The Quonset Hut

I don’t like to spread gloom and doom, and really - truth be said - much less engage in discussions over things that seem immensely attractive to some and to me are nothing but windmills, since not a shred of evidence or consequence - even if extensively interpreted, the meaning of both “evidence” and “consequence” - can be, or has been, produced besides stuff derived from very fertile imaginations.

That said,
What has been going on – and is going on - in our economic environment, is very strange. And has me very, very worried.
It needs no brainiac or conspiracy theorist to realize that something has to be behind the abrupt collapse of the price of Oil and the consequent surge of the USDollar.

You want to believe that a sudden “unexplainable” Oil glut flooded the Offer side, and an even more “unexplainable” breakdown occurred on the Demand side of the market …. so be it, and sleep well.

Oil Glut.jpg (10.39 KiB) Viewed 3001 times

You want to believe the Americans played for close to a decade a policy of a weak Greenback, which facilitated their exports all around, overpriced other guys products in other currencies if imported and also gave them the opportunity to export their Inflation while keeping the money machines printing nonstop - only to now, all of a sudden - and in less than a year, see that Greenback “unexplainably” turning around to soaring heights …. so be it, and sleep even more soundly.

Dollar Glut.jpg (9.21 KiB) Viewed 3001 times

Me, I’m thinking of something I read a while back and have since then talked about with some colleagues better educated and informed than I am, the last of them just today. They mostly concurred with the notion, with the possibility and with the precedence. Some had even heard of it.

And that’s when I started feeling nauseous.

And decided to write this. Just to ease my mind, if nothing else, but hoping it may be of use.

That also said,
Samson, as I believe most people know, was a biblical figure who had immense physical strength the secret of which was in his hair, and that having had it cut in his sleep by his treacherous wife Delilah, was rendered powerless and then captured and imprisoned by his enemies, the Philistines.

Samson's Haircut.jpg (10.75 KiB) Viewed 3001 times

Now, what I also believe most people don’t know – or remember - is how he died, after being captured and imprisoned.

So I’ll say it :
- He committed suicide… but by choosing a process that also killed all of his captors.

Which is why his suicidal Death-Cry of “Let me die with the Philistines!” came really to represent a War-Cry. Rife with gloom and raged inside doom, true, but warlike nevertheless.

Samson's Choice.png (107.6 KiB) Viewed 3001 times

It is then a cry uttered not by a Victor in battle … but by an Equalizer in defeat.

As things go, some military students named an alleged Israeli war “deterrence doctrine” as … “The Samson Option”.
Meaning, Israel will use massive retaliation with nuclear weapons as a choice of "last resort" if military attacks threaten its existence (http://en.wikipedia.org/wiki/Samson_Option), devised under a notion much like that of Samson’s choice – I’ll Die, but I will take You Down with Me.

Fact or Fiction ?

Most probably Fact - from my standpoint, that is - given historical, available facts and my “interpretation” of the Middle East conflict and its consequent, horrible but increasingly possible, outcome.

Thing is, I’m not going over all of this to talk about Bible figures or Israel's doctrines.

So, what does all of that have to do with Economics and my worries ?



A lot, unfortunately.

And I’ll write about that.

Facts :
- Saudi Arabia, the biggest Oil producer, is of the Sunni branch of Islam. Same as the Gulf States. Same as ISIL. Same as the Russian Chechnya rebels.
- Iran and Iraq are of the Shiite branch of Islam, which represents only around 10% of all Muslisms, the other 90% being Sunni.
- Bashar al-Assad, Syria’s president, is Alawite, which is an offspring of the Shiite branch of Islam. Shiites and Alawites are first degree cousins, and suffered for centuries persecution from the Sunni.
- America’s best friend in the Region is Saudi Arabia. Which preaches, finances and supports the expansion of Wahhabism, a orthodox form of the Sunni creed. Most of the 9/11 commandos were Saudi. Same as Osama Bin Laden.
- Russia’s best friend in the region is all who are not of the Sunni creed, for they maintain for decades inside their country a no mercy fight with the Chechens. That is why they support Iran, and Syria. And nowadays, Iraq too, because Saddam Hussein was Sunni and he is no more the controller of that country, which is now Shiite owned. Russia is also the second biggest Oil producer. And with Iran and Iraq, these three countries represent around 22 %of all Oil production. Leaving behind the Saudi’s, who represent around 13%.
- The European Union is the biggest market for Oil, after America.
- The European Union is supplied by OPEC, a cartel controlled by the Saudis.
- Oil is paid in USDollars. No other currency is accepted
- Fracking or Shale Oil production (the staggering percentage of which is American since, for instance, in Europe this production method is forbidden due to its impact on Nature) is estimated to be commercially non viable below 60 USD per barrel of pumped Oil, for then it will be cheaper to buy Oil originated that way instead of through the fracking/shaleing method.
- Price of barrel of Pumped Oil is now around 55 USDollars.
- Saudi’s pumped Oil is estimated to cost them around 3 USDollars per barrel. Above that price, it is Profit. Same goes for Russia’s, Iran and Iraq’s pumped Oil.

Read again, all of the above.
Remember it.

It will make sense, later.



For I'm not just presenting Facts, but building a Case.

I'm following, Luis. Something big is going on. I'm open to your conjecture, and making a few of my own. A short while ago, Tesla announced that they were releasing their patents. Toyota has released some 5000 fuel cell patents. Hypothetically speaking, if you owned massive amounts of a currently desirable resource but knew that the time was approaching when technological advancements would cause the demand for that resource to drop, what would you do?

rose

Facts :
- America’s Debt is around 18 Trillion Dollars. European Union’s debt is around 15 Trillion Dollars. Russia’s foreign debt is around 700 Billion Dollars (less than 1 Trillion, then), the rest being domestic, therefore irrelevant.
- Japan’s debt to GDP (Gross Domestic Product, meaning, towards wealth yearly produced) is over 220 %. Europe stands along 90 %. America is close to 80 %. Russia’s has yet to breach 15 %. Russians are then the least indebted.
- Also, Russia has around 550 Billion USDollars of currency reserves, making it one of a very few countries with ready cash in hand. Real, not printed or digital. The other few such countries are Muslim (Sunnis foremost, and Shiites second) and the Chinese.
- The U.SDollar has been the world's de facto reserve currency for almost 90 years. But the Chinese have these last two years made numerous bilateral trade deals that completely bypass it. Most of them with Russia, in exchange for Russian Gas and Oil, all of it not paid in USDollars.
- They broke the Nixon petrodollar system, whereby the United States would provide political and security support to Saudi Arabia's royal family in exchange that all oil deals would have to be transacted exclusively in dollars - which is the current Status Quo and guarantees a constant and elevated demand for U.S. dollars worldwide.
- This a sweet deal for both. Russia lessens its dependence on the European market and China breaks the USDollar hegemony.
- To further undercut this long standing Status Quo, Russia called on its Shiite friends – Iran Iraq and Syria - to build an Oil pipeline from Iran and Iraq, going through Syria and into the Mediterranean. So as to supply Europe, and providing this huge market with a cheap alternative.

Iran-Iraq-Syria Pipeline.jpg (14.74 KiB) Viewed 2995 times

- European money would then flow right into Shiite hands, not Sunni.
- On top of this, we have Natural Gas. Europe depends on Russia for it. For decades now, close to 30 % of what Europe burns comes from Russia. For Russia built a pipeline from Siberia all the way to Germany, which then functions as a distribution agent to the rest of the European countries.

Rusian Gas pipeline.jpg (12.64 KiB) Viewed 2995 times

- The Gas pipeline enters Europe through Ukaraine.
- The Oil pipeline will enter Europe through Syria.


This is The Game.
Which is being played.

- One which, if played unchecked, Russia wins. China wins. Shiite wins. Europe watches from the side, not playing, for it will keep on paying the same, or less . But America loses. The Saudis lose. The Sunni lose. And they lose Bigtime.

This is The Game.


How have America and the Sunni/ Saudis played and responded ?
- Devastantingly.


And I’ll write about that.

Rose, I'd like to believe (really would) that it was the possible emergence of new "technological advancements" that was at the root and were the reasons of what we see unfolding at breakneck speed.

But I don't.

Context and Conjecture :
What is important is to not let one be blinded by the minutiae of things and instead look at the Big Picture, much as like zooming off a map will even down the small details but will enhance the big characteristics.

That is one of the reasons why I will not spend time going in a lot of side issues or reasons, the other being it would be fastidious and, what’s worse, not value adding besides curiosity.
By using that methodology, what we see are two very distinct issues : one, a Geopolitical wrestling where a player, America, will not allow the resurgence of an old foe, Russia, or of a new one, China. And another, where Energy control and distribution finances the resources spent by a Power exercising Geopolitical dominion aimed at supremacy.

It then follows, quite evident and naturally, that in order to win The Game, the player will have to conjugate his geopolitical aspirations with his Energy needs. No alternative exists.

Since ever and until 2001, things were simple. After much turmoil and decades of plotting and counterplotting, things had settled down on a very precise set of rules : a few guys supplied one player, Russia, and a lot of other guys – the majority – supplied the other player, America. And if this implied America having to get in bed with some very diseased partners, so be it.

Thing is,
In 2001 America decided to topple Hussein. And did. But contrary to America’s expectations, it got no gratitude in return, that is, no friend was set in his place. And worse, a regime of the Shiite creed came up in that country, making it a De Facto ally with Iran even if (to complicate it further) one with geopolitical aspirations more on the side of America.

And if one thing goes bad, it will keep on going bad until you fix it.
For this new reality was unacceptable to America’s Energy suppliers, the Sunnis. And that’s when the Game got dangerous, for Equilibrium had been broken and unknown variables then went into it.

America said “Give us time, we’ll fix it”.

And they tried, but haven’t. Not only did America not “fix it”, they even bungled it more.

Russia, in the meantime, had been recovering from a near death-blow – the toppling of its Soviet regime – and not been playing moves of consequence, distracted by its own domestic problems, but gaining momentum all the time …. because they were by their own right a big producer of Energy.

And the death-blow had been inflicted on them by using Energy as a weapon, as we’ll see, thereby leaving on top of the board an IOU to be repaid.

Now, with the Game very fluid and out of control, something had to be done – the Energy suppliers had to be satisfied and protected, the old Foe had to be kept in check, and an unholy alliance between Shiites had to be dismembered.

That’s when the Sunnis decided to move. And call upon America their IOU. Which it gladly paid, for by then Russia had been flexing its muscles too much, and sometthing also had to be done.


It started in 2013.
Ruthlessly.



And I’ll write about that.

Facts
- In early January 2011, the Arab world erupted in what MSN designated as "The Arab Spring". By early January 2014, it had toppled governments in Tunisia, Egypt (twice), Libya, and Yemen. And had spread major convulsions, among other countries, in Syria.
- Tunisia, Libya and Yemen now have in place hard line leaders towards Islam. Egypt holds on, held at gunpoint by its military. But Syria has sunk into destruction, and to this day of 2015, suffers an ongoing civil war.
- No Oil pipeline project has been materialized there.

Syria's Destruction.jpg (5.5 KiB) Viewed 2990 times

Facts
- An obscure group of jihadists formed in 1999, which had in 2004 pledged its loyalty to Al-Qaeda (one among dozens) and had remained undifferentiated for almost a decade, suddenly in 2013 enters fully fledged, first the Syrian civil war and then overruns the combined efforts of both Iraqi and Syrian Armies, to occupy to this day of 2015 a large zone of Sunni based peoples inside the territory of both these countries.
- This ISIL’s “occupied zone” is then stranded among parts of Syria and Iraq, effectively cutting Syria off from contact with Iraq and Iran.
- If any Oil pipeline had already started construction there, it has since long been destroyed and any hopes of having it put in place, postponed Sine Die.
- Al-Qaeda has meanwhile, and for reasons unknown, cut off its ties with ISIL.

ISIL's Country.jpg (12.15 KiB) Viewed 2990 times

Facts
- In the fall of 2013, the democratically elected Ukrainian government decided not to sign a capital (cash) deal with the European Union.
-There followed crisis, the government was toppled and a new one set in place, more sympathetic to “European values” and “European help”, which then signed the “treaty”.
- Russia responded, and to this day of 2015, East Ukraine is a battlefield between “patriotic Ukrainians” and “Russian Separatists”.
- The Gas pipeline has been targeted several times and gas price has increased more than 80 % in Ukraine, further disrupting its flow onwards to Europe.

Ukraine's Destruction.jpg (11.19 KiB) Viewed 2990 times

Now,

Facts
- By 2013, both Energy “entry points” to the European market had been wrestled away from Russian influence, and removed the threat from its Iranian-Iraqi-Syrian Shiite friends .
- By 2014, and to this 2015 day, both Ukraine and Syria are war zones.

Facts
- Sunnis have meanwhile accepted to lose a lot of money, its oil barrel price crumbled and is now at a third of its former price, but they have stated they won’t mind further price lowering and are “ready to $20 per barrel”.
- Russia has meanwhile lost gargantuan amounts of money, for it now exports Oil and Gas for a third of its previous revenue and has its Gas highway choked, and its Oil route plans overturned.

All this is not fiction.
But Facts.

Conjecture - Part II :
- Russia remembers what happened in the late 80’s, when Energy price suddenly lowered and its revenue loss broke their back, which by then was critically bended for its resources and wealth were at the time diverted by more than 50 % to a Arms Race with America.
- Energy was a weapon then used, effectively, against them.
- What we are seeing is a rerun of That Game.

Thing is,
Putin, Russia's President, has nothing to do with the Geriatric Nomenclature of past Soviet times.

And that’s when he thought of Samson.

Or, more precisely, of what his military men call “The Samson Defense”.


And yes, I’ll write about that.
Definitely.




Truth be said, that's all I've been talking about.
You should listen, really, for I don't think I'm chasing windmills.

I have stopped the windmill and am listening

Mikado

One image is worth a thousand words so before I go on, I’d like you to look at 3 charts.
And think.

It is only worthwhile to do it, though, if you have read all of what I’ve posted previously.
I’ve thought.
And it has frightened me.

Especially once I saw these (well, similar) charts.



Evolution USDollar versus Euro - 1 year chart

USD to Euro 1 year chart.gif (6.03 KiB) Viewed 2987 times

Evolution Oil Price – 1 year chart

Evolution Gold price – 2 year chart

Gold Price 2 year chart.gif (11.21 KiB) Viewed 2987 times

I'll try to explain why.
It scared me, I mean.

Just stay with this notion - It gives credibility to a "Samson Defense".

And that means we're in for a lot, a lot of trouble ....