Oil and Gold Geo-politics
Since many months the price of oil has plummeted from nearly 120USD per barrel to USD 60 per barrel and even 40. Some suggestions have been made that it may come down to even 20, which I believe is unlikely. However, it may possibly hover between USD 40-USD 60 per barrel. But one never knows. US stimulus money without any backing was being used to prop up the price of oil and other commodities. For the time being, it appears that fracking for oil and gas, a very dubious harmful and very greedy method of producing energy without taking into account long-term ill effects, which is the policy of neo-capitalism, has been given a welcome suspension if not death for the time being. There have been agitations against fracking all over America, even in Canada, England and elsewhere.
However, fight for search, production and routes for transport of petroleum or gas would continue to dominate the world strategic balance and disturbances. These were brought about in greater Middle East and North Africa after the catastrophic policies followed by US and dutifully backed by British poodle, while the military-industrial complex and energy sector in the West has gained .But USA and Europe are no longer the power they were before 2003. UK has become a standing joke.
It may be recalled that one of the major objectives of the Marshall plan was to make Europe change from use of coal for energy to oil, which had been discovered in Middle East, which were under the tutelage of London and Washington .Thus Europe became indebted to USA and UK because of diversion from coal for energy and industry. In the process research into clean use of coal was probably retarded.
It is before WWII that Washington and Riyadh signed agreements to be a part defence alliance . Saudi Arabia provides its immense energy resources and Washington and London provide military protection to Saudi Arabia and other Gulf states. As has been brought out London decided to divide India for reasons including one of not allowing an independent nonaligned India any direct linkages with USSR, not even across the Wakhan corridor.
USA has exploited ruthlessly its status of dollar as the reserve currency, without which it is bankrupt .Now many countries, including even China, Saudi Arabia and others have interest in keeping the dollar steady as sudden decline would bring about unintended consequences for the world economy. Interlinked economies have become like a worldwide casino, in which USA has control over chips which it can increase or decrease.Mostly with these chips it is making money ie from those who haave to keep dollars because of its being as reserve currency and bilateral trade settlements .
But slowly many countries especially from the Brics and even others have started using their own currencies for bilateral trade .New International development banks are being created to counter the World Bank and International monetary fund. Last year some reports had suggested that the dollar will come under severe strain in the middle of 2015.
According to reports, the Federal Reserve is thinking of finally levying interest rate by minimum amount increase which will lead to withdrawal of some of the Trillion 3 dollars stimulus gurgling around stock exchanges all around the world.
Another lifetime strategic development to consider is the emergence and acceptance of Iran as a major regional power by U.S.-led West, even Moscow, much to the discomfort of Saudi Arabia. China needs energy from Iran as does India and if Pakistan can be pacified then Iran can provide much of all the energy needs which India requires. It was a foolish decision on the part of Prime Minister MMSingh to vote against Iran in Vienna and send the case to United Nations. There is little point in babbling about civilisation similarities when you hurt Tehran in their time of distress. New Delhi did not even extract a good price since US was interested in squeezing Iran .Apart from photo-ops which Indians love with white leaders ,India got a unfair indo-us nuclear deal . NDA was rightly opposed to it.
China is courting Iran for its energy needs and as a big new market for supply of military hardware and other goods for which you will soon find US, EU nations, Russia, China and others competing. Once the sanctions are relaxed or removed Iran will add one to two million bpd, which will go into keeping the oil prices down, even if Saudi Arabia cuts down its oil production .Good news for India and lucky BJP.
Riyadh is in a real quandary. They are worried about the ISIL fighters, an organisation which was openly and surreptitiously created by USA, NATO powers, including Turkey, Jordan and Gulf states led by Riyadh and which now controls parts of Syria and Iraq in adjoining Eastern provinces of Saudi Arabia, which has Shia majority and big part of total of Saudi energy reserves.. It is unlikely that USA will let Saudi Arabia down. The problems lie within with restive young population not part of the thousands of princes corporation called Saudi Arabia Inco .But US is not likely to provide troops, as decorated Marine Col Murtha had said that the American army was broken in Iraq , never mind immense and brutal destruction brought to that country.
An apprehensive Saudi Arabia, does not even trust most of its tribes to be the soldiers in its army.It is really worried and according to media reports wanted Pakistan to provide some brigades on its on the border between Iraq and Saudi Arabia. For a decade Pak troops were stationed in Saudi Arabia after 1979 Shia revolution in Iran .Reportedly Nawaz Sharif has declined for the time being .
Riyadh is also worried that sooner or later, Iran will have nukes and the balance in the Gulf will go in its favour. There were reports nearly 10 years ago in German media that Saudi Arabia, which had given huge grant for the development of nuclear bombs to Pakistan might even have a few of them somewhere in Saudi Arabia itself. In any case, at some stage, it may ask Islamabad to pay for all the assistance Riyadh has given.
But Pakistan itself in a very sorry state of affairs. There is very little point in India being gleeful about it. The hell fire raging in Pakistan has been created of course, with full support from Pakistani leaders and rulers, with military and financial support from the US led West ,Saudi Arabia and even China. It has completely broken down .Pakistan terror apart from spilling over into India can also pose dangers to China through training of Uighur terrorists in Pakistan and Afghanistan.
In a fanciful future world, there can be energy pipelines, from Iran to India via Pakistan and Central Asia to India via Afghanistan and Pakistan. If all Asian powers, beginning with Russia , China, India and later on, Japan come together ,Pakistan may even build energy corridors .China , has already suggested an industrial corridor through Park occupied Kashmir and Pakistan, which will ultimately lead to Baluchistan port of Gwadar.
A recent article below explains the reasons how the big oil companies used whatever means at the command including lies to keep the oil price high and made massive profits.
In another article it is explained how the Western attempt to squeeze Moscow by bringing down the price of oil since Russia's budget depends highly on its export of energy, has been countered by Putin by selling energy for gold or dollars and then converting the latter into gold . The dollar is overpriced and gold underpriced. Russia, China and India are big buyers of Gold .Recently Alan Greenspan , former FED chairman, was forced to admit that in international trade gold is the only currency acceptable.
K Gajendra Singh 19 March, 2015, Delhi
Big Oil's Broken Business Model
The Real Story Behind the Oil Price Collapse
By Michael T. Klare
Many reasons have been provided for the dramatic plunge in the price of oil to about $60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the U.S. and elsewhere); and the increased value of the dollar relative to other currencies. There is, however, one reason that's not being discussed, and yet it could be the most important of all: the complete collapse of Big Oil's production-maximizing business model.
Until last fall, when the price decline gathered momentum, the oil giants were operating at full throttle, pumping out more petroleum every day. They did so, of course, in part to profit from the high prices. For most of the previous six years, Brent crude, the international benchmark for crude oil, had been selling at $100 or higher. But Big Oil was also operating according to a business model that assumed an ever-increasing demand for its products, however costly they might be to produce and refine. This meant that no fossil fuel reserves, no potential source of supply -- no matter how remote or hard to reach, how far offshore or deeply buried, how encased in rock -- was deemed untouchable in the mad scramble to increase output and profits.
In recent years, this output-maximizing strategy had, in turn, generated historic wealth for the giant oil companies. Exxon, the largest U.S.-based oil firm, earned an eye-popping $32.6 billion in 2013 alone, more than any other American company except for Apple. Chevron, the second biggest oil firm,posted earnings of $21.4 billion that same year. State-owned companies like Saudi Aramco and Russia's Rosneft also reaped mammoth profits.
How things have changed in a matter of mere months. With demand stagnant and excess production the story of the moment, the very strategy that had generated record-breaking profits has suddenly become hopelessly dysfunctional.
To fully appreciate the nature of the energy industry's predicament, it's necessary to go back a decade to 2005, when the production-maximizing strategy was first adopted. At that time, Big Oil faced a critical juncture. On the one hand, many existing oil fields were being depleted at a torrid pace, leading experts to predict an imminent "peak" in global oil production, followed by an irreversible decline; on the other, rapid economic growth in China, India, and other developing nations was pushing demand for fossil fuels into the stratosphere. In those same years, concern over climate change was also beginning to gather momentum, threatening the future of Big Oil and generating pressures to invest in alternative forms of energy.
A "Brave New World" of Tough Oil
No one better captured that moment than David O'Reilly, the chairman and CEO of Chevron. "Our industry is at a strategic inflection point, a unique place in our history," he told a gathering of oil executives that February. "The most visible element of this new equation," he explained in what some observers dubbed his "Brave New World" address, "is that relative to demand, oil is no longer in plentiful supply." Even though China was sucking up oil, coal, and natural gas supplies at a staggering rate, he had a message for that country and the world: "The era of easy access to energy is over."
To prosper in such an environment, O'Reilly explained, the oil industry would have to adopt a new strategy. It would have to look beyond the easy-to-reach sources that had powered it in the past and make massive investments in the extraction of what the industry calls "unconventional oil" and what I labeled at the time "tough oil": resources located far offshore, in the threatening environments of the far north, in politically dangerous places like Iraq, or in unyielding rock formations like shale. "Increasingly," O'Reilly insisted, "future supplies will have to be found in ultradeep water and other remote areas, development projects that will ultimately require new technology and trillions of dollars of investment in new infrastructure."
For top industry officials like O'Reilly, it seemed evident that Big Oil had no choice in the matter. It would have to invest those needed trillions in tough-oil projects or lose ground to other sources of energy, drying up its stream of profits. True, the cost of extracting unconventional oil would be much greater than from easier-to-reach conventional reserves (not to mention more environmentally hazardous), but that would be the world's problem, not theirs. "Collectively, we are stepping up to this challenge," O'Reilly declared. "The industry is making significant investments to build additional capacity for future production."
On this basis, Chevron, Exxon, Royal Dutch Shell, and other major firms indeed invested enormous amounts of money and resources in a growing unconventional oil and gas race, an extraordinary saga I described in my book The Race for What's Left. Some, including Chevron and Shell, started drilling in the deep waters of the Gulf of Mexico; others, including Exxon, commenced operations in the Arctic and eastern Siberia. Virtually every one of them began exploiting U.S. shale reserves via hydro-fracking.
Only one top executive questioned this drill-baby-drill approach: John Browne, then the chief executive of BP. Claiming that the science of climate change had become too convincing to deny, Browne argued that Big Energy would have to look "beyond petroleum" and put major resources into alternative sources of supply. "Climate change is an issue which raises fundamental questions about the relationship between companies and society as a whole, and between one generation and the next," he had declared as early as 2002. For BP, he indicated, that meant developing wind power, solar power, and biofuels.
Browne, however, was eased out of BP in 2007 just as Big Oil's output-maximizing business model was taking off, and his successor, Tony Hayward, quickly abandoned the "beyond petroleum" approach. "Some may question whether so much of the [world's energy] growth needs to come from fossil fuels," he said in 2009. "But here it is vital that we face up to the harsh reality [of energy availability]." Despite the growing emphasis on renewables, "we still foresee 80% of energy coming from fossil fuels in 2030."
Under Hayward's leadership, BP largely discontinued its research into alternative forms of energy and reaffirmed its commitment to the production of oil and gas, the tougher the better. Following in the footsteps of other giant firms, BP hustled into the Arctic, the deep water of the Gulf of Mexico, and Canadian tar sands, a particularly carbon-dirty and messy-to-produce form of energy. In its drive to become the leading producer in the Gulf, BP rushed the exploration of a deep offshore field it called Macondo, triggeringthe Deepwater Horizon blow-out of April 2010 and the devastating oil spill of monumental proportions that followed.
Over the Cliff
By the end of the first decade of this century, Big Oil was united in its embrace of its new production-maximizing, drill-baby-drill approach. It made the necessary investments, perfected new technology for extracting tough oil, and did indeed triumph over the decline of existing, "easy oil" deposits. In those years, it managed to ramp up production in remarkable ways, bringing ever more hard-to-reach oil reservoirs online.
According to the Energy Information Administration (EIA) of the U.S. Department of Energy, world oil production rose from 85.1 million barrels per day in 2005 to 92.9 million in 2014, despite the continuing decline of many legacy fields in North America and the Middle East. Claiming that industry investments in new drilling technologies had vanquished the specter of oil scarcity, BP's latest CEO, Bob Dudley, assured the world only a year ago that Big Oil was going places and the only thing that had "peaked" was "the theory of peak oil."
That, of course, was just before oil prices took their leap off the cliff, bringing instantly into question the wisdom of continuing to pump out record levels of petroleum. The production-maximizing strategy crafted by O'Reilly and his fellow CEOs rested on three fundamental assumptions: that, year after year, demand would keep climbing; that such rising demand would ensure prices high enough to justify costly investments in unconventional oil; and that concern over climate change would in no significant way alter the equation. Today, none of these assumptions holds true.
Demand will continue to rise -- that's undeniable, given expected growth in world income and population -- but not at the pace to which Big Oil has become accustomed. Consider this: in 2005, when many of the major investments in unconventional oil were getting under way, the EIA projected that global oil demand would reach 103.2 million barrels per day in 2015; now, it's lowered that figure for this year to only 93.1 million barrels. Those 10 million "lost" barrels per day in expected consumption may not seem like a lot, given the total figure, but keep in mind that Big Oil's multibillion-dollar investments in tough energy were predicated on all that added demand materializing, thereby generating the kind of high prices needed to offset the increasing costs of extraction. With so much anticipated demand vanishing, however, prices were bound to collapse.
Current indications suggest that consumption will continue to fall short of expectations in the years to come. In an assessment of future trends released last month, the EIA reported that, thanks to deteriorating global economic conditions, many countries will experience either a slower rate of growth or an actual reduction in consumption. While still inching up, Chinese consumption, for instance, is expected to grow by only 0.3 million barrels per day this year and next -- a far cry from the 0.5 million barrel increase it posted in 2011 and 2012 and its one million barrel increase in 2010. In Europe and Japan, meanwhile, consumption is actually expected to fall over the next two years.
And this slowdown in demand is likely to persist well beyond 2016, suggests the International Energy Agency (IEA), an arm of the Organization for Economic Cooperation and Development (the club of rich industrialized nations). While lower gasoline prices may spur increased consumption in the United States and a few other nations, it predicted, most countries will experience no such lift and so "the recent price decline is expected to have only a marginal impact on global demand growth for the remainder of the decade."
This being the case, the IEA believes that oil prices will only average about $55 per barrel in 2015 and not reach $73 again until 2020. Such figures fall far below what would be needed to justify continued investment in and exploitation of tough-oil options like Canadian tar sands, Arctic oil, and many shale projects. Indeed, the financial press is now full of reports on stalled or cancelled mega-energy projects. Shell, for example, announced in January that it had abandoned plans for a $6.5 billion petrochemical plant in Qatar, citing "the current economic climate prevailing in the energy industry." At the same time, Chevron shelved its plan to drill in the Arctic waters of the Beaufort Sea, while Norway's Statoil turned its back on drilling in Greenland.
There is, as well, another factor that threatens the wellbeing of Big Oil: climate change can no longer be discounted in any future energy business model. The pressures to deal with a phenomenon that could quite literally destroy human civilization are growing. Although Big Oil has spent massive amounts of money over the years in a campaign to raise doubts about the science of climate change, more and more people globally are starting toworry about its effects -- extreme weather patterns, extreme storms, extreme drought, rising sea levels, and the like -- and demanding that governments take action to reduce the magnitude of the threat.
Europe has already adopted plans to lower carbon emissions by 20% from 1990 levels by 2020 and to achieve even greater reductions in the following decades. China, while still increasing its reliance on fossil fuels, has at least finally pledged to cap the growth of its carbon emissions by 2030 and to increase renewable energy sources to 20% of total energy use by then. In the United States, increasingly stringent automobile fuel-efficiency standards will require that cars sold in 2025 achieve an average of 54.5 miles per gallon, reducing U.S. oil demand by 2.2 million barrels per day. (Of course, the Republican-controlled Congress -- heavily subsidized by Big Oil -- will do everything it can to eradicate curbs on fossil fuel consumption.)
Still, however inadequate the response to the dangers of climate change thus far, the issue is on the energy map and its influence on policy globally can only increase. Whether Big Oil is ready to admit it or not, alternative energy is now on the planetary agenda and there's no turning back from that. "It is a different world than it was the last time we saw an oil-price plunge," said IEA executive director Maria van der Hoeven in February, referring to the 2008 economic meltdown. "Emerging economies, notably China, have entered less oil-intensive stages of development… On top of this, concerns about climate change are influencing energy policies [and so] renewables are increasingly pervasive."
The oil industry is, of course, hoping that the current price plunge will soon reverse itself and that its now-crumbling maximizing-output model will make a comeback along with $100-per-barrel price levels. But these hopes for the return of "normality" are likely energy pipe dreams. As van der Hoeven suggests, the world has changed in significant ways, in the process obliterating the very foundations on which Big Oil's production-maximizing strategy rested. The oil giants will either have to adapt to new circumstances, while scaling back their operations, or face takeover challenges from more nimble and aggressive firms.
Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What's Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.
Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit's Men Explain Things to Me, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.
Copyright 2015 Michael T. Klare
The Golden Trap of Chess Master Vladimir Putin ~ [must read]
Posted on November 30, 2014by Jean
Posted by SyrianFreePress
An article definitely to be spread and read, especially by those who have not well understood the political economic and military strategy of Putin and today's Russia. (SFP)
"The Golden Trap of Chess Master Vladimir Putin"
By Dmitry Kalinichenko for Investcafe.ru
Accusations of the West towards Putin traditionally are based on the fact that he worked in the KGB. And therefore he is a cruel and immoral person. Putin is blamed for everything. But nobody ever accused Putin of lack of intelligence.
Any accusations against this man only emphasize his ability for quick analytical thinking and making clear and balanced political and economic decisions.
Often Western media compares this ability with the ability of a grandmaster, conducting a public chess simul. Recent developments in US economy and the West in general allow us to conclude that in this part of the assessment of Putin's personality Western media is absolutely right.
Despite numerous success reports in the style of Fox News and CNN, today, Western economy, led by the United States is in Putin's trap, the way out of which no one in the West can see or find. And the more the West is trying to escape from this trap, the more stuck it becomes.
What is the truly tragic predicament of the West and the United States, in which they find themselves? And why all the Western media and leading Western economists are silent about this, as a well guarded military secret? Let's try to understand the essence of current economic events, in the context of the economy, setting aside the factors of morality, ethics and geopolitics.
After realizing its failure in Ukraine, the West, led by the US set out to destroy Russian economy by lowering oil prices, and accordingly gas prices as the main budget sources of export revenue in Russia and the main sources of replenishment of Russian gold reserves.
It should be noted that the main failure of the West in Ukraine is not military or political. But in the actual refusal of Putin to fund the Western project of Ukraine at the expense of the budget of Russian Federation. What makes this Western project not viable in the near and inevitable future.
Last time under president Reagan, such actions of the West's lowering of oil prices led to 'success' and the collapse of USSR. But history does not repeat itself all the time. This time things are different for the West. Putin's response to the West resembles both chess and judo, when the strength used by the enemy is used against him, but with minimal costs to the strength and resources of the defender. Putin's real policies are not public. Therefore, Putin's policy largely has always focused not so much on effect, but on efficiency.
Very few people understand what Putin is doing at the moment. And almost no one understands what he will do in the future.
No matter how strange it may seem, but right now, Putin is selling Russian oil and gas only for physical gold.
Putin is not shouting about it all over the world. And of course, he still accepts US dollars as an intermediate means of payment. But he immediately exchanges all these dollars obtained from the sale of oil and gas for physical gold!
To understand this, it is enough to look at the dynamics of growth of gold reserves of Russia and to compare this data with foreign exchange earnings of the RF coming from the sale of oil and gas over the same period.
Moreover, in the third quarter the purchases by Russia of physical gold are at an all-time high, record levels. In the third quarter of this year, Russia had purchased an incredible amount of gold in the amount of 55 tons. It's more than all the central banks of all countries of the world combined(according to official data)!
In total, the central banks of all countries of the world have purchased 93 tons of the precious metal in the third quarter of 2014. It was the 15th consecutive quarter of net purchases of gold by Central banks. Of the 93 tonnes of gold purchases by central banks around the world during this period, the staggering volume of purchases – of 55 tons – belongs to Russia.
Not so long ago, British scientists have successfully come to the same conclusion, as was published in the Conclusion of the U.S. Geological survey a few years ago. Namely: Europe will not be able to survive without energy supply from Russia. Translated from English to any other language in the world it means: "The world will not be able to survive if oil and gas from Russia is subtracted from the global balance of energy supply".
Thus, the Western world, built on the hegemony of the petrodollar, is in a catastrophic situation. In which it cannot survive without oil and gas supplies from Russia. And Russia is now ready to sell its oil and gas to the West only in exchange for physical gold! The twist of Putin's game is that the mechanism for the sale of Russian energy to the West only for gold now works regardless of whether the West agrees to pay for Russian oil and gas with its artificially cheap gold, or not.
Because Russia, having a regular flow of dollars from the sale of oil and gas, in any case, will be able to convert them to gold with current gold prices, depressed by all means by the West. That is, at the price of gold, which had been artificially and meticulously lowered by the Fed and ESF many times, against artificially inflated purchasing power of the dollar through market manipulation.
Interesting fact: the suppression of gold prices by the special department of US Government – ESF (Exchange Stabilization Fund) – with the aim of stabilizing the dollar has been made into a law in the United States.
In the financial world it is accepted as a given that gold is an antidollar.
In 1971, US President Richard Nixon closed the 'gold window', ending the free exchange of dollars for gold, guaranteed by the US in 1944 at Bretton Woods.
In 2014, Russian President Vladimir Putin has reopened the 'gold window', without asking Washington's permission.
Right now the West spends much of its efforts and resources to suppress the prices of gold and oil. Thereby, on the one hand to distort the existing economic reality in favor of the US dollar and on the other hand, to destroy the Russian economy, refusing to play the role of obedient vassal of the West.
Today assets such as gold and oil look proportionally weakened and excessively undervalued against the US dollar. It is a consequence of the enormous economic effort on the part of the West.
And now Putin sells Russian energy resources in exchange for these US dollars, artificially propped by the efforts of the West. With which he immediately buys gold, artificially devalued against the U.S. dollar by the efforts of the West itself!
There is another interesting element in Putin's game. It's Russian uranium. Every sixth light bulb in the USA depends on its supply. Which Russia sells to the US too, for dollars.
Thus, in exchange for Russian oil, gas and uranium, the West pays Russia with dollars, purchasing power of which is artificially inflated against oil and gold by the efforts of the West. But Putin uses these dollars only to withdraw physical gold from the West in exchange, for the price denominated in US dollars, artificially lowered by the same West.
This truly brilliant economic combination by Putin puts the West led by the United States in a position of a snake, aggressively and diligently devouring its own tail.
