It appears that Iran is on the offensive on the question of oil prices. First, the Iranian OPEC Governor, Mohammad Ali Khatibi, has disputed that supply is the cause of high oil prices blaming “international political tensions, a weak dollar and speculation” instead. Then Iran predicted that the price of oil would reach $150 “shortly” (Goldman Sachs agreed). A couple of weeks later, Iranian President Ahmadinejad urged OPEC members to dump the weak dollar, a proposal that Iran had already made six months ago, adding: “They get our oil and give us a worthless piece of paper“. Hugo Chavez, President of oil-rich Venezuela, also attended the same OPEC meeting where he declared: “The empire of the dollar has to end“. Finally, today, Iran announced that it officially opposes the Saudi increase in oil production.
What is this all about? Let get some context for starters. First, the official version:
Now, for an alternative point of view, let’s take a look at some analysis by American Goy, one of the sharpest bloggers out there. Check out his articles Why are gas prices rising and The speculation that is killing us – oil, food and greed. American Goy does not deny that demand is rising, but he crucially points out that “it is not the demand for ACTUAL oil, the black goo, that is driving the prices up so high (although it is rising, per standard market rules of supply and demand). It is the demand for oil futures, a commodity market, in other words for a shitty piece of paper” and he backs up his claim with this astounding fact:
According to the US Department of Energy, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels. Over the same five-year period, Index Speculatorsʼ demand for petroleum futures has increased by 848 million barrels. The increase in demand from Index Speculators is almost equal to the increase in demand from China!
and
In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.
Now does Iran’s stance make more sense in the light of all this? Iran refuses the participate into what American Goy calls a “pyramid scheme” and, in particular, in the Saudi cover-up thereof (by increasing production the Saudis are suggestion that the root cause is a lack of oil on the supply side, thus hiding the real origins of the crisis).
Now look at this form the Iranian perspective: they are getting paid for their oil in increasingly worthless dollars while fattening oil commodities futures speculators who, I betcha, are not keeping their billions in greenbacks. Thus, what the Iranians are doing now, with the help of Venezuela, is nothing short of a declaration of war on speculators. We can therefore expect the anti-Iranian propaganda to reach new heights very soon.
Iran is the only country in the world whose oil payments are not entirely indexed on the dollar, they use different currencies, and it does not make it harder for them to trade without the dollar. As far as I know, they’ve been doing great without the dollar or the euro, so I don’t really see why they blame the dollar.
Here is an economical truth: when the dollar goes down, countries have to adjust their currency rate to fight against inflation. When your international payments are based on the dollar, it alterates also the national currency of the oil exporter. So for that, there are different ways to overcome this issue, countries usually diversify their foreign currency to lower inflation, and they can use also the alternative to slow down oil production, so it will make the oil price higher. It’s better for these countries to trade with a good dollar rate so that they can produce more oil.
The real cost of the oil, compared to the oil market ($140 a barril) is not the real price that they pay to extract it. Roughly it costs around 20 and $40 a barril to extract oil. It means there are other economic factors that are speculating on the oil price such as:
1) Hedge funds: you can create $31 for every dollar you pocket in.
2) The mortgage crunch: the mortgage crisis brought the speculator on the oil market. In the US and abroad, there is a flow of currency that is only used to invest in different products. Dotcoms crashed in the 90s, subprime mortgages crashed in the 2006. Check the symetry between the mortage investments and the oil prices month by month since 2000, and you’ll see there is financial flow that keeps investing in this commodity to push artificially prices higher.
In order to avoid that, there are many fixes that have not been imposed yet (raising taxes is an example) or finding new alternatives of energetic resources, or stopping the trade in the dollar for a while. Spikes in oil prices are higher in the US than in Europe, and this trend comes from the low dollar. Europeans, even with double the gas price at the pump, haven’t been squizzed that much in price variations.
Also what’s happening right now is a chain’s reaction. The dollar has been low because the US created too much Tbonds to finance their war in Iraq and Afghanistan. They prefer keynesian economics instead of Ricardo school (taxing companies); the result was predictable, but it makes it harder now to deal with it, because higher oilprices will push forward a bigger recession.
Of course, there is also a higher worldwide demand for oil, but IMO it is not enough to justify such a high price in oil. News Media is obsessed with the oil in the Middle-East, while we’ve got a reliable partner for many decades (Canada). One week ago they boosted the oil production in 2 major oilfields in Alberta – a friend of mine works over there – but there was no effect whatsoever on the financial market, on the contrary oil prices are still going higher. For sure there are other people in the market that are pushing prices higher, because they are greedy with their money, but it’s not really controlable in terms of supply (offer and demand).
Not a long time ago, we opened to doors to pre-emptive policies in terms of foreign policies, and this pre-emptive behavior is now fully shaped in terms of oil economics, meaning these are neoliberalist measures.
The oil market will be dependable in the hands of the investors for a few years, until we’ll stop them by adapting ourselves to new alternatives of energy, and I need to emphasize that we should be doing it ASAP, because we missed the gap in the 70s, and if we don’t do it now, then it is going to be a huge economic burden on the shoulder of US policies.
I give it only a few years from now on, until the speculative maniacs find their way out inside the food sector.
http://www.worldpress.org/Mideast/2314.cfm
I thought it would be the “threat” of Iran to start trading oil for Euro´s, but we past this stadium already? (see comment above by politiques usa).
Anna
PS: the dollar is so low right now, that you are going to see more and more foreign companies inside the US. The too high paid jobs from Europe are going to be done in the US now, until the dollar finds again its real value (if ever it can make it happen).
This morning I went to a job interview for a dutch company, and the managers told me it was better for them to hire Americans than paying Europeans (no tax, no health insurance…) even with sucky jobs at $25 an hour. They just have to work nitetime in the US so that they can fix their stuffs during daytime in Europe.
PS2: vivement que je revienne en Europe:P
Well, thanks for profiling my hard work (hah! it’s not work – it’s fun!).
I am still amazed that people don’t look at the stock market as basically a scam and some aspects of it as a pyramid scheme.
I’ve never seen one honest financial company, it does not exist in my books. On the other hand, I’ve seen many financial companies shut down by the MLD or the FBI, and I’ve seen also companies with political ramifications run by the mafia in the West Coast, and these guys will never get caught because they are backed up by the government.
Most of the time these guys run ponzi schemes, and sometimes they run out of cash (60 million dollars) and they’ll be bought by another company. Or another case I’ve seen in raw lending, people get greedy and they start using the trust accounts. It was easy before 2006 to run business developments with 16% interest rates in 12 or 18 months with 1st trust deeds; now it’s mission impossible.
Who pays the price of speculators’ greed?
Fri, 13 Jun 2008 18:32:08
By Press TV
http://www.presstv.ir/Detail.aspx?id=59840§ionid=3510303
While the world faces one of its worst crisis and millions of people are struggling with starvation and death, analysts point finger at several factors.
Soaring oil prices, high consumption of food products in developing countries including India and China, and unprecedented drought in Australia, one of the major producers of wheat and rice are among factors analysts blame for the hike in food prices.
Although such factors have contributed to the current situation they cannot explain why food prices have been skyrocketing in the past six months.
“We have enough food on this planet today to feed everyone,” says the head of the UN Environment Program, Achim Steiner, but “the way that markets and supplies are currently being influenced by perceptions of future markets is distorting access to that food.”
“Real people and real lives are being affected by a dimension that is essentially speculative,” says Steiner.
According to the UN official millions “have found themselves unable to pay for food” as food prices began to go through the roof since the beginning of 2008.
Now, millions of people across the world are struggling with what Josette Sheeran of the World Food Program (WFP) describes as “a silent tsunami”.
Although the issue of food crisis has recently been grabbing headlines, public media have barely scratched the surface of the catastrophic situation. The reason is obvious: in a capitalistic dog-eat-dog world the exchange market must be considered as a source of prosperity and no one should be allowed to cast doubt on its sacredness.
In his article The trading frenzy that sent prices soaringpublished by the Newstatesman, Iain Macwhirter, writes: “The reason for food ‘shortages’ is speculation in commodity futures following the collapse of the financial derivatives markets. Desperate for quick returns, dealers are taking trillions of dollars out of equities and mortgage bonds and ploughing them into food and raw materials. It’s called the ‘commodities super-cycle’ on Wall Street, and it is likely to cause starvation on an epic scale.”
The reality is that hedge funds and speculators have found future food contracts a lucrative field of activity which can be considered as a license to print money.
The injection of these large sums of money into the marked has created artificial demands which have sent food prices soaring; however, this lucrative trade has so far claimed 100 million lives and left many others struggling with poverty and hunger.
The price of wheat is estimated to be increased by 73 percent by the end of 2008. The situation for other food items is not better: the price of soybeans is expected to rise by 54 percent and that of soybeans oil by 49 percent.
Deutsche Bank estimates that the prices of corn, one of the main food sources, would double over a short period of time.
“Just like the boom in house prices, commodity price inflation feeds on itself. The more prices rise, and big profits are made, the more others invest, hoping for big returns. Look at the financial websites: everyone and their mother is piling into commodities. It is the great bull market of the Noughties. The trouble is that if you are one of the 2.8 billion people, almost half the world’s population, who live on less than $2 a day, you may pay for these profits with your life.
This speculation doesn’t happen on its own, however. Commodities such as gold and oil are favourite “hedges” against falling currencies. But this time all manner of other commodities, such as wheat and rice, have been swept along in the inflationary slipstream,” Macwhirter adds.
The issue of future contracts and speculations is not the only contributing factor in the current global crisis; the industrialized world’s US-led drive to use food products for developing bio fuels has fanned the flames of famine and hunger across the world.
The developed nations justify their move which UN officials described as “a crime against humanity” by the notion that such fuel resources would cut their dependency on fossil fuels whose resources are mainly located in other parts of the world. The US grants heavy subsidies ($11-12billion) for the production of ethanol corn every year.
At the beginning of a recent FAO summit in Rome, Jacques Diouf, the head the UN organization lashed out at the US over the issue:
“Nobody understands [why] $11-12 billion of subsidies in 2006 and protective tariff policies [should be used to] divert 100 million tons of cereals from human consumption, mostly to satisfy a thirst for fuel for vehicles.”
As Indian Finance Minister P. Chidambaram says converting food products to bio fuel is “the most foolish thing” that humanity can do and should be condemned, yet Washington encourages farmers to follow this unwise practice, isn’t it surprising?
The painful fact is that we have enough food to feed the world but many people, mainly innocent children, have to die to satisfy “the deadly greed” of speculators and certain politicians.
© Press TV 2007. All Rights Reserved.
Exxon Mobil, Shell, BP to Get No-Bid Oil Contracts in Iraq
The New York Times reports four Western oil companies are in the final stages of negotiations on contracts that will return them to Iraq for the first time in thirty-six years. Exxon Mobil, Shell, Total and BP—the original partners in the Iraq Petroleum Company—are among the corporations in talks with Iraq’s Oil Ministry for no-bid contracts to service Iraq’s largest oil fields. The Times reports it is not clear what role the United States played in awarding the contracts. Americans continue to serve as advisers to Iraq’s Oil Ministry.
The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production.
There was suspicion among many in the Arab world and among parts of the American public that the United States had gone to war in Iraq precisely to secure the oil wealth these contracts seek to extract.
http://www.nytimes.com/2008/06/1…r=1& oref=slogin
i blame the shareholders. they must have their returns, the rest of everyone be damned.