re: invading iran.charles
Jim Willie CB is the editor of the “HAT TRICK LETTER”
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The conflict with Iran over their advancing nuclear program has moved gradually toward severe escalation. Iran’s insistence to develop uranium enrichment facilities creates a supply fork. One tine extends legitimately to their electrical generating plants powered by enriched uranium. Another tine extends to a nuclear weapon arsenal, potentially. Russia has assured the West of its primary role to handle spent fuel, the key ingredient for weapon grade material. If the conflict ignites, expect a sudden $10 jump in the crude oil price, maybe even a $30 jump. Iran commands more control over the critical Strait of Hormutz than any other Persian Gulf nation, as Chinese Silkworm missiles are deployed in strategic emplacements. The energy war has numerous skirmishes afoot. However, Iran serves as the focal point for the detonation device on that war. Above board, the United Nations will be involved. Under the table, the Israeli military will be involved. Actual military action could close the Hormuz Straits controlling the Persian Gulf, where a large portion of world oil supply exits.
ALL THESE BATTLES ENSURE A PERMANENT ENERGY BULL MARKET, AS GEOPOLITICAL CONFLICT ENSURES A PERMANENT GOLD BULL MARKET.
And then there is Russia pulling rank over Ukraine, ending communist silly subsidies, which put Europe in the energy shadows. There is more to this story. And then there is Nigeria, whose offshore natural gasfields have been bid for by China and accepted. The West lost this one. And then there is Kazakhstan, which also has been secured by China. So much for the failed Unocal bid. The West might be in the process of losing the entire Caspian region. China has responded by focusing upon Central Asia, locking it down and thumbing their noses at North America. The lesson learned is that China has been given a message “Your money is no good, even though it is US$-based!” And then there is Iraq. The cost of the war might be far higher than originally believed, like near $2000 billion. One must count the lifetime health costs and expenses from prosthetic devices, as well as the lost economic costs from deaths. Worse, religious and sectarian battles might fracture the union, from either Shiite divisions with Sunnis, or else from Kurdish insistence on independence as seen with reluctance to share oil revenues.
The bidding wars have begun. The opening of the Iranian Oil Exchange has, in my view, prompted a massive propaganda campaign by the USGovt to muddy the waters. The US Military might not be capable to attack Iran directly, since Russia has promised military retaliation if foreign aggressors attack Iran. The more we see the United Nations dragged into the fray, the more you can be certain the USGovt feels powerless to face off Iran. The entire nuclear power, uranium enrichment, and proliferation arguments seem absurdly exaggerated. Putin has promised to handle all Iranian reprocessing of spent uranium, you know, the stuff that becomes weapons grade fuel. The timing next to the March launch of the Iranian Oil Exchange, with planned sales of crude oil and natural gas in euro denomination, seems suspicious. Sale of oil in euro currency represents such a grand threat to the Petro-Dollar superstructure system, that one must wonder if the financial challenge to the US$-centric world is construed as an assault worthy of military response. Count me as precisely one such observer. The importance of Saddam’s sale of oil in euro terms is vastly under-appreciated, under-reported, and under-estimated.
THE GLOBAL PICTURE OF CONFLICT A global energy war has begun, which will involve oil as its center and conflict over it both regionally and globally. The war will forge two-way and three-way partnerships. In the course of securing relationships built upon sales & supply contracts, large construction, production, and exploration contracts will guarantee and lock up the sale of output as a reward. Enormous capital requirements are outlined. Furthermore, risks abound, as some new prospective energy properties might contain large risks on cost assessment and time estimations. The extreme risk is for the USA to be locked out of all new marginal supply from East Asia to West Asia as far as to West Africa, and even to lose some of the current supply reaching the market. Over the course of the next two years, a global battle will surely erupt to secure the energy deposits, and to control shipping lanes. It will be a miracle if military conflict is averted in the battle for progressively more scarce energy supplies. In 2006, the severity and seriousness of the conflict will come front & center to the geopolitical stage.
It is the marginal newer discoveries which will be the immediate battleground, free from existing contracts. Big investment is needed for many scheduled projects. Much will be needed to build liquefied natural gas (LNG) port facilities and virgin territorial development. With the Iraqi War the USA is distracted from securing any new supply beyond the traditional sources such as the Persian Gulf region. Piece by piece, the United States and European corporations are being either excluded (for political reasons) or losing out from negotiations. Some producing nations perceive a heavy political price, complete with a degree of subservience, for working with American corporations. The USA is not making the planned inroads in the entire Caspian region of former Soviet republics, nor in Iran. The USA might squander control of Afghanistan, with no benefit in the control of any nearby pipeline.
Iran is the clear pipeline winner in the Caspian region. Thus the propaganda against Iran in the news media. The United States will not control the Iranian oil pipeline, nor will Europe. Heck, nor will Russia, but Russia will be much better positioned than the West. By reporting the chants against Israel by newly elected Iranian leaders, and not reporting the bombing by Israeli black bag agents of Iran’s largest oil facility last June 2005, the press has presented a bias. My purpose is to avoid politics and its assured controversy. My view is that Iranian leaders relish in whipping up crowds much like a high school pep rally, perhaps to divert attention away from the mullah corruption and prevalent poverty. Such are interpretations by a couple key Moslem friends of mine. Some Americans say we should nuke Iraq and Iran, but that does not mean our leaders are seriously considering such a lunatic maneuver. Well, maybe they are!!! My view is that the USA is boxed in, unable to challenge Iran directly, since Russia has promised military retaliation if aggression is taken against Iran. So the United States appears to have enlisted secretive (and surely effective) Israeli assistance. Make your own minds up on truth in reporting. My experience over the last three years has uncovered numerous salacious, exciting, and gripping stories which never make it to the US press & media, for some reason. My suspicions put forth many possible motives for news suppression. Control of public opinion is foremost among them.
RUSSIA & UKRAINE END SOVIET SUBSIDIES
The battle royal between Russia and Ukraine has many components. Almost nothing is properly reported in the lapdog US press & media. The skirmish extends the breakup of the Soviet Union empire, attempts to dissolve the old absurdly cheap subsidies to the Soviet Republics, while at the same time granting some legitimate revenue to producing former republics without the drag stench of heavy subsidized discounts. Such is the bilateral battle, whose additional motive is revenge for displacing the corrupt winner in summer 2004 of the Putin favorite, as populist leader Viktor Yushchenko was finally elected Ukrainian president. The re-election installation of the popular leader enraged Putin, who chose now as his time for revenge. Ukrainian leaders accuse Russia of attacking their economy in revenge for Ukrainian attempts to foster warm relations with the west. The hidden motive might be for Russia to enlist Europe, not without a risk of lost confidence in reliable supply, to engage Iran so that China does not solidify a lock with Iran instead. Russia and Iran collectively possess something like 35% to 40% of known global gas reserves (Russia 25% to 30% with Iran another 10%), which places these nations in a staggering dominant position globally. Some European countries get upwards of 50% of their gas from the Russian Bear. Putin wants Europe to get involved, and not be locked out like the diplomatically clumsy Americans. The Kremlin has driven a wedge not only between the Europeans and the Ukrainians, but between the Europeans and the Americans. Price of natural gas is the chosen weapon. Gazprom wanted a four-fold price rise, an end to imperial communist subsidies, but settled for a doubling in price with a beneficial provision for Russian-based supply. Ukraine agrees in principle to an increase in cost, but wants it phased in over time.
The populist “Orange Revolution” in Ukraine has put a coffin nail in the old empire, now to be seen as broken, whose fragments seek stability. With the Gazprom squabble, Yushchenko looks weak enough to lose political ground in upcoming parliamentary March elections. Legal warfare secured Yukos into the grand Russian state of owned energy monopolies, which includes Gazprom and whose strategic value is now utterly crystal clear. From its dominant lord position, Putin ordered a quadruple in the natural gas price to Ukraine, putting an end to Soviet-style subsidies. Why bother, if the renegade republic overrides the corrupted election, enforces democratic choices, and warms to Europe and the West? The price had been $50 per 1000 cubic meters ($1.42 per 1000 cuft), an absurdly low price not really emphasized in US press reports. Gazprom wanted $230 per 1000 cum, and settled for $95 per kcum. Even the desired higher price is only $6.55 per kcuft, well below the $9 to $10 market price, still a discount. Moscow and Kiev settled the matter by agreeing to a compromise five year contract. Under terms of that deal, natural gas from the Central Asian states of Turkmenistan, Uzbekistan and Kazakhstan will be transported through Russia, making up a mix that would supply Ukraine at a rate of $95 per 1000 cubic meters. Any Russian gas fed into that mix will be sold at the full Gazprom rate of $230. The Central Asians, who previously were restricted to sell natural gas only to the heavily subsidized Russian market, suddenly have gained a significant export market for their supplies. However, it comes at a political price to Europeans, since Central Asian output flows through Russia before reaching Ukraine. Thus, Europe has been drawn into regional politics.
The Ukrainian state gas and oil company Naftogaz saw fit to divert significant natural gas flows intended for Europe, which also depends heavily on Russian natural gas. A whopping 80% of those supplies cross Ukraine, so that the Russian cutoff hurt Europe rather than Kiev. Moscow accused the country of stealing $25 million worth of Russian natural gas destined for other countries. The Gazprom deputy chairman Alexander Medvedev accused Ukraine of siphoning off 100 million cubic meters of gas as it was directed through Ukraine on its way to other European destinations. The dispute resulted in Gazprom shutting off flows to Ukraine, but continuing in reduced shipments to Eastern Europe. Each of Slovakia, Hungary, Poland, and Austria reported up to 40% shortfalls in their oil supply from Russia. Supplies of Russian gas to Italy fell by 25%, according to Eni. Deliveries of Russian gas to France dropped up to 30%, according to Gaz de France. Moldovan reported its fuel supply also cut off.
From the beginning, the natural gas spat has been about much more than financial in annual energy sales. This squabble is over the orientation of Ukraine between West and East, and ultimately over the ability of Russia to regenerate its geopolitical fortunes. Moscow could not reliably exert control over Belarus either, since its primary water transport route, the Dnieper River, flows south to Ukraine. Besides, Belarus is nearly as well linked into Poland and the Baltics as it is to Russia itself. Furthermore, the Ukraine port of Sevastopol on the Black Sea has long been the only deep, warm-water port available to Russia. This conflict is more about control and power than money. Dmitry Medvedev is first deputy prime minister to Russia, a Putin protégé and (not coincidentally) the board chairman of Gazprom. The Ukraine natural gas crisis is his first Russian foreign policy initiative.
The geopolitical energy struggle has caught Europe in the Gazprom crossfire. The 25-year cold war between the United States and Iran has enabled China to gain a mutually beneficial commercial relationship with Iran. The US lacks diplomatic skill to the point that it has put the West at great risk. The Iraqi War is not only a sink for over $1000 billion in costs, but also a grand diplomatic cost. Putin is a master chess player. The many pipeline battles, with Turkey and Chechnya fought over, have placed Iran in central importance. Caspian republics are aligned with Iran. Enormous oil & gas supplies are being secured by China. If Europe aligns with the USA, they will be locked out. If they align with Russia, they will enjoy the bounty of Iranian energy supplies. Will Iran work closely with Europe or China? … that is the question.
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