodles and hamburgers. As oil and gas deplete, we will be left with sterile soils and farming organized at an unworkable scale. Many lives will depend on our ability to fix this.

We will find out the hard way that we can't afford to dedicate our crop lands to growing grains and soybeans for ethanol and biodiesel. A Pennsylvania farmer put it this way to me last month: "It looks like we're going to take the last six inches of Midwest topsoil and burn it in our gas tanks." The disruptions to world grain supplies by the ethanol mania are just beginning to thunder through the system. Last months there were riots in Mexico City because so much Mexican corn is now being already being diverted to American ethanol production that poor people living on the economic margins cannot afford to pay for their food staples.

You can see, by the way, how this is a tragic extension of our obsession with running all the cars.

In the years ahead, farming will come back much closer to the center of American economic life. It will necessarily have to be done more locally, at a smaller-and-finer scale, and will require more human attention. Many of the value-added activities associated with farming -- making products like cheese, wine, oils -- will also have to be done much more locally. This situation presents excellent business and vocational opportunities for America's young people. It also presents huge problems in land-use reform. Not to mention the fact that the knowledge and skill for doing these things has to be painstakingly retrieved from the dumpster of history.

We're going to have to move people and things from place to place differently. It is imperative that we restore the US passenger railroad system. No other project we could do right away would have such a positive impact on our oil consumption. We used to have a railroad system that was the envy of the world. Now we have a system that the Bulgarians would be ashamed of.

The infrastructure for this great task is lying out there rusting in the rain. This project would put scores of thousands of people to work at meaningful jobs, at every level, from labor to management. It would benefit all ranks of society. Fixing the US passenger rail system doesn't require any great technological leaps into the unknown. The technology is thoroughly understood. The fact that from end-to-end of the political spectrum there is no public discussion about fixing the US passenger rail system shows how un-serious we are.

There's another compelling reason we should undertake the great project of repairing the US passenger rail system: it is something that would restore our confidence, a way we could demonstrate to ourselves that we are competent and capable of meeting the difficult challenges of this energy-scarce future. ... And it might inspire us to get on with the other great tasks that we will have to face.

By the way, it is important that we electrify our railroad system. All the other advanced nations have electric rail systems which allow them to run on something other than fossil fuel or to control the source point of the carbon emissions and pollution in the case of coal-fired power generation. Electric motors are far simpler and way more efficient even than diesel engines. The US was well underway with the project of electrifying our railroad system, but we just gave up after the Second World War as we directed all our investment to the interstate highway system instead.

We're going to have to move things by boat. But we've just finished a 50-year effort in taking apart most of the infrastructure for maritime trade in America. Our harbors and riverfronts have been almost completely de-activated. The public now thinks that harbors and riverfronts should only be used for condo sites, parks, bikeways, band shells and festival marketplaces. Guess what: We're going to have to put back the piers and warehouses and even the crummy accommodations for sailors.

We're going to have to move a lot more stuff by water or our ability to do commerce will suffer. Meanwhile, if we use trucks, it will be for the very last local increment of the journey. Leaders in business and municipal politics will have to wrap their minds around this new reality.

We are probably in the twilight of Happy Motoring -- as we have known it. The automobile will be a diminished presence in our lives. I'm not saying that cars will disappear, but it will become self-evident that our extreme dependency will have to end. It is possible, but not likely, that affordable electric cars will come on the market before we get into serious trouble with oil. More likely, we'll be facing an entirely new political problem with cars as motoring becomes increasingly only something that the economic elite can enjoy.

For decades, motoring has been absolutely democratic. Everybody from the lowliest hamburger flipper to the richest Microsoft millionaire could participate in the American motoring program. Right now, let's say six percent of adults in this nation can't drive, for one reason or another: They're blind, too old, too poor, et cetera. What if that number rose to 13 percent, or 26 percent of Americans because either the price of fuel or the cost of a vehicle rose beyond their means. Do you suppose that a whole new mood of grievance and resentment might arise against those who were still driving cars? And how would the large new class of non-drivers feel about paying taxes to maintain the very expensive interstate highway systems?

Back to the task list:

We're going to have to make other arrangements for commerce and manufacturing. The national chain discount stores that took over American retail in recent decades will not survive the discontinuities of the Long Emergency. Their business equations and methods of operations will fail, in particular their remorseless cancer-like drive toward replication and expansion. They will lack the resilience to adapt due to their gigantic scale of operations -- a scale that will no longer be appropriate to the contracting available energy "nutrients."

The so-called "warehouse on wheels" composed of thousands of trucks circulating incessantly around the interstate highways will not work economically in a new era of scarcer and expensive oil. Not to mention the 12,000-mile supply line to the factories of Asia which we have tragically come to depend on for so many of our household goods.

We have to check all our assumptions at the door about how things will work in the years ahead. Lately, thanks to Tom Friedman and other cheerleaders for the global economy, we've adopted the notion that globalism is a permanent condition of life. I think we will be disappointed to learn the truth -- that globalism was a set of transient economic relations made possible at a particular time by very special conditions, namely half a century of cheap energy and half a century of relative peace between the great powers.

Those conditions are about to end, and with them, I predict, will go many of the far-flung economic relations that we've come to rely on. When the US and China are contesting for the world's remaining oil resources, do you think it's possible that our trade relations might be affected? These are things we had better be prepared to think about it. China has way outstripped its own dwindling oil supply. China has gone all over the world in recent years systematically making contracts for future delivery of oil with other nations, including Canada, as that nation ramps up production of the tar sands in Alberta.

I want to remind you that there is such a thing as the Monroe Doctrine, an American foreign policy position that essentially forbids nations outside the western hemisphere from intruding in or exploiting affairs in this part of the world. It may be an old and perhaps an arrogant policy -- but I predict the time will come when the United States will invoke it in order to preserve our access to Canadian oil supplies. And if-and-when that occurs, what do you suppose that will mean to our trade relations with China? How many plastic wading pools and salad shooters will Wal-Mart be ordering then?

These are the kinds of things we are not thinking about at all, and which leave us woefully unprepared to face a very uncertain future.

Getting back to retail trade in the US -- it is important to recognize the damage that the national discount chain stores have already done in systematically destroying local commercial economies. If you travel around the main street towns of this nation, as I do, you see places in Pennsylvania, and Michigan, and Alabama, and Oklahoma, and Connecticut, and in my region of the upper Hudson Valley in New York that look like former soviet backwaters. The destruction, the abandonment and desolation in the fabric of our towns is just out of this world.

This era of chain store supremacy will not continue far into the future, and as it wobbles and falls we will be faced with a tremendous task of rebuilding the fine-grained, multi-layered local networks of economic interdependency that the chain stores destroyed. As that rebuilding occurs we will restore social roles as well as economic roles that have long been absent in our home places.

In destroying local retail infrastructures, the chain stores wiped out a whole mercantile middle class. These were the people ran local businesses, who sat on the library and hospital boards, who sponsored the little league baseball, who employed their neighbors and had to behave decently toward them, as well as treating their neighbors decently in matters of trade. They were people who uniformly had to take care of at least two buildings in town -- the place where they did business and the place where they lived. These were the people who were the caretakers of our communities, and the extermination of this class of citizens has been devastating.

We don't know how we are going to make things again in America, for instance, ordinary household products. We're not going to re-live the 20th century, when the US was on a great upswing of energy resources and we made everything for ourselves from toasters to record players. Where I live, in the upper Hudson and Mohawk Valley region of New York, most of the factories have actually been knocked down in the past 20 years. The water power is still there in many of these places, but the buildings are gone. Among all our other wishes, there is a wish that we will innovate stunning new methods for making things, such as nanotechnology. I'd repeat that we'd better check all our assumptions at the door and that we are liable to be disappointed by what these wishes will eventually lead to.

I think the truth is, we are going to have fewer things to buy. The Blue-Light-Special retail orgy of recent decades will fade into history, and shopping will retreat into the background of daily life. Consuming things will not be our sole reason for living.

The role of finance as we know it today will be severely challenged by the Long Emergency. Declining energy supplies have one particular grave implication for industrial societies: that they can no longer take for granted the 3 to 7 percent annual growth in gross domestic product that has been assumed to be normal throughout recent history. In fact, the energy picture -- the dwindling of a particular, extraordinary, one-time, very special resource -- implies a general contraction of productive activity.

Our expectations for growth are vested in tradable paper certificates -- currencies, stocks, bonds, and other instruments that represent our confidence that society will produce more wealth, and that this increase can be enjoyed in the form of profits and dividends. What happens when that consensus about reliable increase falls apart? What happens to the entire edifice of finance when these abstract certificates are no longer backed by the faith of people who have been trading them?

We can see the beginning of this process right now in the unwinding of the home mortgage sector. This recent experiment in the abolition of moral hazard, in the suspension of norms-and-standards in lending, in the fobbing off of risk, is climaxing in one of the great debacles of modern economics. It was based on the idea that immense numbers of promises for future payment could be bundled into bonds, resold, and parlayed to leverage evermore abstract casino-like bets masquerading as investments. This is anything but investment in future productive activity.

It is now being discovered that at the foundation of all this jive-finance activity lie bundles of broken promises, "non-performing loans," as they're called. It remains to be seen how this mortgage-and-housing bubble fiasco will play out, but I think it will be one of the major events leading to an overall loss of presumed wealth for American society. And is likely, as well, to infect the jury-rigged structures of global finance to a disastrous degree.

The key to all our everyday activities in the future is scale. We will probably have to live more locally than has been the case in recent decades. I think we can state categorically that anything organized on the gigantic scale, whether it is an agricultural system, or a finance system, or a corporation, or a chain of stores, or a school, or a government, is going to run into trouble.

School is another item on our "to do" list of things that we have to make other arrangements for. The gigantic centralized public school systems all over America that depend on the massive fleets of yellow school buses for collecting the students every morning around the 50-mile-radius 'pupil sheds' -- this way of doing things will probably encounter failure. Not to mention that we used the same kind of sprawling, one-story, flat-roofed buildings in Florida as in Minnesota -- and given the situation with natural gas we'll have trouble heating these buildings in the colder states. Of course there are plenty of reasons to suspect that schools this large, designed like medium security prisons, are not optimum settings for learning even if oil and gas were plentiful.

Complicating the issue is the fact that our school systems are at the center of the psychology of previous investment. We have put so much of our collective wealth in these sprawling, oversized, vehicle-dependent institutions -- with all their fabulous amenities of swimming pools, video labs, and free parking -- that it will be very difficult for us to let go of them -- even after it is self-evident that they are no longer working. What will replace our giant centralized public schools? School districts will be starved for cash in the Long Emergency. I doubt that we will be able to replace the centralized schools with a whole new system of smaller buildings distributed more equitably around the places where people live. If anything, I suppose a replacement may arise out of home schooling, especially as home schools aggregate into larger neighborhood units so that every parent doesn't have to duplicate the vocational role of teacher (and of course not all parents would even be capable of acting in that role).

The destiny of higher education ought to be especially troubling. The giant universities are exactly the kinds of institutions that will prove unwieldy and unsupportable in the Long Emergency. College will cease to be the mass consumer activity it became in the cheap energy heyday. If it survives at all, it is likely to be -- as earlier in history -- an activity for a much smaller economic elite.

The question of class relations per se will be affected by our energy situation, since it is necessarily linked to our economy. The Long Emergency is going to produce a lot of economic losers -- a whole new group I call the formerly middle class. They will lose jobs, vocations, and incomes that they will never get back. They are going to be full of grievance, anger, resentment, and bewilderment at the loss of their entitlements to the "non-negotiable" American way of life, including home ownership and affordable happy motoring. They are likely to express these feelings politically. We will be lucky if they do not turn to demagogues who promise to mount one sort of campaign or another to restore the entitlements of suburbia.

Such a campaign would be an enormous exercise in futility and a gross waste of our scarce remaining resources. But it is the kind of thing that happens when a society comes under extreme stress, and we had better be prepared for it. Social friction may also be prompted as agriculture comes closer to the center of our economic life, and we're faced with conflict between those who retain wealth in productive land and those who must resort to working in agriculture to make a living. In history, this typically sets the stage for the radical redistribution of property, seizure of land, in short, for political revolution. It could happen here. We are certain to experience epochal demographic shifts in any case. The 200-year-long trend of people leaving the rural places and the small towns to go to the big cities will very likely go into reverse.

Our hyper-gigantic cities and so-called metroplexes are a pure product of the 200-year-long upward arc of cheap energy. Like other things of gigantic scale, our cities will get into trouble. They are going to contract substantially. The cities that are composed overwhelmingly of suburban fabric will be most susceptible to failure. Orlando, Houston, Atlanta. The cities that are overburdened with skyscrapers will face an additional layer of trouble -- the skyscraper, like the mega-city, was a product of cheap energy, and we are going to have trouble running them, especially heating them without cheap natural gas.

As our cities contract, I think they will re-densify at their centers and around their waterfronts, if they are located favorably on water, and depending on how (or if) rising ocean levels might affect them. The process of contraction in our cities is likely to be difficult, disorderly and unequal. Some cities will do better than others. In my opinion, Phoenix and Tucson will be substantially depopulated. They will face additional problems with their ability to produce food locally and with water.

In Las Vegas, the excitement will be over. That will be a good thing since it has become the holy shrine of America's new chief religion: the worship of unearned riches -- based on the belief that it is possible to get something for nothing -- a belief that underlies, by the way, a great deal of the delusional thinking abroad in this land about the ability of alternative fuels and energy schemes to rescue our current mode of living.

It is hard to be optimistic about the destiny of our suburbs. My referring to them as the greatest misallocation of resources in the history of the world pretty much says it all. There will be a wish to rescue them, of course, but it is unlikely to go beyond the wishing stage. We will be a less affluent society in the years ahead than we were when we built the suburbs in the first place, and we will have fewer resources to fix them or retrofit them. The Jolly Green Giant is not going to come and move the houses closer to the shopping -- to undo the vast absurdities of single-use-zoning.

We could reform our codes and regulations which have virtually mandated a suburban sprawl outcome in every American locality -- but it's a little late for that. The horse is out of the barn on that one. And anyway, I believe the mortgage-and-housing bubble fiasco will mark the end of the whole project of suburbanization per se. I don't believe the production home builders will ever recover from it in our lifetimes; we certainly don't need a single additional WalMart or fried food joint; and the energy problems we face will eventually overcome all our wishes to keep that system going, whether we like it or not.

Realistically, I think we will have to return to a set of traditional ways of inhabiting the terrain -- towns, smaller-scaled cities composed of walkable neighborhoods, and a productive rural landscape with more of a human presence than we see in today's countryside. We have thousands of smaller towns and cities waiting to be re-inhabited and re-activated. Most of them occupy geographically important or valuable sites, especially the ones near fresh running water.

For the past two decades I have been associated with the New Urbanist movement. The New Urbanists were architects, planners, and developers who recognized the tremendous weaknesses and liabilities of the suburban pattern and have been campaigning to reform the way we build things in this country. Their methods are consistent with what we are going to need in the decades ahead to refashion human habitats that have a future and which are worth caring about.

The great achievement of the New Urbanists was not in the projects and new towns that they designed and caused to get built in recent years, but in their heroic act of retrieving lost knowledge from the dumpster of history -- a whole body of principles, methods, and skills necessary to design places worth living in. This was knowledge and principle that we had thrown away in our mad rush to become a drive-in utopia. We threw it away thinking that we could replace urban design and artistry with mere traffic engineering and statistical analysis. The result of that is now visible for all to see in the tragic landscape of the highway strips and the single-income housing pods. What we managed to do was build a land full of scary places that turned us into a nation of scary people. But this was the final tragedy of suburbia: we put up thousands of places that aren't worth caring about, not understanding that when we had enough of them, we might be left with a nation not worth defending.

So there you have a comprehensive "to do" list of efforts we can make to meet the challenges of the permanent global energy crisis, things we can do to mount an intelligent response to these circumstances that reality is sending our way. Growing more of our food locally; restoring our railroads and other forms of public transit; rebuilding local networks of commerce and economic interdependency; reorganizing education at an appropriate scale for the future.

We cannot assume a seamless transition between where we are today and where we're going. It maybe turbulent and disorderly.

We cannot assume that technology alone will rescue us. In fact, one of the major obstacles to clear thinking these days is the mistaken belief that technology and energy are the same thing; that they are interchangeable; that if you run out of one, you can just plug in the other.

Energy and technology are related to each other but they are not the same. Technology may help us get energy resources, or use energy resources, but it is not an energy resource itself. We assume magical properties for technology largely because, in our lifetimes, the energy has always been there behind it, steady, dependable, and cheap.

What's more energy and technology both entail very insidious side effects. Energy throws off entropy, a protean force of disorder and loss that manifests in everything from the wasted heat coming out of an engine tailpipe to the immersive ugliness of the American commercial highway strip -- which is entropy-made-visible.

Technology throws off diminishing returns, in the sense that the more complex you make things, often the worse the effect on society as a whole. My favorite example is the telephone system. For more than two decades we have invested billions in computerizing every phone system in the land. The net result, after all that investment and effort, is that it is practically impossible to reach a live human being on a telephone -- not to mention the monumental ten-times-a-day aggravation of getting booted into a computerized phone menu leading to the purgatory of terminal "hold."

I hope we can overcome our tendencies to try to get something for nothing and to engage in wishful thinking. The subject of hope itself is an interesting one. College kids on the lecture circuit always ask me if I can give them some hope. Apparently, they find this view of the future to be discouraging. It may mean fewer hours playing Grand Theft Auto with a side order of Domino's pepperoni pizza, but there are many positive implications for our lives in the future. We may once again live in places worth caring about, where beauty and grace are considered everybody's birthright. We may work side-by-side with our neighbors, on things that are meaningful. Instead of canned entertainments, we may hear the sounds of our own voices making music, see the works of our own dramatists and dancers.

Hope is something we really have to supply for ourselves. We are our own generators of hope, and we do it by demonstrating to ourselves that we are capable of facing the circumstances of our time, of working competently to meet these challenges, and of learning the difference between wishing and doing. In fact, what we need is not so much hope, but confidence in our inherent abilities and the will to act.

We've got a lot to do. We've got to put down the iPods and get busy. There's no time for hand-wringing and whining. As Yogi Berra said, our whole future's ahead of us.

Posted by Hugo Albert Orwell at 05:18 PM | Permalink | TrackBacks (0)

Source: Free-Market News Network

By Noel Gibeson
Thursday, January 11, 2007

In the petrodollar wars, stage one was Iraq and stage two is Iran. Both dared to propose to use the euro instead of the U.S. dollar (USD) to buy Middle East oil. That was a big mistake because it jeopardized the solvency of the USD, a fiat currency; and, therefore, the very heart of the U.S. economy itself. Big business will not stand for that.

What is a fiat currency? A fiat currency in the case of the USD is a currency that is NOT based on gold, silver, or anything else of tangible value; but rather it is "a promise to pay." Essentially, it is an IOU ("I owe you") note that is based on the good faith and credit of the issuer that it will be redeemed at the face value of the note, a USD in this case. This is its weakness for holders of the note, but its strength for the issuer of the currency, in this case the U.S. government who simply continues to print as much money as it wants to in hopes that it will never have to redeem these dollars at their face value all at one time. It is much like an international Ponzi scheme. In reality, it is play money or monopoly money.

New York Post columnist Ralph Peters in "Eyeing Iran" (NYP, January 8, 2007) described the new U.S. military Middle East leadership lineup with General Patreus going to Iraq and Admiral Fallon going to CENTCOM as a sign for the future. Appointing a naval officer to command CENTCOM for the first time is seen as a harbinger of things to come with regard to Iraq, Somalia, and in particular, Iran. The Persian Gulf and the Indian Ocean are key geographical areas in this region. Any attempts by Iran (or anyone else for that matter) to block key strategic geographic features, such as the Strait of Hormuz, or otherwise impede the transport of oil or strategic materials could be met with an instantaneous naval military response. The presence of increased naval forces in the area could also be a sign of potential military action.

What has become more even important than national boundaries, according to Anthony Wile in High Alert (High Alert Publishing, 2007), is the control and domination exercised by global elites over the economies of nations and the destinies of people. Few people are aware of this relationship and this excellent book goes into detail describing how this works. These are the forces that are currently in play worldwide that affect the U.S., Iraq, and Iran, among many other nations.

So when Iraq President Saddam Hussein said in 2000 that Iraq would begin selling Iraqi oil using the euro instead of the USD he instantly became a marked man. Why; because it is vital to the solvency of U.S. fiat currency that there are many foreign holders of the USD in order to keep it afloat; to keep it solvent. This is particularly important in the oil markets where trade must be conducted using the USD that the United States set as the standard long ago for oil purchases. This was done on purpose (Krassimir Petrov, "The Proposed Iranian Oil Bourse," Energy Bulletin, January 26, 2006).

Iran's plan to compete with dollar-dominated and American-owned New York's NYMEX and London's IPE, met with frosty reception from the beginning and things never got better. Because of the United States' high debt levels and stated neo-conservative quest for world domination, the euro inroads to establish a foothold in the dollar-dominated world oil market and posed a direct threat both to the U.S. dollar and to the U.S. economy (William Clark, "The Real Reasons Why Iran is the next Target," Energy Bulletin, October 26, 2004).

The chief obstacle to establishment of a euro-denominated marker has been the three dollar-denominated oil pricing standard, or oil markers as they are referred to in the industry. They are the West Texas Intermediate crude (WTI), Norway Bent crude, and the Dubai crude. Since 2003 Iran has been selling their oil exports to Europe and Asia/ACU in euros. However, in 2004 when Iran announced that it intended to establish an Iranian Oil Bourse that was euro-based, that sent shockwaves through the U.S.-dominated international oil industry because it would compete with the U.S. owned NYMEX and IPE. That set Iran on a path of confrontation with the United States (William Clark, Oil, Iraq, and the Future of the Dollar, New Society Publishers, 2005).

While the United States has no bone with the people of Iran who are generally viewed with great favor in the U.S., it does have a major problem with the Ahmadinejad government of Iran for two reasons; first, their desire to establish an Iranian Oil Bourse, and second, their continued development of a nuclear weapons along with their vow to destroy Israel. Israel would never allow this to happen, nor would the United States.

But perhaps a sin even greater than continued nuclear weapons development has been their quest to establish the Iranian Oil Bourse.

For contrast, North Korea has an even more developed nuclear weapons program and is guilty of proliferating missile technology to Pakistan, Indian and Iran, yet the U.S. does not seem interested in invading them, at least so far. What is the difference? North is not an oil producer, whereas, Iran not only is a major oil producer but intends to setup a non-dollar denominated oil bourse as well. That is why Iran is the next U.S. target.

Posted by Hugo Albert Orwell at 09:12 AM | Permalink | TrackBacks (0)

Source: Axis of Logic

The Proposed Iranian Oil Bourse
By Krassimir Petrov
Dec 29, 2006, 05:48

I. Economics of Empires

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

Historically, taxing the subject state has been in various forms—usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods—the difference capturing the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. The U.S. dollar was tied to gold, so that the value of the dollar neither increased, nor decreased, but remained the same amount of gold. The Great Depression, with its preceding inflation from 1921 to 1929 and its subsequent ballooning government deficits, had substantially increased the amount of currency in circulation, and thus rendered the backing of U.S. dollars by gold impossible. This led Roosevelt to decouple the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not an empire. The fixed value of the dollar did not allow the Americans to extract economic benefits from other countries by supplying them with dollars convertible to gold.

Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. This established the dollar as the reserve currency of the world. It was possible, because during WWII, the United States had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portion of the world’s gold. An Empire would not have been possible if, following the Bretton Woods arrangement, the dollar supply was kept limited and within the availability of gold, so as to fully exchange back dollars for gold. However, the guns-and-butter policy of the 1960’s was an imperial one: the dollar supply was relentlessly increased to finance Vietnam and LBJ’s Great Society. Most of those dollars were handed over to foreigners in exchange for economic goods, without the prospect of buying them back at the same value. The increase in dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax—the classical inflation tax that a country imposes on its own citizens, this time around an inflation tax that U.S. imposed on rest of the world.

When in 1970-1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payment on August 15, 1971. While the popular spin told the story of “severing the link between the dollar and gold”, in reality the denial to pay back in gold was an act of bankruptcy by the U.S. Government. Essentially, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods, and the world was powerless to respond— the world was taxed and it could not do anything about it.

From that point on, to sustain the American Empire and to continue to tax the rest of the world, the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil.

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren’t strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush’s Shock-and-Awe in Iraq was not about Saddam’s nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can’t explain why Bush would want to seize those fields—he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have went into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished—he had successfully defended the U.S. dollar, and thus the American Empire.

II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate “nuclear” weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam’s, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:

The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans.

The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.

The Russians have inherent economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.

The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversifying against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk, not to mention their jihad against the Infidel Enemy.
Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace? Still, we should not forget that currently the two leading oil exchanges are the New York’s NYMEX and the London’s International Petroleum Exchange (IPE), even though both of them are effectively owned by the Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests. It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse accelerate, the interests that matter—those of Europeans, Chinese, Japanese, Russians, and Arabs—will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the operation’s exchange:

Sabotaging the Exchange—this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.

Coup d’état—this is by far the best long-term strategy available to the Americans.

Negotiating Acceptable Terms & Limitations—this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d’etat fails, then negotiation is clearly the second-best available option.

Joint U.N. War Resolution—this will be, no doubt, hard to secure given the interests of all other member-states of the Security Council. Feverish rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.

Unilateral Nuclear Strike—this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The Americans will likely use Israel to do their dirty nuclear job.

Unilateral Total War—this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will further alienate other powerful nations. Third, major dollar-holding countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop and a separate pact with Syria.
Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar. The collapsing dollar will dramatically accelerate U.S. inflation and will pressure upward U.S. long-term interest rates. At this point, the Fed will find itself between Scylla and Charybdis—between deflation and hyperinflation—it will be forced fast either to take its “classical medicine” by deflating, whereby it raises interest rates, thus inducing a major economic depression, a collapse in real estate, and an implosion in bond, stock, and derivative markets, with a total financial collapse, or alternatively, to take the Weimar way out by inflating, whereby it pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us that there is no in-between Scylla and Charybdis. Sooner or later, the monetary system must swing one way or the other, forcing the Fed to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression and an adept Black Hawk pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard’s America’s Great Depression, has nonetheless mastered the lessons of the Great Depression and the annihilating power of deflations. The Maestro has taught him the panacea of every single financial problem—to inflate, come hell or high water. He has even taught the Japanese his own ingenious unconventional ways to battle the deflationary liquidity trap. Like his mentor, he has dreamed of battling a Kondratieff Winter. To avoid deflation, he will resort to the printing presses; he will recall all helicopters from the 800 overseas U.S. military bases; and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency and from its ashes will rise the next reserve currency of the world—that barbarous relic called gold.

--------------------------------------------------------------------------------

Recommended Reading
William Clark “The Real Reasons for the Upcoming War in Iraq”
William Clark “The Real Reasons Why Iran is the Next Target”

About the Author
Krassimir Petrov (Krassimir_Petrov@hotmail.com) has received his Ph. D. in economics from the Ohio State University and currently teaches Macroeconomics, International Finance, and Econometrics at the American University in Bulgaria. He is looking for a career in Dubai or the U. A. E.

Also by this author
“China’s Great Depression”
“Masters of Austrian Investment Analysis”
“Austrian Analysis of U.S. Inflation”
“Oil Performance in a Worldwide Depression”
See: www.financialsense.com/editorials/petrov/main.html

~~~~~ Notes from the Editor of Energy Bulletin~~~~~

An excellent and thought provoking article by Krassimir Petrov!

However, I think perhaps it's not entirely correct to state that "critics can’t explain why Bush would want to seize those fields." The Bush regime are probably aiming to set themselves up as policeman of the Middle East oil fields, 'protecting' oil supply to Asia and Europe in return for various advantages at any future negotiation tables. Meanwhile billions of dollars of unaccountable no-bid contracts have been handed to corporations with ties to Bush administration, and the Iraqi oil industry is set to be privatised. So the reasons for the war are rich and varied. However Petrov has given us one of the clearest explanations yet of one of the most important, and certainly least understood, motivations for the war.

-AF

http://www.energybulletin.net/12125.html

Posted by Hugo Albert Orwell at 10:33 AM | Permalink | TrackBacks (0)

Source: Times Online UK

December 22, 2006
Carl Mortished, International Business Editor

Iran is selling more of its oil for payment in euros than dollars as it seeks to shift its foreign currency reserves away from the depreciating currency of its political enemy, the United States.

The world’s fourth-biggest oil exporter has inserted a clause in its oil contracts allowing it to request payment in alternative currencies.

Gholanhossein Nozari, the managing director of National Iranian Oil Company, said that 57 per cent of Iran’s income from oil exports was now received in euros.

The move reflects a political desire for less reliance on the dollar, as well as a need to avoid further depreciation in currency reserves. Iran’s dollar holdings are thought to have fallen from 40 per cent of currency reserves to just a third.

Iran announced plans in 2004 to develop an Iranian oil bourse, a commodity exchange that would become a Middle Eastern rival to the major exchanges in New York, London and Singapore, which set benchmark oil prices.

The Iranian bourse would also challenge the petrodollar by setting oil prices in euros. However, there has been little progress in establishing the bourse, which failed to launch as planned last March.

A spokesman for National Iranian Oil Company said that the switch to euros for oil payments would not affect the pricing of Iranian oil. “Our oil contracts are still based on the dollar because the international market assessments are in US dollars,” he said.

Iran’s decision to switch currencies extends a trend among big oil exporters moving from the dollar as they seek protection from a continuing slide in the petrocurrency’s value. In October Russia said it would diversify its currency reserves into Japanese yen. Overall, Russia is believed to have let its dollar holdings slip and they are now equal with euros.

The dollar’s slide protected non-dollar oil importers from the escalation in the price of fuel early this year. Oil was $63 per barrel at the beginning of January, rose to $74 at the start of July and has fallen back to $63 per barrel this month. However, translated into euros, the rise is less impressive — from €53 a barrel to a peak of €58 before a sharp decline to €48.

The fall in the dollar against major currencies has had a dramatic impact on the revenues of oil exporters and has exacerbated the rumbling anti- American feeling in the Gulf.

In March the United Arab Emirates said that it would switch 10 per cent of its currency reserves from dollars to euros, a decision that closely followed the attempt by the US Congress to block the acquisition by Dubai Ports World of a number of ports in the United States.

Posted by Hugo Albert Orwell at 12:44 PM | Permalink | TrackBacks (0)

Source: Playfuls.com

The Iranian oil ministry on Saturday confirmed signing a memorandum of understanding on a 16 billion US dollars gas deal with China, Khabar news network reported.

According to the deal, the North Pars gas field, located 85 kilometres north of the giant South Pars gas field in the Persian Gulf, is to be developed by China within eight years and four phases.

The gas from the field is to be converted to liquefied natural gas and shared equally between Iran and China.

The South Pars gas field has an estimated 80 trillion cubic feet of natural gas.

© 2006 DPA

Posted by Hugo Albert Orwell at 12:37 PM | Permalink | TrackBacks (0)

Source: Bloomberg

By Bill Varner

Dec. 23 (Bloomberg) -- The United Nations Security Council voted 15 to 0 to impose sanctions on Iran for its nuclear program for the first time, including a ban on acquisition of materials and technology that might be used to build an atomic bomb.

The measure demands that Iran halt uranium enrichment and heavy-water projects that the U.S. and its European allies have said may lead to the development of nuclear weapons. It freezes the financial assets of 12 named individuals and 11 groups such as the Atomic Energy Organization of Iran.

The resolution also requires the UN's nuclear watchdog agency, the International Atomic Energy Agency, to report on Iran's compliance within 60 days. ``Further appropriate measures'' such as economic penalties and severance of diplomatic relations will be required if Iran doesn't comply, it says.

``We are sending Iran an unambiguous message that there are serious repercussions to its continued disregard of its obligations and defiance of this body,'' U.S. Acting Ambassador Alejandro Wolff said. ``We look forward to Iran's full, unconditional and immediate compliance with this resolution.''

The vote, the result of more than two months of negotiations largely aimed at winning Russia's support, occurred as the U.S. and Britain are close to increasing naval power in the Persian Gulf in a display of military resolve, the New York Times reported, citing unidentified Pentagon and military officials.

Serious Message

``Russia views this resolution as a serious message being sent to Iran regarding the need more actively and more openly to cooperate with the IAEA to lift or resolve the remaining concerns relating to their nuclear program,'' Russian Ambassador Vitaly Churkin said. ``We hope that Iran will correctly and very seriously perceive the contents of this resolution and take the necessary measures to redress their situation.''

The Security Council action will likely add to tensions in the region and may contribute to rising oil prices in 2007, according to Ian Bremmer, president of the Eurasia Group, a New York-based organization that analyzes political risk for businesses. Iran is the second-biggest oil producer in the Middle East.

``Oil markets won't move very much on this resolution,'' Bremmer said. ``But we think Iran is one of the biggest risks out there and that there will be escalation of tensions in 2007 as Iran retaliates. They can disrupt markets by driving proxy wars in Iraq, Lebanon and the Palestinian territories.''

Retaliation

Senior Iranian lawmakers said today that their parliament might retaliate by blocking inspections by the IAEA, according to IRNA, the state-run Iranian news agency. Legislation to suspend inspections has been passed by the parliament's security and foreign affairs committee, the agency reported.

At the UN, Iranian Ambassador Javad Zarif said suspension of enrichment activities was ``not a solution,'' that it was instead a ``temporary, stop-gap measure'' that didn't work from November 2003 to February 206. Without specifying how Iran would react to the vote, he said the ``days of bullying, pressure and intimidation by some nuclear-weapons holders are gone.''

Zarif said the Security Council was guilty of hypocrisy for taking no action against Israel after Prime Minister Ehud Olmert appeared to confirm recently that Israel has nuclear weapons.

The U.S. and its European allies, Zarif said, which ``pushed this council to take groundless punitive measures against Iran's peaceful nuclear program, have systematically prevented any action to nudge the Israeli regime towards submitting itself to the rules governing the nuclear non-proliferation regime.''

Russia agreed to vote for the resolution after Britain, France and Germany dropped a proposed travel ban on Iranian officials and narrowed the scope of the trade embargo to ``proliferation sensitive'' materials and technology. An earlier version of the text, first circulated in October, would have banned any item that could contribute to Iran's nuclear or missile programs.

Nuclear Power Plant

The resolution's sponsors also deleted any mention of the Bushehr commercial nuclear power plant that Russia is helping Iran build. An earlier text would have barred delivery of fuel to the plant.

``It is an important symbolic move, but it is hard to see that this puts sufficient pain on Iran to compel it to do anything,'' said Bruce Reidel, senior fellow at the Brookings Institution in Washington. ``At best, this is a warning shot across the bow of the Iranian state, a long way from authorizing the use of force.''

Iran ignored a July 31 resolution requiring it to suspend enrichment activities by Aug. 31, and President Mahmoud Ahmadinejad, pronounced ah-ma-deen-ah-ZHAD, has said his government will continue its nuclear program.

Vigilance

The resolution creates a Security Council committee to monitor implementation of the sanctions and calls on UN member nations to ``exercise vigilance'' regarding the international travel of the 12 Iranian officials and any ``specialized teaching or training'' of Iranian nationals.

UN member governments are to report to the committee within 60 days on steps they have taken to implement the resolution.

The sanctions would be suspended by Iran's decision to suspend enrichment activities and terminated by a report that the government in Tehran has complied with all UN Security Council and IAEA requirements.

Undersecretary of State Nicholas Burns said in a conference call with reporters that the U.S. would follow the vote with new efforts to persuade other nations to enact the same type of financial and trade sanctions on Iran that the U.S. has had in place for 27 years.

``Russia and China tell us that want to deny Iran a nuclear weapons capability,'' Burns said. ``We want to see more vigorous action by them. We would like to see them stop selling arms to Iran and limit export credits to Iran. We think it is time to an end for business as usual.''

To contact the reporter on this story: Bill Varner in the United Nations at wvarner_at_bloomberg.net.
Last Updated: December 23, 2006 13:02 EST

Posted by Hugo Albert Orwell at 11:51 AM | Permalink | TrackBacks (0)

Source: Wikipedia

Iran is planning to open a commodity exchange, referred as 'Iran Petroleum Exchange', 'International Oil Bourse' or 'Iranian Oil Bourse'. A Petrobourse for Petroleum, petrochemicals and gas in various non-dollar currencies, primarily the Euro. If successful, this would establish a euro-based pricing mechanism for oil trading, or oil marker as it is called by traders.

The acronym 'IOB' has been used as it can be interpreted as either "International Oil Bourse" or "Iranian Oil Bourse", but it has no official status.

The geographical location is expected to be the Persian Gulf island of Kish (which is designated by Iran as a free trade zone.)[1].
Contents

Background

The three current oil markers are all US dollar denominated: North America's West Texas Intermediate crude (WTI), North Sea Brent Crude, and the UAE Dubai Crude. The two major oil bourses are the New York Mercantile Exchange (NYME) in New York City and the International Petroleum Exchange (IPE) in London. The proposed Iranian bourse would establish a fourth oil marker, denominated by the euro.

Timeline

The Iranian oil bourse, first reported in 2005, was to have a planned opening date of March 20, 2006 [2], which is the Iranian New Year, Nauroz. According to an April 2005 report, the Tehran Stock Exchange (TSE), the Wimpole Consortium and a private staff fund for retired petroleum workers will together form the consortium developing the exchange [3].

In January 2006, Chris Cook of the Wimpole Consortium referred to delays in the process due to the election to the presidency of Mahmoud Ahmadinejad and subsequent difficulty in appointing a new oil minister acceptable both to the president and parliament [4].

In March 2006, the Petroleum Minister of Iran, Kazem Vaziri Hamaneh, announced that due to "technical glitches", the Bourse launch was postponed, with no new date set. [5]. However, as of April 26 Iran had restarted its move to open the oil market, and Kazem announced the bourse was set to open the first week of May [6].

In May 2006, Minister of Economic Affairs and Finance Davud Danesh-Jafari said the Oil Ministry has a two-month deadline for presenting the Articles of Association of the Iranian Oil Bourse. Danesh-Jafari said that the Euro had not yet been finalized as the legal tender of transactions in the oil bourse, and the final decision about that depends upon the Oil Ministry’s proposed IOB Articles of Association [7]

During the first phase of its implementation, the Iranian Oil Bourse plans to offer financial derivatives relating to crude oil.

In July 2006, a building has been purchased and the projected opening date is September 2006. [8] On September 15, Oil Minister Kazem Vaziri-Hamaneh stated that all preparatory requirements had been arranged for launching the oil stock market in the country.[9]

In December 2006 Bloomberg cited two Iranian newspapers reporting Iran's Minister of Economy Davoud Danesh-Ja'fariIran as wanting to cut US dollar based transactions to a minimum.[10] Iran-Kyrgyzstan Joint Economic Commission will credit 50 Million Euros to Kyrgyzstan for primarily industrial joint projects, showing a strong commitment to large Euro dealing. [citation needed]

See also

* Ministry of Petroleum of Iran
* Petrobourse
* Petroeuro
* Petrodollar
* Petroruble
* Petrodollar warfare
* Economy of Iran

Citations

1. ^ Kish Oil Exchange Planned, Iran Daily, January 24, 2006
2. ^ The Iranian line in the sand, Dan Crawford, The Republic (Vancouver), August 18 to 31, 2005
3. ^ A star rises in the east, Stella Farrington, April 2005
4. ^ Speaking freely: What the Iran 'nuclear issue' is really about, Chris Cook, January 21, 2006, Asia Times/energybulletin.net
5. ^ A frenzied Persian new year, March 22, 2006, Asia Times
6. ^ Iran oil bourse next week, April 26, 2006, Iranian.ws
7. ^ Ministry to offer IOB Articles of Association in two months, May 19, 2006, Mehr News Agency
8. ^ Iranian Journel, building has been purchased and new date is September, accessed July 6 2006
9. ^ Iran's oil bourse to be launched, September 15, 2006, Mehr News Agency
10. ^ Iran May Reduce Use of Dollar, Tehran Papers Say, December 6, 2006, Bloomberg

Literature

* Clark, William R.: Petrodollar Warfare : Oil, Iraq and the Future of the Dollar, New Society Publishers, 2005, ISBN 0-86571-514-9

External links

* PetroTalk Portal for petro related Articles, Discussion, Links and more
* infowars article, infowars, May 9, 2006
* Iran oil bourse next week, Persian Journal, Apr 26, 2006
* Iran takes on west's control of oil trading, The Guardian
* The Real Reasons Why Iran is the Next Target: The Emerging Euro-denominated International Oil Marker
* Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse
* The Proposed Iranian Oil Bourse
* Trading oil in euros – does it matter?
* Will the Iranian Oil Bourse Threaten the Dollar?
* Petrodollars and Nuclear Weapons Proliferation: Understanding the Planned Assault on Iran, Centre for Research on Globalization, February 10, 2006
* The Iranian line in the sand
* Petrodollar or Petroeuro? A new source of global conflict
* The Iranian Threat: The Bomb or the Euro?
* The Real Reasons Why Iran is the Next Target
* Will Iran’s oil kill the U.S. dollar?
* Strange ideas about the Iranian oil bourse (a counterpoint with countercounterpoints in comments...)
* Why Iran's Oil Bourse can't break the Buck

Posted by Hugo Albert Orwell at 10:00 AM | Permalink | TrackBacks (0)

Source: The Financial Express

Posted online: Thursday, December 07, 2006 at 0000 hours IST

DEC 6: Iran, the world’s fourth-largest oil exporter, plans to reduce its use of the US dollar in world trade and increase use of the euro, two Tehran-based newspapers reported.

The Tehran Times said on Wednesday Iran has started substituting euros for dollars in oil sales, citing an unidentified person at the oil ministry. Iran Daily reported Iran wants to cut its dollar-based transactions to a minimum, citing minister of economy Davoud Danesh-Ja’fari. Iran’s policy of selling oil in US dollars ‘‘has not changed yet,’’ said Hojatollah Ghanimifard, executive director for international affairs at National Iranian Oil Co., in a statement read to Bloomberg News from his office.

The US and several European nations are pushing the United Nations to sanction Iran for its nuclear programme.

The dollar touched a 20-month low against the euro this week, and central banks in the Middle East including the United Arab Emirates have plans to convert some of their dollar reserves into euros. Exporting nations ‘‘are only holding so many dollars because of all the trade in the currency, but if the trend begins to move out of it, then it’s going to be a positive for the euro and add to the negative sentiment on the dollar,’’ said David Mann, a foreign-exchange strategist at Standard Chartered Bank Plc in Hong Kong.

Organisation of Petroleum Exporting Countries members including Qatar earlier this week expressed concern about the falling dollar, saying output should be cut to drive prices higher.

—Bloomberg

Posted by Hugo Albert Orwell at 09:56 AM | Permalink | TrackBacks (0)

Source: Digital Journal

Posted Dec 8, 2006 by Sam Elfassy

The end of the petrodollar is the end of the dollar hegemony. And the end of the dollar hegemony is the end of the United States of America as a superpower, if not worst than that.

Full story: financialexpress.com

The Tehran Times, a central media outlet of the world’s fourth-largest oil exporter, said that Iran has started substituting euros for dollars in oil sales. The minister of economy, Davoud Danesh-Ja’fari, announced that Iran wants to cut its dollar-based transactions to a minimum.
Bloomberg News reports: "Iran's oil export contracts for months have included a clause that allows the nation to seek payment in the euro and other currencies, creating a mechanism for a switch should Iran's policy change, according to traders who buy Iranian oil".

It was expected: Iran seems like it is defending itself from Iraq's diabolic fate generated by the same US which declares it to be next.

Accordingly, Iran, as an act of self defense, signals straight to Washington it can hurt harder.
And it can indeed: by shifting the most valuable commodity on earth nowadays, oil and gas, from a dollar tied commodity (hence “the petrodollar”, trading oil in US dollars) to a euro tied commodity (hence “the petroeuro”) it can collapse, surprisingly easily, the already fragile dollar hegemony. Due to the fact that others will follow.

Other economies around the world will join Iran out of their own substantial reasons. like Iran, they have their own motivation and necessity to get loose from United States’ violent grip. Venezuela, another important OPEC member is one, Russia another, and others. Add it to the just announced new Chinese oil wholesale market plus the upcoming Iranian oil bourse plus the efforts of major central banks to get rid of their dollars while the collapse of the petrodollar looming and the reason for Washington’s panic is getting much clearer.

Iran still leaves an open door for diplomacy, it is sending the message “I can do this already”, but on the other hand “I didn’t start operating the whole transition yet”. It looks as if the Iraq Study Group that showed up suddenly to recommend a diplomatic channel with Iran was formed only to enable Washington to climb down the tall tree it is on.

When asked for an official statement regarding Iran's energy trade policy, by US Bloomberg news, Hojatollah Ghanimifard, executive director for international affairs at National Iranian Oil Co., played the game of the official lines and replied that Iran’s policy of selling oil in US dollars ‘‘has not changed yet’’.

Posted by Hugo Albert Orwell at 09:53 AM | Permalink | TrackBacks (0)

Source: Financial Times (FT.com)

By Haig Simonian in Zurich and Javier Blas and Carola Hoyos in London

Published: December 10 2006 20:11 | Last updated: December 10 2006 20:11

Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

The revelation in the latest BIS quarterly review, published on Monday, confirms market speculation about a move out of dollars and could put new pressure on the ailing US currency.

Market liquidity is traditionally low in December, and many traders have locked in profits, potentially reinforcing volatility.

Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second.

Meanwhile, they increased their holdings of euros from 20 to 22 per cent, the BIS said. The speed of the shift may help to explain the weakness of the dollar, which recently fell to a 20-month low against the euro and a 14-year low against sterling.

The BIS, the central bank for the developed world’s central banks, is customarily cautious in its language. However, it noted: “While the data are not comprehensive, they do appear to indicate a modest shift over the quarter in the US dollar share of reporting banks’ liabilities to oil exporting countries.”

The review shows that Qatar and Iran, whose foreign exchange policy has sparked widespread market speculation, cut their dollar holdings by $2.4bn and $4bn respectively.

Such shifts may be modest compared with the total assets held, but they provide a crucial indication on future thinking.

Currency switches are likely to be progressive, subtle and discreet, as untoward attention could hit the dollar, lowering the value of depositors’ remaining dollar-denominated assets.

The last time oil-exporting countries cut their exposure to the dollar – in late 2003 – it pushed the euro to an all-time high against the dollar. Eighteen months ago, the exposure to the dollar of oil producing countries was above 70 per cent.

BIS data is the best guide financial markets have to the currency investment trends of oil producers, which otherwise do not provide figures. The rise in oil prices since 2002 means oil producing countries have amassed a current account surplus of about $500bn, according to the IMF. This is 2½ times the current account surplus of China.

Overall, Opec’s dollar deposits fell by $5.3bn, while euro and yen-denominated deposits rose $2.8bn and $3.8bn, respectively. Placements of dollars by Russians rose by $5bn, but most of their $16bn additional deposits were denominated in euros.

The dollar has suffered weakness because of concerns about global imbalances and the future course of the Federal Reserve’s interest rate policy.

Additional reporting by Peter Garnham in London

Copyright The Financial Times Limited 2006

Posted by Hugo Albert Orwell at 03:30 PM | Permalink | TrackBacks (0)

Source: Falls Curch News Press Online

By Tom Whipple
Thursday, 07 December 2006

On November 29, the Washington Post carried an op-ed by Nawaf Obaid, an advisor to the Saudi government. Despite the obligatory "the opinions expressed are his own", and a press release denying government involvement, the piece clearly carries an important message from Saudi King Abdullah to President Bush, Washington, and the American people.

"Stepping Into Iraq" starts by reminding President Bush that in February 2003 the Saudi Foreign Minister had warned him that if the US removed Saddam Hussein by force he would only be solving one problem by creating five more.

Obaid goes on to point out that had the President followed the Foreign Minister's advice, Iraq would not now be facing "full blown civil war and disintegration."

The thrust of the message, however, is a thinly veiled warning to the US not to walk away from Iraq. Obaid quotes the Saudi Ambassador who said last month: "Since America came into Iraq uninvited, it should not leave Iraq uninvited." And Obaid adds, "If it does, one of the first consequences will be massive Saudi intervention to stop Iranian-backed Shiite militias from butchering Iraqi Sunnis."

"As the economic powerhouse of the Middle East, the birthplace of Islam and the de facto leader of the world's Sunni community (which comprises 85 percent of all Muslims), Saudi Arabia has both the means and the religious responsibility to intervene," he continues.

The Saudis, of course, are reminding us that while America can get on its ships and planes and go home, Saudi Arabia is going to be left right at the heart of what is starting to look more and more like the beginnings of a regional war. Should the fighting increase, it is only a manner of time before the vital interests or perhaps the very existence of the Kingdom, or at least the Royal family, is threatened.

The Saudis are clear about why they are sending this message to America. "Just a few months ago it was unthinkable that President Bush would prematurely withdraw a significant number of American troops from Iraq. But it seems possible today." Obviously the American election, with the unmistakable message that the American voters want out is much on Saudi minds. "The Saudi leadership is preparing to substantially revise its Iraq policy," says Obaid.

The critical part of all this is just what the Saudis are going to do in the face of an American threat to withdraw. The op-ed lists three options. First Riyadh could give their Sunni kinsmen (money, arms and logistical support. So far they claim to have refrained from doing this because the Sunni insurgents were busy shooting and blowing up Americans so it was considered highly impolitic to aid them. This of course shows commendable self-restraint as the Iranians have been supporting the Shiites for years.

The second Saudi option would be to fund, equip, and train new "Sunni brigades" to offset the Shiite militias. This of course would formalize the "civil war."

Now, however, we get to the Saudis' third option as suggested by Obaid— oil. "King Abdullah may decide to strangle Iranian funding of the militias through oil policy." "If the Saudis boosted production and cut the price of oil in half, the kingdom could still finance its current spending. But it would be devastating to Iran, which is facing economic difficulties even with today's high prices."

Now the notion of the Saudis flooding the 85 million barrel a day world oil market with enough oil to halve the world price and destroy the Iranian economy is a stretch. Saudi oil production has been dropping in recent months and some analysts believe this is from necessity not choice. Even if the Saudis were to attempt to increase output, it would likely be hard-to-sell heavy crude, and the effort would probably damage future oil production by over producing existing fields.

The Saudis may no longer be able to increase production enough to attain their political objectives, however, there is no reason why they can't cut their production. Cutting is easy and it can be done is many ways varying from an overt embargo as happened in the 1970's to more subtle reductions.

Why are the Saudi's continuing to produce circa 9 million barrels a day? Given the tight worldwide oil market, the Saudi's could cut their production in half; the price of oil would more that double; they would get richer; their oil fields would get a much needed rest; and there would be oil left for their great-grand children to export.

What keeps them from cutting production and reaping all these benefits? That too is simple, their relationship with the USA. So long as the US was their number one protector, and needed the oil to keep flowing, the Saudis historically would bend over backwards to help Washington out. The only exception was the short-lived oil boycott back in 1973.

Now, however, everything has changed. Against Saudi advice, the US charged into Baghdad and set 27 million Iraqis at each other's throats. America's partners in the invading "coalition" are bailing out one by one. The US people have just voted to change something and it is clear that "stay the course" is not going to obtain for much longer.

The key Saudi foreign policy objective at the minute clearly is to keep sufficient US military forces in Iraq to keep the lid on the situation for as long as it takes to keep the mess from spilling over into Saudi Arabia itself.

The threat to the existence of the Saudi Royal Family from a spreading civil war now is much greater than any threat from an unhappy Washington. Can anyone imagine the new US Congress voting to invade some other large Middle Eastern country in the near future? With what?

Could a major cutback in Saudi oil production bring down America? Maybe not, but it sure could do a lot of harm. The most blatant action would be cut their oil production in half. Taking 4-5 million barrels a day off the world oil market would get everybody's attention very quickly. Oil prices would certainly go well over $100 per barrel. In short order, the US and world economies would suffer greatly.

The Saudis could, however, bring pressure without doing anything so provocative as a major production cut. Simply ratcheting down production in an unobtrusive manner should be enough to scare Washington into reconsidering leaving Riyadh, as the leader of the world's Sunnis to deal with the mess on its own.

Just before President Bush met with the Iraqi Prime Minister in Jordan last week, Vice President Cheney was summoned to Riyadh to receive the whole Saudi message. It may be many years before we learn exactly what that message was, but already President Bush is back to talking about "staying the course."

It may be a lot harder, or a lot more expensive, for the US to get out of Iraq than anyone ever thought.

Posted by Hugo Albert Orwell at 09:54 AM | Permalink | TrackBacks (0)

Source: Reuters

By Ikuko Kao
September 28, 2006

TOKYO, Sept 27 (Reuters) - Talks between Japan and Iran over a development project in the giant Azadegan oilfield appear to be hitting a dead end, Japan's new trade minister said on Wednesday.

But negotiations should continue past the deadline at the end of September as the Azadegan project is strategically important for Japan's energy security, Trade and Industry Minister Akira Amari told a group of reporters.

As trade minister, Amari faces several thorny energy issues, including slow progress on Japan's investment in Iran's Azadegan oilfield, a spat over a gas field in the East China Sea, and Russia's turning the screws on Sakhalin energy projects in which Japanese companies have big stakes.

The development of Azadegan, tipped as one of the largest untapped oil reserves in the world, has become caught between international politics and energy security, and Japan should not ignore global concerns over Tehran's nuclear ambitions, the minister said.

"The talks seem to be hitting a dead end," Amari said. "One of the issues is how we interpret the deadline of Sept. 30. I don't think it is Iran's intention that everything becomes invalid after that."

Amari was appointed as part of new Japanese Prime Minister Shinzo Abe's cabinet on Tuesday.

In May, Japan spelled out a long-term energy policy to target increased imports of crude produced at equity oilfields, where Japanese companies have upstream stakes, to 40 percent of its total imports by 2030 from about 15 percent now.

"Azadegan is large as a single lot, so I am aware that it would be tough (to achieve the target) if this project faces difficulty."

Resource-poor Japan has rights to the Azadegan oilfield but talks have stalled since the deal was signed in 2004, when the project was thought to require an investment of $2 billion.

Past deadlines have regularly been missed or pushed back because of split views over the valuation of the deal, including the cost of steel to be used in the project, and the extent to which the borderland field has been safely cleared of mines laid during the 1980-1988 Iran-Iraq War.

It is still not clear when INPEX Holdings Inc. (1605.T: Quote, NEWS, Research), in which the Japanese government is a major stakeholder, will be able to start development work there. The company signed a contract in 2004 to develop the southwestern part of the field.

To move the project ahead, Amari said, it is vital that Tehran accept United Nations calls to stop its uranium enrichment.

"The Japanese government will continue to send messages that Iran comply with requests from the international community. Doing so will prompt the project to progress without problems."

MORE TOUGH NEGOTIATIONS

Friction with China over the development of gas fields in disputed parts of the East China Sea is another issue that the Abe administration has to face.

China is still carrying out work at the field despite Japan's repeated calls for a halt.

Amari said Japan will aim for joint development, taking the same stance as the former trade minister.

"However, the negotiations will be extremely tough. The block China is offering for joint development is different from the one Japan is offering."

Ties between Japan and China, rivals for influence in Asia, have been soured by the friction as well as by former Prime Minister Junichiro Koizumi's visits to the controversial Yasukuni war shrine.

Abe has not spelled out his views on visiting the shrine.

"The new prime minister has not made his stance clear on Yasukuni," Amari said. "I understand it is his message that he wants to keep it distant from politics."

Sakhalin Island, in Russia's far east, is the most recent concern to emerge surrounding Japan's energy security, but Amari played down signs of trouble.

Russia this week piled pressure on the foreign companies involved in massive energy projects there, ordering a full environmental probe of Royal Dutch Shell's (RDSa.L: Quote, Profile, Research) Sakhalin-2 oil and gas project.

"Sakhalin-2 will find a way. The basic contract (regarding the project development) is not scrapped," Amari said.

The minister said Sakhalin-2 will move on by solving environmental concerns and letting Russian gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research) join the project.

Moscow's move spurred criticism from European countries and Japan, as Sakhalin-2 involves the construction of the world's biggest liquefied natural gas plant, which would supply gas to customers in Japan, the United States and Asian countries.

Shell has a 55 percent stake in the project, while Japan's Mitsui & Co. Ltd. (8031.T: Quote, NEWS, Research) and Mitsubishi Corp. (8058.T: Quote, NEWS, Research) own a combined stake of 45 percent.

Posted by Hugo Albert Orwell at 02:54 PM | Permalink | TrackBacks (0)

Source: Yahoo, AP Diplomatic Writer

By BARRY SCHWEID, AP Diplomatic Writer
September 27, 2006

WASHINGTON - The Bush administration said Wednesday it was willing to defer seeking U.N. sanctions against
Iran for a few weeks if there is a chance for a diplomatic resolution of a long-running dispute over Iran's nuclear programs.

Secretary of State Condoleezza Rice telephoned senior European diplomat Javier Solana on Wednesday "and we do fully support his efforts" to hold talks with Iranian nuclear negotiator Ali Larijani, State Department spokesman Sean McCormack said.

The United States had demanded Iran suspend its uranium processing as a precondition to negotiations. McCormack said whether Iran was agreeable to a temporary suspension would not be known until Solana met with Larijani.

"Their disposition to this point has not been to give clear answers" and it may require several meetings to find out, McCormack said.

And yet, the spokesman said, "There may be an opportunity here, there may be a little opening if we just give the Iranians a little time and space."

"Perhaps they will come through with a positive answer," he said.

Senior administration officials warned Iran after it did not meet an Aug. 31 deadline to suspend uranium enrichment that the United States would seek sanctions against Iran in the U.N. Security Council, possibly by the end of September.

But McCormack said Wednesday that Solana saw an "opportunity" in his meeting with Larijani "if we give the Iranians a little time and space."

"Our response was, 'absolutely, if it's a matter of a few days, a few weeks here to see if there is a possibility of keeping open a negotiated diplomatic solution,'" McCormack said.

"We want to give that every opportunity to succeed," he said.

The administration's sanctions strategy is to impose a series of increasingly potent penalties against Iran, beginning with curbs on technology that could be used in military programs.

The United States and the European Union contend Iran is trying to build nuclear weapons. Iran disputes the accusation and says it is merely seeking more energy with its nuclear work.

Posted by Hugo Albert Orwell at 01:13 PM | Permalink | TrackBacks (0)

Source: SFGate.com

Robert Collier, Chronicle Staff Writer
Sunday, September 24, 2006

(09-24) 04:00 PDT El Tigre, Venezuela -- On the hot, shrub-covered plains around this dusty, dingy town, an odd courtship is being carried out between the world's most prominent revolutionary and the world's biggest oil companies.

Just as there is no love between President Hugo Chavez and the Bush administration, there is little love lost between Chavez and the foreign oilmen who are pumping up the huge reservoirs of underground oil. But they need each other. The United States needs Venezuela to help quench its bottomless thirst for oil, and Chavez needs America to buy it from him in order to fund his dreams of spreading his leftist ideology around the hemisphere.

The stakes here are huge. The area around El Tigre, known as the Orinoco Oil Belt, possesses the world's biggest petroleum reserves -- 1.3 trillion barrels of so-called extra-heavy oil. Chevron, Exxon Mobil, ConocoPhillips and dozens of other foreign firms are here, using recently developed technologies to extract the tarlike, sulfurous crude and refine it.

"Everyone agrees that the Orinoco Belt has the biggest reserves in the world," said Alberto Quiros, a Chavez critic and former president of Royal Dutch Shell's Venezuela operations. "What Chavez will do with them is another question, but there's no doubt that Venezuela will take Saudi Arabia's place as No. 1."

Chavez already is forcing Chevron, which is based in San Ramon, and other oil companies to swallow some bitter pills.

In the past two years, he has raised foreign oil companies' corporate income tax to 50 percent from 30 percent and increased royalties payable to the government from as low as 1 percent to 33 percent. After he threatened to confiscate their operations elsewhere in Venezuela, 26 foreign oil companies, including Chevron, agreed earlier this year to convert their operations into joint ventures with the state-owned Petroleos de Venezuela (known as Pdvsa), with the government holding the majority share. Two European firms -- Total of France and ENI of Italy -- refused, and Chavez promptly expelled them.

Now, the government is demanding similar concessions at the four Orinoco Belt operations, in which Chevron, Exxon Mobil and others have invested about $17 billion. The government is demanding that Pdvsa's ownership share of the projects be increased from an average of 40 percent to at least 51 percent and that Pdvsa take over operational control of the oilfields.

Negotiations over these demands are coming to a head, and the outcome may influence whether Venezuela's rising tensions with Washington subside or even escalate. Analysts say foreign companies may seek international arbitration to block Chavez's takeover attempt.

"It will be quite a fight," said Gersan Zurita, an oil-industry analyst with credit evaluator Fitch Ratings in New York, which advises investors who have purchased $3.9 billion in bonds for the Orinoco Belt projects. In June, Fitch Ratings downgraded the projects' credit scores, saying Chavez's demands could damage the projects' viability.

But for Chavez, it's a matter of national pride -- and political bragging points. Around the country, the government has put up posters and billboards showing Chavez extending his arms in a victory salute, accompanied by the slogan, "Full oil sovereignty: Joint ventures -- more benefits for the people!"

As top-secret negotiations begin, all sides in the conflict have tried to keep a low profile. Chevron, Exxon and ConocoPhillips declined Chronicle requests to interview their officials and to visit their installations in Venezuela.

Zurita said the companies fear being blacklisted by Chavez and losing out on future oil deals.

"It's a very delicate situation. It involves more than just these contracts. Any comment by any of these companies could be used by the government to demand more concessions," Zurita said. "The biggest incentive (for the companies) is to preserve access for the future. These are enormous reserves."

Luis Giusti, president of Pdvsa from 1994 to 1999, noted that many companies have little choice but to look to Venezuela because their reserves elsewhere are dwindling and their access to the Middle East is limited by the firm grip of those nations' government monopolies.

"The foreign companies will accept his conditions because they have so much capital sunk there, and they can't afford a confrontation with the government," said Giusti, who during his time at Pdvsa championed many of the privatization policies that Chavez is now reversing.

For its part, the government seems to have adopted a bunker mentality. Pdvsa's Caracas headquarters declined a Chronicle request to interview its officials or to visit its facilities. One official said that all visits were suspended "for security reasons" after a July 17 fire damaged the country's largest oil refinery, at Amuay in the northwest -- a sign that the government is nervous about the company's high rate of accidents, which it blames partially on sabotage by U.S.-inspired domestic opposition groups.

The only government official willing to talk about the subject was Fadi Kabboul, the oil attache at Venezuela's embassy in Washington.

"For the market, the Orinoco extra-heavy oil operations are very profitable, and they will continue being very profitable. There will be ever-greater interest and participation by foreign companies," Kabboul said.

The Orinoco conflict carries echoes of the knock-down, drag-out battle for control that erupted in December 2002, after Chavez ordered Pdvsa to directly fund and operate major social-welfare projects in poor communities. The company's executives, engineers, technicians and ship captains accused Chavez of "politicizing" Pdvsa, went on strike and shut down almost all operations for three months.

The strikers had hoped to topple Chavez by reviving a military-civilian coup effort that overthrew Chavez for two days in April 2002. But Chavez defeated the strike and fired 18,000 of the strikers -- about 90 percent of Pdvsa's white-collar workforce. The company is still struggling to recover, and most energy analysts believe that Pdvsa's production is only one-half of its pre-strike level. Nevertheless, Chavez's oil revenue has been buoyed by the increase of production by foreign companies, which has risen from 400,000 barrels per day to 620,000 per day, and the more-than-doubling of international oil prices.

In El Tigre, dozens of fired Pdvsa employees gather every day at 3 p.m. in a neighborhood park to exchange job tips and speculate hopefully about Chavez's downfall.

"This could be the issue that finally forces the Bush administration to take a stronger stand against Chavez," said Antonio Cardona, a former director of Pdvsa's crude pumping operations for the region. "Foreign companies have been afraid of Chavez, and they're staying just so they don't lose all they have invested, but he may have finally overplayed his hand now."

Cardona said he worked for Pdvsa for 20 years until he joined the strike. Three and a half years later, like his fellow strikers, Cardona is blacklisted throughout the oil industry by Pdvsa, which prohibits even private companies from hiring any ex-striker. Cardona must scrabble for work, doing small engineering jobs for private-sector construction projects.

At the same time, Chavez has begun shifting oil exports away from the United States, where Venezuelan crude is the fifth-largest foreign source of petroleum. During the first half of 2006, Venezuelan oil exports to the United States dropped by approximately 6 percent from the year before to about 1.3 million barrels per day, according to U.S. Energy Department figures.

At the same time, Chavez has struck oil deals with Beijing, including $5 billion of Chinese investments in Venezuelan energy projects by 2012. Venezuela's exports to China, while still relatively small at 150,000 barrels per day, are projected to reach 500,000 barrels by 2010.

Chevron may wind up playing an unwilling role in Chavez's most audacious plan -- construction of a 5,700-mile natural-gas pipeline through South America. The proposed $25 billion project, the central element of Chavez's plan to unify the continent's economies, would start in the eastern Venezuelan city of Puerto Ordaz, slice through Brazil's Amazon jungle and end in Argentina, with trunk lines to Peru, Bolivia and Chile.

Chevron is already a major player in helping Venezuela exploit its offshore natural gas deposits in the Caribbean and Atlantic, which at 151 trillion square feet are the eighth-largest proven reserves in the world. Recently, Venezuelan officials have suggested that despite prior understandings that Chevron would be allowed to convert the production from its Deltana field in the Atlantic into liquefied natural gas and export it to the United States, this supply will instead be sent south via the new pipeline -- whether Chevron likes it or not.

Some experts scoff at Chavez's pipeline idea. "It's a very large and very costly project," said Giusti. "It will never be built to transport reserves of gas that don't exist to markets that don't exist."

Other analysts call it far-thinking. A recent study by the Latin American Energy Organization, a regional alliance headquartered in Quito, Ecuador, concluded that Chavez's pipelines could save the area's governments $100 billion over the next 20 years by lowering imports of liquid natural gas from Asia and Africa.

One smaller project is already under construction -- a 140-mile gas pipeline linking Venezuela to Colombia, with an extension planned to Panama.

In El Tigre, a sprawling small city of 150,000 in Anzoategui state, there is little evidence of the nearby oil bonanza. Main streets are nondescript, and the highways leading out into the surrounding savanna are narrow and potholed.

But billboards are everywhere touting Chavez and the state's governor, Tarek William Saab.

"With Tarek and Chavez, Anzoategui is progressing!" blare the signs, showing a triumphant Chavez leading a slightly sheepish governor, both wearing revolutionary-red shirts and surrounded by cheering crowds.

But even many Chavez supporters complain that the president's grand ambitions have not benefited the people of Anzoategui.

"Because of oil we have everything, yet we have nothing," said El Tigre Mayor Ernesto Paraqueima, a member of Chavez's ruling coalition.

Speaking in his simple office in El Tigre's concrete-block municipal building as a broken sprinkler downstairs coated the windows with water, he bitterly criticized what he said was the waste of huge sums of money.

"The bureaucracy is enormous, and corruption is gigantic," Paraqueima said. "Anzoategui is a rich state, with rich land. You can look on either side of any highway in Anzoategui, and you won't see anything being cultivated anywhere. That's because of oil. We prefer to bring rice and potatoes from Colombia than growing it here. We produce almost nothing but oil.

"Every foreign oil company in the world is here, but where is the benefit?"

Chavez's oil money

In the past three years, as international oil prices have soared, Chavez has eliminated his political opposition's influence over government finances and drawn a tight curtain of secrecy around them.

In 2003, after the opposition led a chaotic strike by executives and technicians at the state-owned, yet formerly autonomous, oil company Petroleos de Venezuela, or Pdvsa, Chavez fired 18,000 of the white-collar strikers. In 2005, Chavez gained full control of the formerly independent Central Bank, and opposition parties' boycott of legislative elections gave his coalition all 167 seats in Congress that December.

Even Citgo, the U.S. refiner and gas retailer wholly owned by Pdvsa, earlier this year paid off all its debt and stopped the routine practice of reporting data to Moody's financial service -- thus ending all outside scrutiny of the company's books.

What's more, much of Venezuela's oil revenue now stays outside the government's budgetary channels. In recent years, Congress has set each year's government budget by setting Pdvsa's tax payments artificially low. This year, for example, Pdvsa's taxes are pegged to a price of $26 per barrel for Venezuela's blend of heavy crudes -- which currently sells for $58. The $32 per barrel difference remains largely off-budget, with no legislative supervision or disclosure of line-item details.

Documents released by the government earlier this month showed oil revenues of $49 billion for Pdvsa in the first six months of 2006, a 21 percent increase from the same period last year.

In Caracas, Pdvsa declined to make officials available to The Chronicle for an interview.

-- Robert Collier

Posted by Hugo Albert Orwell at 10:28 AM | Permalink | TrackBacks (0)

Source: Znet

Transcript
September 21, 2006

Madam President, Excellencies, Heads of State, Heads of government and other government’s representatives, good morning.

First, and with all respect, I highly recommend this book by Noam Chomsky, one of the most prestigious intellectuals in America and the world, Chomsky. One of his most recent works: Hegemony or Survival: America’s Quest for Global Dominance (The American Empire Project) . It’s an excellent work to understand what’s happened in the world in the 20th Century, what’s currently happening, and the greatest threat on this planet; the hegemonic pretension of the North American imperialism endangers the human race’s survival.

We continue warning about this danger and calling on the very same U.S. people and the world to stop this threat, which resembles the Sword of Damocles over our heads. I had considered reading from this book, but for the sake of time, I shall just leave it as a recommendation. It reads easily. It's a very good book. I'm sure, Madam, you are familiar with it.

(APPLAUSE)

The book is in English, in Russian, in Arabic, in German.

I think that the first people who should read this book are our brothers and sisters in the United States, because their threat is in their own house. The devil is right at home. The devil -- the devil, himself, is right in the house.

And the devil came here yesterday.

(APPLAUSE)

Yesterday, the devil came here. Right here. Right here. And it smells of sulfur still today, this table that I am now standing in front of.

Yesterday, ladies and gentlemen, from this rostrum, the president of the United States, the gentleman to whom I refer as the devil, came here, talking as if he owned the world. Truly. As the owner of the world.

I think we could call a psychiatrist to analyze yesterday's statement made by the president of the United States. As the spokesman of imperialism, he came to share his nostrums, to try to preserve the current pattern of domination, exploitation and pillage of the peoples of the world.

An Alfred Hitchcock movie could use it as a scenario. I would even propose a title: "The Devil's Recipe."

As Chomsky says here, clearly and in depth, the American empire is doing all it can to consolidate its system of domination. And we cannot allow them to do that. We cannot allow world dictatorship to be consolidated.

The world parent's statement -- cynical, hypocritical, full of this imperial hypocrisy from the need they have to control everything.

They say they want to impose a democratic model. But that's their democratic model. It's the false democracy of elites, and, I would say, a very original democracy that's imposed by weapons and bombs and firing weapons.

What a strange democracy. Aristotle might not recognize it or others who are at the root of democracy.

What type of democracy do you impose with marines and bombs?

The president of the United States, yesterday, said to us, right here, in this room, and I'm quoting, "Anywhere you look, you hear extremists telling you can escape from poverty and recover your dignity through violence, terror and martyrdom."

Wherever he looks, he sees extremists. And you, my brother -- he looks at your color, and he says, oh, there's an extremist. Evo Morales, the worthy president of Bolivia, looks like an extremist to him.

The imperialists see extremists everywhere. It's not that we are extremists. It's that the world is waking up. It's waking up all over. And people are standing up.

I have the feeling, dear world dictator, that you are going to live the rest of your days as a nightmare because the rest of us are standing up, all those who are rising up against American imperialism, who are shouting for equality, for respect, for the sovereignty of nations.

Yes, you can call us extremists, but we are rising up against the empire, against the model of domination.

The president then -- and this he said himself, he said: "I have come to speak directly to the populations in the Middle East, to tell them that my country wants peace."

That's true. If we walk in the streets of the Bronx, if we walk around New York, Washington, San Diego, in any city, San Antonio, San Francisco, and we ask individuals, the citizens of the United States, what does this country want? Does it want peace? They'll say yes.

But the government doesn't want peace. The government of the United States doesn't want peace. It wants to exploit its system of exploitation, of pillage, of hegemony through war.

It wants peace. But what's happening in Iraq? What happened in Lebanon? In Palestine? What's happening? What's happened over the last 100 years in Latin America and in the world? And now threatening Venezuela -- new threats against Venezuela, against Iran?

He spoke to the people of Lebanon. Many of you, he said, have seen how your homes and communities were caught in the crossfire. How cynical can you get? What a capacity to lie shamefacedly.

The bombs in Beirut with millimetric precision? Is this crossfire?

He's thinking of a western, when people would shoot from the hip and somebody would be caught in the crossfire.

This is imperialist, fascist, assassin, genocidal, the empire and Israel firing on the people of Palestine and Lebanon. That is what happened. And now we hear, "We're suffering because we see homes destroyed.'

The president of the United States came to talk to the peoples -- to the peoples of the world. He came to say -- I brought some documents with me, because this morning I was reading some statements, and I see that he talked to the people of Afghanistan, the people of Lebanon, the people of Iran. And he addressed all these peoples directly.

And you can wonder, just as the president of the United States addresses those peoples of the world, what would those peoples of the world tell him if they were given the floor? What would they have to say?

And I think I have some inkling of what the peoples of the south, the oppressed people think. They would say, "Yankee imperialist, go home." I think that is what those people would say if they were given the microphone and if they could speak with one voice to the American imperialists.

And that is why, Madam President, my colleagues, my friends, last year we came here to this same hall as we have been doing for the past eight years, and we said something that has now been confirmed -- fully, fully confirmed.

I don't think anybody in this room could defend the system. Let's accept -- let's be honest. The U.N. system, born after the Second World War, collapsed. It's worthless.

Oh, yes, it's good to bring us together once a year, see each other, make statements and prepare all kinds of long documents, and listen to good speeches, like Evo's yesterday, or President Lula's. Yes, it's good for that.

And there are a lot of speeches, and we've heard lots from the president of Sri Lanka, for instance, and the president of Chile.

But we, the assembly, have been turned into a merely deliberative organ. We have no power, no power to make any impact on the terrible situation in the world. And that is why Venezuela once again proposes, here, today, September 20th, that we re-establish the United Nations.

Last year, Madam, we made four modest proposals that we felt to be crucially important. We have to assume the responsibility, our heads of state, our ambassadors, our representatives, and we have to discuss it.

The first is expansion, and Lula talked about this yesterday right here: The Security Council’s expansion, both regarding its permanent and non-permanent categories. New developed and developing countries, the Third World, must be given access as new permanent members. That's step one.

Second, effective methods to address and resolve world conflicts, transparent decisions.

Point three, the immediate suppression -- and that is something everyone's calling for -- of the anti-democratic mechanism known as the veto, the veto on decisions of the Security Council.

Let me give you a recent example. The immoral veto of the United States allowed the Israelis, with impunity, to destroy Lebanon. Right in front of all of us as we stood there watching, a resolution in the council was prevented.

Fourthly, we have to strengthen, as we've always said, the role and the powers of the secretary general of the United Nations.

Yesterday, the secretary general practically gave us his speech of farewell. And he recognized that over the last 10 years, things have just gotten more complicated; hunger, poverty, violence, human rights violations have just worsened. That is the tremendous consequence of the collapse of the United Nations system and American hegemonistic pretensions.

Madam , Venezuela a few years ago decided to wage this battle within the United Nations by recognizing the United Nations, as members of it that we are, and lending it our voice, our thinking.

Our voice is an independent voice to represent the dignity and the search for peace and the reformulation of the international system; to denounce persecution and aggression of hegemonistic forces on the planet.

This is how Venezuela has presented itself. Bolivar's home has sought a nonpermanent seat on the Security Council.

Let's see. Well, there's been an open attack by the U.S. government, an immoral attack, to try and prevent Venezuela from being freely elected to a post in the Security Council.

The imperium is afraid of truth, is afraid of independent voices. It calls us extremists, but they are the extremists.

And I would like to thank all the countries that have kindly announced their support for Venezuela, even though the ballot is a secret one and there's no need to announce things.

But since the imperium has attacked, openly, they strengthened the convictions of many countries. And their support strengthens us.

Mercosur, as a bloc, has expressed its support, our brothers in Mercosur. Venezuela, with Brazil, Argentina, Paraguay, Uruguay, is a full member of Mercosur.

And many other Latin American countries, CARICOM, Bolivia have expressed their support for Venezuela. The Arab League, the full Arab League has voiced its support. And I am immensely grateful to the Arab world, to our Arab brothers, our Caribbean brothers, the African Union. Almost all of Africa has expressed its support for Venezuela and countries such as Russia or China and many others.

I thank you all warmly on behalf of Venezuela, on behalf of our people, and on behalf of the truth, because Venezuela, with a seat on the Security Council, will be expressing not only Venezuela's thoughts, but it will also be the voice of all the peoples of the world, and we will defend dignity and truth.

Over and above all of this, Madam President, I think there are reasons to be optimistic. A poet would have said "helplessly optimistic," because over and above the wars and the bombs and the aggressive and the preventive war and the destruction of entire peoples, one can see that a new era is dawning.

As Silvio Rodriguez says, the era is giving birth to a heart. There are alternative ways of thinking. There are young people who think differently. And this has already been seen within the space of a mere decade. It was shown that the end of history was a totally false assumption, and the same was shown about Pax Americana and the establishment of the capitalist neo-liberal world. It has been shown, this system, to generate mere poverty. Who believes in it now?

What we now have to do is define the future of the world. Dawn is breaking out all over. You can see it in Africa and Europe and Latin America and Oceania. I want to emphasize that optimistic vision.

We have to strengthen ourselves, our will to do battle, our awareness. We have to build a new and better world.

Venezuela joins that struggle, and that's why we are threatened. The U.S. has already planned, financed and set in motion a coup in Venezuela, and it continues to support coup attempts in Venezuela and elsewhere.

President Michelle Bachelet reminded us just a moment ago of the horrendous assassination of the former foreign minister, Orlando Letelier.

And I would just add one thing: Those who perpetrated this crime are free. And that other event where an American citizen also died were American themselves. They were CIA killers, terrorists.

And we must recall in this room that in just a few days there will be another anniversary. Thirty years will have passed from this other horrendous terrorist attack on the Cuban plane, where 73 innocents, in a Cubana de Aviacion airliner, died.

And where is the biggest terrorist of this continent who took the responsibility for blowing up the plane? He spent a few years in jail in Venezuela. Thanks to CIA and then government officials, he was allowed to escape, and he lives here in this country, protected by the government.

And he was convicted. He has confessed to his crime. But the U.S. government has double standards. It protects terrorism when it wants to.

And this is to say that Venezuela is fully committed to combating terrorism and violence. And we are one of the people who are fighting for peace.

Luis Posada Carriles is the name of that terrorist who is protected here. And other tremendously corrupt people who escaped from Venezuela are also living here under protection: a group that bombed various embassies, that assassinated people during the coup. They kidnapped me and they were going to kill me, but I think God reached down and our people came out into the streets and the army was too, and so I'm here today.

But these people who led that coup are here today in this country protected by the American government. And I accuse the American government of protecting terrorists and of having a completely cynical discourse.

We mentioned Cuba. Yes, we were just there a few days ago. We just came from there happily.

And there you see another era born. The Summit of the 15, the Summit of the Nonaligned, adopted a historic resolution. This is the outcome document. Don't worry, I'm not going to read it.

But you have a whole set of resolutions here that were adopted after open debate in a transparent matter -- more than 50 heads of state. Havana was the capital of the south for a few weeks, and we have now launched, once again, the group of the nonaligned with new momentum.

And if there is anything I could ask all of you here, my companions, my brothers and sisters, it is to please lend your good will to lend momentum to the Nonaligned Movement for the birth of the new era, to prevent hegemony and prevent further advances of imperialism.

And as you know, Fidel Castro is the president of the nonaligned for the next three years, and we can trust him to lead the charge very efficiently.

Unfortunately they thought, "Oh, Fidel was going to die." But they're going to be disappointed because he didn't. And he's not only alive, he's back in his green fatigues, and he's now presiding the nonaligned.

So, my dear colleagues, Madam President, a new, strong movement has been born, a movement of the south. We are men and women of the south.

With this document, with these ideas, with these criticisms, I'm now closing my file. I'm taking the book with me. And, don't forget, I'm recommending it very warmly and very humbly to all of you.

We want ideas to save our planet, to save the planet from the imperialist threat. And hopefully in this very century, in not too long a time, we will see this, we will see this new era, and for our children and our grandchildren a world of peace based on the fundamental principles of the United Nations, but a renewed United Nations.

And maybe we have to change location. Maybe we have to put the United Nations somewhere else; maybe a city of the south. We've proposed Venezuela.

You know that my personal doctor had to stay in the plane. The chief of security had to be left in a locked plane. Neither of these gentlemen was allowed to arrive and attend the U.N. meeting. This is another abuse and another abuse of power on the part of the Devil. It smells of sulfur here, but God is with us and I embrace you all.

May God bless us all. Good day to you.

Posted by Hugo Albert Orwell at 04:23 PM | Permalink | TrackBacks (0)

Source: The Progressive

By Greg Palast, The Progressive
July 2006 Issue

You’d think George Bush would get down on his knees and kiss Hugo Chávez’s behind. Not only has Chávez delivered cheap oil to the Bronx and other poor communities in the United States. And not only did he offer to bring aid to the victims of Katrina. In my interview with the president of Venezuela on March 28, he made Bush the following astonishing offer: Chávez would drop the price of oil to $50 a barrel, “not too high, a fair price,” he said—a third less than the $75 a barrel for oil recently posted on the spot market. That would bring down the price at the pump by about a buck, from $3 to $2 a gallon.

But our President has basically told Chávez to take his cheaper oil and stick it up his pipeline. Before I explain why Bush has done so, let me explain why Chávez has the power to pull it off—and the method in the seeming madness of his “take-my-oil-please!” deal.

Venezuela, Chávez told me, has more oil than Saudi Arabia. A nutty boast? Not by a long shot. In fact, his surprising claim comes from a most surprising source: the U.S. Department of Energy. In an internal report, the DOE estimates that Venezuela has five times the Saudis’ reserves.

However, most of Venezuela’s mega-horde of crude is in the form of “extra-heavy” oil—liquid asphalt—which is ghastly expensive to pull up and refine. Oil has to sell above $30 a barrel to make the investment in extra-heavy oil worthwhile. A big dip in oil’s price—and, after all, oil cost only $18 a barrel six years ago—would bankrupt heavy-oil investors. Hence Chávez’s offer: Drop the price to $50—and keep it there. That would guarantee Venezuela’s investment in heavy oil.

But the ascendance of Venezuela within OPEC necessarily means the decline of the power of the House of Saud. And the Bush family wouldn’t like that one bit. It comes down to “petro-dollars.” When George W. ferried then-Crown Prince (now King) Abdullah of Saudi Arabia around the Crawford ranch in a golf cart it wasn’t because America needs Arabian oil. The Saudis will always sell us their petroleum. What Bush needs is Saudi petro-dollars. Saudi Arabia has, over the past three decades, kindly recycled the cash sucked from the wallets of American SUV owners and sent much of the loot right back to New York to buy U.S. Treasury bills and other U.S. assets.

The Gulf potentates understand that in return for lending the U.S. Treasury the cash to fund George Bush’s $2 trillion rise in the nation’s debt, they receive protection in return. They lend us petro-dollars, we lend them the 82nd Airborne.

Chávez would put an end to all that. He’ll sell us oil relatively cheaply—but intends to keep the petro-dollars in Latin America. Recently, Chávez withdrew $20 billion from the U.S. Federal Reserve and, at the same time, lent or committed a like sum to Argentina, Ecuador, and other Latin American nations.

Chávez, notes The Wall Street Journal, has become a “tropical IMF.” And indeed, as the Venezuelan president told me, he wants to abolish the Washington-based International Monetary Fund, with its brutal free-market diktats, and replace it with an “International Humanitarian Fund,” an IHF, or more accurately, an International Hugo Fund. In addition, Chávez wants OPEC to officially recognize Venezuela as the cartel’s reserve leader, which neither the Saudis nor Bush will take kindly to.

Politically, Venezuela is torn in two. Chávez’s “Bolivarian Revolution,” a close replica of Franklin Roosevelt’s New Deal—a progressive income tax, public works, social security, cheap electricity—makes him wildly popular with the poor. And most Venezuelans are poor. His critics, a four-centuries’ old white elite, unused to sharing oil wealth, portray him as a Castro-hugging anti-Christ.

Chávez’s government, which used to brush off these critics, has turned aggressive on them. I challenged Chávez several times over charges brought against Súmate, his main opposition group. The two founders of the nongovernmental organization, which led the recall campaign against Chávez, face eight years in prison for taking money from the Bush Administration and the International Republican [Party] Institute. No nation permits foreign funding of political campaigns, but the charges (no one is in jail) seem like a heavy hammer to use on the minor infractions of these pathetic gadflies.

Bush’s reaction to Chávez has been a mix of hostility and provocation. Washington supported the coup attempt against Chávez in 2002, and Condoleezza Rice and Donald Rumsfeld have repeatedly denounced him. The revised National Security Strategy of the United States of America, released in March, says, “In Venezuela, a demagogue awash in oil money is undermining democracy and seeking to destabilize the region.”

So when the Reverend Pat Robertson, a Bush ally, told his faithful in August 2005 that Chávez has to go, it was not unreasonable to assume that he was articulating an Administration wish. “If he thinks we’re trying to assassinate him,” Robertson said, “I think that we really ought to go ahead and do it. It’s a whole lot cheaper than starting a war . . . and I don’t think any oil shipments will stop.”

There are only two ways to defeat the rise of Chávez as the New Abdullah of the Americas. First, the unattractive option: Cut the price of oil below $30 a barrel. That would make Chávez’s crude worthless. Or, option two: Kill him.

Palast: Your opponents are saying that you are beginning a slow-motion dictatorship. Is that what we are seeing?

Hugo Chávez: They have been saying that for a long time. When they’re short of ideas, any excuse will do as a vehicle for lies. That is totally false. I would like to invite the citizens of Great Britain and the citizens of the U.S. and the citizens of the world to come here and walk freely through the streets of Venezuela, to talk to anyone they want, to watch television, to read the papers. We are building a true democracy, with human rights for everyone, social rights, education, health care, pensions, social security, and jobs.

Palast: Some of your opponents are being charged with the crime of taking money from George Bush. Will you send them to jail?

Chávez: It’s not up to me to decide that. We have the institutions that do that. These people have admitted they have received money from the government of the United States. It’s up to the prosecutors to decide what to do, but the truth is that we can’t allow the U.S. to finance the destabilization of our country. What would happen if we financed somebody in the U.S. to destabilize the government of George Bush? They would go to prison, certainly.

Palast: How do you respond to Bush’s charge that you are destabilizing the region and interfering in the elections of other Latin American countries?

Chávez: Mr. Bush is an illegitimate President. In Florida, his brother Jeb deleted many black voters from the electoral registers. So this President is the result of a fraud. Not only that, he is also currently applying a dictatorship in the U.S. People can be put in jail without being charged. They tap phones without court orders. They check what books people take out of public libraries. They arrested Cindy Sheehan because of a T-shirt she was wearing demanding the return of the troops from Iraq. They abuse blacks and Latinos. And if we are going to talk about meddling in other countries, then the U.S. is the champion of meddling in other people’s affairs. They invaded Guatemala, they overthrew Salvador Allende, invaded Panama and the Dominican Republic. They were involved in the coup d’état in Argentina thirty years ago.

Palast: Is the U.S. interfering in your elections here?

Chávez: They have interfered for 200 years. They have tried to prevent us from winning the elections, they supported the coup d’état, they gave millions of dollars to the coup plotters, they supported the media, newspapers, outlaw movements, military intervention, and espionage. But here the empire is finished, and I believe that before the end of this century, it will be finished in the rest of the world. We will see the burial of the empire of the eagle.

Palast: You don’t interfere in the elections of other nations in Latin America?

Chávez: Absolutely not. I concern myself with Venezuela. However, what’s going on now is that some rightwing movements are transforming me into a pawn in the domestic politics of their countries, by making statements that are groundless. About candidates like Morales [of Bolivia], for example. They said I financed the candidacy of President Lula [of Brazil], which is totally false. They said I financed the candidacy of Kirchner [of Argentina], which is totally false. In Mexico, recently, the rightwing party has used my image for its own profit. What’s happened is that in Latin America there is a turn to the left. Latin Americans have gotten tired of the Washington consensus—a neoliberalism that has aggravated misery and poverty.

Palast: You have spent millions of dollars of your nation’s oil wealth throughout Latin America. Are you really helping these other nations or are you simply buying political support for your regime?

Chávez: We are brothers and sisters. That’s one of the reasons for the wrath of the empire. You know that Venezuela has the biggest oil reserves in the world. And the biggest gas reserves in this hemisphere, the eighth in the world. Up until seven years ago, Venezuela was a U.S. oil colony. All of our oil was going up to the north, and the gas was being used by the U.S. and not by us. Now we are diversifying. Our oil is helping the poor. We are selling to the Dominican Republic, Haiti, Cuba, some Central American countries, Uruguay, Argentina.

Palast: And the Bronx?

Chávez: In the Bronx it is a donation. In all the cases I just mentioned before, it is trade. However, it’s not free trade, just fair commerce. We also have an international humanitarian fund as a result of oil revenues.

Palast: Why did George Bush turn down your help for New Orleans after the hurricane?

Chávez: You should ask him, but from the very beginning of the terrible disaster of Katrina, our people in the U.S., like the president of CITGO, went to New Orleans to rescue people. We were in close contact by phone with Jesse Jackson. We hired buses. We got food and water. We tried to protect them; they are our brothers and sisters. Doesn’t matter if they are African, Asian, Cuban, whatever.

Palast: Are you replacing the World Bank and the International Monetary Fund as “Daddy Big Bucks”?

Chávez: I do wish that the IMF and the World Bank would disappear soon.

Palast: And it would be the Bank of Hugo?

Chávez: No. The International Humanitarian Bank. We are just creating an alternative way to conduct financial exchange. It is based on cooperation. For example, we send oil to Uruguay for their refinery and they are paying us with cows.

Palast: Milk for oil.

Chávez: That’s right. Milk for oil. The Argentineans also pay us with cows. And they give us medical equipment to combat cancer. It’s a transfer of technology. We also exchange oil for software technology. Uruguay is one of the biggest producers of software. We are breaking with the neoliberal model. We do not believe in free trade. We believe in fair trade and exchange, not competition but cooperation. I’m not giving away oil for free. Just using oil, first to benefit our people, to relieve poverty. For a hundred years we have been one of the largest oil-producing countries in the world but with a 60 percent poverty rate and now we are canceling the historical debt.

Palast: Speaking of the free market, you’ve demanded back taxes from U.S. oil companies. You have eliminated contracts for North American, British, and European oil companies. Are you trying to slice out the British and American oil companies from Venezuela?

Chávez: No, we don’t want them to go, and I don’t think they want to leave the country, either. We need each other. It’s simply that we have recovered our oil sovereignty. They didn’t pay taxes. They didn’t pay royalties. They didn’t give an account of their actions to the government. They had more land than had previously been established in the contracts. They didn’t comply with the agreed technology exchange. They polluted the environment and didn’t pay anything towards the cleanup. They now have to comply with the law.

Palast: You’ve said that you imagine the price of oil rising to $100 dollars per barrel. Are you going to use your new oil wealth to squeeze the planet?

Chávez: No, no. We have no intention of squeezing anyone. Now, we have been squeezed and very hard. Five hundred years of squeezing us and stifling us, the people of the South. I do believe that demand is increasing and supply is dropping and the large reservoirs are running out. But it’s not our fault. In the future, there must be an agreement between the large consumers and the large producers.

Palast: What happens when the oil money runs out, what happens when the price of oil falls as it always does? Will the Bolivarian revolution of Hugo Chávez simply collapse because there’s no money to pay for the big free ride?

Chávez: I don’t think it will collapse, in the unlikely case of oil running out today. The revolution will survive. It does not rely solely on oil for its survival. There is a national will, there is a national idea, a national project. However, we are today implementing a strategic program called the Oil Sowing Plan: using oil wealth so Venezuela can become an agricultural country, a tourist destination, an industrialized country with a diversified economy. We are investing billions of dollars in the infrastructure: power generators using thermal energy, a large railway, roads, highways, new towns, new universities, new schools, recuperating land, building tractors, and giving loans to farmers. One day we won’t have any more oil, but that will be in the twenty-second century. Venezuela has oil for another 200 years.

Palast: But the revolution can come to an end if there’s another coup and it succeeds. Do you believe Bush is still trying to overthrow your government?

Chávez: He would like to, but what you want is one thing, and what you cannot really obtain is another.

Investigative reporter Greg Palast, who interviewed President Hugo Chávez for the British Broadcasting Corporation (BBC), is the author of “Armed Madhouse: Dispatches from the Front Lines of the Class War,” from which this is adapted.

Posted by Hugo Albert Orwell at 04:54 PM | Permalink | TrackBacks (0)

Fantastic explantion of the history of oil, oil's influence in war, Peak Oil and US Dollar currency hegemony. All done with humor, amusing analogies and in lay person's terms.

http://video.google.com/videoplay?docid=7374585792978336967

Posted by Hugo Albert Orwell at 11:18 AM | Permalink | TrackBacks (0)

Source: AlterNet

By Greg Palast, AlterNet
Posted June 25, 2003

Well, actually, he's not. How the American media distorted events in Venezuela beyond all recognition is clear to one who reported from there.

[Editors note: As a globetrotting investigative reporter who has worked for major news outlets on both sides of the Atlantic, Greg Palast has had ample opportunity to see how media coverage can strongly skew how events are seen by the public. Last week, in an original article published on AlterNet, "The Screwing of Cynthia McKinney", he showed how sloppy reporters at the New York Times and National Public Radio were complicit in the political destruction of progressive Rep. Cynthia McKinney. Now, in another case study, he takes on U.S. media coverage of Venezuela's political turmoil.]

Last June, on Page One of the San Francisco Chronicle, an Associated Press photo of a mass of demonstrators carried the following caption:

"TENS OF THOUSANDS OF VENEZUELANS OPPOSED TO PRESIDENT HUGO CHAVEZ..."

The caption let us know this South American potentate was a killer, an autocrat, and the people of his nation wanted him out. The caption continued: "[Venezuelans] marched Saturday to demand his resignation and punishment for those responsible for 17 deaths during a coup in April. 'Chavez leave now!' read a huge banner."

There was no actual story in the Chronicle -- South America simply isn't worth wasting words on -- just the photo and caption. But the Chronicle knew no story was needed. Venezuelans hated their terrible president, and all you needed was this photo to prove it.

And I could confirm the large protests. I'd recently returned from Caracas and watched 100,000 march against President Chavez. I'd filmed them for BBC Television London.

But I also filmed this: a larger march, easily over 200,000 Venezuelans marching in support of their president, Chavez.

That picture, of the larger pro-Chavez march, did not appear in a single U.S. newspaper. The pro-Chavez marchers weren't worth a mention.

By the next month, when the New York Times printed a photo of anti-Chavez marchers, they had metastasized. The Times reported that 600,000 had protested against Chavez.

Once again, the larger pro-Chavez demonstrations were, as they say in Latin America, "disappeared." I guess they didn't fit the print.

Look at the Chronicle/AP photo of the anti-Chavez marchers in Venezuela. Note their color. White.

And not just any white. A creamy rich white.

I interviewed them and recorded in this order: a banker in high heels and push-up bra; an oil industry executive (same outfit); and a plantation owner who rode to Caracas in a silver Jaguar.

And the color of the pro-Chavez marchers? Dark brown. Brown and round as cola nuts -- just like their hero, their President Chavez. They wore an unvarying uniform of jeans and T-shirts.

Let me explain.

For five centuries, Venezuela has been run by a minority of very white people, pure-blood descendants of the Spanish conquistadors. To most of the 80 percent of Venezuelans who are brown, Hugo Chavez is their Nelson Mandela, the man who will smash the economic and social apartheid that has kept the dark-skinned millions stacked in cardboard houses in the hills above Caracas while the whites live in high-rise splendor in the city center. Chavez, as one white Caracas reporter told me with a sneer, gives them bricks and milk, and so they vote for him.

Why am I explaining the basics of Venezuela to you? If you watched BBC TV, or Canadian Broadcasting, you'd know all this stuff. But if you read the New York Times, you'll only know that President Chavez is an "autocrat," a "ruinous demagogue," and a "would-be dictator," who resigned when he recognized his unpopularity.

Odd phrasings -- "dictator" and "autocrat" -- to describe Chavez, who was elected by a landslide majority (56 percent) of the voters. Unlike our President.

On April 12, 2002, Chavez resigned his presidency It said so, right there in the paper -- every major newspaper in the USA, every single one. Apparently, to quote the New York Times, Chavez recognized that he was unpopular, his time was up: "With yesterday's resignation of President Hugo Chavez, Venezuelan democracy is no longer threatened by a would-be dictator."

Problem was, the "resignation" story was a fabulous fib, a phantasmagoric fabrication. In fact, the President of Venezuela had been kidnapped at gunpoint and bundled off by helicopter from the presidential palace. He had not resigned; he never resigned; and one of his captors (who secretly supported Chavez) gave him a cell-phone from which he called and confirmed to friends and family that he remained alive -- and still president.

Working for the Guardian and the BBC, I was able within hours of the kidnapping to reach key government people in Venezuela to confirm that this "resignation" factoid was just hoodoo nonsense.

But it was valuable nonsense to the U.S. State Department. The faux resignation gave the new U.S.-government-endorsed Venezuelan leaders the pretense of legitimacy -- Chavez had resigned; this was a legal change of government, not a coup d'etat. (The Organization of American States bars recognition of governments who come to power through violence.) Had the coup leaders not bungled their operation -- the coup collapsed within 48 hours -- or if they had murdered Chavez, we would never have known the truth.

The U.S. papers got it dead wrong -- but how? Who was the source of this "resignation" lie? I asked a U.S. reporter why American news media had reported this nonsense as stone fact without checking. The reply was that it came from a reliable source: "We got it from the State Department."

Oh.

"He's crazy," shouts a protester about President Chavez on one broadcast. And if you watched the 60 Minutes interview with Chavez, you saw a snippet of a lengthy conversation -- a few selective seconds, actually -- which, out of context, did made Chavez look loony.

In the old Soviet Union, dissidents were packed off to insane asylums to silence and discredit them. In our democracy we have a more subtle -- and more effective -- means of silencing and discrediting dissidents. Television, radio, and print press obligingly sequester enemies of the state in the media's madhouse. In this way, Bush critic Rep. Cynthia McKinney became "loony" (see "The Screwing of Cynthia McKinney"); Chavez a mad "autocrat."

It's the electronic loony bin. You no longer hear what they have to say because you've been told by images, by repetition, and you've already dismissed their words ... if by some chance their words break through the television Berlin Wall.

Try it: Do a Google or Lexis search on the words Chavez and autocrat.

For who is the autocrat? Today, there are hundreds of people held in detention without charges in George Bush's United States. In Venezuela, there are none.

This is not about Venezuela but about the Virtual Venezuela, created for you by America's news wardens. The escape routes are guarded.

January 5, 2003, New York City. Picked up bagels and the Sunday Times on Delancey Street. Looks like that s.o.b. Chavez is at it again: Here was a big picture of a half-dozen people lying on the ground. The Times story read: "Protesters shielded themselves from tear gas during an anti- government rally on Friday in Caracas, Venezuela. In the 33rd day of a national strike, several protesters were shot."

That was it -- the entire story of Venezuela for the Paper of Record.

Maybe size doesn't matter. But this does: Even this itty-bitty story is a steaming hot bag of mendacity. Yes, two people were shot dead -- those in the pro-Chavez march.

I'd be wrong to say that every U.S. paper repeated the Times sloppy approach. Elsewhere, you could see a photo of the big pro-Chavez march and a photo of the "Chavista" widow placed within an explanatory newswire story. Interestingly, the fuller and correct story ran in an outlet that's none too friendly to Chavez: El Diario, New York City's oldest Spanish-language newspaper.

Lesson: If you want to get accurate news in the United States, you might want to learn a language other than English.

Friday, January 3, 2003. The New York Times ran a long "News Analysis: Venezuela Outlook." Four experts were quoted. For balance, two of them don't like Chavez, while the other two despise him.

The Times reporter wrote that "the president says he will stay in power." "In power?" What a strange phrase for an elected official. Having myself spoken with Chavez, it did not sound like him. He indicated he would stay "in office" -- quite a different inference than "in power." But then, the Times' phrasing isn't in quotes.

That's because Chavez never said it.

This article was based on a contribution to the compendium, "Abuse Your Illusions," released this month by Disinformation Press. Oliver Shykles, Fredda Weinberg, Ina Howard, and Phil Tanfield contributed research for this report. Palast, an investigative reporter for BBC television, is author of the New York Times bestseller, "The Best Democracy Money Can Buy" (Penguin/Plume 2003).

Posted by Hugo Albert Orwell at 10:32 AM | Permalink | TrackBacks (0)

Source: Gulf Times, Doha, Qatar

Published: Thursday, 14 September, 2006, 08:50 AM Doha Time

VIENNA: Saudi Arabia, the world’s biggest oil producer, said improving technology and new fields may help the world unlock 2tn barrels of oil in the next 25 years, or about double the existing proven reserves.

Abdullah Jum’ah, the chief executive officer of state-run Saudi Aramco, challenged engineers to raise oil-field recovery rates by 20% in 25 years, adding 1tn barrels to world reserves. New finds could add another 1tn. He expects Saudi Arabia alone to gain 200bn barrels of reserves in 30 years.

Saudi Arabia has “not had to draw down reserves in the last 10 years because we have been adding at least as much as we produce,’’ Jum’ah told reporters in Vienna, where he was attending a conference. “Saudi Arabia is under-explored. We will probably add 200bn barrels of oil 25 to 30 years from now.’’

Proven Saudi reserves now total about 260bn barrels, he said. Proven global oil reserves ended 2005 at 1.2tn barrels, with 264bn in Saudi Arabia, according to BP Plc’s Statistical Review of World Energy. To those reserves can be added another 1.5tn barrels from sources like oil sands and oil shale, Jum’ah said in a speech yesterday in Vienna, at a conference hosted by the Organisation of Petroleum Exporting Countries.

Taken together, with the additional 2tn barrels possible from new oil finds and improved recovery rates, Jum’ah’s estimates show a potential of 4.7tn barrels of oil, “or more than 140 years of supply at today’s current rate of production.’’

He gave no estimate of long it would take before that oil could be recovered.

The Saudi Aramco executive and the head of the US government’s energy forecasting agency both expressed confidence technology will increase oil reserves and production rates in coming years.

“Technological transfer occurs more quickly in this industry than in any other,’’ and high oil prices will speed up such advances, Guy Caruso, the head of the US Energy Department’s Energy Information Administration, said in Vienna yesterday.

Saudi Aramco has boosted its computing power 300-fold since 1999 and now has a better understanding of its reserves, Jum’ah said. He said reserves will probably grow in the US Gulf of Mexico, though he declined to provide any geographical detail of where world reserves might expand.

The size of existing reserves and resources discredits the “peak oil’’ theory that world oil production is already close to peaking, the Saudi executive said, repeating a view he has expressed previously.

Rex Tillerson, the chief executive officer of ExxonMobil Corp, the world’s largest publicly owned oil company, said at the same conference that technological progress will continue. “There has never been an era of easy oil,’’ Tillerson said. “Our industry has constantly operated at the technological frontier.’’

Caruso said some years ago, when prices were lower, companies operating in the North Sea “said they were reducing upstream development costs 10% a year.’’

“Now we are in a higher price environment, we are seeing developments in non-conventional oil that we could not conceive of at $20 a barrel,’’ Caruso said.

Non-conventional oil includes new methods of producing oil, or oil-like fuel, from sources such as rocks, coal, gas and plants.

Even so, Caruso’s estimates show non-conventional oil in coming years will contribute relatively little to the world’s oil supply. For example, oil sands may produce 3.6mn bpd by 2030, up from 1mn barrels a day last year, Caruso said.

Oil shale will rise to 100,000 bpd from zero now. Gas-to-liquids and coal-to-liquids supply will each rise to 2.1mn bpd in 2030 from about 200,000 bpd combined last year, he said. Biofuels supply will rise to 2.1mn bpd from 700,000 bpd. – Bloomberg

Posted by Hugo Albert Orwell at 03:14 PM | Permalink | TrackBacks (0)

Source: The Pioneer [India]
By Sandhya Jain

If Iranian President Ahmadinejad is serious about opening a Euro-based oil bourse in Tehran to undermine the US dollar, now is the time to strike. Strategic experts believe that internationally, the mega strategic energy deals are slipping away from corporate America, whose strong arm tactics are alienating growing nationalist sentiment across the world.

Washington's use of the September 2001 New York terror strike to cynically assume a commanding position in oil and gas rich Central Asia has startled the international community, especially after the unwarranted invasion of Iraq and takeover of its economy by cronies of the White House. This has forced a major rethink in world capitals, and resource-rich regimes in the Gulf and Central Asia are responding to Russia and China, who are cooperating to combat America's monopolistic ambitions.

Pakistan is Washington's non-NATO ally in the war against terror, but has turned to China for economic development, as evident in troubled Balochistan. It is keen on an energy deal with Iran, bete noire of Uncle Sam, but the tripartite energy deal with India cannot take off due to Pakistan's status as the epicentre of jihadi terrorism. As a rising Asian economy, India is also engaging with the Central Asian Republics for better energy security, though its anxiety for American goodwill has upset Iran and caused a stalemate over the price of LNG.

Saudi Arabia, however, is moving out of the American orbit by sewing up energy deals with China and India, though Washington has compensated itself with the oilfields of Libya. Yet the unmistakable geo-political trend among oil and gas producing nations of the Gulf, Latin America, Africa and Central Asia is to avoid US oil companies in favour of nations that do not interfere in their internal affairs. America's high comfort levels with dictatorial regimes on one hand, and promotion of puppet democracies on the other, as per its corporate convenience, has diminished its value as a desirable economic and strategic global partner.

Central Asia is alert after the string of 'coloured' revolutions. America currently retains bases in Kyrgyzthan, Tajikistan, Ukraine, Georgia and Azerbaijan. But Uzbekistan asked it to vacate the crucial Karshi-Khanabad (K2) base after the failed Andijan riots. President Islam Karimov was warned by ousted Georgian leader Eduard Shevardnadze against American financier George Soros and West-funded NGOs; he promptly expelled the Open Society Institute, stifled other NGOs, and courted Russian President Putin. A gas deal with Russia's Gazprom is expected to affect America's hydrocarbon pipeline over Afghanistan to the Arabian Sea. Karimov has invited India to share an energy partnership along with Russia and China, a move that makes profound geo-political sense.

Meanwhile, the Shanghai Cooperation Organisation (SCO) is pressing America to wind up its bases in Central Asia, especially as heightened tensions with Iran raise fears of another regional misadventure. Kazakhstan, which has enormous hydrocarbon resources, is also upset with President Bush, and even allies like Kyrgyzstan and Tajikistan favour a security relationship with Russia. Tajikistan made the Russian military base there permanent after President Putin's visit in October 2004, while Russia has a base at Kant in Kyrgyzstan.

China is very proactive in the region. There is a thousand kilometre pipeline from Kazakhstan's central Karaganda region to Xinjiang, part of an ambitious three thousand kilometre link to the Caspian Sea. China has also invested heavily in Russia's energy sector, especially Siberia's coal and oil. It is active in Uzbekistan, Tajikistan and Kyrgyzstan.

Experts opine that Russia is leading the attempt to marginalise Western multinational oil companies. The move strikes a chord because the White House is dominated by a cartel of the oil and gas industry and some banker-financiers, and the oil-rich nations of Central Asia, the Gulf and Latin America prefer joint ventures with State enterprises rather than these rapacious multinationals. Thus, a very basic economic nationalism drives their tilt towards Russia and China. The West, used to more than a century of de facto imperialism in the oil and gas sector, finds itself on a sticky wicket.

The new oil-and-gas producer States and the key consumer Asian economies (China, India) are joining hands to forge State-to-State joint ventures and arrive at strategic energy security. Analysts say this could eventually diminish the role and status of OPEC in future. Russian leaders had cleverly positioned the Russian Federation to take advantage of global energy trends, and is now emerging as natural leader of the world's key producing and consuming powers.

Washington facilitated this process by its unacceptable oil greed in Iraq. In a path-breaking work, "The Bush Agenda: Invading the World, One Economy at a Time," Antonia Juhasz exposes the US corporate invasion of Iraq. So far, 150 US corporations have received a staggering $50 billion worth of contracts for the failed reconstruction of Iraq, even as a new oil law has opened the oil sector to private foreign corporate investment.

Copyright © 2006 Nick Anderson, Houston Chronicle

Under the Geneva Convention, it is completely illegal for an occupying power to change the laws or political structure of the occupied country. Yet the United Nations and the international community have been idle bystanders as the Bush Administration has changed all basic economic and political laws, while totally failing in the primary task of providing for the security and basic needs of the Iraqi people. Thus, as many as 30 oil contracts signed by President Saddam Hussein with oil companies from all around the world, except the US, were simply cancelled. Iraq oil is now being guzzled by Chevron, Exxon and Marathon. And when you consider that some geologists believe that Iraq's oil reserves are larger or at par with those of Saudi Arabia, you can envisage a very slow American pullout from the region. No wonder the Central Asian nations with American military bases are no longer keen to play host to Uncle Sam.

America's obduracy has reinforced the global preference for State-to-State long-term agreements and contracts which serve the energy-security interests of nations, rather than private corporate entities. Russia's domination of oil and gas flowing to the West has helped it re-emerge as a global power in concert with its strategic partners. And, surprising as it may seem, Washington lacks the global leverage to refashion events in its favour.

Posted by Hugo Albert Orwell at 10:30 AM | Permalink | TrackBacks (0)

Source: Bloomberg.com

Peak Oil Forecasters Win Converts on Wall Street to $200 Crude

By Deepak Gopinath

Aug. 31 (Bloomberg) -- On a sweltering Tuesday in mid-July, in the fields outside Pisa, Italy, Willem Kadijk scribbles notes as a ragtag troupe of doomsayers predict the end of the Oil Age.

With his shaved head, jeans and sandals, Kadijk, 48, blends into a crowd gathered under a white tent to hear of the coming calamity. The death of cheap, abundant crude, the forecasters warn, might unleash war and plunge the world into a second Great Depression.

That's not the prophecy of some apocalyptic cult. Kadijk, a hedge fund adviser, had flown from Amsterdam to attend a conference on a geologic theory known as peak oil.

Proponents of this controversial idea say global oil production is now at or near its zenith. Once the flow crests and starts to decline -- and some geologists say it already has -- oil will no longer be able to slake the world's growing thirst for energy. The result will be the oil shock to end all oil shocks. The price of a barrel of crude will spiral to $200 -- and keep rising. To the peaksters, today's energy crunch is nothing next to the pain that will follow.

"Peak oil is a reality," says Kadijk, a senior equity salesman at Kepler Equities, an Amsterdam-based brokerage. He plans to start a fund to capitalize on what he sees as a looming crisis for the world's fossil fuel-based economy and the ultimate bull market in oil.

As energy prices soar and violence convulses the Middle East, the peak-oil movement -- an unlikely alliance of geologists, physicists, oil industry consultants and environmental activists -- is winning converts. Peak-oil ideas are bubbling up from scientific journals and offbeat Web sites, much the way warnings of global warming did a decade ago. For the first time, the peaksters have begun to grab the attention of Washington and Wall Street.

Congressional Caucus

U.S. Energy Secretary Samuel Bodman, former boss of Boston- based Cabot Corp., an oil and chemicals company, has asked the National Petroleum Council, which advises him, to investigate whether oil supplies can keep pace with demand. The U.S. Government Accountability Office, the nonpartisan congressional watchdog, is due to release a study on peak oil this November. Rep. Roscoe Bartlett, a Maryland Republican, has formed the Congressional Peak Oil Caucus to sound the alarm.

"The world has never faced a problem like this," Bartlett says.

Everyone agrees we'll run out of crude eventually. Oil, after all, is a finite resource: The Earth holds only so much of it. The controversial issue is when a global peak will occur -- and what will happen then.

Colin Campbell, a British geologist who popularized the peak- oil theory in his book "The Coming Oil Crisis" (Multi-Science Publishing Co. and Petroconsultants SA, 1997, 210 pages) says world production of conventional oil, the kind that comes from gushing wells, is reaching its apex.

End of Oil Age

Society isn't prepared for the consequences, Campbell, 75, says. It's too late to develop alternative sources of power, such as solar cells, nuclear reactors and windmills, to fill the oil gap before energy prices soar, says Campbell, who has a doctorate in geology from the University of Oxford and more than 40 years of experience in the oil industry.

"We have come to the end of the first half of the Oil Age," Campbell says.

Nonsense, says Russ Roberts, a spokesman for Exxon Mobil Corp., the world's largest oil company. Exxon Mobil, which has reaped record profits as the price of oil has surged, has taken out ads dismissing peak oil in U.S. newspapers such as the New York Times.

The Irving, Texas-based oil giant says the peaksters are being alarmist. In all, the world probably has 4 trillion barrels of oil left, four times the amount we have used so far, the ad says.

Time to Think

"The world is nowhere near running out of oil," Roberts says. Exxon Mobil geologists believe global oil production will keep rising through 2030, he says.

Cambridge Energy Research Associates, whose chairman, Daniel Yergin, is a leading peak-oil critic, says production will reach an "undulating plateau" sometime in the future.

"Our outlook goes to 2020, and we see no evidence of a peak," CERA geologist Peter Jackson says. "Eventually, we will start to see a decline. There is still time to think about alternatives."

Predictions of an imminent oil famine are as old as the industry itself. When production at the first U.S. wells, located in western Pennsylvania, began to decline in the late 19th century, some people predicted the country would soon run out of oil. Then crude was discovered in east Texas, whose oil fields yielded so much black gold that the Texas Railroad Commission capped production to support prices.

Peak Moment

In the past, Campbell or his disciples have forecast the oil peak down to the year or even the day only to push back the fateful moment. In 1997, Campbell said it would occur in 2001. Now, he says total production, which includes oil from deep-water wells and fuel derived from natural gases, will reach its height sometime after 2010.

Kenneth Deffeyes, a geologist and professor emeritus at Princeton University, first pinpointed Nov. 24, 2005, as the peak- oil date and then revised it to Dec. 16, 2005.

Campbell says the exact day or year isn't important. What matters is that peak oil is coming, and soon. Almost a century and a half after the first U.S. wells were drilled in Titusville, Pennsylvania, production has begun to decline in more than a dozen countries, including the U.S., according to the BP Statistical Review of World Energy. Production at the giant Cantarell oil field in Mexico is likely to decline 8 percent this year, according to Mexican state oil monopoly Petroleos Mexicanos.

U.S. Addiction

At a time when U.S. President George W. Bush has urged the country to break its addiction to foreign oil, the fact is, the U.S. is becoming ever more dependent on overseas crude. U.S. oil production peaked 36 years ago, in 1970, at 11.3 million barrels a day. Since then, output has fallen 39 percent, to 6.8 million barrels a day, or 8 percent of the world total, in 2005, according to BP.

Investors have started to listen to the peaksters. Billionaire Boone Pickens says he's a peak believer. So does Peter Thiel, who co-founded PayPal Inc. and now runs Clarium Capital Management LLC, a $2.1 billion hedge fund firm. Pickens, Thiel and other investors are positioning themselves to profit from what they say will be the biggest oil squeeze of all time.

Even some oil companies and industry veterans sound nervous. Chevron Corp. has run a series of full-page ads in U.S. newspapers that highlight surging oil consumption and declare, "The era of easy oil is over."

Chicken Littles

Thierry Desmarest, chief executive officer of Paris-based Total SA, told the World Gas Conference in Amsterdam in June that global oil production would peak in 2020. Matthew Simmons, whose Houston-based investment bank, Simmons & Co., trades oil and gas stocks, says Saudi Arabia's production may decline soon.

Alex Cranberg, chairman of Denver-based independent oil company Aspect Energy LLC, calls the peaksters Chicken Littles -- misguided souls who think the sky is falling.

In fact, Cranberg hired two people to dress in chicken costumes and hand out fliers dismissing peak oil at the conference Kadijk attended in July.

Like many oil-industry vets, Cranberg, 51, says market forces and technological advances will ultimately cure our energy ills. As oil prices rise, companies will be more willing to hunt for crude and extract it. They'll invest in expensive deep-water wells and new technologies to wring more oil from existing fields. Consumers will start conserving energy. Even now, stock market investors and Silicon Valley venture capitalists are pouring billions of dollars into companies developing ethanol, solar power and other alternative sources of energy.

$3-a-Gallon Gas

More and more, however, the peaksters are drowning out everyone else, Cranberg says. "You can't turn around without seeing or hearing these ideas," he says. "I think they are gaining."

You don't have to be a geologist to understand why. The price of crude has tripled since 2000. In the U.S., $3-a-gallon gasoline has sapped consumers' confidence. Nearly half of Americans believe the economy is doing poorly, according to a July 28-Aug. 1 Bloomberg/Los Angeles Times poll. Fifty-nine percent of Americans expressed a negative view of Bush's handling of the economy.

"If oil was still at $20, no one would be talking about peak oil," says Manouchehr Takin, senior petroleum upstream analyst at the Centre for Global Energy Studies, a London-based consulting firm.

High oil prices are only part of the story, however. The world is straining to feed its energy habit. Today, we consume 85 million barrels of oil a day, according to the U.S. Energy Information Administration (EIA). By 2030, the world will devour 118 million barrels a day, as China and India emerge as economic superpowers.

Big Question Mark

No one knows for sure how much oil the world has. That's a big question mark because the peaksters say production will max out once half of the oil has been pumped. So far, we've extracted about 1 trillion barrels in all. In 2000, the U.S. Geological Survey estimated global resources at 3 trillion barrels, enough to push peak production out to 2037, according to the EIA. Campbell puts the total lower, at 2.5 trillion barrels.

Oil is certainly getting harder -- and more expensive -- to find and extract. Oil discoveries plummeted to 5 billion barrels in 2005 from 90 billion barrels in 1964, according to Campbell.

"Discovery is in long-term decline, and spending more money won't increase it," says Chris Skrebowski, editor of the London- based Petroleum Review, an industry journal.

OPEC's Stash

Oil companies have to find enough crude to offset dwindling production at existing fields, which can decline by more than 8 percent a year, and to keep pace with rising demand. Most of that increase will have to come from members of the Organization of Petroleum Exporting Countries, which are often cauldrons of discontent, war and terror.

The cartel's members -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela -- together sit atop 75 percent of the world's reserves and account for about 42 percent of total production, according to BP.

OPEC countries are hardly paragons of economic and political stability. Most of the terrorists who attacked the U.S. on Sept. 11, 2001, came from Saudi Arabia. The war in Iraq has hurt that country's ability to pump oil. Bush says Iran is trying to develop nuclear weapons. In Venezuela, President Hugo Chavez has said he wants to diversify oil exports away from the U.S.

In its 2005 Energy Outlook, Exxon Mobil says the combined production of non-OPEC countries will peak sometime from 2010 to 2020. OPEC will be able to fill the gap, the report says. OPEC produced about 30 million barrels a day in 2005; by 2030, OPEC would have to churn out 47 million barrels a day -- almost 57 percent more than it did last year -- to satisfy the world's needs, the report says.

Meeting the Call

"We believe the resource base will support this increase, assuming that investments in development are made in a timely fashion," the report says.

OPEC countries will invest a combined $100 billion in the five years through 2010 so they can increase output, OPEC spokesman Omar Ibrahim says. "We are set to meet the extra call on OPEC to 2030," Ibrahim says.

Yet even now, OPEC nations are struggling to keep up. Since 2000, OPEC has gradually lost the spare pumping capacity its members can use as an emergency reserve to moderate prices. The cushion has dwindled to about 1.5 million barrels a day from 6 million barrels a day, Takin says.

What's more, neither the peaksters nor oil industry executives know for sure how much oil OPEC has and how much it can actually produce. OPEC countries haven't been transparent about their reserves or production capacity, says Mike Rodgers, a partner at PFC Energy, a Washington-based oil industry consulting firm. "OPEC is the big unknown," he says.

Overstated Reserves

Many energy analysts believe OPEC nations began overstating their resources in the 1980s, when the cartel linked members' production quotas to the size of their reserves, says Mamdouh Salameh, an independent oil economist. In the late '80s, cartel members raised their reserve estimates by a combined 300 billion barrels even though none of them had actually found much more oil.

In his 2005 book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" (John Wiley & Sons, 448 pages, $24.95), Simmons says the Saudis have pumped so much oil so fast that the country's biggest oilfields face declining output.

"Saudi Arabia is keeping everything in the dark," Simmons, 63, says.

Saudi officials have dismissed peak-oil theorists and suggestions that their country is running on empty.

Saudi Assurances

"We currently manage approximately 260 billion barrels of oil," Abdallah Jum'ah, CEO of Saudi Aramco, the government-owned oil giant, said at an oil and gas conference in June. "We continue to expand our reserve base, and conservatively estimate our additional potential of recoverable oil to be in the range of 200 billion barrels. At Saudi Aramco's present production levels, that means we will have well over a century's worth of oil to produce."

Herman Franssen, former chief economist at the Paris-based International Energy Agency, says some OPEC members, such as Iran, Iraq, Kuwait and Venezuela, may be reluctant or unable to produce more oil even as prices soar, largely for political reasons.

"We may never see the volumes of conventional oil production that we see in official forecasts," says Franssen, who's now an oil industry consultant in Chevy Chase, Maryland.

Sadad al-Husseini, who spent 35 years working for Saudi Aramco, says Saudi Arabia's reserves are sound but that Kuwait, which says it has reserves of 101.5 billion barrels, probably has half that much. Iran, with official reserves of 132.5 billion barrels, has likewise overstated its reserves, says Husseini, who was an executive vice president at Saudi Aramco before retiring in 2004.

Assume the Worst

"Even with high prices, it will be very difficult for world production of conventional oil to exceed 90 million barrels per day within the next 10 years," he says. That's millions of barrels a day short of what the EIA says the world will need in 2015.

Political leaders, business executives and investors should assume OPEC won't be able to satisfy future demand, Rodgers says. "From an energy-security point of view, if you believe in a non- OPEC peak and OPEC is not being transparent, we have to assume they don't have it," he says.

The precarious balance of supply and demand in the oil markets became even clearer in early August when London-based BP Plc announced it would temporarily shut down its Prudhoe Bay oil field on the North Slope of Alaska because of pipeline corrosion. The news drove already-high oil prices up more than $2 to almost $77.

Alaskan Decline

Prudhoe Bay, the largest oil field in the U.S., is part of the peak-oil story. The field was discovered in 1968 and came onstream in 1977. Since then, it has yielded more than 11 billion barrels of oil.

Yet even before the August mishap, this vast field had begun to die. Its output has fallen 73 percent to 400,000 barrels a day from a height of 1.5 million barrels a day in 1989.

Prudhoe Bay is following the life cycle of oil fields across the U.S. and around the world, a phenomenon known as the Hubbert Curve, which takes its name from M. King Hubbert.

Fifty years ago, Hubbert, then a geologist at Shell Oil Co.'s research lab in Houston, postulated that U.S. oil production would follow a bell-shaped curve.

At the 1956 meeting of the American Petroleum Institute in San Antonio, Hubbert predicted that total annual U.S. output would climb steadily, level off sometime between 1965 and '70 and then decline after about half of the country's reserves had been depleted.

Hubbert's Peak

The U.S. reached what geologists now refer to as Hubbert's Peak in 1970. Hubbert died in 1989 at the age of 86.

It wasn't until the late 1990s when Hubbert's ideas, which had percolated for decades in academia and oil circles, began to reach a wide audience via Campbell, the British geologist.

Now in his eighth decade, Campbell is a grandfatherly man with a shock of gray hair. He hardly comes across as a doom- monger. He works out of a two-story house in Ballydehob, a village on the western edge of Ireland.

Campbell spent 40 years exploring for oil for Amoco Corp. and other companies. He helped Amoco search for oil in Ecuador and then, during the 1980s, led its exploration in Norway. He later joined PetroFina SA, the oil exploration company now owned by Total.

After retiring from PetroFina in 1990, Campbell joined forces with Jean Laherrere, a retired French geophysicist who had spent 25 years working at Total, to analyze production profiles for the world's countries.

Campbell says he and Laherrere, now 75, looked at their data and concluded global oil production was approaching its zenith. In 1998, they co-wrote an article for Scientific American magazine titled "The End of Cheap Oil" that helped popularize their cause.

Coming Crunch

"The world is not running out of oil -- at least not yet," Campbell and Laherrere wrote. "What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend."

In 2000, Campbell founded the Association for the Study of Peak Oil and Gas, an informal organization for fellow travelers. Now known as ASPO International, the group has sponsored five annual conferences, including the one in Pisa in July, which drew more than 230 people. It's now run by Kjell Aleklett, a physics professor at Uppsala University in Sweden. Twenty independent national ASPO groups have sprung up around the world, from Australia to France, to the U.S.

Many peaksters are driven by a moral imperative to spread the word. Campbell says he's a scientist, not a social or environmental crusader. Even so, he says he's worried that oil has harmed human society and the planet. Since the Oil Age dawned, nearly 150 years ago, the Earth's population has soared six-fold, he says.

Man Alone

"Man is the only animal that uses external energy," Campbell says.

Asked why he has championed the peak-oil theory, Laherrere quotes Antoine de Saint-Exupery, author of "The Little Prince": "We don't inherit the Earth from our ancestors; we borrow it from our children."

Activists have jumped on the peak-oil bandwagon and added their own, often strident, voices to the debate over the future of oil.

Jim Kunstler, a writer-activist who lives in Saratoga Springs, New York, says peak oil will ultimately destroy suburbia and plunge the U.S. into a violent dark age of feudalism.

"The question is, Can we run our shit the way we are running our shit?" Kunstler, 57, says. In 2005, Kunstler wrote "The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century" (Atlantic Monthly Press, 320 pages, $23), which warns of the havoc to come.

Dieoff.com

Lifeaftertheoilcrash.net, a Web site run by lawyer and peak- oil entrepreneur Matt Savinar, warns, "Civilization as we know it is coming to an end soon." The site sells peak-inspired books and products, including an investor's guide to peak oil.

Another site, dieoff.com, says wars over oil and other natural resources will eventually erupt and millions of people will be wiped out.

Stephen Andrews, a Denver-based energy consultant who founded ASPO-USA in June 2005, says the alarmists have hurt the peak-oil movement.

"The peak-oil tent has different voices -- some shrill, some more sober -- reaching different conclusions from the same facts," Andrews, 59, says.

Andrews has attracted more-sober voices to the movement. Last November, Denver Mayor John Hickenlooper helped co-sponsor a two- day peak-oil conference organized by Andrews.

"I think the people most exuberant about peak oil underestimate how much unconventional sources of oil will help flatten the peak, but to say that there is no peak is shortsighted," Hickenlooper says.

Crash Program

The world would have to embark on a crash mitigation program 20 years in advance to prevent peak oil from hobbling the global economy, says Robert Hirsch, a senior energy program adviser at San Diego-based research and engineering firm Science Applications International Corp. "And I consider myself an optimist," says Hirsch, 71, who included his findings in a 2005 study on peak oil for the U.S. Department of Energy and estimates such a program would cost the world $1 trillion a year.

Some investors and analysts see lots of opportunities in a post-peak world.

Charles Maxwell, senior energy analyst at Weeden & Co., an independent research firm based in Greenwich, Connecticut, says high oil prices will spur companies to invest in unconventional sources. Few people, however, realize how much such projects will cost or how long they will take to come onstream, he says.

Take the Canadian oil sands. This region in Alberta holds 175 billion barrels of oil, according to the Canadian Association of Petroleum Producers (CAPP), the world's second-largest reserves.

`Really Big'

"It's big. It's really big," Neil Camarta, senior vice president for oil sands at Calgary-based Petro-Canada, says of the region. "It can keep America going for 25 years."

The oil sands hold vast stores of bitumen, a tarlike substance that is mined, rather than pumped, and then processed into oil that can be refined. The process is expensive -- and getting more so. Rising operating and capital costs have driven the price of mining and upgrading bitumen to as much as $40 a barrel, Camarta says.

By 2020, Canada's oil sands will yield 4 million barrels a day, almost four times what they do now, according to CAPP. That sounds like a lot until you realize that 4 million barrels is just over a third of what Saudi Arabia produced per day in 2005.

Pickens, who built Mesa Petroleum Co. into one of the world's largest independent oil and gas producers, says he sees trouble -- and opportunity -- in peak oil. Pickens, who collected a degree in geology from Oklahoma State University in 1951, has called for the construction of more nuclear power plants and the promotion of alternative energy. He says he's invested in the Canadian oil sands.

Pickens's Picks

"I'm a disciple of Hubbert," Pickens, 77, says. "I think we've peaked and we are going to see an undersupply of oil."

Clarium Capital's Thiel says he began thinking about peak oil in 1999. As the Internet bubble grew that year, Thiel, 38, says he started to wonder about other risks that investors might be ignoring and seized on the uncertain future of oil.

"Energy will be systematically undervalued until peak oil is priced in," Thiel says. He's bought shares of Calgary-based EnCana Corp., which has invested in exploration and new production, and of oil services companies like New York-based Schlumberger Ltd. and Houston-based Weatherford International Ltd., which stand to profit as explorers hunt for oil and drill wells. Thiel says he's leery of U.S. oil majors, such as Exxon Mobil, because they may become targets of new taxes once the government wakes up to peak oil.

Thiel himself says the peak will come by 2008 -- if it hasn't already. "Geology will trump technology," he says.

Coal, Uranium

Eric Sprott, CEO of Toronto-based Sprott Asset Management Inc., says he became a peak-oil convert after hearing Campbell speak in 2004. Sprott, who helps manage 3.6 billion Canadian dollars (US$3.2 billion), says the bull market in energy has only just begun. He's invested 36 percent of his firm's assets in a variety of areas that could benefit from peak oil. His flagship hedge fund returned 41 percent in 12 months ended July 31, he says.

Sprott's investments include St. Louis-based Arch Coal Inc. and Brisbane, Australia-based Macarthur Coal Ltd. His oil and gas picks include Halifax, Nova Scotia-based Corridor Resources Inc.; Denver- based Delta Petroleum Corp.; and Houston-based Ultra Petroleum Corp. He has also invested in Australian uranium companies Energy Resources of Australia Ltd. and Paladin Resources Ltd.

Midnight Ride

Meanwhile, the peaksters aren't about to let up. They'll convene in Boston on Oct. 25-27 to sound their alarm at a conference called "Time for Action: A Midnight Ride for Peak Oil." The title is a reference to the American patriot Paul Revere, whose horse ride in 1775 warned Massachusetts colonists that British soldiers were advancing. The battle that followed, at Lexington and Concord, marked the beginning of the American Revolution.

It was just 84 years after Revere took his ride, on Aug. 27, 1859, that Edwin Drake struck oil in Titusville, ushering in the Oil Age. Exxon Mobil says the era of oil isn't about to end. In one of its ads, the company says, "Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year or for decades to come." The ad depicts a man looking through binoculars at a snowcapped mountain whose summit is hidden by clouds.

Campbell says the illustration actually drives home the point Exxon Mobil is trying to avoid. "Even though it is obscured by clouds, we know there is a peak," Campbell says. His investor followers are betting he's right.

Posted by Hugo Albert Orwell at 06:37 PM | Permalink | TrackBacks (0)

Posted by Hugo Albert Orwell at 05:35 PM | Permalink | TrackBacks (0)

Source: TheTrumpet.com

In a move that could end up hurting the pocketbooks of millions of Americans, Venezuela’s president announced August 23 that his nation will triple its oil exports to China over the next three years.

The outspoken, anti-American Hugo Chavez added that by 2019, Venezuela’s current flow of 150,000 barrels per day to China will have increased more than six-fold. “In 2009, we’ll reach half a million barrels a day, and in the decade after that we’ll see a million barrels,” he said during a visit to China (International Herald Tribune, August 24).

Oil-hungry Beijing is ecstatic, and appears ready and willing to reward Venezuela handsomely. To facilitate the increased oil flow, China is building 18 tankers for Venezuela’s fleet. The day after Chavez announced the move, he revealed that the Chinese premier had privately promised to support Venezuela’s bid for a seat on the United Nations Security Council.

Where will Venezuela get all this additional oil for China? Although it is one of the world’s largest oil producers, its exports are dropping. The fact that Chavez is nationalizing its oil and gas industry, while concurrently levying higher royalty payments on foreign-owned oil companies still operating in Venezuela, portends further strains on national production. How will Chavez keep his promise to Beijing?

The answer, in short, may well be to cut the United States off.

Currently, the U.S.-Venezuela oil relationship is symbiotic: Venezuela is America’s fourth-largest oil supplier; and the U.S. buys up 68 percent of Venezuelan crude exports. Chavez has stated that he wants to reduce Venezuela’s dependence on American oil consumption.

He recently made a worrying move in this direction when he sold more than 1,800 of Venezuela’s American-based Citgo gas stations and one of its refineries. Citgo is the Venezuelan subsidiary that processes and distributes most of Venezuela’s oil in the U.S. Although the gas stations Chavez sold represent only 14 percent of Citgo’s U.S. network, the worry is that this could foreshadow a major trend of Venezuelan sell-offs. Citgo has also previously announced plans to sell two U.S. asphalt refineries and its interests in two large American refined-petroleum pipelines.

If Venezuela were to continue selling Citgo’s American facilities, exporting oil to American consumers would become a far less lucrative venture; shipping to alternative customers would become a more attractive possibility.

For the U.S. to lose its fourth-largest supplier of crude oil would have serious ramifications—one being strained supply and/or higher gas prices.

For Americans, many of whose financial positions are characterized by high debt levels and falling real wages (when adjusted for inflation), higher fuel costs are the last thing needed or wanted.

Posted by Hugo Albert Orwell at 05:23 PM | Permalink | TrackBacks (0)

Source: Reuters

LONDON, Aug 29 (Reuters) - Iraq started pumping crude oil on Tuesday through its vital northern pipeline to Turkey after sabotage stopped shipments for nearly two months, shipping sources said.

Iraq had managed to pump 8.5 million barrels of crude from its giant Kirkuk oilfields to Turkey's Ceyhan export terminal on the Mediterranean before sabotage halted flows on July 9.

"Pumping resumed at 0930 Turkish local time (0630 GMT)," a shipping source said on Tuesday.

An Iraqi oil official downplayed the resumption.

"This is a test, it happens from time to time and it is not for export purposes," he told Reuters.

Iraq had restarted Kirkuk exports in June after a nearly year-long halt due to sabotage, raising hopes of a major increase in export sales and revenue for the country.

Iraqi oil officials had aimed for steady Kirkuk crude exports of 300,000 barrels per day (bpd) via term contracts from August.

But sabotage put paid to this target.

Iraq exported 181,000 barrels per day (bpd) of Kirkuk from Ceyhan in July, compared with 100,000 bpd in June.

When the line is down, the country relies exclusively on exports of around 1.5 million bpd of Basra Light from its southern Gulf terminal. (Additional reporting by Ibon Villelabeitia in Baghdad)

Posted by Hugo Albert Orwell at 06:41 PM | Permalink | TrackBacks (0)

Source: www.informationclearinghouse.info

The Proposed Iranian Oil Bourse

Abstract: the proposed Iranian Oil Bourse will accelerate the fall of the American Empire.

By Krassimir Petrov, Ph.D.

I. Economics of Empires

01/19/06 "Gold Eagle" -- -- A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

Historically, taxing the subject state has been in various forms-usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods-the difference capturing the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. The U.S. dollar was tied to gold, so that the value of the dollar neither increased, nor decreased, but remained the same amount of gold. The Great Depression, with its preceding inflation from 1921 to 1929 and its subsequent ballooning government deficits, had substantially increased the amount of currency in circulation, and thus rendered the backing of U.S. dollars by gold impossible. This led Roosevelt to decouple the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not an empire. The fixed value of the dollar did not allow the Americans to extract economic benefits from other countries by supplying them with dollars convertible to gold.

Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. This established the dollar as the reserve currency of the world. It was possible, because during WWII, the United States had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portion of the world's gold. An Empire would not have been possible if, following the Bretton Woods arrangement, the dollar supply was kept limited and within the availability of gold, so as to fully exchange back dollars for gold. However, the guns-and-butter policy of the 1960's was an imperial one: the dollar supply was relentlessly increased to finance Vietnam and LBJ's Great Society. Most of those dollars were handed over to foreigners in exchange for economic goods, without the prospect of buying them back at the same value. The increase in dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax-the classical inflation tax that a country imposes on its own citizens, this time around an inflation tax that U.S. imposed on rest of the world.

When in 1970-1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payment on August 15, 1971. While the popular spin told the story of "severing the link between the dollar and gold", in reality the denial to pay back in gold was an act of bankruptcy by the U.S. Government. Essentially, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods, and the world was powerless to respond- the world was taxed and it could not do anything about it.

From that point on, to sustain the American Empire and to continue to tax the rest of the world, the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil.

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world's demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren't strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush's Shock-and-Awe in Iraq was not about Saddam's nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can't explain why Bush would want to seize those fields-he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have gone into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished-he had successfully defended the U.S. dollar, and thus the American Empire.

II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate "nuclear" weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam's, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:

The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans.

The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.

The Russians have inherent economic interest in adopting the Euro - the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.

The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversifying against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk, not to mention their jihad against the Infidel Enemy.

Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace?

Still, we should not forget that currently the two leading oil exchanges are the New York's NYMEX and the London's International Petroleum Exchange (IPE), even though both of them are effectively owned by the Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests.

It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse accelerate, the interests that matter-those of Europeans, Chinese, Japanese, Russians, and Arabs-will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the operation's exchange:

Sabotaging the Exchange - this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.

Coup d'état - this is by far the best long-term strategy available to the Americans.

Negotiating Acceptable Terms & Limitations - this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d'etat fails, then negotiation is clearly the second-best available option.

Joint U.N. War Resolution - this will be, no doubt, hard to secure given the interests of all other member-states of the Security Council. Feverish rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.

Unilateral Nuclear Strike - this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The Americans will likely use Israel to do their dirty nuclear job.

Unilateral Total War - this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will further alienate other powerful nations. Third, major dollar-holding countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions.

Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop and a separate pact with Syria.

Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar. The collapsing dollar will dramatically accelerate U.S. inflation and will pressure upward U.S. long-term interest rates. At this point, the Fed will find itself between Scylla and Charybdis-between deflation and hyperinflation-it will be forced fast either to take its "classical medicine" by deflating, whereby it raises interest rates, thus inducing a major economic depression, a collapse in real estate, and an implosion in bond, stock, and derivative markets, with a total financial collapse, or alternatively, to take the Weimar way out by inflating, whereby it pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us that there is no in-between Scylla and Charybdis. Sooner or later, the monetary system must swing one way or the other, forcing the Fed to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression and an adept Black Hawk pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard's America's Great Depression, has nonetheless mastered the lessons of the Great Depression and the annihilating power of deflations. The Maestro has taught him the panacea of every single financial problem-to inflate, come hell or high water. He has even taught the Japanese his own ingenious unconventional ways to battle the deflationary liquidity trap. Like his mentor, he has dreamed of battling a Kondratieff Winter. To avoid deflation, he will resort to the printing presses; he will recall all helicopters from the 800 overseas U.S. military bases; and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency and from its ashes will rise the next reserve currency of the world-that barbarous relic called gold.

About the Author: Krassimir Petrov (Krassimir_Petrov@hotmail.com) has received his Ph. D. in economics from the Ohio State University and currently teaches Macroeconomics, International Finance, and Econometrics at the American University in Bulgaria. He is looking for a career in Dubai or the U. A. E.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Information Clearing House has no affiliation whatsoever with the originator of this article nor is Information Clearing House endorsed or sponsored by the originator.)

Posted by Hugo Albert Orwell at 05:33 PM | Permalink | TrackBacks (0)

This data was current in 1990. It's interesting to note how incorrect the author's conclusions could be concerning the future demand for oil and natural gas. He also predicts an erosion of OPEC's economic power in the future due to alternative fuel sources.

Source: The Concise Encyclopedia of Economics

by Benjamin Zycher

Few people are aware of it today, but OPEC (the Organization of Petroleum Exporting Countries) was formed in response to the U.S. imposition of import quotas on oil. In 1959 the U.S. government established a Mandatory Oil Import Quota Program (MOIP) restricting the amount of crude oil (and refined products) that could be imported into the United States. The MOIP gave preferential treatment to oil imports from Mexico and Canada. This partial exclusion of the U.S. market to Persian Gulf producers depressed prices for their oil. As a result oil prices "posted" (paid to the selling nations) by the major oil companies were reduced in February 1959 and August 1960. In its early years the U.S. import quota program also discriminated against oil from Venezuela.

In September 1960 four Persian Gulf nations (Iran, Iraq, Kuwait, and Saudi Arabia) and Venezuela formed OPEC, the purpose of which was to obtain higher prices for crude oil. By 1973 eight other nations (Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon) had joined OPEC. Ecuador withdrew on the last day of 1992.

OPEC was unsuccessful in its first decade. Real (that is, inflation-adjusted) world prices for crude oil continued to fall until 1971. In 1958 the real price was $10.85 per barrel (in 1990 dollars). By 1971 it had fallen to $7.46 per barrel. However, real prices began to rise slowly beginning in 1971, and then jumped dramatically in late 1973 and 1974 from roughly $8 per barrel to over $27 per barrel in the wake of the Arab-Israeli ("Yom Kippur") War.

Contrary to what many noneconomists believe, the 1973 price increase was not caused by the oil "embargo" (refusal to sell) directed at the United States and the Netherlands that year by the Arab members of OPEC. Instead, OPEC reduced its production of crude oil, thus raising world oil prices substantially. The embargo against the United States and the Netherlands had no effect whatever: both nations were able to obtain oil at the same prices as all other nations. The failure of this selective embargo was predictable. Oil is a fungible commodity that can easily be resold among buyers. Therefore, sellers who try to deny oil to buyer A will find other buyers purchasing more oil, some of which will be resold by them to buyer A.

Nor, as is commonly believed, was OPEC the cause of oil shortages and gasoline lines in the United States. Instead, the shortages were caused by price and allocation controls on crude oil and refined products, originally imposed in 1971 by President Nixon as part of the Economic Stabilization Program. By preventing prices from rising sufficiently, the price controls stimulated desired consumption above the quantities available at the legal maximum prices. Shortages were the inevitable result. Countries that avoided price controls, such as West Germany and Switzerland, also avoided shortages, queues, and the other perverse effects of the controls.

OPEC is a cartel—a group of producers that attempts to restrict output in order to keep prices higher than the competitive level. The heart of OPEC is the Conference, which comprises national delegations, usually at the level of oil minister. The Conference meets twice each year to assign output quotas, which are upper limits on the amount of oil each member is allowed to produce. The Conference may also meet in special sessions when deemed necessary, particularly when downward pressure on prices becomes acute.

OPEC faces the classic problem of all cartels: overproduction and cheating by members. At the higher cartel price, less oil is demanded. That is why OPEC assigns output quotas. Each member of the OPEC cartel has an incentive to produce more than its quota and "shave" (cut) this price because the cost of producing an additional barrel of crude is typically well below the cartel price. The methods available to shave official OPEC prices are numerous. Credit can be extended to buyers for periods longer than the standard thirty days. Higher grades (or blends) of oil can be sold for prices applicable to lower grades. Transportation credits can be given. Buyers can be offered side payments or rebates.

This tendency for individual producers to cheat on the cartel agreement is a long-standing feature of OPEC behavior. Individual producers usually have exceeded their production quotas, and so official prices have been unstable. But OPEC is an unusual cartel in that one producer—Saudi Arabia—is much larger than the others. That is why the Saudis are the "swing" producer. When prices start downward, they cut their production to keep prices up. One reason the Saudis have behaved that way is that departures from the official prices impose larger total losses on them than on other OPEC members in the short run. Because other producers have huge incentives to produce in excess of their quotas, the Saudis, in order to defend the official OPEC price, have had to reduce their sales dramatically at times. This erosion of Saudi production and sales has tended to reduce their revenues and profits substantially. In 1983 and 1984, for example, the Saudis found themselves producing only about 3.5 million barrels per day, despite their (then) production capacity almost three times that level.

How successful has OPEC been since the early seventies? Not as successful as many people perceive. Except in the wake of the 1979 Iranian revolution, and in anticipation of possible destruction of substantial reserves in the 1990-91 Persian Gulf conflict, real (inflation-adjusted) prices of crude oil have fallen since 1973. Prices began dropping very rapidly in the early eighties after the Saudis concluded that lower prices and higher production were in their best interests. Official prices fell from $34 (for the benchmark crude oil, Arabian light) to $29 in 1983, $24 in 1984, and about $18 in 1986 to 1988. Indeed, even prices unadjusted for inflation often have fallen. For example, prices fell from $35.10 per barrel ($49.10 in 1990 dollars) in 1981 to $16.69 ($18.69 in 1990 dollars) in 1987. (Price data are shown in table 1, and current reserves, production capacity, and production levels are shown in table 2.)

This downward trend has increased tensions between two rival groups within OPEC. The price "hawks," usually nations with smaller crude oil reserves relative to population, argue for lower oil output and higher prices. The principal hawks within OPEC are Iran and Iraq. The price "doves," usually nations with larger reserves relative to population, argue for higher output and lower prices to preserve, over the longer term, their oil markets and thus the economic value of their oil resources. The principal doves within OPEC are Saudi Arabia, Kuwait, and the United Arab Emirates.

Such relatively lower prices serve the interests of the doves because oil consumers have used less oil in response to prior price increases. For example, U.S. energy use per dollar of GNP (adjusted for inflation) was 27.49 thousand BTUs in 1970. By 1988, after the price increases of 1973 and 1979, it had decreased to 19.93 thousand BTUs. Thus, the price "doves," led by Saudi Arabia, generally have resisted pressures for higher prices.

Over the long run, real prices of natural resources and commodities usually fall, largely because of technological advances. Crude oil is no exception. Technological advances in seismic exploration have dramatically reduced the cost of finding new reserves, thus increasing oil reserves greatly. Horizontal drilling and other new techniques have reduced the cost of recovering known reserves. Also, improvements in technology provide both substitutes for oil and ways to use less oil to achieve given ends.

Moreover, advances in technology will reduce prices for such substitute fuels as natural gas, thus exerting continuing downward pressure on crude oil prices. And increasing willingness to devote resources toward environmental improvement suggests that the market for crude oil will decline relative to those for such "cleaner" energy sources as natural gas and nuclear technology, unless other technical advances yield substantial improvement in the ability to use oil cleanly. Thus, the demand for crude oil is likely over the long term to decline relative to the demand for competing fuels. This has been the experience of mankind, as wood gradually gave way to coal, which in turn declined as the use of oil expanded. These facts suggest that the economic power of OPEC inexorably will erode.

About the Author

Benjamin Zycher is a senior economist at the Rand Corporation and a visiting professor of economics at the University of California at Los Angeles. He was formerly a senior staff economist with President Reagan's Council of Economic Advisers.

Posted by Hugo Albert Orwell at 09:23 AM | Permalink