ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Monday, October 22, 2007


have we lost all connection with reality over iran?

you can say that again:

The American discussion about Iran has lost all connection to reality. ... This would all be funny if it weren't so dangerous.

fareed zakaria is of course only stating the obvious when he points out that most of what the republican hierarchy has said about iran in the last two years is completely and totally senseless -- indeed, it constitutes either obvious madness of a kind most would associate with caligula or nero -- or big-lie propaganda for the consumption of a simpleminded electorate.

for some true believers, it may well be the former. but i suspect for many in the bush administration it may be the latter. and why would they need such plebiscitarian political cover to act under?

in a word: oil.

Oil and natural-gas producers are pouring money into oilfield services that can stem production declines from aging fields in the North Sea, Saudi Arabia and Mexico.

Simmons, who has predicted crude will exceed US$200 a barrel or more, reiterated he believes today's prices are cheap.

"At US$40, US$50 and US$60 they said it's just traders and speculators,'' he said. Light, sweet grades of oil in Malaysia were US$90 a barrel earlier this month, Simmons said.

"That to me is not speculation; that's refiners struggling to find light, sweet crude,'' Simmons said. "I don't know what fundamentals they're looking at. The fundamentals I'm looking at say fasten your seat belts.''

the nascent decline of saudi arabia's northern ghawar (as well as production from the north sea, mexican cantarell and the american prudhoe fields) was the unstated primary reason for entering (or for that matter giving a whit about anything that happened in or to) iraq, and given that iran shares a similar level of potential with possible reserves on the order of saudi arabia's it's not hard to see an economic/resource calculus at work.

understanding that american oilfield management is likely to mean, for all its obvious moral drawbacks, maximum production effort is an important realization. whatever our hopes for alternative energy going forward, for now peak oil means peak economy. further consider the possible political ramifications of an oil production peak:

One of the things that it seems to me is that peak oil to many people is not yet real. When it becomes real, I think that a number of oil exporters will stop and think about what they are doing with their resource for the longer term. When peak oil is realised, oil price will increase dramatically so there will have another major windfall, financial windfall. Some of those folks, I think, are very likely to say that they will cut back on their exports in order to husband the resource for a longer period of time for their own country. In fact Mr. Putin in Russia already has said as much.

Other people in the Middle East have made noises that they may do something like that also. It becomes a matter of an individual country deciding what is best for itself versus what is best for the world and individual countries really ought to look out for their own well being which could mean that indeed a number of them decide to hold back on exports for their own purposes and that would mean that peaking would occur earlier than might otherwise be the case, and be much more abrupt. So the decline rates in a situation like that would be I think much larger than one would calculate if one thinks only about the geology.

if the example of cantarell -- the oilfield that accounted for 60% of mexican production -- is anything to go by, the ramifications may not stop at "husbanding". as production at cantarell crashes, there are serious questions about the viability of mexico as a nation-state. while countries like britain and norway are probably diversified economically and coherent politically to better endure the decline of north sea production, a "nation" like iraq or saudi arabia is very probably not.

in the main, i think the american foray into the middle east -- surreptitiously cloaked in the post-9/11 dogma of fighting "terrorism" and spreading "freedom" to make it palatable to an inherently populist and moral electorate -- has been quietly all about these two things: 1) maximizing production from what large under/misdeveloped fields in the mideast there are, and 2) negating possible political bottlenecks that would constrict such development. is there a more realistic (in the sense of 'realpolitik') course of action for the suzerain of the global economic empire?

that's not to say there aren't religious apocalyptos and neoconservative ideologues in alliance with those much more mundane forces; it is simply to say that such crackpottery would probably never have gotten nearly so far without the backing of oil multinationals and the burgeoning western financial sector that ultimately relies on reliable resource extraction as a tenet of growth.

such a strategy as pursued by the united states unilaterally has limits, however, which were probably largely unrealized and disbelieved by the men (read: dick cheney) who enacted them -- and the gross incompetence in executing any production plan in iraq has probably lowered them considerably. i don't see how america could get off the ground with any realistic plan to conquer and hold iranian oilfields at this point. but that doesn't mean it won't be attempted.

Labels: , , , , , ,

This page is powered by Blogger. Isn't yours?