Friday, January 27, 2006
Do a search on google with any of these terms and you'll see how this little-publicized issue is quickly catching on with many Washington think tanks and other "tree-top" policy projects... take a look, for example, at the Ahwaz Studies Center in Lorton, Virginia... smacks of Ahmed Chalabi in 2002??
Saturday, January 21, 2006
I think it's doubtful that Iran has managed to produce an atomic bomb domestically. However: we do know that Iran has a long-standing and clandestine arms-trading relationship with North Korea. We do know that Iranian ballistic missile technology has been aided by North Korean expertise from their No-Dong and Taepo-Dong programs. We do know that there have been several Iranian IL-76 flights in the past two years that have delivered and received unknown but mysterious cargo. We do know that China has on more than one instance refused overflight because of the nature of that cargo, without stating what the cargo actually was. We do know that North Korea has, most likely, several small atomic bombs. We do know that North Korea is led by a rather unstable individual. We do know that Iran has many things that North Korea wants--hard currency not being the least of these.
Is it really much of a leap from there to suggest that Iran has purchased one or more atomic weapons from North Korea? I certainly haven't heard any direct evidence to this effect, but it doesn't seem that unreasonable.
Of note: US Air Force WC-135 aircraft would be deployed to the region immediately after the detection of any Iranian test, and they are able to capture quite small quantities of nuclear radiation from such a test--even from a well planned underground test. Since isotope breakdown forms something akin to a fingerprint, it should be possible to definitively say that any Iranian bomb test used nuclear material from a North Korean reactor--if that is the case. We have samples for comparison from when the IAEA was operating in North Korea.
Friday, January 20, 2006
Not that this is much of a surprise. Shortly after OPEC began linking production quotas to reserve levels, all the major players miraculously doubled their oil reserves. PIW's report is the smoking gun that finally shows what has been widely understood all along: that OPEC reserves are really only about half what is claimed.
So what does this mean for our ability to produce oil? Well, the classical Hubbert peak takes place when half the oil in the ground has been produced. However, if you discount OPEC reserves by 50%, it becomes clear that we are WELL past that half-way point. So production should have already begun to decline. This suggests that, as widely feared, only the use of water injection and water flood tecniques to keep reservoir pressure artificially high have kept production rates up for the past several years. The problem with this is that when a field who's production rate has been artificially sustained beyond the half-way point finally does begin to decline, its rate of decline tends to be very, very high. 10-18% has been suggested (by Simmons and others) as the decline rate for fields that have been pressed to the limits with injection technologies. This is critical, because while Peak Oil may be a quite manageable problem at 2% depletion, 10%+ depletion means that world production will fall by half in less than 7 years. That would be absolutely catastrophic. No wonder this story isn't available on CNN.
Maybe those Mayans were on to something with their "2012" prediction?
Oil is on a tear. Another attack on a Shell platform in
It’s easy to make excuses for why oil is going higher. The problem is, they’re largely just that: excuses. To the extend that they are actually impacting supply (as with Nigeria), there is a real impact on oil price. Unfortunately, it’s often difficult to differentiate between real supply issues and speculative concerns over geopolitical events. But not today. Today is the expiration day for the February NYMEX future contract, and it’s already up $1.46/barrel. Is there speculative pressure affecting the price of crude oil? Sure, the December ’06 contract is trading at roughly $2 more than the February ’06, and some of that is the so-called “risk-premium.” I just don’t buy the statement by many that there is a $10-$15 risk premium on a barrel of oil, because that would quickly disappear as derivative traders arbitraged from crude to delivery on refined products (I don’t think that many finance reporters actually understand the multitude of arbitrage options available…). But when the front contract expires in under an hour, the last-minute surge just can’t be credibly attributed to “speculation.” The only speculation that you can do with a thousand barrels of delivered crude oil sitting on your front porch is to arbitrage it with the new front-month contract (March), and that same speculation could be done with far less risk by simply purchasing March options. No, the price is surging to create an appropriate equilibrium between supply and demand.
Which brings up one of my favorite topics, demand destruction. The common wisdom is that, above a certain price, people increasingly conserve or shift to alternatives to oil, and this destroys demand. This is the cornerstone of most arguments that oil prices will never get to $100/barrel (a few years ago they used “demand destruction” to argue that prices would never reach $60/barrel…), and that if prices get too high they will destroy so much demand that prices will plummet, maybe back to $40/barrel. This argument is simply bad economics. “Demand destruction” doesn’t decrease marginal demand. At $60/barrel people have reached a collective equilibrium about how much oil they will use. If prices rise, demand may be destroyed, but not marginal demand. Essentially, at $5/gallon gasoline, people might drive less, but the most that can do is to create friction on prices rising further. Should gasoline drop back to under $3/gallon (i.e. current US prices), then they’ll drive just as much as they did before the price spike—but not less. So demand destruction acts as a brake on price increases, but it won’t cause prices to drop to lower than they are now. The caveat to this argument is that, over longer time periods, it is possible that high prices cause investment choices that, when prices then fall back to lower levels, have affected the underlying marginal demand. For example, most people buy a car with plans to use it for several years. If prices stay high enough for long enough to cause them to buy a more fuel efficient car AND to drive less, then potentially if prices return to present levels and they stop driving less, they are still using less oil because they have a more fuel efficient car. This process will require high prices over at least several years before it begins to take effect—and is largely cancelled by efforts to maintain “economic growth” (read: oil usage) by programs such as car-maker’s SUV incentive programs and low interest rates. Demand destruction is a very real phenomena. But if you’re waiting for it to bring oil prices back down to $20/barrel, I’ve got bad news for you. . .
And as I end my rambling, NYMEX crude is nearing very close to $69/barrel. Certainly makes me happy about my call options.
Monday, January 09, 2006
In the past I have commented on what the jihadis want, stating that "Bin Laden wants to establish an Islamic Caliphate throughout the Arabic Middle East. To do that, he needs to remove the secular regimes that are currently in power." Phares confirms this analysis, but elaborates a great deal. His explanations are enlightening, especially given the mixed messages about the nature of Islam and the role of jihad in that religion as portrayed by Western media. It is common to hear, at least in the West, an "Islamic Scholar" telling us that Islam is a religion of peace, and that jihadis are distorting the true message of Islam. Phares explains that the actual situation is far more complicated than such simple notions. Jihad is not one of the 5 pillars of Islam (which are witness, prayer, pilgrimage, alms, and fasting). It is, however, considered an unofficial 6th pillar of Islam--and understanding what that means requires delving into a bit of history.
Immediately following the death of Mohammed, the council of elders of Islam--the de-facto ruling body--set up a a system where a single ruler would be selected--the Caliph--and he would lead the Caliphate. Because Islam requires that the umma, or Islamic community, be expanded, the initial Caliphate had to grapple with the fundamental problem of how to do that--by military conquest, or by more peaceful means. For a variety of reasons, well articulated by Phares, Islam made the watershed decision to embrace the doctrine of "Fatah" or conquest, whereby they would spread Islam through a continual war against the infidel. Islamic historians perceive that Allah blessed this decision, because within the next 100 years the Caliphate rushed forth and conquered territory at a rate unprecedented in history. Particularly impressive was how this backward and barefoot mix of Arabian tribes roundly defeated both the Byzantine and Persian empires--the world's two super powers of the day--at the same time. This initial rush of conquest initially petered out--and this led to perhaps the key feature of the Jihadi mindset: there is a strong correlation between the decadence, corruption, and drift from the fundamentals of Islam in the ruling Caliphate, and the fortunes of this Islamic empire. The initial Caliphate quickly conquered most of the known world, but then as they began to enjoy their riches and drift from the teachings of Muhammad, they were beset by defeats by the Christian crusaders and the Mongols. The Mamelukes then arose out of
Each of these resurgent, fundamentalist groups that breathed new life into the Islamic world came onto the stage waging Jihad agaist the Infidel, and were awarded legitimacy based on the perception that their military victory in jihad was due to the blessing of Allah. And in each case, these jihads did in fact lead to a resurgence and blossoming of Islamic culture. It is through this lens that we must understand the modern Jihadi mindset: There is no legitimate Caliphate. The rulers of Islam have become decadent and corrupt. As a result, the former power and glory of Islam has been lost. It is their job--that of the Salafi Jihadist--to bring fundamentalism and military greatness back to the Islamic world. This theory is at least partially vindicated by the view that the Taliban victory in
Ultimately, Walid Phares provides an insight into the cultural ethos of the Islamic world--particularly the ethos of the culture that is inaccessible to the average American, that of the rural schools and smoky teahouses that line the (literally and figuratively) impenetrable warren of Islamic society. It is the kind of insight that someone like myself, who has studied Islam (through Western sources), who has traveled to multiple Islamic countries for numerous reasons (military deployment to Qatar, plain tourism in Morocco) just cannot pick up.