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May 03, 2004

Money, Oil, Power

Stirling Newberry writes for BopNews and is an advisor to the Jim Newberry campaign. The opinions expressed here are his own.

BBC openly speculates about withdrawl from Iraq while Oil hits a 13 year high.

These events are at a nexus - the last time oil was at these prices, the world waited for war against Saddam. The quest to open Iraq's oil market is the deciding geopolitical factor, regardless of the slogans, involved in events as they unfold. Every leader is asking only one question: "How can I arrange this on the most favorable terms to my nation?"

In the US, the road to failure is already laid out, the question is when, not if, Greenspan must raise interest rates to squeeze out energy inflation, which is now causing general inflation in the US - which ran at an annualized rate of 6.1% last month. The UK had hoped to join the alliance, and be able to restrain the flood of oil, because the UK's economy relies on a high, but not too high, price. The Saudi's meanwhile, having played the waiting game, are caught. On one hand they want oil higher for their own purposes, on the other hand, Iraq is now a cauldron, which means that there must be a flood of currency into Iraq to quiet the unease.

That the unease is growing can be traced from the uptick in bombings in Baghdad, attacks on US service personnel in Najaf, and the more or less surrender of Fallujah to Saddamist elements. If 1000 fighters - the US's current estimate, itself too low by at least 2000 - can stand off 2500 heavily armed Marines backed by air power, then the US is defeated indeed.

The opening of Iraq then, will not take place on terms favorable to the US, nor favorable to rapid opening of the oil supply. China, protecting an overvalued currency and an insolvent banking system, is already taking steps to reign in the economy there. This means, in turn, that the Chinese will not be able to finance US deficits. Since the Japanese are, similarly, out of reserves, that means that interest rate rises will come sooner rather than later.

The Executive's plan was always Nixonomics redux - find ways of borrowing money and keeping oil low long enough to gain control of the political and economic infrastructure and reach re-election. Nixon made it to 1972, but not to 1974. Bush seems close to failing to reach election day 2004 - which is why his popularity is in that "twlight zone" - higher than those who have lost, but lower than those who have won. Americans wait to see how this turns out.

The UK is also preparing to cut its loses. The most prominent victim is Tony Blair, who clearly staked his legacy on this act - but the Labour Party as well must realize that an accounting is coming - where the differences between their platform, and that of the Conservatives, will seem trivial compared to their failures in Iraq. If not Labour to keep England out of war, then who?

But the most important question is how Saudi Arabia plays its hand. Already violence is pouring into the Oil Kingdom, which could lead, in short order, to turbulence in their control. They are not close to overthrow based on reasonable estimates, but their cost structure is about to go up.

Because this is what must never be lost sight of: the cost of oil, in capital terms, is trivial - the real cost of oil is rent, the cost of holding the ground it sits under. And that cost grows with each wave of complex machinery of war, and with the vast liquid sea of smuggled arms, and black money.

 Posted by Stirling Newberry @ 05/03/2004 05:36 PM | TrackBack