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October 07, 2009

The demise of the dollar

Source: The Independent

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading

By Robert Fisk

Tuesday, 6 October 2009

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.

October 26, 2007

US imposes unilateral sanctions on Iran: One step closer to war

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.

October 03, 2007

Hunt Denies His Political Ties Aided Kurdish Pact

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.

WSJ_HuntGraphic.gif

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.

September 26, 2007

Roger Duncan, Plug-in Partners

Source: Treehugger.com

by Eckhart Beatty
San Francisco on 11.23.06

Roger Duncan serves as the Campaign Coordinator for Plug-in Partners, a national campaign for plug-in electric vehicles (PHEVs) striving to demonstrate clearly the viability of this market by doing the following: garnering support in the form of online petitions and endorsements by city governments across the country; procuring "soft" fleet orders; and developing rebates and incentives. TreeHugger's Eckhart Beatty recently had the chance to chat with Mr. Duncan about plug-ins and the future of automotive transportation.

TreeHugger: Why was Plug-in Partners founded in Austin, Texas?

Roger Duncan: As one of the more progressive utilities in the nation, Austin Energy has long led the nation in energy conservation. I was asked to see what else we could be doing in the area of clean energy, and I told the City Council we should start a new initiative in the transportation sector since I saw an eventual convergence between the electric and transportation industries. In my capacity as a manager we might be able to take advantage of the abundance of wind and solar potential to power cars. Soon we began seeing a convergence between the electric and transportation industries.

So in August of 2005, we founded Plug-In Austin. We realized from the beginning what we really had to do was to link similar ongoing efforts taking place across the country. We started by targeting the 50 largest cities in the U.S. Now we have members from utilities, environmental groups, businesses, as well as many other federal, state, and local organizations.

I had originally heard of the efforts of Felix Kramer and CalCars, Electric Power Research Institute EPRI, and Andy Frank, a UC Davis professor at who invented the plug-in technology some 30 years ago.

TH: What's the most important thing you want the average individual to know about plug-ins?

RD: They are very energy efficient, cleaner, and cheaper to operate.

TH: What’s the most efficient way of getting the most people to understand their importance in the shortest possible time?

RD: Invite folks to visit the website Plug-In Partners and recommend they sign up for the newsletter. Consider working with the media, as well getting promotions for us.

TH: If Proposition 87 had passed in CA, what would it have meant for the future of PHEVs?

RD: I really don’t know much about it. I’m not a big fan of initiatives. This one could only stand to help, though. It could well stand to buttress the campaigns of lots of alternative energy technologies—as well as ours.

TH: What would you recommend that everyone who doesn't live in California do in this regard? For instance, would similar initiatives be feasible in other states like Texas, as well?

RD: It (an initiative like California’s 87 ballot measure) probably wouldn’t occur in TX. I’m less interested in (proposing) legislation than in demonstrating a market for PHEVs.

TH: Are all hybrid designs the same—or are some different?

RD: There are different varieties. There’s the serial, the parallel—and then the hydraulic (a protoype still). Although, principal variations in designs relate to battery design such as Nickel-Metal Hydride versus Lithium Ion, there are other differences in the size of the battery compared to the engine (with some new ones proposing smaller gas engines and larger electric motors).

Andy Frank: "Just as in the case of any emerging product or technology, there are many ways to implement PHEV technology, optimize for various factors and conditions. We’re looking forward to sorting this out when car-makers begin building PHEVs." [Mr. Frank is the inventor of the PHEV.]*

TH: What is the longevity of battery systems compared to 100% electric cars?

RD: They may be more powerful per unit mass than the batteries in non-hybrids, but less powerful than pure electric cars. Also, plug-ins require a deep discharge of their batteries, whereas fully electric cars don’t need to discharge the batteries as much.

AF: "While the price/performance ratio of pure electric cars may match or exceed that of PHEVs, it’s not likely. I'll bet on the PHEV staying as the ultimate end game for the remainder of the century," he said. "Lithium is coming up fast and will definitely take over the Metal Hydride in power, weight, life, size, and costs," he concluded.*

TH: By their nature, cars are somewhat "disposable," to be replaced by a new model on average every seven years—or less! Is “planned obsolescence” addressed better by plug-ins, in addition to their superior efficiency?

RD: Not really. Cars stay on the road an average of 16 years. It’s unlikely this figure will decline sharply any time soon.*

TH: Could factory-built plug-ins be made to be "upgradable" with respect to engine designs (for a few years going forward so they won’t become outdated like the first generation Prius did)?

AF: "Not really. As cars become more computer-oriented and more telemetric, possibilities for upgraded systems increase. Most products get better over time—no surprise there."

According to Dr. Frank, although "upgrading is always possible," with upgraded parts becoming interchangeable, "you may be flogging a dead horse for a long time." He concludes by predicting, "The technology of these systems will change very fast and may not stabilize for many years—if ever!"

TH: Bush has backed plug-ins. How helpful has all the political rhetoric been so far?

RD: He "gets it," and his support has been helpful. The Department of Energy is now conducting serious discussions, and a new initiative has been launched within its R&D arm.

TH: What are some ways the Partnership could be strengthened?

RD: It’s actually moving faster than we can keep up with.

TH: Does the association have growth plans?

RD: Yes. We’re starting to approach more corporations. Some notable examples of these and other large organizations are P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members)..

TH: What’s the minimum number of cars in a fleet needed for a "soft order"?

RD: We consider four to five as the minimum, but may consider fewer. It’s called a "soft" order to signify simply an intent to built, since they haven’t been mass-produced yet; it is not an actual purchase order--yet. Also, they can’t be built on speculation, due to the matter of expense.

TH: With all the good news that came regarding PHEVs this year, what are the biggest hurdles in our way to getting them mass-produced?

RD: Only certain kinds of cars manufactures would seriously consider it for particular models.

TH: What’s the latest word on the largest car manufacturers warming up to the idea of producing PHEVs?

RD: Ford and GM have both begun focusing on PHEV initiatives. Initially, they had expressed resistance and uncertainty. The bottom line is they are still researching them. Nissan will develop one—perhaps by 2010.

TH: What does Google really intend to do when it says it "wants to build a plug-in"? Would it support CalCars, Edrive Systems, Energy, CS etc. to do this—or exactly what?

RD: It’s true we’re engaged in discussions with Google, but I’m not at liberty to offer any details today.

TH: What are the largest companies and associations involved with the organization?

RD: P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members).

TH: Who are some of the most noteworthy spokespersons of this idea?

RD: Hillary Clinton, Lester Brown, Orin Hatch, Jr., Barack Obama, George Pataki (Gov. NY), George Schulz, R. James Woolsey (former Director of CIA). Plug-in Partners maintains a list of partners.

TH: What can we do as consumers to get them to do so?

RD: They should visit the Plug-In Partners website: sign up, spread the word, and put in a fleet order if applicable to their business.

TH: What about the notion of the PHEV plugging into a grid concept? Where is that idea today?

RD: True, it’s an interesting idea, and I believe it will happen, but it will be years before it will have significant import, since millions of cars are needed to make an impact.

TH: If you lived in remote area, could you set up your PHEV to power your home during blackouts?

RD: Yes. Toyota recently built a prototype that would allow people to generate electricity at 13kW and 120 volts. This would be especially useful for those living off the grid.

TH: What is your impression of companies’ individual commitments to grappling with the issues of PHEVs?

RD: Yes, I think they will remain committed for the long haul.

TH: If everyone who reads this interview could do just one thing a week to help promote the future of plug-ins as a proven viable alternative to fossil fuels, what should it be?

RD: They should visit the website, sign up, and consider getting involved in our work.::

*Note: I am grateful to Felix Kramer, founder of CalCars and Dr. Andy Frank for help with some of these answers.::

August 29, 2007

Is China preparing for war with U.S.?

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.

August 18, 2007

Russia sends long bombers back on patrol

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.

July 31, 2007

Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles

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.

April 04, 2007

We Must Imagine a Future Without Cars

Source: AlterNet

By James Howard Kunstler
Posted April 4, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Back to the task list:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

January 20, 2007

China Shows Assertiveness in Weapons Test

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.”

January 14, 2007

Why Iran Is Next

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.

December 29, 2006

China defends military rise, says faces threats

Source: Reuters

By Ben Blanchard
December 29, 2006

BEIJING (Reuters) - China's military modernization will focus on strengthening its navy and air force as it faces security threats from border spats, historical disputes and self-ruled Taiwan, a defense white paper released on Friday said.

But China, whose increasing defense spending and military build-up has been a source of friction with the United States, will never engage in an arms race or threaten any other nation, the policy paper said.

"The navy will gradually ... raise its marine combat and nuclear counter-attack capabilities," it said.

"The air force aims at speeding up its transition from territorial air defense to both offensive and defensive operations, and increasing its capabilities in the areas of air strike, air and missile defense, early warning and reconnaissance and strategic projection."

President
Hu Jintao this week urged the building of a powerful Chinese navy that was prepared "at any time" for combat.

The report also defended China's rising military spending, pointing out that it spends less per capita than the United States, Britain, France or Russia and saying it was committed to peaceful development.

Describing China's general security situation as good, the 83-page document nonetheless wasted little time in denouncing Taiwan independence moves, saying the island over which Beijing claims sovereignty was a serious threat to regional stability.

"The struggle to oppose and control 'Taiwan independence' splittist forces and their activities is complex and grim," it said.

China and Taiwan have faced off since 1949 when Nationalist forces fled to the island after losing the Chinese civil war to the Communists.

Liu Te-shun, vice chairman of Taiwan's policy-making Mainland Affairs Council, said the release of the white paper raised China's military threat toward Taiwan and cast a cloud over the normalization of cross-strait ties.

"China's 2006 defense white paper still deliberately avoids the world's misgivings about its expanded military and the truthfulness of the increase of its national defense budget," Liu told a news conference in Taipei on Friday.

"It will only increase suspicion among the international community about the rise of China," he said.

Analysts said the report reflected China's primary goal of deterring both Taiwan independence and the prospect of U.S. intervention in the Taiwan Strait.

"China does not want to develop ... the kind of power projection capability that would match the United States in the long term," said Li Mingjiang, an assistant professor at the Singapore Institute of Defense and Strategic Studies.

"Its specific focus is on Taiwan, on the worst-case scenario for Taiwan moving toward independence, then declaring independence and U.S. intervention," he said.

OTHER THREATS

The report also said China was facing threats from other, unnamed neighbors. "The issues of border complexities and sensitive historical problems still have an effect on China's security environment," it said.

China has fought brief border wars with India, Vietnam and the former Soviet Union, and continues to dispute the ownership of islets in the South China Sea with Vietnam, Taiwan, Malaysia, Brunei and the Philippines.

China also remains wary of Japan, which occupied parts of the country between 1931 and 1945 and which called on Beijing earlier this year to be more open about its military.

Japan's Kyodo news agency said on Friday that Tokyo held a joint navy exercise with Washington for the first time last month under the assumption that China had invaded the disputed Senkaku islands -- known as Diaoyus in China -- in the East China Sea.

The report also defended the rise in China's defense expenditure, officially projected to be some $36 billion in 2006, up about 15 percent from the previous year. Many foreign experts believe the real figure is significantly higher.

"This increase is to compensate for topping up basic defense weaknesses," it said.

(Additional reporting by Guo Shipeng and Lindsay Beck in Beijing, Lee Chyen Yee in Taipei and Chisa Fujioka in Tokyo)

The Proposed Iranian Oil Bourse

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

December 28, 2006

Tense countdown to Russia-Belarus 'gas war' begins

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."

December 27, 2006

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.

December 23, 2006

UN Imposes First Sanctions on Iran's Nuclear Program

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

December 21, 2006

Energy Rivalries Set to Heat Up

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.

December 07, 2006

The Peak Oil Crisis: The Saudi Op-Ed

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.

October 01, 2006

Intelligence Brief: Escalating Tension between Georgia and Russia

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.

September 29, 2006

Russia: Plans to close bases in doubt

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."

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