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212 comments on DrumBeat: June 7, 2007

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olepossom on June 7, 2007 - 8:52am Permalink | Subthread | Parent | Comments top

Which is why any investment in the tar sands must be matched to an investment in a uranium mining company. Now that things are heating up again between the US and Russia, what are the prospects that Russia continues to sell us their nuclear warheads for conversion into fuel rods?

My pessimism about how we are going to solve all of these problems is nearly matched by my optimism about my investments.

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westexas on June 7, 2007 - 10:23am Permalink | Subthread | Parent | Comments top

What if Russia can’t keep the pipeline full?

http://jamestown.org/edm/article.php?article_id=2372212

RUSSIAN OIL PIPELINE SHUTOFF TO LITHUANIA: WIDER RAMIFICATIONS

By Vladimir Socor

Wednesday, June 6, 2007

While seemingly unassailable legally, Moscow’s stance seems to bear out the recent forecast of Moscow-based, Russia-friendly energy and finance specialist Eric Kraus: “Russia would have no need to shower the West with nuclear missiles to create Armageddon. A simple announcement that the Transneft export pipeline would be shut down for ‘emergency repairs,’ but would be working again, soon, sometime, hopefully, [such an announcement] would send oil prices spiraling above $200 [per barrel], creating financial chaos. Yes, this is politique fiction, but it is meant to underscore the simple fact that the West shall be forced to seek an accommodation with Russia” (Truth and Beauty and Russian Finance, nikitskyfund.com, Johnson’s Russia List # 125, June 3).

BTW, Brent is currently within 2% of its post-5/05 monthly high of $74.

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olepossom on June 7, 2007 - 10:50am Permalink | Subthread | Parent | Comments top

When goods and services flow across borders, armies don't. When goods and services don't flow across borders, armies soon will. Glastnost had a lot more to do with the North Sea and Prudhoe Bay coming online and with the jump in Saudi production than with any aging B-movie star's saber rattling.

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oilmanbob on June 7, 2007 - 9:06pm Permalink | Subthread | Parent | Comments top

olepossum, you mean you don't think Reagan was the prince of peace promised in the Bible?

If anyone should be credited with causing the Russian downfall by overproduction, it should be the Saud family. My personal theory, it was MTV. Once the Russians could get half-naked girls wearing nice shoes, Communism was finished. Russian women want nice shoes too!

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MUDLOGGER on June 7, 2007 - 2:01pm Permalink | Subthread | Parent | Comments top

Why shouldn’t Russia feel beleagured?

http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/art...

Russia’s belligerence is hardly surprising
Anatole Kaletsky 7/7/7

Know your enemy – a phrase coined by Sun Tzu, the Chinese military strategist, 2,000 years ago – is even more critical in diplomacy than it is in warfare. As the leaders of the world’s most powerful nations gathered in Germany last night for the annual G8 summit, the identity of the enemy was pretty clear.
He was not, as might have been expected, George W. Bush. Nobody can be bothered to talk to the White House any longer about Iraq and Iran, while on climate change Washington has successfully created a diversion and thwarted the German and British desire to make this the summit’s central issue. Best of all, an alternative villain has suddenly upstaged the hapless President Bush. Enter Vladimir Putin, the new global enemy No 1.

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musashi on June 7, 2007 - 2:47pm Permalink | Subthread | Parent | Comments top

If the Zionist-Neocons didn't like Iran demanding payment in Euro's they really are going to hate what this one could develop into. :-)

http://en.rian.ru/russia/20070605/66679704.html

President Vladimir Putin said in his state of the nation address last year that Russia, as a leading oil exporting nation, should set up domestic markets to trade crude oil and derivatives in the national currency, the ruble.

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Jack on June 7, 2007 - 9:32pm Permalink | Subthread | Parent | Comments top

It doesn't seem that anyone is concerned about Iran supposedly demanding payment for oil in Euros, except a dimishing set of die hard conspiracy theorists. The claim that Iran and Russian bourses are going to crash the dollar has been a perennial here for the last two years. No amount of debunking can kill it.

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musashi on June 8, 2007 - 12:22am Permalink | Subthread | Parent | Comments top

Well, we have to wait and see how the cookie crumbles, but it needs to be put in context.

It isn't so much that anyone has any real interest in crashing the dollar.

It's more like with oil denominated in dollars the dollar becomes the reserve currency of the world which allows the US to run deficits and in effect have others pay for them. At some point people get fed up and even a giant can die the death of a thousand cuts.

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Jack on June 8, 2007 - 4:40am Permalink | Subthread | Parent | Comments top

I have no doubt that the ability of the US to run deficits and have others fund (not pay for) them is coming to an end, probably fairly soon. I do think the dollar is headed down and could possibly face some threat regarding its reserve currency status, although it is hard to see what would replace it.

The point is that it makes almost no difference what currency oil prices are denominated in. Firstly, oil can only be priced in one currency. All other citations are just a translation, or else there are arbitrage opportunities.

However, the price is just a price. Oil can be quoted at $70/barrel and paid for in Euros, Yuan, or pretzels if the two parties agree. I haven't seen any one produce evidence that EU countries pay Russia, Saudi or Iran in dollars.

However, even if they did, it still does make any difference. The value of the dollar is propped up by foriegn countries holding US assets, such as treasury notes. If countries reduce these holdings, which is quite possible, then the dollar will be threatened. If they maintain the holdings, it won't.

Price in this case is really just a measuring unit. Saying that quoting prices in Euros would hurt the US economy is like saying that converting highway measurements from miles to kilometers would threaten the auto industry.

Iran does not want to touch dollars because the US places restrictions on their ability to move capital.

I argued at great length almost two years ago that Iran would never successfully launch and oil bourse. I argued a year ago that Russia would not be able to launch a bourse that serves as anything beyond a local clearing house. So far this seems accurate. The bourses and dollar pricing of oil are non-issues and conspiracy fodder.

So, yes, the dollar could weaken, crash and/or cease to be the world's reserve currency. However, the threat comes from waning demand for US denominated assets, not from how oil is priced or traded.

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PrisonerX on June 8, 2007 - 8:20am Permalink | Subthread | Parent | Comments top

I don't think the Iranian oil bourse is fully operational, and the Russians have said that is the direction they will move.

Conspiracy theorists, yada yada, I worked in high levels of corporations and sat in on tons of board meetings and had access to lots of data and over hearing conversations of CEO's of fortune 500 company's, you trying to tell me that people don't work in secret and do things to others to try and gain an advantage thru all kinds of means is one of the most ignorant statements people. make.

Learn what the real world is like skippy, and get back to me.

Quid Clarius Astris
Ubi Bene ibi patria

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Jack on June 13, 2007 - 11:21pm Permalink | Subthread | Parent | Comments top

you trying to tell me that people don't work in secret?

No, you're making that up.

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musashi on June 8, 2007 - 2:06pm Permalink | Subthread | Parent | Comments top

We have to agree to disagree then.

Since oil is the primary commodity, if it is denominated in pretzels then people are forced to hoard or acquire pretzels. Doesn't matter whether baked, microwaved or digital. The digital version just allows for a bigger Ponzi scheme.

As long as the currency that is printed does not return to the country of origin it can be printed with impunity. If it does return then there is a cost associated with it. IMO this cost depends on a large degree on the interest rates (ie the higher the rates go the less of a free ride the US has and this is the underlying reason the market is so sensitive to rates).

The consumer is a convenient excuse, the big boys will make a profit either way because they hold the tiller and know in what direction the next steering inputs are going. This isn't a normal productive situation anymore, the US shuffles a lot of paper but produces little, it's a game of what Alice in Wonderland can sell to the uneducated sheeple.

People can see it and are bailing while the US is otherwise engaged because they know they don't have the "juice", the real question will one day be if the Fed has the balls to make the music stop leaving the Chinese standing. Or will the Chinese bail before it happens?

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BrianT on June 8, 2007 - 9:20am Permalink | Subthread | Parent | Comments top

Jack: The US dollar is down 54% against the Cdn dollar since 2002. It hasn't crashed yet, but the trend isn't good.

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