Smiting the oil market.

21 May

For Immediate Release
May 19, 2012

Statement by the G-8 on Global Oil Markets

“There have been increasing disruptions in the supply of oil to the global market over the past several months, which pose a substantial risk to global economic growth.  In response, major producers have increased their output while drawing prudently on excess capacity.  Looking ahead to the likelihood of further disruptions in oil sales and the expected increased demand over the coming months, we are monitoring the situation closely and stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied.”

This would be funny – in fact, I admit I laughed when I first read it – if it weren’t for the effect all this is going to have on pretty much everyone in the world.  These guys might as well have said that having now shot themselves in their collective feet, they just can’t figure out why they are having trouble running the marathon.  The statement released by the White House makes it sound as though the disruptions are happening for reasons beyond anyone’s control.  An act of God or a natural disaster, perhaps?  Why, oh, why dear Lord, are we being smitten by these inexplicable disruptions to the oil supply?

The increasing disruptions are caused, of course, by the sanctions on Iranian oil.  Sanctions to get them to stop doing what they are not doing; i.e., develop nuclear weapons.  Despite all the rhetoric from US and Israeli politicians, the consensus from the world’s military leaders (including those in the US and Israel) and the IAEA is that Iran is not building nukes.  We also managed to take Libya’s oil production off-line for nearly a year; quite effectively and deliberately – no act of God that either – although now that US soldiers are guarding the oil fields, Libya is entering the market again.  (Not that it does Libya much good.  Instead of the oil profits going to the Libyans, they will go to some private companies and to pay the “debt” Libya “owes the NATO countries” for its “liberation”.)

The G8, or “Group of Eight,” consists of eight large world economic powers. (The G7, as the group is sometimes known, lacks Russia.)  The G8 countries are Canada, 
, Germany, 
, Japan, 
, United Kingdom
, United States.  Russia did not attend this year’s meeting of the G8 at Camp David, so perhaps they should be calling it the G7 Summit, and refuses to participate in the sanctioning of Iran.

Iran oil exports: where do they go?

Iran has threatened to close the Strait of Hormuz through which 20% of global oil supplies pass through. Which countries does Iran export to and how much of their crude oil supply does it make up?
Iran has threatened to cut oil exports to the west and threatened to close the Strait of Hormuz through which one fifth of global oil supplies pass through – in bitter retaliation to the Iranian oil embargo agreed by the European Union.

The warning from Tehran comes after EU ministers agreed on Monday to stop any further oil contracts with the country with existing deals being allowed to run to July. The latest threats have added to an already tense relationship between the West and the Islamic Republic. Ian Traynor and Nick Hopkins have written:

Tehran threatened to respond by closing the strait of Hormuz, through which a fifth of global oil supplies pass, while a senior US official vowed that the west could use force to keep the route open.

The decision by EU foreign ministers in Brussels raised the stakes dramatically in the standoff between Iran and the west over Iran’s nuclear programme.

The closing of the Strait would impact heavily on oil exports from not only Iran but also from Saudi Arabia – the largest exporter of crude oil in 2010. As the third-largest exporter of crude oil, Iran is also of major importance as would be the closure of the Strait of Hormuz which provided the route for 17 million barrels per day (bbl/d) in 2011 – totalling 20% of oil traded worldwide.[…]

The top destination for Iran’s crude oil exports in the six months between January and June 2011 was China, totalling 22% of Iran’s crude oil exports. Japan and India also make up a big proportion, taking 14% and 13% respectively of the total exports of Iran. The European Union imports 18% of Iran’s total exports with Italy and Spain taking the largest amounts.[…]

Saudi Arabia, as of 1 January 2011, is the country with the top proven oil reserves at 263bn barrels followed by Venezuela and Canada. Iran has the fourth largest oil reserves in the world at 137bn barrels beating Iraq, Kuwait and the United Arab Emirates (UAE).


According to the WH, “In response, major producers have increased their output while drawing prudently on excess capacity. ”

Well, not really.  We have reached peak oil.  OPEC nations know it.   Hell, even the US and German militaries know it.  There is not much of an output to increase unless the point is to suck up the final drops as quickly as possible, and in fact, Saudi output has been decreasing 3% per year.  As far as drawing from the strategic reserves (“drawing prudently on excess capacity”): given that we are facing the natural occurrence of less oil in the immediate future, why are we using up our reserves on a situation we created willfully?  And at a time when global demand is actually going down?  This is known colloquially as “eating the seed corn.”

The peak oil crisis: the German army report
by Tom Whipple

In the last five or six years at least 20 major studies have been published by governmental and non-governmental organizations that either deal with or touch upon the possibility of severe energy shortages developing in the near future.

Studies done by governmental entities, however, are rare for nearly all of the world’s governments still prefer to wait as long as possible before confronting the myriad of problems that will accompany declining oil production. Exceptions to this phenomenon of denial, however, seem to be military organizations that have realistic planning baked into their DNA. All professional military services know that in the last century they have become so dependent on liquid fuels that their effectiveness would be severely degraded should shortages or extremely high oil prices develop.

Last year two military planning organizations went public with studies predicting that serious consequences from oil depletion will befall us shortly. In the U.S. the Joint Forces Command concluded, without saying how they arrived at their dates, that by 2012 surplus oil production capacity could entirely disappear and that by 2015 the global shortfall in oil production could be as much as 10 million b/d. Later in the year a draft of a German army study, which went into greater detail in analyzing the consequences of peaking world oil production, was leaked to the press. The German study which was released recently is unique for the frankness with which it explores the dire consequences which may be in store for us.

The Bundeswehr Transformation Center, the organization that prepared the study, starts with the assertion that as there are so many forces in play, it is impossible to determine an exact date for peak oil, but that it will become obvious in hindsight. The Germans also believe that it is already too late to complete a comprehensive global transition to a post fossil fuel economy. They introduce the notion of a peak oil induced economic “tipping point” that would trigger so much economic damage that it is impossible to evaluate the possible outcomes.

For the near future the study foresees that a very large increase in oil prices would harm the energy-intensive agricultural systems that produce much of our food. Not only could the costs of fertilizers and pesticides become prohibitive, but the massive amount of oil-dependent transportation needed to move agricultural products long distances could make food unaffordable for many.

The study goes on to postulate a “mobility crisis” that would arise from substantial increases in the costs of operating private cars and trucks. Although sudden shortages could be relieved by volunteer and regulatory measures, ultimately the mobility crisis would feed into and add to the worsening economic situation.[…]

For the immediate future, however, the German Army study foresees: 1. increasing oil prices that will reduce consumption and economic output (i.e. a recession or worse); 2. increasing transportation costs that will lead to lower trade volumes – less income for many and unaffordable food for some; and 3. pressure on government budgets as they must keep populations fed, deal with the social consequences of mass unemployment, and attempt to invest in sustainable sources of energy. Governmental revenues are bound to fall as unemployment increases along with resistance to further taxation.[…]

The G8, says the Obama White House, is “looking ahead to the likelihood of further disruptions in oil sales,” and they should know.  The entire range of sanctions on Iran go into effect in July.  And, of course, if the mad dogs in the US Congress and Israel get their way, there may be a new war in the Middle East soon enough. That will cause a bit of an oil supply issue, yessireebob.

Why, oh, why dear Lord, are we being smitten by these inexplicable disruptions to the oil supply?

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Posted by on May 21, 2012 in economy, fossil fuels, Iran


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