Getting The Jitters Yet ?  

Reports about Iran moving their foreign reserves out of Europe yesterday seemed to contribute to the latest spike in oil prices (briefly over US$70 a barrel) and the 200 point drop on the Dow.

Iran's decision Friday to transfer its foreign currency reserves out of Europe ahead of possible U.N. sanctions could affect as much as $50 billion in deposits, analysts estimated, and helped send oil prices above $68 a barrel.

But economists said the impact on the global economy would be muted, with the figure not large in comparison to other countries' reserves and uncertainty about where the money would be moved and whether it would be shifted from dollars and euros to other currencies.

"The banking system in Europe is sufficiently well developed and stable enough that even a wholesale withdrawal of reserves within wide bands of uncertainty wouldn't likely cause severe problems," said Mark Austin, a currency analyst with HSBC in London.

Iran, under increasing international pressure over its nuclear program - and mindful of the freezing of its U.S. assets after the 1979 seizure of the U.S. Embassy in Tehran - said it had begun transferring its reserves from European banks to an undisclosed location.

Three analysts who did not want to be identified because the delicate nature of the information estimated that the figure was between $40 billion and $50 billion, while a fourth said it was more likely to be between $25 billion to $30 billion.

The range puts Iran's holding on about a par with the $54 billion that Algeria holds, and is far below the holdings of countries such as China, which had $ 818.9 billion at the end of December.

The Bank for International Settlements says data indicates Iran had $23.5 billion in the international bank system at the end of June 2005. That total represented a 10% increase compared to six months earlier, according to the Basel, Switzerland-based BIS.

Steve Barrow, a fixed income strategist at Bear Stearns in London, said the latest IMF data indicated that Iran holds around $35 billion-$40 billion in overseas assets.

Presumably reports that Gazprom has cut gas supplies to Europe due the the cold snap in Russia aren't helping either.

Russia's state gas giant Gazprom yesterday raised the spectre of energy shortages across Europe when it cut exports to Italy and Hungary amid cold weather at home. Hungary said it had experienced a 20% cut in natural gas supplies from Russia. A spokesman for gas and oil company MOL Rt told Associated Press that its Russian suppliers had warned it of the drop in supply yesterday morning. He said it was because of Russia's cold snap.

Italy's Eni energy company said supplies had been cut by 5.4% between 6am on Tuesday and 6am yesterday. There were also unconfirmed reports of cuts in supplies to Bosnia and Austria. British Gas warned that the Gazprom move would result in a "worrying domino impact" on the UK wholesale market, where prices are already 75% higher than last year.

But Gazprom denied any problems and said it was delivering 7% more than its contracts with clients in Europe required.

The dispute again undermined President Vladimir Putin's attempt to use Russia's chairmanship of the G8 to boost his country's status as a reliable energy supplier. On January 1 a price row led to Gazprom cutting off the gas to Ukraine. The cuts hit supplies across eastern Europe, and sparked criticism from both the EU and the US that Moscow was "politicising" energy. Yesterday Wolfgang Schüssel, the chancellor of Austria which holds the EU presidency, said the EU should cut its dependency on Russian gas to ensure "security of supply".

Temperatures were predicted to fall to -37C overnight in Moscow, the lowest since 1979. At least 24 people reportedly died across the country.

The energy disputes will raise doubts about Gazprom's reliability. The company has said it wants to secure up to 20% of the British market within a decade. Mr Putin said recently that Russia could supply 10% of Britain's gas.

Petroleum Intelligence Weekly has a report which claims that Kuwait's oil reserves are only half those officially stated.

OPEC producer Kuwait's oil reserves are only half those officially stated, according to internal Kuwaiti records seen by industry newsletter Petroleum Intelligence Weekly (PIW). "PIW learns from sources that Kuwait's actual oil reserves, which are officially stated at around 99 billion barrels, or close to 10 percent of the global total, are a good deal lower, according to internal Kuwaiti records," the weekly PIW reported on Friday.

It said that according to data circulated in Kuwait Oil Co (KOC), the upstream arm of state Kuwait Petroleum Corp, Kuwait's remaining proven and non-proven oil reserves are about 48 billion barrels. Officials from KOC were not immediately available for comment to Reuters.

PIW said the official public Kuwaiti figures do not distinguish between proven, probable and possible reserves. But it said the data it had seen show that of the current remaining 48 billion barrels of proven and non-proven reserves, only about 24 billion barrels are so far fully proven -- 15 billion in its biggest oilfield Burgan.

Kuwait has been adding up to 500 million barrels a year at Burgan which means the remaining non-proven reserves of some 5.3 billion barrels will likely be upgraded to proven, according to PIW.

The Herald's economics column this weekend takes a look at the "empire of debt".

In half a century flat, America has transformed itself from the world's largest creditor into its biggest-ever debtor.

To fully grasp the risk this creates for the global financial system, we have to get a handle on how such a seismic shift occurred in the first place. The most common explanation offered these days, and that of the US Federal Reserve, is that a "savings glut" has emerged among Asian nations.

But there is another way to look at it. Perhaps the Asian nations are as frugal as they ever were, and it is the US that has gone on a "borrowing binge".

In a new book titled Empire of Debt: The Rise of an Epic Financial Crisis, American financial journalists Bill Bonner and Addison Wiggin argue just that.

Beginning with Woodrow Wilson, American presidents have set about transforming the US into an empire akin to those of the Greeks or the Romans, they argue.

Gripped by a desire to reshape the world in its own image, the US has set itself on a warpath, beginning in Europe in 1917 which has dragged it through the jungles of Vietnam, right through to the deserts of Afghanistan and Iraq.

Expanding an empire always carries costs, but, Bonner and Wiggin argue, the US empire is even more unstable than its ancient predecessors because it is has been built in reverse.

Instead of accumulating tributes from its neighbouring lands, as in the good old days of pillage and plunder, the US economy has been shelling out cash to the far-flung corners of its empire as fast as it can go. A steady stream of US dollars and bonds flow out to countries such as China, Japan, and India, where they are ploughed into expanding production and investment.

But there is another drain on this modern empire, even greater than warfare: welfare.

In the 1930s and '60s the US initiated two massive campaigns aimed at lifting all its citizens out of poverty. Roosevelt's "New Deal" and Johnson's "Great Society" offered the prospect of social harmony. What they delivered was a mountain of debt.

Bonner and Wiggin have done the figures. The total value of assets in the US is about $50,000 billion ($67,000 billion). Current debt stands at about $US37,000 billion. Adding in the present value of future government liabilities and their conclusion is grim: "America is broke. Busted. Bankrupt. It couldn't pay its debts even if it wanted to."

When Ronald Reagan came to power in 1981, as with George W. Bush two decades later, cutting taxes proved a far easier political option than tackling the other side of the equation, cutting spending. In Reagan's first year Americans got a 25 per cent across-the-board tax cut. Bush has delivered several. Neither made any progress in curbing government spending.

Not only has the US Government sent itself hopelessly into debt, but through lower taxes it has encouraged US consumers to spend freely and do the same. Other countries have been only too happy to grab their slice of the American pie, soaking up more and more US Treasury bonds.

According to Bonner and Wiggin, the American "empire of debt" officially came into being when it crossed the line from creditor to debtor in the mid 1980s. Today, the annual US current account deficit stands at around $US750 billion, requiring around $US2 billion each day in foreign investment to finance it.

This seismic shift in the world's most powerful economic and military force has the potential to destabilise the entire international financial system.

Jacques Chirac is muttering about nuclear strikes in response to any terrorist attack on France or French interests, with the remarks seemingly directed at Iran.

Jacques Chirac says France is prepared to launch a nuclear strike against any country that sponsors a terrorist attack against French interests.

The French President said the country's nuclear arsenal is capable of making a tactical strike in retaliation for terrorism.

"The leaders of states who would use terrorist means against us, as well as those who would envisage using … weapons of mass destruction, must understand that they would lay themselves open to a firm and fitting response on our part," he said during a visit to a nuclear submarine base in Brittany. "This response could be a conventional one. It could also be of a different kind."

Mr Chirac said his country had reduced the number of nuclear warheads on some missiles deployed on France's four nuclear submarines in order to target specific points rather than risk wide-scale destruction.

"Against a regional power, our choice is not between inaction and destruction," he said. "The flexibility and reaction of our strategic forces allow us to respond directly against the centres of power … All of our nuclear forces have been configured in this spirit."

At the same time he condemned "the temptation by certain countries to obtain nuclear capabilities in contravention of treaties".