Diminishing Marginal Utility

This radical proposal is a reflection of a changing economic world

Tuesday, 6 October 2009

Last autumn's global financial crisis set off an economic earthquake. And we are still feeling the tremors. The latest sign of the ground shifting beneath our feet is our report today of plans by Gulf states, China, Russia, France and Japan to end their practice of conducting oil deals in US dollars, switching instead to a diverse basket of currencies.

It is not hard to see the motivation for oil exporters to move away from the dollar. The value of the US currency has fallen sharply since last year's meltdown. And fears are growing, in the light of a spiralling US government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future.

It is also easy to see why China would like a world trading system that is underpinned by other currencies as well as the dollar. For the past decade Beijing has been recycling the proceeds of its giant national trade surplus into purchases of US government bonds and other dollar-denominated assets. China too stands to make a significant loss if the value of the dollar falls. For China, however, the timing is much more sensitive. Beijing needs to reduce its dollar holdings, but if it does so too quickly it will bring about the very devaluation it fears. This explains why Chinese officials appear to want this transition to take place gradually over the next decade.

But the significance of this development goes much further. Since the end of the Second World War the dollar has been the bedrock of world trade. The pre-eminence of the American currency flowed naturally from the economic dominance of the US. Virtually everyone traded with America so it made sense to use their currency.

But the US is not the dominant power that it once was. The financial crisis has left it hobbled with significant government and household debts and sharply reduced prospects for growth. Developing nations such as China, Brazil and India, on the other hand, have weathered the economic storm significantly better. So while this latest proposal is born of financial calculation, it is also a reflection of a new economic world order.

We should not be sentimental for the dollar. It makes economic sense for world trade to be conducted in a variety of currencies. Relying on one only has the advantage of clarity, but it also creates instability if the economy that underpins it faces uncertain prospects.

Yet we need to understand that exchange rate volatility is a symptom, rather than a cause, of what truly ails the world economy. The biggest driver of global economic instability in recent years has been the determination of China to boost its export sector at all costs. Beijing's persistently large trade surpluses and manipulation to prevent its own currency from appreciating have effectively forced Western nations into running persistently large trade deficits. It was this pressure that blew up various asset bubbles that burst with such disastrous effect last year.

A gradual move away from the dollar makes sense. But without a commitment from world governments – both in the rich and developing world – to reduce these destabilising global trade imbalances we will enter an uncertain new era; and one that could yet make us pine for the days of the dominant greenback.

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Source: The Independent

Tuesday, 6 October 2009

Few things would be more powerfully symbolic of the shift in the balance of global economic power than to have oil traded in the Chinese renminbi rather than the American dollar.

True, no one is going to price a barrel of West Texas Intermediate Crude in renminbi tomorrow. But you can see how that could change. Oil is traded in dollars for economic reasons – not sentimental ones. The oil business pretty much started in the US (vividly portrayed in the film There Will be Blood), the giant oil companies are still mostly American, and the US has long been the world's largest consumer, importer and one of the largest producers of oil. The presidency of George W Bush offered ample evidence of the intimate connections between politics and oil. And the dollar is easily the most traded currency in the world. As such, it makes sense to trade oil in dollars.
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Yet the financial tectonic plates are shifting – fast. Yesterday the president of the World Bank, Robert Zoellick, articulated what must be weighing on the minds of many Western policy-makers. A legacy of the current crisis "may be a recognition of changed economic power relations". In other words, the recession has accelerated the rise of China. The brutal truth is that for most of the next decade China's economy will grow by more than 10 per cent a year; America's by less than 2 per cent. China will soon be the world's largest economy, and largest creditor nation, a position enjoyed by a pre-eminent America in the 1950s. China will also be the largest consumer of oil, which will help push trading in it and other commodities towards a "basket" of currencies.

Now America is the world's greatest debtor, she can no longer sustain her role as protector of the world's only reserve currency in the long term. The humbling of Wall Street was proof that the American system was not invincible. Suddenly, a G20 embracing China, India and the other emerging powers is the only forum that matters. China has helped bail out our banks. Spats with the Americans and Europeans are set to grow more bitter. Yesterday the head of the IMF, Dominique Strauss-Kahn and the president of the European Central Bank, Jean-Claude Trichet, resumed their attack on the value of the yuan. Next will come an increasing US resentment at the vast debts built up with China, and, in turn, Chinese nervousness about their long-term worth.

And that is the paradox. China holds approaching $3 trillion in dollar assets, so she cannot afford to see the dollar collapse. Longer term, China does want to become less reliant on the dollar as a place to keep its savings. America needs China to buy her Treasury bills; and China needs America to buy her exports. They are like two drunken giants leaning on each other. Yet a sobering reckoning of some sorts seems inevitable; and it is difficult to see how both can be winners.

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Source: Newsweek

The plunging greenback threatens to cripple U.S. power. Why are the candidates ignoring this critical issue?
Nov 23, 2007 | Updated: 3:50 p.m. ET Nov 23, 2007

Great powers die slowly. It took years before the world realized that Great Britain was an imperial corpse, sapped of its strength by two world wars. The funeral finally occurred on Feb. 21, 1947, a freezing winter day in bomb-torn, bedraggled London, when the British wrote their own epitaph. That was the day that London cabled Washington: "His Majesty's Government, in view of their own situation, find it impossible to grant further financial assistance to Greece," amounting to a half billion dollars a year and a garrison of 40,000 troops. The British also announced the same day that they were withdrawing from Turkey. "The British are finished," remarked a stunned Dean Acheson, who was soon to be Harry Truman's secretary of State. And so they were. It was the early cold war. With the Soviet Union threatening to extend its influence over Greece and Turkey, there was no time for elegies. Instead, a quick passing of the baton took place: the United States would now fill Britain's role and become the central, stabilizing power in the West. This was the moment of "creation" of the U.S.-led world order, Acheson later realized.

One has to wonder now whether the American superpower is also experiencing a terminal illness, with its decline marked by the dollar's downward drift. The one difference being that there is no successor on the horizon (the Chinese have a long, long way to go), and the currency that is replacing the dollar, the euro, is backed not by an emerging superpower but by the feeble cacophony of voices that is the European Union. Yet the signs of imperial decadence are unmistakable. The world is losing confidence in the dollar, in no small part because it has lost confidence in America's strategic judgment and in its sustainability as a great power in the face of record budget and trade deficits, which are forcing the United States to borrow ever more money from future rivals like China and Russia.

Even as the Bush administration savors the calming news out of Iraq, and prepares for a major Mideast peace conference in Annapolis on Tuesday that will look and feel like grand American gestures of the past, finance ministries and central banks around the world--especially in places like Beijing and the wealthy Persian Gulf states--are making decisions that will further undermine U.S. power, perhaps permanently. The irony for George W. Bush, of course, is that more than anything else he began as a president who wanted to build up American power, which he presumed to have been frittered away by Bill Clinton. Bush believed that enemies such as Osama bin Laden and Saddam Hussein perceived America as soft. "It was clear," he said after 9/11, "that bin Laden felt emboldened and didn't feel threatened by the United States." Bush vowed to reverse that image.

Instead, the world monetary system now is making unfavorable comparisons to America at the height of the Clinton years. And bin Laden seems to be achieving his publicly avowed goal of provoking the United States into overextending itself and draining its economy. In a blistering essay in the current Vanity Fair, Nobel laureate Joseph Stiglitz, a former World Bank economist, notes that Bush took a nation with a budget surplus upon assuming office and turned it into a global debtor, and he has underinvested in education and alternative energy. "In breathtaking disregard for the most basic rules of fiscal propriety, the administration continued to cut taxes even as it undertook expensive new spending programs and embarked on a financially ruinous 'war of choice' in Iraq. A budget surplus of 2.4 percent of gross domestic product (GDP), which greeted Bush as he took office, turned into a deficit of 3.6 percent in the space of four years. The United States had not experienced a turnaround of this magnitude since the global crisis of World War II," Stiglitz writes. "Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle 'worst president' when it comes to stewardship of the American economy. The economic effects of Bush's presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America's being displaced from its position as the world's richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush."

If the passing of American hegemony happens, it will occur very slowly--death by a thousand cuts of credit. One reason why it's so hard for Americans to contemplate their loss of prestige, symbolized by the fall of the once-almighty dollar, is that politicians and pundits tend to cast the issue as all-or-nothing. What would happen, they say, if China suddenly decided to dump the trillion dollars of U.S. debt it holds in reserves? This, however, will almost certainly never occur. While China and other big dollar-holding countries such as Singapore, Russia and the Persian Gulf states are very worried about the erosion in value of their dollar-denominated holdings and inflationary pressure, they also know that an abrupt move to cut their pegs to the dollar or to sell off in large amounts would force a run on the currency. That would leave them even poorer. Instead these countries are pursuing careful reallocations of their investment holdings, shifting slowly to the euro or a "basket" of currencies that will allow them to hedge against the dollar's decline. Credit will become more expensive, the U.S. economy will find itself increasingly crimped, and America's ability and willingness to act as the defense umbrella to the world will gradually peter out. The effect will be more like a slow-acting poison: drip, drip, drip.

But the financial world order is such a precarious house of cards today that the markets are getting increasingly jittery. Markets operate on confidence. And today's markets seem to have little confidence that the Bush administration can emerge from its economic never-never land, one in which as Dick Cheney's first-term pronouncement that "deficits don't matter" was allowed to stand unchallenged, in which zero-saving Americans continue their profligate spending habits and descent into deeper indebtedness by simply assuming the rest of the world will continue to fund those habits. "The American consumer is dramatically overleveraged," says Bob Hormats a vice chairman of Goldman Sachs International. That "means we have to borrow roughly $3 billion a day from rest of world. That inflow is now slowing down. Foreigners will say 'we're concerned about lending in dollars, so we're going to be more cautious about lending money to you.' At some point, if we get a lot less money, the dollar will plunge and interest rates will go up." Even wealthy Americans, Hormats notes, are beginning to ship their money abroad, to Europe and Asia, to hedge the dollar.

We should be careful, of course, not too pronounce the death of Pax Americana too quickly. That has been done before. The illness need not be terminal: deficits can be cured, and foreigners still crowd cargo containers and the backs of trucks to sneak into the land of opportunity. (China, by contrast, is not undergoing an immigration debate.) But the country is in such a fiscal hole right now that, as David Walker, the comptroller general of the United States, told my colleague Jeff Bartholet last week, "You could decide not to renew the Bush tax cuts, you could eliminate all foreign aid, eliminate all earmarks, eliminate NASA, eliminate the National Endowment for Humanities and eliminate the entire Defense Department tomorrow, and you still wouldn't solve the problem." This most critical of issues has barely made it into the presidential debates. The drooping dollar is driving it to the public's attention, particularly as gas, oil and other essentials continue to go up in price. Perhaps the next president, whoever he or she is, ought to pay more attention, too.

© 2007 Newsweek, Inc.

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Source: World Socialist Website

By Bill Van Auken
26 October 2007

In an act unprecedented in the history of international relations, Washington on Thursday unilaterally imposed harsh and potentially crippling economic sanctions against Iran’s main uniformed security force, as well as against more than 20 Iranian companies and the country’s three major banks.

The sanctions, announced by US Secretary of State Condoleezza Rice and Treasury Secretary Henry Paulson, represent a deliberate provocation aimed at precluding any negotiated settlement to the dispute over Iran’s nuclear program and making a US war against the country all but inevitable.

In announcing the measures—which are considerably more punitive than those imposed by Washington during the seizure of the US embassy which followed the 1979 Iranian revolution—Rice said they were designed “to increase the costs to Iran of its irresponsible behavior.”

The sanctions are directed in the first instance against Iran’s Revolutionary Guard Corps, which the US government has now branded as “proliferators of weapons of mass destruction,” and its Quds Force, which has been labeled a “supporter of terrorism.”

The Revolutionary Guards, a force of some 125,000, is responsible for law enforcement, border patrol and resistance against foreign attack. It also organizes Iran’s people’s militia, providing military training to some 12 million volunteers.

The Quds Force is a special unit within the Revolutionary Guards that handles overseas operations. It has acted in a number of countries with the direct approval of Washington.

In Bosnia, it provided arms to the US-backed Muslim government; in Afghanistan, it aided the forces fighting the Soviet military and then supported those fighting the Taliban; in Iraq, it assisted Kurdish guerrillas against the Baathist regime of Saddam Hussein.

Elsewhere, it has aided organizations opposed by the US, principally those resisting Israeli aggression, such as Hezbollah, the mass Shia movement in Lebanon, and organizations in the occupied Palestinian territories.

By imposing these designations upon the official armed forces of a sovereign state, the Bush administration is carrying out a brazen intervention into the internal affairs of Iran. In so doing, it is setting out a pseudo-legal framework for war, spelling out two alternative pretexts—weapons of mass destruction and terrorism—which are identical to those contrived and propagated in preparation for the unprovoked US invasion of Iraq.

Washington has charged that Iran is pursuing its nuclear program in order to construct a nuclear weapon. Tehran has denied this charge, insisting that it is utilizing the program for peaceful purposes, in particular, the development of an alternative power source.

In regard to the second casus belli, the Bush administration and some senior US military commanders have repeatedly accused Iran and the Quds Force, in particular, of arming, funding and training forces in Iraq responsible for attacks on US occupation troops.

Washington has yet to provide concrete evidence to back these charges and has produced no one that it can credibly claim is an Iranian agent engaged in these alleged activities. Tehran has denied responsibility for the attacks, which it points out are carried out in their great majority by Sunni resistance fighters, not the Shia movements with which the Iranians have enjoyed a longstanding relationship.

The sanctions against the Revolutionary Guards are aimed at inflicting significant damage to the Iranian economy. The Guards’ role in Iran includes far-ranging economic activities.

Its engineering unit, for example is involved in a number of major projects, ranging from a $2 billion contract for the development of the country’s main gas field, to a $1.3 billion contract for a new pipeline directed to Pakistan, to the construction of a Tehran metro extension, a high-speed rail link between the capital and Isfahan, shipping ports and a major dam.

The immediate impact of sanctions allowing the freezing of assets in US banks or barring US businesses from economic ties to the Iranian Guards, as well as the named Iranian bank and other companies, is negligible, given that Washington’s imposition of sanctions in response to the 1979 revolution that overthrew the US-backed dictatorship of the Shah had already largely frozen American banks and corporations out of the Iranian market.

Blackmailing foreign banks and corporations

The aim of these measures—which are far more sweeping than anything the US could hope to get passed in the United Nations—is to blackmail foreign banks and corporations with the threat that their continued operations inside Iran could lead to American-imposed penalties and exclusion from the US market.

Treasury Secretary Paulson called upon “responsible banks and companies around the world” to cut off all ties with the named bank, companies and all affiliates of the Revolutionary Guards. US officials have stressed that the Guards’ ties are so widespread that any economic relations whatsoever with Iran carry with them the threat of US retaliation.

The US action won quick endorsement from the British government of Prime Minister Gordon Brown, which, according to some press reports, has also signaled its willingness to go along with eventual US air strikes against Iran. Brown appears prepared to play the same role that Blair played in paving the way for the invasion of Iraq, by pushing for the United Nations Security Council to impose another set of sanctions, a move that is opposed by Russia and China, both of which have substantial interests in Iran and hold veto power on the council. In 2003, Bush invoked the failure of the UN to pass a resolution authorizing military action as the pretext for unilaterally launching the US war.

Other European powers, however, were more cool towards Washington’s diktat. German Foreign Minister Frank-Walter Steinmeir said Thursday that any decision on further sanctions against Iran should await an evaluation of Iran’s willingness to answer more questions from the International Atomic Energy Agency (IAEA). German companies exported $5.7 billion worth of goods to Iran last year, while the German Economics Ministry granted the government in Tehran $1.2 billion in export credit guarantees.

Iran’s new nuclear negotiator, Saeed Jalili, joined by his predecessor, Ali Larijani, held two days of talks this week with the European Union’s foreign policy director, Javier Solana, in Rome to discuss Tehran’s nuclear program. At the end of the talks Wednesday, the Iranian negotiators joined Solana and Italian Prime Minister Romano Prodi in a joint press conference in Rome. Both sides described the talks as “constructive,” while Prodi insisted that “dialogue is the only way to find a solution for Iran’s nuclear program in the UN Security Council and Italy encourages this way.”

Russian President Vladimir Putin voiced a harsh reaction to the US sanctions. Meeting with European Union leaders at a summit in Portugal, he insisted that the controversy over Iran’s nuclear program should be resolved through negotiations, along the lines of those pursued with North Korea.

“Why worsen the situation and bring it to a dead end by threatening sanctions or military action?” Putin said. In an obvious characterization of Bush, he continued, “Running around like a madman with a razor blade, waving it around, is not the best way to resolve the situation.”

Iran dismissed the US sanctions. “The hostile policies of America against the respectful Iranian nation and our legal organizations are against international regulations and have no value,” said Foreign Ministry spokesman Mohammad Ali Hosseini. “Such ridiculous measures cannot rescue the Americans from the crisis they themselves have created in Iraq.”

Speaking at a conference on “Privatization in Iran” held in Dubai for foreign investors, the head of Iran’s Chamber of Commerce, Industries and Mines, Mohammad Nahvandian, said that while the sanctions could lead to “an increase in costs,” they could not “disturb or stop Iran’s massive trade relations with other countries.”

The principal aim of the sanctions, however, appears to be not so much economic as political. By increasing tensions, they are designed to slam the door on any negotiated settlement of the nuclear dispute and pave the way for US military action.

In that sense they are of a piece with the steady escalation of threats against Iran, including Bush’s warning last week about “World War III” and Cheney’s threat last Sunday that Iran would face “serious consequences” if it continued on its present course, and that the US would not “stand by as a terror-supporting state fulfills its most aggressive ambitions.”

Fresh evidence of US war preparations against Iran came in the details of the nearly $200 billion budget request sent to Congress last Monday for funding the continuation of the wars in Iraq and Afghanistan.

Included was nearly $88 million for fitting “bunker-busting” bombs onto B-2 stealth bombers. Some lawmakers and congressional aides pointed out that there is little use for such weapons in the current counterinsurgency campaigns in Iraq and Afghanistan, and that the bombs were in all likelihood intended for attacking Iran’s underground nuclear facilities.

As the Bush administration prepares for yet another war, the Democrats in Congress have once again emerged as willing accomplices. The administration’s imposition of sanctions was actually prefigured by legislation passed in the Democratic-led House—by an overwhelming 397-16 vote—that would impose sanctions on non-US energy companies doing business in Iran.

While Democratic leaders claimed the measure was intended to cut off funding for Iran’s nuclear program, its real intention is evident. American oil conglomerates frozen out of the Iranian market want to deny their competitors any advantage.

In the final analysis, the propaganda about nuclear threats and terrorism notwithstanding, a US war against Iran would be launched to impose American capitalism’s hegemonic control over the strategic oil reserves of the Persian Gulf.

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Source: Pravda.ru

25.10.2007
By Sergei Malinin, Bigness.ru
Translated by Guerman Grachev' Pravda.ru

The United States is unlikely to have the best investment environment in the next five years, according to Evgeni Nadorchin, a chief economist at Trust bank. Bigness.ru requested Nadorshin to comment on recent developments in the U.S. securities market.

The last week brought sad news for the White House. To begin with, Japanese companies agreed to make payments in yens for Iran’s crude imports last Tuesday. The Japanese had previously paid for Iranian oil in the U.S. dollar. In fact, Iran had earlier signed an agreement on the yen payments for its crude exports with a number of small-sized Japanese refineries. Two leading Japanese oil exporters of Iranian crude joined the agreement last Tuesday. Japan is one of the world’s major oil exporters. The country has sent a clear message to the global oil market by switching to the yen in its payments for Iran’s oil.

“The dollar isn’t a convenient currency for Iran’s oil receipts for political reasons. The dollar payments for oil are made via correspondent accounts at U.S. banks,” Nadorshin said, in an interview to Bigness.ru. “Keeping in mind that Iran is listed by the U.S. government among the countries of the “axis of evil,” the U.S. government is not only aware of those accounts, it can control them. The U.S. government even blocked certain accounts in the past,” Nadorshin added. From the technical point of view, it would be more difficult for the United States to block such accounts in a Japanese bank.

A mere 15 percent of Iran’s oil income is now being paid in the dollar. The biggest part of Iran’s income (65 percent) from crude exports is in euros. The yen payments account for 15 percent of Iran’s oil income.

Another of the last week’s unpleasant surprise for the dollar economy was of Asian origin. According to data released by the U.S. Treasury last Tuesday, the region’s major economies, namely, Japan, China and Taiwan unloaded some of U.S. Treasury bonds from their foreign reserves. The amount of U.S. Treasury bonds shed by the three countries totals $52 billions.

Compared with the countries’ aggregate amount of foreign reserves, which are worth trillions of dollars, the above sum is fairly small. However, the fact is of importance: Japan, China and Taiwan cut their investments in U.S. Treasure bonds to a record low in the last five years.

The United States have expressed concern about the move since the above three economies plus Hong Kong and South Korea account for 51 percent ($1.14 trillion) of the total amount of foreign investments in U.S. Treasury bonds.

Tougher times could be in store for the U.S. Treasury following all those developments if the government fails to curb inflation, according to Mark Ostwald, an analyst at Insigner de Beaufort.

“The Asian banks didn’t plan shedding their dollar reserves completely,” Nadorshin said in his interview to Bigness.ru. He stressed the point that $52 billion is a drop in the water for the countries “whose combined foreign reserves exceed two trillion U.S. dollars.” The move falls into the trend of the last several years i.e. the dollar proportion of foreign reserves is on the decrease.

Nadorshin reminded that U.S. Treasury bonds were traditionally considered gilt-edged securities.

However, now investors are concerned about the fact that they bought assets in a currency that is growing increasingly weaker. Besides, the U.S. economy may be heading for a recession.

The unloading of dollar assets was inevitable. On the contrary, the last several weeks have seen an inflow of $11 billion to investment funds that put money in the developing markets e.g. Russia.

Speaking of the negative impact on the U.S. economy in the wake of the events that occurred last week, Nadorshin argued that they might indicate a long-term economic crisis the global superpower is currently going through. “The U.S. economy has been showing its weakness throughout the year. It’s a weakness that prevents the economy from keeping the dollar strong against other currencies as the main unit of account. The economy has to tackle a number of issues including deficits and structural issues. The economic measures proved to be ineffective in resolving any of those issues. The country recently experienced a suprime mortgage crisis that will probably help them resolve the issues, which they tried to resolve by increasing interest rates,” Nadorshin said in his interview to Bigness.ru

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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.

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Source: PINR Dispatch

Recent developments in the gas field projects of Myanmar have served to highlight the intense resource diplomacy that is ongoing in the region. The government of Myanmar withdrew India's (under the Gas Authority of India Limited or GAIL) status of "preferential buyer" on the A1 and A3 blocks of its offshore natural gas fields and instead declared their intent to sell the gas to PetroChina. The offshore gas fields of the Shwe project in the Bay of Bengal have estimates of 4.8 trillion cubic feet (TcF) for the current blocks with more exploration ongoing. The controlling interests in the two blocks are Daewoo International (60 percent), O.N.G.C. Videsh Ltd (20 percent), GAIL Ltd (10 percent) and Korea Gas Corporation (10 percent).

The most viable of the proposed pipeline routes for moving the gas to India would have proceeded through Myanmar's Arakan state before entering India's Mizoram and Assam provinces and finally terminating in West Bengal at the proposed Jagdishpur-Haldia distribution line.

Implications for India

First of all, India has clearly lost an important diplomatic initiative in the attempt to counter Chinese influence in Myanmar. Even after the deal was sweetened with US$20 million in "soft credit" and the proposed construction of a power plant in Myanmar, it would appear that Indian influence was quietly denied by the inevitability of China's international support for Myanmar. Beijing's use of its veto to keep Myanmar's human rights record off of the U.N. Security Council agenda turned out to be more important to the Myanmar junta than the economic incentives. Despite support from pro-India voices within the upper echelon, like that of Vice Senior General Maung Aye, the sharp turn in the sales decision serves to illustrate the depth of the relationship currently enjoyed by China and Myanmar. Maung Aye signaled as much as early as January 2007, when he refused to provide guarantees that India would gain access to the gas.

Secondly, the economic implications for India are significant. Recent reductions in the estimates of offshore gas in their own eastern blocks have increased demand to find sources outside of India's borders. The Myanmar fields offered a strong possibility to replace these sources. In particular, the pipeline was destined for the northeastern provinces of India, which are among the most power-starved provinces in the country. If the gas was destined for domestic use, the development-security nexus suggests that the power and resulting development, along with greater cooperation on cross-border counter-insurgency efforts, may have had a strong chance of success in defusing the secessionist movements in the northeastern Indian provinces.

Finally, the pipeline seemed set to heighten attempts for greater integration and further military and economic cooperation along the Myanmar-Indian border. Trade initiatives to date have failed to establish in the Indian northeastern border regions, while security initiatives have occurred in a stovepipe fashion with only communication between the two states rather than truly cooperative exercises. India will likely make more overt efforts in the future to establish a stronger presence in the face of Chinese diplomatic successes in Myanmar. It is likely that joint military initiatives in the border region will be initiated and more direct military aid like the proposed light attack helicopter sales from India to Myanmar will continue. Transfers of military equipment have increased significantly in the last two years between India and Myanmar, while joint counter-insurgency operations have been proposed, which would see an unprecedented level of cooperation, and therefore much higher counter-insurgency activity, between the two countries. These efforts would have had a far greater chance of success when combined with the development possibilities that the pipeline may have provided.

Implications for Myanmar

First of all, on the diplomatic front, the military junta has signaled where its strength lies. The military government has had a long history of a strong relationship with China which it would not risk in this scenario. It is likely that the junta recognizes the desire for India to play a stronger role in the region, thus giving it a stronger position in its dealings with New Delhi. The resources of Myanmar have allowed it to bypass international sanctions in the past and will now allow it to negotiate with its Asian neighbors in order to win necessary international support and recognition. The risk of angering India to the point of withdrawal of support was minimal; indeed, GAIL was criticized by India's External Affairs Ministry for not pursuing the agreement with a strong enough commitment to see it completed. However, the junta must continue to walk a fine line between alienating neighbors, already suspicious of China's growing influence in the region, undermining its own sovereignty and losing the support of its largest strategic partner, China, by playing it off against other regional interests.

Additionally, the recent efforts of the Association of Southeast Asian Nations (A.S.E.A.N.) to condemn the slow progress of national reconciliation may have refocused efforts within the junta to place diplomatic pressure via China onto members of A.S.E.A.N. China has recently been increasing its influence within A.S.E.A.N. and stands as the more active (between India and China) peripheral player in the A.S.E.A.N. orbit. Thus, by using its resources as a bargaining chip, Myanmar may have gained promises from China to use its influence to dampen A.S.E.A.N. members' concerns over the reconciliation process.

Secondly, the strength of the Myanmar position lies in the strong economic demand for resources by all of its neighbors. Bids for the sale of the gas were competitive and Myanmar will not lose much in economic terms for the decision to sell to PetroChina. While the decision may be deemed short-sighted for its apparent slight to India's recent diplomatic advances, it does little to reduce the reality that India, Thailand and China are all in need of dependable energy in order to pursue economic development.

Another facet of this agreement is a proposed oil pipeline that would be built in conjunction with the necessary gas pipeline. This oil pipeline would be constructed by PetroChina as an alternate route to the Malacca Strait. Its origin would be at a deep water port at Ramree Island in Myanmar, built to accommodate large crude tanker ships, and would cross the country to an undisclosed point on the Chinese/Myanmar border (likely the Muse/Ruli border crossing point). The economic advantage for Myanmar would be an additional sale point for their onshore and offshore oil blocks along with the economic spin off of a major trans-shipment point. China's vulnerability inherent in the reliance on the Malacca Strait may well have driven the junta's decision to rescind India's preferential buyer status.

The recent price hikes in domestic fuel that sparked protest in Yangon and resulted in the arrest of a number of former student leaders from the 1988 uprising demonstrates the thin line of economic vulnerability upon which the junta balances. The 1988 uprising that resulted in the current suspended constitution was also sparked by a troubled economy. The junta will need to balance its need for foreign currency, gained through resource rents, with the demands of a population that has not accrued much benefit from the current junta's economic policy. Much of the gas being exported to date and in the future would, arguably, be better used in domestic power generation -- something that the Indian offer would have included.

Third, on the security front, agreements that have been developing alongside the gas sale agreement with India will likely not be disturbed by the decision to sell to China. The pipeline route from Shwe would have brought fewer security implications for Myanmar than for India. However, pipeline construction to the western region of Myanmar would have brought with it a larger military presence in an area of poor infrastructure on both sides of the border. In this sense, the military opportunity cost may have been a considerable chance to improve infrastructure and access to an area that has been historically inaccessible.

In addition, Myanmar military ties to the considerable narcotics and arms trade that utilizes the porous border between the two countries may have produced a conflict of interest between parties within the junta that forced the withdrawal of the pipeline project.

Conclusion

The junta is insisting that the rules of the gas fields have little to do with political decisions; rather, that it is the business as usual approach of offering the sale to the highest bidder. The decision to sell to PetroChina, however, emphasizes the complexity of resource diplomacy for all players within the region. India's current loss in the field of energy security will likely not lead to a decrease in its attempts to win greater cooperation from Myanmar over counter-insurgency efforts, but it does reveal the deep connections between China and Myanmar. This relationship will prove hard for India to compete with in the long run, especially as long as the decision-making process within the junta follows the familiar route of political considerations at the expense of sound domestic economic policy.

An important consideration, unexamined here, is that India will not likely rock the diplomatic boat as long as its companies continue to enjoy privileged access to a country that is closed to U.S. and European competition. Exploration, after all, is still ongoing in the offshore blocks while Myanmar's onshore basins remain largely untapped.

Report Drafted By:
Gideon Lundholm

Posted by Hugo Albert Orwell at 09:41 AM | Permalink | TrackBacks (0)

Source: PINR Dispatch

The first sign of the current protests currently underway in Myanmar occurred in a rare display of public outrage in February 2007 over the economic conditions within the country. A small group calling themselves the Myanmar Development Committee called on the military rulers to address consumer prices, lack of health care, education and the poor electricity infrastructure. Normally unseen in Myanmar, the protest was quickly broken up after only 30 minutes of activity. Likely in response to the protests, the ruling military junta appointed Brigadier-General Than Han of the Myanmar police to the responsibility of handling civil unrest in Rangoon.

On August 15, 2007, the government made significant cuts to national fuel subsidies, which had an immediate effect of increasing the price of diesel fuel by a reported 100 percent, causing a five-fold increase in the price of compressed natural gas, and placing additional inflationary pressure on an economy already facing estimated inflation levels of 17.7 percent in 2005 and 21.4 percent in 2006.

Once again, similar to the event in February, people took to the streets in a rare display of public anger. The current demonstrations have drawn a significant number of Buddhist monks into the streets and have led to national curfews. Violence finally broke out on September 26 as security forces and protesters clashed.

The end of fuel subsidies were likely part of a larger package of reforms that the junta has been planning in order to, among other things, reduce the pressure of global fuel prices in a country that is dependent on diesel imports for its entire economy. Myanmar has an insignificant domestic refinery capacity and a chronic need for foreign currency. The latest Indian proposal intended to regain access to the Shwe gas fields has reportedly included diesel fuel exports, while a deal with Petronas of Malaysia is seeking similar arrangements. [See: "Pipeline Politics: India and Myanmar"]

The International Monetary Fund (I.M.F.) and World Bank made recommendations as recently as last year along the lines of the subsidy cut as part of a larger package of reforms, critically citing the trend toward extraordinarily high budget deficits carried by the junta. The construction of a new capital, Naypyidaw, and the proposed construction of an information technology capital, Yadanabon, along with significant pay raises for civil servants and the military have placed serious pressure on government reserves. The government typically addresses such deficits by printing more money, producing the significant inflationary pressures seen today.

The involvement of private interests should not be overlooked. Leading businessman Tay Za and his holding company Htoo Trading Company may be set to profit from the privatization of the fuel distribution system within the country. In order for the move to be successful, the thriving black market in fuel needs to be eradicated, thus the necessary removal of fuel subsidies and the subsequent rise in prices throughout the country. While powerplays between junta leaders and private businessmen have been cited before as causal factors in economic policy changes, the international pattern of subsidy reduction in the face of rising global oil prices suggests that this was not the underlying motive in the move. However, it would be a fairly typical move for the junta to select reforms beneficial to its business partners rather than to the national interest.

The junta has successfully melded the Myanmar economy into one that is dependent and focused on the export of its resources. Arguably, it appears that the junta has little economic planning experience and its priorities lie in the promotion of military power. However, it has produced a situation in which little value is added to any resources, whether it is copper, timber, or energy, producing an economy dependent on imports and exposed to the volatility of resource prices. It has managed resource rents and foreign investment poorly; planned hydroelectric projects will likely be forced to export electricity due to the inability of domestic infrastructure to handle the increased load.

Similarly, the information technology project of Yadanabon, likely a response to a similar project in Malaysia, is typical of the economic oddity that the junta often embarks on with little thought to planning. Communication infrastructure within the country is archaic and will not support the proposed project. Likewise, the jatropha (physic nut tree) plantations currently being planted across the country, another junta project, will not result in any significant economic development. The fuel requires significant infrastructure to turn into bio-diesel, which likely means it will be exported in its raw form to neighboring countries while the land under plantation could arguably be better utilized to feed the population. Regardless, the aging diesel engines that are in use throughout Myanmar will not be able to burn the resulting fuel stock effectively even if the domestic infrastructure were available.

One of the factors that may exacerbate the situation is the state of Myanmar's banking sector. The junta has announced a restriction on withdrawals from banks, raising echoes of the banking crisis of 2003. These restrictions are typical for unstable times, but due to the shaky status of the private banks especially, it is likely to cause even further economic hardship for the people of Myanmar. Monks may represent the spiritual backbone of the protests, but it is the general populace who has been successfully cowed by the junta into an attitude of self-preservation, which will ultimately have to be driven to demand change.

The military has made a supreme effort to remove itself from contact with the population: barracks and bases are situated away from towns, and the new capital is a study in strategic withdrawal to the hinterland. It is the populace who has the most to lose from rampant inflation and evaporating savings, but faces an incredibly resilient and increasingly isolated military that has kept a stranglehold on power since 1962.

The last major uprising in Myanmar occurred in 1988. The underlying cause of the revolt was economic and resulted in violent repression by the military. The outcome of the current protest could be similar. Regardless, due to the decades of military involvement in the economy, dependency on resource exports and a high rate of corruption that pervades the country, the necessary economic improvements will not come easily. Even with peaceful political change, without significant international oversight, the overwhelming precedence of military intervention and control in the country will likely return Myanmar to state-sponsored economic mismanagement.

Posted by Hugo Albert Orwell at 09:39 AM | Permalink | TrackBacks (0)

Source: LifeAfterTheOilCrash.net

By Richard Heinberg for Museletter

September is an equinoctial mont, a time of momentary balance, instability, and change. Day and night are of equal length; however, the rate of change in the relative lengths of day and night is at its peak.

It’s been an unusually busy and stressful month for me personally. Leonardo Dicaprio’s enviro-doc “11th Hour” hit the theaters, featuring yours truly on screen for a few seconds (though the producer and director decided against including a mention of Peak Oil). Early in September I gave a presentation at the UN at the behest of two organic agriculture organizations (the Soil Association of Britain and the Shumei Foundation of Japan). On Thursday the 13th, a CNN Money reporter called wanting information about Peak Oil; his story appeared the next day. The very first copies of my new book, Peak Everything, shipped during the last week of the month. A few days ago a Korean TV crew stopped by and filmed me at home for a three-part documentary to air in November. And a family emergency (aging parent) sent me off to the Midwest for a week. As the saying goes, there’s no rest for the wicked.

The month was no less eventful for the rest of the world—though of course the scale of significance of the following items is approximately 6.7 billion times greater than for the preceding ones.

Maybe the best place to start is with a general comment. It’s getting pretty damn obvious that the world is sliding head-first into the abyss at an accelerating rate, with most Americans as oblivious as ever. The latest indication of impending doom is a festering credit crunch brought on by the inevitable puncturing of a bubble puffed up over the past few years through the issuance of thousands of patently idiotic subprime, adjustable-rate, and interest-only mortgage loans.

The deeper story is that this is just the last of a series of bubbles that the US Federal Reserve has inflated in order to sustain for as long as was humanly possible a fundamentally unsound national financial condition.

As I explained in Chapter 2 of The Party’s Over, the US got rich exploiting its own resources and labor. Its most valuable resource—oil—went into decline forty years ago; since then, we Americans have tried to stay rich by exploiting other nations’ labor and resources, using leveraged trade rules, dollar hegemony, and military threats. All this time, we congratulated ourselves: we were living in a post-industrial information economy; they were doing the dreary, obsolete work of actually making things. They sweated and saved; it was up to us to spend and borrow. We served an indispensable function in the global economy as the consumer of last resort, as the engine of new debt creation (more debt equals more money in circulation—i.e., more GDP growth), and as the global cop keeping order in an unruly world (while also sneaking donuts and taking bribes). The Chinese burned their coal and poisoned their workers and environment to make our stuff, enabling us to enjoy a cleaner environment by keeping our coal in the ground, while they loaned us the money to buy cheap Chinese stuff with. Such a deal!

Life in bubble world was grand while it lasted. First there was the Third World debt bubble of the ’80s; then came the tech bubbles of the ’90s; and finally the real estate bubble of the ’00s. Along the way, Wall Street hoped for a little extra hot air from the privatization of Social Security, but even Americans weren’t stupid enough to sign onto that particular leveraged buyout. All during this time, suburbanites got used to having more gadgets and bigger cars and houses, even if they couldn’t actually afford them.

But now we’re at the end of the line. At last the rest of the world is coming to realize that it doesn’t really need Americans: the Chinese can consume, too, after all. And the Asians can’t really justify loaning us more money; we’re not going to pay it back—or if we do, it will be in devalued dollars. But those loans can also be looked at as investments: other nations have in effect bought US assets, which means that the wealth created from those assets will flow to the new overseas owners, not to Americans. What’s left to buy—other than a lot of soon-to-be-foreclosed real estate? And how much wealth will those assets produce once the bubble deflates?

It’s also clear now that there are alternatives to the dollar, including the euro, the yen, and the yuan. Not that the dollar won’t be missed; when it tanks, there will be as many financial casualties in Mumbai as Manhattan. But currency traders are clearly heading for the exits, and the last one out gets the booby prize—a bag of wooden nickels.

Yes, the rest of the world still must fear America’s awesome weapons of mass destruction: this mighty nation can certainly create an unholy mess when it means to, as it is demonstrating in Mesopotamia. But that doesn’t mean that other nations actually have to obey it any more. The US can bomb to smithereens any country it chooses, but it can’t always count on forcing that country to hand over its resources at gunpoint.

The dollar is hitting record lows. Gold and silver are hot commodities—always a bad sign for the reigning paper currency. There are rumors of possible bank failures (following a run on one British bank). If the Federal Reserve tries to solve the liquidity crisis by lowering interest rates, that just worsens inflation and exacerbates the dollar’s problems. If the Fed raises rates to prop up the dollar, that forces the banks and hedge funds to confront their mountains of worthless paper and leads ultimately to defaults, bank runs, and bank failures. Clearly the Fed fears the latter scenario more than the former, so by lowering interest rates this month it effectively pulled the plug on the dollar. The Saudis are now preparing to de-link their economy from the US currency, while China is quietly selling off dollar-denominated assets. One way or another, Americans are going to soon see a rapid decline in their real standard of living.

Of course, another big event this month was oil’s nose-bleed ascent to record-high prices, over $82US per barrel. Part of the price hike resulted from the dollar’s weakness, but—as Goldman Sachs has pointed out—the main reason was simply that demand is up while supply is down. The May 2005 peak for the rate of production of regular crude and the July 2006 peak for all liquids are still holding. It may be that the technical maximum global rate of flow for liquid fuels is still a couple of years away, but in effect the peak is here now.

As for Iran, “all options” are still on the table, and the pretext for a broad-scale air attack is apparently being patiently laid. Bush has vowed that he will not leave office with the Iran question unresolved, and France’s new neocon leaders are running defense for Bush/Cheney, calling for “the most severe sanctions possible” and for war if those “don’t work.” Meanwhile, when Tehran actually complies with the International Atomic Energy Agency’s requests, this is viewed as a provocation. This month, Newsweek revealed that Vice President Dick Cheney at one point considered asking Israel to launch air strikes on an Iranian nuclear site, so as to provoke Iran to lash out, thus giving Washington a pretext for more extensive attacks (a scenario I discussed in MuseLetter for April 2007, “Iran: We Will Know Soon”). Iranian President Ahmedinejad’s appearances in New York (at the UN and Columbia University) seemed only to give the US media an opportunity to whip up further anti-Iranian public sentiment, while the Senate’s passage of the Lieberman-Kyl amendment (which Hilary Clinton supported) provided a stamp of approval for any future military actions by the current administration.

But surely the single most important event of the month was the revelation that arctic sea ice is melting faster than even the most dire forecasts had predicted. This is significant because it shows the power of reinforcing feedback loops: as sunlight-reflecting ice melts, it leaves dark water in its place—which absorbs more heat, causing more ice to melt, and so on. This year’s minimum extent of ice was about one million square miles (as of September 16); the previous record low was 1.5 million in 2005. The rate of melting this year was 10 times the recent annual average. This month the Northwest Passage was ice-free for the first time in untold millennia. At this rate, the north polar region could be ice-free in summer by 2015.

Altogether, it was an extraordinary 30 days. Yet so far there’s been no instantaneous economic implosion, and there’s not much blood in the streets (except perhaps in Myanmar), and so the mainstream media can safely focus on the truly vital issues like O.J. Simpson’s current legal scrapes and Britney Spears’s performance at the MTV awards.

Many writers who discuss the sort of stuff that interests me (“reality” I think it’s called) wrap the unutterable sadness of it all in a crisp cellophane of cynicism. I’m guilty of that, too, from time to time—certainly in this little monthly summary. How else to make it somehow bearable?

Posted by Hugo Albert Orwell at 10:19 PM | Permalink | TrackBacks (0)

Source: WSJ Online

By BOB DAVIS
October 3, 2007; Page A3

DALLAS -- Hunt Oil Co. Chief Executive Ray Hunt said his ties to the Bush family and the Republican Party didn't help his company cut a deal last month to explore for oil in Iraq's semiautonomous Kurdish region.

The agreement, which gives the closely held Dallas company access to a largely unexplored part of oil-rich Iraq, has been criticized by the Bush administration and Iraqi officials as undermining efforts to strengthen the war-torn country's central government. Some critics also suggested Mr. Hunt was cashing in on his ties to President Bush, while others claimed he was turning his back on the president.

• Outside Politics: Hunt Oil CEO Ray Hunt said his ties to the Bush family and Republican party didn't help it strike a deal with officials in Iraq's Kurdish region.
• Countering Criticism: The State Department says it had warned Hunt against a deal, but Mr. Hunt said his company didn't ask for advice and acts independently.
• Unknown Potential: Iraq is oil-rich, but much of the war-torn country is unexplored and the biggest known reserves are outside Kurdish territory.

In an interview, the 64-year-old Mr. Hunt says that, contrary to the State Department's assertion, the company received no U.S. government advice before striking a deal. "The State Department must have been misinformed," he said. "We did not consult with anyone in the [U.S. government] prior to signing our agreement."

Mr. Hunt, a longtime friend of the Bush family, gave $75,000 to Republican Party fund-raising committees in the past two years, according to the Center for Responsive Politics. But he said his political ties didn't play a role; the company saw an opening in Kurdistan and jumped on it. "It's another example where we're able to move quickly when opportunity presents itself," said Mr. Hunt, who says Kurdish oil executives turned to Hunt because of its oil-development record in Yemen.

Mr. Hunt added: "The fact is, as a matter of policy, we never have and never will go to the government of the U.S. and ask the government's advice on anything we do from a business point of view."

The State Department says it warned Hunt Oil against signing a contract that it viewed as "legally uncertain." In a news conference late last month, Mr. Bush said he was "concerned" the arrangement would "undermine" negotiations for a national oil law.

The Hunt Oil deal has been touted by Kurdish officials, who want to bolster their claim to autonomy in oil-related issues and worry that energy resources are more thoroughly mapped in Shiite-dominated southern Iraq. But the Hunt contract has angered the Baghdad central government, which worries about a breakup of the state.

Hunt Oil is much smaller than super majors such as Exxon Mobil Corp., BP PLC and Royal Dutch Shell PLC. But it has a reputation in the U.S. oil patch as a risk taker. As a closely held company, it feels it can move faster than larger rivals. Mr. Hunt often refers to his firm as a "commando" operation, wooing customers with its derring-do.

Under terms of the Kurdistan contract, Hunt Oil plans to start seismic testing in the next few weeks and to drill its first well sometime next year. But Mr. Hunt emphasized that the contract is for exploration only, not for production, which could take an additional few years to begin -- if the company manages to find oil.

The Kurdish regional government yesterday said it had signed a variety of additional oil deals, which could reduce the political heat on Hunt. They include exploration agreements with two midsize oil companies, Heritage Oil Corp., of Canada, and Perenco SA, of France, and separate agreements to build two oil refineries.

Qubad Talabani, the Kurdish government's representative in the U.S., credited Hunt with boosting the visibility of Kurdistan. "When a name as established as Hunt comes in, it raised eyebrows in the oil-and-gas community," he said.

Iraq is estimated to hold some 115 billion barrels of reserves, making it the third-largest holder after Saudi Arabia and Iran. But after decades of war, the country is relatively unexplored.

Friendly and reserved, Mr. Hunt lacks the family's flamboyance. His father, H.L. Hunt, was a wildcatter who fathered 15 children by three women and used poker winnings for early capital, while two of Ray Hunt's half-brothers tried to corner the world's silver market.

But Ray Hunt shares his family's thirst for business risk and penchant for secrecy. The company won't release its revenue or even the number of Hunt employees.

Mr. Hunt has expanded its business overseas, including the North Sea and Yemen. Hunt Oil is also a big investor in a natural-gas project in Peru's Amazon and is now building a liquefied-natural-gas export facility in Peru.

Hunt is used to politically precarious situations. It struck oil in northern Yemen in the early 1980s and built the operation during periodic civil wars. Yemen expropriated a big part of its holdings in 2005, which Hunt is contesting in international arbitration, though it still has interests elsewhere in the country.

Its record in Yemen helped get it a leg up in Kurdistan, said Mr. Talabani, the Kurdish official. Over the years, Hunt has also kept up contacts with Ashti Hawrami, the Kurdish oil minister.

"We consider ourselves to be loyal American citizens as individuals and as a company," Mr. Hunt said. His company won't deal with countries that are being sanctioned by the U.S., like Cuba or Iran, or look for legal loopholes that would give it a leg up there, he said.

--Chip Cummins and Neil King Jr. contributed to this article.

Posted by Hugo Albert Orwell at 03:19 PM | Permalink | TrackBacks (0)

Source: Consortium News

By Daniel Ellsberg
September 26, 2007 (Text of a speech delivered September 20, 2007)

Editor’s Note: Daniel Ellsberg, the former Defense Department analyst who leaked the secret Pentagon Papers history of the Vietnam War, offered insights into the looming war with Iran and the loss of liberty in the United States at an American University symposium on Sept. 20.

Below is an edited transcript of Ellsberg’s remarkable speech:

I think nothing has higher priority than averting an attack on Iran, which I think will be accompanied by a further change in our way of governing here that in effect will convert us into what I would call a police state.

If there’s another 9/11 under this regime … it means that they switch on full extent all the apparatus of a police state that has been patiently constructed, largely secretly at first but eventually leaked out and known and accepted by the Democratic people in Congress, by the Republicans and so forth.

Will there be anything left for NSA to increase its surveillance of us? … They may be to the limit of their technical capability now, or they may not. But if they’re not now they will be after another 9/11.

And I would say after the Iranian retaliation to an American attack on Iran, you will then see an increased attack on Iran – an escalation – which will be also accompanied by a total suppression of dissent in this country, including detention camps.

It’s a little hard for me to distinguish the two contingencies; they could come together. Another 9/11 or an Iranian attack in which Iran’s reaction against Israel, against our shipping, against our troops in Iraq above all, possibly in this country, will justify the full panoply of measures that have been prepared now, legitimized, and to some extent written into law. …

This is an unusual gang, even for Republicans. [But] I think that the successors to this regime are not likely to roll back the assault on the Constitution. They will take advantage of it, they will exploit it.

Will Hillary Clinton as president decide to turn off NSA after the last five years of illegal surveillance? Will she deprive her administration her ability to protect United States citizens from possible terrorism by blinding herself and deafening herself to all that NSA can provide? I don’t think so.

Unless this somehow, by a change in our political climate, of a radical change, unless this gets rolled back in the next year or two before a new administration comes in – and there’s no move to do this at this point – unless that happens I don’t see it happening under the next administration, whether Republican or Democratic.

The Next Coup

Let me simplify this and not just to be rhetorical: A coup has occurred. I woke up the other day realizing, coming out of sleep, that a coup has occurred. It’s not just a question that a coup lies ahead with the next 9/11. That’s the next coup, that completes the first.

The last five years have seen a steady assault on every fundamental of our Constitution, … what the rest of the world looked at for the last 200 years as a model and experiment to the rest of the world – in checks and balances, limited government, Bill of Rights, individual rights protected from majority infringement by the Congress, an independent judiciary, the possibility of impeachment.

There have been violations of these principles by many presidents before. Most of the specific things that Bush has done in the way of illegal surveillance and other matters were done under my boss Lyndon Johnson in the Vietnam War: the use of CIA, FBI, NSA against Americans.

I could go through a list going back before this century to Lincoln’s suspension of habeas corpus in the Civil War, and before that the Alien and Sedition Acts in the 18th century. I think that none of those presidents were in fact what I would call quite precisely the current administration: domestic enemies of the Constitution.

I think that none of these presidents with all their violations, which were impeachable had they been found out at the time and in nearly every case their violations were not found out until they were out of office so we didn’t have the exact challenge that we have today.

That was true with the first term of Nixon and certainly of Johnson, Kennedy and others. They were impeachable, they weren’t found out in time, but I think it was not their intention to in the crisis situations that they felt justified their actions, to change our form of government.

It is increasingly clear with each new book and each new leak that comes out, that Richard Cheney and his now chief of staff David Addington have had precisely that in mind since at least the early 70s. Not just since 1992, not since 2001, but have believed in Executive government, single-branch government under an Executive president – elected or not – with unrestrained powers. They did not believe in restraint.

When I say this I’m not saying they are traitors. I don’t think they have in mind allegiance to some foreign power or have a desire to help a foreign power. I believe they have in their own minds a love of this country and what they think is best for this country – but what they think is best is directly and consciously at odds with what the Founders of this country and Constitution thought.

They believe we need a different kind of government now, an Executive government essentially, rule by decree, which is what we’re getting with signing statements. Signing statements are talked about as line-item vetoes which is one [way] of describing them which are unconstitutional in themselves, but in other ways are just saying the president says “I decide what I enforce. I decide what the law is. I legislate.”

It’s [the same] with the military commissions, courts that are under the entire control of the Executive Branch, essentially of the president. A concentration of legislative, judicial, and executive powers in one branch, which is precisely what the Founders meant to avert, and tried to avert and did avert to the best of their ability in the Constitution.

Founders Had It Right

Now I’m appealing to that as a crisis right now not just because it is a break in tradition but because I believe in my heart and from my experience that on this point the Founders had it right.

It’s not just “our way of doing things” – it was a crucial perception on the corruption of power to anybody including Americans. On procedures and institutions that might possibly keep that power under control because the alternative was what we have just seen, wars like Vietnam, wars like Iraq, wars like the one coming.

That brings me to the second point. This Executive Branch, under specifically Bush and Cheney, despite opposition from most of the rest of the branch, even of the cabinet, clearly intends a war against Iran which even by imperialist standards, standards in other words which were accepted not only by nearly everyone in the Executive Branch but most of the leaders in Congress. The interests of the empire, the need for hegemony, our right to control and our need to control the oil of the Middle East and many other places. That is consensual in our establishment. …

But even by those standards, an attack on Iran is insane. And I say that quietly, I don’t mean it to be heard as rhetoric. Of course it’s not only aggression and a violation of international law, a supreme international crime, but it is by imperial standards, insane in terms of the consequences.

Does that make it impossible? No, it obviously doesn’t, it doesn’t even make it unlikely.

That is because two things come together that with the acceptance for various reasons of the Congress – Democrats and Republicans – and the public and the media, we have freed the White House – the president and the vice president – from virtually any restraint by Congress, courts, media, public, whatever.

And on the other hand, the people who have this unrestrained power are crazy. Not entirely, but they have crazy beliefs.

And the question is what then, what can we do about this? We are heading towards an insane operation. It is not certain. It is likely. … I want to try to be realistic myself here, to encourage us to do what we must do, what is needed to be done with the full recognition of the reality. Nothing is impossible.

What I’m talking about in the way of a police state, in the way of an attack on Iran is not certain. Nothing is certain, actually. However, I think it is probable, more likely than not, that in the next 15, 16 months of this administration we will see an attack on Iran. Probably. Whatever we do.

And … we will not succeed in moving Congress probably, and Congress probably will not stop the president from doing this. And that’s where we’re heading. That’s a very ugly, ugly prospect.

However, I think it’s up to us to work to increase that small perhaps – anyway not large – possibility and probability to avert this within the next 15 months, aside from the effort that we have to make for the rest of our lives.

Restoring the Republic

Getting back the constitutional government and improving it will take a long time. And I think if we don’t get started now, it won’t be started under the next administration.

Getting out of Iraq will take a long time. Averting Iran and averting a further coup in the face of a 9/11, another attack, is for right now, it can’t be put off. It will take a kind of political and moral courage of which we have seen very little…

We have a really unusual concentration here and in this audience, of people who have in fact changed their lives, changed their position, lost their friends to a large extent, risked and experienced being called terrible names, “traitor,” “weak on terrorism” – names that politicians will do anything to avoid being called.

How do we get more people in the government and in the public at large to change their lives now in a crisis in a critical way? How do we get Nancy Pelosi and Harry Reid for example? What kinds of pressures, what kinds of influences can be brought to bear to get Congress to do their jobs? It isn’t just doing their jobs. Getting them to obey their oaths of office.

I took an oath many times, an oath of office as a Marine lieutenant, as an official in the Defense Department, as an official in the State Department as a Foreign Service officer. A number of times I took an oath of office which is the same oath office taken by every member of Congress and every official in the United States and every officer in the United States armed services.

And that oath is not to a Commander in Chief, which is not mentioned. It is not to a fuehrer. It is not even to superior officers. The oath is precisely to protect and uphold the Constitution of the United States.

Now that is an oath I violated every day for years in the Defense Department without realizing it when I kept my mouth shut when I knew the public was being lied into a war as they were lied into Iraq, as they are being lied into war in Iran.

I knew that I had the documents that proved it, and I did not put it out then. I was not obeying my oath which I eventually came to do.

I’ve often said that Lt. Ehren Watada – who still faces trial for refusing to obey orders to deploy to Iraq which he correctly perceives to be an unconstitutional and aggressive war – is the single officer in the United States armed services who is taking seriously in upholding his oath.

The president is clearly violating that oath, of course. Everybody under him who understands what is going on and there are myriad, are violating their oaths. And that’s the standard that I think we should be asking of people.

Congressional Courage

On the Democratic side, on the political side, I think we should be demanding of our Democratic leaders in the House and Senate – and frankly of the Republicans – that it is not their highest single absolute priority to be reelected or to maintain a Democratic majority so that Pelosi can still be Speaker of the House and Reid can be in the Senate, or to increase that majority.

I’m not going to say that for politicians they should ignore that, or that they should do something else entirely, or that they should not worry about that.

Of course that will be and should be a major concern of theirs, but they’re acting like it’s their sole concern. Which is business as usual. “We have a majority, let’s not lose it, let’s keep it. Let’s keep those chairmanships.” Exactly what have those chairmanships done for us to save the Constitution in the last couple of years?

I am shocked by the Republicans today that I read in the Washington Post who yesterday threatened a filibuster if we … get back habeas corpus. The ruling out of habeas corpus with the help of the Democrats did not get us back to George the First it got us back to before King John 700 years ago in terms of counter-revolution.

We need some way, and Ann Wright has one way, of sitting in, in Conyers office and getting arrested. Ray McGovern has been getting arrested, pushed out the other day for saying the simple words “swear him in” when it came to testimony.

I think we’ve got to somehow get home to them [in Congress] that this is the time for them to uphold the oath, to preserve the Constitution, which is worth struggling for in part because it’s only with the power that the Constitution gives Congress responding to the public, only with that can we protect the world from mad men in power in the White House who intend an attack on Iran.

And the current generation of American generals and others who realize that this will be a catastrophe have not shown themselves – they might be people who in their past lives risked their bodies and their lives in Vietnam or elsewhere, like [Colin] Powell, and would not risk their career or their relation with the president to the slightest degree.

That has to change. And it’s the example of people like those up here who somehow brought home to our representatives that they as humans and as citizens have the power to do likewise and find in themselves the courage to protect this country and protect the world. Thank you.

Daniel Ellsberg is author of Secrets: A Memoir of Vietnam and the Pentagon Papers.

Posted by Hugo Albert Orwell at 05:02 PM | Permalink | TrackBacks (0)

Source: The New York Times

Published: September 19, 2007

Backed by the White House, corn-state governors and solid blocks on both sides of Congress’s partisan divide, the politics of biofuels could hardly look sunnier. The economics of the American drive to increase ethanol in the energy supply are more discouraging.

American corn-based ethanol is expensive. And while it can help cut oil imports and provide modest reductions in greenhouse gases compared to conventional gasoline, corn ethanol also carries considerable risks. Even now as Europe and China join the United States in ramping up production, world food prices are rising, threatening misery for the poorest countries.

The European Union has announced that it wants to replace 10 percent of its transport fuel with biofuels by 2020. China is aiming for a 15 percent share. The United States is already on track to exceed Congress’s 2005 goal of doubling the amount of ethanol used in motor fuels to 7.5 billion gallons by 2012. In his State of the Union speech in January, President Bush set a new goal of 35 billion gallons of biofuels by 2017. In June, the Senate raised it to 36 billion gallons by 2022. Of that, Congress said that 15 billion gallons should come from corn and 21 billion from advanced biofuels that are nowhere near commercial production.

The distortions in agricultural production are startling. Corn prices are up about 50 percent from last year, while soybean prices are projected to rise up to 30 percent in the coming year, as farmers have replaced soy with corn in their fields. The increasing cost of animal feed is raising the prices of dairy and poultry products.

The news from the rest of the world is little better. Ethanol production in the United States and other countries, combined with bad weather and rising demand for animal feed in China, has helped push global grain prices to their highest levels in at least a decade. Earlier this year, rising prices of corn imports from the United States triggered mass protests in Mexico. The chief of the United Nations Food and Agriculture Organization has warned that rising food prices around the world have threatened social unrest in developing countries.

A recent report by the Organization for Economic Cooperation and Development, an economic forum of rich nations, called on the United States and other industrialized nations to eliminate subsidies for the production of ethanol which, the report said, is driving up food costs, threatening natural habitats and imposing other environmental costs. “The overall environmental impacts of ethanol and biodiesel can very easily exceed those of petrol and mineral diesel,” it said.

The economics of corn ethanol have never made much sense. Rather than importing cheap Brazilian ethanol made from sugar cane, the United States slaps a tariff of 54 cents a gallon on ethanol from Brazil. Then the government provides a tax break of 51 cents a gallon to American ethanol producers — on top of the generous subsidies that corn growers already receive under the farm program.

Corn-based ethanol also requires a lot of land. An O.E.C.D. report two years ago suggested that replacing 10 percent of America’s motor fuel with biofuels would require about a third of the total cropland devoted to cereals, oilseeds and sugar crops.

Meanwhile, the environmental benefits are modest. A study published last year by scientists at the University of California, Berkeley, estimated that after accounting for the energy used to grow the corn and turn it into ethanol, corn ethanol lowers emissions of greenhouse gases by only 13 percent.

The United States will not meet the dual challenges of reducing global warming and its dependence on foreign suppliers of energy until it manages to reduce energy consumption. That should be its main goal.

There is nothing wrong with developing alternative fuels, and there is high hope among environmentalists and even venture capitalists that more advanced biofuels — like cellulosic ethanol — can eventually play a constructive role in reducing oil dependency and greenhouse gases. What’s wrong is letting politics — the kind that leads to unnecessary subsidies, the invasion of natural landscapes best left alone and soaring food prices that hurt the poor — rather than sound science and sound economics drive America’s energy policy.

Posted by Hugo Albert Orwell at 03:54 PM | 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: Daily Koz

by FMArouet
Sat Apr 28, 2007 at 08:11:53 AM PDT

The deaths this week of former Russian President Boris Yeltsin and renowned Russian cellist and conductor Mstislav Rostropovich reminded us all of the heady days of the collapse of the Soviet Union and its empire. With astonishing abruptness the West had won the Cold War by the end of 1991.

But recalling those exhilarating days also raises a more introspective question: is America in turn now experiencing its own systemic crisis, and is it lurching toward an imminent imperial collapse?

Perhaps some insights from Soviet dissident Andrei Amalrik, French demographer Emmanuel Todd, and Yale historian Paul Kennedy can guide us to an answer below the break.

In 1969 Soviet dissident Andrei Amalrik smuggled to the West his prescient essay, "Will the Soviet Union Survive until 1984?"

Amalrik predicted that a collapse of the Soviet system would result from an explosion of suppressed national sentiment in the republics, a moribund economy, the incompetence of a self-selecting leadership, governance based on obedience and adherence to the Party line by loyal apparatchiks unable to cope with reality or to innovate, and an eventual Sino-Soviet war. Of course, it turned out to be the Soviet invasion and occupation of Afghanistan, not a Sino-Soviet war, which served as the catalyst to overwhelm the Soviet economy and ultimately the Soviet Empire. Amalrik was off in his prediction by seven years, but his overall analysis was uncannily accurate.

In 1976 Emmanuel Todd, a French historian, anthropologist, and demographer, scrutinized demographic data on the decline of birth rates in the Soviet Union, on a rise in infant mortality, and on a striking decline in life expectancy among Soviet males to write "The Final Fall: An Essay on the Decomposition of the Soviet Sphere" (1976, Editions Robert Laffont; 1979, Kary Publishers).

When Gorbachev inherited power from the senile Old Guard (the rigid and doddering Brezhnev, followed by the intelligent but doddering Andropov, followed in turn by the clueless and doddering Chernenko), he submitted to political pressure to feed what Khrushchev had called the Soviet Union's "steel-eaters," i.e., the military-industrial complex, and to try to suppress the Afghan insurgency.

At the same time Gorbachev launched a moral crusade against alcoholism, curtailed the state monopoly's production of vodka, limited vodka sales, greatly reduced liquor tax revenues, and increased the central budget deficit, thereby hastening financial and economic collapse. (Oddly enough, during World War I the Tsarist government had done the same thing with vodka production and the national budget, and had suffered the same economic result: collapse.)

Toward the Soviet Empire's end, whether in the outlying satellites and provinces or in the Russian heartland, even lifelong, loyal Communist Party members had stopped believing the lies, the deceptions, and the obvious delusions of their feckless, incompetent, self-serving, utterly corrupt, out-of-touch leadership. The Old Guard's clumsy anti-Gorbachev coup attempt in 1991 proved to be the blunder too far--the mortal wound to the system. Boris Yeltsin stood on a tank outside Parliament to rally Russian democrats to resist the coup, and Mstislav Rostropovich immediately flew to Moscow to camp out at Parliament and show his solidarity with Yeltsin. The coup collapsed, but by then Gorbachev himself had become discredited and irrelevant, and the Soviet Union rapidly disintegrated into its constituent republics.

Todd later turned his gaze to the U.S. in "After the Empire: The Breakdown of the American Order" (2002, Editions Gallimard; 2003 Columbia University Press). In this second book Todd's demographic arguments are weak (though recent surges in infant morality in the Deep South give Todd's early demographic data retrospective weight), but his economic and historical analysis seems trenchant, and he predicts that in the relatively near term America's financial indiscipline and runaway consumption habits will result in a crash leading to a necessary 15 to 20 percent reduction in American living standards. Todd reasons that the U.S., despite its military prowess, simply lacks the power to enforce its hegemony everywhere it wishes and that its increasingly fragile, debt-dependent economy cannot sustain for long such an overreaching imperial policy.

Todd describes the U.S. as a "superpower living hand to mouth," led by a ruling class "even more rudderless and clueless than its European counterparts," and incapable of achieving its global aims through repeated applications of "theatrical micromilitarism." Todd argues that the disintegration of American hegemony already is in full swing, and he predicts that the Bush American Administration and its neocon theorists "will go down in history as the gravediggers of the American empire."

In "The Rise and Fall of the Great Powers: Economic Change and military conflict from 1500 to 2000" (1987, Random House), Yale historian Paul Kennedy presented a compelling argument that eerily paralleled Todd's. Kennedy detected an oft-repeated standard formula for great power decline and collapse. Great powers (such as the Habsburg, French, Turkish, Dutch, Spanish, Russian, British, Japanese, Soviet, and eventually American Empires) get in the habit of using military force to protect what they view as their broad economic interests, but in doing so, they divert investment from productive social and economic purposes into nonproductive military ends.

Inevitably, more dynamic, productive economies position themselves to replace the aging great power when its military overspending inexorably leads to its relative economic and social decline, whether gradual or sudden.

Apparently, American neocon ideologues at the turn of the twenty-first century, like Soviet ideologues in the 1980's, "don't know much about his-to-ry." Or perhaps they merely misinterpreted Paul Kennedy and took his paradigm as a tragic Greek template that must be blindly followed.

The more the U.S. seeks to assert its will through diktat and unilateral military force, the more it ensures that the other major players will find it increasingly in their best interests to collaborate more closely with one another to deflect and frustrate the American imperium.

Note the increasing collaboration between rising Asian giants China and India as one canary in the mineshaft. In the past week newly published data showed that China has replaced the U.S. as Japan's major trading partner. Note the deepening commercial relationships between China and Europe. Note the rapidly increasing economic and political collaboration between China and Saudi Arabia. Note the accelerating drift away from the U.S. dollar as the world's reserve currency. In the past week the dollar fell to historical lows against the euro. Note the robust military collaboration between China and Russia. Note the recent decision by China and Japan to establish a military "hot line." China will hold military exercises with several ASEAN states in the coming year. Note the increasing disinclination of Europeans, notably the Germans, French, Spanish, and Italians, to support--much less finance--American imperial misadventures, such as the rapidly imploding debacle in Iraq. Note the disinclination of the Europeans to continue to tolerate the tenure of American neocon ideologue Paul Wolfowitz at the World Bank.

Where and when will the reality-challenged Bush Administration commit its blunder too far? Perhaps that blunder will turn out to be the invasion and failed occupation of Iraq. Or perhaps the ultimate catalytic blunder will occur in Iran, which remains on the neocon wish list as a target for destabilization, intervention, "liberation," and regime change.

The collapse of the American Empire is not over the horizon--an event lurking around a distant corner a few decades down the road. We are already in the very midst of it. It is like a staged train wreck unfolding frame-by-frame as we reflect in head-shaking disbelief on each day's news and on each new blunder by the Bush Administration.

Can the U.S. navigate its way to become a post-imperial, normal country--working responsibly as one great power among several rather than quixotically striving to be the sole global hegemon? Can it do so while avoiding further military disasters and a debilitating financial and economic collapse?

Or will the decline be precipitous and disorderly, accelerated by corrupt, clueless, inept, and rigid leadership, as was the Soviet Empire's collapse?

Posted by Hugo Albert Orwell at 08:20 AM | Permalink | TrackBacks (0)

Source: AlterNet.org

By Kaitlin Sopoci-Belknap, YES! Magazine.
Posted September 5, 2007

In 2006, Humboldt County, California, became the latest, and largest, jurisdiction to abolish the legal doctrine known as "corporate personhood."

Measure T was successful because our all-volunteer campaign came together to pass a law that bans non-local corporations from participating in Humboldt elections. The referendum, which passed with 55 percent of the vote, also asserts that corporations cannot claim the First Amendment right to free speech.

By enacting Measure T, Humboldt County has committed an act of "municipal civil disobedience," intentionally challenging "settled law." But voters also recognize that Measure T is an act of common sense. We polled our community and found that 78 percent believe corruption is more likely if corporations participate in politics.

The Measure T campaign was led by women and young people, with critical support from elders and feminist men. This diverse leadership created a culture of cooperation and collaboration that permeated the campaign, and made it as much about community as about a win on election day. For example, the law itself was written using a consensus process, the advice of volunteers was valued just as highly as input from experts and consultants, and we organized numerous parties and social events to help spread the word.

The local Democratic and Green Parties formally endorsed the effort, and leaders of both worked arm-in-arm during the campaign. They were joined by organized labor and every peace, justice, and environmental protection group in the community. Humboldt County modeled a campaign carried out with respectful unity.

This effort did not spring up out of thin air. It was the result of years of old-fashioned community organizing by Democracy Unlimited of Humboldt County that included workshops and educational programs explaining how corporations have acquired more rights under the law than people have.

We designed the campaign with "big picture" goals in mind from the beginning. We knew we wanted to claim for our campaign the best and most noble ideals of American history--especially self-governance and protecting people's rights against abusive power. We realize that the founding of this country is deeply flawed, but we used the national creation story to put Measure T on the side of truth and justice.

To that end, our PAC was named the Humboldt Coalition for Community Rights, and our website was VoteLocalControl.org. Our primary outreach tool was a tea bag that reminded voters of the proud history of the Boston Tea Party as an act of rebellion against the most powerful corporation of the day, and called for a modern-day T(ea) Party of our own.

Like the populists of the 19th-century agrarian movement, we believe that genuine change cannot be imposed from the top down. It must proceed from the ground up, and the battles must be waged in local communities.

Kaitlin Sopoci-Belknap is director of Democracy Unlimited, a fellow for Liberty Tree: Foundation for the Democratic Revolution, and a principal with the Program on Corporations, Law and Democracy. She was spokesperson and campaign co-manager for Measure T.

Posted by Hugo Albert Orwell at 12:08 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: The Tribune Democrat

Published: August 24, 2007 01:31 pm
By ZACHARY HUBBARD

All eyes in Washington are focused on the Middle East as the war there continues, the troop surge in Iraq nears its climax and the ever-elusive Osama bin Laden, assuming he’s still alive, continues to evade capture. Iran is rattling its sword and the hawks in Washington are demanding satisfaction. The 2008 election countdown has started and politicians on both sides of the aisle have begun the traditional blame game of finger pointing, name calling and jockeying for political advantage. The American political process is once again paralyzed by the politicians’ lust to retain power. Forget the business of running the nation; there’s an election to be won! And so it will go until November of next year.

Meanwhile, in a country far, far away, the political, military and economic downfall of the United States is being planned by an intelligent, patient, industrious enemy who hopes never to fire a shot in anger, yet fully expects to win. Its goal: To replace the United States as the world’s reining superpower. The war, by all indications, may have already begun.

China’s grasp of history

China counts its history in millennia. It has seen enemies come and go, yet one thing remains constant – China continues. Why should the Chinese expect America to be different from their enemies of yore? Chinese politicians and military officers study history. They know the writings of Sun Tzu, a legendary warrior-philosopher whose 6th century BC military treatise “The Art of War” is mandatory reading for military officers worldwide.

Sun Tzu has dozens of notable quotes, but the greatest may be, “For to win one hundred victories in one hundred battles is not the acme of skill. To subdue the enemy without fighting is the acme of skill.”

The Chinese may have already begun a campaign to subdue the United States following Sun Tzu’s model. As Sun Tzu said, you can subdue an enemy without fighting. In fact, it is best to win without having to go to war. Some would argue that this is what diplomacy is about. Certainly, diplomacy is part of the strategy, but there is far more to the Chinese game plan.

Reflecting Sun Tzu’s philosophy, many recent Chinese writings have focused on asymmetric warfare as a means of defeating a militarily superior enemy. Asymmetric warfare uses political, economic, informational and military power. Military power is the least emphasized.

A different kind of war

Qiao Liang and Wang Xiangsui, two colonels in China’s Peoples’ Liberation Army, published a treatise in 1999 titled “Unrestricted Warfare.” The treatise was not an official publication of the Chinese government, but it was published by the official PLA publishing house, indicating at least some degree of acceptance. “Unrestricted Warfare” contains chilling instructions on how to defeat an enemy using asymmetric attacks in such a manner that the enemy may not even realize they are under attack until it is too late to respond effectively. The techniques they describe include cyber warfare, attacks against financial institutions and critical infrastructure, terrorism, manipulating the media, biological warfare, chemical warfare and a variety of other ruthless methods.

Developments since “Unrestricted Warfare” was published seem to suggest that China may be waging such warfare today. China now faces many of the same problems that Germany faced in the buildup to World War II. Like Nazi Germany, China has a booming economy, a growing population and a hunger for energy and other resources to fuel its economic growth.

The Germans needed to expand their “lebensraum” (living space) to attain the natural resources needed to fuel their economy. China appears to be implementing a sort of “lebensraum” program of its own. As the United States was engaged in returning the Panama Canal Zone to Panama, China was busy establishing a beachhead there. Through land deals with Panama, the Chinese have gained control of both ends of this critical waterway, today controlling port facilities in Balboa, the canal's only Pacific port, and a major Atlantic port in Cristobol. The agreements allow China to run them for the next half-century.

China’s hunger for natural resources

China also is stretching out to grasp resources needed to fuel its economy. In January 2005, Venezuelan President Hugo Chavez (no friend of the U.S.) and Chinese Vice President Zeng Qinghong signed 19 agreements covering oil, agriculture and technology. These included five agreements between Venezuela and the Chinese National Petroleum Corporation. In 2006 China signed an oil exploration agreement with Nigeria, one of the largest oil exporters to America. Today China is conducting a diplomatic “love-in” across Africa.

The BBC reported in January 2006 that there were an estimated 700 Chinese-funded ventures in Africa. Many are in the fields of energy and natural resources, including oil and gas development, copper, cobalt, coal and gold mining. Unlike many Western powers whose diplomatic policies prevent or restrict dealing with ruthless regimes, China has no qualms about making deals with repressive governments having human rights issues. The Chinese are busy cutting deals to gobble up resources in such countries in Africa. For example, the U.S. Public Broadcasting System reported in April 2006 that China imports 10 percent of its oil from Sudan. Not surprisingly, China has worked diligently in the U.N. Security Council to water down potential punitive measures against Sudan, thereby helping to prolong the Darfur crisis.

Cuban oil is in China’s crosshairs as well. While environmentalists continue to block offshore drilling along Florida’s coastline, China is moving to capitalize on Cuba’s oil potential. In February 2005 the Havana Journal reported that Cuba’s Ministry of Basic Industry announced that the Cuba Oil Company (Cubapetroleo) signed a production contract with the China Petroleum & Chemical Corp (SINOPEC) to explore areas around Cuba believed to contain petroleum deposits. The agreement means that while Americans continue to squabble about the wisdom of offshore drilling in Florida, the Cubans and Chinese are beginning exploration some 50 miles from the Florida coastline.

China recently has begun to extend its oil search into the Caspian Sea region of Asia. The German army pushed towards the Caspian oil fields in the summer of 1942, nearly reaching the Soviet oil center of Grozny before the attack faltered. You may recall Grozny is the embattled capital of the Russian region of Chechnya, where Russia has fought against a violent Islamic separatist movement for nearly 10 years. Grozny today is an important transit route and confluence for petroleum pipelines coming out of the Caspian oil fields headed towards Europe. Although in this instance the immediate impact is on Europe, China’s thirst for oil is affecting global oil markets and forcing prices higher.

‘Loot a burning house’

Can China succeed in bringing America to its knees without firing a shot? It is not inconceivable given today’s global situation.

Sun Tzu said, “Loot a burning house.” By this he meant kick your enemies when they are down. How is China doing this? By arming America’s global adversaries and attacking the U.S. economy.

North Korea, a thorn in the sides of President Bush and former President Clinton, is overflowing with Chinese arms. North Korea’s nuclear program and missile tests in the Sea of Japan have caused President Bush great consternation. Fortunately, recent diplomatic efforts by the Bush Administration appear to have put an end to Korea’s quest for nuclear weapons, but at great cost in aid paid to the North Korean regime.

Meanwhile, China is arming the Middle East and other potential hot spots. In February 2004 the Washington Post reported that Chinese nuclear weapons design plans provided to Pakistan made it into the hands of Libya. CNN later reported that China was concerned about these allegations and was conducting an investigation. The Pentagon reported in May 2007 that Chinese-made armor-piercing missiles fell into the hands of anti-American militants in Iraq. It is assumed the missiles came through Iran.

The Iranians, who have nuclear ambitions of their own, depend upon Chinese and North Korean technology to keep their nuclear missile delivery program moving forward. The Iranians also have purchased sophisticated Chinese cruise anti-ship missiles that can be employed to interdict the free flow of oil from the Persian Gulf. The conservative think tank Heritage Foundation suggested in September 2006 that China is providing Iran diplomatic cover for its nuclear ambitions in exchange for lucrative oil and gas deals.

In January 2002, the Congressional Research Service published a report titled “China: Possible Missile Technology Transfer from U.S. Satellite Export Policy.” The report chronicles how in 1996, after a series of NASA satellite launch failures, the Clinton administration moved export control of commercial satellite technology from the State Department to the Department of Commerce. China subsequently launched numerous American satellites into orbit. A New York Times exposé in 1998 prompted a criminal investigation into whether Loral Space and Communications Ltd. and Hughes Electronics Corporation, both parties to the Chinese satellite launches, had provided technology information to the Chinese which enhanced their ballistic missile technology and ergo their nuclear weapons delivery capability. A subsequent congressional investigation produced the classified Cox Report in December 1998, indicating that indeed China’s military capabilities had benefited from U.S. exports for the past 20 years, including the launching of American communications satellites.

China recently has extended its realm of influence closer to the U.S. border. In July 2006, the conservative Web site Human Events reported that China has been working actively to developing North American Free Trade Agreement ports in Mexico. Using the economic shield of the NAFTA agreement between the United States, Mexico and Canada, China can avoid U.S. tariffs by shipping Chinese manufactured goods through Mexico into the United States. The plan reportedly could reduce Chinese transportation costs to the United States by as much as 50 percent and could flood the U.S. market with more cheap Chinese goods, further weakening the struggling U.S. dollar.

China’s high-tech military developments in the field of cyber warfare also are alarming. The technology Web site ZDNet News reported in November 2005 that U.S. officials had revealed details of Chinese computer hacking attacks against the U.S. government. The Chinese reportedly obtained information about Falconview, the flight-planning software used by the U.S. Army and Air Force. Such information could be used to help interdict U.S. flight operations against Chinese forces in a future conflict. The PLA has also developed a sizable force of professional computer hackers trained to disrupt the computer networks of China’s enemies. Potential targets include banking and electronic commerce networks and electric power grids, transportation networks and oil and gas pipelines, all of which are at least partially controlled by computers through SCADA systems (short for Systems Control and Data Acquisition).

The situation today

Today, the United States finds itself in an untenable position with China. American industry’s compulsion for outsourcing manufacturing to cheap overseas labor markets has resulted in American stores being glutted with shoddy Chinese products while the American manufacturing base that was once the envy of the world is vanishing. The situation has become so serious that a number of congressmen are formulating a political plank based upon revamping the U.S. manufacturing base.

The Chinese, in turn, have enacted tariffs against many American goods. The U.S. government has accused China of manipulating the value of the Chinese currency, the yuan, in international currency markets to give Chinese exports an unfair advantage in U.S. markets. The Chinese have tied the yuan’s value to the U.S. dollar at a fixed rate. China regulates its import market and the exchange of foreign currency with an iron fist in order to keep the yuan strong against the dollar. In the process of supporting the yuan, China has purchased more than $1 trillion in U.S. debt through international markets.

Today the Chinese appear ready to foreclose on the United States. In recent days the Chinese have hinted they may flood the international market with dollars to force the dollar value down. The mere suggestion sent U.S. stocks tumbling. President Bush responded that China would be foolhardy to act in such a manner. But what is to stop the Chinese? The Federal Reserve was forced to release billions in U.S. dollar reserves to calm the jittery markets.

Conflict looms in the Taiwan straits

The Pentagon has been warning about a Chinese military buildup for years. In November 2005 the Christian Science Monitor reported on this buildup. The Monitor stated that about 15 percent of the PLA’s 2 million-man force has been converted into a modern, highly mobile force designed to conduct rapid operations against smaller foes. The military buildup includes amphibious ships capable of transporting and landing military ground forces by sea.

What is the ultimate purpose of this buildup? Taiwan of course! Such an operation against Taiwan would involve highly mobile airborne and amphibious forces, naval and air operations to secure the Taiwan straits, and a massive missile and cyber warfare attack aimed at paralyzing Taiwan’s ability to react.

With the U.S. bogged down in the Middle East and Afghanistan, the time is quickly approaching when the Chinese will be able to deal a strategic death blow against Taiwan with impunity. This could be the death knell for U.S. superpower status. Already alienated from many of its traditional allies as a result of the war in Iraq, a Chinese attack on Taiwan would reveal the extent of the United States’ military’s weakened state and the inability of the U.S. government to stand by its alliances and obligations.

Food for thought

Not worried about China? Then here’s some food for thought: A series of recent China-related events, all potentially tied to asymmetric warfare against the United States, warrant close observation. These include toxic gluten in pet food, antifreeze in toothpaste, lead paint on toys, toxic levels of formaldehyde on pajamas, the recall of hundreds of thousands Chinese-manufactured tires in the United States for safety concerns … and the list goes on.

Potential problems with imported Chinese-produced foodstuff are particularly worrisome, as are the joint Russian-Chinese military exercises that recently took place for the first time in history. Coincidence? Maybe. Unrelated? Maybe. Worth watching? Certainly.

As Sun Tzu said, “All war is deception.”

Is China already at war with America?

Zachary Hubbard is a retired Army officer residing in Upper Yoder Township, Cambria County. He holds a master’s degree in military art and science from the U.S. Army Command and General Staff College. Since 1998 he has been involved in the study and teaching of asymmetric warfare. Hubbard is a member of The Tribune-Democrat Readership Advisory Committee.

Posted by Hugo Albert Orwell at 12:05 PM | 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.

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Source: Yahoo - Associated Press

By IVAN SEKRETAREV, Associated Press Writer 1 minute ago

CHEBARKUL TESTING RANGE, Russia - President Vladimir Putin placed strategic bombers back on long-range patrol for the first time since the Soviet breakup, sending a tough message to the United States on Friday hours after a major Russian military exercise with China.

Putin reviewed the first Russian-Chinese joint exercise on Russian soil before announcing that 20 strategic bombers had been sent far over the Atlantic, Pacific and Arctic oceans — showing off Moscow's muscular new posture and its growing military ties with Beijing.

"Starting today, such tours of duty will be conducted regularly and on the strategic scale," Putin said. "Our pilots have been grounded for too long. They are happy to start a new life."

Putin said halting long-range bombers after the Soviet collapse had hurt Russia's security because other nations — an oblique reference to the United States — had continued such missions.

"I have made a decision to resume regular flights of Russian strategic aviation," Putin said in nationally televised remarks. "We proceed from the assumption that our partners will view the resumption of flights of Russia's strategic aviation with understanding."

U.S.-Russian relations have been strained over Washington's criticism of Russia's democracy record, Moscow's objections to U.S. missile defense plans and differences over crises such as the Iraq war. But the Bush administration downplayed the significance of the renewed patrols.

"We certainly are not in the kind of posture we were with what used to be the Soviet Union. It's a different era," State Department spokesman Sean McCormack said. "If Russia feels as though they want to take some of these old aircraft out of mothballs and get them flying again, that's their decision."

Soviet bombers routinely flew missions to areas where nuclear-tipped cruise missiles could be launched at the United States. They stopped in the post-Soviet economic meltdown. Booming oil prices have allowed Russia to sharply increase its military spending.

Russian Air Force spokesman Col. Alexander Drobyshevsky said that Friday's exercise involved Tu-160, Tu-95 and Tu-22M bombers, tanker aircraft and air radars. NATO jets were scrambled to escort the Russian aircraft over the oceans, he said, according to the ITAR-Tass news agency.

Eleven Russian military planes — including strategic bombers and fighter jets — carried out maneuvers west of NATO member Norway on Friday, a military official said.

Norway sent F-16 fighter jets to observe and photograph the Russian planes, which rounded the northern tip of Norway and flew south over the Norwegian Sea toward the Faeroe Islands before turning back, said Brig. Gen. Ole Asak, chief of the Norwegian Joint Air Operations Center.

A pair of Russian Tu-95 strategic bombers approached the Pacific Island of Guam — home to a major U.S. military base — this month for the first time since the Cold War.

Last month, two similar bombers briefly entered British air space but turned back after British fighter jets intercepted them. Norwegian F-16s were also scrambled when the Tu-95s headed south along the Norwegian coast in international air space.

"This is a significant change of posture of Russian strategic forces," Alexander Pikayev, a senior military analyst with the Moscow-based Institute for World Economy and International Relations, told The Associated Press. "It's a response to the relocation of NATO forces closer to Russia's western border."

NATO has expanded in recent years to include the former Soviet republics of Latvia, Lithuania and Estonia as well as the Czech Republic, Hungary and Poland.

As of the beginning of the year, Russia had 79 strategic bombers, according to data exchanged with the United States under the START I arms control treaty. At the peak of the Cold War, the Soviet long-range bomber fleet numbered several hundred.

Friday's war games with China near the Urals Mountain city of Chelyabinsk involved some 6,000 troops from both countries, along with soldiers from four ex-Soviet Central Asian nations that are part of the Shanghai Cooperation Organization, a regional group dominated by Moscow and Beijing.

The former Cold War rivals share a heightening distrust of what they see as the United States' outsized role in global politics, and they have forged a "strategic partnership" aimed at counterbalancing Washington's policies.

The United States, Russia and China are locked in a tense rivalry for influence in Central Asia, the site of vast hydrocarbon resources. Washington supports plans for pipelines that would carry oil and gas to the West and bypass Russia, while Moscow has maneuvered to control exports. China also has shown a growing appetite for energy to power its booming economy.

Putin, Chinese leader Hu Jintao and other leaders of the SCO nations attended the joint exercise, which followed their summit Thursday in Kyrgyzstan's capital Bishkek.

The summit concluded with a communique that sounded like a thinly veiled warning to the United States to stay away from the region: "Stability and security in Central Asia are best ensured primarily through efforts taken by the nations of the region on the basis of the existing regional associations."

Putin hailed the exercise — which involved dozens of aircraft and hundreds of armored vehicles countering a mock attack by terrorists and insurgents striving to take control of energy resources — "as another step to strengthen relations between our countries." Hu said the maneuvers "underlined the SCO's readiness to confront terror."

The exercises underlined that "the SCO wants to show that Central Asia is its exclusive sphere of responsibility," said Ivan Safranchuk, an analyst at World Security Institute

Russian Deputy Foreign Minister Alexander Losyukov said the exercise was not aimed at the United States.

"I don't see anything anti-American in the SCO exercise," he was quoted as saying by the ITAR-Tass news agency.

The SCO was created 11 years ago to address religious extremism and border security issues in Central Asia. In recent years, the group has grown into a bloc aimed at defying U.S. interests in the region.

In 2005, the SCO called for a timetable to be set for the withdrawal of U.S. troops from two member countries, Uzbekistan and Kyrgyzstan. Uzbekistan evicted U.S. forces later that year, but Kyrgyzstan still has a U.S. base, which supports operations in nearby Afghanistan. Russia also maintains a military base in Kyrgyzstan.

Iranian President Mahmoud Ahmadinejad, whose country has SCO observer status, attended the summit for the second consecutive year. On Thursday, he echoed Russia's criticism of U.S. plans to deploy missile interceptors in Poland and a radar in the Czech Republic, saying they were a threat to the entire region.

___

Associated Press Writer Vladimir Isachenkov contributed to this report from Moscow.

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Source: WashingtonPost.com

U.S. Moving Against Revolutionary Guard

By Robin Wright
Washington Post Staff Writer
Wednesday, August 15, 2007; A01

The United States has decided to designate Iran's Revolutionary Guard Corps, the country's 125,000-strong elite military branch, as a "specially designated global terrorist," according to U.S. officials, a move that allows Washington to target the group's business operations and finances.

The Bush administration has chosen to move against the Revolutionary Guard Corps because of what U.S. officials have described as its growing involvement in Iraq and Afghanistan as well as its support for extremists throughout the Middle East, the sources said. The decision follows congressional pressure on the administration to toughen its stance against Tehran, as well as U.S. frustration with the ineffectiveness of U.N. resolutions against Iran's nuclear program, officials said.

The designation of the Revolutionary Guard will be made under Executive Order 13224, which President Bush signed two weeks after the Sept. 11, 2001, attacks to obstruct terrorist funding. It authorizes the United States to identify individuals, businesses, charities and extremist groups engaged in terrorist activities. The Revolutionary Guard would be the first national military branch included on the list, U.S. officials said -- a highly unusual move because it is part of a government, rather than a typical non-state terrorist organization.

The order allows the United States to block the assets of terrorists and to disrupt operations by foreign businesses that "provide support, services or assistance to, or otherwise associate with, terrorists."

The move reflects escalating tensions between Washington and Tehran over issues including Iraq and Iran's nuclear ambitions. Iran has been on the State Department's list of state sponsors of terrorism since 1984, but in May the two countries began their first formal one-on-one dialogue in 28 years with a meeting of diplomats in Baghdad.

The main goal of the new designation is to clamp down on the Revolutionary Guard's vast business network, as well as on foreign companies conducting business linked to the military unit and its personnel. The administration plans to list many of the Revolutionary Guard's financial operations.

"Anyone doing business with these people will have to reevaluate their actions immediately," said a U.S. official familiar with the plan who spoke on the condition of anonymity because the decision has not been announced. "It increases the risks of people who have until now ignored the growing list of sanctions against the Iranians. It makes clear to everyone who the IRGC and their related businesses really are. It removes the excuses for doing business with these people."

For weeks, the Bush administration has been debating whether to target the Revolutionary Guard Corps in full, or only its Quds Force wing, which U.S. officials have linked to the growing flow of explosives, roadside bombs, rockets and other arms to Shiite militias in Iraq and the Taliban in Afghanistan. The Quds Force also lends support to Shiite allies such as Lebanon's Hezbollah and to Sunni movements such as Hamas and the Palestinian Islamic Jihad.

Although administration discussions continue, the initial decision is to target the entire Guard Corps, U.S. officials said. The administration has not yet decided when to announce the new measure, but officials said they would prefer to do so before the meeting of the U.N. General Assembly next month, when the United States intends to increase international pressure against Iran.

Formed in 1979 and originally tasked with protecting the world's only modern theocracy, the Revolutionary Guard took the lead in battling Iraq during the bloody Iran-Iraq war waged from 1980 to 1988. The Guard, also known as the Pasdaran, has since become a powerful political and economic force in Iran. Iranian President Mahmoud Ahmadinejad rose through the ranks of the Revolutionary Guard and came to power with support from its network of veterans. Its leaders are linked to many mainstream businesses in Iran.

"They are heavily involved in everything from pharmaceuticals to telecommunications and pipelines -- even the new Imam Khomeini Airport and a great deal of smuggling," said Ray Takeyh of the Council on Foreign Relations. "Many of the front companies engaged in procuring nuclear technology are owned and run by the Revolutionary Guards. They're developing along the lines of the Chinese military, which is involved in many business enterprises. It's a huge business conglomeration."

The Revolutionary Guard Corps -- with its own navy, air force, ground forces and special forces units -- is a rival to Iran's conventional troops. Its naval forces abducted 15 British sailors and marines this spring, sparking an international crisis, and its special forces armed Lebanon's Hezbollah with missiles used against Israel in the 2006 war. The corps also plays a key role in Iran's military industries, including the attempted acquisition of nuclear weapons and surface-to-surface missiles, according to Anthony H. Cordesman of the Center for Strategic and International Studies.

The United States took punitive action against Iran after the November 1979 takeover of the U.S. Embassy in Tehran, including the breaking of diplomatic ties and the freezing of Iranian assets in the United States. More recently, dozens of international banks and financial institutions reduced or eliminated their business with Iran after a quiet campaign by the Treasury Department and State Department aimed at limiting Tehran's access to the international financial system. Over the past year, two U.N. resolutions have targeted the assets and movements of 28 people -- including some Revolutionary Guard members -- linked to Iran's nuclear program.

The key obstacle to stronger international pressure against Tehran has been China, Iran's largest trading partner. After the Iranian government refused to comply with two U.N. Security Council resolutions dealing with its nuclear program, Beijing balked at a U.S. proposal for a resolution that would have sanctioned the Revolutionary Guard, U.S. officials said.

China's actions reverse a cycle during which Russia was the most reluctant among the veto-wielding members of the Security Council. "China used to hide behind Russia, but Russia is now hiding behind China," said a U.S. official familiar with negotiations.

The administration's move comes amid growing support in Congress for the Iran Counter-Proliferation Act, which was introduced in the Senate by Gordon Smith (R-Ore.) and in the House by Tom Lantos (D-Calif.). The bill already has the support of 323 House members.

The administration's move could hurt diplomatic efforts, some analysts said. "It would greatly complicate our efforts to solve the nuclear issue," said Joseph Cirincione, a nuclear proliferation expert at the Center for American Progress. "It would tie an end to Iran's nuclear program to an end to its support of allies in Hezbollah and Hamas. The only way you could get a nuclear deal is as part of a grand bargain, which at this point is completely out of reach."

Such sanctions can work only alongside diplomatic efforts, Cirincione added.

"Sanctions can serve as a prod, but they have very rarely forced a country to capitulate or collapse," he said. "All of us want to back Iran into a corner, but we want to give them a way out, too. [The designation] will convince many in Iran's elite that there's no point in talking with us and that the only thing that will satisfy us is regime change."

Staff researcher Madonna Lebling contributed to this report.

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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.

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Source: Telegraph.co.uk

By Ambrose Evans-Pritchard
Last Updated: 9:23am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US Treasury bonds if Washington imposes trade sanctions to force a yuan revaluation.

US Treasury secretary Henry Paulson and Chinese president Hu Jintao: China threatens to trigger US dollar crash
Henry Paulson, the US Treasury secretary, met with Chinese president Hu Jintao in Beijing last week

Two Chinese officials at leading Communist Party bodies have given interviews in recent days warning, for the first time, that Beijing may use its $1,330bn (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession.

It is estimated that China holds more than $900bn in a mix of US bonds.

Xia Bin, finance chief at China's Development Research Centre (which has cabinet rank), kicked off what appears to be government policy, with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he said.

He Fan, an official at the Chinese Academy of Social Sciences, went further yesterday, letting it be known that Beijing had the power to set off a dollar collapse, if it chose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US Treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency," he told China Daily. "Russia, Switzerland and several other countries have reduced their dollar holdings. China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar.

"The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar."

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decisions being made in Beijing, Shanghai or Tokyo". She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the sub-prime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Treasury secretary, said any such sanctions would undermine US authority and "could trigger a global cycle of protectionist legislation".

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Source: TheTrumpet.com

Tuesday, July 17, 2007

Iran has asked Japanese oil refiners to pay for all future deliveries in yen, as opposed to dollars, according to a letter obtained by Bloomberg News.

The request is “effective immediately” for all “forthcoming Iranian crude oil liftings” according to the July 10 letter signed by the National Iranian Oil Company’s general manager of crude oil marketing and exports.

Until now, most Japanese oil importers have used U.S. dollars to purchase Iranian oil. Although confirmation of Japanese oil payments in yen is still forthcoming, as one investment securities analyst in Tokyo said, “What else can Japan do but to accept the request, once the oil producer sent its wish?”

Japan needs the oil, and with energy markets as tight as they are, alternative supplies will be very difficult to come by. Iran is Japan’s third-largest supplier of crude, exceeded only by Saudi Arabia and the United Arab Emirates.

Since 1944, with the signing of the Bretton Woods agreement, the U.S. dollar has been the world’s reserve currency, meaning it is the currency used by governments and institutions to settle their debts and to transact trade in vital commodities such as gold and oil. To conduct international trade, countries were compelled to accumulate dollars and build reserves. Consequently, the increased demand for the dollar gave the U.S. economic benefits not available to other countries and permitted the U.S. to run large trade deficits and fiscal debts without experiencing most of the negative economic impacts normally associated with such large imbalances.

That is beginning to change.

Iran requiring Japan to pay for oil in yen is just the latest move by a nation seeking to reduce its dependence on the dollar. Earlier this year, officials from Chinese-owned Zhuhai Zhenrong Trading, Iran’s biggest crude oil customer, confirmed that they now pay for Iranian crude in euros.

Russia is preparing to sell oil priced in rubles and plans to open the Energy Stock Exchange in St. Petersburg in the first half of 2008, according to a ubs AG report dated June 14. In 2005, Norway’s Bourse Director Sven Arild Andersen said that a Scandinavian oil bourse conducting transactions primarily in euros should be set up.

Many nations are also beginning to diversify their foreign currency reserves away from the dollar, often to the euro.

Central banks in South Korea, China and Taiwan have all announced plans to diversify away from the dollar. Last year Russia, Syria and Italy also said they intended to reduce their dollar holdings. Last Wednesday, Japan’s adviser to the prime minister said Tokyo should diversify its reserves away from dollars, and spend its greenbacks on higher-yielding assets. Bloomberg notes that Japan is the largest overseas holder of U.S. treasuries; as such, it has historically been one of the strongest supporters of the dollar.

Announcements like these have caused the dollar to fall like a rock recently, hitting record lows against the euro, pound and other currencies.

Demand for the dollar is eroding—and trade for oil in other currencies is accelerating this trend. Time will tell how quickly other nations will break away from the dollar as the global currency of commerce. The result could be disastrous for Americans.

“Once the dollar loses its reserve currency status and the collapse ensues, the process of returning to economic viability will be a painful one,” says Peter Schiff, president of EuroPacific Capital, in his book Crash Proof. “Whether the United States is up to the task remains to be seen. Although I am skeptical, I nonetheless remain hopeful.”

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Source: Rolling Stone

From Issue 1032

JEFF GOODELL
Posted Jul 24, 2007 1:36 PM

The great danger of confronting peak oil and global warming isn't that we will sit on our collective asses and do nothing while civilization collapses, but that we will plunge after "solutions" that will make our problems even worse. Like believing we can replace gasoline with ethanol, the much-hyped biofuel that we make from corn.

Ethanol, of course, is nothing new. American refiners will produce nearly 6 billion gallons of corn ethanol this year, mostly for use as a gasoline additive to make engines burn cleaner. But in June, the Senate all but announced that America's future is going to be powered by biofuels, mandating the production of 36 billion gallons of ethanol by 2022. According to ethanol boosters, this is the beginning of a much larger revolution that could entirely replace our 21-million-barrel-a-day oil addiction. Midwest farmers will get rich, the air will be cleaner, the planet will be cooler, and, best of all, we can tell those greedy sheiks to fuck off. As the king of ethanol hype, Sen. Chuck Grassley of Iowa, put it recently, "Everything about ethanol is good, good, good."

This is not just hype -- it's dangerous, delusional bullshit. Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about half of ethanol's wholesale market price.

Three factors are driving the ethanol hype. The first is panic: Many energy experts believe that the world's oil supplies have already peaked or will peak within the next decade. The second is election-year politics. With the first vote to be held in Iowa, the largest corn-producing state in the nation, former skeptics like Sens. Hillary Clinton and John McCain now pay tribute to the wonders of ethanol. Earlier this year, Sen. Barack Obama pleased his agricultural backers in Illinois by co-authoring legislation to raise production of biofuels to 60 billion gallons by 2030. A few weeks later, rival Democrat John Edwards, who is staking his campaign on a victory in the Iowa caucus, upped the ante to 65 billion gallons by 2025.

The third factor stoking the ethanol frenzy is the war in Iraq, which has made energy independence a universal political slogan. Unlike coal, another heavily subsidized energy source, ethanol has the added political benefit of elevating the American farmer to national hero. As former CIA director James Woolsey, an outspoken ethanol evangelist, puts it, "American farmers, by making the commitment to grow more corn for ethanol, are at the top of the spear on the war against terrorism." If you love America, how can you not love ethanol?

Ethanol is nothing more than 180-proof grain alcohol. To avoid the prospect of drunks sucking on gas pumps, fuel ethanol is "denatured" with chemical additives (if you drink it, you'll end up dead or, at best, in the hospital). It can be distilled from a variety of plants, including sugar cane and switch- grass. Most vehicles can't run on pure ethanol, but E85, a mix of eighty-five percent ethanol and fifteen percent gasoline, requires only slight engine modifications.

But as a gasoline substitute, ethanol has big problems: Its energy density is one-third less than gasoline, which means you have to burn more of it to get the same amount of power. It also has a nasty tendency to absorb water, so it can't be transported in existing pipelines and must be distributed by truck or rail, which is tremendously inefficient.

Nor is all ethanol created equal. In Brazil, ethanol made from sugar cane has an energy balance of 8-to-1 -- that is, when you add up the fossil fuels used to irrigate, fertilize, grow, transport and refine sugar cane into ethanol, the energy output is eight times higher than the energy inputs. That's a better deal than gasoline, which has an energy balance of 5-to-1. In contrast, the energy balance of corn ethanol is only 1.3-to-1 - making it practically worthless as an energy source. "Corn ethanol is essentially a way of recycling natural gas," says Robert Rapier, an oil-industry engineer who runs the R-Squared Energy Blog.

The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland. In the 1970s, looking for new ways to profit from corn, ADM began pushing ethanol as a fuel additive. By the early 1980s, ADM was producing 175 million gallons of ethanol a year. The company's then-chairman, Dwayne Andreas, struck up a close relationship with Sen. Bob Dole of Kansas, a.k.a. "Senator Ethanol." During the 1992 election, ADM gave $1 million to Dole and his friends in the GOP (compared with $455,000 to the Democrats). In return, Dole helped the company secure billions of dollars in subsidies and tax breaks. In 1995, the conservative Cato Institute, estimating that nearly half of ADM's profits came from products either subsidized or protected by the federal government, called the company "the most prominent recipient of corporate welfare in recent U.S. history."

Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.

The Iraq War has also been a boon for ADM and other ethanol producers. The Energy Policy Act of 2005, which was pushed by Corn Belt politicians, mandated the consumption of 7.5 billion gallons of biofuels by 2012. After Democrats took over Congress last year, they too vowed to "do something" about America's addiction to foreign oil. By the time Sen. Jeff Bingaman, chair of the Committee on Energy and Natural Resources, proposed new energy legislation this spring, the only real question was how big the ethanol mandate would be. According to one lobbyist, 36 billion gallons became "the Goldilocks number -- not too big to be impractical, not too small to satisfy corn growers."

Under the Senate bill, only 15 billion gallons of ethanol will come from corn, in part because even corn growers admit that turning more grain into fuel would disrupt global food supplies. The remaining 21 billion gallons will have to come from advanced biofuels, most of which are currently brewed only in small-scale lab experiments. "It's like trying to solve a traffic problem by mandating hovercraft," says Dave Juday, an independent commodities consultant. "Except we don't have hovercraft."

The most seductive myth about ethanol is that it will free us from our dependence on foreign oil. But even if ethanol producers manage to hit the mandate of 36 billion gallons of ethanol by 2022, that will replace a paltry 1.5 million barrels of oil per day -- only seven percent of current oil needs. Even if the entire U.S. corn crop were used to make ethanol, the fuel would replace only twelve percent of current gasoline use.

Another misconception is that ethanol is green. In fact, corn production depends on huge amounts of fossil fuel -- not just the diesel needed to plow fields and transport crops, but also the vast quantities of natural gas used to produce fertilizers. Runoff from industrial-scale cornfields also silts up the Mississippi River and creates a vast dead zone in the Gulf of Mexico every summer. What's more, when corn ethanol is burned in vehicles, it is as dirty as conventional gasoline and does little to solve global warming: E85 reduces carbon dioxide emissions by a modest fifteen percent at best, while fueling the destruction of tropical forests.

But the biggest problem with ethanol is that it steals vast swaths of land that might be better used for growing food. In a recent article in Foreign Affairs titled "How Biofuels Could Starve the Poor," University of Minnesota economists C. Ford Runge and Benjamin Senauer point out that filling the gas tank of an SUV with pure ethanol requires more than 450 pounds of corn -- roughly enough calories to feed one person for a year.

Thanks in large part to the ethanol craze, the price of beef, poultry and pork in the United States rose more than three percent during the first five months of this year. In some parts of the country, hog farmers now find it cheaper to fatten their animals on trail mix, french fries and chocolate bars. And since America provides two-thirds of all global corn exports, the impact is being felt around the world. In Mexico, tortilla prices have jumped sixty percent, leading to food riots. In Europe, butter prices have spiked forty percent, and pork prices in China are up twenty percent. By 2025, according to Runge and Senauer, rising food prices caused by the demand for ethanol and other biofuels could cause as many as 600 million more people to go hungry worldwide.

Despite the serious drawbacks of ethanol, some technological visionaries believe that the fuel can be done right. "Corn ethanol is just a platform, the first step in a much larger transition we are undergoing from a hydrocarbon-based economy to a carbohydrate-based economy," says Vinod Khosla, a pioneering venture capitalist in Silicon Valley. Next-generation corn- ethanol plants, he argues, will be much more efficient and environmentally friendly. He points to a company called E3 BioFuels that just opened an ethanol plant in Mead, Nebraska. The facility runs largely on biogas made from cow manure, and feeds leftover grain back to the cows, making it a "closed-loop system" -- one that requires very few fossil fuels to create ethanol.

Khosla is even higher on the prospects for cellulosic ethanol, a biofuel that can be made from almost any plant matter, including wood waste and perennial grasses like miscanthus and switchgrass. Like other high-tech ethanol evangelists, Khosla imagines a future in which such so-called "energy crops" are fed into giant refineries that use genetically engineered enzymes to break down the cellulose in plants and create fuel for a fraction of the cost of today's gasoline. Among other virtues, cellulosic ethanol would not cut into the global food supply (nobody eats miscanthus or switchgrass), and it could significantly cut global-warming pollution. Even more important, it could provide a gateway to a much larger biotech revolution, including synthetic microbes that could one day be engineered to gobble up carbon dioxide or other pollutants.

Unfortunately, no commercial-scale cellulosic ethanol plants exist today. In one venture backed by Khosla, a $225 million plant in central Georgia is currently being built to make ethanol out of wood chips. Mitch Mandich, a former Apple Computer executive who is now the CEO of the operation, calls it "the beginning of a real transformation in the way we think about energy in America."

Maybe. But oil-industry engineer Robert Rapier, who has spent years studying cellulosic ethanol, says that the difference between ethanol from corn and ethanol from cellulose is "like the difference between traveling to the moon and traveling to Mars." And even if the engineering hurdles can be overcome, there's still the problem of land use: According to Rapier, replacing fifty percent of our current gasoline consumption with cellulosic ethanol would consume thirteen percent of the land in the United States - about seven times the land currently utilized for corn production.

Increasing the production of cellulosic ethanol will also require solving huge logistical problems, including delivering vast quantities of feedstock to production plants. According to one plant manager in the Midwest, fueling an ethanol plant with switchgrass would require delivering a semi-truckload of the grass every six minutes, twenty-four hours a day. Finally, there is the challenge of wrestling the future away from Big Corn. "It's pretty clear to me that the corn guys will use all their lobbying muscle and political power to stall, thwart and sidetrack this revolution," says economist C. Ford Runge.

In the end, the ethanol boom is another manifestation of America's blind faith that technology will solve all our problems. Thirty years ago, nuclear power was the answer. Then it was hydrogen. Biofuels may work out better, especially if mandates are coupled with tough caps on greenhouse-gas emissions. Still, biofuels are, at best, a huge gamble. They may help cushion the fall when cheap oil vanishes, but if we rely on ethanol to save the day, we could soon find ourselves forced to make a choice between feeding our SUVs and feeding children in the Third World. And we all know how that decision will go.

Posted by Hugo Albert Orwell at 12:50 PM | 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: Financial Times via Yahoo

By Simeon Kerr in Dubai
Sun May 20, 1:45 PM ET

Kuwait on Sunday removed its currency peg to the US dollar, throwing plans for a Gulf currency union by 2010 into doubt and raising the prospect that other oil-producing states might abandon long-held dollar pegs.

Sheikh Salem Abdelaziz Al Sabah, governor of the Central Bank of Kuwait, told the official Kuwait news agency that the decision had been made owing to the "detrimental effects of the pegging system to the national economy".

Since late last year, Kuwaiti officials have hinted that the country would revert to a basket of currencies to prevent the sliding dollar increasing the cost of imports, which has stoked inflation to more than 4 per cent, double the historic average. This has encouraged speculators to plough billions of dollars into the dinar over the past few months, betting that the central bank would allow the dinar to appreciate.

On Sunday, the dinar traded up 0.4 per cent as the central bank replaced the peg with a basket of undisclosed currencies. The central bank had allowed the currency to vary up to 3.5 per cent from the peg, but the dinar had been at the top end of the approved trading band for a year owing to the continuing weakness of the dollar and the strength of Kuwait's oil-driven economy.

The dollar is expected to make up about 75-80 per cent of the new basket, reducing the third largest Arab oil exporter's exposure to the weakening dollar.

Kuwait dropped its currency basket in 2003, adopting a dollar peg as part of the Gulf Co-operation Council countries' drive to create a unified economic block with a single currency by 2010. But doubts over the ability of the GCC economies to harmonise have arisen, with one member of the six-nation council, Oman, saying it would not meet the convergence criteria.

"There have already been a lot of question marks over currency union taking place; this raises an additional one," said Simon Williams, an economist with HSBC in Dubai.

Kuwait's move may come as a surprise to other GCC states, such as Saudi Arabia and Bahrain, which have been repeating their commitment to the peg in recent weeks, saying that any revaluation should be agreed collectively by the GCC.

Mr Williams did not believe other GCC states would follow suit on revaluation quickly, as these countries have clung to dollar pegs since the early 1980s.

But other GCC states - Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Oman - are studying the move as an option to mitigate dollar weakness.

Posted by Hugo Albert Orwell at 11:03 AM | Permalink | TrackBacks (0)

Source: New York Times

By JOSEPH KAHN
Published: January 20, 2007

BEIJING, Jan. 19 — China’s apparent success in destroying one of its own orbiting satellites with a ballistic missile signals that its rising military intends to contest American supremacy in space, a realm many here consider increasingly crucial to national security.

The test of an antisatellite weapon last week, which Beijing declined to confirm or deny Friday despite widespread news coverage and diplomatic inquiries, was perceived by East Asia experts as China’s most provocative military action since it testfired missiles off the coast of Taiwan more than a decade ago.

Unlike in the Taiwan exercise, the message this time was directed mainly at the United States, the sole superpower in space.

With lengthy white papers, energetic diplomacy and generous aid policies, Chinese officials have taken pains in recent years to present their country as a new kind of global power that, unlike the United States, has only good will toward other nations.

But some analysts say the test shows that the reality is more complex. China has surging national wealth, legitimate security concerns and an opaque military bureaucracy that may belie the government’s promise of a “peaceful rise.”

“This is the other face of China, the hard power side that they usually keep well hidden,” said Chong-Pin Lin, an expert on China’s military in Taiwan. “They talk more about peace and diplomacy, but the push to develop lethal, high-tech capabilities has not slowed down at all.”

Japan, South Korea and Australia are among the countries in the region that pressed China to explain the test, which if real would make it the third power, after the United States and the Soviet Union, to shoot down an object in space.

China’s Foreign and Defense Ministries declined to comment on reports of the test, which were based on United States intelligence data. Liu Jianchao, the Foreign Ministry spokesman, would say only that China opposed using weapons in space. “China will not participate in any kind of arms race in outer space,” he told Reuters.

China’s silence on the test underscores how much its rapidly modernizing military — perhaps especially the Second Artillery forces, in charge of its ballistic missile program — remains isolated and secretive, answering only to President Hu Jintao, who heads the military as well as the ruling Communist Party.

Having a weapon that can disable or destroy satellites is considered a component of China’s unofficial doctrine of asymmetrical warfare. China’s army strategists have written that the military intends to use relatively inexpensive but highly disruptive technologies to impede the better-equipped and better-trained American forces in the event of an armed conflict — over Taiwan, for example.

The Pentagon makes extensive use of satellites for military communications, intelligence and missile guidance, and some Chinese experts have argued that damaging its space-based satellite infrastructure could hobble American forces.

Yet while China’s research and development of such weapons has been well known, the apparent decision to test-fire an antisatellite weapon came as a surprise to many analysts.

“If this is fully corroborated, it is a very significant event that is likely to recast relations between the United States and China,” said Allan Behm, a former official in Australia’s Defense Ministry. “This was a very sophisticated thing to do, and the willingness to do it means that we’re seeing a different level of threat.”

China’s military expenditures have been growing at nearly a double-digit pace, even after adjusting for inflation, for 15 years. China has begun to deploy sophisticated submarines, aircraft and antiship missiles that the Pentagon says could have offensive uses.

Yet with a few notable exceptions, Beijing has avoided sharp provocations that could prompt the United States or Japan to focus more on what some officials in each country regard as a potential threat.

Chinese leaders emphasize that they are preoccupied with domestic challenges and intend to focus their energy and resources on economic development, a policy they say depends heavily on cross-border investment, open trade and friendly foreign relations.

The country has denied that it intends to develop space weapons and sharply criticized the United States for experimenting with a space-based missile defense system. It forged a coalition of Asian countries to jointly develop peaceful space-based technologies.

Last month it published and heavily promoted a white paper on military strategy that emphasized its view that space must remain weapon-free. “China is unflinching in taking the road of peaceful development and always maintains that outer space is the common wealth of mankind,” the paper said.

Some of such talk amounts to little more than propaganda. But Jonathan Pollack, a China specialist at the Naval War College in Newport, R.I., says the Chinese military does in fact act cautiously when it comes to improving its strategic capabilities, like long-range missiles and nuclear weapons, to avoid causing alarm in the United States.

“They have talked about antisatellite weapons,” he said. “But we have always thought that the threat was ambiguous and that China probably wanted it that way. So what was the calculation to go ahead with an actual test?”

Some analysts suggested that one possible motivation was to prod the Bush administration to negotiate a treaty to ban space weapons. Russia and China have advocated such a treaty, but President Bush rejected those calls when he authorized a policy that seeks to preserve “freedom of action” in space.

Chinese officials have warned that an arms race could ensue if Washington did not change course.

At a United Nations conference in Vienna last June on uses of space, a Chinese Foreign Ministry official, Tang Guoqiang, called the policies of “certain nations” disconcerting.

“Outer space is the common heritage of mankind, and weaponization of outer space is bound to trigger off an arms race, thus rendering outer space a new arena for military confrontation,” he said, according to an official transcript of his remarks.

Even so, Mr. Pollack, of the Naval War College, said that if China hoped that demonstrating a new weapon of this kind would prompt a positive response in Washington, they most likely miscalculated.

“Very frankly, many people in Washington will find that this validates the view of a China threat,” Mr. Pollack said. “It could well end up backfiring and forcing the U.S. to take new steps to counter China.”

Other analysts said the test might have more to do with proving a technology under development for many years than a cold-war-style negotiating tactic.

China maintains a minimal nuclear arsenal that could inflict enough damage on an enemy to guard against any pre-emptive strike, these analysts said. But the increasing sophistication of American missile interceptors, which are linked to satellite surveillance, threatens the viability of China’s limited nuclear arsenal, some in Beijing have argued.

That may have prompted the Second Artillery to show that it had the means to protect fixed missile sites and ensure China’s retaliatory capacity by showing that it could take out American satellites.

At the annual military fair in Zhuhai, held in November, the Guangdong-based newspaper Information Times and several other state-run media outlets carried a short interview with an unidentified military official boasting that China had “already completely ensured that it has second-strike capability.” The analyst said China could protect its retaliatory forces because it could destroy satellites in space.

American officials have also noted the development. This month, Lt. Gen. Michael Mapes of the Army testified before Congress that China and Russia were working on systems to hit American satellites with lasers or missiles. And over the summer, the director of the National Reconnaissance Office, Donald M. Kerr, told reporters that the Chinese had used a ground-based laser to “paint,” or illuminate, an American satellite, a possible first step to using lasers to destroy satellites.

“China is becoming more assertive in just about every military field,” said Mr. Behm, the Australian expert. “It is not going to concede that the U.S. can be the hegemon in space forever.”

Posted by Hugo Albert Orwell at 03:38 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: Agence France-Presse

by Sebastian Smith
December 28, 2006

MOSCOW (AFP) - The tense countdown to Russia's threatened cutting of gas supplies to Belarus, which could also hit deliveries to western Europe, has entered its final hours of confrontation over pricing.

Negotiations continued in Moscow Thursday, said Sergei Kupriyanov, spokesman for Russia's state-controlled monopoly Gazprom.

He refused to give details of the talks, slightly more than three days before a deadline laid down by Russia which is causing concern in the
European Union.

Gazprom chairman Alexei Miller has warned that gas supplies to Belarus will be turned off at 10:00 am in Moscow (0700 GMT) on Monday if Belarus, an ex-Soviet republic, does not agree to a more than doubling of price.

With Gazprom and Belarus both warning of a knock-on effect for western European customers who rely on Belarus as a transit point for Russian gas, the crisis increasingly resembles the showdown between Russia and Ukraine at New Year's 2006.

"A second gas war has been declared," said the respected Vedomosti business daily in Moscow. "Belarus will be cut off, like Ukraine."

The European Union, where Russian imports accounted for 24 percent of total gas requirements in 2005, is watching closely.

"I call on the two parties to reach as soon as possible a satisfactory agreement that does not put in question gas transits to the EU," Energy Commissioner Andris Piebalgs said in a statement.

"The Commission is following the situation very closely since it may affect gas supplies to the European Union."

Gazprom accuses Belarus of preparing to siphon off gas destined for Europe in the event of a cut to its domestic supplies and has warned that compensation for a loss in volumes might be impossible.

Belarus argues that if it is unable to agree with Gazprom on a new contract for its domestic supplies in 2007, then the contract governing transit of Russian gas westward will also become void.

Gazprom says the price increase would bring Belarus' fee closer to international standards and away from Soviet-style subsidies, while critics accuse the giant company of using energy as a weapon to bring neighbouring countries under Kremlin dominance.

Ironically, the dispute pits Belarus' President Alexander Lukashenko against the one major country that supports his authoritarian regime.

In contrast, Gazprom's strong-arm tactics in Ukraine 12 months ago, culminating with the brief cut-off in gas, were widely seen as part of a Kremlin strategy to weaken strongly pro-Western President Viktor Yushchenko.

The current crisis is on a smaller scale than the Ukraine episode, since just 20 percent of Russian gas exports to Europe go through Belarus, compared to 80 percent through Ukraine.

Last winter was also one of the coldest recorded in Europe.

So far, this winter is one of the mildest and so demand for energy is lower. According to the European Union, reserves are big enough to deal with any temporary shortfall.

Russia's media predicted that Belarus, a country of 10.3 million people sandwiched between Russia and the European Union, will find the cost too high to maintain defiance for long.

"Unpredictable he may be, but Lukashenko will not continue the conflict with Russia for long," Vedomosti quoted an unnamed Kremlin official as saying, suggesting that Lukashenko might accept a compromise in which Belarus took a loan from Moscow that covered the increased gas price.

However, commentators in Belarus said the country was ready to stand firm.

"In the end they will come to a deal. Belarus has its own cards in this fight -- transit, Russian military bases stationed on its territory, political relations," said analyst Andrei Fyodorov.

Belarus currently pays Gazprom a highly subsidised 46.68 dollars per 1,000 cubic metres of gas and Gazprom originally demanded an increase to 200 dollars, which is closer to western European prices, unless Belarus agreed to sell 50 percent of its pipeline operator Beltransgaz.

This would give the Russian state-owned giant an important strategic foothold on the European Union's eastern border.

Gazprom has since reduced that demand to 105 dollars per 1,000 cubic metres -- 75 dollars per 1,000 cubic metres in cash payments, plus the equivalent of another 30 dollars in shares of Beltransgas.

Belarus is so far refusing to accept the deal.

"Russia is not only after extra revenues, but wants to take under control certain parts of the property in neighbouring countries," Belarussian parliament deputy Anatoly Krasutsky said. "The government should have diversified its energy sources earlier, but you learn by your mistakes."

Posted by Hugo Albert Orwell at 09:32 AM | Permalink | TrackBacks (0)

As the symptoms of peak oil and gas production become more evident, the competition for these resources will likely also become more visible. There is trouble brewing in Eastern Europe over former Soviet countries who are unhappy with the prices they are being forced to pay Russia for badly needed natural gas supplies.

Since Russia supplies much of Europe with natural gas through pipelines that run through Belarus and Ukraine, those countries have a degree of leverage over Russia in their negotiations for the price of their own gas deliveries.

------

Source: Reuters

By Andrei Makhovsky and Dmitry Zhdannikov
2 hours, 16 minutes ago

MINSK/MOSCOW (Reuters) - Belarus issued an implicit threat that it could stop Russian gas deliveries through its pipelines to western Europe unless Russia's gas monopoly Gazprom relented on demands Minsk pay steep price increases in 2007.

The threat is likely to revive unpleasant memories of gas cuts to Europe last year when Russia was locked in a similar pricing row with Ukraine. But Belarus ships smaller volumes of gas to Europe via its territory and Russia said Europe was safe as Gazprom (GAZP.MM) had stockpiled extra gas in Germany.
"We are inter-dependent. If I don't have a domestic gas supply contract, Gazprom won't have a transit deal," Belarus's Deputy Prime Minister Vladimir Semashko said at Minsk airport late on Tuesday after his return from failed talks in Moscow.

About 80 percent of Russian exports to Europe are pumped via Ukraine, with the rest going through Belarus. Russia supplies a quarter of Europe's gas to more than 20 countries.

Belarus, whose President Alexander Lukashenko is accused in the West of crushing human rights, has long been a Russian ally.

Vladimir Putin's distaste for Belarus's Soviet-style economic policy and reluctance to share enterprises with Moscow.

Semashko did not say whether Belarus was prepared to stop all gas transit via its territory.

Two years ago, Minsk took no such action in a similar dispute, but Gazprom accused it of taking gas from transit pipelines for its domestic needs. Gazprom said it viewed Semashko's latest comments as a new threat to steal gas.

Two years ago, the row generated no major criticism of Russia in the West due to Lukashenko's poor political image.

Last year, Russia came under fire from politicians in the European Union and the United States following gas cuts to Ukraine. The dispute accentuated rocky relations between Moscow and Ukraine's pro-Western leadership, since tempered by the return of a prime minister friendlier to Russia.

U.S. ACCUSATION

The sniping reached a climax when Vice President smaller neighbors.

Some analysts say Moscow may decide against resorting to cuts this year given the Ukrainian experience and the growing importance of Germany as its top trade partner.

"Belarus has a very strong negotiating position with its gas transportation infrastructure and we believe that Gazprom will have to be very flexible with its Belarus pricing policy," said Yelena Savchik from Renaissance Capital brokerage.

But a Gazprom source told Reuters some top employees had been told to cancel New Year holidays: "It looks exactly like one year ago with Ukraine."

Gazprom still hopes for a deal to allow Belarus to receive supplies and Gazprom to transit gas to Poland and Germany.

Gazprom says it offered major concessions to Belarus on Tuesday such as lowering the proposed price to $110 per 1,000 cubic meters from the previous proposal of $200. On Wednesday, it lowered its offer still further to $105. Gazprom has also said the country could pay part of its bill in assets.

Belarus now pays $46.7, or as much as consumers in Russia. By comparison, Gazprom will charge Moldova $170 in 2007 and Georgia $235, while consumers in Europe pay over $250.

Posted by Hugo Albert Orwell at 10:15 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: 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: Houston Chronicle.com

Dec. 21, 2006, 11:18AM
By ALEX NICHOLSON AP Business Writer
© 2006 The Associated Press

MOSCOW — A golden statue of Saparmurat Niyazov rotates on a pedestal in Turkmenistan's capital to always face the sun _ a testament to the leader's personality cult and a garish product of the Central Asian nation's vast energy wealth.

Now, the autocratic president's death on Thursday is set to fuel a rivalry between Russia, the United States and China for access to the former Soviet republic's massive gas reserves in what analysts call a repeat of 19th-century rivalries in the region.

"Turkmenistan has returned as a key piece in the new Great Game," said Alfa Bank strategist Chris Weafer, referring to Russia and Britain's jostling for pre-eminence in Central Asia in the 1800s. "It is a big prize."

Over the past year Niyazov, who personally brokered the country's energy deals, had sought to balance Russia's influence _ courting Turkish and, in particular Chinese companies, to help explore and develop its nearly 3 trillion cubic meters of proven gas reserves.

Russia's state-controlled gas monopoly OAO Gazprom controls the only transit route for Turkmen gas exports to other former Soviet states and Europe.

Keen to lock in fresh energy sources to feed its exploding economy, China saw its efforts rewarded with Niyazov's promise to pipe 30 billion cubic meters of gas beginning in January 2009. It also won an invitation last month to tap the giant Iolotan fields, which the late president declared, to international disbelief, to contain 7 trillion cubic meters of natural gas _ or more than even Saudi Arabia's proven reserves.

Washington, meanwhile, has lobbied for a pipeline out of Turkmenistan across the Caspian Sea to the west, bypassing Russian territory. That would meet a U.S. strategy of tapping sources of crude and gas outside the Middle East, and drawing Caspian states away from Russia and closer to the West.

Niyazov ultimately proved "too difficult" for U.S. officials to deal with, Weafer said.

The Turkmen leader used revenues from energy investments to nourish lavish construction projects _ a huge, man-made lake in the Kara Kum desert, a vast cypress forest to change the desert climate, a ski resort and a 40-meter (130-foot) pyramid to celebrate the anniversary of the country's independence from the Soviet Union.

"Russia will want to retain its political influence in the country and one assumes that the U.S. will try to use the opportunity (of Niyazov's death) to get back in there, increase its influence and resurrect the plan for the pipeline across the Caspian," Weafer said. "But my guess is that the Chinese will have the biggest delegation at the funeral."

Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, says that multinational oil companies will prick up their ears at the news of Niyazov's death, but serious reforms would need to be undertaken before they could enter the promising market.

"The big guys, the people who might be interested, can't touch the place _ it doesn't come close to meeting the standards of corporate responsibility," he told The Associated Press.

"Obviously they can't afford not to look that this place and the possibility that it might open up _ it's obviously clear that they need to consider this," he said. "I just don't think we'll see any rapid developments. We need to finds out if there will be real change in status quo."

That could come in the form of some indication of democratization in the capital Ashgabat or open auctions of its hydrocarbon reserves.

"Given the resource base, it's always been at the back of peoples minds, but it's become increasingly difficult to work there because of the centralized decision-making and dominance of state-run monopolies," said analyst Hilary McCutcheon of energy consultants Wood MacKenzie. "That may be on the brink of changing."

Turkmenistan's burgeoning relationship with China has also rattled Ukraine, which relies on cheap Turkmen gas supplies to keep its domestic bill down.

Gazprom has a contract until 2009 to buy 50 billion of the 60 billion cubic meters that Turkmenistan produces annually, most of which it then re-exports to Ukraine.

While a recent price hike secured by Niyazov just months before his death suggests that pact is unlikely to be reconsidered in the near future, analysts say little will be clear until a successor is named.

Turkmenistan's State Security Council named Deputy Prime Minister Kurbanguli Berdymukhamedov the acting president, even though the Constitution required Parliament Speaker Overzgeldy Atayev to take over as acting head of state. The council said the Prosecutor General's office has opened a criminal investigation against Atayev, making him ineligible to fill in as president. The move could herald a battle for succession between rival groups in the Turkmen administration.

If Ashgabat makes good on its deal with China, and if fresh reserves are not developed apace, supplies to Ukraine could be cut, analysts say.

If that happens, Kiev would be forced to buy more expensive Russian gas, potentially putting it into a situation similar to a price fight with Gazprom last winter, which resulted in some cuts in supplies to some European cities.

Posted by Hugo Albert Orwell at 03:11 PM | 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: Spiegel Online

By Christian Reiermann

Is an end of an era looming in the foreign exchange markets? The dollar has been depreciating against the euro for weeks. Currency experts and the German government don't yet see this as cause for alarm. The US currency's role as a lead currency isn't as important as it used to be, they say.

Like most central bankers, Jean-Claude Trichet, the president of the European Central Bank (ECB), has a penchant for cryptic comments. Injecting a certain degree of incomprehensibility is a signal to the professionals that he's competent. And when it comes to laymen, industry jargon has the desired effect of generating the necessary respect.

Last Thursday the public was treated to yet another example of Trichet's convoluted speaking style. A number of risks, the ECB president said, could jeopardize a generally favorable economic outlook in the euro zone. They included, according to Trichet, "concerns regarding possible uncontrolled developments triggered by global economic imbalances."

What Europe's most powerful protector of the currency was actually saying was this: The gradual decline of the dollar in the foreign currency markets in recent weeks could pose a threat to the economy. What Trichet was also trying to broadcast is that the ECB has recognized and is aware of the threat.

Nevertheless, the European Central Bank in Frankfurt again increased its key interest rate on Thursday by a quarter percentage point to 3.5 percent, which makes the euro more attractive to international investors. The central bankers had no choice but to take the step, having already announced their intentions weeks ago.

Experts have been predicting for some time that the dollar would eventually go into a nosedive, and now that time seems to have come. The US currency has lost five percent of its value against the euro since late October, and 13 percent since the beginning of the year. The euro is currently fluctuating around a value of $1.33, which is only 3 cents away from its all-time high in 2004. And yet Trichet's counterpart Ben Bernanke, the chairman of the US Federal Reserve, has done nothing but look on as the dollar plunges.

A sea change appears to be taking place on the international financial markets. For years, global capital flowed in only one direction, with $2 billion going into the United States every day. Investors viewed the world's largest economy not only as a bastion of stability, but also as a place that promised the best deals, the most lucrative returns and the highest growth rates.

The Americans, for their part, welcomed foreign investment. For them, it was almost a tradition to save very little and spend more than they earned -- essentially achieving affluence on credit. Foreigners financed the Americans' almost obsessive consumer spending, which spurred worldwide economic growth for years.

Because the US government was unable to fall back on the savings of its citizens, it too was forced to finance its budget deficit with foreign capital. Both consumer spending and the federal deficit kept the dollar high, because the rest of the world was practically scrambling to invest in the United States.

This phase seems to have come to an end, at least for the time being. "There are fundamental weaknesses in the American economy. This could not continue in the long term," says Alfred Steinherr, chief economist at the German Institute for Economic Research (DIW).

Investors pulling out

Investors worldwide are becoming sceptical and starting to pull their money out of the United States. They have realized that a people and a country cannot live beyond their means in the long term. The US dollar's exchange rate is starting to crumble as a result of this withdrawal.

The depreciation is causing growing concern about what will happen to the global economy if the United States loses its role as an engine of growth. If German cars, machinery and services become more expensive, will the German economic recovery end before it has really started?

The German government isn't worried yet, at least not officially. Nevertheless, experts in the finance and economics ministries have been keeping a close eye on developments. Although they continue to believe that the changes still fall within the scope of long-term averages, they don't rule out that the situation could worsen.

They believe that a first critical threshold for the competitiveness of the German economy will be reached at an exchange rate of about $1.36 per euro, and that Germany could see major difficulties at rates in the neighborhood of $1.50. If there is turbulence in the foreign currency markets, the government in Berlin will find itself in an especially challenging position. In early 2007, Germany will assume the chairmanship of the so-called G8 group of seven major industrialized nations plus Russia.

The G8 has repeatedly engaged in crisis management to deal with problems in the international financial system. It did so in the 1980s, when the combined forces of the G8 were needed to put a stop to the soaring dollar. It stepped in with equal verve a few years to forestall a decline in the American currency with the so-called Louvre Accord.

There are two principal causes behind the most recent development. Both have to do with the fact that Europe is becoming more attractive for international investors compared to the United States. On the one hand, interest rates in Europe and the United States are moving in opposite directions. "The ECB will continue to raise its key rates next year, whereas interest rates appear to have peaked in the USA," says Joachim Scheide, an expert on the economy at the Global Economic Institute (IFW) in the northern German city of Kiel. This means that financial investments denominated in euros are yielding higher interest and are in greater demand internationally, which in turn leads to a rise in the euro.

The prospects for growth are also shifting. The US economy is cooling off. The government recently lowered its 3.3 percent growth forecast for 2007. If Americans consume less as a result of a decline in foreign capital investment, the United States could even face a prolonged period of more modest growth.

Germany has shed 'sick man' image

By contrast the euro zone economy is robust. Germany, in particular, has surprised many with a stream of good economic news. Unemployment dropped below the psychologically critical threshold of four million in November. The Ifo business climate index, which measures the expectations of businesses, is at its highest point in 15 years, while consumer confidence has reached a five-year high.

In the last quarter of this year Germany, long considered the sick man of Europe, will have transformed itself into an engine of economic growth. According to analysts at Postbank, Germany's annual growth, projected at 3.4 percent, will even exceed that of the United States this year.

This is the kind of news that fuels the expectations of investors who now prefer to invest their money in the euro zone. The result is an increase in the exchange rate for the European Union's common currency. But how will the decline in the dollar's value affect future economic development? Could it cause a major imbalance in the global economy, or will the global economy, and Germany, get off lightly?

Pessimists are quick to come out of the woodwork whenever a major shift in the financial markets approaches. Many economists and bank analysts, especially in the United States, believe that the correction will happen very suddenly, with the dollar depreciating by 10 to 30 percent within a short period of time.

This would inevitably cause an adjustment crisis. Growth rates would plunge worldwide and a global recession, coupled with a drastic jump in unemployment, could follow.

This doomsday scenario is by no means the majority view. Some experts, especially in Germany, are more optimistic. "The US trade deficit has grown in the course of a few years," says IFW expert Scheide. "It will also gradually decline over a period of several years."

Scheide expects the dollar to lose another 10 percent in value against the euro in the next five years, a scenario that would be much easier to handle for the German and European economies. Companies would have sufficient time to adjust to changes in exchange rates. "In that case even an exchange rate of 1.40 wouldn't be disastrous," said DIW analyst Steinherr.

Germany is a good example of how effectively this can work. Despite the fact that the dollar has lost half of its value against the euro since 2002, exports have not been adversely affected. Indeed, they even increased from €651 billion ($861 billion) to €786 billion ($1.04 triilion). The Germany economy exported more than ever before in October.

Another reason is that the dollar zone is no longer as important for German exports as it was only a few decades ago. Leaving aside exceptions such as the auto industry, other regions of the world have long since become more important to the German economy than the United States, where Germany now sells less than one-tenth of its exports. Germany exports more than 40 percent of its goods and services to other countries within the euro zone, 13 percent to eastern Europe and nine percent to Asia. The turbulence surrounding the dollar has had virtually no effect on German exports to neighboring European countries. Most of the EU's new members have tied their currencies to the euro, and exchange rate risks evaporated for western Europe with the introduction of the euro.

The euro even prevents the kinds of major upheavals in Europe that occurred in the past whenever the dollar fell. When that happened, German businesses and consumers were routinely forced to bear a greater burden of adjustment than the economies of neighboring countries. In the past, if the German mark gained 10 percent in value against the dollar, the French franc or the Italian lira would only gain six or seven percent. As a result, the German mark was overvalued relative to other European currencies, which translated into economic disadvantages for the German economy.

This mechanism was eliminated when the euro was introduced. Now all member states carry the same burden.

The consequences of a declining dollar for the German and European economy will be determined in large part by the way other currencies develop relative to the dollar. "It would be fatal if only the euro were to rise," says DIW analyst Steinherr. "Then it would only be the euro zone that would have to bear the burden of adjustment." But the foreign currency markets suggest a different development, as the dollar is also losing value in relation to other important currencies.

The British pound, for example, rose to new highs last week. Even more importantly, the currencies of east Asian growth regions are also appreciating against the dollar. The Thai Baht, for example, gained about 15 percent against the dollar in 2006, while the South Korean Won gained 10 percent. Even the Chinese Yuan, which slavishly followed the dollar in the past, gained more than three percent. Virtually every economy is bearing part of the burden of adjustment.

The decline in the dollar also has its advantages. For Germany, the greatest advantage is that Germans pay less for oil. The oil price is mainly set in dollars worldwide. If the dollar declines, the same amount of oil costs Europe fewer euros, and the money the Europeans save can be spent on other goods.

A similar dynamic applies to exports from the dollar zone. If the decline in the dollar continues, computers, software licenses and machinery from the United States will become less expensive. Both developments would represent a windfall for companies and people in the euro zone, because the same amount of money would buy more goods.

The perils of a currency crash are not nearly as great as they were in the days of the dollar's absolute dominance 30 or 40 years ago. Globalization has led to the development of a number of growth centers in the world economy which share the burden of turbulence. Gone are the days when an American finance minister could boast: "The dollar is our currency, but it's your problem."

Translated from the German by Christopher Sultan

Posted by Hugo Albert Orwell at 03:27 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: Inside Bay Area

Bloomberg News
Article Last Updated:11/26/2006 09:03:55 AM PST

FEW COUNTRIES would find fault with investors looking their way. That is, unless it's Japan and the buyers in question are central banks.

It has been 21 years since Japan bowed to its Western peers and substantially boosted the yen, and Tokyo still regrets it. Morgan Stanley economist Stephen Jen last year called it "one of the greatest policy mistakes Japan has made," and advised China to avoid a misstep like the one that helped cause Japan's boom and bust in the 1980s and'90s.

And so, it's not hard to understand why Japan prefers the yen as weak as markets will tolerate. Last week, it prompted the heads of the three U.S. automakers to press President George W. Bush to take action against the yen. Never mind that Detroit doesn't make cars that Asians want to buy; it still blames exchange rates for dwindling sales.

Japan's concern about a rising currency may be realized if central banks shift out of U.S. dollars into yen. Expecting the dollar to fall, central banks have already been diversifying into euros. Recently, they began loading up on yen, too.

Last week, there were indications the People's Bank of China, which has $1 trillion in currency reserves, has been doing just that. Asked by reporters whether the central bank had been purchasing yen, Deputy Governor Wu Xiaoling said: "We have."

Bet on yen

Like any smart central banker, Wu followed up the admission by saying: "We have been holding Japanese yen in our foreign exchange reserves for many years." To thicken the plot, central banks in New Zealand, Russia and Switzerland are increasing holdings of yen. And traders know China is diversifying its reserves, about two-thirds of which are held in dollars.

Buying yen is a bet the currency will rebound from a 20-year low, helped by rising interest rates and the longest expansion since World War II. Only time will tell if it's a good bet. Japan has been growing steadily for more than four years now and still the yen remains mysteriously weak.

Asia's most liquid currency should be surging. The Bank of Japan in July raised rates for the first time in six years and may move again soon; deflation is ending; Japan runs a trade surplus; and international investors are rediscovering its economy. And yet the yen is down 7.6 percent versus the euro this year and is little changed against the dollar.

One force capping the yen is investor loyalty to the dollar, even as massive U.S. current-account and budget deficits threaten to drive it lower. Another is doubt that Japan's long-awaited recovery will be as powerful as hoped.

Shaky dollar

Yet central bankers may be on to something in loading up on yen. Even if it isn't poised for strong gains, there's little on the horizon to push the yen lower. Investors in dollars or euros probably face greater downside risks. The euro is arguably overvalued, while the dollar's stability may have more to do with luck than economics.

With nowhere to go but up for the yen, those that get in early can avoid big dollar losses. Once word gets out that the largest dollar holders — such as Japan and China — are selling aggressively, the reserve currency could fall rapidly.

What's more, the yen may have an unexpected role to play in the oil-fueled rise of Middle Eastern economies.

There's much talk of how increasing amounts of so-called petrodollars are flowing to Asia. The term refers to dollars earned through the sale of petroleum.

Since the 1970s, the Middle East has accepted dollars in exchange for its oil.

Now, the desire to reduce U.S. hegemony, both economically and politically, has Iran working to set up a market in which countries can buy and sell oil in euros, rather than dollars.

Asia's promise

In many ways, it's a backlash against the Bush administration's invasion of Iraq and the Patriot Act, which gives the U.S. considerable latitude to collect information on individuals and businesses thought to have terrorist links. Yet it may also be a hunch that Asia's economic promise in this century will surpass the U.S.'s in the 21st century.

Rapid growth in Asia is increasing Middle East trade, particularly with booming, energy-thirsty economies such as China and India.

A look at the financial pages also shows how Arab states, companies and individuals are scooping up Asian real estate and investing in oil refineries and Islamic debt.

In June, for example, Dubai's DP World, rebuffed in its efforts to manage U.S. ports, announced a $500 million investment to build a terminal on the northeast Chinese harbor of Tianjin.

All this may seem a reach, yet the influence of petroleum-related liquidity will grow. While crude prices are about $56 a barrel, from a record high of $78.40, they are likely to rise anew.

Energy needs in China and India alone could boost prices for years to come. The proceeds from those sales may find their way back to Asian assets, including ones denominated in yen.

Central banks aren't known for being prescient traders.

Nor are they in the business of racking up big gains in markets. In the case of recent yen purchases, they may do both.

William Pesek is a Bloomberg News columnist.

Posted by Hugo Albert Orwell at 03:12 PM | Permalink | TrackBacks (0)

Source: The Nation

November 3rd, 2006

By Scott Ritter
Former US-weapons inspector in Iraq

The distance between the northern suburbs of the Iranian capital of Tehran and the nuclear enrichment facility of Natanz is roughly 180 miles. What transpires on the ground between these two geographical points has seized the attention of the international community, and in particular the government of the United States, as the world wrestles with how best to respond to the issues surrounding Iran's decision to pursue indigenous enrichment of uranium in defiance of the United Nations Security Council's resolution demanding that all such activity cease.

I recently returned from a trip to Iran, where over the course of a week I made the journey from the northern suburbs of Tehran to the gates of the Natanz enrichment facility, and in doing so had my eyes opened. The Iran that I witnessed was far removed from the one caricatured in the US media. I left with the frustrating realization that, as had been the case with Iraq, America was stumbling toward a conflict, blinded by the prejudice and fear born of our collective ignorance.

The first thing that becomes apparent upon arrival in Tehran is that Iran is nothing like Iraq. I spent more than seven years in Iraq and know firsthand what a totalitarian dictatorship looks and acts like. Iran is not such a nation. Once I cleared passport control, I was thrust into a vibrant society that operates free of an oppressive security apparatus such as the one that dominated Iraqi daily life in the time of Saddam Hussein. This does not mean there is no internal security apparatus in Iran--far from it. A visit to the cable cars operating in the mountains north of Tehran puts you next to a major communications station of the ministry, where cellphone conversations can be monitored using advanced software procured from the United States. Iran has a functioning domestic security apparatus, but it most definitely is not an all-seeing, all-controlling police state, any more than the United States is in the post-9/11 era, when the FBI and the National Security Agency use similar software to selectively monitor the conversations of American citizens.

Iran is certainly not an open society that operates on a par with the West. I recently had the honor of spending some time with Shirin Ebadi, who was awarded the 2003 Nobel Peace Prize, and have heard her account of the intense repression meted out to those who challenge the political system. The theocrats who govern in Tehran have a history of shutting down media that are not obedient to the state, and the Iranian prison system is notorious for the jailing, beating and even execution of those who dare to protest publicly the rule of the mullahs.

In spite of these abuses of human rights and civil liberties, Iran is not a closed society. There is a ban on satellite television dishes, but many Iranians get their news from the BBC, CNN and other international television services simply by flouting the rules, which seem not to be too widely enforced. Some, like the Revolutionary Guards I became acquainted with, disguise their dish as a flower planter. The government has tried to censor the Internet, and has targeted online journalists and blocked thousands of websites. But the Internet is heavily used by Iranians, who continue to find ways to evade government controls. And cellphones are as ubiquitous as they are here in the West.

The point is that while the Iranian government often cracks down on organized public displays of dissent, the free flow of information that is vital to any dynamic society exists despite the efforts of the government to contain or control it. Ebadi is permitted to travel abroad, speaking and publishing words harshly critical of the Iranian theocracy. She has been harassed by the government but still operates freely, unlike her fellow Nobel laureate, Aung San Suu Kyi, who won the Peace Prize in 1991 and is again under house arrest in Myanmar.

During my visit to the northern suburbs of Tehran, I was struck by the presence of wealth. Many ideologues in the United States, including those who currently occupy the corridors of power in Washington, conclude that this segment of society not only awaits US intervention to overthrow the regime but would actually cooperate with and facilitate any such effort. There is certainly a circle of Iranian secular intellectuals who chafe under Islamic law. Many of them are drawn from the ranks of the "old rich," those who made their fortunes during the time of the Shah and who yearn for the return of a Westernized, secular society. In conversation, these intellectuals often speculate about the possibility of US intervention, but more and more the hope of such liberation has been tempered by the ever-deepening disaster in Iraq. While most Iranians welcomed the elimination of Saddam, the horrors inflicted and unleashed by US military forces next door have left many of the old rich in Tehran with the realization that the dream of American intervention may turn into a nightmare. My trip convinced me that support for US intervention does not exist to any significant degree but rather resides solely in the minds of those in the West who have had their impressions of Iran shaped by pro-Shah expatriates who have been absent from the country for more than a quarter-century.

Iran today is a fully functioning capitalist society, and in addition to the old rich, there is a larger population of wealthy Iranians who made their fortunes after the Islamic revolution and who owe their ability to sustain their wealth to the continued governance of the Islamic Republic. Likewise, those in the West who believe that the youth of Iran (more than two-thirds of the population today is under 30) share the same aspirations as the Western-oriented moneyed class will be disappointed. Those under 30 have no memory of the Iran that existed pre-theocracy and seem more willing to support a moderating change from within than a drastic change imposed from without.

The vast majority of Tehran's citizens are working- and lower middle class. These people reside in the urban sprawl of southern Tehran, where out-of-control population growth strains the resources of municipal government and the Islamic Republic as a whole. The province of Tehran has expanded from 6.8 million people a decade ago to a current official count of 10.5 million; the actual population may be closer to 12 million, with more arriving every day. Unemployment is rampant (the official figure for the country is 12.4 percent, but it's probably closer to 20 percent), and there is a growing level of dissatisfaction that has manifested itself politically in recent years.

The political center of Iran used to rest in northern Tehran. However, the 2005 presidential election saw a dramatic shift to the southern neighborhoods, whose voters helped elect one of their own, Mahmoud Ahmadinejad. The Western media have for the most part depicted his victory as evidence of a resurgent religious fundamentalism, but anyone who walks the streets of southern Tehran (where most Western journalists are loath to wander) and visits the workshops and markets will find a much more nuanced reality. In the motorcycle repair shop I walked into I found the owner and customers evenly divided between Ahmadinejad and his principal rival, former President Hashemi Rafsanjani. Rafsanjani actually won the most votes in the first round, but in the runoff Ahmadinejad shocked everyone by bringing over to his conservative platform the supporters of the reformist candidates. The key factor in his stunning victory was not religious fundamentalism but widespread disillusionment over the state of the economy, coupled with charges of nepotism and corruption surrounding Rafsanjani. Ahmadinejad was, more than anything, a reform candidate. This is what swept him into office, and it is on this issue that he continues to be judged today, with decidedly mixed results, by the people of Iran.

For all the attention the Western media give to Ahmadinejad's foreign policy pronouncements, the reality is that his effective influence is limited to domestic issues. The citizens of Tehran I spoke with, from every walk of life, understood this and were genuinely perplexed as to why we in the West treat Ahmadinejad as if he were a genuine head of state. "The man has no real power," a former Revolutionary Guard member told me. "The true power in Iran resides with the Supreme Leader." The real authority is indeed the Ayatollah Sayeed Ali Khamenei, successor to the Ayatollah Ruhollah Khomeini.

According to the Iranian Constitution, the Supreme Leader has absolute authority over all matters pertaining to national security, including the armed forces, the police and the Revolutionary Guard. Only the Supreme Leader can declare war. In this regard, all aspects of Iran's nuclear program are controlled by Khamenei, and Ahmadinejad has no bearing on the issue. Curiously, while the Western media have replayed Ahmadinejad's anti-Israel statements repeatedly, very little attention has been paid to the Supreme Leader's pronouncement--in the form of a fatwa, or religious edict--that Iran rejects outright the acquisition of nuclear weapons, or to the efforts made by the Supreme Leader in 2003 to reach an accommodation with the United States that offered peace with Israel. While Ahmadinejad plays to the Iranian street with his inflammatory rhetoric, the true authority in Iran has been attempting to navigate a path of moderation.

The Supreme Leader's powers are impressive, but they are not absolute. Iran has a system of checks and balances that is played out through two primary bodies: the Guardian Council and the Expediency Council. Until recently the Guardian Council had absolute veto power over parliamentary legislation and was unchecked in the exercise of its oversight responsibilities. However, in 1997 Khamenei beefed up the role and responsibility of the Expediency Council, and it was further strengthened last year; now the decisions of the Guardian Council, if challenged by the Iranian Parliament, can be overturned by the Expediency Council. The Guardian Council is still a dauntingly authoritative body, especially when one considers that the Supreme Leader has the power to appoint half its members (and all of the Expediency Council's). Iran, after all, remains an Islamic republic, which means that the political pulse is generated not in Tehran but some fifty-five miles to the south, in the holy city of Qom.

It is in Qom where many of the religious figures on the two councils reside. They teach at religious schools and have developed their own followings, comprising religious, civil and military officials who have an enormous effect on day-to-day policy. Qom is a very conservative city, and the religious figures who study there reflect this. However, this conservatism does not directly translate into the embrace of strict religious fundamentalism. There is a growing recognition among the ayatollahs who serve on the councils of the need to seek compromise on matters of religion not only to dilute internal dissent but also to better tend to the needs of the country. The greatest reform pressure on these figures comes not from religious students but rather from the traditional watchdog of the Islamic Republic, the Revolutionary Guard.

The Islamic Revolutionary Guard Corps remains very much an enigmatic entity to most Western observers. Born from the tumult of the revolution that swept the Shah from power in 1979, the Revolutionary Guard was the primary defender of the Islamic Republic during its infancy, serving as the country's first line of defense after the 1980 Iraqi invasion and against anti-regime forces, in particular the guerrillas of the Mujahedeen-e-Khalq, or People's Mujahedeen (MEK). The Revolutionary Guard also served as defender of the Shiite faith abroad, playing a pivotal role in the formation of Hezbollah in southern Lebanon after the 1982 Israeli invasion.

Many of the actions of the guard have been cited by the United States as evidence that Iran is a state sponsor of terrorism. The guard members I spoke with reject this characterization. "We did some pretty terrible things in our early years, but we were fighting for our national survival," one veteran member told me. "The MEK was waging a war in our cities, ambushing our forces, assassinating our politicians and killing our citizens with car bombs. We had to crush them, either in Iran or out. But if we kill an MEK operative in France or Germany, we become terrorists. If America kills an Al Qaeda operative in another country, you are counterterrorists. This makes no sense. We have never targeted or attacked Americans or American interests. We condemned the 9/11 attacks as a crime against Islam and a crime against humanity. And yet we are reviled as terrorists, or even worse, co-conspirators with Al Qaeda. Doesn't America understand that we oppose Al Qaeda and all it stands for? Do you not know that the teachings of Sunni Wahhabism are anathema to the teachings of the Shia faith?"

In our haste to lash out at those who attacked us on September 11, 2001, we forget that Iran not only condemned the attacks, as did its Hezbollah allies in Lebanon, but that it nearly fought a war against Afghanistan's Taliban and their Al Qaeda allies in the late 1990s. There is no greater potential ally in the struggle against Sunni extremism than Shiite Iran, a point made over and over by everyone I talked to, especially those affiliated with the Revolutionary Guard. As one veteran told me, "Iraq is our neighbor, and of course we have a vested interest in its stability. We fought an eight-year war with Iraq, so we understand the realities of that country. We are very glad the United States got rid of Saddam. But now what America is doing only makes the region more insecure. We could help America in Iraq if only they would let us."

Moving south from Qom, along modern highways interspersed with rest stops that would meet with the approval of any traveler on the New York State Thruway, I was struck by the long lines of cars at gas stations. For all its oil wealth, Iran has an energy crisis. With its economy focused on the cash business of oil export, little attention has been paid to the needs of the domestic consumer. Iran is woefully lacking in domestic refining capacity, so much so that it spends billions every year importing gasoline at world market prices, which it then discounts so that the Iranian consumer pays only some 40 cents a gallon. This makes no economic sense, but Iran's oil is already fully leveraged in the export market. With reserves shrinking and new discoveries waning, Iran faces a serious energy crisis in the coming decades unless alternative sources are developed.

Some 180 miles south of Tehran lies the Natanz nuclear enrichment facility. Tucked away on the side of the road, surrounded by a makeshift berm and numerous antiaircraft artillery emplacements, the facility has the outward appearance of something dark and ominous. But the secrets concerning what lies within are well-known to the world as a result of inspections carried out by the International Atomic Energy Agency. What the inspectors say is crystal clear: There is no evidence that Iran is pursuing a nuclear weapons program. Furthermore, the enrichment program is plagued with technical problems that prevent any rapid progress. There is no imminent nuclear weapons threat from Iran, which hasn't mastered the technologies and methodologies of enrichment needed to sustain a nuclear energy program, let alone a nuclear weapons effort.

The Bush Administration speaks of the need to move quickly on the issue of Iran's nuclear ambition and to roll back the forces of terror represented by the Islamic Republic. The repeated and explicit demand of the Administration is for regime change, as evidenced in the March 2006 "National Security Strategy of the United States," where Iran is named repeatedly as the number-one threat to the United States. The alleged Iranian threat espoused by Bush is based on fear, and arises from a combination of ignorance and ideological inflexibility. The path that the United States is currently embarked on regarding Iran is a path that will lead to war. (Indeed, there are numerous unconfirmed reports that the United States has already begun covert military operations inside Iran, including overflights by pilotless drones and recruitment and training of MEK, Kurdish and Azeri guerrillas.) Such a course of action would make even the historic blunder of the Iraq invasion pale by comparison. When we talk of war, we must never forget that we are talking about the lives of the men and women who serve us in the armed forces. We have a duty and responsibility to insure that all options short of war are exhausted before any decision to enter into conflict is made. On the issue of Iran, the United States hasn't even come close to exhausting the available options.

The solution to this problem is clear. The most logical course would be to put Secretary of State Condoleezza Rice on a flight to Tehran, where she could negotiate directly with the principal players on the Iranian side, including Supreme Leader Khamenei. If Administration officials actually engaged with the Iranians, they would have an eye-opening experience. Of course, Rice would need to come with a revamped US policy, one that rejects regime change, provides security guarantees for Iran as it is currently governed and would be willing to recognize Iran's legitimate right to enrich uranium under Article IV of the Non-Proliferation Treaty (although under stringent UN inspections, and perhaps limited to the operation of a single 164-centrifuge cascade).

Rice would undoubtedly be surprised at the degree of moderation (and pro-American sentiment) that exists in Iran today. She might also be shocked to find out that the Iranians are more than ready to sit down with the United States and work out a program for stability in Iraq, as well as a reduction of tensions between Israel and Hezbollah. In addition to significantly reducing the risk of a disastrous conflict, such a visit would do more to encourage moderation and peace in the region than any amount of saber-rattling could ever hope to accomplish. And it would do more to help America prevail in the so-called Global War on Terror than any war plan the Pentagon could assemble. In the end, that is what defines good policy--something sadly lacking in Washington today.

Posted by Hugo Albert Orwell at 12:14 PM | Permalink | TrackBacks (0)

Source: PINR

October 2, 2006

Russian troops in Georgia were put on "high alert" on Sunday and ordered to "shoot to kill if provoked" while defending Moscow's two military bases in the Caucasian country. Tensions between Russia and Georgia are escalating after Tbilisi arrested four Russian officers on September 27 on spying charges.

As a consequence, Moscow withdrew its diplomats from Tbilisi and warned that it could postpone pulling out its troops by 2008 as initially planned. Russian Foreign Minister Sergei Lavrov told the press on September 27 that the situation is "very serious," and, therefore, "when the U.N. Security Council will consider the Georgia-Abkhaz settlement in the next two weeks, we will insist on assessing Georgia's activities as subversive."

The crisis has its roots in the pro-Western, pro-U.S. turn of Georgian national elites epitomized by President Mikhail Saakashvili and his "Rose Revolution." The situation had already worsened in August when Georgian security forces attempted to secure control of the Abkhazian river valley of the Kodori Gorge in order to regain control of the breakaway regions of Abkhazia and South Ossetia. Tbilisi then called for the replacement of Russia as the official mediator in Georgia's regional conflicts. Moscow maintains peacekeepers there along with two military bases.

This escalation signals that Georgia is likely to become the catalyst for U.S.-Russian geopolitical conflict for strategic and economic influence in the Caucasus. Washington criticized Moscow's reaction to the officers' arrests and continues to sponsor Tbilisi's gradual integration into N.A.T.O. Saakashvili has never concealed his pro-U.S. stance and frequently accuses Russia of being the destabilizing force behind breakaway regions South Ossetia and Abkhazia. Although Moscow officially says that Georgia is a sovereign state and is free to join N.A.T.O., Russia is working to maintain strong influence in the Trans-Caucasus region.

As PINR pointed out on September 19, the recent Russian-backed Transdniester pro-independence referendum may be a pattern for the two Georgian separatist regions' attempts to gain national independence. The United States and N.A.T.O., however, are likely to be more active in preserving Georgia's national integrity by strongly supporting Saakashvili than they have been in Transdniester. Therefore, a continued dispute between Tbilisi and Moscow with significant U.S. and European participation on the Georgian side is to be expected in the coming months. [See: "Intelligence Brief: Transdniester Votes for Independence"]

The stakes in the southern Caucasus region are significant. Georgia and Azerbaijan form a gateway linking the Black Sea to the Caspian Sea and are vital for the control of Central Asia's massive fossil resources, as the well-known Baku-Tbilisi-Ceyhan pipeline testifies.

Georgia's geographic position is also critical to N.A.T.O.'s ability to secure the Black Sea region and it allows Washington to project power toward the Middle East. Furthermore, at a time of uncertainty on Turkey's E.U. accession bid and on Ankara's geostrategic orientation -- due to Turkish Prime Minister Recep Tayyip Erdogan's unwillingness to subscribe to U.S. military actions in Iraq -- Georgia's geostrategic importance for Washington is increasing.

Tbilisi's new pro-Western course is predicated upon a strategic relationship with the United States and N.A.T.O. and serves the purpose of a post-Soviet national elite that is eager to eliminate Russian hegemony. Disputes with Abkhazia and South Ossetia are worrying Tbilisi, but, on the other hand, they are enabling the Saakashvili administration to distract international attention from its increasingly authoritarian rule and provide him an effective ideological tool to boost nationalism and use it against remaining Russian influence.

As a consequence, tensions are likely to remain high in the coming months. While it is unlikely that Russia and N.A.T.O. will make moves that could openly put one against the other in the region, Moscow's support for separatist movements in Abkhazia and South Ossetia will probably continue. Chances that a smooth diplomatic solution to Georgia's regional issues will be implemented soon are decreasing, while Tbilisi's approach to separatism remains militaristic.

Posted by Hugo Albert Orwell at 08:42 PM | Permalink | TrackBacks (0)

Source: Yahoo News, AP

By MISHA DZHINDZHIKHASHVILI, Associated Press Writer
September 29, 2006

TBILISI, Georgia - Russia warned on Friday that its plans to close military bases in Georgia were in doubt and Georgia claimed Russia was moving troops near their shared border, as relations between the countries deteriorated in one of their worst crises since the collapse of the Soviet Union.

Tensions between Russia and Georgia, which have increased since pro-Western President Mikhail Saakashvili came to power in 2003, escalated after the arrest in Georgia on Wednesday of four Russian military officers accused of spying.

Russia has recalled its ambassador, evacuated some diplomats and their families and issued a formal protest to the United Nations. Russian Defense Minister Sergei Ivanov has denounced Georgia as a "bandit" state.

Georgia on Friday accused Russia of redeploying additional troops closer to the border and said the Russian Black Sea fleet was expected to start maneuvers in the next few days. "I would advise our colleagues to stop saber-rattling. "This is unacceptable for a democratic country and we don't understand that," Interior Minister Vano Merabishvili told reporters.

Since gaining power in the Rose Revolution, Saakashvili has pledged to move the country out of Russia's orbit, take control of breakaway provinces of Abkhazia and South Ossetia and join NATO in 2008. Georgia's pro-Western course has vexed the Kremlin, and Georgian authorities accused Russia of backing separatists.

Tbilisi courts on Friday ordered the four Russian officers remanded in custody for two months, Anzor Khvadagiani, a Tbilisi prosecutor, told The Associated Press. A fifth serviceman also arrested Wednesday was released the next day for lack of evidence. The courts also extended the arrest of 10 Georgian citizens accused of involvement in a Russian spy ring.

Gen. Andrei Popov, commander of Russian military forces in Georgia, said Russia's obligation to close its two remaining military bases in Georgia by the end of 2008 still stands, but added that "if our servicemen are arrested and put in custody, there will be problems with the withdrawal since there will be no people left to prepare weapons for the pullout," the Interfax news agency reported.

Popov's spokesman, Col. Vladimir Kuparadze, confirmed his statement.

Russia has between 3,000 and 4,000 troops at its two military bases in Georgia proper, and 2,500 peacekeepers deployed to separatist regions of Abkhazia and South Ossetia.

Ivanov, meeting Friday with NATO members in Slovenia, said the arrests were aimed at pushing Russian troops out of Georgia so the government could seize control of the breakaway provinces by force, and he accused unnamed newer NATO members of illegally supplying Georgia with Soviet-made weapons.

"It is absolutely clear to us that Georgia has chosen the military path, the forceful path, for resolving the conflicts in South Ossetia and Abkhazia," he said, adding that Georgia's actions were "to push Russian peacekeepers out by any means possible ... and then to submit an application to join NATO."

Two Russian planes, meanwhile, evacuated 84 diplomats and their relatives from Georgia, officials said. The Russian ambassador to Georgia, Vyacheslav Kovalenko, said after returning to Moscow that families of all Russian military in Georgia also will depart, Interfax reported.

Georgian police surrounded the Russian military headquarters in Tbilisi on Friday, hoping to detain another Russian officer accused of spying. Russia has refused to surrender the officer.

In Moscow, police blocked streets around the Georgian Embassy. They allowed some 20 nationalists to protest briefly against Georgia's president before detaining them for holding an unsanctioned rally.

Russia's ultranationalist leader Vladimir Zhirinovsky called on Friday for "the most resolute action, up to the deployment of forces and air raids." A Kremlin-connected lawmaker, Konstantin Kosachev, said Moscow would not yield to what he called Georgia's provocation and stressed that "any forceful measures are absolutely excluded."

Separately, an official in South Ossetia claimed that masked Georgian officers shot out the tires of a car carrying four Russian peacekeepers, a woman and a child Thursday night, then ordered the men out and beat them. One peacekeeper sustained a fractured skull, according to the internationally unrecognized South Ossetian government, and Ivanov said there was proof they were "brutally beaten."

Georgian officials denied the allegations, saying police stopped a car with Russian peacekeepers, checked their documents and released them.

Russia's Foreign Ministry advised its citizens to refrain from traveling to Georgia, citing security concerns, and its embassy in Tbilisi stopped issuing visas to Georgian citizens.

Saakashvili denounced the moves as hysteria.

NATO Secretary-General Jaap de Hoop Scheffer called for "moderation and de-escalation, and that goes for both parties," and a U.S. State Department official said both sides had to work toward a solution.

Matthew J. Bryza, in Berlin for diplomatic consultations on Abkhazia, also told journalists that "Georgia has expressed its sovereign view ... that it doesn't want Russian peacekeepers on its territory. There is a question of what is prudent, and what is the most effective way of asserting that right in the case of Tbilisi."

Posted by Hugo Albert Orwell at 04:26 PM | 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: Representative Roscoe Bartlett Website

May 2, 2006 Special Orders Speech

By Congressman Roscoe Bartlett
Re: Oil Crisis

The SPEAKER pro tempore (Ms. Foxx). Under the Speaker's announced policy of January 4, 2005, the gentleman from Maryland (Mr. Bartlett) is recognized for half of the time remaining before midnight.

Mr. BARTLETT of Maryland. Madam Speaker, I have here in my hands two pretty big reports that were paid for by our government and have for reasons that it is difficult for me to understand been pretty much ignored apparently by the organizations that paid for them.

The first of these is a big report paid for by the Department of Energy called The Peaking of World Oil Production: Impacts, Mitigation and Risk Management. This is generally known as the Hirsch Report, because the project leader was Dr. Robert Hirsch from SAIC, a very prestigious scientific and engineering organization. This report is dated February, 2005.

For reasons that we are trying to find, this was bottled up, apparently, inside the Department of Energy, because it didn't become publicly available until several months after that.

The second report I have here is the report by the U.S. Army Corps of Engineers. This obviously is paid for by the Army. It is dated September of 2005, and it was just about 2 months ago that it finally got out of the Pentagon into the public. This one is called Energy Trends and Their Implications For U.S. Army Installations. I would submit that wherever they mention ``Army,'' you could substitute ``the United States'' and it would be completely appropriate.

What I would like to do for the first few minutes is to look at some of the comments and recommendations in these two reports; and I would like to keep asking the question, why have these two government agencies which paid for these reports done essentially nothing to promulgate this information across the country? Rather, it would seem that there was an intent to keep this information from the public, because the Hirsch Report was bottled up inside the Department of Energy for several months, and the Army Corps of Engineers report is dated September of 2005, and it says on the cover here, ``Approved for public release. Distribution is unlimited.'' But there was essentially no distribution of that until just about 2 months ago.

As you will see, Madam Speaker, if the content of these two reports is correct, if their observations and recommendations are correct, you would have expected these two government agencies to be using every vehicle at their disposal to get this information out to the public.

Let's look first at a few quotes from the Hirsch Report. The first here says, ``The peaking of world oil production presents the United States and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically,'' oil was almost $75 a barrel today, ``and without timely mitigation, the economic, social and political costs will be unprecedented.

``Viable mitigation options exist on both the supply and demand sides, but to have substantial impact they must be initiated more than a decade in advance of peaking.''
A little later we will talk more about this. I am not sure that this is exactly the way that I would have articulated our challenge. We will talk about that a little later.

``Dealing with world oil production peaking will be extremely complex, involve literally trillions of dollars and require many years of intense effort.''
Now another quote from this Hirsch Report. ``We cannot conceive of any affordable government-sponsored crash program to accelerate normal replacement schedules so as to incorporate higher energy efficiency technologies into the privately owned transportation sector. Significant improvements in energy efficiency will thus be inherently time-consuming, of the order of a decade or more.''

If we are talking about transportation, Madam Speaker, that is indeed true. Because the average automobile and small truck is in the fleet about 17-18 years and the average 18-wheeler about 28 years. So any improvements that we ever make, we are making in energy efficiency in automobiles and trucks, is going to take quite some time to show any meaningful effect because of how long they are in the fleet.
Now a third quote from the Hirsch Report. Madam Speaker, I would like us to keep in our mind the question, if this is true and we have two reports, as you will see, that have reached essentially the same conclusion, we have no reason to believe there was any collusion between them. Indeed, their dates of publication are quite different, February to September. And if these observations and recommendations in these reports are in fact correct, then one might wonder why haven't these agencies been using every vehicle at their disposal to get this information out to the American public and to initiate programs to deal with these problems?

``World oil peaking is going to happen. World production of conventional oil will reach a maximum and decline thereafter. That maximum is called the peak. A number of competent forecasters project peaking within a decade. Others contend it will occur later. Prediction of the peaking is extremely difficult because of geological complexities, measurement problems, pricing variations, demand elasticity and political influences. Peaking will happen, but the timing is uncertain.''

Then this, Madam Speaker, a very significant statement. ``Oil peaking presents a unique challenge,'' they say, and then this statement. ``The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the
problem will be pervasive and will not be temporary. Previous energy transitions, wood to coal and coal to oil, were gradual and evolutionary. Oil peaking will be abrupt and revolutionary.''

Now I would like to read a few of the quotes and recommendations from the Corps of Engineers study just out about 2 months ago, although the date was September of last year.

``Historically, no other energy source equals oil's intrinsic qualities of extractability, transportability, versatility and cost. The qualities that enabled oil to take over from coal as the frontline energy source for the industrialized world in the middle of the 20th century are as relevant today as they were then. Oil's many advantages provide 1- 1/3 to 2 1/2 times more economic value per million BTUs than coal. Currently, there is no viable substitute for petroleum.''

Madam Speaker, that is a startling statement. If in fact the world is peaking in oil production and there is no viable substitute for petroleum, wouldn't you think that the agencies paying for these studies would have used every vehicle available to them to get this word out to the American public and to articulate a rational program for dealing with this emergency?

``Oil prices may go significantly higher,'' they say, ``and some have predicted prices ranging up to $180 a barrel in a few years.'' Just under $75 today, $180 a barrel in a few years.

``In general, all non-renewable resources follow a natural supply curve: Production increases rapidly, slows, reaches a peak and then declines at a rapid pace, similar to its initial increase. The major question for petroleum is not whether production will peak, but when. There are many estimates of recoverable petroleum reserves, giving rise to many estimates of when peak oil will occur and how high the peak will be. A careful review of all of the estimates leads to the conclusion that world oil production may peak within a few short years, after which it will decline.'' Campbell and Deffeyes, several references here.

Let me digress for just a moment. One of these, Dr. Deffeyes, predicted that the peak did occur a couple of months ago, and he says he is no longer a prognosticator, he is now a historian, because the peak, he believes, is behind us.

``Once peak oil occurs, then the historic patterns of world oil demand and price cycles will cease. Unfortunately, Saudi Arabia has not been able to increase supply above its monthly production peak of April 2003.''

And I am reminded here of a recent book by Matt Simmons called Twilight in the Desert. He has done a very scholarly and exhaustive study of all of the open literature and believes that Saudi Arabia has peaked in oil production.

Iraq may also have significant excess capacity if it can be brought into production. Under Saddam Hussein, we got about 2 1/2 million barrels a day from Iraq; now we are lucky to get 1 1/2 million barrels a day.

Meanwhile, domestic oil production in both the lower 48 States and Alaska continues to decline. Many non-OPEC oil producers have also passed or are currently reaching their peaks of production. Indeed, Madam Speaker, of the 48 largest oil-producing countries in the world, 33 have already peaked.

And now their recommendations. And excuse me for reading, but to paraphrase this would not have quite the impact of reading exactly their words. The coming years will see significant increases in energy costs across the spectrum. Not only are energy costs an issue, but also reliability, availability, and security.

It is time to think strategically about energy and how the Army, and please substitute here the United States, should respond to the global and national energy picture. A path of enlightened self-interest is encouraged. The 21st century is not the 20th century.

Issues will play out differently and geopolitics will impact the energy posture of the Nation. Technology will change more rapidly and flexibility will be a crucial part of installation operations. This must also extend to the energy infrastructure and its operational concepts.

And then this very interesting statement: the days of inexpensive, convenient, abundant energy sources are quickly drawing to a close. When I read that, Madam Speaker, I was reminded of the short paragraph that Matt Savinar uses in introducing his discussion of peak oil.

He says: ``Dear reader. Civilization as we know it is coming to an end soon.'' I hope that he is overly pessimistic. We will see. Domestic natural gas production peaked in 1973. Now, note this statistic, Madam Speaker: the proved domestic reserve lifetime for natural gas at current consumption rates is about 8.4 years.

What this says is, if we can get all of our gas from our resources, it would last 8.4 years. Of course, we cannot get it out that fast. So we are importing gas. But that is all we have remaining is 8.4 years. This is the Corps of Engineers.

The proved world reserve lifetime for natural gas is about 40 years, but will follow a traditional rise to a peak, then a rapid decline. Domestic oil production peaked in 1970 and continues to decline. This is a really startling statistic. Proved domestic reserve lifetime for oil is about 3.4 years.

That means if we could pump oil as fast as we are using it, our 2 percent of the world's reserve would last us, at the rate at which we are using oil, 3.4 years.

World oil production is at or near its peak; and current world demand exceeds the supply, which is why oil is about $75 a barrel. Saudi Arabia is considered to be the bellwether nation for oil production and has not increased production since April of 2003. After peak production, supply no longer meets demand; prices and competition increase.

World proved reserves lifetime for oil is about 41 years, most of this at a declining availability. Our current throwaway nuclear cycle uses up the world reserve of low-cost uranium in about 20 years. We will see significant depletion of Earth's finite fossil resources in this century. We must act now to develop the technology and infrastructure necessary to transition to other sources.

This is dated September of last year, Madam Speaker. Have you seen anybody in authority in our country telling the American people this? We must act now to develop the technology and infrastructure necessary to transition to other energy sources.
Policy changes leap ahead of technology breakthroughs, cultural changes and significant investment is requisite for this new energy future. Time is essential to enact these changes. The process should begin now.

Indeed, if they had written this 20 years ago, they would use exactly that same language. Because we really should have started some 20 years ago.

Madam Speaker, what is all of this about? What are they talking about? To understand that, we need to go back about six decades and to the life of a very, now very famous oil geologist, Dr. M. King Hubbert, who worked for the Shell Oil Company.

In 1956, as a result of his studies, he published a paper that the 50th-year anniversary of that was March 8, in which he predicted that the United States would peak in oil production about 1970.

Now this was revolutionary. Because at that time I believe we were the largest producer of oil in the world, and probably the largest exporter of oil in the world. Shell Oil Company pleaded with him not to publish a paper, that we would make him and them look really silly.

He published the paper anyhow. And 14 years later when right on target we peaked, he became kind of a celebrity. What we have here, Madam Speaker, is his predicted curve, the smooth green curve. And then the more ragged curve, green curve with the largest symbols represents the actual data points.

And you see that right on schedule in 1970, oil production peaked. Now, this is the lower 48. He did not know about Alaska at that time, and in just a moment we will look at another chart which includes Alaska.

The red there, by the way, is the Soviet Union. More oil than we, peaked just a bit after us. They kind of fell apart when the Soviet Union fell apart, and they are now having a second small peak. But after that it will be continually downhill.
The next chart shows where we have been getting our oil from. Not just in the lower 48. And that is this blue curve and the dark blue one under it, Texas and the rest of the United States. But then you see the natural gas liquids and the Alaska oil, and the Gulf of Mexico oil.

And you see that in 1970 we peaked, and just a little blip in the downhill side of what is called Hubbert's peak here. I remember particularly, Madam Speaker, the fabled Gulf of Mexico oil discoveries which were supposed to get us home free. That is the yellow on this chart. Notice the relatively trifling contribution that the Gulf of Mexico oil discoveries made, about 4,000 wells out there. We were reminded of that last fall with these hurricanes, when a number of them were damaged.

The next chart is from the Hirsch report, and that shows you what we do with this oil. It is really kind of interesting. The light blue here represents transportation. That is about 70 percent of all of the energy from the oil that we use is used in transportation. Then there is industrial and a little bit of electric power and a little bit commercially. But the major part of our oil is used in transportation.
That is a liquid fuel. And, you know, the challenge is to find something to replace that. The next chart is a really interesting one, and we could spend a long time on this chart, because it has so much information on it.

But I want to look at it just in gross form here. The bar graphs here represent the discovery of oil, and you see that way back in 1940 we were discovering some big fields of oil. And then a little later in the 1950s, the 1960s, the 1970s, we were discovering a lot of oil.

And our use of oil was very small then. The heavy black line here represents our use of oil, and notice that we were finding enormously more oil than we were using.
So there was every reason to believe that for the foreseeable future and beyond everything was going to be just fine, because we were finding enormous amounts of oil and we were not using very much oil. But then that all turned around about 1980.
Because at about that time, the discoveries of oil reached a maximum, and then they trailed off. And you can see it here on the downslope here. And in spite of improved techniques, in spite of intense drilling, year by year, we have found on the average less and less oil.

For those who are familiar with curves like this, it is quite obvious that the area under this curve, if we were to draw a smooth line through this discovery curve, the area under that curve represents the total volume of oil which has been discovered.
And the area under the consumption curve represents the total amount of oil that we have consumed. Now, it is very obvious that you cannot consume oil that you have not discovered, and so to find out how much consumption we can have in the future, all one needs to do is to look at the area under this discovery curve, and then to project where you think the consumption curve is going.

Now, this chart has peaking occurring, what, in 5 years or so, about 2010. There are a number of people who believe that peaking has occurred about now or will occur very shortly.

The lightly shaded part of this graph, of course, is to the future; and, Madam Speaker, you can make that future within limits look about any way you want to make it look. For instance, if we use enhanced oil recovery, and we drill a lot more wells, the United States has drilled 530,000 wells. I believe there are about 400 wells in Saudi Arabia and maybe 300 in Iraq, both of which have enormously more reserves than we have.

But if you vigorously go after this oil, you might get it sooner. But if you get it sooner, there will be less later, unless you are really good at enhanced oil recovery and you are able to get significantly more out of the ground. The next chart kind of puts this in long-range perspective, and this is a really interesting chart.
Looking at the top chart here, we are looking back about 400 years through history; and we see that the quadrillion Btus, it is so near the zero line here that you probably cannot see the difference. And then we began the Industrial Revolution in the late 1700s. And we began that with wood, of course. We denuded the hills of New England, the mountains of New England, carrying charcoal to England to make steel. We have a little furnace up here in Frederick County, and we denuded the hills of northern Frederick County to provide charcoal for that little furnace there.
The Industrial Revolution was stuttering with wood when we found coal and were able to utilize that. And then look what happened, Madam Speaker, when we discovered gas and oil. It just took off. This is an exponential curve at about a 2 percent growth rate.
In a moment we will show this same curve with different units on the ordinate abscissa, and it will appear to be a much less dramatic curve there because it really spread out the abscissa here.

But I would like to note that the world population has reasonably followed this energy cycle. So that we went from about one-half a billion to about 1 billion people here. Steady state for quite a long time until we now have between 6 and 7 billion people.
And that dramatic increase in the world's population was largely due to the incredible quantity and quality of energy from oil and natural gas. I would like to reflect for just a moment on the quality of this energy, the energy density of these fossil fuels.
One barrel of oil, and you will now pay a bit more than $100 for the refined product at the pump, 42 gallons, will buy you the work output of 12 people working all year for you.

If you worked really hard in your yard this weekend for a full day, I will get more work, more mechanical work out of an electric motor for less than 25 cents' worth of electricity. And that may be kind of humbling to recognize that we are worth less than 25 cents a day in terms of the energy available in these fossil fuels.
Madam Speaker, our children and certainly our grandchildren will look back at our generation and the generation of our parents, and I say that because my father lived almost half way through the age of oil, and they will wonder how we could have behaved the way we have behaved.

When we found this incredible resource, this wealth, we should have stopped and asked ourselves, what do we need to do so we can provide the most good for the most people for the longest time with this incredible wealth. It should have been obvious to everybody that this was not infinite. The earth is not made of oil. It is a finite resource.

We are now, as this chart shows in 5,000 years of recorded history, about 100, 150 years into the age of oil. In another 100, 150 years, we will be through the age of oil. What, then, when we have had to transition to the renewables?

Notice here, Madam Speaker, what happened in the 1970s. That was really quite dramatic. There was a worldwide recession, demand for oil fell, the price collapsed, and we reduced our energy consumption. It is now with China and India and the developing world demanding more and more oil increasing again at the same kind of a rate that it did up till 1970.

Madam Speaker, I would like to give one statistic that is just startling. Up until the Carter years, in every decade we used as much oil as had been used in all of previous history. What that means is, had we continued on that course, and fortunately we did not as this chart shows, but had we continued on that course when we had used up half of the world's supply of oil, only one decade of oil would have remained. In 5,000 years of recorded history, the age of oil would be just a blip, about 300 years long is all, out of 5,000 years of recorded history.
The next chart shows the predictions of some of the experts about when peaking should occur, and this is from the Hirsch report, and this was about a year ago, and they could not have known that Dr. Deffeyes was going to conclude that the peaking has already occurred. He gave a specific date for that, and he rather humorously said he is no longer a prognosticator, he is a historian.

Well, all these people believe the peak is going to occur in the next 5 years; and then there are a few that believe it will occur about 5 years after that. Then there are Serum, Shell Oil Company, a few who believe it will be sometime in the future. Nobody, Madam Speaker, will contend that we will not have peaking. It is not if. It is when.

The next chart is a simple depiction. It shows the same curve, that really dramatic one you saw a couple of charts ago, when we had this dramatic increase in the production of energy, same curve. You can make it short and very high or spread out, depending upon the units you use in the ordinate and the abscissa.

This is a 2 percent exponential growth rate, and notice that starts out rather slow, but 2 percent, leave the interest in the bank, it grows and grows till it is now getting quite steep, even on this expanded abscissa scale.

As you saw from the previous chart, most of the experts believe that oil peaking is either now or very shortly in the future. If, as we have indicated here, we are at this point, then the peaking will indeed occur a couple of years or so hence.

But notice that the discrepancy between the oil we would like to use, the demand curve and the oil which is available to use, begins before the curve. It will not be as smooth as this. It will be ups and downs, and oil may again fall down to $50 a barrel. That will be nice. Do not count on it.

What we have produced here is what is called a gap. That is a difference between what is available to use and what we would like to use; and, as the next chart shows, the Hirsch Report focused on the problems of filling that gap. What they did is look at the consequences of filling the gap, dependent upon when you start to fill the gap, and if you wait until peaking has occurred, you see zero here, that is when it has occurred. Then there will be significant shortfall. You will be able to do some mitigation.

In a few minutes, we will talk more about that mitigation; and I wonder if, in fact, we should try to mitigate or whether we need to effect a steady state where we can live happily and productively at the current energy level and thus leave a little more for our kids and our grandkids and a little more for the next few years just ahead of us.

What it shows here is that if you are going to have no supply shortfall, that you need to begin the mitigation 20 years before peaking occurs. Now, from all of the experts' predictions that we saw, that is going to be manifestly impossible because almost nobody believes that peaking is two decades from now. So what one would conclude from this is that there are going to be consequences.

The next chart shows what we would be using to peak. We would be using enhanced oil recovery, coal liquids; and, by the way, South Africa and Hitler's Germany demonstrated you can indeed do that; heavy oil, that is the oil shales, tar sands and so forth, gas-to-liquids and then vehicle efficiency.

I mentioned previously how long these vehicles stay in the fleet. If you start here, there will be several years before you notice any effect, and then slowly over 50 years. That is a little less than the average lifetime of the average car and pickup in the fleet and about half the average lifetime of an 18-wheeler in the fleet.

Madam Speaker, I would like to wonder if, in fact, we ought to be trying to fill the peak, that is, to fill this gap till there is no shortfalls so that the world can continue to use all the oil that it would like to use. Notice that, except for vehicle efficiency, we are dealing here with finite resources. They are not forever, and the more we use now, the less we will have to use in the future.

Today, we are amassing the largest intergenerational debt transfer in the history of the world. I would like not to include with that an enormous energy deficit that we are going to pass on to our kids and our grandkids. We are already burdening them with an enormous responsibility to not only run their government on current revenue but to pay back all of the money that we borrowed from their generations to run our government today. In good conscience, Madam Speaker, can we also borrow from their generations the fossil fuel energies which will be essential for establishing any reasonable quality of life in their generations?

I would submit that the challenge should not be to fill the gap. The challenge should rather be to establish an infrastructure and economy, lifestyles that can be interesting and productive and sustaining while we make the inevitable transition to renewables. These are all finite. You cannot fill that gap forever with these. As a matter of fact, for some of them, you cannot fill it very long.

The next chart shows us something about the consequences of excessive consumption. This is a really interesting chart. I would like to start here with this little insert where I think we are, and this is from our Energy Information Agency, and they get the data from the USGS. We talked to the Energy Information Agency, and they just use the information from USGS, and I think this is a rather meaningful misrepresentation of what the world will look like.

Madam Speaker, for any statisticians out there, it will be quite obvious that the 50 percent probability is not the mean. The most rightly thing to happen is the 95 percent probability. That is a high probability. It is the lesser, the lower amount of oil.

By the way, the 50 percent probability means that there could be a whole lot more oil. It also means there could be a whole lot less oil. You just do not know. What the Energy Information Agency does and the USGS is to assume that 50 percent probability is the mean. This is an unusual, and one might say bizarre, use of statistics, but using these statistics, you end up with almost twice the recoverable oil left in the world.

You see, they said that the ultimate recovery would be about 2 trillion barrels of oil with a 95 percent probability. We have already used about half of that, about 1 trillion barrels. So there is about 1 trillion left.

With the mean, which they say is expected, now that is not the expected value. The expected value is the 95 percent probability. That is the most probable. That is what it means. It is the most probable.

But with this assumption that that is the mean, which is a bizarre use of statistics, that pushes the peak out only from here at about 2000 to about 2016. So even if there is that much more oil there, and, by the way, only half of that yet to be pumped 2 trillion barrels have been found, you remember that earlier chart that showed the steep decline in discoveries, one must project something phenomenal in the future, that it will look just vastly different than the last few years. It would discover enormous basins of oil, and there is no expert out there that I know who believes that anything like that is going to happen. Notice that you push the peak out only about 10 years if you have that much more oil.

Now there is another interesting assumption that is made here, and that is if you can produce it with enhanced oil recovery and then you have a 10 percent decline, look what happens. You are really falling off a cliff.

The next chart kind of puts this in perspective; and it is these numbers, Madam Speaker, which prompted Boyden Gray and Frank Gafney and Jim Woolsey and 27 other prominent Americans, four-star admirals and generals, to write to the President some months ago, a number of months ago, saying, Madam Speaker, the fact that we have only 2 percent of the world oil reserves and we use 25 percent of the world's oil, importing almost two-thirds of what we use, is an unacceptable national security risk. Mr. President, we have got to do something about that.

Even if you think that the only problem with oil is a national security risk, we ought to be about freeing ourselves from the dependence on foreign oil. Even if there was no such thing as peaking, our behavior today needs to be vastly different than it is.

We are less than 5 percent of the world's population, about one person out of 22, and we use a fourth of the world's energy.

Madam Speaker, when we found all of that oil, and we more than others fit this characterization, rather than a responsible response to that discovery, which would ask the question how can we get the most good for the most people for the longest time, we acted like kids that found the cookie jar. We just pigged out, and here in the United States we are now using 25 percent of all the world's oil, and we represent a bit less than 5 percent of the world's population.

These top two numbers are significant. With only 2 percent of the oil reserves, we are pumping 8 percent of the world's oil. That means we are pumping our wells four times faster than the average in the world, which means that we are going to be increasingly dependent on foreign oil as we pump down our reserves.

The next chart kind of puts this in a global perspective. Because what this shows, and many people now recognize this, that for the last several years China has been scouring the world for oil. We have symbols here which show who has access to the major sources of oil in the world, and notice the symbol for China is all over this map. They have bought all of the increased capacity of the Canadian oil sands. They have major commitments from South American countries. They almost bought Unocal in our country. They have really major commitments from the Middle East.

Madam Speaker, not only this, but they recognize that we have the only blue water Navy, that is the Navy that sails the seven seas of the world and can control all of the access lanes. They see that we could, if we wish, cut off their source of oil.

So they are very aggressively building a blue water Navy.

Last year, we launched one submarine; they launched 14 submarines. Now theirs are not the quality of ours, certainly, but they are improving.

Well, what do we do? And the next chart kind of presents this challenge and this picture. Obviously, if what these two big reports say is true, that we are just about reached peaking, then we need to be about transitioning. In fact, we should have been about transitioning from fossil fuels to the renewables.

Madam Speaker, we knew of a certainty 26 years ago in 1980 we had already slid 10 years down the other side of Hubbard's Peak. Now, M.P. Hubbard was right about the United States. He predicted that the world would be peaking about now. Madam Speaker, he was right about the United States.

Would you not think that our leaders have wondered maybe, just maybe, he might be right about the world, and maybe we ought to be doing something about that? There has been a deafening silence on this subject for the last 26 years.

Any rational person, get a bright fifth grader and he will tell you what we need to be doing: We need to call upon all of our finite resources to help us through this transition period, and those finite resources are the tars and the oil shales and coal. And then there is nuclear as kind of a separate class, light water reactors, breeder reactors.

And note the quote from the Corps of Engineers study that the high-quality cheap, that is fissionable, uranium, will be exhausted in about 20 years, so we will need to move to breeder reactors which, as the name implies, makes more fuel than they use and so they are kind of self-sustaining. But, with that, you buy some problems of transportation and enriching and products that could be used by bad guys for making nuclear weapons.

I have a number of colleagues who have been stoutly opposed to nuclear, but when they are now rationally considering the alternative of shivering in the dark, nuclear is looking better and better.

Nuclear fusion, if we ever got there, Madam Speaker, we are home free. There is nothing else on this chart that gets us home free. Fusion does. I support happily the roughly $250 million a year that we put into this technology. But I think that counting on solving our energy future challenges with fusion is a bit like me or you, Madam Speaker, planning to solve our personal economic problems by winning the lottery, and I think the odds are probably somewhere near the same.

Once we have gone through these finite resources and have developed all the nuclear that we wish to develop, then we will ultimately, and the geology will assure it, because coal, gas and oil are not forever, we will transition to the renewables, and these are what they are, solar and wind and geothermal. That is true geothermal, where you are tapping into the molten core of the earth. There is not a chimney in all of Iceland because all of their energy is geothermal there, ocean energy, the tides and thermal gradients and so forth.

Agriculture resources, a lot of talk today about ethanol and methanol and soy diesel and biodiesel and biomass. Waste energy, a great idea. Instead of putting it in a landfill, burn it. There is lots of energy there. A very productive plant, state-of-the-art plant up in Montgomery County who would be happy, Madam Speaker, to have you come visit them there.

And then hydrogen from renewables. That is significant. Today, we are getting all of our hydrogen from natural gas. That is not renewable. That, by and by, will be gone, and then we will have to get hydrogen from renewables or from nuclear.

Just a word of caution. Hydrogen is not an energy source. We will always use more energy to produce hydrogen than we get out of it, or else we will have to suspend the second law of thermodynamics. And, Mr. Speaker, if we can do that, we can suspend the law of gravity and we are really home free, are we not?

Why even talk about hydrogen then? Well, because of the two characteristics of hydrogen. One is when you finally burn it, you get water that is not polluted. And if you have used a nonpolluting energy source to produce it like nuclear, for instance, or wind or solar, then you are totally nonpolluting.
The second advantage of hydrogen is that it is quite ideal for fuel cells if in fact we are ever able to make fuel cells that are economic. With the fuel cell, you get about twice the efficiency or at least twice the efficiency that you get out of reciprocating engine.

The next chart looks at coal. And some will tell you do not worry about energy because we have got an incredible supply of coal, they will tell you, in 500 years. That is not true. At current use rates, we do have 250 years of energy, of coal.

Albert Einstein said that compound interest was the most powerful force in the universe. If you increase its use only 2 percent, that 250 years shrinks to about 85 years. And, now, if you have to use some of the energy from the coal to convert to a gas or a liquid, and we will have to do that because we have limited uses for coal itself, then you reduce it to 50 years. That is meaningful. But it is a finite resource. It is not forever. It is dirty. You are either going to pay a big environmental penalty or an economic penalty for cleaning it up.

The next chart is an interesting one, and that looks at the opportunities and limitations from the agricultural world. On the top here, we have two little sequences which indicate the energy transformation from petroleum, and notice that you start out with maybe 5 equivalents of energy and end up with 4, so it is 5:4. And with corn to ethanol, you ought to do better, because you are getting some energy from the sun here. There are lots of challenges. It is or it can be energy positive. It certainly is in South America, where Brazil is converting sugar cane, which is a bit better than corn, to ethanol, and they are now freeing themselves from dependence on imported oil and soon all of their cars will be ethanol cars.

The bottom pie chart here is something I wanted to spend just a moment on because it is so startling. This shows you the energy input into producing a bushel of corn. Notice the purple area there, almost half of it, it says nitrogen, that is nitrogen fertilizer made from natural gas. When natural gas is gone, that source of nitrogen fertilizer is gone.

Madam Speaker, before we learned how to do that, the only source of nitrogen fertilizer was barnyard manure and guano. The guano is gone. It took tens of thousands of years to produce it, we believe, and now it is harvested, and it is gone. That is the droppings from birds and bats on tropical islands and caves and so forth.

All those other segments of the pie here are other fossil fuel energy inputs into growing corn. I would just like to emphasize in very large measure the food we eat is just transformed gas and oil, and without gas and oil it would be very difficult to produce the amounts of food that we are producing today.

The next chart is a really interesting one. The little analogy that I use here is that we are very much like a young couple whose grandparents have died and left them a big inheritance, and they have established a lifestyle where 85 percent of all the money they spend comes from their grandparents' inheritance and only 15 percent from their income. They look at the inheritance and how old they are and project a reasonable life span, and, gee, the grandparents' inheritance is going to give out long before we retire. So, obviously, Madam Speaker, they have got to do one or both of two things: Either they have got to make more money, or they have got to spend less money.

I use that 85/15, and others will use 86/14. The 85/15 shows what our energy dependence is now. About 85 percent of all the energy we use comes from fossil fuels. That is like the inheritance from our grandparents: It will not last forever. And only about 15 percent of it comes from other sources. A bit more than half of it that comes from nuclear power, 8 percent of our total energy, 20 percent of our electricity.

As you drive home tonight, note that every fifth business and every fifth house would be dark if it weren't for nuclear power.

Then we look at that 7 percent which is renewable energy, and the biggest chunk of that is conventional hydro that will not grow in our country. We may get some micro-hydro, but the big rivers have all been dammed and probably more than we should have dammed.

The next biggest chunk of that comes from wood, and that is the paper industry and the timber industry wisely burning a waste product that would otherwise end up in the landfill.

And then waste energy, that 8 percent. By the way, this 1 percent is 0.07 percent, because that is 1 percent of 7 percent from solar. That is a tiny, tiny amount of energy. But this was in 2000. That has been growing at 30 percent a year, so now it is about four times bigger. It is now 0.28 percent. Big deal, Madam Speaker. 0.28 percent? And that is about the same thing for wind, maybe a bit more from agriculture.

Those are the energy sources we are going to have to increasingly rely on in the future. So we have got a big challenge ahead of us.

The next chart depicts what we ought to be doing. The first thing we need to do is to buy some time. You see, it takes three things to develop these renewables: It takes money, and it takes energy, and it takes time. Mr. Speaker, we will not worry about the money, although we should. Because when it comes to money we just borrow it from our kids and our grandkids by running up a big debt. So let us not worry about the money here.

But we cannot borrow time from our kids, and we cannot borrow energy from our kids. The only way to buy some time and free up some energy is with a pretty massive conservation program which frees up some energy.

Today, Madam Speaker, there is no surplus energy to invest in alternatives. All of it is needed by the economies of the world, or oil would not be roughly $75 a barrel.

Madam Speaker, what this chart denotes is a program that I think needs three qualities if we are going to make this transition in any acceptable way. First, we must have everybody involved, a total commitment like World War II. I lived through that. Everybody had a victory garden, everybody saved their household grease and took it to a central repository. It was the last war, the last time that everybody in our country was involved. We need a program, Madam Speaker, that has the total commitment of our population in World War II. It needs to have the technology focus of putting a man on the moon, because we are going to have to have a lot of technology breakthroughs and applications here if we are going to make it.

Thirdly, it needs to have the intensity of the Manhattan Project. Minus that, I think we are going to have a very rough ride. We should have begun 26 years ago.

Once we have freed up some time and freed up some energy, we need to use it wisely. And what has the biggest potential? What will have the biggest payoff? I think there are enormous benefits to this. I can see the American people going to bed every night thinking to themselves, gee, I really contributed today. I used less energy, I lived very comfortably, and I am really working on that new project which is going to help my kids and my grandkids to live as well as I live or maybe even better.

I think that we can be a role model for the world. I think that we can develop a lot of technology that we can export, but, Mr. Speaker, we will never get there unless we start.

I am wondering again, unless we close in the way we started, these two big studies paid for by our government noting the problems that we face in the future, why have not those parts of the government that paid for these reports claimed ownership? Why are they not using the resources available to them to make this information available to the American people? Why are they not coming to us with a program that says we have a big challenge, we have big opportunities, we really need to get going?
Madam Speaker, I think that we have a great bright future if we challenge the American people and marshal the resource. I think we have a very bumpy ride if we do not.

I look forward, Madam Speaker, to our leadership showing the way. I think Americans will follow. I think that we can be a role model to the world, and I think that we can get through this with less problems than many are depicting, but we won't get there unless we start.

Posted by Hugo Albert Orwell at 02:40 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.

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Source: Reuters

By Richard Waddington
September 26, 2006

GENEVA (Reuters) - Israel has turned the Gaza Strip into a prison for Palestinians where life is "intolerable, appalling, tragic" and the Jewish state appears to have thrown away the key, a U.N. human rights envoy said on Tuesday.

U.N. special rapporteur on human rights in the occupied Palestinian territory John Dugard said that the suffering of the Palestinians was a test of the readiness of the international community to protect human rights.

"If ... the international community cannot ... take some action, (it) must not be surprised if the people ... disbelieve that they are seriously committed to the promotion of human rights," he told the United Nations' Human Rights Council.

Israel hit back saying there was an "alarming disconnect" between the rapporteur's report to the U.N.'s human rights watchdog and the experience of Israelis who continued to "face the daily threat of Palestinian terrorism."

The South African lawyer, who has been a special U.N. investigator since 2001, repeated earlier accusations that Israel is breaking international humanitarian law with security measures which amount to "collective punishment."

Israel says its security restrictions, which include the construction of a steel and concrete barrier in the
West Bank, are designed to stop suicide bombers entering Israel. Bombings have declined since the barrier was built.

It also maintains tight restrictions on the movement of goods and people into and out of Gaza, a coastal strip that it pulled out of last year after 38 years of occupation.

"UNPUNISHED"

Dugard also attacked the United States, the European Union and Canada for withdrawing funding for the Palestinian Authority in protest at the governing party Hamas's refusal to accept Israel's right to exist.

"Israel violates international law as expounded by the Security Council and the International Court of Justice and goes unpunished. But the Palestinian people are punished for having democratically elected a regime unacceptable to Israel, the U.S. and the EU," Dugard said.

But Israel's ambassador to the U.N. in Geneva Itzhak Levanon said that by putting the "entire blame" on Israel the report "absolves the terrorists that have taken Palestinian society hostage from even the most minimal responsibility."

Dugard said that three-quarters of Gaza's 1.4 million people were dependent on food aid. Bombing raids by Israel since the June 25 capture of an army corporal by Palestinian militants had destroyed houses and the territory's only power plant.

"Gaza is a prison and Israel seems to have thrown away the key," he said.

The West Bank also faced a humanitarian crisis, albeit not as extreme as Gaza, in part due to the barrier, which Dugard alleged was no longer being justified by Israel on security grounds but was part of a move to annex more land.

Palestinians living between the barrier and the Green Line, the frontier at the end of the 1967 Arab-Israeli war, could no longer freely access schools and places of work and many had abandoned local farms, he said.

"In other countries this process might be described as ethnic cleansing but political correctness forbids such language where Israel is concerned," Dugard said.

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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

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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)