Tag Archives: price of oil

The Fallujah Option for East Ukraine

The Real Reason Washington Feels Threatened by Moscow

By Mike Whitney
February 7, 2015
Counter Punch

 

Destruction of Falluja, 14 November 2004

Marines ride down main street in Falluja after a week of bombardment and wholesale destruction of the city by U.S. troops.

“I want to appeal to the Ukrainian people, to the mothers, the fathers, the sisters and the grandparents. Stop sending your sons and brothers to this pointless, merciless slaughter. The interests of the Ukrainian government are not your interests. I beg of you: Come to your senses. You do not have to water Donbass fields with Ukrainian blood. It’s not worth it.”

— Alexander Zakharchenko,  Prime Minister of the Donetsk People’s Republic

Washington needs a war in Ukraine to achieve its strategic objectives. This point cannot be overstated.

The US wants to push NATO to Russia’s western border. It wants a land-bridge to Asia to spread US military bases across the continent.  It wants to control the pipeline corridors from Russia to Europe to monitor Moscow’s revenues and to  ensure that gas continues to be denominated in dollars. And it wants a weaker, unstable Russia that is more prone to regime change, fragmentation and, ultimately, foreign control. These objectives cannot be achieved peacefully, indeed, if the fighting stopped tomorrow,  the sanctions would be lifted shortly after, and the Russian economy would begin to recover. How would that benefit Washington?

It wouldn’t. It would undermine Washington’s broader plan to integrate China and Russia into the prevailing economic system, the dollar system. Powerbrokers in the US realize that the present system must either expand or collapse. Either China and Russia are brought to heel and persuaded to accept a subordinate role in the US-led global order or Washington’s tenure as global hegemon will come to an end.

This is why hostilities in East Ukraine have escalated and will continue to escalate. This is why the U.S. Congress  approved a bill for tougher sanctions on Russia’s energy sector and lethal aid for Ukraine’s military. This is why Washington has sent military trainers to Ukraine and is preparing to provide  $3 billion in  “anti-armor missiles, reconnaissance drones, armored Humvees, and radars that can determine the location of enemy rocket and artillery fire.” All of Washington’s actions are designed with one purpose in mind, to intensify the fighting and escalate the conflict. The heavy losses sustained by Ukraine’s inexperienced army and the terrible suffering of the civilians in Lugansk and Donetsk  are of no interest to US war-planners. Their job is to make sure that peace is avoided at all cost because peace would derail US plans to pivot to Asia and remain the world’s only superpower. Here’s an except from an article in the WSWS:

“The ultimate aim of the US and its allies is to reduce Russia to an impoverished and semi-colonial status. Such a strategy, historically associated with Carter administration National Security Advisor Zbigniew Brzezinski, is again being openly promoted.

In a speech last year at the Wilson Center, Brzezinski called on Washington to provide Kiev with “weapons designed particularly to permit the Ukrainians to engage in effective urban warfare of resistance.” In line with the policies now recommended in the report by the Brookings Institution and other think tanks calling for US arms to the Kiev regime, Brzezinski called for providing “anti-tank weapons…weapons capable for use in urban short-range fighting.”

While the strategy outlined by Brzezinski is politically criminal—trapping Russia in an ethnic urban war in Ukraine that would threaten the deaths of millions, if not billions of people—it is fully aligned with the policies he has promoted against Russia for decades.” (“The US arming of Ukraine and the danger of World War III“, World Socialist Web Site)

Non-lethal military aid will inevitably lead to lethal military aid, sophisticated weaponry, no-fly zones, covert assistance, foreign contractors, Special ops, and boots on the ground. We’ve seen it all before. There is no popular opposition to the war in the US, no thriving antiwar movement that can shut down cities, order a general strike or disrupt the status quo. So there’s no way to stop the persistent drive to war. The media and the political class have given Obama carte blanche, the authority to prosecute the conflict as he sees fit. That increases the probability of a broader war by this summer following the spring thaw.

While the possibility of a nuclear conflagration cannot be excluded, it won’t effect US plans for the near future. No one thinks that Putin will launch a nuclear war to protect the Donbass, so the deterrent value of the weapons is lost.

And Washington isn’t worried about the costs either.   Despite botched military interventions in Afghanistan, Iraq, Libya and half a dozen other countries around the world; US stocks are still soaring, foreign investment in US Treasuries is at record levels,, the US economy is growing at a faster pace than any of its global competitors, and the dollar has risen an eye-watering 13 percent against a basket of foreign currencies since last June. America has paid nothing for decimating vast swathes of the planet and killing more than a million people. Why would they stop now?

They won’t, which is why the fighting in Ukraine is going to escalate. Check this out from the WSWS:

“On Monday, the New York Times announced that the Obama administration is moving to directly arm the Ukrainian army and the fascistic militias supporting the NATO-backed regime in Kiev, after its recent setbacks in the offensive against pro-Russian separatist forces in east Ukraine.

The article cites a joint report issued Monday by the Brookings Institution, the Atlantic Council, and the Chicago Council on Global Affairs and delivered to President Obama, advising the White House and NATO on the best way to escalate the war in Ukraine….

According to the Times, US officials are rapidly shifting to support the report’s proposals. NATO military commander in Europe General Philip M. Breedlove, Defense Secretary Chuck Hagel, US Secretary of State John Kerry, and Chairman of the Joint Chiefs of Staff General Martin Dempsey all supported discussions on directly arming Kiev. National Security Advisor Susan Rice is reconsidering her opposition to arming Kiev, paving the way for Obama’s approval.” (“Washington moves toward arming Ukrainian regime“, World Socialist Web Site)

See what’s going on? The die is already cast. There will be a war with Russia because that’s what the political establishment wants. It’s that simple. And while previous provocations failed to lure Putin into the Ukrainian cauldron, this new surge of violence–a spring offensive– is bound to do the trick. Putin is not going to sit on his hands while proxies armed with US weapons and US logistical support pound the Donbass to Fallujah-type rubble.  He’ll do what any responsible leader would do. He’ll protect his people. That means war. (See the vast damage that Obama’s proxy war has done to E. Ukraine here: “An overview of the socio – humanitarian situation on the territory of Donetsk People’s Republic as a consequence of military action from 17 to 23 January 2015“)

Asymmetrical Warfare: Falling Oil Prices

Keep in mind, that the Russian economy has already been battered by economic sanctions, oil price manipulation, and a vicious attack of the ruble. Until this week, the mainstream media dismissed the idea that the Saudis were deliberately pushing down oil prices to hurt Russia. They said the Saudis were merely trying to retain “market share” by maintaining current production levels and letting prices fall naturally. But it was all bunkum as the New York Times finally admitted on Tuesday in an article titled: “Saudi Oil Is Seen as Lever to Pry Russian Support From Syria’s Assad”. Here’s a clip from the article:

“Saudi Arabia has been trying to pressure President Vladimir V. Putin of Russia to abandon his support for President Bashar al-Assad of Syria, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices…

Saudi officials say — and they have told the United States — that they think they have some leverage over Mr. Putin because of their ability to reduce the supply of oil and possibly drive up prices….Any weakening of Russian support for Mr. Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft…..

Saudi Arabia’s leverage depends on how seriously Moscow views its declining oil revenue. “If they are hurting so bad that they need the oil deal right away, the Saudis are in a good position to make them pay a geopolitical price as well,” said F. Gregory Gause III, a Middle East specialist at Texas A&M’s Bush School of Government and Public Service (“Saudi Oil Is Seen as Lever to Pry Russian Support From Syria’s Assad“, New York Times)

The Saudis “think they have some leverage over Mr. Putin because of their ability” to manipulate prices?

That says it all, doesn’t it?

What’s interesting about this article is the way it conflicts with previous pieces in the Times. For example, just two weeks ago, in an article titled “Who Will Rule the Oil Market?”  the author failed to see any political motive behind the Saudi’s action.  According to the narrative, the Saudis were just afraid that “they would lose market share permanently” if they cut production and kept prices high. Now the Times has done a 180 and joined the so called conspiracy nuts who said that prices were manipulated for political reasons.  In fact, the  sudden price plunge had nothing to do with deflationary pressures, supply-demand dynamics, or any other mumbo-jumbo market forces. It was 100 percent politics.

The attack on the ruble was also politically motivated, although the details are much more sketchy. There’s an interesting interview with Alistair Crooke that’s worth a read for those who are curious about how the Pentagon’s “full spectrum dominance” applies to financial warfare. According to Crooke:

“…with Ukraine, we have entered a new era: We have a substantial, geostrategic conflict taking place, but it’s effectively a geo-financial war between the US and Russia. We have the collapse in the oil prices; we have the currency wars; we have the contrived “shorting” — selling short — of the ruble. We have a geo-financial war, and what we are seeing as a consequence of this geo-financial war is that first of all, it has brought about a close alliance between Russia and China.

China understands that Russia constitutes the first domino; if Russia is to fall, China will be next. These two states are together moving to create a parallel financial system, disentangled from the Western financial system. ……

For some time, the international order was structured around the United Nations and the corpus of international law, but more and more the West has tended to bypass the UN as an institution designed to maintain the international order, and instead relies on economic sanctions to pressure some countries. We have a dollar-based financial system, and through instrumentalizing America’s position as controller of all dollar transactions, the US has been able to bypass the old tools of diplomacy and the UN — in order to further its aims.

But increasingly, this monopoly over the reserve currency has become the unilateral tool of the United States — displacing multilateral action at the UN. The US claims jurisdiction over any dollar-denominated transaction that takes place anywhere in the world. And most business and trading transactions in the world are denominated in dollars. This essentially constitutes the financialization of the global order: The International Order depends more on control by the US Treasury and Federal Reserve than on the UN as before.” (“Turkey might become hostage to ISIL just like Pakistan did“,  Today’s Zaman)

Financial warfare, asymmetrical warfare, Forth Generation warfare, space warfare, information warfare, nuclear warfare, laser, chemical, and biological warfare. The US has expanded its arsenal well beyond the  traditional range of conventional weaponry. The goal, of course, is to preserve the post-1991 world order (The dissolution up of the Soviet Union) and maintain full spectrum dominance. The emergence of a multi-polar world order spearheaded by Moscow poses the greatest single threat to Washington’s plans for continued domination.  The first significant clash between these two competing world views will likely take place sometime this summer in East Ukraine. God help us.

NOTE:  The Novorussia Armed Forces (NAF) currently have 8,000 Ukrainian regulars surrounded in Debaltsevo, East Ukraine.  This is a very big deal although the media has been (predictably) keeping the story out of the headlines.

Evacuation corridors have been opened to allow civilians to leave the area.  Fighting could break out at anytime.  At present, it looks like a good part of the Kiev’s Nazi army could be destroyed in one fell swoop.  This is why Merkel and Hollande have taken an emergency flight to Moscow to talk with Putin.  They are not interested in peace. They merely want to save their proxy army from annihilation.

I expect Putin may intervene on behalf of the Ukrainian soldiers, but I think commander Zakharchenko will resist.   If he lets these troops go now, what assurance does he have that they won’t be back in a month or so with high-powered weaponry provided by our war-mongering congress and White House?

Tell me; what choice does Zakharchenko really have? If his comrades are killed in future combat because he let Kiev’s army escape, who can he blame but himself?

There are no good choices.

Check here for updates:  Ukraine SITREP: *Extremely* dangerous situation in Debaltsevo

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

 

Mystery Behind Dropping Oil Prices Solved – Concerted Manipulation

By Ulson Gunnar
February 7, 2015
New Eastern Outlook

 

Who’s surprised? Various stories had been invented by media houses across the Western world in an attempt to explain why oil prices have conveniently fallen, just in time to pressure Russia, Venezuela and Iran, and all while covert political subversion, attempts to sell all-out-war and other measures have completely failed to assert US interests around the world. The obvious answer was market manipulation, an answer US and other Western news sources refused to admit … that is until now.

The New York Times in their article, “Saudi Oil Is Seen as Lever to Pry Russian Support From Syria’s Assad,” finally admits, “Saudi Arabia has been trying to pressure President Vladimir V. Putin of Russia to abandon his support for President Bashar al-Assad of Syria, using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices. “

But of course, despite this grain of truth, Saudi Arabia didn’t do this on their own, since Saudi Arabia isn’t destabilizing Syria on its own, or for its own interests. Saudi Arabia, while playing a significant part in the manipulation of global oil prices, is solely blamed for the purpose of compartmentalizing public perception. The reality is that global oil prices are being manipulated at the behest of the US not only to overthrow the government of Syria or pressure Iran, but to strike at Russia itself.

The New York Times would have us believe that Saudi Arabia is rigging international oil prices to “bring peace in Syria,” making no mention of Saudi Arabia’s role in backing heavily armed militants streaming into the country turning it into a war zone to begin with. The NYT also makes no mention of the prospect of peace that might result should Saudi Arabia stop its immense state-sponsorship of international terrorism.

For the “cause of peace,” Saudi Arabia is already estimated to have lost $39 billion. For a regime that chops the heads off its political opponents in public demonstrations meant to inspire medieval fear among its people, the idea that it is willing to lose billions in oil revenue to “promote peace” in Syria is plainly absurd, and raises serious questions about the legitimacy of the NYT.

The New York Times would also mention Crimea’s return to Russia, but would stop short of linking oil market manipulation to the conflict in Ukraine. However, this is actually the key to understanding global geopolitics and how dropping oil prices fit in. Syria and Ukraine are linked, and Saudi Arabia’s role in putting pressure on Russia for one that matters a little to Riyadh (Syria), and another that matters not at all (Ukraine), shows how Riyadh’s foreign policy is driven not by national interests, but by obligations it apparently owes to Washington and London (significant obligations that if not met would end with the dissolution of the House of Saud).

Instead of focusing on Saudi Arabia and claims that it is solely responsible for global oil prices being cut in half despite no discernible changes in supply and demand, the global public should see a wider confrontation playing out. The US is using its vast influence over finance, energy, the media and many other economic and political sectors to wage full spectrum war on those resisting its hegemonic expansion globally.

Other news agencies who helped invent explanations regarding dropping oil prices, included the Washington Post which claimed in its article, “Falling oil prices put pressure on Russia, Iran and Venezuela,” that, “THE SILVER lining in the recent financial market turbulence has been the continued decline in the price of oil, which is down about 25 percent since June. In addition to creating a windfall for U.S. consumers — one analysis reckoned the savings could amount to $600 per household — the drop, if sustained, will place considerable pressure on three problematic petrostates: Russia, Iran and Venezuela. The aggressively anti-American foreign policies pursued by all three countries in recent years have been financed in large part by soaring oil revenue.”

Silver lining? Or concerted conspiracy? The NYT provides the light shining through the Washington Post’s cloudy analysis, confirming indeed it is a concerted conspiracy.

What does this say about global energy markets and their intertwining with various other sociopolitical issues including the debate over climate change, spikes in prices that strangulate development globally and wars waged for “humanitarian reasons” against nations that just so happen to export oil outside of markets controlled by Washington and London? It says a lot, and illustrates that many of the facades and social crusades well-meaning people have taken up leave them carrying water for one of the most perverse, destructive industries on Earth, in human history … big oil.

The Saudis wouldn’t last long without both internal and external security and support both military and political, provided by the US and others to prop up the otherwise politically and morally bankrupt petrostate. Despite exercising barbarism as a matter of national policy not seen in other countries since the dark ages, its head of state was given passionate eulogies by Western dignitaries as he passed away, with London going as far as flying its national flag at half-mast for the deceased monarch.

Showing general respect for others, good or evil, may not be so offensive, were it not for the fact that the US and UK regularly undermine and destroy the governments of others guilty of far less egregious crimes than those associated with the House of Saud. This illustrates that US foreign policy toward nations is not determined by moral or legal obligations, but rather the utility or opposition each state poses to the hegemonic designs driving US ambitions overseas.

Taking this to its logical conclusion, the US and its large collection of client states around the world, are undermining Syria, waging economic war against Russia, destabilizing China at home while chasing their investors out of any nation they’re found in, not based on some moral imperative, but specifically because of the absolute, utter lack of morality. Understanding this cuts through the various invented stories constantly emanating from the Western media, including myths about miraculously dropping oil prices and their “serendipitous” and “coincidental” impact they just so happen to have on all of America’s perceived enemies.

Even the Washington Post admits there really is no tie between Venezuela, Iran and Russia, except claims that each is “autocratic” and “anti-American.” The real common denominator is their respective resistance to US hegemony in their regions of the world. And while many reasons were invented to explain the convenient drop in oil prices, we can see once again that when events unfold the first question to be asked in identifying the perpetrators is “to whose benefit?” Had the Washington Post fulfilled their duty as journalists and asked this question, readers around the world would not have waited months to finally learn the truth behind dropping oil prices. The answer was simple but ridiculed as “Kremlin propaganda” at the time, but of course, is now fully admitted to to be machinations carried out by Russia’s enemies.

Lesson learned? Hopefully the next turn in economic fortune in the markets, or terrorist act carried out that “just so happens” to benefit the US and its partners around the world, people will hold those who stand to benefit the most with increased scrutiny and suspicion.

Ulson Gunnar, a New York-based geopolitical analyst and writer especially for the online magazine “New Eastern Outlook”.

Oil Wars: Pop! Goes the Weasel…

By F. William Engdah
January 27, 2015
New Eastern Outlook

O453452222When I was a young child growing up in America, a popular silly children’s rhyme was called Pop! goes the Weasel. One verse went:

A penny for a spool of thread,

A penny for a needle —

That’s the way the money goes,

Pop! goes the weasel.

The “weasel” known as the USA fracking revolution, America’s recent shale gas and shale oil boom, which has been touted by the Obama Administration as grounds for risking their radical regime change policies across the OPEC Islamic world, is going “pop!,” as the money goes…

The collapse of the five-year-old USA fracking revolution is proceeding with accelerating speed as jobs are being slashed by the tens of thousands across the United States; shale oil companies are declaring bankruptcy and Wall Street banks are freezing new credits to the industry. The shale weasel in America has just gone pop!, and soon the bloodbath will look like the aftermath of the Battle of Falkirk of Braveheart fame.

Unintended consequences

One of the unfortunate consequences of being in political blinders, as the leading figures around President Barack Obama today definitely are, is that their bold policy decisions tend to blow up in their faces with unintended consequences.

So it is with poor, pathetic Secretary of State John Kerry. Last September Kerry went to Saudi Arabia to the King’s summer palace on the Red Sea, to meet with the King of OPEC’s largest oil producer, Abdullah, and his advisers including by informed reports, Prince Bandar “Bush”, the former Washington Ambassador and former head of Saudi Intelligence responsible for the disastrous war against Assad in Syria. There, a deal was agreed, whereby the Saudis would flood the market, especially in Asia, with deeply discounted crude oil to force a price collapse. For Kerry and the Obama gang of myopics, it was a clever way to kill two birds—Iran and Russia—with one Saudi cheap oil stone.

Far from “killing” Putin’s Russia, it has dramatically accelerated a major consolidation of Russia-China energy cooperation in huge deals that shift the Russian energy market from west and the EU to the east—China, the two Koreas and Japan. Putin also boldly cancelled the EU South Stream gas project and opened negotiations with Turkey to make that key nation into a world “energy hub” instead, cutting the US-controlled Ukraine entirely out of the game of being transit to Russian EU gas traffic.

Far from killing Iran, it has accelerated major Iran energy deals with Russia including new nuclear power plants. And, despite all the best intentions of the CIA and Israeli intelligence services, who invested so much time and energy creating the psychopaths known as ISIS or as they now call it, IS, Bashar al Assad, backed by Russia and Iran, still is in Damascus. For Washington and its pathetic neo-cons, nothing seems to work anymore like they want.

What the not-so-well-thought-through Washington oil shock game has done, however, is to trigger an avalanche of bankruptcies and job cuts in the domestic US oil and gas industry, above all, the shale energy sector.

The USA shale oil catastrophe

The collapse of the domestic USA shale industry, which I predicted last year to become manifest sometime in the first quarter of 2015, is already visible. And this is just the beginning of what will be a snowballing of unpayable debts, shut-in oil wells, massive layoffs in the US oil and gas industry in the next several months.

According to OilPrice.com, spending on global oil and gas exploration and production could fall over 30 percent this year. That would be the greatest drop since 1986, the last time Washington tried to use the Saudis to collapse oil prices. Bank of America predicts Brent oil futures to fall to $31 by the end of the first quarter this year, over $5 below the lows of the 2008 financial crisis.

Right now the oil market is in a perverse situation where, not surprisingly, major producers like Russia and Iran and Iraq,predictably, are increasing production to offset falling prices and state revenues. That makes the existing glut even more dramatic.

The results in the USA are just emerging. A huge round of job cuts is sweeping the industry, especially in the USA. On January 13, the Dallas Fed projected that in Texas alone, 140,000 jobs could be eliminated. That, in only one state, albeit the largest oil state in the USA. Those are well-paid jobs in an economy which is already suffering huge job losses (despite fraudulent US Government labor statistics) since the 2008 financial crisis hit.

Schlumberger, the world’s biggest oilfield-services company, will cut 9,000 jobs, after its Fourth Quarter 2014 net income plunged 81% following €1.6 billion in write-offs that included its production assets in Texas. The second largest oil services giant, Halliburton, Dick Cheney’s old firm, and the company that made the shale bubble doable technically, has announced layoffs but declines to say how many. Oil-field services companies like Halliburton, suppliers of the fracking chemicals and drilling equipment, steel companies, housing accommodation providers all benefited. No more.

The US shale oil boom was a Wall Street bubble, as we noted before, fuelled by the Federal Reserve zero interest rates and Wall Street banks desperate for places to lend after the real estate bubble collapsed in 2008. They made nice fat profits by underwriting so-called junk bonds for the shale oil companies, many of them small-to-medium size companies that will go under now.

Shale drilling and fracking is a costly business, far more than conventional oil drilling. That’s why it is called “unconventional.” As long as US interest rates were at bottom the last six years and oil prices well above $100 a barrel, oil companies could take the risk and banks could lend with abandon. That’s come to a screeching halt as oil revenues have plunged 40-50% in the past seven months.

As long as prices were high, the shale oil companies could borrow like there was no tomorrow. And they did. According to a new estimate by Barclays Bank of UK, the USA and Canadian oil industry is likely to slash at least $58 billion from spending, a 30% cut from 2014 spending of $196 billion. That estimate was prepared from company data taken in December when the price was $74 a barrel, before the cuts began to hit and before prices plunged to $47 a barrel. The final number on spending will be far lower by yearend if prices remain low. The longer prices stay below $50 a barrel the bloodbath will grow. They estimate that the US oil industry will be hardest hit of all the world. Nice job, John Kerry and Co.

And new bank lending has also screeched to a halt. Oops…In the boom times until September 2014 when the Saudi price war began, US and Canadian small to midsized companies spent more than their cash income by an eye-popping average 157 percent. Larger firms overspent by around 112 percent. They made up the difference by issuing junk bonds and taking low-interest bank loans.

Now, with prospects very bleak for price recovery, the lending banks are turning off the money spigot. The losses will soon hit Wall Street as well.

In other words, the unintended consequences of the stupid Kerry strategy to bankrupt Putin’s Russia with aid of the Saudis has blown up in his face and may soon bury the over-hyped US shale oil bubble in a sea of red ink and bankruptcy filings. Stupid in this sense is in not comprehending the connections of everything in the real world.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook”.
First appeared:
http://journal-neo.org/2015/01/27/pop-goes-the-weasel/

Saudi king’s death threatens to deepen US crisis in Middle East

By Bill Van Auken
January 24, 2015
World Socialist Web Site

 

The death of Saudi Arabia’s 90-year-old King Abdullah bin Abdul Aziz, the head of one of the world’s last remaining absolute monarchies, has been met with profuse tributes and open mourning by Washington and its allies, along with the Western media.

Abdullah, who has effectively ruled Saudi Arabia since his predecessor and half-brother, Fahd, suffered a debilitating stroke in 1995—becoming king upon his death in 2005—has maintained the country’s theocratic dictatorship as a lynchpin of regional counterrevolution and US oil interests for the past two decades.

His death introduces another layer of uncertainty and potential crisis into a Middle East already reeling from political eruptions that are directly tied to the role of the US-Saudi axis in the region, from the rise of the Islamic State of Iraq and Syria to the collapse of the regime that they both backed in Yemen.

World leaders have rushed to the Saudi capital of Riyadh to participate in the three days of official mourning proclaimed by the monarchical regime, among them US Vice President Joe Biden, French President François Hollande, Britain’s Prince Charles, Turkish President Recep Tayyep Erdogan and many others. All of them are anxious to see their interests in the kingdom—which sits atop the second largest proven petroleum reserves in the world and is the number one producer of crude oil—preserved.

The tributes paid by Western government officials and the corporate media were nothing short of obscene.

Barack Obama praised Abdullah as a leader who “had the courage of his convictions.” The US president added, “One of those convictions was his steadfast and passionate belief in the importance of the US-Saudi relationship as a force for stability and security in the Middle East and beyond.”

The courage of Abdullah’s convictions—always essential for an absolute monarch—found its expression in his regime’s beheadings last year of at least 87 people, in some cases with their headless corpses publicly crucified after death. Among the crimes punished by beheading were “sorcery,” adultery, drug possession and political opposition to the ruling monarchy.

The Washington Post described Abdullah as “a master politician” who “gained a reputation as a reformer without changing his country’s power structure,” adding, with no substantiation, that he was “popular with his subjects.” The New York Times described him as a ruler who had “earned a reputation as a cautious reformer” and was, “in some ways, a force of moderation.”

It was this “moderation” that was on display, no doubt, in the postponing last week—for medical reasons—of the second round of 50 of the 1,000 lashes to which the Saudi blogger Raif Badawi was sentenced. He also received a 10-year jail term for the crimes of “adopting liberal thought” and “insulting Islam.”

The intimate US-Saudi relationship, which Obama praised Thursday as “a force for stability and security in the Middle East and beyond,” stands as an unanswerable indictment of the hypocrisy of US imperialism’s attempt to justify its predatory policies in the Middle East and internationally in the name of “democracy” and “human rights.”

The heart of this relationship has been US military protection of Saudi Arabia in return for tying its domination of the world oil markets to American interests. This was solidified in 1973 in a deal brokered by then US President Richard Nixon in which he pledged to ensure US defense of and arms sales to the Saudi monarchy in return for all of the kingdom’s oil sales being denominated in US dollars, giving rise to the recirculation of “petrodollars” into US financial markets and arms purchases.

With a population of 28 million—fully one third of it made up of migrant workers who do virtually all of the labor—Saudi Arabia has the fourth largest arms budget in the world.

US imperialism has likewise long relied on Saudi Arabia’s propagation of Wahhabi Islamic religious ideology as a counter to secular nationalist and socialist movements in the region. King Abdullah provided unstinting support to Hosni Mubarak against the Egyptian revolution of 2011 and then to the coup of Egyptian General Abdel Fattah Al-Sisi in 2013. He sent troops and tanks across the causeway into Bahrain to crush mass protests in that Gulf kingdom in 2011.

Significantly, among those praising Abdullah Thursday was Israeli President Reuven Rivlin, who said he had “contributed greatly to Middle East stability.”

The Saudi succession has only underscored the sclerotic character of the ruling monarchy. The new king, Salman bin Abdulaziz, is 79 and reportedly in ill health, suggesting that real power will be wielded by others. His successor, the new crown prince Mugrin bin Abdul Aziz, at 69 is described as “relatively young” for a Saudi ruler.

The successor king and those behind him confront a series of deepening crises for the regime. Next door in Yemen, the unpopular regime that both Riyadh and Washington backed has collapsed in the face of a revolt by the Houthis, a population that Saudi Arabia had repeatedly attacked and which it sees as an ally of its regional rival, Iran.

In Syria, the monarchy’s bankrolling and arming of Islamist “rebels,” again in alliance with the US, has produced ISIS, which has overrun much of that country and Iraq, bringing its forces to Saudi Arabia’s own borders. The implications of this were driven home earlier this month in an ISIS suicide attack that claimed the lives of General Oudah al-Belawi, the commander of all Saudi forces in the northern part of the country, along with two border guards. Nurtured on Saudi money and Wahhabi ideology, ISIS is now turning its sights on its former patrons.

Meanwhile, there is the fall of oil prices, which, by refusing to cut production, the Saudis have promoted in a deal worked out with Washington with the aim of weakening both Russia and Iran. The halving of oil revenues as a result, however, has ominous implications for Saudi Arabia itself, which has used its petroleum export surpluses to pacify the population with public spending on housing, education, salary hikes and other forms of public welfare. Next year, it is projected to run a deficit of $39 billion, amounting to 5.2 percent of GDP—the largest in the kingdom’s history. Resulting cuts in salaries, benefits and public spending in a country where 40 percent of the population lives below the poverty line can spell social unrest.

There are also indications of strains in the relations with Washington, which have increased since Obama backed off his threat to bomb Syria in 2013 and moved instead toward a halting rapprochement with Iran. Abdullah, who was eulogized repeatedly Thursday as, in the words of US Secretary of State John Kerry, “a proponent of peace,” had called upon the US administration to “cut the head off the snake” by launching a military intervention against Iran.

Finally, the Saudi regime will undoubtedly face internal tensions as the struggle over succession and division of the spoils develops among the thousands of princes and princesses and their entourage. While Abdullah had based his rise to power on his role as commander of the National Guard, a post inherited by his son, the rival Sudairi faction of the ruling family, to which the new king belongs, will undoubtedly attempt to fill positions with their own supporters. How this faction fight works out will affect not only internal politics, but potentially the disposition of major contracts with the oil conglomerates, arms dealers and other transnational corporations.

The fact that US imperialism counts the Saudi regime as a key pillar of its interests in the Middle East only underscores the reactionary role that it plays throughout the region as well as the fundamental instability of the system of hegemony that it is attempting to impose there.

Oil prices and bond yields continue their decline

By Nick Beams
January 14, 2015
World Socialist Web Site

 

Stock Market DropThe price of oil continues to fall as further signs emerge of the recessionary trends in the global economy, including the lowest inflation figures in Britain in 15 years and a sharp decline in yields on government bonds around the world.

Brent and West Texas Intermediate, two key oil benchmarks, both fell to around $45 per barrel yesterday, continuing the decline of last week, when prices dropped by more than 11 percent. Oil prices are now only about $10 per barrel above the lows they reached in 2009, following the eruption of the global financial crisis.

Market analysts are unable to say when the bottom might be reached. Harry Tchilinguirian of PNB Paribas told the Financial Times the lack of a price floor was discouraging buying interest. “The difficulty currently is to identify a fundamental anchor to shore up oil prices in the short term,” he said. There was no obvious answer as to whether there was a threshold price that might halt the market slide.

One of the factors promoting this week’s renewed fall was a report by Goldman Sachs downgrading its forecast for oil prices over the next year. It predicted Brent would average around $50 per barrel, compared to its previous forecast of almost $84.

“We expect that the global market imbalance will be larger [in the first half of 2015] than we had previously expected,” the report said. It warned that prices could fall into the $30-$40 per barrel range. Prices would have to stay lower for longer before the market “rebalanced.”

A note issued by Citi analysts said the market was concerned that oil would stay lower for longer and that “crude will stay close to $40 a barrel for the first half of 2015.”

Jeff Sica, the head of an investment advisory firm, told Bloomberg it had been expected that oil prices would stabilise, but this was not happening. “My contention has been that we’re beginning to see some very severe structural damage to the economy as oil prices continue to fall.”

That damage could include the scaling back of investments in US shale oil as well as problems in financial markets, where oil-based investments constitute about 18 percent of junk bonds. Investments made on the assumption that oil prices would remain at between $80 and $100 a barrel may become unviable at the new price level. Charles Peabody, a banking specialist at Portales Partners, told the New York Times: “We do believe that you will start to see some defaults.”

Yesterday the oil minister of the United Arab Emirates, Suhail bin Mohammed al-Mazroui, said the oil cartel, OPEC, would not change its strategy and any sudden increase in prices was unlikely.

Faced with increased production of shale oil in the US, the Saudi-led cartel has refused to cut production in order to force higher-cost US shale oil producers out of the market.

While this price war is a particular factor, the sharp fall in oil is indicative of the downward pressure on industrial commodity prices across the board.

The Bloomberg Commodity Index has fallen to its lowest level since 2002. The index, which tracks 22 industrial commodities, has fallen 26.5 percent since its peak last April.

The price of iron ore, a key indicator of the level of industrial production, has dropped by more than 50 percent, with large-scale producers, such as BHP Billiton and Rio, pursuing the same strategy as their Saudi counterparts in the oil industry by maintaining or even increasing production in order to drive their higher-cost rivals out of the market.

The sharp downward movement in oil and other commodities and what it indicates about the state of the world economy are producing sharp swings in equity markets. Yesterday, the Dow wiped out a 282 point increase and a 143 point decline to finish the day lower.

According to Bloomberg, the more broadly-based S&P 500 index has moved by an average of 0.95 percent per day so far in 2015, compared to an average of 0.53 percent per day in 2014, which was the calmest year for markets since 2006. The so-called Vix index, which measures volatility, was up by 4.9 percent for the day.

Another indication of recessionary trends was the fall in UK inflation to just 0.5 percent last month, the lowest level in 15 years, prompting warnings about “mounting disinflation pressures” in the British economy. This led to a sharp decline in the yield on the UK 10-year bond during the day.

Even more significant was the news that the yield on Japanese government bonds hit zero for the first time ever, as bond yields continued to fall internationally. The yield on Swiss five-year bonds has been in negative territory since mid-December, and that on German five-year bonds went below zero earlier this month.

The fall in yields reflects the move by financial investors to buy government debt—the yield on a bond bears an inverse relationship to its price—in the absence of investment opportunities elsewhere.

The situation in Japanese financial markets borders on the bizarre. Under its quantitative easing program, the Bank of Japan is committed to buying massive amounts of government bonds in order to try to boost inflation.

From April 2013, when the BoJ announced its “new era” monetary policy, to September 2014, the central bank’s share of outstanding government bonds has risen from 10 percent to 23 percent, with its share set to rise to 44 percent in 2017.

This has led to a situation where private investors, having no other profitable outlets, are willing to bid up bond prices, thereby lowering yields, in the expectation that they will then be able to sell them at an even higher price to the Bank of Japan and realise a profit.

While short-term profits are to be made in this fashion, the whole process, in which profits come from a series of round-robin trades in government debt, indicates the growing level of financial parasitism and is inherently unviable in the longer-term.

Moreover, it is only the sharpest expression of trends throughout the global financial system, where bond yields are falling in 21 out of 24 developed markets and yields in what are considered to be “safe havens,” such as German bonds, are turning negative.

Political instability and global slump intensify financial turmoil

By Nick Beams
January 7, 2015
World Socialist Web Site

 
The year has opened with turbulence on world financial markets, reflecting the interaction between deepening slump, heightened geo-political tensions and growing political instability in virtually every country.

The mounting problems in the global financial system are expressed most directly on Wall Street, its apex. US equity markets are on course to have their worst start to the year since 2008. That year culminated in the global financial crisis set off by the collapse of Lehman Brothers in September.

Yesterday, the Dow was down by 130 points—a decline of 0.8 percent—following a 331-point decline on Monday. The more broadly based S&P 500 index has likewise fallen over the past two days, with markets in Asia and Europe also sharply down. Tuesday saw a “flight to safety,” with soaring demand pushing the yield on US ten-year Treasury bonds below 2 percent.

The most immediate factor behind the fall on Wall Street was a further decline in the price of oil, with West Texas intermediate falling below $50 per barrel and Brent, the global benchmark, approaching that level. Since June, the price of oil has declined by more than 50 percent.

The oil price decline is itself the outcome of two processes: the attempts by the US to inflict economic damage on Russia, as it imposes sanctions cutting Moscow off from financial markets and seeks to use plummeting oil prices as a club, and the deepening recessionary trends in the world economy.

Summing up the situation, Financial Times columnist John Plender wrote that the world “has been prey to the growing problem of deficient demand, leading to deflation,” while the US has been growing too slowly to provide a foundation for global growth.

“This is a fearful world in which geopolitical risk, competitive devaluation and protectionist pressure could bring a descent into intractable deflation and long-depressed yields in the absence of robust policy,” he warned.

However, there is no evidence of such a policy anywhere on the horizon.

The euro zone is on the edge of its third recession since the financial crisis of 2008, amid increasing deflationary pressures. Figures to be released later today are expected to show almost zero inflation, with some predicting that the number will be negative.

The eyes of financial markets are turned towards the meeting of the European Central Bank (ECB) Governing Council on January 22 in the hope that the central bank may embark on expanded quantitative easing, involving purchases of government debt, in an attempt to stem deflationary pressures.

But a survey conducted by the Financial Times of 32 euro economists found that while most expected the ECB to step up its intervention, few believed the move would revive the euro zone economy.

In the wake of the financial crisis of 2008, China provided a stimulus to global growth as the government embarked on a major spending program and expanded credit. But China now faces the prospect, for the first time since the recession of 2009, of a fall in its growth rate to below the 7 percent level considered necessary to maintain employment.

It has been reported that the Chinese government is considering another major stimulus package to try to arrest the slowdown, but any such measures will only add to concerns about the level of Chinese debt.

In addition to recessionary pressures reflected in the oil price decline—a slump that is reflected across a broad range of industrial commodities, including iron ore—another major factor impacting financial markets is the prospect of a financial and political crisis in Europe following the Greek elections on January 25.

Polls indicate that SYRIZA (Coalition of the Radical Left), which has called for “renegotiation” of the Greek debt bailout package, could obtain the most votes and be called on to form the next government.

A report published in the news magazine Der Spiegel over the weekend made it clear that the German government of Angela Merkel will not tolerate any renegotiation of Greek debt and is prepared for a Greek exit from the euro zone. While the Spiegel report cited government sources who said Germany would be able to “handle” a Greek exit, no one knows what the consequences would be.

The Greek election is only one expression of growing instability across Europe that could lead to the break-up of the common currency. This would have major political consequences because the measures taken to foster European integration, reaching back to the early 1950s and culminating in the common currency, were never simply about economics but were aimed at preventing the eruption of major power tensions that led to two world wars in the space of a generation.

Those tensions are once again clearly in evidence. The governing council of the ECB is wracked by deep divisions, with German representatives opposed to further extensions of quantitative easing, above all, the purchase of sovereign debt.

The Greek election is to be followed by elections in Spain and Portugal where there is intense hostility to government austerity programs that have produced conditions not seen since the Great Depression of the 1930s.

The deepening political malaise was reflected in a column published in yesterday’s Financial Times by foreign policy correspondent Gideon Rachman, in which he pointed to the loss of confidence in the strength of “the three props on which the post-cold war order [had] been constructed: markets, democracy and American power.”

Faith in free markets had been shaken by the events of 2008 and the Great Recession that followed, and while American power had demonstrated its capacity to destroy regimes, it had failed to provide stability.

“Just as troubling,” Rachman wrote, “is an emerging loss of faith in the ability of established democracies to deliver competent government. In the US, respect for Congress is at near-record lows,” while in European states “the political system seems incapable of delivering reform or growth—and voters are flirting with extremist parties.”

Oil Price Blowback

Is Putin Creating a New World Order?

By Mike Whitney
January 7, 2015
Counter Punch

Falling oil price effects“If undercharging for energy products occurs deliberately, it also effects those who introduce these limitations. Problems will arise and grow, worsening the situation not only for Russia but also for our partners.” – Russian President Vladimir Putin

It’s hard to know which country is going to suffer the most from falling oil prices. Up to now, of course, Russia, Iran and Venezuela have taken the biggest hit, but that will probably change as time goes on. What the Obama administration should be worried about is the second-order effects that will eventually show up in terms of higher unemployment, market volatility, and wobbly bank balance sheets. That’s where the real damage is going to crop up because that’s where red ink and bad loans can metastasize into a full-blown financial crisis. Check out this blurb from Nick Cunningham at Oilprice.com and you’ll see what I mean:

“According to an assessment from the Federal Reserve Bank of Dallas, an estimated 250,000 jobs across eight U.S. states could be lost in 2015 if oil prices don’t rise. More than 50 percent of those job losses would occur in Texas, which leads the nation in oil production.

There are some early signs that a slowdown in drilling could spread to the manufacturing sector in Texas… One executive at a metal manufacturing company said in the survey, “the drop in crude oil prices is going to make things ugly… quickly.” Another company that manufactures machinery told the Dallas Fed, “Low oil prices will drive reductions in U.S. drilling rigs, which will in turn reduce the market for our products.”

The sentiment was similar for a chemical manufacturer, who said “lower oil prices will adversely impact margins. Energy volatility will cause our customers to keep inventories tight.”

States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets.” (Low Prices Lead To Layoffs In The Oil Patch, Nick Cunningham, Oilprice.com)

Of course industries lay-off workers all the time and it doesn’t always lead to a financial crisis. But unemployment is just one part of the picture, lower personal consumption is another. Take a look:

“Falling oil prices are a bigger drag on economic growth than the incremental “savings” received by the consumer…..Another way to show this graphically is to look at the annual changes in Personal Consumption Expenditures (PCE) in aggregate as compared to the subsection of PCE spent on energy and related products. This is shown in the chart below.

Lower Energy Prices To Lower PCE (Personal Consumption Expenditures):

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(The Gasoline Price Myth, Lance Roberts, oilprice.com)

See? So despite what you might have read in the MSM, lower gas prices do not translate into greater personal consumption or more robust growth. Quiet the contrary, they tend to intensify deflationary pressures and reduce activity which is a damper on growth.

Then there’s the knock-on effects that crashing prices and layoffs have on other industries like mining, manufacturing and chemical production. Here’s more from Oil Price:

“Oil and gas production makeup a hefty chunk of the “mining and manufacturing” component of the employment rolls. Since 2000, when the oil price boom gained traction, Texas has comprised more than 40% of all jobs in the country according to first quarter data from the Dallas Federal Reserve…

The majority of the jobs “created” since the financial crisis have been lower wage paying jobs in retail, healthcare and other service sectors of the economy. Conversely, the jobs created within the energy space are some of the highest wage paying opportunities available in engineering, technology, accounting, legal, etc. In fact, each job created in energy related areas has had a “ripple effect” of creating 2.8 jobs elsewhere in the economy from piping to coatings, trucking and transportation, restaurants and retail….

The obvious ramification of the plunge in oil prices is that eventually the loss of revenue will lead to cuts in production, declines in capital expenditure plans (which comprise almost 1/4th of all capex expenditures in the S&P 500), freezes and/or reductions in employment, and declines in revenue and profitability…

Simply put, lower oil and gasoline prices may have a bigger detraction on the economy than the “savings” provided to consumers.” (The Gasoline Price Myth, Lance Roberts, oilprice.com)

None of this sounds very reassuring, does it? And yet, all we hear from the media is how the economy is going to reach “escape velocity” on the back of cheap oil. Nonsense. This is just more “green shoots” baloney wrapped in public relations hype. The fact is, the economy needs the good-paying jobs more than it needs low-priced energy. But now that prices are tumbling, those jobs are going to disappear which is going to be a drag on growth. Now check out these headlines I picked up on Google News that help to show what’s going on off the radar:

“Texas is in danger of a recession”, CNN Money.
“Texas Could Be Headed for an Oil-Fueled Recession, JP Morgan Economist Says”, Wall Street Journal “Good Times From Texas to North Dakota May Turn Bad on Oil-Price Drop”, Bloomberg
“Low Oil Prices in the New Year Are Screwing Petrostates”, Vice News
“Top US Oil States Are Taking A Hit From Plunging Crude Prices”, Business Insider

Get the picture? If oil prices continue to fall, unemployment is going to spike, activity is going to slow, and the economy is going tank. And the damage won’t be limited to the US either. Get a load of this from the UK Telegraph:

“A third of Britain’s listed oil and gas companies are in danger of running out of working capital and even going bankrupt amid a slump in the value of crude, according to new research.

Financial risk management group Company Watch believes that 70pc of the UK’s publicly listed oil exploration and production companies are now unprofitable, racking up significant losses in the region of £1.8bn.

Such is the extent of the financial pressure now bearing down on highly leveraged drillers in the UK that Company Watch estimates that a third of the 126 quoted oil and gas companies on AIM and the London Stock Exchange are generating no revenues.

The findings are the latest warning to hit the oil and gas industry since a slump in the price of crude accelerated in November when the Organisation of Petroleum Exporting Countries (Opec) decided to keep its output levels unchanged. The decision has caused carnage in oil markets with a barrel of Brent crude falling 45pc since June to around $60 per barrel.” (Third of listed UK oil and gas drillers face bankruptcy, Telegraph)

“Carnage in oil markets,” you say?

Indeed. Many of the oil-drilling newcomers set up shop to take advantage of the low rates and easy money available in the bond market. Now that prices have crashed, investors are avoiding energy-related junk bonds like the plague which is making it impossible for the smaller companies to roll over their debt or attract fresh capital. When these companies start to default en masse, as they certainly will if prices don’t rebound, the blowback will be felt on bank balance sheets across the country creating the possibility of another financial meltdown. (Now we ARE talking about a financial crisis.)

The basic problem is that the banks have bundled a lot of their dodgy debt into financially-engineered products like Collateralized Loan Obligations (CLOs) and Collateralized Debt Obligations (CDOs) that will inevitably fail when borrowers are no longer able to service the loans. The rot can be concealed for a while, but eventually, if prices don’t recover, a significant number of these companies are going to go under which will push the perennially-undercapitalized banking system to the brink once again. That’s why Washington’s plan to push down oil prices (to hurt the Russian economy) might have made sense on a short-term basis (to shock Putin into submission) but as a long-term strategy, it’s nuts. And what’s even crazier, is that Obama has decided to double-down on the same wacky plan even though Putin hasn’t given an inch. Check this out from Reuters on Monday:

“The Obama administration has opened a new front in the global battle for oil market share, effectively clearing the way for the shipment of as much as a million barrels per day of ultra-light U.S. crude to the rest of the world…

The Department of Commerce on Tuesday ended a year-long silence on a contentious, four-decade ban on oil exports, saying it had begun approving a backlog of requests to sell processed light oil abroad.

The action comes at a critical juncture for the global oil market. World prices have halved to less than $60 a barrel since the summer as top exporter Saudi Arabia, once a staunch defender of $100 oil, refused to cut production in the face of surging U.S. shale output and tempered global demand…

With global oil markets in flux, it is far from clear how much U.S. condensate will find a market overseas.”
(Analysis – U.S. opening of oil export tap widens battle for global market, Reuters)

Does that make sense to you, dear reader? Why would Obama suddenly opt to change the rules of the game when he knows it will increase supply and push prices down even further? Why would he do that? Certainly, he doesn’t want to inflict more pain on domestic producers, does he?

Let’s let Obama answer the question for himself. Here’s a clip from an NPR interview with the president just last week. About halfway through the interview, NPR’s Steve Inskeep asks Obama: “Are you just lucky that the price of oil went down and therefore their currency collapsed or …is it something that you did?

Barack Obama: If you’ll recall, their (Russia) economy was already contracting and capital was fleeing even before oil collapsed. And part of our rationale in this process was that the only thing keeping that economy afloat was the price of oil. And if, in fact, we were steady in applying sanction pressure, which we have been, that over time it would make the economy of Russia sufficiently vulnerable that if and when there were disruptions with respect to the price of oil — which, inevitably, there are going to be sometime, if not this year then next year or the year after — that they’d have enormous difficulty managing it.” (Transcript: President Obama’s Full NPR Interview)

Am I mistaken or did Obama just admit that he wanted “disruptions” in the “price of oil” because he figured Putin would have “enormous difficulty managing it”?

Isn’t that the same as saying that it was all part of Washington’s plan; that plunging prices were just the icing on the cake for their asymmetrical attack on the Russian economy? It sure sounds like it. And that would also explain why Obama decided to allow domestic producers to dump more oil on the market even though it’s going to send prices lower. Apparently, none of that matters as long as the policy hurts Russia.

So maybe the US-Saudi oil collusion theory isn’t so far fetched after all. Maybe Salon’s Patrick L. Smith was right when he said:

“Less than a week after the Minsk Protocol was signed, Kerry made a little-noted trip to Jeddah to see King Abdullah at his summer residence. When it was reported at all, this was put across as part of Kerry’s campaign to secure Arab support in the fight against the Islamic State.

Stop right there. That is not all there was to the visit, my trustworthy sources tell me. The other half of the visit had to do with Washington’s unabated desire to ruin the Russian economy. To do this, Kerry told the Saudis 1) to raise production and 2) to cut its crude price. Keep in mind these pertinent numbers: The Saudis produce a barrel of oil for less than $30 as break-even in the national budget; the Russians need $105.

Shortly after Kerry’s visit, the Saudis began increasing production, sure enough — by more than 100,000 barrels daily during the rest of September, more apparently to come…

Think about this. Winter is coming, there are serious production outages now in Iraq, Nigeria, Venezuela and Libya, other OPEC members are screaming for relief, and the Saudis make back-to-back moves certain to push falling prices still lower? You do the math, with Kerry’s unreported itinerary in mind, and to help you along I offer this from an extremely well-positioned source in the commodities markets: “There are very big hands pushing oil into global supply now,” this source wrote in an e-mail note the other day.” (“What Really Happened in Beijing: Putin, Obama, Xi And The Back Story The Media Won’t Tell You”, Patrick L. Smith, Salon)

Vladimir Putin: Public Enemy Number 1

Let’s cut to the chase: All these oil shenanigans are really aimed at just one man: Vladimir Putin. There are a number of reasons why Washington wants to get rid of Putin, the first of which is that the Russian president has become an obstacle to US plans to pivot to Asia. That’s the main issue. As long as Putin is calling the shots, there’s going to be growing resistance to NATO’s push eastward and Washington’s military expansion across Central Asia which could undermine US plans to encircle China and remain the world’s only superpower. Here’s an excerpt from Zbigniew Brzezinski’s The Grand Chessboard which helps to explain the importance Eurasia is in terms of Washington’s global ambitions:

“..how America ‘manages’ Eurasia is critical. A power that dominates Eurasia would control two of the world’s three most advanced and economically productive regions. A mere glance at the map also suggests that control over Eurasia would almost automatically entail Africa’s subordination, rendering the Western Hemisphere and Oceania (Australia) geopolitically peripheral to the world’s central continent. About 75 per cent of the world’s people live in Eurasia, and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. Eurasia accounts for about three-fourths of the world’s known energy resources.” (p.31) (Zbigniew Brzezinski, The Grand Chessboard: American Primacy And It’s Geostrategic Imperatives, Key Quotes From Zbigniew Brzezinksi’s Seminal Book)

Get it? Prevailing in Asia is the administration’s top priority, which is why the US is rapidly moving its military assets into place. Check this out from the World Socialist Web Site:

“Under Obama’s “pivot to Asia,” the Pacific Command will account for more than 60 percent of all US military forces, up from 50 percent under the Bush administration. This includes new US basing arrangements in the Philippines, Singapore and Australia, as well as renewed close military ties to New Zealand, and ongoing US military exercises in Thailand, Malaysia, Indonesia and Taiwan….(as well as) large troop deployments in Japan and South Korea, including nuclear-armed units.” (The global scale of US militarism, Patrick Martin, World Socialist Web Site)

The “Big Shift” is already underway, which is why obstacles have to be removed and Putin’s got to go.

Second, Putin has made himself a general nuisance vis a vis US strategic objectives in Syria, Iran and Ukraine. In Syria, Putin has thrown his support behind Assad who the US wants to topple in order to redraw the map of the Middle East and build gas pipelines from Qatar to Turkey to access the lucrative EU market.

Third, Putin has strengthened a number of coalitions and alliances –the BRICS bank, the Eurasian Economic Union, and the Shanghai Cooperation Organization–all of which pose a challenge to US dominance in the region as well as a viable alternative to neoliberal financial institutions like the IMF and World Bank. Going back to Brzezinski’s “chessboard” once again, we see that the US should not feel threatened by any one nation, but should be constantly on-the-lookout for “regional coalitions” which could derail its plans to rule the world. Here’s Brzezinski again:

“…the three grand imperatives of imperial geostrategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected, and to keep the barbarians from coming together.” (p.40)

“Henceforth, the United States may have to determine how to cope with regional coalitions that seek to push America out of Eurasia, thereby threatening America’s status as a global power.” (p.55) (Zbigniew Brzezinski, The Grand Chessboard: American Primacy And It’s Geostrategic Imperatives, Key Quotes From Zbigniew Brzezinksi’s Seminal Book)

As a founding member and primary backer of these organizations, (and initiator of giant energy deals with China, India and Turkey) Putin has become Washington’s biggest headache and a logical target for regime change.

Finally, Putin is doing whatever he can to circumvent dollar-denominated business and financial transactions. The move away from the buck is a direct attack on the US’s greatest source of power, the ability to control the de facto international currency and to require that other nation’s stockpile dollars for their energy purchases which are then recycled into US financial assets, stocks bonds and US Treasuries. This petrodollar-recycling scam allows the US to run gigantic current account deficits without raising interest rates or reducing government spending. Putin’s anti-dollar policies could diminish the greenback’s role as reserve currency and put an end to a system that institutionalizes looting.

This is why Putin is Public Enemy Number 1. It’s because he’s blocking the US pivot to Asia, strengthening anti-Washington coalitions, sabotaging US foreign policy objectives in the Middle East, creating institutions that rival the IMF and World Bank, transacting massive energy deals with critical US allies, increasing membership in an integrated, single-market Eurasian Economic Union, and attacking the structural foundation upon which the entire US empire rests, the dollar.

Naturally, Washington’s powerbrokers are worried about these developments, just as they are worried about the new world order which is gradually taking shape under Putin’s guidance. But, so far, they haven’t been able to do anything about it. The administration’s regime change schemers and fantasists have shown time-and-again that they’re no match for Bad Vlad who has beaten them at every turn.

Bravo, Putin.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

 

The Saudi Bait-and-Switch: Incurring Short-term Pain for Long-term Gain

By Matthew Crosston
January 6, 2015
New Eastern Outlook

 

78854444Western media members are currently basking in what to them seems to be a story of economic ‘come-uppance.’ Saudi Arabia announced that its 2015 budget will suffer from a significant economic shortage, resulting in a nearly $39 billion dollar deficit. Most in the West look at this fact curiously, mainly because it seems to be that Saudi Arabia is causing its own problem, by refusing to budge off of its own insistence at maintaining an oil production level of 30 million barrels per day. Saudi officials have vowed to not change their stance on this ceiling, thus guaranteeing its 2015 economic ‘problem.’ When you look deeper into the multiple foreign-policy, intelligence, and global political layers of this decision, however, you don’t find a country in trouble or even incompetent. Rather, you find a cunning sense of strategic analysis that is built more upon long-term economic and national security priorities, which is an approach that woefully few Western countries ever find themselves in a position to emulate.

First, let’s break down the simple economic numbers: the budget for next year sees spending at roughly 230 billion USD with expected revenues to only bring in 191 billion USD. This is the first projected budget deficit for the Kingdom since 2011 and the largest ever announced. But the reality of the Saudi welfare state and its own globalization strategies in terms of the world market show this to be much ado about nothing in real terms. Saudi society is built upon a massive welfare system for native Saudis. This has always been so. But given the non-democratic nature of the Saudi political system, it is not far-fetched or problematic for the government to cut back or tighten its belt if need be should a deficit ever become too problematic. Which of course leads to perhaps the most obvious and logical point as to why the Saudi Arabian government isn’t phased by this deficit despite even some of its own native economic forecasters being concerned: it has HUGE cash reserves which it rarely ever has to tap into. This time it intends to tap them so as to not move against its firm decision, for now, to not tamper with oil production.

So what is the bigger picture? Why tap the reserves? National security, regional hegemony, and long-term economic positioning explain most of it. With this one simple move of maintaining the barrel ceiling Saudi Arabia is basically outflanking regional and global challengers and also satisfying its main consumer ally (and banking on this ally’s own greed and gluttony, to be frank). On the regional level a low price on oil per barrel is an extreme hindrance on Saudi’s main challenger, Iran. There is no doubt that Saudi Arabia enjoys keeping Iran in check and does not wish to see the wanna-be regional hegemon ever truly compete for supremacy in the region. Keeping world oil prices low does this quite succinctly and efficiently, without even having to engage in any verbal or diplomatic animosity with the Shiite Republic. In addition, even though the United States is such a close economic and political ally, this decision is clearly aimed at destabilizing, at least for the time being, the massive technological and financial investment being pushed in the States with shale oil and natural gas as alternatives to Saudi energy dependence. When the price per barrel remains so low, these ‘alternative’ industries in America, which are still most of the main ‘traditional’ oil producers seeking to diversify future earnings potential, have no choice but to cash in on the opportunity and refocus on its traditional industrial models. This slows down advancement in alternative fuels and repositions the Saudi-American energy juggernaut back into a place of primacy.

So the simple willingness on the part of Saudi Arabia to carry a budget deficit next year and tap into mammoth cash reserves for the first time in quite a while has the dual effect of checking any Iranian economic/political advancement into what Saudis feel is their natural region of influence AND capitalizes on American industries’ own natural greed for short-term profit enlargement, even when that might be to the detriment of long-term economic fuel independence. When you get to play both adversary and ally to your own long-term benefit, without violence or hostility, it is really quite illogical to anticipate any decision beside the announcement made the other day out of Riyadh. Keep in mind that this $39 billion deficit is matched against a present reserve of over $750 billion. A one or two year hit to sustain a one or two decade energy dominance is a fair trade, wouldn’t you say?

One might be inclined to wonder why the United States would not be able to see this for what it is and strive to convince or cajole its own native industries to maintain passionate progress for alternative fuels and long-term economic independence. First, it is extremely difficult given the general non-interference policy both Democrat and Republican presidencies have had toward American business development over the last two generations to think any sitting President would dare try to make serious and explicit inroads against such tradition. It is simply political folly, especially when the American stock market continues to climb today to new heights, unemployment steadily slides downward, and the price of gas at the pump has ‘common folk’ literally jumping up and down for joy while filling their cars. But on top of all of these domestic reasons, there is one other significant foreign policy angle that makes this a uniquely American Faustian bargain: the oil price slide has clearly put greater teeth into the American sanctions imposed against Russia, as it has hurt the Russian ruble significantly. Sanctions alone for the first half of 2014 basically had no real impact on the Russian economy and the real lives of Russian citizens. It was only this Autumn as world markets saw the Saudi decision to let oil prices slide that suddenly American sanctions started gaining ‘effectiveness.’ It is a brilliant, if somewhat ruthless, master economic stroke, all hidden within Western media reports of ‘Saudi concern’ and so-called Western bemusement over impending budget deficits. So as you can see, nothing is ever as it seems in the world of high economic ‘political finance,’ especially in the Middle East when it comes to global energy markets. Saudi Arabia is ‘punishing’ itself for one year so as to reward itself for years to come. I imagine the Saudi royal family members will be able to laugh into their gold sipping cups. Just as soon as they stop purchasing new gold cups with their anticipated long-term success and dominance.

Dr. Matthew Crosston is Professor of Political Science and Director of the International Security and Intelligence Studies program at Bellevue University, exclusively for the online magazine “New Eastern Outlook”

 

First appeared: http://journal-neo.org/2015/01/06/the-saudi-bait-and-switch-incurring-short-term-pain-for-long-term-gain/

Sharp market falls over euro and oil price slump

By Nick Beams
January 6, 2015
World Socialist Web Site

 

Stock Market DropEuropean and US equity markets fell sharply yesterday as a result of another drop in oil prices, fears of financial instability in Europe over Greek debt and the signs that global deflationary pressures are increasing.

In the US, the Dow Jones index finished the day 331 points down, a fall of 1.86 percent, while the S&P 500 was down by 1.83 percent. The Vix, a measure of market volatility, jumped by 12 percent. Earlier in the day, European markets fell by around 3 percent.

Currency markets also exhibited instability. The US dollar hit a nine-year high against a basket of currencies, while the euro touched a nine-year low, amid concerns over whether the Greek election, to be held on January 25, would spark political instability if the opposition SYRIZA coalition were to win.

The first issue before the incoming Greek government will be to sign off on a new debt agreement. The country was given a two-month extension, to the end of February, on the present bailout plan.

The main factor in the fall in US markets appears to have been the further sharp decline in oil prices, continuing the downward trend that started in June, which was accelerated by the Saudi-led OPEC oil cartel’s decision not to cut production levels.

West Texas intermediate crude yesterday fell below $50 a barrel, its lowest level for five years, while Brent crude, regarded as the global benchmark, dropped by more than 6 percent to under $53 per barrel. The price of oil is now heading down to the levels reached in 2008-2009, when the global financial crisis saw it plummet from $100 per barrel to around $40.

The falling oil price is indicative of the deflationary pressures in the world economy as a result of continuing stagnation in Europe and clear signs that the Chinese economy is slowing.

The drop in the euro was set off by a comment by European Central Bank (ECB) president Mario Draghi during an interview published last Friday. Draghi said the risk of deflation in Europe was higher than six months ago, indicating that the ECB is getting ready to extend its so-called quantitative easing when its governing council next meets on January 22.

The euro fell further on a report published over the weekend in the leading German news magazine Der Spiegel that German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble had reached the conclusion that it was no longer necessary to keep Greece within the euro zone at any price and that a Greek exit would not create a financial crisis, as it threatened to do in 2012.

“The danger of contagion is limited because Portugal and Ireland are considered rehabilitated,” Der Spiegel quoted an unnamed government source as saying. Thus, Germany regarded a Greek exit as “bearable.”

Following the article, the Merkel government said it was working on the assumption that no matter if SYRIZA won the election, the next Greek government would continue to abide by agreements reached with EU institutions.

Under the austerity program dictated by the “troika”—the ECB, the International Monetary Fund and the European Commission—the Greek economy has contracted by 25 percent over the past six years. Even assuming a growth rate of 2 percent per year, the Greek economy would not attain the levels it reached in 2007 until after 2027.

SYRIZA, the “Coalition of the Radical Left,” has abandoned any commitment to repudiate international debts, or restore previous cuts. It now talks of debt “renegotiation,” while insisting that Greece remain within the euro zone.

The financial markets have taken SYRIZA’s measure and recognise that a SYRIZA government of itself is no danger. There is the underlying fear, however, that any election victory could spark a movement from below that could begin to break out of the political straitjacket that has so far contained the working class.

One of the factors that may have led German authorities to consider a Greek exit “bearable” is that Greece’s debt has largely been transferred to public institutions. Consequently, German banks would not be as heavily impacted as they would have been three years ago.

It is estimated that more than 80 percent of Greece’s debt is now held by official creditors, including the International Monetary Fund and the European Stability Mechanism, which functions as the euro zone’s rescue fund.

While the prevailing view in financial circles, at least to this point, is that the euro zone would be able to “handle” a Greek exit, other powerful forces, in the form of deflation and the prospect of a third recession since the financial crisis, are stretching the monetary union.

Inflation figures will be published tomorrow and there are indications that they may record a negative result for the year, after an increase of just 0.3 percent for the year to November. Fears of a negative outcome were increased following yesterday’s news that German inflation had fallen to a five-year low.

Draghi is insisting that the threat of deflation, which increases the level of real debt and interest payments for banks and financial institutions, must be countered by further quantitative easing, involving, in some form, ECB purchases of sovereign debt. However, German Bundesbank president Jens Weidman, who sits on the ECB’s governing council, strenuously opposes the purchase of government debt.

According to former German foreign minister and Green Party leader Joschka Fischer, the policy differences threaten to turn “politically explosive” because they are “becoming a conflict between Germany and Italy.”

Those conflicts are set to intensify. This time last year, the official view was that Europe was starting to recover. But after a brief upturn, growth began to fall, most significantly in the so-called core countries, France, Italy and Germany.

Economic stagnation brings rising debt levels. Despite the imposition of austerity measures, Italy’s debt ratio has increased from 116 percent to 133 percent of gross domestic product (GDP) over the past three years because GDP is not rising fast enough to keep pace with interest costs.

As an article in yesterday’s Wall Street Journal noted, 2014 was supposed to have been the year when the euro zone exited the debt crisis, as growth returned to the region. Instead, “the eurozone is arguably now in greater peril of breaking up than ever before.”

Oil price fall roils Canadian economy

By Dylan Lubao
January 3, 2015
World Socialist Web Site

 

https://i0.wp.com/priceofoil.org/content/uploads/2008/06/oil-sands1.jpgCanada’s oil sector has been sent reeling by the dramatic fall in the price of oil, causing immense nervousness among the country’s business and political elite and presaging an intensified attack on the living standards of workers in the major oil-producing provinces.

Over the past decade, the Canadian ruling elite has invested tens of billions of dollars in expanding domestic oil production, especially the extraction and processing of bitumen from the Alberta tar sands. Buoyed by high oil prices, the development of the tar sands—the world’s third largest proven crude oil reserve— has been an increasingly important driver of Canadian economic growth.

In recent years, Alberta’s economy has grown at double or more than the national average. Such has been the growth of Alberta’s economy, it was forecast this past summer that in three years, Alberta’s economy would be larger than that of Quebec which has twice Alberta’s population.

The ruling elite has not only celebrated the tar sands for their profit-making potential, they have come to count on them to give Canada significant geo-political leverage on the world stage. Over the past decade, Liberal and Conservative politicians have frequently boasted that Canada is an “energy superpower.”

Now, the strategy on which key sections of the Canadian bourgeoisie, including its banks and oil companies and Stephen Harper’s Conservative government have staked their fortunes, seems set to unravel.

The November decision by the Organization of the Petroleum Exporting Countries (OPEC) to maintain current production levels in the midst of an international oversupply sent oil prices into a dizzying tailspin. And with global economy mired in anemic growth if not outright recession, there is little prospect prices will quickly recover.

The benchmark global oil price is now hovering at around USD $60 per barrel, down almost 40 percent from a 2014 high of $107 in June. At the current price, many high-cost oil producers—and the tars sands are among the world’s costliest—face rapidly diminishing profit margins, even losses.

In an expression of the economy’s dependence on oil exports, the Canadian dollar has been trading at its lowest in five-and-a-half years, down 7 percent since the end of June to US $0.86 and more than 15 percent since the start of 2013.

The oil price plummet is also adversely impacting the revenues of the federal Canadian government and the three major oil-producing provinces, Alberta, Saskatchewan, and Newfoundland and Labrador.

Economic commentators and media pundits have attempted to allay concerns about the pending damage to the Canadian economy by noting that Canada’s economy is much more diversified than that of other major oil exporters and that the oil price drop and associated decline in the value of the Canadian dollar will help some sectors, such as the country’s hard-pressed manufacturers.

What such analyses ignore is the extent to which manufacturing plants have been shuttered, and not just had their production curtailed, and the role that the expansion of oil production has come to play in the overall growth of Canadian capitalism.

Nevertheless, leading political and economic spokesmen have been unable to deny that the low price of oil will have far-reaching consequences.

Federal Conservative Finance Minister Joe Oliver has already stated that oil’s free-fall will deplete federal coffers by CAD $500 million by the end of the year, and $2.5 billion per year from 2015 through 2019. Bank of Canada Governor Stephen Poloz, for his part, has hinged the central bank’s monetary policy for next year on the impact of the depressed oil price on the growth in Canada’s GNP, and intimated that interest rates will remain artificially low should oil fail to rally.

Oliver and Poloz made these announcements in the immediate aftermath of the OPEC decision to maintain current production levels. Since then, the price of oil has fallen still further. Western Canada Select, the crude oil extracted from the Alberta tar sands, has dipped below $40 per barrel, a price not seen since the financial crash of 2008.

The budgets of the leading oil-producing provinces, Alberta, Saskatchewan, and Newfoundland, are being impacted far more than that of the federal government, both because the oil industry represents a much larger part of their respective economies and because their budgets are highly dependent on oil royalties.

All three provinces have, for years, banked on oil prices of at least $75 per barrel to balance their budgets.

Saskatchewan’s oil industry accounts for nine percent of the province’s economy and produces 20 percent of Canada’s oil, eclipsed in output only by the Alberta tar sands. Finance Minister Ken Krawetz estimates that for every $1 drop in the price of oil, the province loses $20 million. He went on to say that if the price of oil remains at current levels, the province may soon be in an even worse predicament than Alberta.

Newfoundland and Labrador, where the energy sector makes up 29 percent of gross domestic product, stands to suffer a tremendous decline in corporate and government revenues. The province relies on oil royalties for nearly one-third of its revenue, proportionally more than both Saskatchewan and Alberta.

The Canadian ruling class, however, is nervously eyeing Alberta, as the country’s top oil producer and consequently the key bellwether for the economic and political fallout of the decline in oil prices.

Alberta’s Conservative Premier Jim Prentice, a former federal Industry Minister under Conservative Prime Minister Stephen Harper, has already vowed that “all Albertans will feel the consequences” of the oil price drop. “I won’t cushion it,” Prentice said in a recent state of the province speech. “We will have to make some tough decisions and the impact will be felt in every corner of this province.”

With $215 million in provincial revenue lost for every $1 drop in the price of oil, Alberta’s revenue would shrink by $7 billion or 15 percent next year at current oil prices.

Although Prentice has yet to table any concrete measures in response to the crisis, the tenor of his speech makes abundantly clear that the working class will be made to pay for it through major cuts to public services like education and health care, as well cuts in the wages and jobs of the workers who administer them.

Around 11,000 professional, scientific, and technical service jobs in Alberta’s energy sector were downsized in November, a staggering figure that will grow in January as oil companies slash investment and curb production. Given that the vast majority of the lost positions are linked to new tar sands development, the figure points to an abrupt cut-off of new capital investment and a decline in business confidence in future tar sands’ development.

Billions of dollars in tar sands’ projects have already been shelved or put on hold. Mergers and acquisitions in the Alberta oil patch have hit a four-year high, with the typically highly-leveraged tar sands companies particularly susceptible to takeovers. One such acquisition was the recent takeover of Talisman Energy, one of the country’s largest oil producers, by Spanish oil firm Repsol S.A., for $13 billion.

Alberta is Canada’s most socially unequal province. Oil towns like Calgary and Fort McMurray are characterized by new and colossal fortunes, along with crushing poverty. The top 10 percent of Albertan families earn almost two-thirds of after-tax income, while the bottom 10 percent take home a mere 1.7 percent. Studies have pointed to the glaring fact that income inequality in Alberta—where a full 87 percent of earnings goes to the top half of families—is even worse than that of the US.

Prentice assured the petroleum bosses that tax increases are out of the question as a means of dealing with the revenue shortfall. Alberta has the lowest corporate tax rate in the country at a mere 10 percent. Its flat income tax rate, also at 10 percent, has billionaire oil barons contributing proportionately as much of their paycheque to provincial coffers as the tens of thousands of highly exploited and low-paid temporary foreign workers, some of whom earn as little as $10 per hour and work menial jobs with little job security.

Both Prentice and Prime Minster Harper have used the drop in the price of oil as a new excuse for their opposition to environmental reform, with Harper going so far as to denounce proposed restrictions on greenhouse gas emissions by the oil and gas industry as “crazy economic policy”.

There are, however, concerns within ruling circles that Harper’s virulent opposition to the most tepid environmental regulation is becoming a diplomatic embarrassment and a political liability.

Significant tensions have also developed between the Conservative government and the Obama administration over the latter’s refusal, based on political calculations, to allow the building of the Keystone XL pipelines, which would transport Alberta crude to US refineries on the Gulf of Mexico.

Oil industry executives and Alberta and Saskatchewan politicians have also expressed increasing frustration over the failure of various Canadian provincial governments to give quick approval to projects to deliver tars sands oil to Canada’s east and west coasts.

“No pipelines are being built, no pipelines are being approved,” complained Saskatchewan Premier Brad Wall last month. “I think certain interests in Central Canada aren’t comfortable with the fact that we’re an energy power.” Wall then went on to implicitly attack “equalization”—the program whereby the federal government provides money to the poorer provinces to ensure a national standard for public services.

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