posted May 26, 2005 11:25 PM              

********

Secret US plans for Iraq's oil
By Greg Palast
Reporting for Newsnight

The Bush administration made plans for war and for Iraq's oil before the 9/11 attacks, sparking a policy battle between neo-cons and Big Oil, BBC's Newsnight has revealed.
Iraqi-born Falah Aljibury says US Neo-Conservatives planned to force a coup d'etat in Iraq
Two years ago today - when President George Bush announced US, British and Allied forces would begin to bomb Baghdad - protesters claimed the US had a secret plan for Iraq's oil once Saddam had been conquered.

In fact there were two conflicting plans, setting off a hidden policy war between neo-conservatives at the Pentagon, on one side, versus a combination of "Big Oil" executives and US State Department "pragmatists".

"Big Oil" appears to have won. The latest plan, obtained by Newsnight from the US State Department was, we learned, drafted with the help of American oil industry consultants.

Insiders told Newsnight that planning began "within weeks" of Bush's first taking office in 2001, long before the September 11th attack on the US.

We saw an increase in the bombing of oil facilities and pipelines [in Iraq] built on the premise that privatisation is coming

Mr Falah Aljibury
An Iraqi-born oil industry consultant, Falah Aljibury, says he took part in the secret meetings in California, Washington and the Middle East. He described a State Department plan for a forced coup d'etat.

Mr Aljibury himself told Newsnight that he interviewed potential successors to Saddam Hussein on behalf of the Bush administration.

Secret sell-off plan

The industry-favoured plan was pushed aside by a secret plan, drafted just before the invasion in 2003, which called for the sell-off of all of Iraq's oil fields. The new plan was crafted by neo-conservatives intent on using Iraq's oil to destroy the Opec cartel through massive increases in production above Opec quotas.

Former Shell Oil USA chief stalled plans to privatise Iraq's oil industry
The sell-off was given the green light in a secret meeting in London headed by Fadhil Chalabi shortly after the US entered Baghdad, according to Robert Ebel.

Mr Ebel, a former Energy and CIA oil analyst, now a fellow at the Center for Strategic and International Studies in Washington, told Newsnight he flew to the London meeting at the request of the State Department.

Mr Aljibury, once Ronald Reagan's "back-channel" to Saddam, claims that plans to sell off Iraq's oil, pushed by the US-installed Governing Council in 2003, helped instigate the insurgency and attacks on US and British occupying forces.

"Insurgents used this, saying, 'Look, you're losing your country, you're losing your resources to a bunch of wealthy billionaires who want to take you over and make your life miserable,'" said Mr Aljibury from his home near San Francisco.

"We saw an increase in the bombing of oil facilities, pipelines, built on the premise that privatisation is coming."

Privatisation blocked by industry

Philip Carroll, the former CEO of Shell Oil USA who took control of Iraq's oil production for the US Government a month after the invasion, stalled the sell-off scheme.

Mr Carroll told us he made it clear to Paul Bremer, the US occupation chief who arrived in Iraq in May 2003, that: "There was to be no privatisation of Iraqi oil resources or facilities while I was involved."

Amy Jaffee says oil companies fear a privatisation would exclude foreign firms
Ariel Cohen, of the neo-conservative Heritage Foundation, told Newsnight that an opportunity had been missed to privatise Iraq's oil fields.

He advocated the plan as a means to help the US defeat Opec, and said America should have gone ahead with what he called a "no-brainer" decision.

Mr Carroll hit back, telling Newsnight, "I would agree with that statement. To privatize would be a no-brainer. It would only be thought about by someone with no brain."

New plans, obtained from the State Department by Newsnight and Harper's Magazine under the US Freedom of Information Act, called for creation of a state-owned oil company favoured by the US oil industry. It was completed in January 2004 under the guidance of Amy Jaffe of the James Baker Institute in Texas.

Formerly US Secretary of State, Baker is now an attorney representing Exxon-Mobil and the Saudi Arabian government.

View segments of Iraq oil plans at www.GregPalast.com

Questioned by Newsnight, Ms Jaffe said the oil industry prefers state control of Iraq's oil over a sell-off because it fears a repeat of Russia's energy privatisation. In the wake of the collapse of the Soviet Union, US oil companies were barred from bidding for the reserves.

Ms Jaffe says US oil companies are not warm to any plan that would undermine Opec and the current high oil price: "I'm not sure that if I'm the chair of an American company, and you put me on a lie detector test, I would say high oil prices are bad for me or my company."

The former Shell oil boss agrees. In Houston, he told Newsnight: "Many neo conservatives are people who have certain ideological beliefs about markets, about democracy, about this, that and the other. International oil companies, without exception, are very pragmatic commercial organizations. They don't have a theology."

A State Department spokesman told Newsnight they intended "to provide all possibilities to the Oil Ministry of Iraq and advocate none".

http://news.bbc.co.uk/2/hi/programmes/newsnight/4354269.stm

posted May 27, 2005 12:50 AM            

I'm utterly mad...
Peyote and Acid together is baaadddd
I've gone completely out of my mind.. around bonkers bend
I'm a Cuckoo Clock whose hands have stopped
and the bats in my belfry keep ringing my bells
And..
They're coming to take me away, ha-haaa!!
They're coming to take me away, ho-ho, hee-hee, ha-haaa
To the funny farm.
Where life is beautiful all the time
and
I'll be happy to see those nice young men in their clean white coats
and
they're coming to take me away, ha-haaa!!!!!
I'm utterly mad...
And..
They're coming to take me away, ha-haaa,
They're coming to take me away, ho-ho, hee-hee, ha-haaa.
To the happy home.
With trees and flowers and chirping birds
and
basket weavers who sit and smile and twiddle their thumbs and toes
and
they're coming to take me away, ha-haaa!!!

To the funny farm, where life is beautiful all the time
and
I'll be happy to see those nice young men in their clean white coats
and
they're coming to take me away, ha-haaa!!!
To the funny farm, where life is beautiful all the time
I'm utterly maaddd...cuckoo, cuckoo

posted May 27, 2005 06:38 AM              

****

Katherine Harris calls Greg Palast, 'Twisted."

The White House says, "We hate that sonovabitch."

Palast won Britain’s highest journalism honors for his 1998 undercover investigation of influence peddling within Tony Blair’s cabinet – by Enron and other US corporations

posted May 27, 2005 09:54 AM            

We're great, oh are we great, just look at all the awards we give ourselves.

The speed with which lying media are losing readers and viewers is the real story.

Neither Woodward or Bernstein will Palast ever be.

posted May 29, 2005 09:28 AM              

quote:

---

I guess it hasn't gotten through to you yet Petron that America is a capitalist country. Oil companies lease public land and pay the expense to develop the sites..whether mining, oil or gas. Ummm, they also pay corporate taxes on their profits. How did that get past you?--jwhop

---

Gimme Shelter (from Taxes)
US oil and gas companies have 882 subsidiaries in tax haven countries.
By Bob Williams and Jonathan Werve
Center for Public Integrity
July 16, 2004
U.S. oil and gas companies have at least 882 subsidiaries located in oil-free tax havens such as the Cayman Islands, Bermuda, and even the tiny European principality of Liechtenstein, a Center for Public Integrity investigation has found. Further, the investigation revealed that at least a half dozen U.S. oil and gas companies have actually re-incorporated in tax haven countries.

In the past, Enron Corp. had by far the most tax haven subsidiaries with 780, but that was before the troubled company declared bankruptcy and sold off or shut down nearly all of its operations. It is unclear how many of those subsidiaries are still in existence today. Among active companies, El Paso Corp. leads the list with 233 subsidiaries located in tax haven countries, followed by ConocoPhillips (133). Officials from El Paso Corp. and ConocoPhillips did not return repeated phone calls about their subsidiaries located in tax haven countries.

Information on the subsidiaries came from MergentOnline and was gleaned from company financial filings. The latest available information showing where subsidiaries of companies are located was used. The Cayman Islands were by far the most popular choice for U.S. oil and gas company subsidiaries, with 489 subsidiaries located there. Bermuda comes next with 126, followed by the British Virgin Islands (49), Liberia (41), and Panama (40). The investigation also showed that U.S. companies are much more active than their overseas counterparts in setting up subsidiaries in tax havens. The entire rest of the world had just 311 such subsidiaries. One expert says companies locate in tax haven countries for a variety of reasons, many of which are absolutely legitimate - and have little or nothing to do with avoiding taxes.

That's the opinion of Philip Garlett, a policy analyst with the Organisation for Economic Co-operation and Development, a Paris-based international policy consortium made up of 30 governments, including the United States. He says oil companies might have subsidiaries in tax haven countries because they don't want to set up shop and make themselves subject to local laws in areas such as the Middle East or the Caspian Sea.

"It is sort of like a neutral court in basketball," Garlett says.

But another expert says the only plausible reason for U.S. oil and gas companies to locate subsidiaries in tax havens is to avoid paying U.S. taxes. Bob McIntyre, the director of Citizens for Tax Justice, a government watchdog that has studied the issue, says that big companies with tax haven subsidiaries are able to conduct complex transactions that shelter their profits. Since the transactions are kept within the company, he says they are next to impossible to detect. "The more these companies can bounce things around offshore, the more profit that can be kept offshore and tax free," McIntyre says. "They shouldn't get away with it, but it is really hard to police."

President Bush, who has said he disapproves of U.S. companies setting up subsidiaries in tax havens, was a director of a Texas oil company when it decided to do just that. In 1989, Harken Energy Corp. set up Harken Bahrain Oil Co. in the Cayman Islands to oversee a drilling contract with the government of Bahrain. When questioned about it by reporters, Bush spokesman Dan Bartlett said the president had no recollection of the matter. Vice President Dick Cheney was also a big fan of locating subsidiaries in tax havens during his days as CEO of Halliburton Corp. An analysis of Halliburton's filings with the Securities and Exchange Commission by watchdog group Citizen Works showed that while Cheney was CEO of Halliburton between 1995 and 2000, the number of subsidiaries the company operated in tax havens rose from nine to 44.

Slashing Tax Bills

Among the U.S. companies incorporated in tax havens are GlobalSantaFe Corp. (Cayman Islands), McDermott International (Panama), Nabors Industries (Bermuda), Noble Corp. (Cayman Islands), Seven Seas Petroleum Corp. (Cayman Islands), and TransOcean Inc. (Cayman Islands).

As these companies have learned, setting up shop in a tax-haven country can certainly lower tax bills. In simple terms, a large U.S. company can effectively reduce its corporate tax rate from 35 percent to zero by reincorporating in a tax haven such as the Cayman Islands. Take the case of Nabors Industries, one of the largest land-based, oil and gas drilling companies in the world with more than 600 rigs. Nabors reincorporated in Bermuda in June 2002 and moved its "headquarters" from Texas to Barbados. That new headquarters consisted of a small office located on the tiny Caribbean island. The company's board of directors also held a meeting on Barbados.

Nabors says its effective overall tax rate fell from 36 percent in 2001 - the last full year before it moved to Bermuda/Barbados - to 10 percent in 2003, the first full year after the move. In actual dollars, Nabors' overall tax bill for 2001 was $83.7 million, according to the company's annual report. In 2003 the company's overall tax bill fell to just $8.5 million. The company's revenue remained relatively steady during that period. In 2001, its revenue was $2.3 billion; in 2003, it was $1.9 billion.

Nabors Director of Corporate Development Denny Smith says the company made the move simply to remain competitive. "We lost a ton of jobs and found ourselves in a position where we could not be competitive anymore," Smith says. "Most of our competitors don't face the same tax burden as we do."

Smith says Nabors still does most of its work in Houston and estimates the company pumped as much as $100 million into the local economy since re-incorporating offshore. "We would love to see the tax code get fixed," Smith says.

Despite the huge tax windfalls it has realized from its move offshore, Nabors still wants to be considered a U.S. company when it works to its advantage to do so. For example, Nabors wants to be considered a U.S. company to fully qualify for business under the Jones Act, a 1916 law that requires ships engaged in purely domestic trade to be built, owned and operated by American companies. Nabors owns nearly three dozen ships that service oil rigs in the Gulf of Mexico. The company argues that its American subsidiary fully qualifies under the Jones Act because the Bermuda-based parent company is simply lending it money for the ships.

Nabors' competitors say full qualification of the company under the Jones Act while it pays no taxes would give the company a huge competitive advantage and could force them to eventually move offshore to remain in business.

Then there is Noble Corp., which operates one of the world's largest fleets of offshore drilling rigs. Noble reincorporated in the Caymans in May 2002, leaving its physical headquarters where it was in Sugarland, Texas. The move has already paid off handsomely for Noble. The company's overall tax bill fell from $29.5 million in 2001 to just $16.2 million in 2003. The company's revenue was steady those years at about $1 billion in 2001, compared to about $987 million in 2003. The drop in U.S. taxes paid by the company was even more dramatic. Noble had paid $15.3 million in U.S. taxes in 2001, but got a refund of $2.6 million in 2003 - the company's first full year in the Caymans.

Noble claimed it was forced to move to a tax haven in order to compete in the offshore drilling rig business. Noble's two other main competitors - Transocean Inc. and GlobalSantaFe Corp. - are also incorporated in the Caymans. Noble CEO James Day admitted to stock analysts soon after the company's move that he was "philosophically opposed" to reincorporating offshore, but that his hand was forced. "I don't want a competitor to get up and say we are bringing 10 percent more to the bottom line because we have a tax structure that Noble is too stupid to take advantage of," Day told the analysts on a conference call. "We were caught between a rock and a hard place on it."

Day said he would bring the company back to the U.S. if the tax laws were changed to remove the competitive advantages of incorporating in the Caymans. "If legislation comes down that says we are going to level the playing field, you bet I would reverse everything we have done," said Day. "This is not appropriate in my mind."
http://www.globalpolicy.org/nations/launder/regions/2004/0716gimmeshelter.htm

posted May 29, 2005 09:44 AM              

NEW YORK (CNN/Money) - ChevronTexaco evaded $3.25 billion in federal and state taxes from 1970 to 2000 through an involved petroleum pricing scheme that involved a project in Indonesia, a newspaper reported Friday, citing a new research paper by two accounting professors.

The San Francisco district office of the Internal Revenue Service first leveled accusations of tax evasion against the world's fourth-largest oil company in the 1990s. The company, which is based there, paid $675 million to settle the issue, much less than the $1 billion it had put into reserve for the case, which covers 1979-1987, the New York Times reported.

The Internal Revenue Service continued to investigate, but the company refused to cooperate, resulting in a legal fight in Federal District Court that ultimately led to the public release of hundreds of documents about the Indonesia deal.

The case was later closed, but a new research paper reviews those documents and concludes that the IRS has grounds to reopen the case and should proceed, the Times reported.

"What we believe is that the evidence is there that fraud exists," one of the report's authors, Jeffrey Gramlich, told the paper. Gramlich is a visiting professor at the University of Michigan Business School and professor at the University of Hawaii. "The national office of the IRS settled for far less -- something like a quarter on the dollar -- than what is really owed."

ChevrontTexaco told the Times late Thursday that it had reviewed the research paper and called the allegations a rehash of old issued that had already been settled.

An IRS spokesman said that federal law prevented the agency from commenting.

Chevron and Texaco each owned 50 percent of a joint venture called Caltex before they merged in October, 2001. that company has been absorbed into the merged ChevronTexaco and produced crude oil in a project with the Indonesian state oil company, Pertamina, according to the report.

The research paper says Chevron and Texaco relied on its business with Caltex to avoid U.S. taxes.

posted May 29, 2005 10:02 AM              

A SAMPLING OF CHEVRONS RECORD of crime, violence and mendacity

o The state of Alaska is preparing to go trial in mid-April 1992 against Chevron, Exxon , Mobil and Texaco over disputed oil royalty payments. The state alleged in 1977 that the companies undervalued their oil and overvalued transportation costs. In the last year, the state has settled the same charges against BP for $185 million and against Arco for $287 million.

o The U.S. Internal Revenue Service charges that, from 1979 to 1981, Chevron, Mobil, Exxon and Texaco, partners in Aramco, routed oil from Saudi Arabia - which they acquired at as much as $6 a barrel below the market rate - through foreign subsidiaries and marked up the price there to avoid paying U.S. taxes on profits from selling the oil. Chevron and the other companies deny the allegations, but may face bills for as much as $8 billion in back taxes. Mobil received a back-tax bill of $300 million in January 1992, and potentially will owe an additional $1 billion in interest charges.

o In December 1991, the U.S. Environmental Protection Agency (EPA) reached the biggest settlement in the history of the Superfund program with 178 companies, including Chevron. The companies agreed to pay at least $130 million for the cleanup costs at a California landfill polluted with as much as 300 million gallons of hazardous waste.

o In September 1991, a Texas federal court approved a $111.4 million partial settlement of a class action suit by former Gulf Oil employees against Chevron (which purchased Gulf in 1984). The employees claimed that they, not Chevron, were entitled to surplus monies in GulfÆs pension fund.

o In August 1991, Chevron and three other companies agreed to pay the state of California and the city of Long Beach $180 million to resolve charges that they conspired to pay government entities artificially low prices for crude oil. Chevron continues to deny the charges. "This is yet another example of lawsuits being filed for such exorbitant amounts that innocent companies have no prudent alternative to pay what is in effect legal ransom," Chevron chair Ken Derr said.

o In 1991, Chevron agreed to a $214,000 fine imposed by Orange County, California for violations of underground oil storage tank monitoring requirements.

o In May 1991, Chevron settled a class action discrimination suit filed by black and Latino oil workers for $1.5 million. Chevron did not admit to having discriminated against the workers, leading more than half of the class to object to the settlement.

o In May 1988, the California Regional Water Quality Control Board ordered Chevron to conduct an $86 million cleanup of the water below its El Segundo refinery. Officials estimate up to 252 million gallons of fuel had leaked from the refinery into the underground water table.

o In April 1988, Chevron agreed to put $100,000 into land conservation to settle a Sierra Club lawsuit over the companyÆs dumping of pollutants into Santa Monica Bay from its El Segundo refinery. The settlement followed a January 1988 settlement of a related EPA suit. In that instance, Chevron agreed to pay $1.5 million for waste-water discharges into the Santa Monica Bay. EPA had charged Chevron with 880 violations of the federal Clean Water Act since 1981.

o In March 1987, the EPA warned Mineral Wells, Texas townspeople not to drink tap water after a corroded Chevron pipeline leaked 16,800 gallons of fuel which was washed by rain into the creek from which the town gets its drinking water.

o In September 1985, an El Paso, Texas federal court assessed a $6 million fine against Chevron for the companyÆs violation of federal and state standards for the emission of sulfur dioxide.

o In November 1984, the Supreme Court let stand a $60,000 jury award to an agricultural worker who died in 1982 after exposure to the Chevron-manufactured herbicide, paraquat. The manÆs children argued the paraquat label did not properly warn that the chemical could be absorbed through the skin.

o In October 1984, Chevron paid the state of California $250,000 for marketing more than 9 million gallons of high-sulfur gasoline in violation of state air quality standards.

o In May 1984, Chevron agreed to pay $15 million to settle a lawsuit filed by the survivors of two workers killed in an August 1980 fire at the companyÆs Honolulu gasoline storage tank facility. A jury had earlier awarded $27.7 million to the survivors.

o In July 1981, Chevron agreed to pay $82.5 million to settle U.S. Justice Department allegations that it overcharged consumers while oil price controls were in effect between 1973 and January 1981. Chevron did not admit to any wrongdoing.

o In a 1981 trial, Chevron admitted that its station leaked thousands of gallons of gasoline into the sewer lines serving residents of Northglenn, Colorado. The gasoline triggered explosions and forced three evacuations in 1980. In a July 1981 partial settlement to a lawsuit filed by Northglenn residents, Chevron agreed to purchase the homes of 42 families for $6 million, approximately twice their value.
http://multinationalmonitor.org/hyper/issues/1992/04/mm0492_11.html

posted June 20, 2005 12:38 AM              

By Christopher Kaufman
Reuters
Sunday, June 19, 2005; 11:18 PM

SINGAPORE (Reuters) - U.S. oil hit a record above $59 a barrel on Monday, with traders fearing both strong demand and limited supply, pushing most Asian share markets lower but prompting strong gains in resource shares.

Traders placed the next psychological target for crude at $60 a barrel after a threat on Friday against Western consulates in OPEC member Nigeria jolted a market that already was worried about tight supplies.

"The oil market is on a permanent test -- can it keep up with demand in any one period?" said Commonwealth Bank of Australia commodities analyst Tobin Gorey. "Supply is tight and demand is still growing."

The euro tumbled against the dollar after European Union leaders failed to agree on a budget, deepening a crisis triggered after French and Dutch voters rejected a proposed EU constitution.

Japan's Nikkei share average fell 0.24 percent in morning trade, threatening a six-session winning streak. MSCI's index of non-Japan Asian share markets rose 0.1 percent, supported by Australia's S&P ASX 200, where resource shares jumped.

Hong Kong's Hang Seng Index was the region's biggest gainer, up 0.27 percent by 0240 GMT, while South Korea's KOSPI was the top loser, off 0.8 percent. The benchmark in Singapore was down by a fifth while Taiwan edged up 0.1 percent.

NYMEX July crude traded near $58.96 after surging as high as $59.18 a barrel.

RISING OIL PRESSURE

Anxiety over oil exports from producer nations resurfaced on Friday after the United States, Britain and Germany closed their consulates in Nigeria's largest city, Lagos, due to a threat from foreign Islamic militants.

Nigeria is the world's eighth-largest oil producer and supplier of about 10 percent of U.S. crude imports.

In Iran, the world's fourth-biggest producer, hard-liner Mahmoud Ahmadinejad made a surprisingly strong showing in presidential elections, pitting him against pragmatic cleric and former president Akbar Hashemi Rafsanjani in Friday's run-off.

A recent survey of industry executives, more than half considered "political upheaval in a strategic country" as the most likely cause for a disruption in oil supply.

Below-average U.S. inventories coupled with robust consumption has heightened worries that refiners will not be able to keep up with demand in the second half of the year.

Prices are up 36 percent since January as speculative funds bet strong global economic growth will strain supplies, especially if any unexpected disruptions arise.

Energy-related stocks such as Japan's AOC Holdings Inc., Australia's Santos and Hong Kong- and U.S-listed PetroChina all jumped by about 3 to 4 percent.

The euro shed as much as a cent, about half the two-cent gain made on Friday when it hit a nine-day high as a record U.S. current account deficit sapped appetite for the dollar.

The euro cost $1.2221, up from early lows around $1.2170 and down from around $1.2285 in late U.S. trade on Friday, where it rose as high as $1.2289.

The yen fell in sympathy with the euro, weakening as far as 109 yen from around 108.60 yen.

Before the EU's budget problems surfaced on Friday, the euro jumped after data showed the U.S. current account shortfall swelled to $195.1 billion, above the $190 billion forecast by economists and up from $188.4 billion in the final quarter of last year.

posted June 20, 2005 07:40 AM              

********

Ominous: The US deficit vs the dollar
By Jack Crooks

"Doublethink means the power of holding two contradictory beliefs in one's mind simultaneously, and accepting both of them." - George Orwell

The US deficit is good, because it stimulates US demand and Asian exports. The deficit is bad because it has created a massive global financial imbalance that will one day need to be balanced. I think that qualifies as doublethink.

I am guilty of doublethink more often than I care to admit. But as I examine the financial "realities" and the implications of the US current-account deficit, the word "ominous" is the only thought that seeps into my mind. And though the timing is anyone's guess, the US dollar is poised to be overwhelmed by the deficit.

Peter G Peterson, chairman of the Council on Foreign Relations, the Institute of International Economics, and the Blackstone Group, had this to say in the September/October edition of Foreign Affairs magazine:

The United States is now borrowing about $540 billion per year from the rest of the world to pay for the overall deficit funding Americans' consumption of goods and services and US foreign transfers. This unprecedented current-account deficit is paid through direct lending and the net sales of US assets to foreign business or persons: everything from stocks and bonds to corporations and real estate. The United States imports roughly $4 billion of foreign capital each day, half of that to cover the current-account deficit and the other half to finance investments abroad. At 5.4% of GDP [gross domestic product] in the first quarter of 2004, the deficit is substantially higher than its previous record (3.5% of GDP) in 1987, when the dollar fell by a third and the stock market took its "Black Monday" plunge.

I think Peterson does an excellent job of explaining the deficit problem and its relationship to the dollar. The deficit truly is the common thread binding dollar bears. Here's a look at what they are seeing:

The chart above shows the deficit rose to a whopping US$166.2 billion for the second quarter of 2004. Annualized, that's $664.8 billion, or approaching 6.5% of US gross domestic product. As bad as this seems, it will probably get worse before it gets better.

We are locked into a set of "daunting arithmetic", says Richard Berner, an economist with Morgan Stanley. He says, "The daunting arithmetic locks the current-account gap into a vicious circle that is hard to escape." Berner cites several reasons he thinks the deficit will get worse:
1) Imports of goods, services and income are 40% bigger than exports. And this ratio is on the rise again.
2) Higher US interest rates will increase debt payments to foreign debt holders.
3) Iraq war and redevelopment.
4) Slowdown in global growth, especially in Asia.
5) Soaring cost of imported oil.

Economics 101 teaches that if a country's currency depreciates, that depreciation will allow for an increase in exports, the theory being that the cost of its goods become cheaper, or more competitive, in international markets. But as one would expect, there is a lag time between the time a currency depreciates and its benefits begin to accrue in terms of trade. This means the deficit will first get worse then better as the currency declines in value. Economists refer to this as the J-curve.

Import prices rise immediately as a currency depreciates, but because the volume of trade is not as sensitive to price changes, it can take from one to two years for a positive impact to show up in the terms of trade and improving the current account.

Take a look at the chart above, which compares the US current account deficit to the trade-weighted US dollar from 1972 through the second quarter of 2004. I have tried to identify the last time the J-curve worked. It's represented by the rectangular area, highlighted on the chart. The dollar peaked in 1985 (red line). It then fell in value until 1988 before the current account deficit (blue line) began to improve. This also shows the fall in the dollar Peterson was referring to. Many believe it was a major catalyst for the 1987 stock-market crash.

Ominous parallels
"Economic history is utterly devoid of examples of current account adjustments that are not accompanied by significantly weaker currencies." - Stephen Roach, Morgan Stanley

I was thinking about the historical parallels in the economic environment now compared with then - during the time of the last dollar crisis. Here's what I came up with:

Then

Now
Go-go '60s stock-market boom (conglomerates craze) '90s stock-market boom (Internet craze)
Vietnam quagmire & communist dominoes Iraq quagmire & "war on terror"
Soaring budget deficit Soaring budget deficit
Rising energy prices Rising energy prices
Rising interest rates to stem inflation Rising interest rates to "normalize" the Fed funds rate
Soaring commodities prices (inflation driven) Rising commodities prices (for now, supply/demand imbalance)
But as bad as it seemed back then, the global financial system now appears much more unbalanced. The United States and China seem to be the sole economic engines of growth in the world. And the deficit is in historically uncharted territory and lurching from one fresh all-time record to another.

The dollar fell approximately 42% from its peak in 1985 to its trough in November of 1990 before the current-account balance turned positive again (when the deficit was 3.5% of GDP). This is the "adjustment" Roach is referring to. And it's why Roach believes a dollar crisis could "soon" be upon us.

From the peak in this cycle, February 2002, through September 2004, the dollar has fallen only 23%. The current account is now approaching twice what it was when it finally bottomed in 1988. So if we use the current-account "adjustment" as a guide, we should multiply the 42% decline by a factor of two to determine just how far the dollar must fall before solving the current-account problem - that's 84%!

It may seem silly to conceive of the world's reserve currency, the US dollar, falling that much. But if we consider there is little else on the horizon other than a fall in the dollar to help rebalance this situation, an 84% decline starts to look more plausible.

Chinese 'revaluation': That dog might not hunt
"In some ways, the 19th-century version of the global capitalist system was more stable than the current one. It had a single currency, gold; today there are three major currencies crashing against each other like continental plates." - George Soros, The Crisis of Global Capitalism

The three currencies Soros was referring to are the US dollar, the euro and the Japanese yen. And he is right. But the dollar's fate will probably flow one way or another from China.

Now that you understand how deeply the United States is entrenched in deficit, you can understand why the US is pressuring China to "revalue" its currency. The US does not have the political will to do what it takes on the spending side of the equation to improve its financial position.

"For the first time in the post-World War II era, the United States faces a future in which every major category of federal spending is projected to grow at least as fast as, or faster than, the economy for many years to come. That means not just pension and health-care benefits for retiring 'baby boomers', or increasing interest payments as deficits and interest rates rise, but also appropriated or 'discretionary' spending for national defense, for foreign aid, and for domestic homeland-security programs," writes Peterson.

In a country where voters know they can vote themselves the goodies and have accepted the term "war on terror", it's highly unlikely the US can get its fiscal side under control for many years to come. Thus the howls for China to do something with its currency grow louder.

There is one major problem with the Chinese "revaluation" scenario: There are no guarantees that once China allows the dollar-yuan rate to move within a "more flexible band" that its currency will appreciate against the dollar or that it will significantly benefit US manufacturers. Here are four reasons:

First of all, the chances of some type of big-bang revaluation in the dollar-yuan rate are slim to none. Chinese policymakers do not believe the yuan is overvalued. And I believe the most they will do is slightly widen the trading band around the 8.28-yuan-per-dollar rate that now exists.

Second, if China utilizes a trade-weighted approach to calculating its trading band, which is likely, because the US is the largest trading partner, and because said band will move on a trade-weighted value, not China's fundamentals, the index will not fluctuate a great deal against the dollar.

Third, it's not necessarily a differential in exchange rates that will solve the competitive differences between China's exports and the rest of the world. With China's abundant supply of very cheap labor, state-of-the-art manufacturing capabilities and world-class infrastructure, it will take much more than a shift in exchange rates before the goods flow comes into balance.

And finally, if financial liberalization includes reducing capital controls, the private sector has significant scope to raise its foreign-currency holdings (of US dollars).

US policymakers are depending heavily on a Chinese revaluation and a corresponding improvement in the balance of trade with China. But that dog might not hunt.

The dollar's Achilles' heel
"Causa remota of the crisis is speculation and extended credit; causa proxima is some incident which snaps the confidence of the system, makes people think of the dangers of failure, and leads them to move from commodities, stocks, real estate, bills of exchange - whatever it may be - back into cash." - Charles Kindleberger, Manias, Panics, and Crashes

Causa romota: An explosion of credit from bank lending and fixed investment pouring into China.

Causa proxima: A hard landing in China.

"When the Asian financial crisis hit in 1997-98, the US Federal Reserve tolerated a liquidity boom that spawned the Internet bubble. When the Internet bubble burst, the Fed tolerated another wave of liquidity, which has led to the global property bubble," says Andy Xie of Morgan Stanley. I would say, "Bingo!"

The Economist magazine recently summed it up this way: "China's boom is itself partly the product of the Fed's super-lax monetary policy. With its currency pegged to the dollar, China has been forced to import America's easy monetary conditions. Its [China's] higher interest rates have attracted large inflows of capital that have inflated domestic liquidity, encouraging excessive investment and bank lending in some sectors which could lead to a bust."

With the Fed now in a tightening mode, the music in China could soon end. And the scramble "back into cash" from "commodities, stocks, and real estate", as Kindleberger describes, could soon begin. When it does, it's very bad news for the buck.

When the US financial markets cratered in early 2000 after one of the biggest financial parties in the history of mankind, the Fed quickly stepped in to fill the void with liquidity. This is why the so-called "emergency" Fed funds rate of 1.0% materialized. The Fed made it clear to all it would err on the side of creating global asset bubbles in stocks, bonds and real estate to stave off the bogeyman of global deflation. Well, the Fed succeeded beyond anyone's wildest expectations at the time.

To get a sense of the massive liquidity created by the Fed, consider that Asian central banks are now sitting atop an estimated $2.2 trillion in foreign-exchange reserves - double their 2002 total. In other words, Asian banks were able to recycle $1.1 trillion into US Treasury bonds - driving yields lower and creating a virtuous circle for US consumers - increasing US demand for Asian exports.

As Treasury bonds soared and US demand rose, stocks revived. "It's the 1990s again," rattled the talking heads on CNBC. But the big winner in this liquidity game was global real estate. "The world is sitting on top one of the biggest property bubbles in history, with the biggest bits in China and the US, in my view," says Xie.

There is nothing new in what we are seeing in China. Massive lending funneled into property and commodities speculation: it's the classic boom-bust credit cycle. The late economist Ludwig von Mises wrote:

The drop in interest rates falsifies the businessman's calculation. Although the amount of capital goods available did not increase, the calculation employs figures that would be utilizable only if such an increase had taken place. The result of such calculations is therefore misleading. They make some projects appear profitable and realizable, which a correct calculation, based on an interest rate not manipulated by credit expansion, would have shown as unrealizable. Entrepreneurs embark upon the execution of such projects. Business activities are stimulated. A boom begins.

Artificially low interest rates in China have supercharged property speculation. Entrepreneurs, savers, overseas Chinese investors and international institutions have jumped into this "easy" money-making game. It's reminiscent of the "easy money" days trading the Nasdaq in 1999. The human frenzy and delusion are similar in tone.

Chinese government attempts to circumvent the price system through central planning/rationing, instead of market-based credit allocation through the interest rate, are exacerbating the boom-bust cycle in China. Inadvertently, they are sending the wrong messages to the market.

"The boom can last only as long as the credit expansion progresses at an ever-accelerated pace," wrote von Mises. Fed tightening is working its way through the global financial system. Soaring crude oil prices are dampening growth prospects. Property prices in Australia and the United Kingdom are already falling. And policymakers are continuing to apply the brakes in China where they can.

These are the dynamics that scream for an eventual bust in China. I believe this will be the catalyst for a dollar crisis. It could be a wake-up call to US policymakers. They may realize that ignorance is no longer strength when it comes to the deficit. But by the time they act, most of the damage will probably already be done.

Timing it right

Here's an indicator that may help us with the timing of a fall in the dollar (taken from Black Swan Currency Currents, October 7):

US president Richard Nixon closed the gold window in 1971, severing the link between the dollar and gold once and for all. Robert Bartley, the now-deceased longtime editor of the Wall Street Journal and a brilliant man to boot, said when the dollar went off the gold standard crude oil went on the gold standard. He explained that the oil crisis in 1973 was in reality a foreign-exchange crisis (Money Bazaar, Andrew Krieger). In other words, the Organization of Petroleum Exporting Countries realized the dollars it was receiving for its crude oil was buying a lot less than it did before the gold link with the buck was severed. Thus it was time for a little price hike.

Okay, fast-forward. Oil is still priced in dollars and now at an all-time high, we all know that. But what is interesting is that the real cost of oil, if we consider gold to be the standard, is also close to an all-time high (calculated by the number of barrels of oil one ounce of gold will buy). This could have some implications for the greenback.

Let's say you are in control of the world's money supply. And you see that the cost of oil is threatening global economic growth. And let's also say that you keep an eye on gold prices because you once wrote a paper extolling the virtues of gold. And let us say your last name starts with the letter G. Okay, the stage is set. What do you do now?

Hmm, you're thinking: if I can somehow get the dollar price of gold to increase, it might take a lot of pressure off of the global economy by reducing the real cost of oil and clear the way for sustained economic growth. If you're thinking that, then you're thinking a weaker dollar.

Jack Crooks has traded in global equity, fixed income, commodity, and currency markets for more than 20 years. He is president of Black Swan Capital, a currency advisory firm - BlackSwanTrading.com.

(Copyright 2004 Asia Times Online Ltd. All rights reserved.

posted July 06, 2005 06:21 PM              

Posted on Fri, Jun. 24, 2005
JAMES EDWARD BATES, Biloxi Sun Herald
Simulated oil meltdown shows U.S. economy's vulnerability

By Kevin G. Hall

Knight Ridder Newspapers

WASHINGTON - Former CIA Director Robert Gates sighs deeply as he pores over reports of growing unrest in Nigeria. Many Americans can't find the African nation on a map, but Gates knows that it's America's fifth-largest oil supplier and one that provides the light, sweet crude that U.S. refiners prefer.

It's 11 days before Christmas 2005, and the turmoil is preventing about 600,000 barrels of oil per day from reaching the world oil market, which was already drum-tight. Gates, functioning as the top national security adviser to the president, convenes the Cabinet to discuss the implications of Nigeria's spreading religious and ethnic unrest for America's economy.

Should U.S. troops be sent to restore order? Should America draw down its strategic oil reserves to stabilize soaring gasoline prices? Cabinet officials agree that drawing down the reserves might signal weakness. They recommend that the president simply announce his willingness to do so if necessary.

The economic effects of unrest in faraway Nigeria are immediate. Crude oil prices soar above $80 a barrel. June's then-record $60 a barrel is a distant memory. A gallon of unleaded gas now costs $3.31. Americans shell out $75 to fill a midsized SUV.

If all this sounds like a Hollywood drama, it's not. These scenarios unfolded in a simulated oil shock wave held Thursday in Washington. Two former CIA directors and several other former top policy-makers participated to draw attention to America's need to reduce its dependence on oil, especially foreign oil.

Fast-forward to Jan. 19, 2006. A blast rips through Saudi Arabia's Haradh natural-gas plant. Simultaneously, al Qaida terrorists seize a tanker at Alaska's Port of Valdez and crash it, igniting a massive fire that sweeps across oil terminals. Crude oil spikes to $120 a barrel, and the U.S. economy reels. Gasoline prices hit $4.74 a gallon.

Gates convenes the Cabinet again. Members still disagree on whether America should draw down its strategic oil reserves. Homeland Security chief James Woolsey, who ran the CIA from 1993 to 1995, argues that a special energy czar is needed with broad powers to bypass the bureaucracy and impose offshore oil drilling and construction of refineries.

That won't help now, though, or resolve any short-term issues, counters Gene Sperling, who was President Clinton's national economic adviser.

The energy secretary suggests that relaxing clean-air standards could help refiners squeeze out every last drop of gas. That makes the interior secretary, former Clinton Environmental Protection Agency chief Carol Browner, bristle. She blames Detroit for the mess because automakers failed to develop hybrids and other fuel-efficient cars.

The Cabinet can't agree on even the simplest short-term solutions. There aren't many options beyond encouraging car pools and lowering thermostats. There's no infrastructure in place to deliver alternative fuels such as ethanol or diesel made from soybeans or waste products.

Fast-forward again, to June 23, 2006. Emboldened Saudi insurgents attack foreign oil workers, killing hundreds. A mass evacuation follows from the world's pivotal oil producer, the one country that could be counted on to boost production during shortages in global supplies.

A take-charge guy with a Texas accent who led the CIA from 1991 to 1993, Gates calls yet another war-room meeting. Global recession looms. The world economy turns on cheap oil. Without foreign oil workers, how will Saudi Arabia meet its production targets and quench the oil thirst of America, China and India?

Oil prices have reached an unthinkable $150 a barrel. In Philadelphia, Miami and Kansas City, Mo., gas prices reach $5.74 a gallon. Now it takes $121 to fill that midsized SUV.

You get the picture. The scenario is intended to show how vulnerable the U.S. and world economies are because of dependence on oil from places where political instability threatens orderly production and distribution.

This year the world is consuming about 84 million barrels of oil a day. America alone guzzles about 20.8 million barrels a day. Experts think oil-producing nations have only 1.5 million barrels a day or less of unused production capacity right now. A disruption anywhere could cause market panic and spiking prices. That's largely why oil and gasoline prices are so high right now.

Saudi Arabia and other countries are trying to increase production, but that won't help much before next year at the earliest. Meanwhile, any hiccup in production, delivery or refining could cause disaster.

"A million or a million and a half barrels of oil a day off the market is a very realistic kind of scenario. You can think of a dozen different countries around the world ... where you can see that happening. Or even a natural disaster could do that," Gates said in an interview.

Former CIA chief Woolsey described as "relatively mild" the scenarios that the National Commission on Energy Policy and the advocacy group Securing America's Future Energy simulated. Both groups are pushing for reduced dependence on conventional oil.

"It was striking that by taking such small amounts off the market, you could have such dramatic impact" on world oil prices, said Robbie Diamond, the president of Securing America's Future Energy.

Richard Haass was a top adviser to former Secretary of State Colin Powell until 2003. The simulation taught him how little influence policy-makers would have in reversing an oil shock wave.

"I think where most of the work has to happen now, both intellectually and politically, is on demand" reduction, Haass said.
http://www.realcities.com/mld/krwashington/11979395.htm

posted July 06, 2005 06:22 PM              

By Timothy Gardner

NEW YORK (Reuters) - Oil prices hit a record over $61 a barrel on Wednesday as a tropical storm shut refinery units in Louisiana and a looming storm compounded worries over refiners' ability to boost pre-winter fuel supplies.

U.S. crude jumped as high as $61.35 per barrel, the highest price for oil futures since they began trading in 1983. It later settled at $61.28 per barrel, up $1.69, or nearly 3 percent, on the day. London Brent settled up $1.56 to $59.85 a barrel after hitting a record $60.

Tropical Storm Cindy slowed into a depression on Wednesday but not before knocking out transmission lines in Louisiana, briefly shutting refinery units and leading to minor production cuts at five refineries in the state.

posted July 10, 2005 10:14 PM              

FORT YUKON, Alaska - The Bush administration's agenda for relieving high oil prices lies beneath the permafrost at the Arctic National Wildlife Reserve; and opposition to the drilling, based on environmental and cultural reasons, are strong.

If the Gwich'in have their say, no drilling will take place and the entire region will become a wildlife preserve, forever halting any debate over oil drilling.

The search for oil has reached a fever pitch in Congress, the Department of Interior and the Bush administration. Interior Secretary Gale Norton has made numerous trips to ANWR to inspect the area that would be opened. The 1.5 million acres that is not designated wilderness could be opened for drilling.

The remainder of the 19-million-acre reserve is untouchable: and that's what the Gwich'in steering committee wants for the entire area.

ANWR drilling was not included in the energy bill approved by the Senate, but the House included the opening of ANWR in its version, which includes possible revenue to be gained from the sale of oil. No action is expected before a budget is considered, which would not occur until September.

Alaska's junior senator, Lisa Murkowski, expressed optimism that the bill will pass this time around. The drilling, according to Murkowski, will generate revenue for the federal government; and even though there is still a political battle ahead for any budget bill, she is confident ANWR will see drilling rigs soon.

The Gwich'in have successfully convinced Congress to not drill in ANWR eight times. The Gwich'in steering committee is confident, albeit guarded, that it can again be successful.

''Why bother to go into a place we call 'where life began'?'' asked Sarah James, Gwich'in elder.

There is support and opposition among Alaska Native communities, but James said more traditionalists are coming over to the side of the Gwich'in. The community most closely aligned with any drilling will be Kaktovic, located in ANWR. The economic impact from oil drilling that now takes place in Prudhoe Bay has helped that and other communities.

One concern is the possibility that if ANWR was opened to oil drilling, the next step would be for off-shore drilling. The opposition to off-shore drilling runs at about 100 percent throughout the area, according to many elected officials.

The Kaktovic Inupiat Corp. favors the drilling for its potential economic impact; still, offshore drilling is not acceptable to the corporation. What is feared with drilling - offshore or onshore - is the impact it will have on wildlife, a major source of food and revenue for the Alaska Native population.

Many people still hunt whale for subsistence, and they fear the animal's migratory habits will be impacted by offshore drilling.

Caribou are the main source of food and other goods for the Inupiat and other people. The steering committee, whose members mostly live hundreds of miles away from the proposed drill site, still hunt caribou and expect the birthing regions to be adversely affected by

the drilling.

Proponents of the drilling - Gov. Frank Murkowski, for one - said that since Prudhoe Bay Field was opened the numbers of caribou have increased - not declined, as environmentalists had predicted.

To help convince Congress to vote against funding any drilling, the Gwich'in are planning a march on Washington, D.C. in August, complete with ceremonies, singing, drumming and dancing, James said.

''This is a hard battle; we will celebrate human rights,'' she said. ''We are calling on all nations, all Native American people to be united.''

James reminded all American Indians that proposed provisions in the energy bill threaten tribal sovereignty.

Many Inupiat residents who live near the existing oil drilling region claim that air pollution has caused an increase in instances of asthma.

Many elders also claim that herds of caribou do not travel through the same areas as before and that many are showing signs of illness. Helicopters and seismic sensors that search for oil reserves are also disruptive to the caribou migration patterns.

The Porcupine Caribou in particular do not venture near the existing oil field, but the Gwich'in are concerned that their numbers have been reduced because of an increase in other herds and a reduction in habitat.

Proponents of drilling claim that new technologies will solve any pollution problems and that with the new technology, only a small area will be used for equipment and storage.

The Gwich'in steering committee recently resurrected an old resolution, one that was used eight times before to oppose any funding measure that would allow for drilling.

''That the United States Congress and President recognize the rights of our Gwich'in people to continue to live our way of life by prohibiting development in the calving and post-calving grounds of the Porcupine Caribou herd,'' the resolution stated.

It continued: ''That the 1002 area of the Arctic National Wildlife Refuge be made Wilderness to achieve this end.''

The Gwich'in are caribou people, and the birthplace of the Porcupine River caribou is considered the sacred place where life begins.

In order to convince Congress, James said there will be some runs, some sacred fasting and a gathering of as many American Indian religious leaders as possible in the nation's capital. She said the gathering would take place in mid-August.

The Gwich'in steering committee works closely with environmental organizations. The Gwich'in cannot lobby, but the environmental organizations can, James said.

http://www.indiancountry.com/content.cfm?id=1096411201

posted July 10, 2005 10:16 PM              

By Michael T. Klare
For those oil enthusiasts who believe that petroleum will remain abundant for decades to come — among them, the president, vice president and their many friends in the oil industry — any talk of an imminent "peak" in global oil production and an ensuing decline can be easily countered with a simple mantra: "Saudi Arabia, Saudi Arabia, Saudi Arabia."

Not only will the Saudis pump extra oil now to alleviate global shortages, as is claimed, but they will keep pumping more in the years ahead to quench our insatiable thirst for energy. And when the kingdom's existing fields run dry, lo, it will begin pumping from other fields that are just waiting to be exploited. This is the basis for the administration's contention that we can continue to increase our yearly consumption of oil, rather than conserve what's left and begin the transition to a post-petroleum economy.

But that may not be the case. In a newly released book, investment banker Matthew R. Simmons convincingly demonstrates that, far from being capable of increasing its output, Saudi Arabia is about to face exhaustion of its giant fields and will probably experience a sharp decline in output relatively soon. He also argues that there is little chance that Saudi Arabia will ever discover new fields that can take up the slack from those now in decline.

If Simmons is right about Saudi Arabian oil production — and the official dogma is wrong — we can kiss the era of abundant petroleum goodbye forever. This is so for a simple reason: Saudi Arabia is the world's leading oil producer, and there is no other major supplier (or combination of suppliers) capable of making up for the loss in Saudi production if its output falters.

According to the U.S. Department of Energy, Saudi Arabia possesses about one-fourth of the world's proven oil reserves, an estimated 264 billion barrels. Also, the Saudis are believed to harbor additional reserves containing another few hundred-billion barrels. On this basis, the department asserts that "Saudi Arabia is likely to remain the world's largest oil producer for the foreseeable future."

Consider the DOE's projections. Because of the rapidly growing international thirst for petroleum — much of it coming from the United States and Europe, but an increasing share from China, India and other developing nations — the world's expected requirement for petroleum is projected to jump from 77 million barrels per day in 2001 to 121 million barrels by 2025. Fortunately, says the DOE, global oil output will also rise by this amount in the years ahead. But over one-fourth of this additional oil — about 12.3 million barrels per day — will have to come from Saudi Arabia.

The problem is, if you take away Saudi Arabia's 12.3 million barrels, there is no possibility of satisfying anticipated world demand in 2025.

The Saudis vehemently deny their fields are in decline. The DOE, with no independent verification, backs them up. In the end, it comes down to this: America's entire energy strategy, with its commitment to an increased reliance on petroleum as the major source of our energy, rests on the unproven claims of Saudi oil producers that they can continuously increase Saudi output in accordance with the DOE predictions.

And this is where Simmons enters the picture, with his meticulously documented book, "Twilight in the Desert." Simmons is not a militant environmentalist or anti-oil partisan; he is chairman and CEO of one of the nation's leading oil-industry investment banks, Simmons & Co. International. For decades, he has been financing the exploration and development of new oil reservoirs. In the process, he has become a friend and associate of many of the top figures in the oil industry, including George W. Bush and Dick Cheney.

Essentially, Simmons' argument boils down to four major points:

(1) Most of Saudi Arabia's oil output is generated by a few giant fields, of which Ghawar — the world's largest — is the most prolific.

(2) These giant fields were first developed 40 to 50 years ago, and have since given up much of their easily extracted petroleum.

(3) To maintain high levels of production in these major fields, the Saudis have come to rely increasingly on the use of water injection and other secondary recovery methods to compensate for the drop in natural field pressure.

(4) As time passes, the ratio of water to oil in these underground fields rises to the point where further oil extraction becomes difficult, if not impossible. To top it all off, there is very little reason to assume that future Saudi exploration will result in the discovery of new fields to replace those now in decline.

This being the case, Simmons concludes, it would be the height of folly to assume that the Saudis are capable of doubling their petroleum output in the years ahead, as projected by the DOE.

The moment that Saudi production goes into permanent decline in the not-too-distant future, the Petroleum Age as we know it will draw to a close. Oil will still be available on international markets, but not in the abundance to which we have become accustomed and not at a price that many of us will be able to afford. Transportation, and everything it affects — virtually the entire world economy — will be much more costly. The cost of food will also rise, as modern agriculture relies to an extraordinary extent on petroleum products for tilling, harvesting, protecting, processing and delivery. Many other products made with petroleum — paints, plastics, lubricants, pharmaceuticals, cosmetics and so forth — will also prove far more costly. Under these circumstances, a global economic contraction appears nearly inevitable.

Only if we act now to limit our consumption of oil and develop non-petroleum energy alternatives, can we face the "twilight" of the Petroleum Age with some degree of hope; if we fail to do so, we are in for a very grim time.

Given the high stakes involved, there is no doubt that intense efforts will be made to refute Simmons' findings. With his book, however, it will no longer be possible for oil aficionados simply to chant "Saudi Arabia, Saudi Arabia, Saudi Arabia" and convince us that everything is all right in the oil world.

http://www.latimes.com/news/opinion/commentary/la-oe-klare27jun27,0,4666067.story?coll=la-news-comment-opinions

posted August 06, 2006 11:19 AM            

I just find it interesting during discussions about oil consumption, that plastics is never mentioned.

I don't have any great sweeping point to make, other than to point out that plastics are petreolum products, plastics are prolific, and I personally would find it a lot more difficult to live without plastics than my car. (which incidentally also contains a lot of plastic).

I would be interested to know from an industry insider how demand for plastics affects global oil markets, if at all.