Island Economics  

Financial Sense has a look at the impact of the Iranian oil bourse called "Island Economics".

With the Iranian Oil Bourse set to open in a month, there has been a lot of discussion about its meaning and consequences. A reasonable person might ask, “What’s the difference what oil is priced in? Can’t you just exchange currencies?” So for anyone skeptical about the existence of a Petrodollar and the “Exorbitant Privilege” it lends via inflationary extraction, join me on a little trip to a place I call: Gilligan’s Island....

The Iran nuclear saga continues trundling onwards with lots of sabre rattling being performed in a conspicuously public manner. For those who aren't paying attention, the IAEA has somewhat surprisingly referred Iran to the Security Council (but no action is to be taken until March) - the Iranians have responded by saying that they have no bomb but will hit back and have now halted snap nuclear checks.

Venezuela's Hugo Chavez (who voted against referring Iran to the security council) is also engaged in a diplomatic row with the US, which has seen tit for tat diplomatic expulsions and now threats of closing off exports of oil to refineries in the US.

Venezuelan President Hugo Chavez threatened to jail diplomats and close refineries belonging to the U.S. unit of the state oil company in an escalating war of words with the President George W. Bush.

U.S. diplomats continue to engage in espionage in his country, Chavez told hundreds of thousands of supporters today during a government rally commemorating the 14th anniversary of his abortive coup attempt in 1992 against former President Carlos Andres Perez. He said he would jail U.S. diplomats caught spying, while challenging the U.S. to break diplomatic ties.

``If the government of the U.S. wants to break relations with Venezuela, and they take the decision, it would cost me nothing to order the closure of the refineries we have in the U.S.,'' Chavez said. ``Then we will see where (the price of) oil will go, or a gallon of gasoline. It would cost me nothing to sell oil to other countries in the world.''

``We now sell 1.5 million barrels a day of oil to the U.S.,'' Chavez said. ``We have never missed our commitment.'' Venezuela could sell oil now going to the U.S. to India, China and Latin America, said Chavez, who said his government has proof of spying by U.S. diplomats. During his speech, he read several e-mails that he said proved U.S. staffers were engaged in espionage.

Chavez, who was dressed in a red shirt and wearing his trademark red beret, said the South American country, which is the world's fifth-largest oil exporter, will also seek to build up its defenses by purchasing arms from other countries.

So why have Russia and China agreed to send the Iran case to the Security Council ? I guess if you follow Orwell's line of reasoning about the relationship between the 3 main powers and the countries of "the gap" then you could conclude that no one wants a nuclear armed Iran dominating the oil supply from the middle east (especially as Iraq looks likely to become an Iranian satellite in future) - it would make control of this vital resource by the others problematic.

Alternatively you could reason that Russia and China are happy to delay for the time being and to veto any UN approved action later on - and in the meantime it allows the Russians to attempt to get more leverage over the Iranian nuclear fuel cycle and to sell them more weapons, while the Chinese might be looking to get a better deal on oil and gas supplies in return for some protection.

The Asia Times has an article by an ex-german intelligence officer (so they say anyway) called "Iran and the jaws of a trap" which claims that the Iranians have blindly walked into a trap set by the US.

The Iranian leadership's obvious confidence in its ability to deter the US, Britain and Israel seems to rest on mainly four assumptions. Iran is militarily much stronger than Iraq, much larger, its terrain more difficult, its society more cohesive - thus more difficult to defeat, to occupy and to pacify. In addition, President Mahmud Ahmadinejad seems to take particular comfort from the widely anticipated wave of popular outrage and anti-Western attacks in the wider Middle East if Iran should be attacked.

Moreover, the economic costs of a war against Iran in terms of the price of oil and the interruption of the Iranian supply would propel the world economy into a tailspin. And finally, Iranian leaders seem to accept at face value the US moans over its overstretched military forces and the demoralization of US forces in Iraq.

Certainly, Iranian misconceptions are helped mightily by the defeatism of the Western debate about such a war. "No good options" has become something like the consensus view: an airborne and special forces "surgical strike" (as well as a massive attack) against the Iranian nuclear industry and military targets could at best delay its nuclear program and will be followed by retaliation in Iraq, Lebanon etc; a ground attack is out of the question because most of deployable US ground forces are desperately busy in Iraq.

If such things could be planned, one might be persuaded to consider this debate as an aspect of strategic deception. In fact, the US and British forces in Iraq and in the Persian Gulf as well as the forces in Afghanistan are quite able to redeploy on short notice, for example during the days of an initial air campaign against Iran for large-scale operations against the remaining Iranian forces and can be reinforced during the war. The US military infrastructure at the borders of Iran has a very substantial capability to deal with surge requirements.

Mike Whitney (who never strikes me as a very impartial observer) has an article that outlines a variant of the theory that the US plan is to annex Khuzestan. He also has some "New World order" theorising called "the tyranny that follows economic collapse" that follows the theory (common with many doomer scenarios) that US economic collapse is inevitable and authoritarian government isn't far away. Mike recommends getting together some cardboard and finding a good freeway flyover to live under, which doesn't seem to be a particularly constructive approach...

The stars are suitably aligned and the free ride will soon be over. Gold is skyrocketing as perceptive investors see the cracks and fissures appearing in the economic foundation that binds the debtor-kingdom together. Twitchy investors are watching for news about Iran, rebel attacks in Nigeria, or a sell-off of greenbacks in China. Market analysts may feign equanimity but they are walking barefoot on the knifes-edge expecting the worse.

But, the worse is unavoidable; the country is dead broke. Last year alone Americans not only spent more than they earned for the first time since the great Depression; they also borrowed an additional $600 billion from their home equity to pay off credit card debt and consumer loans! This tells us that the all signs of growth in the economy are the result of credit spending. Home equity has become the new personal ATM card, demonstrating once again that the country is running on fumes.

This quarter’s slow growth of 1.1%, shows that the well has run dry and consumer spending (which accounts for 70% of GDP) is down for the count. Interest rates are going up, the dollar will soon be sinking, energy costs are soaring, and the unemployment line is getting longer.

Time to find a nice comfy spot beneath the freeway on-ramp…and bring your own cardboard.

The Clinton strategy would have made the transition more agreeable, but the result of globalization is roughly the same. Businesses and jobs pack up and leave driving wages through the floor, while the social safety net continues to worsen by congressional edict. The main difference with Clinton is that he strengthened the dollar by balancing the budget and showed little appetite for creating the police-state apparatus that the Bush claque relishes.

The Bush administration is set up for a quick but agonizing transition. They have painstakingly removed whatever laws stood in the way of autocratic government. The courts will brandish the rubber stamp for the supreme executive, the congress will languish as a ceremonial institution, and the compliant media will shower praise on the Dear Leader’s iron-fisted methods of keeping the peace.

Economic disintegration is the requisite catalyst for changing the fundamental institutions of American government. The globalists in the White House have played a role in numerous coups across the planet, all producing the same basic result; a military dictatorship with a strongman at the head of state. This one should be no different.

On a possibly related (to the Iran situation) note, the furore over Danish cartoons lampooning Islam's favourite prophet Mohammed seems quite astounding given that they were published over 5 months ago. Why all the fuss now ?

Obviously (as I'm very secular in outlook), I couldn't care less about cartoons mocking any religious figure and I think that any publication should have the right to publish whatever it feels like. Both sides seem to be fanning the flames as much as they can (though the Danes look like they wish the whole issue would go away, unfortunately for them the conservative movement and free speech activists both look determined to keep the issue alive). The European Tribune has one interesting explanation about what is going on - the Saudi's kicked the whole thing off as a way of distracting attention away from the usual large death toll from stampedes at this year's Hajj. This doesn't sound particularly likely to be true but its a novel explanation which at least avoids the "clash of civilisations" claptrap being proferred elsewhere.

I also liked yesterday's commentary in Crikey on the topic from Charles Richardson.

The controversy over cartoons of the Prophet Muhammad shows no sign of abating, with a violent attack last night on the Danish consulate in Beirut – although there have also been many voices in the Middle East calling for calm.

Perhaps the most interesting aspect of the affair has been the different responses in the English-speaking countries to that in continental Europe. None of the leading British or American (or Australian) papers have republished the cartoons; as Emma-Kate Symons puts it in this morning's Australian, "Europe was abandoned by the British and US political and media elite."

Even those Europeans who have criticised the decision to publish the cartoons, such as EU commissioner Franco Frattini have defended the right of free speech in uncompromising terms. It seems a complete reversal of the usual position of the Americans and British accusing the French and Germans of appeasement.

A clue can be found in the terms in which the issue is framed in Europe. ­France Soir, which republished the cartoons last week, headlined with "Yes, we have the right to caricature God," and explained that "no religious dogma can impose itself on a democratic and secular society."

On the continent, religion is seen as the enemy of freedom in a way that is foreign to the American tradition. It was not surprising to find the Vatican weighing in on the other side, arguing that freedom of speech does not include the freedom to attack religion.

Also noteworthy is the tepid response from Europe's large Muslim population. There have been some protests, but nothing like the violence of the Middle East. Where are the commentators who kept saying that France's Muslims are a fifth column threatening western civilisation?

Tony Parkinson last year told us that French rioters were making "a defiant declaration of their separate cultural identity," but it actually looks as if they care more about jobs and discrimination than about the dignity of their Prophet.

MIT Technology Review takes a look at "Computing's Power Problem", noting that tech companies are looking to curb their enormous appetite for electricity.

Tech companies are notoriously power hungry. In fact, since data storage has become increasingly important, energy consumption in massive computer rooms - serving companies from Google to Abercrombie & Fitch - has been rising.

So attendees at Sun Microsystems' summit in San Francisco last week addressed ways to save energy in data centers and large computer server rooms. The gathering included industry leaders such as Hewlett-Packard, Intel, and Advanced Micro Devices, as well as representatives from Pacific Gas and Electric Company and the U.S. Environmental Protection Agency.

Their goal: to find effective ways to gauge the amount of energy being used and wasted by data centers, and to share technological advances that could help to decrease electricity consumption.

WorldChanging has a post on ethanol and E85 use (and the need for a supporting infrastructure) in the US from Joel Makower that takes a look at some of the developments in ethanol usage for fuel.

The seemingly sudden elevation of ethanol in the national consciousness - capped this past week by the "addicted to oil" admission in George Bush's State of the Union address - shows the value of persistence and patience for those promoting alternative energy resources, and underscores the notion that every underdog has its day.

But it also points out that no matter what petroleum alternatives you choose, there will likely be plenty of critics out there. It took barely a single 24-hour news cycle following Bush's speech before enthusiastic headlines gave way to pessimistic reports detailing why the president will likely have a tough time pushing his vision past everyone from environmental activists to Big Oil.

Perhaps. But I'm far from ready to run this idea into a ditch.

...

This is laudatory, albeit hardly a stretch goal. (Quick aside: In remarks at last week's Clean-Tech Investors Summit, former Bush-the-senior EPA administrator Bill Reilly cracked that in his recent State of the Union address, George W. managed to pronounce "cellulosic biomass ethanol" more accurately than he does "nuclear.") Many experts suggest that cellulosic ethanol - derived from plant waste and other fibrous materials - can be ramped up rather quickly. And, since it can be sold through gas pumps at any of the 19,000 or so existing U.S. fueling stations, infrastructure problems are minimal (or at least far less than for hydrogen distribution).

And cellulosic ethanol makes the most climate sense, since using waste products requires few, if any, fossil fuels to grow, and even growing special "bioenergy crops" can be done with far fewer petroleum and petrochemical inputs. According to a recent study by Dan Kammen of U.C. Berkeley's Renewable and Appropriate Energy Lab, the greenhouse gas (GHG) improvements of cellulosic over corn-based ethanol are dramatic.

Most ethanol based programs are currently corn based and seem to be almost worthless to me (its really just an exercise in pork barrelling for corn farming states as far as I can tell). The cellulosic ethanol approach does seem to be much more sustainable, but until this is a fully industrialised process (and the issues related to soil depletion are fully understood and have been dealt with) I think people should be a little wary of just how much of a panacea this will be - it will help mitigate some of the effects of oil depletion but seems unlikely to make them go away.

Bart from Energy Bulletin made the following comments:

I'm afraid that ethanol is another example of codependency -- making it easier for the addict to continue his addiction. It's as if all the problems we face are collapsed into one simple-minded question: how do Americans keep their cars running?

Some basic problems:
1. How does this solution scale to the hundreds of millions of cars to be driven by the newly affluent Indians and Chinese?
2. What does this do to the price of sugar and commodities? This may not be a problem for the affluent, but what about the majority of the world's population?
3. How is this a sustainable process? It requires inputs of petroleum, fertilizers and pesticides. It depletes the soil of carbon and other nutrients.

The post is also notable for the appearance of what seems to be WorldChanging's first troll, which I guess is a milestone of sorts. How come none of my trolls ever hang around for long ?

Grist has a short note on smart electricity meters program in California (Energy Australia and Country Energy are running similar things here on a limited scale).

Millions of California households will soon be able to see at a glance how much electricity and money is being gobbled up as they flip on their hairdryers and plasma TVs. California regulators and two of the state's biggest utilities are rolling out a $2 billion program to install "advanced" electricity meters in select homes. The devices display how much electricity a customer is using and how much it's costing in real time, encouraging folks to cut back during peak hours. The utilities will use the data provided by the meters to offer variable-rate plans that reward good power behavior -- like running dishwashers off-peak -- to help alleviate California's perpetual power crunches. In a pilot project, electricity use fell by an average of 13 percent in the 2,500 participating homes. Similar programs have cut electricity consumption in Pennsylvania, Florida, Sweden (natch), and elsewhere, says a California energy commissioner.

Reports from Scotland indicate that North Sea production is slumping faster than the UK government predicted.

A marked downturn in North Sea oil production means that the UK will become a net importer of oil at least three years earlier than the government anticipates, according to new figures from the Royal Bank of Scotland.

Even the contribution from the Buzzard field – which will add about 180,000 barrels of oil per day from 2007 – is seen as insufficient to prevent a looming dependence on the vagaries of world markets.

The Department of Trade & Industry is sticking to its prediction that the UK will not become a net importer of oil on a sustained annual basis until 2010.

However, figures from the RBS Oil & Gas Index show production from the UK continental shelf unexpectedly shrank to 1.5 million barrels per day (bpd) in October, 8% down on the previous month and a 14% fall on October 2004.

Andrew McLaughlin, group chief economist at RBS, said: “The International Energy Agency is predicting UK demand of 1.8 million bpd in 2007. But we’ll be lucky to produce an average of 1.7 million bpd in 2005 and it seems unlikely that North Sea production is going to rise above 1.8 million bpd over the next 12 months.

“There had been a hope both in the oil industry and within government that a period of sustained high oil prices would create more incentives to produce in the North Sea. But that has not come through.

“North Sea fields are maturing rapidly and as a result the UK looks set to become a net importer of crude oil earlier than the government is anticipating. Even current high prices will be insufficient to stem the long-term depletion of North Sea fields.”

UK crude production peaked at 2.9 million bpd in 1999 but has been in long-term decline ever since. Since 2004, the UK has been a net importer of gas.

News that Halliburton has been awarded a contract to build "immigration detention centers" in the US has much of the conspiracy theorist world aghast wondering who will end up in these facilities (not that I'm suggesting Boing Boing, which the link is from, is a haven for conspiracy theorists). The note that this is an extension of an existing contract makes it seem more like yet another handout to Dick Cheney's mates rather than a harbinger of the imminent arrival of the New World Order...

On Saturday, the NY Times reported that a subsidiary of Halliburton (the same company that reported that 2005 was its best year ever, and has been caught overcharging taxpayers for its no-bid contract work in Iraq) was awarded a $385 million contract to build "temporary immigration detention centers" in the US for Homeland Security Department. Call me paranoid, but seeing "Halliburton," "Homeland Security," and "detention centers" in the same article doesn't make me feel safe at all.

KBR would build the centers for the Homeland Security Department for an unexpected influx of immigrants, to house people in the event of a natural disaster or for new programs that require additional detention space, company executives said. KBR, which announced the contract last month, had a similar contract with immigration agencies from 2000 to last year.

Paul Craig Roberts has a new article out called "Who Will Save America ?" which touches on a lot of my favourite ranting topics.

A number of readers have asked me when did I undergo my epiphany, abandon right-wing Reaganism and become an apostle of truth and justice.

I appreciate the friendly sentiment, but there is a great deal of misconception in the question.

When I saw that the neoconservative response to 9/11 was to turn a war against stateless terrorism into military attacks on Muslim states, I realized that the Bush administration was committing a strategic blunder with open-ended disastrous consequences for the US that, in the end, would destroy Bush, the Republican Party, and the conservative movement.

...

Americans have forgotten what it takes to remain free. Instead, every ideology, every group is determined to use government to advance its agenda. As the government's power grows, the people are eclipsed.

We have reached a point where the Bush administration is determined to totally eclipse the people. Bewitched by neoconservatives and lustful for power, the Bush administration and the Republican Party are aligning themselves firmly against the American people. Their first victims, of course, were the true conservatives. Having
eliminated internal opposition, the Bush administration is now using blackmail obtained through illegal spying on American citizens to silence the media and the opposition party.

Before flinching at my assertion of blackmail, ask yourself why President Bush refuses to obey the Foreign Intelligence Surveillance Act. The purpose of the FISA court is to ensure that administrations do not spy for partisan political reasons. The warrant requirement is to ensure that a panel of independent federal judges hears a legitimate reason for the spying, thus protecting a president from the temptation to abuse the powers of government. The only reason for the Bush administration to evade the court is that the Bush administration had no legitimate reasons for its spying. This should be obvious even to a naif.

The United States is undergoing a coup against the Constitution, the Bill of Rights, civil liberties, and democracy itself. The "liberal press" has been co-opted. As everyone must know by now, the New York Times has totally failed its First Amendment obligations, allowing Judith Miller to make war propaganda for the Bush administration, suppressing for an entire year the news that the Bush administration
was illegally spying on American citizens, and denying coverage to Al Gore's speech that challenged the criminal deeds of the Bush administration.

The TV networks mimic Fox News' faux patriotism. Anyone who depends on print, TV, or right-wing talk radio media is totally misinformed. The Bush administration has achieved a de facto Ministry of Propaganda.

...

Consider the no-fly list. This list has no purpose whatsoever but to harass and disrupt the livelihoods of Bush's critics. If a known terrorist were to show up at check-in, he would be arrested and taken into custody, not told that he could not fly. What sense does it make to tell someone who is not subject to arrest and who has cleared screening that he or she cannot fly? How is this person any more dangerous than any other passenger?

If Senator Ted Kennedy, a famous senator with two martyred brothers, can be put on a no-fly list, as he was for several weeks, anyone can be put on the list. The list has no accountability. People on the list cannot even find out why they are on the list. There is no recourse, no procedure for correcting mistakes.

How long before members of the opposition party, should there be one, find that they cannot return to Washington for important votes, because they have been placed on the no-fly list? What oversight does Congress or a panel of federal judges exercise over the list to make sure there are valid reasons for placing people on the list?

...

Debate is dead in America for two reasons: One is that the media concentration permitted in the 1990s has put news and opinion in the hands of a few corporate executives who do not dare risk their broadcasting licenses by getting on the wrong side of government, or their advertising revenues by becoming "controversial." The media follows a safe line and purveys only politically correct information.

The other reason is that Americans today are no longer enthralled by debate. They just want to hear what they want to hear. The right-wing, left-wing, and libertarians alike preach to the faithful. Democracy cannot succeed when there is no debate.

Americans need to understand that many interests are using the "war on terror" to achieve their agendas. The Federalist Society is using the "war on terror" to achieve its agenda of concentrating power in the executive and packing the Supreme Court to this effect. The neocons are using the war to achieve their agenda of Israeli hegemony in the Middle East. Police agencies are using the war to remove constraints on their powers and to make themselves less accountable. Republicans are using the war to achieve one-party rule--theirs. The Bush administration is using the war to avoid accountability and evade constraints on executive powers. Arms industries, or what President Eisenhower called the "military-industrial complex," are using the war to fatten profits. Terrorism experts are using the war to gain visibility. Security firms are using it to gain customers. Readers can add to this list at will. The lack of debate gives carte blanche to these agendas.

One certainty prevails. Bush is committing America to a path of violence and coercion, and he is getting away with it.

I'll close with a BBC report on the last military frontier - the internet.

Bloggers beware.

As the world turns networked, the Pentagon is calculating the military opportunities that computer networks, wireless technologies and the modern media offer. From influencing public opinion through new media to designing "computer network attack" weapons, the US military is learning to fight an electronic war.

The declassified document is called "Information Operations Roadmap". It was obtained by the National Security Archive at George Washington University using the Freedom of Information Act. Officials in the Pentagon wrote it in 2003. The Secretary of Defense, Donald Rumsfeld, signed it.

The "roadmap" calls for a far-reaching overhaul of the military's ability to conduct information operations and electronic warfare. And, in some detail, it makes recommendations for how the US armed forces should think about this new, virtual warfare. The document says that information is "critical to military success". Computer and telecommunications networks are of vital operational importance.