Where Will Oil Trade: New York? London? Tehran?

Jerome a Paris has written an unusually forceful article denouncing the many doom and gloom scenarios that predict that an Iranian Oil Bourse (IOB) will bring the US dollar to its knees and starve western nations of oil. An article with a similar conclusion was written by Iranian academic Bahman Aghai Diba for the Persian Journal. These pieces insist that Iran lacks the legal and financial infrastructure to host international trading in oil.

These writers are missing a key point. They are assuming that oil will continue to trade freely, albeit perhaps at a much higher price. They assume that liquidity and transparancy will endure in the oil markets. But there may come a time when geologically driven oil shortages dry up liquidity in the oil markets. There may come a time when politically driven resource competition creates shortages in the oil markets. Liquidity will disappear when sellers in New York and London cannot guarantee delivery. It stands to reason that commodity markets function best, with great liquidity, when there is a plentiful supply of goods to trade. If there is a shortage, much less of that commodity will end up on the auction block. This is especially true for strategically critical commodities such as oil.

It hardly needs to be repeated that China is the most powerful buyer of commodities, and it has the biggest checkbook. Russia and Iran are key suppliers. These three countries are now the big shots at the poker table. The big shots do not have any commitment to open markets. They prefer backroom deals, made for strategic advantage, rather than securing the best price. One reason oil producing nations like Iran and Russia would have for keeping oil markets closed would be to exclude buyers they don't like. For example Americans.

America can still acquire oil, but only to the extent that other nations agree to finance its debt. Or America can use its military to try to secure its oil supply by threat, invasion or occupation. The American military itself consumes vast amounts of oil. Reducing American oil supplies would increase other nations' security (the nations that feel threatened by us) more than any military upgrade they could achieve. Note that it is in neither Russia's nor China's interest to cut off American oil supplies, nor bankrupt the USA. What is in their interest is that we are no longer a military super power.

It seems logical that China, Iran, and Russia will choose to set up an oil trading bourse, in Iran or elsewhere, that trades in Euros, or perhaps gold. Access to their market will be by invitation only. Private speculators, rude Americans, and those who don't honor Islam will be among the many who will be shut out of the party. Security, dispute resolution, and payment and delivery issues will not be settled in courts of law, but by the blessing and decree of the KGB, or the Iranian Revolutionary Council, or some such body.

Whether or not the Iranian Oil Bourse gets off the ground, don't expect the USA and Britain to be able to control oil trading much longer. They simply don't have the oil to trade.

Alien Vs Predator

"Chevron's water rights for its DeBeque, Colo., shale oil project are leased, not sold, to the city of Las Vegas for drinking water. How will Las Vegas replace that in the future when Chevron won't extend the lease?" -- anonymous, via Byron King

This is funny! I was blogging about the stupidity and unsustainability of Las Vegas last year. Then I was blogging about a ludicrous shale oil boondoggle . Well it turns out that a significant part of Las Vegas' water supply come from water rights to the Colorado River that are owned by Chevron Oil. Chevron aquired the water rights when it bought a shale oil project! I read about this in a Whiskey & Gunpowder mail by Byron King. So I'm imagining two of the most wasteful, environmentally damaging enterprises, Vegas and oil shale production, fighting over water rights. Lets just hope they both lose and we start to think about sustainability. Fat chance.

Employment in Depletion

This is astounding. I quote from Paul Craig Roberts:

In the last five years, US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.

The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is “the envy of the world.” Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.

The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized “new economy” never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.

Original here at Counterpunch
I wonder if this is accurate? When the real estate bubble finally pops, will we wake up to the fact that we are not just beginning an economic depression, but that we are in the middle of one?

living in candyland

I find myself in a constant state of analysis and scepticism of society.

I look around me, I see the strip malls, the multiplicity of Starbucks, the credit cards, and I think: all is an illusion. Americans are living in Candyland now, and the candy will soon wash away in the rain. This city, and every city, will be full of empty stores in some number of years time, rotting evidence of our stupidity, waste and hubris. It is hard to watch history's largest train wreck occur, in slow motion, right before your eyes. It could be avoided, but instead we choose to charge full speed into the catastrophe of the Greatest Ever Depression.

What to do? My advice: buy gold and silver coins, get a sewing machine, get a garden. Make friends with your neighbors.

Latino vs Black

When times get tough, how quickly we descend into tribalism.
Another racial brawl breaks out Friday at LA jail
This is much like the type of social unrest Kunstler predicts for the USA on the downslope of peak oil. Don't think ethnic violence is unusual, or limited to jails. Read in Jared Diamond's Collapse about how resource scarcity caused the ethnic violence and genocide in Rwanda. All people can become viscious when threatened. How long did it take in New Orleans? Three days. White "deputies" with shotguns on a bridge were defending their town against a percieved invasion of mostly black refugees from New Orleans.

It is not gloomy to say it, these are facts

I look to the great depression as a model for the next ten, twenty years. Gardening and sewing will be helpful, both of which I like to do, although I'm sloppy at both.

But there are big differences between the 30s and now. Back then we were self sufficient in energy, capital, and manufacturing. That was then. Now we have nothing. Except massive liabilities. It is not gloomy to say it, these are facts. Now I'll move on to some doom and gloom.

A friend said she'd lost the sense of impending doom that she had last summer. Sure. Energy and food are both cheap right now. Adjusted for the CPI, gasoline is close to its historical mean, and far cheaper than it was in the 1980s. As soon as prices go up, which is about as inevitable as anything, then a general sense of crisis will come back. I did appreciate Bush mentioning energy in his speech, economics of ethanol notwithstanding. Just because energy prices are at a temporary lull doesn't mean we should be complacent. And food! People have no idea. Corn is $2.30 for a 45 pound bushel! Just think about it, that is crazy. When corn goes to $6, and then $10, then see how many people are talking about ethanol and bio diesel. Hyperbolic rises in cotton, sugar, and wheat are also on their way. Food prices will hurt even more than energy prices, especially for low income people.

When gloomy, my friend considers moving to Idaho. I'm not convinced Idaho is a better place to be than Seattle. No way. Living around all those red-state wing nuts? Yelling "FAG" at me from their pickups?

Of course, if the gulf stream breaks up, at the same time that oil peaks and the dollar collapses (note that these things will exacerbate each other) it may just be game over. But lets not get ourselves down about this. Hey what's fate is fate. Oh, I forgot: pandemic bird flu might be another factor that could wipe us out..

George Bush on biomass

I don't often agree with our faux-Texan prez, but when he said that sawgrass, (and other low grade, high cellulose biomass products) could reduce our dependence on liquid fuel imports by 75% by 2025, well I thought that was pretty absurd. So did this analysis from the Christian Science Monitor. But then I thought maybe Bush is right after all, but probably not in the way he was thinking.

First off, I think peak oil is immanently upon us. The moment when this becomes accepted as unassailable fact will come when Saudi Arabia announces that the Gwahar oil field, the world's largest, is in irreversible decline. This will be similar to Kuwait's December '05 admission that their giant field, Burgan, is in decline. Saudi Arabia's announcement, which is close at hand, I believe, will be the world-changing event. But no matter when peak oil crosses the line from conspiracy theorist, malthusian doom to simple, obvious global reality, by 2025, we should assume and plan for a critical energy shortage. This is George Bush's date, not mine. I believe that our crisis will come much sooner: probably by 2010 the USA will be in a state of semi permanent energy crisis.

But looking 19 years ahead to 2025, we will be importing no oil from the middle east, simply because the middle east will be running thin on oil. Nations can go from energy exporters to energy importers very quickly. Indonesia made the switch in 2005. If the Middle East exports oil, it will go to China. Byron King makes this point in his essay The 75% Solution. The point being that today biomass looks pretty scrawny in comparison to gasoline. By 2025, gasoline, and owning one's own car, will exist mainly in our memories. Gasoline will be available only to military and government elites. But some vehicles will need to keep running, especially trucks and tractors and trains. Diesel will be available for commercial use, but it will be very expensive, with limited production coming from Canadian tar sands. But contrary to the Christian Science Monitor's writer's article, you can run your car on biomass, and at times when fuel has been scarce, many people have done exactly that. The equipment is simple and cheap.

Look at historical examples of severe fuel crisis. In parts of the world, there was virtually no civilian fuel available during world war II. In Scandinavia, Russia, and Australia fuel was unavailable at any price. The way that people in these countries found most expedient to keep cars running, and, significantly, agricultural production moving, was to install simple wood gasifiers on their vehicles. These cars can run directly on wood chips, compressed sawdust pellets, charcoal, etc. Here's another example. And a Seattle Times article about a backyard welder who built a gasifier to make a wood burning truck.

So, I'm thinking even the paltry amounts of money Bush proposed would go a long way in refining and publicizing this simple, proven method for operating vehicles on biomass. I imagine high cellulose products like sawgrass, compressed into pellets, or wood chips made from brush wood, would be more efficient to burn in a gasifier than try to distill into alcohol. Or, high-cellulose materials can be made into charcoal to make a more powerful fuel. These high cellulose biomass sources do not require nearly as much cultivation or fertilizer as corn. Most importantly, a local energy economy can be made from such biomass sources without huge sums of capital. Small producers can manufacture wood chips and pellets. Small shops can make gasifiers and install them. If we find that it is hard to raise the capital to build fleets of gigantic LNG tankers and the terminals to recieve them, then we may find that small biomass producers are not only a good way to keep people and goods moving, but also a good way to employ people.

Unfortunately, Bush cares in no way for energy efficiency. The research cash he spoke of will go either as hand outs to politically connected agribusiness corporations, or publicists posing as scientists to spin crises in favor of the republican agenda.