Tag Archives: Oil

The Death Of Petrodollars and The Coming Renaissance Of Macro Investing, by John Curran

Remember two-way markets? They seem like a thing of the past, but John Curran says not so fast. From Curran at Barron’s via zerohedge.com:

The petrodollar system is being undermined by exponential growth in technology and shifting geopolitics. What comes next is a paradigm shift

In the summer of 1974, Treasury Secretary William Simon traveled to Saudi Arabia and secretly struck a momentous deal with the kingdom. The U.S. agreed to purchase oil from Saudi Arabia, provide weapons, and in essence guarantee the preservation of Saudi oil wells, the monarchy, and the sovereignty of the kingdom. In return, the kingdom agreed to invest the dollar proceeds of its oil sales in U.S. Treasuries, basically financing America’s future federal expenditures.

Soon, other members of the Organization of Petroleum Exporting Countries followed suit, and the U.S. dollar became the standard by which oil was to be traded internationally. For Saudi Arabia, the deal made perfect sense, not only by protecting the regime but also by providing a safe, liquid market in which to invest its enormous oil-sale proceeds, known as petrodollars. The U.S. benefited, as well, by neutralizing oil as an economic weapon. The agreement enabled the U.S. to print dollars with little adverse effect on interest rates, thereby facilitating consistent U.S. economic growth over the subsequent decades.

An important consequence was that oil-importing nations would be required to hold large amounts of U.S. dollars in reserve in order to purchase oil, underpinning dollar demand. This essentially guaranteed a strong dollar and low U.S. interest rates for a generation.

To continue reading: The Death Of Petrodollars and The Coming Renaissance Of Macro Investing

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Will Venezuela Be The Battleground In The Next U.S.-Russia Proxy War? from Anti-Media

The prize in Venezuela is obvious: the world’s largest oil reserves. It’s hard to believe that either the US or Russia would pass up that prize. From the Anti-Media News Desk at theantimedia.org:

There’s no denying that Venezuela is deeply embroiled in a significant crisis. While most are aware of the country’s recent string of violent protests, food shortages and government crackdowns on opposition protesters, few are aware of the opposition’s use of underhanded and downright illegal tactics, as well as the United States’ role in funding opposition forces.

The U.S. has long had its sights set on Venezuela, which possesses the largest proven oil reservesin the world, particularly following the “revolution” that began with the election of the late President Hugo Chávez and has continued under his successor Nicolás Maduro. But changing circumstances within Venezuela may soon push the U.S. to repeat a nefarious practice it has carried out elsewhere – funding a proxy war in order to prevent Venezuelan oil from falling into Russian and Chinese hands.

At first, the U.S. government seemed content to let Maduro’s administration run out of steam on its own. But the U.S. has already issued separate sanctions against the country three times this year alone, with more planned in the coming months, as evidenced by the introduction of a recent U.S. Senate bill that would target Venezuelan government officials. The bill, titled “Venezuela Humanitarian Assistance and Defense of Democratic Governance Act” (S.1018), would funnel $20 million to the Venezuelan opposition, which has already received an estimated $50 to $60 million since Chávez’s election in 1998.

And now, the stakes may now be too high for the U.S. to allow Maduro’s regime to collapse under the weight of economic sabotage. By all accounts, Venezuela’s state-owned oil company PDVSA is already on the brink of collapse.

While this would normally be good news for those who seek to see Maduro toppled, there is a caveat that is causing panic in Washington. As the text of S.1018 points out, PDVSA – if and when it collapses – would default on its $4 to $5 billion loans from Rosneft, Russia’s state-owned oil company.

Although Russia and Venezuela enjoy a political alliance, Russia has already taken action over the unpaid debt. In April, a Russian state-run shipping company took $30 million in Venezuelan oil hostage over PDVSA’s unpaid debt. Rosneft would likely follow suit in the event of a major default.

To continue reading: Will Venezuela Be The Battleground In The Next U.S.-Russia Proxy War?

Selling the Golden Goose, by Jeff Thomas

Venezuela is selling off its most valuable resource—oil—in a desperate and undoubtedly vain attempt to forestall disaster. From Jeff Thomas at 321gold.com:

Venezuela is a naturally rich nation. It’s ranked seventh worldwide for biodiversity and has the world’s largest reserves of oil. This is a country that deserves, more than most, to thrive. However, as in all countries, it passes through economic cycles and, when on a downward curve, would-be leaders take the opportunity to claim that the “greedy rich” have sent the economy into a tailspin (which can sometimes be the case) and that the solution is to adopt a collectivist approach to governance.

In 1989, Venezuela was experiencing a downturn. Riots broke out, followed by two attempted coups in 1992. The following year, President Pérez was impeached for embezzlement of public funds and the red carpet of opportunity was rolled out for the charismatic former-coup participant Hugo Chávez. He took office as president. A new constitution was drawn up in 1999 and, as in so many countries previously, the people enthusiastically welcomed the new collectivist regime.

“When people can vote on issues involving the transfer of wealth to themselves from others, the ballot box becomes a weapon with which the majority plunders the minority. That is the point of no return, the point where the doomsday mechanism begins to accelerate until the system self-destructs. The plundered grow weary of carrying the load and eventually join the plunderers. The productive base of the economy diminishes further until only the state remains.” – G. Edward Griffin

As in all collectivist experiments, the new entitlements meted out to the population had to be funded somehow and, as is customary, those who create the wealth in Venezuela were required to pay for its distribution to those who were less productive.

In the beginning, this form of theft appears to work well and, not surprisingly, many of the supporters of Mister Chávez saw him as the messiah of the common man. Unfortunately, as is always the case, bleeding the wealth from those who create it makes it increasingly difficult for them to continue to expand the creation of it and, as the wealth continues to be drained, contraction eventually takes place, making the entire nation poorer in every way.

To continue reading: Selling the Golden Goose

 

 

Watch These Geopolitical Flashpoints Carefully, by Brandon Smith

Brandon Smith highlights the dangers ahead. From Smith at alt-market.com:

Anyone who has been involved in alternative geopolitical and economic analysis for a decent length of time understands that the establishment power structure thrives according to its ability to either exploit natural crises, or to engineer fabricated crises.

This is not that hard to comprehend, but for some reason there are a lot of people out there who simply assume that global sea-change events just happen “at random,” that the elites are stupid or oblivious, and that all outcomes are a matter of random chance rather than being directed or manipulated. I call these people “intellectual idiots,” because they believe they are applying logic to every scenario but they are sabotaged by an inherent bias which causes them to deny the potential for “conspiracy.”

To clarify, their logic folds in on itself and becomes faulty. They believe themselves objective, but they abandon objectivity when they staunchly refuse to consider the possibility of covert influence by organized special interests. When you internally dismiss the possibility of a thing, no amount of evidence will ever convince you of its reality. This is how the “smartest” people in the room can end up being the dumbest people in the room.

In the survivalist community there is a philosophy – there is no such thing as a crisis for those who are prepared. This is true for prepared individuals as much as it is true for prepared communities and prepared nations. The only way a society can fall is when it becomes willfully ignorant of potential outcomes and refuses to organize against them.

By extension, it would make sense that by being prepared for a particular crisis or outcome an individual or group could not only survive, but also profit. It is not crazy or outlandish to entertain the idea that there are groups in power (perhaps for many generations) that aggressively seek to predict or even force particular outcomes in geopolitics for their own profit. And, by profit, I do not necessarily mean material wealth. In many cases, the power of influence and psychological sway over the masses might be considered a far greater prize than money or property.

To continue reading: Watch These Geopolitical Flashpoints Carefully

She Said That? 3/6/17

Today’s Wall Street Journal has a story that for the Journal is a tale of woe. An oil industry executive, John Schiller, who was worth over $30 million when oil was $100 a barrel, borrowed a lot of money and now finds himself in dire financial straits with oil in the $50s. He has all the trappings of Texas oil wealth, including a mansion and a former Playboy playmate wife. You know how these stories usually go. When boom turns to bust, the trophy wife decamps. This story is different, though, and Kristi Schiller is standing by her man.

If John and I have to move to a Mickey Gilley double-wide trailer, by God, I will have the first one ever photographed for Architectural Digest.

“Down But Not Out, Texas Oilmen Pray For Next Boom”

You’ve got to admire that kind of grit and spunk.

Iran Just Officially Ditched the Dollar in Major Blow to US: Here’s Why It Matters, by Alice Salles

The petrodollar has been the bulwark of the US dollars status as the world’s reserve currency. Iran has just taken a step towards undermining the petrodollar. Having the reserve currency has allowed the US to pay its dollar-denominated debts with more dollars. That could come to an end. From Alice Salles at theantimedia.org:

(ANTIMEDIA) Following President Donald Trump’s ban on travelers from seven predominantly Muslim countries, the Iranian government announced it would stop using the U.S. dollar “as its currency of choice in its financial and foreign exchange reports,” the local Financial Tribune reported.

Iran governor Valiollah Seif’s central bank announced the decision in a television interview on January 29. The change will take effect on March 21, and it will impact all official financial and foreign exchange reports.

“Iran’s difficulties [in dealing] with the dollar,” Seif said, “were in place from the time of the primary sanctions and this trend is continuing,” but when it comes to other currencies, he added, “we face no limitations.”

In a piece published by Forbes, Dominic Dudley contends that this move is significant “in the light of the recent ‘Muslim ban‘” announced by Trump. Iran nationals were added to the order issued by the current U.S. administration, which prompted the Iranian government to vow to stop issuing visas to U.S. citizens.

Dudley notes that since 1975, “no Americans have been killed in terrorist attacks in the US by the citizens of the countries included in the ban,” while countries such as Saudi Arabia — “home of 15 of the 19 terrorists involved in the 9/11 attacks” — were left out of the list of prohibited countries.

Despite the country’s decision to halt the use of the U.S. dollar as its base currency for exchange with other nations, Iran’s top export is oil. In the global markets, oil is mainly purchased and sold in U.S. dollars. This fiscal year, Iran is expected to earn $41 billion from oil sales, with countries like the United Arab Emirates (UAE) and China as their top clients. It’s still uncertain how the country will manage to switch currencies without relying on the American currency. The shift, Dudley notes, “will add a degree of currency risk and volatility and is likely to complicate matters for the authorities.”

To  continue reading: Iran Just Officially Ditched the Dollar in Major Blow to US: Here’s Why It Matters

 

What is this ‘Crisis’ of Modernity? by Alastair Crooke

There may be plenty of oil left, but if it takes as much energy to discover, extract, refine, transport, and sell that oil as the oil itself has, we have a problem. From Alastair Crooke at Conflicts Forum via theautomaticearth.com:

Alastair Crooke: We have an economic crisis – centred on the persistent elusiveness of real growth, rather than just monetised debt masquerading as ‘growth’ – and a political crisis, in which even ‘Davos man’, it seems, according to their own World Economic Forum polls,is anxious; losing his faith in ‘the system’ itself, and casting around for an explanation for what is occurring, or what exactly to do about it. Klaus Schwab, the founder of the WEF at Davos remarked before this year’s session, “People have become very emotionalized, this silent fear of what the new world will bring, we have populists here and we want to listen …”.

Dmitry Orlov, a Russian who was taken by his parents to the US at an early age, but who has returned regularly to his birthplace, draws on the Russian experience for his book, The Five Stages of Collapse. Orlov suggests that we not just entering a transient moment of multiple political discontents, but rather that we are already in the early stages of something rather more profound. From his perspective that fuses his American experience with that of post Cold War Russia, he argues, that the five stages would tend to play out in sequence based on the breaching of particular boundaries of consensual faith and trust that groups of human beings vest in the institutions and systems they depend on for daily life. These boundaries run from the least personal (e.g. trust in banks and governments) to the most personal (faith in your local community, neighbours, and kin). It would be hard to avoid the thought – so evident at Davos – that even the elites now accept that Orlov’s first boundary has been breached.

To continue reading: What is this ‘Crisis’ of Modernity?