Staunton, August 11 – Up to now, Ukraine has made “a serious error” by trying to negotiate with Russia about the Donbas, Bogdan Yeremenko [former Ukrainian diplomat] says. What it should be doing is devoting all its efforts to isolating Russia internationally. That will have far more impact on Moscow’s behavior than any talks Ukraine might have with it……
Up to now, Russia has acted more effectively than Ukraine by “imposing its will and taking the initiative both on the battlefield and at the negotiating table.” Ukraine in contrast “has held fast to a disastrous strategy responding with diplomacy to armed aggression and reducing the opportunities of its own Armed Forces.”
“…..Diplomatic efforts ought to be concentrated not on talks with Russia but on the creation for it of an uncomfortable foreign policy environment and the resolution of practical issues of securing the defense capacity of the country.”
…..“These wealthy oligarchs all come to London because it’s a really good place to put your money,” Simon Farrell QC, a British attorney who specializes in corporate crime and money laundering, told The Daily Beast. “It’s a fantastic place to hold property because it’s a secure democracy where the rule of law is taken seriously, where the judiciary is not corrupt and where you can trust the legal profession. In many parts of the world the super-rich can’t be sure that their assets will be safe.”
Indeed, London has now earned the unflattering designation of the world’s No. 1 money-laundering capital, with an estimated $1 billion pouring in each month…..A stunning £122 billion in real estate in England and Wales is held be companies registered outside England and Wales, according to Global Witness….
Long-term June 2017 Nymex Light Crude futures (CLM2017) broke support at $60/barrel, offering a target of $54/barrel*.
* Target calculation: 60 – ( 66 – 60 ) = 54
In the short-term, September 2015 futures (CLU15) are testing support at their March low of $50/barrel. Breach is likely, given the long-term down-trend, and would offer a target of $40/barrel*.
* Target calculation: 50 – ( 60 – 50 ) = 40
Declining prices will hurt the Energy sector in the short/medium-term, but the benefit to the broader economy will outweigh this in the longer term. Lower fuel prices will especially benefit the Transport sector. Highly industrialized exporters like Germany, Japan, China and the broader EU, will also benefit. While oil exporters like Russia, Iran, the Middle East, Nigeria, Angola, Venezuela, and to a lesser extent Norway, face hard times ahead.
….War is politics by other means and the Kremlin’s goals in Donbas are ultimately political.
Vladimir Putin may have once dreamed of seizing all of what his propagandists call Novorossia — the strip of land from Kharkiv to Odesa — and establishing a land bridge to Crimea.
But that’s off the table now and he is clearly not interested in annexing the war-ravaged and economically devastated enclaves his separatists currently hold.
“The Kremlin, for its part, is losing interest in the armed conflict it helped create: It wants to move on from military interference in Ukraine to quieter political destabilization,” political commentator Leonid Bershidsky wrote in Bloomberg View.
….If you want to see Ukraine’s future under this scenario, just look at Bosnia.
“Why do our “best and brightest” fail when faced with a man like Putin?” Ralph Peters asks. “Or with charismatic fanatics? Or Iranian negotiators? Why do they misread our enemies so consistently, from Hitler and Stalin to Abu Bakr al-Baghdadi, the Islamic State’s self-proclaimed caliph?”
The answer is straightforward:
Social insularity: Our leaders know fellow insiders around the world; our enemies know everyone else.
The mandarin’s distaste for physicality: We are led through blood-smeared times by those who’ve never suffered a bloody nose.
And last but not least, bad educations in our very best schools: Our leadership has been educated in chaste political theory, while our enemies know, firsthand, the stuff of life.
Above all, there is arrogance based upon privilege. For revolving-door leaders in the U.S. and Europe, if you didn’t go to the right prep school and elite university, you couldn’t possibly be capable of comprehending, let alone changing, the world…….
That educational insularity is corrosive and potentially catastrophic: Our “best” universities prepare students to sustain the current system, instilling vague hopes of managing petty reforms.
But dramatic, revolutionary change in geopolitics never comes from insiders. It’s the outsiders who change the world.
An Athenian general once wrote:
The state that separates its scholars from its warriors will have its laws made by cowards, and its fighting done by fools.
The simplest argument for the oil price decline is for once correct. A wave of new U.S. fracking oil could be seen to be overtaking the modestly growing global oil demand.
It became clear that OPEC, mainly Saudi Arabia, must cut back production if the price were to stay around $100 a barrel, which many, including me, believe is necessary to justify continued heavy spending to find traditional oil.
The Saudis declined to pull back their production and the oil market entered into glut mode, in which storage is full and production continues above demand.
Under glut conditions, oil (and natural gas) is uniquely sensitive to declines toward marginal cost (ignoring sunk costs), which can approach a few dollars a barrel – the cost of just pumping the oil.
Oil demand is notoriously insensitive to price in the short term but cumulatively and substantially sensitive as a few years pass.
The Saudis are obviously expecting that these low prices will turn off U.S. fracking, and I’m sure they are right. Almost no new drilling programs will be initiated at current prices except by the financially desperate and the irrationally impatient, and in three years over 80% of all production from current wells will be gone!
Thus, in a few months (six to nine?) I believe oil supply is likely to drop to a new equilibrium, probably in the $30 to $50 per barrel range.
For the following few years, U.S. fracking costs will determine the global oil balance. At each level, as prices rise more, fracking production will gear up. U.S. fracking is unique in oil industry history in the speed with which it can turn on and off.
In five to eight years, depending on global GDP growth and how quickly prices recover, U.S. fracking production will start to peak out and the full cost of an incremental barrel of traditional oil will become, once again, the main input into price. This is believed to be about $80 today and rising. In five to eight years it is likely to be $100 to $150 in my opinion.
U.S. fracking reserves that are available up to $120 a barrel are probably only equal to about one year of current global demand. This is absolutely not another Saudi Arabia.
Saudi Arabia has probably made the wrong decision for two reasons:
First, unintended consequences: a price decline of this magnitude has generated a real increase in global risk. For example, an oil producing country under extreme financial pressure may make some rash move. Oil company bankruptcy might also destabilize the financial world. Perversely, the Saudis particularly value stability.
Second, the Saudis could probably have absorbed all U.S. fracking increases in output (from today’s four million barrels a day to seven or eight) and never have been worse off than producing half of their current production for twice the current price … not a bad deal.
Only if U.S. fracking reserves are cheaper to produce and much larger than generally thought would the Saudis be right. It is a possibility, but I believe it is not probable.
The arguments that this is a demand-driven bust do not seem to tally with the data, although longer term the lack of cheap oil will be a real threat if we have not pushed ahead with renewables.
Most likely though, beyond 10 years electric cars and alternative energy will begin to eat into potential oil demand, threatening longer-term oil prices.
Exactly right, though in my view the equilibrium price will be more like $50 than $30 for the next half decade.
Excellent analysis of the situation in Eastern Europe by Bill Browder, founder of London-based Hermitage Capital Management:
I’m afraid that, based on the reasons behind Putin’s motivations for invading Ukraine in the first place, there is no chance that he will back down. To understand this, all it takes is a simple analysis of how this crisis unfolded.
First, Putin didn’t start this war because of NATO enlargement or historical ties to Crimea, as many analysts have stated. Putin started this war out of fear of being overthrown like Ukrainian president Yanukovych in February 2014. Yanukovych had been stealing billions from the state over many years, and the Ukrainian people finally snapped and overthrew him. Compared with Putin, Yanukovych was a junior varsity player in the field of kleptocracy. For every dollar Yanukovych stole, Putin and his cronies probably stole 50. Putin understands that if he loses power in Russia, he and his underlings will lose all the money they stole; he will lose his freedom and possibly even his life.
I believe that Bill is right. Putin was not reacting to EU or NATO encroachment (they were never a threat), but to Maidan. Especially when we read Michael McFaul’s (former ambassador to Russia) summation of Putin: “He is obsessed with the CIA…..With respect Ukraine he believes the US led the coup in the Ukraine. The Ukrainians had nothing to do with it. It was all the CIA.”
….. Putin has never dealt with economic chaos before. Though some may argue that this will bring him to the table to negotiate with the West, in my opinion any negotiation would be seen as a sign of weakness and is therefore the last thing Putin would want to do.
Putin’s only likely response is to escalate in Ukraine and possibly open up new fronts in other countries where there are “Russians to protect.” But doing so will only harden the sanctions, leading to further economic pain in Russia — and further military adventures to distract Russia’s people from that pain.
I cannot imagine a scenario in which there is any compromise, because for Putin compromise means being overthrown. Judging from all of his actions to date, he is ready to destroy his country for his own self-preservation.
We should start preparing ourselves for a war in Europe that may spread well beyond the borders of Ukraine. The only Western response to this has to be containment. This all may sound alarmist, but I’ve spent the past eight years in my own war with Putin, and I have a few insights about him that are worth knowing.
In Putin’s mind, he is fighting for survival. The US/EU/Nato and Ukraine are just a convenient scapegoat. His real enemy is the Russian people. This 1945 image of Benito Mussolini, his mistress Clara Petacci, and three others hanging outside a petrol station in Milan must haunt his dreams.
When they realize they have been duped, the anger of the Russian people will be palpable.
Kyiv Post quotes Markian Lubkivskyi, an adviser to SBU head Valentyn Nailyvaichenko on the rise of terrorism outside of Eastern Ukraine:
“(Terrorists) are aiming to undermine Ukraine from within,” Lubkivskyi told the Kyiv Post, adding that terrorism is one of Russia’s tools in the war against Ukraine. “This is definitely a planned set of linked actions carried out to demoralize people, scare them, spread chaos and create protest moods.”
One of the latest incidents occurred on Jan. 20, when a bridge near the village of Kuznetsivka in Zaporizhzhia Oblast collapsed under a cargo train that was carrying iron ore to Volnovakha in Donetsk Oblast. As a result, 10 cars derailed.
This was the fourth railway explosion over the last two months.
In January, three fuel tanks on a freight train were set on fire at the Shebelynka station in Kharkiv Oblast, and a bomb blew up a freight tank with petrochemicals at the Odesa-Peresyp railway station. On Dec. 24, explosives hidden under the railways hit a train at the Zastava 1 railway station, also based in Odesa.
Odesa has become the main target of attacks in the last two months.
The word terrorism is widely misused. What we are dealing with is state-sponsored terrorism or war by proxy. Without state sponsorship — in the form of training, weapons, logistics and financial support — most terrorist organizations would shrivel up and die. The level of proxy warfare increased hugely since World War II, when direct confrontation between major powers became dangerous because of the advent of nuclear weapons. Instead of direct confrontation these powers resorted to deniable aggression, by proxy, in order to weaken their enemies. The former Soviet Union was a major sponsor of proxy wars, from Korea and Vietnam to support for guerrilla wars elsewhere in Asia, Africa and South America. It appears that Vladimir Putin has adopted a similar strategy and is expanding its use into Eastern Europe.
It is difficult to win a guerrilla war where there are few conventional battles. The lesson from Vietnam is that you can win every battle, but still lose the war. Far better to identify and attack the sponsor through unconventional (asymmetric) means such as sanctions. Make sure that the cost outweighs the benefits of proxy warfare.
When we read the word “terrorism” in popular media, our first question should be: who is the sponsor and how can we make them desist?
Tomorrow is the 100th anniversary of a momentous day during the First World War. By December of 1914 the war had already drawn to a stalemate with huge loss of life on both sides and appalling conditions in the trenches. Many of the dead could not be retrieved and were abandoned in No-Man’s land. The war that was supposed to be over by Christmas stretched interminably ahead.
Temperatures fell below freezing and snow began to fall on some parts of the line. German troops decorated the parapets of their trenches with small conifers, resembling Christmas trees. On Christmas Eve they lit candles and sang carols.
The Germans lit candles and in beautiful harmony sang “Silent night…Holy night.” So moved by their cheer, the British soldiers responded with carols of their own. This goodwill inspired many soldiers on both sides to toss gifts of food over into their enemy trenches. The German side applauded the British singing then the Brits cheered and applauded the Germans. One miracle act of goodness led to another, then another….. [1]
Informal truces were negotiated by officers despite warnings from British High Command that the enemy may be planning an attack.
Some of the more adventurous on both sides left their trenches and exchanged small gifts, swapping chocolate for sauerkraut and sausages.
“What a sight; little groups of Germans and British extending along the length of our front. Out of the darkness we could hear the laughter and see lighted matches. Where they couldn’t talk the language, they made themselves understood by signs, and everyone seemed to be getting on nicely. Here we were laughing and chatting to men whom only a few hours before we were trying to kill ”
~ Corporal John Ferguson of the Seaforth Highlanders.[2]
Christmas Day started with unarmed German and British soldiers collecting their dead from No-Man’s Land.
Fraternization continued throughout Christmas Day and the informal truce extended in some parts of the line until after New Year’s day. Regimental records of the 133rd Saxon Regiment report a football match against the British which the Saxons won 3-2.
Roughly 100,000 British and German troops were involved in the unofficial cessation of hostilities. Similar exchanges were reported between German and French troops. On the Eastern front, an unofficial ceasefire was recorded between Austrian and Russian troops the following Easter.
Overtures in later years were less successful after Allied Command ordered artillery barrages to discourage communication. Attempts at fraternisation with the enemy and negotiation of local truces to collect the dead between the lines faced severe punishment.
Company commander, Sir Iain Colquhoun of the Scots Guards, was court-martialled for defying standing orders to the contrary. While found guilty and reprimanded, the punishment was later annulled by General Haig and Colquhoun remained in his position.[3]
The Christmas truce of 1914 was a triumph of the human spirit over adversity and is a symbol of man’s humanity towards his fellow man. When we recognize that the enemy is not some faceless devil, as some leaders would have us believe, but much like us — with mothers, fathers, brothers, sisters, husbands, wives, sons and daughters — we will find it easier to resolve our differences without waging war.
Scène du film “Joyeux Noël” (Version Française)
Wishing you peace and goodwill over the Christmas season and prosperity in the year ahead.
Thanks to:
[1] http://professortaboo.wordpress.com/tag/1914-christmas-truce/
[2] http://www.historylearningsite.co.uk/christmas_1914_and_world_wa.htm
[3] http://en.wikipedia.org/wiki/Christmas_truce
“The current fall in price does nothing to offset the squeeze on the total economy from rising costs,” Grantham writes. “It merely transfers massive amounts of income from one subgroup (oil producers) to another (oil consumers), in a largely zero-sum game….”[Business Insider]
The above quote from Jeremy Grantham made me do a double-take. His “largely zero-sum game” refers to the global playing field. Oil producers such as the Saudis, Russia, Venezuela, Nigeria and Iran will earn less per barrel, while oil consumers like China and the EU will gain an equivalent amount per barrel. More importantly, oil consumers will receive a substantial boost to their economies. The “zero-sum game” assumes that crude production will remain constant. But consumption is likely to rise significantly as plunging oil prices deliver more savings to consumers, providing a massive stimulus to local economies. That in turn will lead to increased production of crude oil. A win-win for producers and consumers.
The Nymex Light Crude monthly chart shows a breach of long-term support at $75/barrel. Brent crude is in a similar down-trend. Target for the (WTI) decline is $40/barrel*.
* Target calculation: 75 – ( 110 – 75 ) = 40
Plunging prices may slow the establishment of new wells, but existing wells are likely to continue pumping as long as the price per barrel of crude is higher than the marginal cost. Marginal costs ignore sunk (or fixed) costs like exploration and establishing a new well. They are merely the variable costs that would be saved — like wages and consumables — if production is halted. Marginal costs are far lower than the producers’ total cost and are not yet threatened.
As for the long-term viability of producers at lower prices, the following chart is worth repeating. Prior to the 2005 “China boom”, the ratio of crude prices to CPI oscillated between 0.1 and 0.2. Over the last few years it has soared to between 0.4 and 0.6. A fall back to 0.2 would harm new, marginal producers (i.e. US fracking) but should not affect core producers. Whether governments reliant on “oil-welfare” — like Russia, Iran and Venezuela — are sustainable is an entirely different matter.
You must be logged in to post a comment.