Oil and the specter of revolution

rian.ru



The uprisings in the Middle East and North Africa have caused prices surges in global commodity markets. Now the revolt in oil-rich Libya has brought oil prices to a level unseen since 2008.

The IMF has already revised its forecast of the average price per barrel of oil from $89.5 up to $94.75. Widespread unease and speculation are what's driving oil prices up for now. But if the riots spill over from North Africa to the Arabian Peninsula, there could be a physical shortage of oil in the world economy, sending prices as high as $150 per barrel.

Specter of revolution

The price of oil continues to rise. April futures on WTI oil have gone up $0.15 to reach $97.43 per barrel (as of 8:58 a.m. Moscow time). The price of April futures for North Sea Brent Crude has gone up by $1.29 to reach $112.65 per barrel.

Fears that the popular revolts in the Middle East could push up prices on hydrocarbons began to surface immediately after protests began in Egypt. While not a major oil-producing country, Egypt controls the Suez Canal, one of the world's key shipping routes.

The threat of shipping disruptions on the canal was enough to drive up March futures for WTI and Brent by 0.31% and 0.76% respectively in early February. But the prices subsided before long, as shipping through the Suez Canal continued seamlessly and Egypt appeared not to be the beginning of a domino effect that could destroy or at least shake up other regimes in the region. But this is exactly what happened. First the regime fell in Tunisia, then Egypt; now oil-rich Libya is in the grips of a bloody revolt. And the specter of revolution (albeit very faint) is already hovering over Iran and Saudi Arabia.

Gaddafi doubles down

The instability in Libya has contributed greatly to the soaring oil prices. The market was sent into a panic when Libyan strongman Muammar Gaddafi vowed to sabotage oil and gas pipelines and oil refineries in the country. In the several days since, the price of major oil brands has gone up by about 7%. Analysts are predicting that the price of oil could reach $120 per barrel as early as March.

For the time being, the price increases are the result of speculators sowing panic on markets. It is unclear how much Libya has actually reduced oil production. Some experts claim the production has declined by about 400-500 barrels per day, while others think it's double that amount. Regardless, Libya only produces about 1.6 million barrels of oil per day, or roughly 2% of global output.

If oil production falls by about one third in Libya, global output will go down by about 0.6%. Moreover, OPEC has already promised to increase production to offset the shortage from Libya, and the cartel, with its vast resources, will have no trouble making good on this promise. In other words, there is no threat of a physical shortage of oil, nor of a realignment in the oil market.

Real trouble will begin only if the chain reaction of revolt reaches the oil-rich countries of the Arabian Peninsula, primarily Saudi Arabia, which accounts for 10% of the world's oil. If oil production was to be disrupted in Saudi Arabia, this would deal a serious - though far from fatal - blow to the world economy.

A lose-lose situation

Oil prices are determined by a host of other factors, for instance, global and U.S. economic growth, and the level of oil reserves in America. Gaddafi's threat to destroy his own oil infrastructure happened to coincide with the news last week that oil reserves in the United States grew three times slower than projected, on top of an overall decline in oil reserves of late. On the other hand, forecasts of U.S. economic growth have become more optimistic.

True, we may have to revise down these sunny forecasts very soon, at least if the trend of sharply rising oil prices continues. Economic growth has always depended greatly on oil prices. For the time being, experts do not see a direct threat to the global economy, but let's not forget that speculation-fueled spikes in fuel prices in 2007-2008 was a direct cause of the global economic downturn.

As Prime Minister Vladimir Putin noted at a news conference in Brussels yesterday (http://www.rian.ru/economy/20110224/338310436.html), the Russian economy would not benefit from the further growth of prices on hydrocarbons: "We realize that if global economic growth slows down, this will have a negative impact on our economy as well."

True, higher prices on hydrocarbons will increase Russia's export revenues. But oil is less a blessing for our country than "the devil's excrement," as Juan Pablo Perez Alfonso, one of the founders of OPEC, called it. The discovery of deposits in Western Siberia and steadily rising oil prices in the early 1970s lulled the U.S.S.R. into abandoning much-needed economic reforms.

Today, the fuel and energy sector is both the engine of the Russia economy and its anchor. Russia's abundance of oil has allowed the government to carry out social programs. It has helped finance Russia's recovery from the economic crisis, and much, much more. But Russia's oil-based economy is one of the main causes of its technological backwardness, the enormous disparity between rich and poor, and corruption.

There is also a factor of addition. Just as a sick person gets addicted to medicine, our raw materials-based economy becomes addicted to high oil prices. Even if oil prices reach pre-crisis levels, we still won't be able to patch the hole in the budget and achieve pre-crisis economic growth rates.

23:42 25/02/2011

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Bahamas Blog International

New report confirms importance of offshore centres to world economy

LONDON, England -- The positive role that offshore financial centres play in supporting growth around the world is highlighted in a new report, International Finance Centers and the World Economy, published today. The report was commissioned by the Society of Trust and Estate Practitioners (STEP) from prominent US economist Professor James R Hines Jr of the University of Michigan and NBER.

Ahead of this weekend’s G20 Finance Ministers’ meeting the report gives a strong indication of the key role well regulated offshore centres now play in the global economy by providing capital to support business activity in neighbouring economies.

The report finds strong evidence from a range of sources that offshore centres play a vital role in the international financial system, improving the availability of credit and encouraging competition in domestic banking systems. The result is a boost in investment in the major economies which ultimately supports job creation and growth.

Professor Hines commented that: “The evidence indicates that offshore centres contribute to financial development and stability in neighbouring countries, encouraging investment, employment, and other aspects of business development. They have salutary effects on tax competition, promote good government, and enhance economic growth elsewhere in the world.”

Chief Executive of STEP Worldwide David Harvey welcomed the report saying: “This report provides further robust evidence of the positive role offshore centres play in the world economy. Post credit-crunch we must ensure capital keeps flowing and Professor Hines’ report demonstrates by every measure credit is more freely available in countries which have close relationships with offshore centres”.

Last week the Foot Review of British offshore financial centres found that they provided net financing to the British banking system of $332.5 billion in the second quarter of 2009.

November 5, 2009

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Bahamas Caribbean Blog International

The bells are tolling for the dollar

Reflections of Fidel

(Taken from CubaDebate)

THE Empire dominated the world more through the economy and lies than by force. It obtained the privilege of printing convertible currency at the end of World War II; it had a monopoly of nuclear weapons; it had virtually all the gold in the world; and was the only large-scale producer of productive equipment, consumer goods, food and services at global level. However, it did have a limit on printing paper money: the backing of gold, at the constant price of $35 per troy ounce. That was the case for more than 25 years until, on August 15, 1971, via a presidential order from Richard Nixon, the United States unilaterally broke that international commitment by defrauding the world. I shall insist on repeating that. In that way it launched on the world economy its rearmament costs and military adventures – in particular the Vietnam war – which, in line with conservative calculations, cost no less than $200 billion and the lives of more than 45,000 young Americans.

More bombs were dropped on this little Third World country than all of those used in the last world war. Millions of people died or were mutilated. When the conversion rate was suspended, the dollar became a currency that could be printed at the will of the U.S. government without the backing of a constant value.

Treasury bonds and bills continued to circulate as convertible currency; state reserves continued nourishing themselves on those bills which, on the one hand, served to acquire raw materials, properties, goods and services from every part of the world and, on the other, privileged U.S. exports in the face of other economies of the planet. Time and time again, politicians and academics refer to the real cost of that suicidal war, admirably described in the film by Oliver Stone. People tend to make calculations as if the millions were the same. They do not usually take note of the fact that the millions of dollars of 1971 are not the same as the millions of 2009.

One million dollars today, when gold – a metal whose value has been the most stable throughout the centuries – has a price in excess of $1,000 per troy ounce, is worth approximately 30 times what it was worth when Nixon suspended the conversion rate. In 2009, $6 trillion is equivalent to $200 billion in 1971. If this is not taken into consideration, the new generations will have no idea of imperialist barbarism.

In the same way, when one speaks of the $20 billion invested in Europe at the end of World War II – in virtue of the Marshall Plan for reconstructing and controlling the principal European powers that had the necessary workforce and technical culture for the rapid development of goods and services – people usually ignore the fact that the real value of what was invested at that time by the empire is equivalent to a current value of $600 billion. They do not note that today, $20 billion would barely stretch to building three large oil refineries capable of supplying 800,000 barrels of gasoline per day, in addition to other oil derivatives.

The consumer societies, the absurd and capricious waste of energy and natural resources that are currently threatening the survival of the species, would not be explicable in such a brief historical period if one is unaware of the irresponsible manner in which developed capitalism, in its superior phase, has ruled the destinies of the world.

That astounding waste explains why the two most industrialized countries of the world, the United States and Japan, are indebted to approximately $20 trillion.

Of course the U.S. economy has an annual gross domestic product of $15 trillion. The crises of capitalism are cyclical, as the history of the system irrefutably demonstrates, but this time it is about something more: a structural crisis, as Professor Jorge Giordani, Venezuelan minister of planning and development, explained to Walter Martínez in the latter’s Telesur program last night.

News agency reports circulated today, Friday October 9, add irrefutable data. An AFP cable from Washington notes that the budget deficit of the United States in the fiscal year 2009 is rising to $1.4 trillion, 9.9% of the GDP, "something unseen since 1945, at the end of World War II," it adds.

The deficit in 2007 was one third of that figure. High deficit figures are expected for the years 20010, 2011 and 2012. That huge deficit is fundamentally determined by the U.S. Congress, to save that country’s major banks, to prevent unemployment rising above 10% and to pull the United States out of recession. It is logical that if they flood the nation with dollars, the large commercial chains will sell more merchandise, industries will increase production, fewer citizens will lose their homes, the unemployment tide will stop rising, and Wall Street shares will increase in value. However, the world can no longer return to what it was. The economist Paul Krugman, an eminent Nobel Prize winner, has just affirmed that international trade has suffered its greatest fall, worse than that of the Great Depression, and has expressed doubts on its recovery in the short term.

Nor can the world be inundated with dollars and think that those bills without backing in gold will maintain their value. Other economies, today more solid, have emerged. The dollar is no longer the hard currency reserve of all states; on the contrary, its holders wish to move away from that currency, while as far as possible avoiding its devaluation before they can get rid of it.

The European Union euro, the Chinese yuan, the Swiss franc, the Japanese yen – despite that country’s debts – even the pound sterling, together with other hard currencies, have moved to take the place of the dollar in international trade. Gold metal is once again becoming an important international reserve currency.

This is not a capricious personal opinion, nor do I wish to slander that currency.

Another Nobel Prize winner in economy, Joseph Stiglitz, commented, according to one news agency, that the most likely thing is that the green bill will continue its decline. He stated this on October 6 at the IMF World Bank Joint Annual Meeting in Istanbul. Violent repression could be noted in that city. The event was greeted with broken windows in the commercial sector and fires from Molotov cocktails.

Other agencies talked of the fact that the European countries are fearful of the negative effect of the weakness of the dollar compared to the euro and the consequences of that on European exports. The U.S. treasury secretary stated that his country "was interested in a strong dollar." Stiglitz made fun of an official statement and stated, according to EFE: "In the case of the United States money has been squandered and the reason has been the multimillion rescue of the banks and defraying the cost of wars like that of Afghanistan." EFE reported that the Nobel Prize winner "insisted that instead of investing $700 billion to help bankers, the United States should have directed part of that money into helping the developing countries which, at the same time, would have stimulated global demand."

Robert Zoellick, president of the World Bank, raised the alarm a few days earlier, warning that the dollar could not maintain its status as a reserve currency indefinitely.

Kenneth Rogoff, an eminent professor of economics at Harvard, stated that the next major financial crisis will be that of "public deficits."

The World Bank declared that "the International Monetary Fund has demonstrated that the central banks of the world accumulated fewer dollars during the second half of 2009 than at any other point in the last 10 years and increased their euro holdings."

That very same October 6, AFP reported that gold reached the record figure of $1,045 per ounce, prompted by the weakening of the dollar and fears of inflation.

The Independent newspaper of London published that a group of oil producing countries were studying the possibility of replacing the dollar in commercial transactions with a basket of currencies including the yen, the yuan, the euro, gold and a new unified currency.

The news leaked or deduced with impressive logic was refuted by some of the countries presumably interested in that protection measure. They do not want it [the dollar] to collapse, but neither do they want to continue accumulating a currency that has lost its value thirty-fold in less than 30 years.

I must mention a cable from the EFE agency, which cannot be accused of being anti-imperialist and which, in the current circumstances, includes opinions of particular interest:

"Experts in economy and finance were in agreement today in New York in affirming that the worst crisis since the Great Depression has resulted in this country playing a less significant role in the world economy."

"The recession has led to the world changing its way of looking at the United States. Our country is now less significant than before and that is something that we have to recognize," affirmed David Rubenstein, president and founder of the Carlyle Group, the largest risk capital company in the world, addressing the World Business Forum."

"The financial world is going to be less centered in the United States… New York is never again going to be the world financial capital and that role will be shared with London, Shanghai, Dubai, Sao Paulo and other cities," he noted.

"…sort out the problems that the U.S. will confront when it comes out of the ‘great recession,’ which will probably go another month or two."

"…’enormous public debt, inflation, unemployment, loss in value of the dollar as a reserve currency, energy prices…"

"The government must reduce public spending in order to confront the debt problem and do something that it doesn’t much like: increase taxes."

"Jeffrey Sachs, an economist at the University of Columbia and UN special adviser, agreed with Rubenstein that the economic and financial predominance of the U.S. ‘is fading.’"

"We have left a system centered in the U.S. for a multilateral one…"

"…’20 years of irresponsibility by the first part of the Bill Clinton administration and then that of George W. Bush,’ yielded to the pressures of Wall Street…"

"…the banks negotiated with ‘toxic assets2 to obtain easy money,’ Sachs explained."

"’The important thing now is to recognize the unprecedented challenge that supposes achieving sustainable economic development in line with the basic physical and biological rules of this planet’…"

On the other hand, the direct news from our delegation in Bangkok, capital of Thailand, was not at all encouraging:

"The essential issue being discussed – our minister of foreign affairs noted textually – is the ratification or not of the concept of shared but differentiated responsibilities between the industrialized countries and the so-called emerging economies, basically China, Brazil, India and South Africa, and the underdeveloped countries.

"China, Brazil, India, South Africa, Egypt, Bangladesh, Pakistan and the ALBA are the most active. In general terms, the majority of the Group of 77, are holding to firm and correct positions.

"Figures being negotiated for the reduction of carbon emissions do not correspond to those calculated by scientists for keeping temperature increases to a level below 2 degrees Celsius, 25-40%. At this point, negotiations are moving around a reduction of 11-18%.

"The United States is not making any real effort. It is only accepting a 4% reduction in relation to the year 1990."

In the morning of today, October 9, the world awoke to the news that the "good Obama" of the enigma explained by the Bolivarian President Hugo Chávez at the United Nations, has received the Nobel Peace prize. I do not always agree with the positions of that institution but I am obliged to acknowledge at this moment in time, that – in my view – it was a positive measure. It compensates for the setback that Obama suffered in Copenhagen when Rio de Janeiro and not Chicago was chosen as the venue for the 2016 Olympics, which prompted irate attacks from the extreme right.

Many people will say that he has not as yet won the right to receive such a distinction. We would like to see in the decision, more than a prize to the president of the United States, a criticism of the genocidal policy followed by more than a few presidents of that country, who have brought the world to the crossroads where it finds itself today; an exhortation to peace, and the search for solutions that will lead to the survival of the species.



Fidel Castro Ruz
October 9, 2009
6.11 p.m.

Translated by Granma International

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Pittsburgh and the Margarita Summit

Reflections of Fidel

(Taken from CubaDebate)

THE Leaders’ Statement of the G-20 Summit in Pittsburgh on Friday, September 25, would appear to be unreal. Let us look at the principal points of its content:

"We meet in the midst of a critical transition from crisis to recovery to turn the page on an era of irresponsibility and to adopt a set of policies, regulations and reforms to meet the needs of the 21st century global economy."

"We pledge today to sustain our strong policy response until a durable recovery is secured."

"…we pledge to adopt the policies needed to lay the foundation for strong, sustained and balanced growth in the 21st century."

"We want growth without cycles of boom and bust and markets that foster responsibility not recklessness."

"…we act together to generate strong, sustainable and balanced global growth. We need a durable recovery that creates the good jobs our people need."

"We need to establish a pattern of growth across countries that is more sustainable and balanced, and reduce development imbalances."

"We pledge to avoid destabilizing booms and busts in asset and credit prices."

"…we will also make decisive progress on structural reforms that foster private demand and strengthen long-run growth potential."

"Where reckless behavior and a lack of responsibility led to crisis, we will not allow a return to banking as usual."

"We are committed to act together to raise capital standards, to implement strong international compensation standards aimed at ending practices that lead to excessive risk-taking…"

"We designated the G-20 to be the premier forum for our international economic cooperation."

"We are committed to a shift in International Monetary Fund (IMF) quota share to dynamic emerging markets and developing countries of at least 5%."

"Sustained economic development is essential in order to reduce poverty."

The G-20 is made up of the seven most industrialized and richest countries:

United States, Canada, Germany, Britain, France, Italy and Japan, plus Russia; the 11 principal emerging countries: China, India, South Korea, Indonesia, South Africa, Brazil, Argentina, Australia, Saudi Arabia, Turkey, Mexico and the European Union, a number of which have excellent economic and political relations with us. Spain and Holland have participated as guests in the last three Summits.

The idea of capitalist development without crises is the grand illusion that the United States and its allies are trying to sell to the emerging economy countries participating in the G-20.

Almost the totality of the Third World countries that are not allies of the United States are observing how this nation prints paper money which circulates throughout the planet as convertible currency without gold backing, buys shares and companies, natural resources, goods and real estate assets and public debt bonds, protects its products, dispossesses nations of their finest brains and confers an extraterritorial nature on its laws. This is in addition to the overwhelming power of its arms and its monopoly of the fundamental means of information.

Consumer societies are incompatible with the conservation of natural and energy resources that the development and the preservation of our species require.

In a brief historical period and thanks to its Revolution, China ceased being a semicolonial and semifeudal country, grew at the rate of more than 10% over the past 20 years and has become the principal driving force of the world economy. Never has a huge multinational state achieved similar growth. It now possesses the highest reserves of convertible currency and is the largest creditor of the United States.

The difference is abysmal in relation to the most developed capitalist countries of the world: the United States and Japan. The debts of both nations, in their turn, accumulate the sum of $20 trillion.

The United States can no longer constitute a model of economic development.

Starting from the fact that in recent years the planet’s temperature has increased by 0.8 degrees Celsius, on the same day as the Pittsburgh Summit ended, the top U.S. news agency reported that "Earth's temperature is likely to jump nearly 3 degrees Celsius between now and the end of the century, even if every country cuts greenhouse gas emissions as proposed, according to a United Nations update."

"Scientists looked at emission plans from 192 nations and calculated what would happen to global warming. The projections take into account 80 percent pollution cuts from the U.S. and Europe by 2050, which are not sure things."

"Carbon dioxide, mostly from the burning of fossil fuels such as coal and oil, is the main cause of global warming, trapping the sun's energy in the atmosphere. The world's average temperature has already risen 1.4 degrees (0.8 degrees Celsius)," it reiterates. "Much of projected rise in temperature is because of developing nations, which aren't talking much about cutting their emissions, scientists said at a United Nations press conference Thursday."

"‘We are headed toward very serious changes in our planet,’ said Achim Steiner, head of the U.N.'s environment program."

"Even if the developed world cuts its emissions by 80 percent and the developing world cuts theirs in half by 2050…the world is still facing a 3-degree (1.7 degree Celsius) said Robert Corell, a prominent U.S. climate scientist who helped oversee the update."

"…still translates into a nearly 5 degree (2.7 degree Celsius) increase in world temperature by the end of the century. European leaders and the Obama White House have set a goal to limit warming to just a couple degrees."

What they have not explained is how they are going to reach that objective, nor the GDP contribution to invest in poor countries and compensate for the damage occasioned by the volume of contaminating gases that the most industrialized nations have discharged into the atmosphere. World public opinion must acquire a solid culture on climate change. Even if there isn’t the slightest error of calculation, humanity will be marching to the edge of the abyss.

When Obama was meeting in Pittsburgh with his G-20 guests to talk about the delights of Capua, the Summit of the Heads of State of UNASUR and the Organization of African Unity [African Union] was beginning on the Venezuelan Isla Margarita. More than 60 presidents, prime ministers and high-ranking representatives of South American and Africa met there. Also present were Lula, Cristina Fernández and President Jacob Zuma of South Africa, who had arrived from Pittsburgh to enjoy a warmer and more fraternal summit, during which the problems of the Third World were covered with much frankness. The president of the Bolivarian Republic of Venezuela, Hugo Rafael Chávez, was brilliant and vibrant in that Summit. I had the agreeable possibility of listening to the voices of known and proven friends.

Cuba is grateful for the support and solidarity that emerged from that Summit, where nothing was left in oblivion.

Whatever happens, the peoples will become constantly more aware of their rights and their duties!

What a great battle will be waged in Copenhagen!


Fidel Castro Ruz
September 27, 2009
6.14 p.m.

Translated by Granma International

- Reflections oF Fidel

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