Tag: natural resources

The Strait Of Hormuz Crisis Exposes A Fatal Flaw In Economic Thinking

A priest, an engineer, and an economist are stranded on a desert island. The first order of business is to get some food. The priest suggests that they all pray. The practical-minded engineer suggests that the three men make a net to catch some fish. But where will they find the necessary materials? The priest and the engineer turn to the economist and ask him if he has any ideas. The economist replies, “Assume a fish.”

This well-worn economist joke summarizes one of the chief flaws in contemporary economic theory.

That theory almost completely ignores the role of physical resources, assuming they will always be available in the quantities we need at prices we can afford at the time we need them. When those resources aren’t available, that theory begrudgingly accepts that there will be some damage to economic activity, but tends to greatly underestimate the impact.

This conceptual flaw explains why economists in most financial institutions and governments, and thus investors, are not especially alarmed at the loss of energy resources, as stock market indices remain not too far from their recent highs.

For a good summary of how contemporary economic theory goes off the rails, Australian economist Steve Keen offers a mercifully brief and comprehensible explanation. Here I will relate one critical part of that explanation. About 5.7 percent of U.S. GDP is devoted to procuring and distributing energy. Most economists will tell you that a 10 percent decline in energy availability would have a small effect on the U.S. economy. They would take the percentage of the economy devoted to energy, in this case 5.7 percent, and multiply it by 10 percent to arrive at a 0.57 percent reduction in economic activity.

This conclusion is utter nonsense and not even close to what the effects would be.

The reason is that energy is the master resource. It cannot be treated like other resources. Energy is the resource that makes all other resources available. Nothing gets done without energy. The correlation between economic activity and energy use is 0.9 (where 1.0 represents a perfect correlation). This should come as no surprise. When the economy is growing, energy use grows with it as energy fuels the economic activity that pushes growth.

What this implies is that a 10 percent reduction in energy availability is much more likely to result in a decline in economic activity closer to 10 percent than to one-half percent.  For comparison, the real GDP of the United States fell 4.3 percent during the Great Recession, which lasted from December 2007 through June 2009.

So, how much energy is currently being denied to the global economy by the closure of the Strait of Hormuz? No one knows for certain. We do know that liquefied natural gas (LNG) exports from Qatar were previously transiting through the strait. And, close to 20 percent of the world’s oil supply was also passing through the strait on a daily basis.

Keep reading

The US refinery now processing Venezuelan oil

The Minerva Gloria is docked at a wharf in the Mississippi Sound, not far from the US’s vast oil reserves in the Gulf of Mexico.

The ship, 820ft (250m) long, painted navy and burgundy, is carrying precious cargo from Venezuela that, just six months ago, would have been impossible to bring to the US – 400,000 barrels of crude oil.

Venezuela has the world’s largest oil reserves. Under Venezuela’s former president Nicholas Maduro oil exports had dropped significantly, due to a lack of investment. Then came US sanctions against any imports from the Latin American country.

But US President Donald Trump vowed to tap those reserves after the US military captured Maduro in a surprise, night-time raid in January.

Now the oil is flowing again in Venezuela. In March, the country’s monthly crude exports surpassed one million barrels per day. The first time since September.

As the world reels from the impact on global energy prices caused by Iran blocking the Strait of Hormuz, big oil and gas companies like Chevron are now importing Venezuelan crude oil by the shipload.

“It’s a big deal not only for Chevron but the entire Gulf region,” says Tim Potter. He is the director for Chevron’s oil refinery in Pascagoula, Mississippi, the company’s largest operation in the US. It is also the only major US oil company currently operating in Venezuela.

Together this means that Chevron can extract its own Venezuelan oil, process it itself, and get it directly to the US consumer.

“It’s a pretty big incentive for us to run it,” Potter says. “The refinery was really designed, and we invested in the refinery, to run heavy oils like from Venezuela.”

Keep reading

POWDER KEG EUROPE: Serbian President Vučić Says Explosives Were Found Near a Pipeline Carrying Gas From Russia to Serbia and Hungary

Serbia in the eye of the storm.

While the eyes of the world are fixated on the developing crisis in the Middle East, Europe is still getting more dangerous by the day, with an energy crisis worsening the socio-political mess and the divisions over the war in Ukraine.

In this context, countries that lead independent foreign policies, like Serbia, are under relentless pressure.

Today, Serbian President Aleksandar Vučić came out publicly to disclose that explosives were found near a pipeline that carries gas from Russia to Serbia and Hungary.

Euronews reported:

“Serbian President Aleksandar Vučić announced on Sunday morning that army and police found explosives that had been placed near a pipeline that carries gas to Serbia and Hungary.

He said that ‘two large packages of explosives with detonators’ were found inside backpacks in northern Serbia’s Kanjiza, ‘a few hundred meters from the gas pipeline’.

The Balkan Stream pipeline is an extension of the TurkStream pipeline, and transfers Russian gas to both Serbia and Hungary.”

Keep reading

Trump Says He Wants to “Take the Oil” in Iran

President Donald Trump has suggested the United States may try to take over Iran’s oil the way it did with Venezuela’s, per a Financial Times interview.

“To be honest with you, my favourite thing is to take the oil in Iran, but some stupid people back in the US say: ‘Why are you doing that?’ But they’re stupid people,” Trump told the FT.

“Maybe we take Kharg Island, maybe we don’t. We have a lot of options,” the U.S. president also told the publication, adding. “It would also mean we had to be there [in Kharg Island] for a while.”

Kharg Island is Iran’s oil hub, handling 90% of the country’s oil exports. The island lies beyond the Strait of Hormuz, however, which would make taking it a challenge, as noted by various military experts. According to official Pentagon statements, the U.S. has bombed as many as 90 targets on Kharg Island but these have not included oil facilities or infrastructure, per President Trump himself.

“We can do that on five minutes’ notice. It’ll be over,” Trump said earlier this month, referring to the pipelines connecting mainland Iran to Kharg Island. “Just one simple word, and the pipes will be gone too. But it’ll take a long time to rebuild that.”

That one simple word has yet to be pronounced, it seems, even as Trump told the FT on Sunday that “I don’t think they have any defence. We could take it [Kharg Island] very easily.”

Keep reading

IRGC targets US-linked aluminum industries in coordinated missile-drone strike

The Islamic Revolution Guards Corps (IRGC) has announced targeting two industries connected to US military and aerospace sectors in a combined missile and drone operation.

In a statement on Saturday, the Corps said the strikes were carried out jointly by its Aerospace Force and Navy in response to “the malicious actions of the US-Zionist enemy targeting the industrial infrastructure of our beloved country from the Persian Gulf’s littoral states.”

The two targeted facilities were identified as the Emirates Aluminum (EMAL) plant and the Aluminum Bahrain (ALBA) plant.

The statement highlighted their strategic significance, noting that EMAL houses the world’s longest aluminum production line with a capacity of 1.3 million tons, while ALBA operates with American investment and shareholding. The latter, it added, “plays a significant role in supplying the military-industrial production of the US terrorist army.”

Keep reading

Trump Threatens Oil Facilities After US Strikes Iran’s Kharg Island

Following a US strike on the military infrastructure of Kharg Island, Trump warned that Iran’s

oil facilities would be targeted if ships aren’t permitted to pass through the Strait of Hormuz.

The bombing of Kharg Island’s military infrastructure follows reports that the US has sent a roughly 5000-strong amphibious ready group and marine expeditionary group to the Middle East.

Commenting on the US strike from Truth Social, President Trump said:

“Moments ago, at my direction, the United States Central Command executed one of the most powerful bombing raids in the History of the Middle East, and totally obliterated every MILITARY target in Iran’s crown jewel, Kharg Island.

“Our Weapons are the most powerful and sophisticated that the World has ever known but, for reasons of decency, I have chosen NOT to wipe out the Oil Infrastructure on the Island.”

“However, should Iran, or anyone else, do anything to interfere with the Free and Safe Passage of Ships through the Strait of Hormuz, I will immediately reconsider this decision.”

According to Fars News Agency, an Iranian outlet with close ties to the Islamic Revolutionary Guard Corps (IRGC), targets hit included the island’s air-defense systems, a naval base, a helicopter hangar, and the airport control tower. Over 15 explosions were reported.

Kharg Island is Iran’s main export hub for petroleum products with 90 percent of Iranian crude oil being distributed through its facilities.

Iran exported between 1.1 million and 1.5 million barrels per day from the start of the war to Wednesday last week.

As such, the island was frequently targeted during the Iran-Iraq War due to its strategic importance, serving as an economic lifeline of the IRGC.

Iran has already threatened retaliation against the Gulf states should any of them attack the country’s energy infrastructure.

Trump’s threat comes the day after Mojtaba Khameini, the new Supreme Leader of Iran, declared in his first public statement that Iran would continue its blockade of the Strait throughout the war.

Keep reading

US will ‘make a ton of money’ from Iran war – senator

The US will control almost a third of the world’s oil and make record profits if it succeeds in toppling the Iranian government, hawkish Republican Senator Lindsey Graham told Fox News on Sunday.

Graham made the comments as global oil prices surged past $100 per barrel, which US President Donald Trump dismissed as “a very small price to pay” for the US-Israeli war against Iran, which was launched on February 28.

Graham described the cost of the attacks as the “best money ever spent,” arguing that the purpose is to prevent the country from developing nuclear weapons – which Iran has denied that it intends to do, insisting that its nuclear program is peaceful.

“When this regime goes down, we’re going to have a new Middle East, we are going to make a ton of money. Nobody will threaten the Strait of Hormuz again,” Graham said, adding that the US will install a “friendly” government in Tehran.

Keep reading

Israel Air Force strikes Iranian oil facilities, military source says

IDF sources confirmed to The Jerusalem Post on Saturday night that the air force has attacked significant oil resources in the Tehran region of Iran.

According to the sources, the oil resources being attacked are directly connected to Iran’s military industrial complex.

It was unclear what distinctions the IDF would make in such attacks regarding differing oil sites, but there was a clear effort by the sources to emphasize the military nature of the sites, which might otherwise be framed as harming Iran’s economic power more broadly, even if a new regime might later take over.

In the past, senior Israeli sources have told the Post that the Islamic Revolutionary Guard Corps has in recent years taken over certain portions of the economy, especially in the oil sector.

Iranian opposition reports indicated that as many as 30 sites might be under attack.

This vector of attack on the Islamic regime‘s power is the newest front after prior attacks on air defenses, ballistic missiles, top Iranian leaders, ballistic missile supply chain locations, and regime repression forces.

Keep reading

Trump’s Venezuela Oil Plan Runs Into Hard Reality

Last week US President Donald Trump announced that Venezuela’s interim authorities will turn over up to 50 million barrels of oil to the United States, before later declaring his administration will control Venezuela’s oil sales “indefinitely”.

Decrying the state of Venezuela’s oil sector, including that the South American country now pumps a fraction of what it used to, Trump said, “We’re going to have our very large United States oil companies — the biggest anywhere in the world — go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country.”

While that sounds like a great opportunity for the US oil majors, it’s one they may want to refuse. Why? Because the oil underneath Venezuela, which has the largest crude reserves in the world, greater even than Saudi Arabia and Iran, is technically challenging to extract and costly.

Moreover, it’s uncertain whether there would a change in the way Venezuela and its oil industry are being run, which presents a huge political risk for companies to return and operate there.

Former President Hugo Chavez nationalized the oil industry in the 1990s, and in 2007, he forced Exxon and ConocoPhillips out, after the companies refused to accept new terms that would give the Venezuelan state oil company, PDVSA, a majority share in their projects.

ConocoPhillips is still owed about $10 billion.

Only Chevron is currently authorized to operate in Venezuela and export crude to the United States.

“Until Caracas has a new government capable of gaining the confidence of international investors and banks, oil companies will be reluctant to make any major commitments,” states a recent Reuters piece.

When Trump met with oil executives last Friday, Exxon’s CEO Darren Woods said, “We’ve had our assets seized there twice, and so you can imagine to re-enter a third time would require some pretty significant changes.”

Trump has said the US government is prepared to provide security guarantees but not money for oil projects.

Keep reading

The Iran War’s Most Precious Commodity Isn’t Oil

The CIA calls it the “strategic commodity” of the Middle East. But it’s not referring to oil or natural gas. What the American spy agency has in mind is far more prosaic: drinking water. Don’t underestimate it, though, because if military hostilities continue to escalate, water could become the geopolitical commodity that decides the war between the US and Iran.

The Persian Gulf is gifted with a fabulous hydrocarbon endowment, worth trillions of dollars. What its desertic countries don’t have is water. From the 1970s onward, the oil money bought a solution: desalination plants. Today, the region relies on nearly 450 facilities to stop everyone going thirsty.

The US Central Intelligence Agency has been briefing American policymakers for decades on the inherent risk of relying on those plants for such a crucial supply. In a secret assessment in the early 1980s — since declassified — the CIA said: “Senior government officials in some of the countries perceive it [water] as more important than oil to the national well-being.”

More than four decades later, not much has changed. Desalination remains a relatively cost-effective technology to transform sea water into drinking water. The downside is the vulnerability of the installations, and the oil and gas consumption required to fire the power generators that run the plants.

About 100 million people live in the countries belonging to the Gulf Cooperation Council — Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman — all now under Iranian attack. Kuwait, Qatar and the UAE are, for all practical purposes, completely dependent on the desalination plants, particularly for metropolises such as Dubai. Saudi Arabia, and especially its capital, Riyadh, also relies heavily on them.

Keep reading