Here we will resume our story.

An Introduction to the ‘Shah of Shahs’, ‘King of Kings’

One important thing to know about Mohammad Reza Shah was that he was no fan of British imperialism and was an advocate for Iran’s independence and industrial growth. That said, the Shah was a deeply flawed man who lacked the steadfastness to secure such a positive fate for Iran. After all, foreign-led coups had become quite common in Iran at that point.

He would become the Shah in 1941 at the age of 22, after the British forced his father Reza Shah into exile. By then, Persia had already experienced 70 years of British imperialism reducing its people to near destitution.

Mohammad Reza Shah had developed very good relations with the U.S. under President FDR, who at the behest of the Shah, formed the Iran Declaration which ended Iran’s foreign occupation by the British and the Soviets after WWII.

His father, Reza Shah came into power after the overthrow of Ahmad Shah in 1921, who was responsible for signing into law the infamous Anglo-Persian Agreement in 1919, which effectively turned Iran into a de facto protectorate run by British “advisors” and ensured the British Empire’s control of Iran’s oil.

Despite Reza Shah’s problems (Mosaddegh was sent into exile during his reign), he had made significant achievements for Iran. Among these included the development of transportation infrastructure, 15 000 miles of road by 1940 and the construction of the Trans-Iranian Railway which opened in 1938.

Mohammad Reza Shah wished to continue this vein of progress, however, he would first have to go through Britain and increasingly the U.S. in order to fulfill Iran’s vision for a better future.

In 1973, Mohammad Reza Shah thought he finally found his chance to turn Iran into the “world’s sixth industrial power” in just one generation…

OPEC and the European Monetary System vs the ‘Seven Sisters’

In 1960, OPEC was founded by five oil producing countries: Venezuela, Iraq, Saudi Arabia, Iran and Kuwait in an attempt to influence and stabilise the market price of oil, which would in turn stabilise their nation’s economic return. The formation of OPEC marked a turning point toward national sovereignty over natural resources.

However, during this period OPEC did not have a strong voice in such affairs, the main reason being the “Seven Sisters” which controlled approximately 86% of the oil produced by OPEC countries. The “Seven Sisters” was the name for the seven transnational oil companies of the “Consortium of Iran” cartel which dominated the global petroleum industry, with British Petroleum owning 40% and Royal Dutch Shell 14%, giving Britain the lead at 54% ownership during this period.

After 1973, with the sudden rise of oil prices, the Shah began to see an opportunity for independent action.

The Shah saw the price increase as a way to pull his country out of backwardness. To the intense irritation of his sponsors, the Shah pledged to bring Iran into the ranks of the world’s top ten industrial nations by the year 2000.

The Shah understood that in order for this vision to become a reality, Iran could not just stay as a crude oil producer but needed to invest in a more stable future through industrial growth. And as it just so happened, France and West Germany were ready to make an offer.

In 1978, France and West Germany led the European community, with the exception of Great Britain, in the formation of the European Monetary System (EMS). The EMS was a response to the controlled disintegration that had been unleashed on the world economy after the fixed exchange rate became a floating exchange rate in 1971.

French foreign minister Jean Francois–Poncet had told a UN press conference, that it was his vision that the EMS eventually replace the IMF and World Bank as the center of world finance.

For those who are unaware of the devastation that the IMF and World Bank have wreaked upon the world, refer to John Perkins’ “Confession of an Economic Hit Man”… the situation is 10X worst today.

As early as 1977, France and West Germany had begun exploring the possibility of concretizing a deal with oil producing countries in which western Europe would supply high-technology exports, including nuclear technology, to the OPEC countries in exchange for long-term oil supply contracts at a stable price. In turn, OPEC countries would deposit their enormous financial surpluses into western European banks which could be used for further loans for development projects… obviously to the detriment of the IMF and World Bank hegemony.

The Carter Administration was not happy with this, sending Vice President Walter Mondale to France and West Germany to “inform” them that the U.S. would henceforth oppose the sale of nuclear energy technology to the Third World…and thus they should do so as well. West Germany’s nuclear deal with Brazil and France’s promise to sell nuclear technology to South Korea had already come under heavy attack.

In addition, the Shah had started a closer partnership with Iraq and Saudi Arabia cemented at OPEC meetings in 1977 and 1978. In a press conference in 1977 the Shah stated he would work for oil price stability. Together Saudi Arabia and Iran at the time produced nearly half of OPEC’s entire output.

If an Iran-Saudi-Iraq axis established a permanent working relationship with the EMS it would have assembled an unstoppable combination against the London world financial center.

Recall that France and West Germany had already ignored British calls to boycott Iranian oil in 1951 under Mosaddegh, and therefore, there was no indication that they were going to follow suit with Britain and the U.S. this time either.

As far as London and Washington were concerned, the Shah’s reign was over.

British Petroleum, BBC News and Amnesty International as Servants to the Crown

Were we to select a date for the beginning of the Iranian revolution it would be November 1976, the month that Amnesty International issued its report charging brutality and torture of political prisoners by the Shah of Iran.

Ironically, the SAVAK which was the secret police under the Shah from 1957 to 1979, was established and pretty much run by the SIS (aka MI6), CIA and the Israeli Mossad. This is a well-known fact, and yet, was treated as somehow irrelevant during Amnesty International’s pleas for a humanitarian intervention into Iran.

For those who haven’t already discovered Amnesty International’s true colors from their recent “work” in Syria… it should be known that they work for British Intelligence.

Gruesome accounts of electric shock torture and mutilation were printed in the London Times, the Washington Post and other respected press. Within a few months, President Carter launched his own “human rights” campaign. With this, the international humanitarian outcry got bigger and louder demanding the removal of the Shah.

The Shah was caught between a rock and a hard place, as he was known not to be strong on “security” matters and often left it entirely up to the management of others. Once Amnesty International sounded the war-cry, the Shah made the mistake of not only defending the undefendable SAVAK in the public arena but continued to trust them entirely. It would be his biggest mistake.

With the international foment intensifying, the British Broadcasting Corporation’s (BBC) Persian language broadcasts into Iran fanned the flames of revolt.

During the entire year of 1978 the BBC stationed dozens of correspondents throughout the country in every remote town and village. BBC correspondents, often in the employ of the British secret service, worked as intelligence operatives for the revolution.

Each day the BBC would report in Iran gory accounts of alleged atrocities committed by the Iranian police, often without checking the veracity of the reports. It is now acknowledged that these news reports helped to fuel and even organise the political foment towards an Iranian revolution.

In 1978, British Petroleum (BP) was in the process of negotiating with the government of Iran the renewing of the 25 year contract made in 1953 after the Anglo-American coup against Mosaddegh. These negotiations collapsed in Oct 1978, at the height of the revolution. BP rejected the National Iranian Oil Company’s (NIOC) demands, refusing to buy a minimum quantity of barrels of Iranian oil but demanding nonetheless the exclusive right to buy that oil should it wish to in the future!

The Shah and NIOC rejected BP’s final offer. Had the Shah overcome the revolt, it appeared that Iran would have been free in its oil sales policy in 1979 – and would have been able to market its own oil to the state companies of France, Spain, Brazil and many other countries on a state-to-state basis.

In the American press hardly a single line was published about the Iranian fight with BP, the real humanitarian fight for Iranians.

The Sword of Damocles

The “Arc of Crisis” is a geopolitical theory focused on American/western politics in regards to the Muslim world. It was first concocted by British historian Bernard Lewis, who was regarded as the leading scholar in the world on oriental studies, especially of Islam, and its implications for today’s western politics.

Bernard Lewis was acting as an advisor to the U.S. State Department from 1977-1981. Zbigniew Brzezinski, the National Security Advisor, would announce the U.S.’ adoption of the “Arc of Crisis” theory by the American military and NATO in 1978.

It is widely acknowledged today, that the “Arc of Crisis” was primarily aimed at destabilising the USSR and Iran. This will be discussed further in Part 3 of this series.

Egypt and Israel were expected to act as the initiating countries for the expansion of NATO into the Middle East. Iran was to be the next link.

Iran’s revolution was perfectly timed with the launching of the “Arc of Crisis”, and NATO had its “humanitarian” cause for entering the scene.

However, the fight was not over in Iran.

On Jan 4th, 1979, the Shah named Shapour Bakhtiar, a respected member of the National Front as Prime Minister of Iran. Bakhtiar was held in high regard by not only the French but Iranian nationalists. As soon as his government was ratified, Bakhtiar began pushing through a series of major reform acts: he completely nationalised all British oil interests in Iran, put an end to the martial law, abolished the SAVAK, and pulled Iran out of the Central Treaty Organization, declaring that Iran would no longer be “the gendarme of the Gulf”.

Bakhtiar also announced that he would be removing Ardeshir Zahedi from his position as Iran’s Ambassador to the U.S.

An apple that did not fall far from the tree, Ardeshir is the son of Fazlollah Zahedi, the man who led the coup against Mosaddegh and replaced him as Prime Minister!

Ardeshir was suspected to have been misinforming the Shah about the events surrounding the Iranian revolution and it was typical that he spoke to Brzezinski in Washington from Teheran over the phone at least once a day, often twice a day, as part of his “job” as Ambassador to the U.S. during the peak of the Iranian revolution.

With tensions escalating to a maximum, the Shah agreed to transfer all power to Bakhtiar and left Iran on Jan 16th,1979 for a “long vacation” (aka exile), never to return.

However, despite Bakhtiar’s courageous actions, the damage was too far gone and the hyenas were circling round.

It is known that from Jan 7th to early Feb 1979, the No. 2 in the NATO chain of command, General Robert Huyser, was in Iran and was in frequent contact with Brzezinski during this period. It is thought that Huyser’s job was to avoid any coup attempts to disrupt the take-over by Khomeini’s revolutionary forces by largely misleading the Iranian generals with false intel and U.S. promises. Recently declassified documents on Huyser’s visit to Iran confirm these suspicions.

During the Shah’s “long vacation” his health quickly deteriorated. Unfortunately the Shah was never a good judge of character and kept a close dialogue with Henry Kissinger as to how to go about his health problems. By Oct 1979, the Shah was diagnosed with cancer and the decision was made to send him to the U.S. for medical treatment.

This decision was very much pushed for and supported by Brzezinski and Kissinger, despite almost every intelligence report indicating this would lead to a disastrous outcome.

In Nov 18th 1979, the New York Times reported:

‘The decision was made despite the fact that Mr. Carter and his senior policy advisers had known for months that to admit the Shah might endanger Americans at the embassy in Teheran. An aide reported that at one staff meeting Mr. Carter had asked, “When the Iranians take our people in Teheran hostage, what will you advise me then?” ‘

On Oct 22, 1979, the Shah arrived in New York to receive medical treatment. Twelve days later, the U.S. Embassy in Teheran was taken over and 52 American hostages would be held captive for 444 days!

With the taking of the hostages, the Carter Administration, as preplanned under the “Arc of Crisis”, set into motion its scenario for global crisis management.

The hostage crisis, a 100% predictable response to the U.S.’ decision to accept the Shah into America, was the external threat the Carter Administration needed to invoke the International Emergency Economic Powers Act, authorising the President to regulate international commerce after declaring a national emergency in response to an extraordinary threat

With this new authority, President Carter announced the freezing of all U.S.-Iranian financial assets, amounting to over $6 billion, including in branches of American banks abroad. Instantly, the world financial markets were thrown into a panic, and big dollar depositors in western Europe and the U.S., particularly the OPEC central banks, began to pull back from further commitments.

The Eurodollar market was paralyzed and most international lending halted until complex legal matters were sorted out.

However, the most serious consequence by far from the Carter Administration’s “emergency actions,” was in scaring other OPEC governments away from long-term lending precisely at a time when West Germany and France were seeking to attract deposits into the financial apparatus associated with the European Monetary System (EMS).

In addition, the Carter Administration’s insistent demands that western Europe and Japan invoke economic sanctions against Iran was like asking them to cut their own throats. Yet, the raised political tensions succeeded in breaking apart the economic alliances and the slow blood-letting of Europe commenced.

Within days of the taking of the hostages, the pretext was given for a vast expansion of U.S. military presence in the Middle East and the Indian Ocean.

Sound familiar?

The message was not lost on Europe. In a Nov 28, 1979 column in Le Figaro, Paul Marie de la Gorce,  who was in close dialogue with the French presidential palace, concluded that U.S. military and economic intervention into Iran would cause “more damages for Europe and Japan than for Iran.” And that those who advocate such solutions are “consciously or not inspired by the lessons given by Henry Kissinger.”

During the 444 day hostage crisis, a full-scale U.S. invasion was always looming overhead. Such an invasion was never about seizing the oil supply for the U.S., but rather to deny it to western Europe and Japan.

If the U.S. were to have seized the oil supply in Iran, the body blow to the western European economies would have knocked out the EMS. Thus, during the 444 day holding of American hostages, this threat was held over the head of Europe like the sword of Damocles.

It is sufficed to say that today’s ongoing sanctions against Iran cannot be understood in their full weight and international ramifications without this historical background.

Part 3 of this trilogy will discuss the period from 1979 to the present day including the assassination of Maj. Gen. Qasem Soleimani.

COVID-19

A new infectious disease was noticed in China at the end of last year, identified as a coronavirus in January and a pandemic was declared in March. Since then economic and social life has come to a stop in the West as governments have been convinced to declare shutdowns. Restrictions became widespread in March and April and are still in effect; while some jurisdictions lessen them, others talk about more months. It is not the purpose of this essay to wonder whether these measures were justified or effective, only to state that they happened and that the world economy will have been enfeebled for two to three months or even longer. A big black swan indeed.

The fuller effects won’t be known for some time but one result is certainly that the West’s repudiation for efficiency has taken a huge – perhaps fatal – hit. Only six months earlier, a survey confidently stated that the West – led by the USA and Britain – would do best in dealing with a pandemic. Not so: “We Are Living in a Failed State: The coronavirus didn’t break America. It revealed what was already broken“; “The Death of American Competence“; “The coronavirus is the worst intelligence failure in U.S. history“; “U.S.’s global reputation hits rock-bottom over Trump’s coronavirus response“; ““The world has loved, hated and envied the U.S. Now, for the first time, we pity it”; “Coronavirus: EU could fail over outbreak, warns Italy’s Giuseppe Conte“; “The EU has bungled its response to coronavirus and it might never fully recover“. China can’t hold back its laughter “Chinese state media calls U.S. a ‘primitive society,’ says ‘democracy is dying’ amid coronavirus“. Many of the American pieces, reflecting the abyssal divide in U.S. politics, write as through it were all Trump’s fault. But it wasn’t Trump who didn’t replace PPE stocks used up eleven years ago. Whatever failures are his, the failure is not his alone. And neither are the West’s other deficiencies his doing. No one seems to have stocks of PPE – the easier and most obvious first step against the threat.

Washington deflects its failure by blaming China. But here too it’s lost its competence: here’s U.S. Secretary of State Pompeo asserting at the same time that it’s manmade and that it isn’t:

POMPEO: Look, the best experts so far seem to think it was manmade. I have no reason to disbelieve that at this point.

RADDATZ: Your — your Office of the DNI says the consensus, the scientific consensus was not manmade or genetically modified.

POMPEO: That’s right. I — I — I agree with that. Yes. I’ve — I’ve seen their analysis. I’ve seen the summary that you saw that was released publicly. I have no reason to doubt that that is accurate at this point.

To say nothing of Fauci’s money in the Wuhan lab. China may not even be the point of origin: France has just discovered a case from December and there may be a U.S. case from November. The breathlessly reported Five-Eyes assessment blaming China is fast collapsing: “mostly based on news reports and contained no material from intelligence gathering” says one of the Eyes. Washington may lash its minions into a coffle, but the rest of the world will scorn it as a pitiful attempt to distract. There will be increased rejection of the West’s assumption of competence and veracity. And, in the West itself, more will doubt the words of “experts” (especially those from Imperial College and its professors), “authorities and “trusted media sources”.

Most of the West is still shut down but China is opening. Observers know that China is becoming the world’s top economy – the World Bank had already given it that title in PPP terms in 2013 – and COVID-19 is sure to accelerate the process by giving it a head start out of the economic slowdown. With cheap energy too.

“Soft power” is a useful term that describes the appeal of a given culture to others. For many years this was a potent arrow in the America quiver – I often think of the character played by Gregory Peck in Roman Holiday as the exemplar: open, honest, honourable and modern, but content to be an example and never to take advantage of her. Propaganda, to be sure, but effective propaganda. COVID-19 shows something else: in the simplest terms China has given assistance to many countries and the “U.S. accused of ‘modern piracy’ after diversion of masks meant for Europe“. Piffle like “The United States and President Trump are leading the global effort to combat this pandemic” or “America remains the world’s leading light of humanitarian goodness” just make it more obvious. From the EU we get word salads: reaffirms/recognises/supports/recalls. And only three months ago the “West is winning“. It has be-clowned itself.

Of the downstream effects of the COVID-19 black swan, we can see at least three: great and possibly fatal damage to the assumption of American and Western competence; a widening of the economic gap with China; a further change in the world soft power balance. The “blame China” diversion (not forgetting the rest of the current Enemy Package – Russia and Iran) is childish and will earn disgust. None of these changes is to the benefit of the Imperium Americanum.

Oil

In March Riyadh, on behalf of OPEC, proposed to Moscow that they reduce oil production in order to keep prices up. Moscow refused and Riyadh started pumping. COVID-19 shutdowns collapsed demand. A month later West Texas Intermediate futures went negative and the price of a barrel of oil passed below $20.

Generally it is estimated that the U.S. shale oil industry (about 60% of U.S. production) needs prices of about $60 to be profitable, Saudi Arabia, despite very low pumping costs, squanders so much that it needs about $80; Russia on the other hand is profitable at $45 and has half a trillion dollars in its FOREX kitty. So, if Riyadh started a price war it is not in a strong position; Moscow, on the other hand, some say, can survive $25 a barrel for ten years. As China’s industry comes back on line, it is starting to buy oil but most of it from Russia.

The end result of this price competition in a demand crash is unknown but it is unlikely that the U.S. shale industry will do well out of it. And, because so much of Washington’s behaviour is based on the confidence that it is oil-independent, the U.S. will not come out of this stronger.

So two black swans are likely to leave the Imperium Americanum weaker and less influential. And, it should be said, more contemned. But there is more.

And some black cygnets

Some may remember the excitement of TV commentators about cruise missiles in the Gulf War of 1990. And a weapon that could be launched a thousand kilometres away and hit a particular floor of the building aimed at was pretty amazing. That was the first large-scale public combat use of very long-range precision weapons and for many years cruise missiles were a signature feature of U.S. attacks and practically a monopoly. Until 2015 when Russia struck targets in Syria from otherwise insignificant small craft in the Caspian Sea. So flabbergasted was Washington by this that its first reaction was to pooh-pooh the accuracy. But they were real; many Kalibres have been launched from different platforms including submerged submarines. So, there were now two demonstrated members of the club that could, in real conditions, precisely hit a target a long distance away. In its response to the killing of Soleimani, Iran showed that it too was a member of the club. While it seems some of its missiles did go astray, most hit exactly what they were aimed at. (The U.S. military’s opponents also took note – again – of the fact that it does not have effective air defences). And the usual reaction from Washington: downplaying at first; later we heard of the hundred-plus brain injuries. Quite an achievement for a country that has been under sanctions for decades. And Iran just joined another small club: countries that can launch a satellite on their own (again the U.S. contemptuous dismissal: “tumbling webcam in space“).

The Trump Administration is very hostile towards Iran but no more so than most U.S. Administrations since the departure of the Shah – himself put back into power by a U.S.-UK coup. Probably the hottest moment of this undeclared war was in 1988, but there have been many other crises and we just had another threat from Washington. Tehran knows its on Washington’s hit list and has been preparing for decades. Missiles will be one of its principal defences. Washington would do well to reflect on Iran’s – surprising to it – membership in these two elite clubs before it makes any more threats. Little cygnets become big swans.

Another black cygnet is the Iraq parliament’s demand that U.S. forces leave the country. Washington is consolidating its troops but they will be besieged prisoners if the country rises against them. Which sooner or later it will when the new Prime Minister forms his government. Two consequences of the neocon-dominated “New American Century” in the Middle East have been the growth of Iran’s influence and the demonstration that the U.S. military is not the omnipotent force it thought it was. When the effort to get it out starts, Washington will have three choices: hunker down and hope it goes away, enormously reinforce its troops for a completely new war, withdraw à la Vietnam. This cygnet is growing.

* * *

A pandemic, oil price collapse, a target country showing it has more capability than assumed, threatened expulsion from Iraq. The surprises have exposed long-time weaknesses.

It’s always the unexpected things that test things to destruction.

One thing I’ve learned over the years of investigating Big Oil and its hold over the futures of whole nations — including the US — is this: Never count on “straight talk” from its lobbyists, its PR people, and its protagonists in Congress and the White House

So what are we make of the fact that the price of oil tanked to below zero per barrel on April 22, the greatest drop in history? The price has gone up slightly since then, hovering around $16 a barrel on April 25th, but it is still severely depressed. Who will suffer from this? And perhaps more importantly, who will gain?

Predicting the future is difficult during this pandemic. Here are five questions that might yield answers.

What caused the precipitous drop in the price of oil?

In a word: coronavirus. No one can deny this. It is an inescapable fact, plainly portrayed by TV images of empty streets around the world. Sheltering at home has greatly reduced the consumption of gasoline. People are not driving their cars to work. Airlines — big consumers of gasoline — are cutting way back. A global over-supply of oil is not only driving down prices, it is causing havoc because there is no more storage space for tankers to unload their cargo.

By early March, the situation was becoming particularly acute in Asia, especially in Covid-19’s hardest hit countries — China and South Korea. A crisis was evident for oil producing nations. Anticipated state revenues from selling oil to Asia were suddenly falling far short of expectations

The Trump Administration began considering a bailout for the oil and gas industry in March if oil prices continuex to stay in the doldrums. But it remains to be seen how such a bill would pass a Democratic-controlled House given anger among Democrats over the industry’s contribution to climate change and pollution. One need only look at the skylines of the world’s largest cities to see how reduced consumption of oil and gasoline has cleared the air.

Why did Russia and Saudi Arabia react by starting an oil price war now– of all times!

Members of OPEC, the Organization of Petroleum Exporting Companies, met in Vienna in early March to discuss the impact of Covid-19 on a declining demand for oil. Russia (though not a member of OPEC) joined the meetings, resulting in a pact called OPEC +. Representatives of OPEC’s 15 member countries (plus Russia) tried to hash out a deal that would curtail oil production enough to raise the price of oil. They failed. Why?

Saudi Arabia — the capo di tutti capi of oil producers — proposed cutting its oil production by 1 million barrels a day to prop up the price of oil, provided that Russia, another major leaguer, cut its production by 500,000 barrels a day. Russia balked. After all, Putin, ex-KGB guy that he is, is a master at playing the Great Game for Oil. Ever since the United States began exporting large quantities of shale oil and gas (much of it obtained through fracking) as cheap energy to Europe, he saw Russia’s market share in Europe threatened and revenues reduced. As the major supplier of oil and natural gas to Europe, Putin needed to compete with American shale oil producers and if possible, outcompete them with Russia’s own cheap oil.

But there was another factor at play, according to Bloomberg News: Russia’s economy was better prepared to take a hit because “five years of austerity and safeguarding assets against the threat of U.S. sanctions have left Russia in a stronger position than ever before to cope with lower oil prices…International sanctions forced Russia to strip back foreign borrowing in recent years, while stringent fiscal policies pared domestic spending to a minimum. The result is that Russia now boasts the fourth-biggest international reserves in the world, and some of the lowest debt levels.”

When Russia balked, Saudi Arabia did a turnaround, purportedly out of revenge, and on March 8 boosted output by 10 million barrels, further flooding the oil market and triggering the greatest reduction of its oil price in 30 years. What happened next was the beginning of the historic Saudi-Russian oil price war, with oil prices tumbling to $20 a barrel, the lowest, at the time, in 20 years (compared to $70 a barrel earlier this year), rattling oil investors –and communities — around the world.

Oil-dependent states like Oklahoma and Texas were reeling from the lower prices and lost earnings. “Texas, priding itself as the oil capital of the world, had already lost 20,000 jobs over the last year,” according to Todd Staplesof the Texas Oil and Gas Commission, and “that’s just the beginning of this phase.”Staples (accurately) predicted that by April 22, “it was going to get worse before it gets better, which is why the economy needs to get going again.” Gets one to wondering if the oil industry is partly behind the push by the Governor of Texas to “open up” its cities and get workers back on the job, despite the possibility of contagion through close contact.

Leave it to a vengeful virus to shake out some of the hidden detritus of one of the world’s most powerful industries. Even former US vice president and CEO of Halliburton, Dick Cheney, himself an ardent player in the Great Game in the Middle East and its endless wars, has been watching his huge Houston-based energy services company, with 50,000 employees in over 80 countries, take a nosedive in profitability. Last year at this time Halliburton had reported a net income of $152 million in its first quarter; this year, Haliburton had to report a $1 billion loss covering the same period.

Why did Trump put an end to the Saudi-Russian price war?”

President Trump, who made good on his campaign pledges to boost US energy production, has been a particularly ardent supporter of the US domestic shale oil and gas industry, which uses the controversial technique known as fracking to release underground oil or natural gas from layers of oil-bearing rock. Trump was a key speaker at last years’ ninth annual Shale Insight Conference in Pittsburgh, Pennsylvania, and boasted that shale production was “saving energy producers millions of dollars in compliance costs, while maintaining sterling environmental standards…We set an economic boom of truly historic proportions, bringing prosperity back to cities and towns all across America.”

Yet there were already signs of danger for the shale industry last fall. In their zeal to achieve record output, some shale oil producers began drilling wells too close to each other, and “sweet spots” began to dry up. Then the coronavirus hit China, triggering a drop in demand for oil. By March, 2020, the Saudi-Russia oil price war was in full swing. The Washington Postreported on March 9 that President Trump was “strongly considering pushing federal assistance for oil and natural gas producers hit by plummeting oil prices,” having been told by alarmed industry executives that the shale oil producers were already deeply in debt, to the tune of $40 billion over the last year, and risked going out of business. (Some also warned “against the administration supporting any sweeping paid sick leave policy, according to a major GOP donor and a White House official familiar with the discussions.”)

One of the affected producers is Harold Hamm, a Trump supporter and advisor and a founder of Continental Resources, an Oklahoma based oil company and a proclaimed “leader in America’s energy renaissance.” On March 9th, the Post reported, Hamm told Trump that his company lost most of its market value, some $2 billion worth. He urged Trump to “ consider using laws on illegal dumping to prevent Russia and Saudi Arabia from slashing prices of oil sold in the United States.”

Trump took his cue, but adopted a different approach. On April 13, he helped broker a deal between the Russians and the Saudis that OPEC+ countries would cut oil production by 9.7 million barrels a day — even while he, Trump, refused to cut oil production in the US. The deal was due to go into effect in May. Trump tweeted triumphantly that “The big Oil Deal with OPEC Plus is done. This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”

Trump’s apparent victory was pyrrhic at best, however. Goldman Sachs, Fortune magazine reported, was already taking a hard look into its own crystal ball and warned that the euphoria was premature, calling the cuts in production “too little, too late.” It foresaw that Covid-19 would continue to run roughshod on oil producers as more and more populations around the world went into lockdown.

Who will be the biggest winners?

Meanwhile, one energy industry expert rather cynically predicted that in the end, the winners of the oil price plunge would be none other than Saudi Arabia and Russia. “On the face of it,” wrote Antoine Halff, “ the idea of Saudi Arabia and Russia starting an oil price war in the middle of a global pandemic is as dumb as it gets. From a game theory perspective, it is a masterstroke.”

Game theory is well suited to “what makes Johnny run” under capitalism, namely, competition. As defined by Investopedia, “Game theory is a theoretical framework for conceiving social situations among competing players. In some respects, game theory is the science of strategy, or at least the optimal decision-making of independent and competing actors in a strategic setting.”

Certainly optimal decision-making is necessary in the intensely competitive and ever-volatile Great Game for Oil. According to Halff, the massive drop in oil prices “will hurt producers all around but will bring Riyadh and Moscow longer-term benefits. With their low costs and vast financial reserves, the two can withstand a loss of oil revenue better than most producers. Others are already teetering on the brink of collapse.” The biggest losers will be independent shale oil producers — mostly smaller oil and gas companies –called “the competing fringe” in this game theory analysis. They took huge risks (and expensive loans) to successfully compete for market share around the world, nudging up against such industry giants as Exxon-Mobil, Chevron, BP and Shell. Now they can’t repay their debts.

As I point out in my book about “the deadly politics of the Great Game for Oil,” Big Oil inevitably triumphs over smaller independents due to the scale, expertise, advanced machinery, access to Wall Street financing, and formidable foreign policy experience Big Oil has gained over a century of playing the game.

Big Oil companies, in short, are big enough to ride out crises that would sink their less-well-endowed competitors. I was therefore not surprised to read in Oilprice.com that Pioneer National Resources, one of the largest shale oil developers in the United States, warned that independents would go bankrupt during the plunge of oil prices in March. He “blamed ExxonMobil for blocking help from the American government for the U.S. shale industry.” As Pioneer’s Scott Sheffield explained, Exxon’s refusal to help “is because the oil major wants to kill smaller shale companies” That’s why “Pioneer and several independents are seeking a global settlement to look at really reducing production with all 26.” The independents got what they wanted with the Russia-Saudi agreement of April 13, but underestimated Covid-19’s relentless spread across the nation and the world.

On April 12, one of the larger shale oil producers, Whiting Petroleum, filed for Chapter 11 bankruptcy. becoming the first major shale oil victim of the virus. And that was when oil was going at $20 a barrel. Other bankruptcies will surely follow as social distancing continues despite pressure from Republican governors to open up their states now.

Who are the biggest losers?

The impact on oil-industry-dependent communities in America’s west and southwest will likely be devastating, with major job loss already occurring as a result of the virus. Compounding the problem is the fact that the world is running out of places to store the vast surplus of oil that has resulted from greatly reduced demand. This is the situation facing Cushing, Oklahoma, the main storage hub for independent producers, which is likely to be “filled to the brim” by May. According to the New York Times, “hundreds of smaller producers rely on pipeline companies to transport their production, and to storage tanks in Cushing to hold onto it.”

Exxon and Chevron, which began to invest heavily in shale oil last year, at least have their own storage facilities.

Trump territory is reeling from the downturn in oil prices. Small oil companies that operated in Oklahoma, Texas, Louisiana and Montana flourished when oil prices went as high as $100 barrel, but now they are having trouble repaying loans to regional banks. The impact on local economies has been “disastrous, devastating,” according to Darlene Wallace, president of Columbus Oil, a small Oklahoma company. “I hate to sound like a little old lady, but it’s frightening.”

Now, even the majors are feeling the blow. S&P Global Ratings cut ExxonMobil’s credit rating in late March, and the oil giant may have difficulty paying its dividend. Occidental Petroleum has already cut its dividend and saw Moody Investors Service downgrade it rating. Chevron, also worried about maintaining its dividend, has scaled back on its spending by 20%, with the biggest cuts taking place in the Permian Basin in West Texaco and New Mexico.

Still, if anyone can weather the storm, it will be Big Oil. Which is why we should all be watching this sector of the US economy closely — as well as the Big Banks — to see how they will try to pull out of this crisis, as usual, ahead of the game.

Should we get ready for Big Bailouts? The Wall Street Journal reported on April 22 that the Trump Administrations was “weighing aid for the battered oil industry.” But, ironically, that trial balloon was poorly timed, landing with a thud on the 50th anniversary of Earth Day, as Bill McKibbon, influential climate activist and founder of 350.0rg warned, “We must stop subsidizing the fossil fuel industry that is wrecking this planet.” United Nations Secretary-General António Guterres said the same thing, noting in his Earth Day Speech that “climate disruption” is even more menacing than Covid-19, adding that “greenhouse gases, just like viruses, do not respect national boundaries.”

If the bailout doesn’t happen, there’s always another war in the Middle East to look toward. On April 23, President Trump threatened to destroy Iranian boats that harass the U.S. Navy in the Gulf, “boosting oil prices.” Such threats, reported the Wall Street Journal, “can lift crude because traders are very sensitive to tensions in the region that could disrupt the movement through the Strait of Hormuz, a vital shipping channel for tankers.” Just think of what a major war with Iran could do for the price of oil?

counterpunch.org

The historic collapse of West Texas Intermediate (WTI), the reference oil traded most frequently and of major significance for U.S. commodity markets, represents far more than the short-term negative impact of a global oil glut on American energy producers. Rather, it is the beginning of the end of the illusion of American energy independence, the bursting of an economic bubble which was as impractical as it was unsustainable.

Corporate and government greed—one born of profits, the other of tax-based revenue—combined to create a national energy policy driven more by hubris than market realities. As long as there is a demand for oil, there will be a U.S. oil industry. But the COVID-19 pandemic will go down in history as representing the high-water mark of American oil. What will emerge from this global economic crisis will be something far different than what existed.

In and of itself, the unprecedented drop of the price of WTI oil into negative numbers (meaning oil producers are paying customers to take possession of the oil) is more a reflection of a perfect storm of the precipitous drop in demand for the WTI product combined with limited storage capacity coinciding with the expiration of oil futures contracts—in short, there was too much oil, too little storage, and unless the traders who had purchased the contracts were able to sell them, they would be compelled to take possession of oil with no ability to store it.

Commodities trading is always a gamble, and investors often lose out when caught on the wrong side of a major market movement. Under normal circumstances, major consumers of oil, such as airlines and cruise lines, would step in and purchase the contracts at a cut-rate price. But in this day and age of the COVID-19 pandemic-induced global economic shutdown, no planes are flying, no ships are sailing, no cars are driving. Without demand, there is no consumption, and without consumption, the market soon became overwhelmed by a massive glut of oil that nobody wants or needs.

This is a crisis that was a long time in coming. Over the course of the past decade, the U.S. over-produced over-subsidized oil while demanding production cuts on the part of foreign producers intended to keep the price of oil artificially high, and seizing global market share by sanctioning competitors such as Venezuela and Iran, all in the name of shareholder profit and the pursuit of the modern-day equivalent of the Holy Grail—energy independence.

As of 2018, the U.S. removed around two million barrels per day from the global oil supply through sanctions on both Venezuela and Iran. The Trump administration planned on this capacity to be filled by soaring U.S. production rates, which in 2018 exceeded more than 12 million barrels per day. By December 2018, the U.S. became a net exporter of oil for the first time in 75 years, crossing over the threshold of what President Trump called “energy independence.”

Chinese economic growth, and the corresponding demand for oil, helped create a market that kept oil prices at levels that were profitable for U.S. producers. Indeed, Chinese energy consumption helped fuel the recovery of the U.S. oil industry in the aftermath of the 2014 Saudi Arabian price war. But those were different times indeed—the lede for a December 2014 article on the topic read as follows: “Oil has been absolutely crushed. As recently as June, West Texas Intermediate Crude traded at more than $100 per barrel. Today it’s at $67. That’s a 37% decline for the biggest commodity in the world.” All one needs to do is compare and contrast $67 per barrel with today’s negative $40 to understand that there has been a paradigm shift in the way oil is thought of today.

This shift began with a U.S. trade war with China spurred on by President Trump once he came into office in 2017. This trade war helped produce a Chinese economic slowdown, resulting in a drop in global demand for oil beginning in late 2018, and in turn initiating a period of global oil overproduction that has lasted until the present. During this time the U.S. continued to push domestic oil production in an effort to maximize profits and secure global market share, all in the name of “energy independence,” which had become a leading mantra for President Trump.

This U.S. overproduction eventually clashed with the energy policies of both Russia and Saudi Arabia, both of whom had been collaborating on a series of oil production cuts designed to increase the price of oil and stabilize the market. The only benefactor of this policy of austerity was the U.S., a factor that led the recent Russian-Saudi price war which, in conjunction with the COVID-19 pandemic, triggered the recent collapse in oil prices.

Oil contracts come and go, but bad policy is forever. U.S. oil production, as it is currently organized and configured, will never recover from the economic tailspin of the present—companies will go bankrupt, banks will fail, fortunes will be lost, and millions of lives displaced and disrupted as livelihoods evaporate forever. Too much damage has been done, and will continue to be done, to the U.S. oil industry for anything resembling a complete recovery to be had when the U.S. economy is finally re-opened.

U.S. oil production levels have dropped precipitously, with between 2-3 million barrels a day being eliminated, and more to follow. Until a balance can be achieved between global production and demand, the price of oil will continue to plummet. The promised 10-million barrel a day cut in production made at the OPEC-plus talks in mid-April fall far short of the estimated 27 million barrel per day overproduction that is still taking place.

Moreover, there is a difference between oil of the global commodity market—while WTI was bottoming out into negative numbers, its major global competitor, Brent Crude, was trading in (albeit reduced) positive figures. The disparity between the two main global benchmarks have to do with the reality of the logistics involved with bringing their respective products to market. Brent is moved primarily by giant seaborne tankers and has yet to experience the storage capacity realities that have caused the price crisis that hit WTI. It’s not as though WTI ceased to possess value—it was the uncertainty regarding storage for the oil contracted for delivery in May that produced the negative pricing, not the oil itself.

Indeed, while the May futures for WTI collapsed, the price for the June futures contracts had stabilized at around $26. But the lack of storage is rolling over into June as well, and the June contracts appear to be on the verge of matching the May WTI futures price lows. And unless the U.S. economy can be brought on line with enough intensity to create enough energy demand to compensate for continued overproduction by American oil producers, the July futures could suffer the same fate—and all futures contracts going forward, until the supply-demand disparities are resolved.

The reality is that $10 oil appears to be the norm for the foreseeable future, an unsustainable number in an industry which requires $50 oil just to survive. Even when the U.S. economy gets back online, a good segment of the U.S. oil industry won’t be there to help fuel it. U.S. energy independence, that illusory concept pursued by U.S. Presidents for the past seven decades, has evaporated. In the brief period that the U.S. was able to claim this status, it could only do so in a market that had been artificially skewed to promote U.S. overproduction at the expense of the rest of the oil producing world. This model of behavior will no longer be tolerated.

Nor will the model of global consumption be the same. The damage done to the global economy by the COVID-19 pandemic has not yet been quantified, nor will it be for some time to come. The same is true of the U.S. economy. Recovery models that existed in March no longer apply today. But one thing is for certain—President Trump’s optimism for a rapid re-start of the American economy is misplaced—recent studies have the U.S. economy recovering to pre-pandemic levels sometime in the first quarter of 2023. The level of ongoing economic stimulus and support required to prop up the American economic framework between now and then has not yet begun to be considered by either the U.S. Congress or the Trump administration.

There are certain things that are knowable, however. The U.S. economy will not be operating as a true free market economy for the coming months and years—if ever. The domestic realities of a national economy at least partially fueled on stimulus payments become even more complex as the U.S. works to help reinvigorate a global economy where other national economies are operating on similar government-subsidized models. Economic growth will be carefully paced, which means that factors such as energy consumption levels will be paced as well.

The days of unconstrained growth are past; so, to, are the days of unrestrained domestic oil production. The U.S. will have to learn how to live in a world where the price of oil is jointly set based upon production quotas jointly agreed to. The U.S. will be, once again, a net importer of oil. The short-lived era of U.S. energy independence has been resigned to the pages of history.

theamericanconservative.com

Well, the calculus for Moscow on whether to cut production (to help Trump) was never simple. There were geo-political and domestic economic considerations – as well as the industry ones – to weigh. But, perhaps one issue trumped all others?

Since 2007, President Putin has been pointing to one overarching threat to global trade: And that problem was simply, the U.S. dollar.

And now, that dollar is in crisis. We are referring, here, not so much to America’s domestic financial crisis (although the monetisation of U.S. debt is connected to threat to the global system), but rather, how the international trading system is poised to blow apart, with grave consequences for everyone.

In other words, Covid-19 may be the trigger, but it is the U.S. dollar – as President Putin has long warned – that is the root problem:

“We’re looking at a commodity-price collapse and a collapse in global trade unlike anything we’ve seen since the 1930s”, said Ken Rogoff, the former chief economist of the IMF, now at Harvard University. An avalanche of government-debt crises is sure to follow, he said, and “the system just can’t handle this many defaults and restructurings at the same time”.

“It’s a little bit like going to the hospitals and they can handle a certain number of Covid-19 patients but they can’t handle them – all at once”, he added.

More than 90 countries have inquired about bailouts from the IMF—nearly half the world’s nations—while at least 60 have sought to avail themselves of World Bank programs. The two institutions together [only] have resources of up to $1.2 trillion”.

Just to be clear, this amount is not nearly sufficient. Rogoff is saying that $1.2 trillion is a drop in the ocean – for what lies ahead. The health of the global economy thus has attenuated down to a race between dollars flooding out of this ‘complex self-organising’ system amidst the coronavirus pandemic, versus the very limited resources of the IMF and World Bank to pump dollars in.

Simple? Just ramp up the dollar flow into system. But whoa there! This would mean the U.S. providing a flow of dollars sufficient to meet ‘rest of world’ needs – ‘during the biggest collapse since the 1930s’? There is $11.9 trillion of U.S. denominated debt out there alone, plus the dollar float required to finance day-to-day international trade (usually held as national, foreign exchange reserves).

That however, is only a fraction of the dollar-denominated debt ‘problem’, since a part of that debt takes the characteristics of a distinct ‘currency’ used in international trade, called Eurodollars. Mostly (but not exclusively), they present themselves as if ordinary dollars, but what distinguishes them is that they are overseas dollar deposits that exist outside of U.S. regulation, in one sense.

But which – in the other sense – they become the tools extending U.S. jurisdiction (think Treasury sanctions), across the globe, through the use of U.S. dollars, as its medium of trade. That is to say, this huge Eurodollar market serves Washington’s geo-political interests by enabling it to sanction the world. Hence, the Eurodollar market is a main tool to the U.S.’ covert ‘war’ against China and Russia.

Eurodollars just ‘emerged’, (initially) in Europe after WW2 (no-one is sure quite how), and they grew organically to huge size, by the European banking system simply electronically creating more of them. The Achilles’ Heel is that it lacks any Central Bank to supply it with liquid dollars, as and when, payments into the U.S. sphere are sucked out of it.

This happens especially in times of crisis, when there is flight to the onshore dollar. Oh, no. Oh yes: It’s another self-organising dynamic system that can only ‘grow’ under the right conditions, but will be prone to dynamic de-construction if too many dollars are withdrawn from it. And now, with the Covid-19 pandemic, the Eurodollar market is in a near panic for dollars: liquid dollars.

The U.S. Fed does ‘help out’, at its own discretion, but mainly through offering to swap other currencies for dollars, and by extending short term dollar loans. But this ‘swap bandage’ cannot of course staunch full-blown global trade blowout – in the same way that the Fed is ‘supporting’ U.S. domestic financial system – by throwing trillions of dollars at it.

President Putin saw this eventuality long ago, and predicted the dollar’s ultimate collapse, as a result of the world’s trade becoming too large and too diverse to be sustained on the slender back of the U.S. Fed. And because the world is no longer ready for the U.S. to be able to sanction it, willy-nilly, and at will.

And here ‘is’ that moment – very possibly. So, the collapse in the oil price is a piece to this much bigger story. Putin – not so surprisingly – thus cooperated with Trump’s OPEC initiative, no doubt guessing that the attempt to ramp prices higher would never ‘fly’. Putin may not want to see the dollar hegemony renewed, but nor would he want Russia to be viewed as a main contributor to a global blow-out. The blame being heaped on China over coronavirus serves as a potent alert in this context.

This – emphatically – is not an essay about barely-understood Eurodollars. It is about real global risk. Take the Middle East, as one example. Oil is trading currently at $17 (Friday’s WTI). No producer state’s Middle East business-model is viable at this price level. National budget ‘break-evens’ require a price of oil to be at least three times higher – maybe more. And this, comes on top of the collapse of the Gulf air-travel hub business and tourism. The northern tier of states additionally, is being pressed hard by U.S. sanctions, with the latter tightening the sanctions tourniquet, as Covid-19 strikes, rather than relaxing it. Lebanon, Jordan, Syria – and Iraq. All have national business-models that are bust. They all require bail-outs.

And into this bleak picture, coronavirus has gripped precisely that class of expatriates and migrant workers that sustain the Gulf ‘way of life’ and its business model. NGOs presently are scouring the UAE for empty buildings, and Bahrain is re-purposing closed schools in order to re-house migrant-labourers from cramped accommodation where one room with bunk-beds would sleep a dozen workers.

The virus has also spread to densely populated commercial districts of cities, where many expatriates share housing to save on rent. Many have lost jobs and are struggling. The authorities are trying to deport the migrants home; but Pakistan and India both are refusing them immediate entry. These victims have lost their livelihood, and any chance to escape their misery.

Just to be clear: Gulf élites are not exempt from Covid-19. The al-Saud have been particularly hit by what they sometimes call the “Shi’i virus”. The situation is turning explosive. Gulf economies are held aloft by expatriates, migrant workers and domestic help, and coronavirus has upended the pillars of their economies.

The state looms large over the financial sector in the Gulf, and this makes financial institutions especially vulnerable, because the proportion of loans that local banks extend to the government or to government-related entities, has been rising since 2009. As the authorities draw further on these institutions, so the Gulf economies will prove more vulnerable to Eurodollar stress – absent huge Fed bail-outs.

The global impact of Covid-19 is only beginning, but one thing is abundantly clear: Middle Eastern states will be needing a great deal of spending money, just to fend off social disorder. An economic breakdown is more than just economic. It leads quickly to a social breakdown that involves looting, random violence, fraud and popular anger directed at authorities. Global trade is going to be hit hard, and U.S. imports are going to tumble, which threatens one of the main USD liquidity channels into the Eurodollar system.

This fear of a systemic dynamic destruction of the trading system has led the BIS (Bank for International Settlements: the Central Bankers’ own Central Bank) to insist that: “… today’s crisis differs from the 2008 GFC, and requires policies that reach beyond the banking sector to final users. These businesses, particularly those enmeshed in global supply chains, are in constant need of working capital, much of it in dollars. Preserving the flow of payments along these chains is essential if we are to avoid further economic meltdown”.

This is a truly revolutionary warning. The BIS is saying that unless the Fed makes bail-outs and working capital available on a massive scale – all the way down, and through, the supply-pyramid to nitty-gritty individual enterprises – trade collapse cannot be avoided. What is hinted at here is the concern that when multiple dynamic complex systems begin to degrade, they can, and often do, enter into a spiralling feedback-loop.

There may be agreement in the G7 on the principle of a limited debt moratorium to be offered to struggling economies, but an approach à outrance – on the BIS lines – apparently is being blocked by U.S. Treasury Secretary Mnuchin (the U.S. enjoys a veto at the IMF by virtue of its quota): No more U.S. cash is being offered to the IMF by Mnuchin, who prefers to keep the U.S. Fed front and centre of the USD liquidity roll-out process.

In other words, Trump wishes to keep intact the scaffolding of the ‘hidden’ dollar-based, sanctions and tariff ‘war’ against China and Russia. He wants the Fed to be able to determine who does, and who does not, get help in any ‘liquidity roll-out’. He wants to continue to be able to sanction those he wants. And he wants to maintain as large an external footprint of the dollar as possible.

Here then, is the crux to Putin’s complaint: “At root, the Eurodollar system is based on using the national currency of just one country, the U.S., as the global reserve currency. This means the world is beholden to a currency that it cannot create as needed”.

When a crisis hits, as at present, everyone in the Eurodollar system suddenly realizes they have no ability to create fiat dollars, and can rely only on that which exists in national foreign exchange reserves, or in ‘swap lines’. This obviously grants the U.S. enormous power and privilege.

But more than subjecting the world to the geo-political hegemony of Washington, the crucial point is made by Professor Rogoff: “We’re looking at a commodity-price collapse – and a collapse in global trade unlike anything we’ve seen since the 1930s. An avalanche of government-debt crises is sure to follow, he said, and “the system just can’t handle this many defaults and restructurings – at the same time”.

This simply is beyond the U.S. Fed, or the U.S. Treasury’s capacities, by a long shot. The Fed is already set to monetize double the total U.S. Treasury debt issuance. The global task would overwhelm it – in an avalanche of money-printing.

Does Mnuchin then, believe his and Trump’s narrative, that the virus will soon pass, and the economy will rapidly bounce-back? If so, and it turns out that the virus does not rapidly disappear, then Mnuchin’s stance portends a coming, tragic débacle. And with further massive money issuance, a collapse in confidence in the dollar. (President Putin would have been proved right, but he will not welcome, assuredly, being proved right in such a destructive manner).

In a parallel sphere, the global trade plight is being mirrored in the microcosm by that of EU states, such as Italy, whose economies similarly have been racked by Covid-19. They too, are beholden to a currency – the Euro – that Italy and others cannot create as needed.

With this crisis hitting Europe, everyone in the Euro system is experiencing what it means to have no ability to create fiat currency, and be entirely subject to a non-statutory body, the Eurogroup, which – like Mnuchin – simply says ‘no’ to any BIS-like approach.

Again, it is about scale: this is not business as usual, as in some neo-‘Greek’ eruption, to be countered with EU ‘discipline’. This crisis is much, much greater than that. The absence of monetary instruments – in crisis – can become existential.

Some muse might recall to Mnuchin and the Eurogroup, Alexander del Mar’s 1899 Monetary History, in which he observes how the manoeuvres of the British Crown, in constricting the export of gold and silver (i.e. money) to its American colonies, led to the Crown’s ‘war’ on the paper monetary instruments – Bills of Credit – issued by the Revolutionary Assemblies of Massachusetts and Philadelphia, to compensate for this British monetary starvation.

Finally, it left the desperate colonists with but one resort: “to stand by their monetary system. Thus the Bills of Credit of this era … were really the standards of The [American] Revolution. They were more than this: They were the Revolution itself!”

Because if there was ever a moment where Putin and Russia could inflict maximum pain on the United States via its Achilles’ heel, the financial markets and its unquenchable thirst for debt, it was this month just as the coronavirus was reaching its shores.

Like I said, I’m a huge game player and I especially love games where there is a delicate balance between player power that has to be maintained while it’s not one’s turn. Attacks have to be thwarted just enough to stop the person from advancing but not so much that they can’t help you defend on the next player’s turn.

All of that in the service of keeping the game alive until you find the perfect moment to punch through and achieve victory. Having watched Putin play this game for the past eight years, I firmly believe there is no one in a position of power today who has a firmer grasp of this than him.

And I do believe this move to break OPEC+ and then watch Mohammed bin Salman break OPEC was Putin’s big judo-style reversal move. And by doing so in less than a week he has completely shut down the U.S. financial system.

On Friday March 6th, Russia told OPEC no. By Wednesday the 11th The Federal Reserve had already doubled its daily interventions into the repo markets to keep bank liquidity high.

By noon on the 12th the Fed announced $1.5 trillion in new repo facilities including three-month repo contracts. At one point during trading that day the entire U.S. Treasury market went bidless. There was no one out there making an offer for the most liquid, sought-after financial assets in the world.

Why? Prices were so high, no one wanted them.

Not only did we get a massive expansion of the repo interventions by the Fed, but it was for longer duration. This is a clear sign that the problem is nearly without an end. Repos longer than three days are in this context a rarity.

The Fed needing to add $1 trillion in three-month repos clearly means they understand that they are looking out to the end of the quarter as the next problem and beyond that.

It means, in short, the world financial markets have completely seized up.

And worse than that…. It didn’t work.

Stocks continued to slide, gold and other safe-haven assets were hit hard by a reversal of capital outflows from the U.S. In the first part of the aftermath of Putin’s decision the dollar got whacked as European and Japanese investors who had piled into U.S. stocks as a safe-haven sold those positions and brought the capital home.

That lasted a few days before Christine Lagarde put on her dog and pony show at the European Central Bank and told everyone she didn’t have any answers other than to expand asset purchases and continue doing what has failed in the past.

This touched off the next phase of the crisis, where the dollar begins to strengthen. And that is where we are now.

And Putin understands that a world awash in debt is one that cannot withstand the currency needed to repay that debt rising sharply.

That puts further pressure on his geopolitical rivals and forces them to focus on their domestic concerns rather than the ones overseas.

For years Putin has been begging the West to stop its insane belligerence in the Middle East and across Asia. He’s argued eloquently at the U.N. and in interviews that the unipolar moment is over and that the U.S. can only maintain its status as the world’s only super power for so long. Eventually the debt would undermine its strength and at the right moment would be revealed to be far weaker than it projected.

This doesn’t sit well with President Trump who believes in America’s exceptionalism. And will fight for his version of “America First’ to the last using every weapon at his disposal. The problem with this ‘never back down’ attitude is that it makes him very predictable.

Trump’s use of sanctions on Europe to stop the Nord Stream 2 pipeline was stupid and short-sighted. It ensured that Russia would be merciless in its response and only delay the project for a few months.

Trump was easy to counter here. Sign a deal with Ukraine, desperate for the money, and redirect the pipe-laying vessel back to the Baltic to finish the pipeline.

And with natural gas prices in Europe already in the gutter from oversupply and a mild winter, there isn’t much time or money lost in the end. Better to take the world oil price down well below U.S. production costs which ensure that Trump’s prized LNG stays off the European market as the myth of U.S. energy self-sufficiency vanishes in a puff of financial derivative smoke.

Now Trump is facing a market meltdown well beyond his capacity to fathom or respond to. While Russia is in the unique position to drive costs down for so many of the people while riding out the shock to the global system with its savings.

Because money flows to where the best returns on it come, high oil and gas prices stifle development of other industries. Lowering the oil price not only deflates all of the U.S.’s inflated financial weapons it also deflates some of the power of the petroleum industry domestically. This gives Putin the opportunity to continue remaking the Russian economy along less focused lines. Cheap oil and gas means lower return on investment in energy projects which, in turn, opens up available capital to be deployed in other areas of the economy.

Putin just told the world he’s not riding his country’s oil and gas resources like a cash cow but rather as an important part of a different economic strategy for Russia’s development.

It’s like watching someone playing the first half of a game implying one strategy and making a critical shift to a different one halfway through, taking advantage of their opponents’ carelessness.

It rarely works, but when it does the results can be spectacular. Game, Set, Match, Putin.

Pepe ESCOBAR

Is the planet under the spell of a range of Black Swans – a Wall Street meltdown caused by an alleged oil war between Russia and the House of Saud, plus the uncontrolled spread of Covid-19 – leading to an all-out “cross-asset pandemonium,” as billed by Nomura, the Japanese holding company?

Or, as German analyst Peter Spengler suggests, whatever “the averted climax in the Strait of Hormuz had not brought about so far, might now come through ‘market forces’”?

Let’s start with what really happened after five hours of relatively polite discussions last Friday in Vienna. What turned into a de facto OPEC+ meltdown was quite the game-changing, plot twist.

OPEC+ includes Russia, Kazakhstan and Azerbaijan. Essentially, after enduring years of OPEC price-fixing – the result of relentless U.S. pressure over Saudi Arabia – while patiently rebuilding its foreign exchange reserves, Moscow saw the perfect window of opportunity to strike, targeting the U.S. shale industry.

Shares of some of these U.S. producers plunged as much as 50 percent on “Black Monday.” They simply cannot survive with a barrel of oil in the $30s – and that’s where this is going. After all, these companies are drowning in debt.

A $30 barrel of oil has to be seen as a precious gift/stimulus package for a global economy in turmoil – especially from the point of view of oil importers and consumers. This is what Russia made possible.

And the stimulus may last for a while. Russia’s National Wealth Fund has made it clear it has enough reserves (over $150 billion) to cover a budget deficit from six to 10 years – even with oil at $25 a barrel. Goldman Sachs has already gamed a possible Brent crude at $20 a barrel.

As Persian Gulf traders stress, the key to what is perceived in the U.S. as an “oil war” between Moscow and Riyadh is mostly about derivatives. Essentially, banks won’t be able to pay those speculators who hold derivative insurance against a steep decline in the price of oil. Added stress comes from traders panicking with Covid-19 spreading across nations that are visibly unprepared to deal with it.

Watch the Russian Game

Russian President Vladimir Putin at Russian-Saudi energy talks, Oct. 14, 2019 Riyadh. (Kremlin)

Moscow must have gamed beforehand that Russian stocks traded in London —such as Gazprom, Rosneft, Novatek and Gazprom Neft —would collapse. According to Lukoil’s co-owner Leonid Fedun, Russia may lose up to $150 million a day from now on. The question is for how long this will be acceptable.

Still, from the beginning Rosneft’s position was that for Russia, the deal with OPEC+was “meaningless” and only “cleared the way” for American shale oil.

The consensus among Russian energy giants was that the current market setup —massive “negative oil demand,” positive “supply shock,” and no swing producer — inevitably had to crash the price of oil. They were watching, helplessly, as the U.S. was already selling oil for a lower price than OPEC.

Moscow’s move against the U.S. fracking industry was payback for the Trump administration messing with Nord Stream 2. The inevitable, steep devaluation of the ruble was gamed — also considering the ruble was already low anyway.

Still, what happened post-Vienna essentially has little to do with a Russia-Saudi trade war. The Russian Energy Ministry is phlegmatic: move on, nothing to see here. Riyadh, significantly, has been emitting signs the OPEC+ deal may be back in the cards in the near future. A feasible scenario is that this sort of shock therapy will go on until 2022, and then Russia and OPEC will be back to the table to work out a new deal.

There are no definitive numbers, but the oil market accounts for less than 10 percent of Russia’s GDP (it used to be 16 percent in 2012). Iran’s oil exports in 2019 plunged by a whopping 70 percent, and still Tehran was able to adapt. Yet oil accounts for over 50 percent of Saudi GDP. Riyadh needs oil at no less than $85 a barrel to pay its bills. The 2020 budget, with crude priced at $62-63 a barrel, still has a $50 billion deficit.

Aramco says they will be offering no less than 300,000 barrels of oil a day more than their “maximum sustained capacity” starting April 1. They say they will be able to produce a whopping 12.3 million barrels a day.

Persian Gulf traders say openly this is unsustainable. It is. But the House of Saud, in desperation, will be digging into their strategic reserves to dump as much crude as possible as soon as possible — and keep the price war full tilt. The (oily) irony is that the top price war victims are an industry belonging to the American protector.

Saudi-occupied Arabia is a mess. The Wall Street Journal reported Friday that one of the king’s brothers, Prince Ahmed bin Abdulaziz al Saud, and a nephew, Prince Mohammed bin Nayef, two powerful Saudis, were arrested and charged with treason for allegedly plotting against King Salman and his son, Crown Prince Mohammed bin Salman (MbS).

Every grain of sand in the Nefud desert knows Jared of Arabia Kushner’s whatsapp pal MbS has been de facto ruler for the past five years, but the timing of his new purge in Riyadh speaks volumes.

Crown Prince of Saudi Arabia Mohammad bin Salman Al Saud at Russian-Saudi energy talks, Oct. 14, 2019 Riyadh. (Kremlin)

The CIA is fuming: Nayef was and remains Langley’s top asset. The fact that Saudi regime spin denounced “Americans” as partners in a possible coup against MBS should be read as “CIA.” It’s just a matter of time before the U.S. Deep State, in conjunction with disgruntled National Guard elements, comes for MbS’s head — even as he articulates taking over total power before the G-20 summit in Riyadh next November.

Black Hawk Down?

So what happens next? Amid a tsunami of scenarios, from New York to all points Asia, the most optimistic rule is that China is about to win the “people’s war” against Covid-19, and the latest figures confirm it. In this case global oil demand may increase by at least 480,000 barrels a day.

Well, that’s way more complicated.

The game now points to a confluence of Wall Street in panic; Covid-19 mass hysteria; lingering, myriad aftershocks of President Donald Trump’s global trade mess; the U.S. election circus; and political instability in Europe. These interlocked crises do spell Perfect Storm. Yet the market angle is easily explained as perhaps the beginning of the end of the Fed pumping tens of trillions of U.S. dollars into the economy through QEs and repos since 2008. Call it the calling of the central bankers’ bluff.

A case can be made that the current financial panic will only subsidize when the ultimate Black Swan – Covid-19 – is contained. Borrowing from the famous Hollywood adage — “no one knows anything” — all bets are off. Amid thick fog, and discounting the usual amount of disinformation, a Rabobank analyst, among others, came up with plausible four Covid-19 scenarios. He now reckons it’s getting “ugly” and the fourth scenario — the “unthinkable” — is not far-fetched anymore.

This implies a global economic crisis of, yes, unthinkable magnitude.

To a great extent it will all depend on how fast China – the inescapable crucial link in the global just-in-time supply chain — gets back to a new normal, offsetting interminable weeks of serial lockdowns.

Despised, discriminated, demonized 24/7 by the “system leader,” China has gone full Nietzsche – about to prove that “whatever does not kill you makes you stronger” when it comes to a “people’s war” against Covid-19. On the U.S. front, there’s scant hope that the gleaming Black “helicopter money” Hawk will crash down for good. The ultimate Black Swan will have the last word.

consortiumnews.com

When OPEC+ agreed to begin cutting crude oil production again in December, hardly anyone in the cartel thought the effect of the news on prices would be as lackluster as it turned out to be. It took some time for the fact to sink in that this time too many traders were worried about the future of oil demand and were reluctant to speculate with oil. Now OPEC is facing another tough year, perhaps even tougher than 2016, and it might just need to reduce production even more to make it work.

“Well, J.P. Morgan said prior to the OPEC meeting early December, that if OPEC didn’t really cut by more than around 1.2 million barrels per day, and they did just for the first half, (not) for the full year, that we could gravitate toward … our low-oil-price scenario, which is $55 Brent for 2019,” the investment bank’s head of oil and gas for the Asia-Pacific told CNBC this week.

“We expect oil markets to remain volatile, in part driven by flexible North American shale production that can ramp up and down quickly in response to changes in investment levels,” ConocoPhillips’ CEO Ryan Lance told Bloomberg, also this week.

North American shale production is, of course, the number-one challenge for OPEC’s plans. Two years ago it was easier: nobody was sure exactly how flexible shale oil production can be so the OPEC cuts worked, helped by a brighter global economic outlook. Now, things are different. Shale production is growing despite the slump in prices and although this may change if prices fall further or stay at current levels for longer, this is far from certain: in the last week of December, after prices have been on the decline for three months, U.S. drillers continued adding rigs.Related: The New Oil Order

Yet it wasn’t just U.S. production that rose last year: Russia’s hit a new record in 2018, at 11.16 million bpd, which made it the second-largest producer after the United States. Saudi Arabia also pumped at a record level of over 11 million bpd in the months that followed the June OPEC+ decision to reverse the cuts to rein in prices. This is the context in which OPEC+ agreed the new cuts, which were 600,000 bpd lower than the ones agreed in 2016. No wonder skepticism is rife.

Some analysts believe that once the cuts enter into effect, which they did at the start of the new year, the effect on prices will come to be felt. But JP Morgan’s Scott Darling may just turn out to be right: yesterday, news that Saudi Arabia had reduced its crude oil exports by half a million barrels daily pushed up prices only briefly before both Brent and West Texas Intermediate faltered and slid down again.

While six months may be enough to reduce the combined output of OPEC and its partners by the agreed 1.2 million bpd, if U.S. production continues to grow at the current rate, it would likely offset this cut completely. True, the amount of crude that is added or leaves the global markets is not the only factor that counts: the type of crude is also important, and U.S. oil is overwhelmingly light crude, while there is also global demand for heavier grades that the Middle East and Russia produce. Yet grades are rarely the top concern of traders when they hear words like “oversupply”. Volatility, as Conoco’s Ryan Lance said, is clearly here to stay and will likely intensify in the coming months. OPEC might just be forced to extend the cuts it agreed in December if a positive effect from this agreement fails to materialize soon.

oilprice.com

In a surprising statement, Qatari energy minister Saad al-Kaabi warned OPEC on Monday December 3 that his country had sent all the necessary documentation to start the country’s withdrawal from the oil organization in January 2019. Al-Kaabi stressed that the decision had nothing to do with recent conflicts with Riyadh but was rather a strategic choice by Doha to focus on the production of LNG, which Qatar, together with the Russian Federation, is one of the largest global exporters of. Despite an annual oil extraction rate of only 1.8% of the total of OPEC countries (about 600,000 barrels a day), Qatar is one of the founding members of the organization and has always had a strong political influence on the governance of the organization. In a global context where international relations are entering a multipolar phase, things like cooperation and development become fundamental; so it should not surprise that Doha has decide to abandon OPEC. OPEC is one of the few unipolar organizations that no longer has a meaningful purpose in 2018, given the new realities governing international relations and the importance of the Russian Federation in the oil market.

Besides that, Saudi Arabia requires the organization to maintain a high level of oil production due to pressure coming from Washington to achieve a very low cost per barrel of oil. The US energy strategy targets Iranian and Russian revenue from oil exports, but it also aims to give the US a speedy economic boost. Trump often talks about the price of oil falling as his personal victory. The US imports about 10 million barrels of oil a day, which is why Trump wrongly believes that a decrease in the cost per barrel could favor a boost to the US economy. The economic reality shows a strong correlation between the price of oil and the financial growth of a country, with low prices of crude oil often synonymous of a slowing down in the economy.

It must be remembered that to keep oil prices low, OPEC countries are required to maintain a high rate of production, doubling the damage to themselves. Firstly, they take less income than expected and, secondly, they deplete their oil reserves to favor the strategy imposed by Saudi Arabia on OPEC to please the White House. It is clearly a strategy that for a country like Qatar (and perhaps Venezuela and Iran in the near future) makes little sense, given the diplomatic and commercial rupture with Riyadh stemming from tensions between the Gulf countries.

In contrast, the OPEC+ organization, which also includes other countries like the Russian Federation, Mexico and Kazakhstan, seems to now to determine oil and its cost per barrel. At the moment, OPEC and Russia have agreed to cut production by 1.2 million barrels per day, contradicting Trump's desire for high oil output.

With this last choice Qatar sends a clear signal to the region and to traditional allies, moving to the side of OPEC+ and bringing its interests closer in line with those of the Russian Federation and its all-encompassing oil and gas strategy, two sectors in which Qatar and Russia dominate market share.

In addition, Russia and Qatar’s global strategy also brings together and includes partners like Turkey (a future energy hub connecting east and west as well as north and south) and Venezuela. In this sense, the meeting between Maduro and Erdogan seems to be a prelude to further reorganization of OPEC and its members.

The declining leadership role of Saudi Arabia in the oil and financial market goes hand in hand with the increase of power that countries like Qatar and Russia in the energy sectors are enjoying. The realignment of energy and finance signals the evident decline of the Israel-US-Saudi Arabia partnership. Not a day goes by without corruption scandals in Israel, accusations against the Saudis over Khashoggi or Yemen, and Trump's unsuccessful strategies in the commercial, financial or energy arenas. The path this doomed

trio is taking will only procure less influence and power, isolating them more and more from their opponents and even historical allies.

Moscow, Beijing and New Delhi, the Eurasian powerhouses, seem to have every intention, as seen at the trilateral summit in Buenos Aires, of developing the ideal multipolar frameworks to avoid continued US dominance of the oil market through shale revenues or submissive allies as Saudi Arabia, even though the latest spike in production is a clear signal from Riyadh to the USA. In this sense, Qatar's decision to abandon OPEC and start a complex and historical discussion with Moscow on LNG in the format of an enlarged OPEC marks the definitive decline of Saudi Arabia as a global energy power, to be replaced by Moscow and Doha as the main players in the energy market.

Qatar’s decision is, officially speaking, unconnected to the feud triggered by Saudi Arabia against the small emirate. However, it is evident that a host of factors has led to this historic decision. The unsuccessful military campaign in Yemen has weakened Saudi Arabia on all fronts, especially militarily and economically. The self-inflicted fall in the price of oil is rapidly consuming Saudi currency reserves, now at a new low of less than 500 billion dollars. Events related to Mohammad bin Salman (MBS) have de-legitimized the role of Riyadh in the world as a reliable diplomatic interlocutor. The internal and external repression by the Kingdom has provoked NGOs and governments like Canada's to issue public rebukes that have done little to help MBS’s precarious position.

In Syria, the victory of Damascus and her allies has consolidated the role of Moscow in the region, increased Iranian influence, and brought Turkey and Qatar to the multipolar side, with Tehran and Moscow now the main players in the Middle East. In terms of military dominance, there has been a clear regional shift from Washington to Moscow; and from an energy perspective, Doha and Moscow are turning out to be the winners, with Riyadh once again on the losing side.

As long as the Saudi royal family continues to please Donald Trump, who is prone to catering to Israeli interests in the region, the situation of the Kingdom will only get worse. The latest agreement on oil production between Moscow and Riyad signals that someone in the Saudi royal family has probably figured this out.

Countries like Turkey, India, China, Russia and Iran understand the advantages of belonging to a multipolar world, thereby providing a collective geopolitical ballast that is mutually beneficial. The energy alignment between Qatar and the Russian Federation seems to support this general direction, a sort of G2 of LNG gas that will only strengthen the position of Moscow on the global chessboard, while guaranteeing a formidable military umbrella for Doha in case of a further worsening of relations between Saudi Arabia and Qatar.

Photo: Flickr

History may have registered stranger geoeconomic bedfellows. But in the current OPEC-plus world, the rules of the game are now de facto controlled by OPEC powerhouse Saudi Arabia in concert with non-OPEC Russia.

Russia may even join OPEC as an associate member. There’s a key clause in the bilateral Riyadh-Moscow agreement stipulating that joint interventions to raise or lower oil production now are the new norm.

Some major OPEC members are not exactly pleased. At the recent meeting in Vienna, three member states – Iran, Iraq and Venezuela – tried, but did not manage to veto the drive for increased production. Venezuela’s production is actually declining. Iran, facing a tacit US declaration of economic war, is hard-pressed to increase production. And Iraq’s will need time to boost output.

Goldman Sachs insists: “The oil market remains in deficit… requiring higher core OPEC and Russia production to avoid a stock-out by year-end.” Goldman Sachs expects production by OPEC and Russia to rise by 1.3 million barrels a day by the end of 2019. Persian Gulf traders have told Asia Times that’s unrealistic: “Goldman Sachs does not have the figures to assert the capability of Russia and Saudi Arabia to produce so much oil. At most, that would be a million barrels a day. And it is doubtful Russia will seek to damage Iran even if they had the capacity.”

In theory, Russia and Iran, both under US sanctions, coordinate their energy policy. Both are interested in countering the US shale industry. Top energy analysts consider that only with oil at $100 a barrel will fracking become highly profitable. And oil and gas generated via fracked in the US is a short-term thing; it will largely be exhausted in 15 years. Moreover, the real story may be that shale oil is, in the end, nothing but a Ponzi scheme.

Those were the days when the Obama administration ordered Riyadh to unleash a de facto oil-price war to hurt both Russia and Iran. Yet the game drastically changes when Venezuela loses a million barrels a day in production and Iran, under upcoming sanctions, may lose another million.

As Asia Times has reported, OPEC (plus Russia) can at best increase their production by 1 million barrels a day. And that would take time because, as Persian Gulf traders said: “800,000 barrels a day of their cutback is due to depletion that cannot be restored.”

Oil producers don’t want high prices

Most oil-producing nations don’t want high oil prices. When that happens, demand goes down, and the dreaded competition – in the form of electric vehicles – gets a major boost.

That explains in part why Riyadh prevailed in the price-capping war in Vienna. Saudi Arabia is the only producer with some spare capacity; the real numbers are a source of endless debate in energy circles. US-sanctioned Iran, for its part, is in acute need of extra energy income and had to be against it.

The bottom line is that despite the agreement in Vienna, the price of oil, in the short-term, is bound to go up. Analyses by BNP Paribas, among others, are adamant that supply problems with Venezuela and Libya, plus the proverbial “uncertainty” about the sanctions on Iran, lead to “oil fundamentals still…favorable for oil prices to rise over the next six months despite the OPEC+ decision.”

Iran’s Petroleum Minister Bijan Zanganeh has done his best to downplay how much oil will really be back on the market. In tandem with Persian Gulf traders, he certainly knows that can’t be more than 1 million barrels a day, and that such an output boost will take time.

Considering that in realpolitik terms Riyadh simply is not allowed any “decision” in oil policy without clearing it first with the US, what remains to be seen is how Washington will react to the new, long-term Riyadh-Moscow entente cordiale. As far as oil geopolitics goes, this is in fact the major game-changer.

Business as usual

The Big Unknown is how the US economic war on Iran’s oil exports will play out.

Iran’s Zanganeh has been quite realistic; he does not expect buyers to get any sanctions waivers from Washington. Total and Royal Dutch Shell have already stopped buying.

Iran’s top oil customers are, in order: China, India, South Korea and Turkey.

India will buy Iranian oil with rupees. China also will be totally impervious to the Trump administration’s command. Sinopec, for instance, badly needs Iranian oil for new refineries in assorted Chinese provinces, and won’t stop buying.

Turkey’s Economy Minister Nihat Zeybekci has been blunt: “The decisions taken by the United States on this issue are not binding for us.” He added that: “We recognize no other [country’s] interests other than our own.” Iran is Turkey’s number-one oil supplier, accounting for almost 50% of total imports.

And Iraq won’t abandon strategic energy cooperation with Iran. Supply chains rule; Baghdad sends oil from Kirkuk to a refinery in Kermanshah in Iran, and gets refined Iranian oil for southern Iraq.

Russia won’t back down from its intention to invest $50 billion in Iran’s energy infrastructure.

Japan and South Korea are lobbying heavily to get waivers. According to South Korea’s Energy Ministry: “We are in the same position as Japan. We are in talks with the United States and will keep negotiating to get an exemption”.

In a less Hobbesian world, the EU-3 (France, UK and Germany), plus China and Russia – which all negotiated the Iran nuclear deal, known as the Joint Comprehensive Plan of Action or JCPOA, along with Japan and South Korea, would be telling the US the Trump administration’s unilateral economic war against Iran is, in fact, a violation of a UN-endorsed treaty, totally disregarding nations that have pledged to protect the JCPOA. In the real world though, that’s not going to happen.

It’s all about energy

Once again, the action to watch will be at the Shanghai Energy Stock Exchange. Petro-yuan contracts started trading in late March. By May, they were already covering 12% of the global market. The price of a barrel of oil, in yuan, has oscillated between Brent and West Texas Intermediate (WTI).

China is going no holds barred, betting simultaneously on Saudi Arabia and Iran. China Investment Corp. may well buy 5% of Aramco, at roughly $100 billion. In parallel, China started paying for Iranian oil in yuan in 2012. If the Europeans buckle up, as top Iranian analysts expect, the volume of energy business with China may soon reach $40 billion a year.

Iran is firmly linked to the petro-yuan. Iran now may rely on a fleet of supertankers, properly insured, to export its own oil. The Iranian calculation is that Washington’s economic war will spur higher oil prices. So, even if Iran’s exports are bound to suffer, energy income may not be affected.

Shaded by all these dramatic eruptions, we find some startling data. Iran – and Russia – may sit on an astonishing $45 trillion worth in oil and gas reserves. US fracking is largely a myth. Saudi Arabia may have at best 20 years of oil supply left. It’s all about energy – all the time.

The usual suspects will hardly sit back and relax while endlessly demonized Russia, just like Norway, builds a solid middle class through oil revenue and massive current account surpluses. Alarm bells are about to sound, to the tune of “Putin has taken over OPEC”. In fact, it was Putin who convinced Mohammad bin Salman (MBS) they should fight the US shale offensive together.

The OPEC-plus-Iran puzzle is far from solved. Only one thing is certain; the future spells out brutal, covert resource wars.

atimes.com