http://www.moonofalabama.org/2008/06/economic-war-be.html
*Economic War Between OPEC and the U.S. Financial System*
Oil markets are in a bubble driven by speculation. While peak oil is a
real concern, it does not explain recent short term price moves. People
drive less now in the U.S., China has increased its subsidized oil
prices by 17.5% and airlines have stopped flying certain routes. Supply
has stayed fairly constant. Still prices are going up.
The speculation is driven largely by U.S. financial entities that trade
in unregulated commodities with over the counter derivative contracts.
F. William Engdahl has explained
<http://globalresearch.ca/index.php?context=va&aid=8878> how the
mechanisms works and Pam Martens points to
<http://www.counterpunch.com/martens06212008.html> the massive
involvement of Citibank and other big players.
The OPEC folks are pissed. They know the prices they are selling their
oil for are far below the top prices in the commodity markets and they
know that some of the barrels they offer find no buyers. They do know
that it is speculation that drives this. The current too high prices
will make people develop other energy sources and will destruct the long
term demand for their product. They learned that lesson in the 1970s and
do not want to repeat it.
At the same time there is a serious systematic attack on OPEC underway
in U.S. politics. A year ago Ed Koch, the former mayor of New York,
called for more legislative and presidential action to take on OPEC
<http://www.jewishworldreview.com/0707/koch.php3> in the Jewish World
Review. In May Hillary Clinton said OPEC 'can no longer be a cartel'
<http://www.politico.com/blogs/bensmith/0508/Clinton_OPEC_can_no_longer_be_a_cartel.html>.
This week saw calls for action
<http://www.examiner.com/a-1446008%7ESenators_jab_OPEC_over_high_oil_prices.html>
against OPEC from mainly Democratic legislators and op-eds on the issue
in two major papers. On the same day the LA Times
<http://www.latimes.com/news/opinion/la-oe-first19-2008jun19,0,7991948.story>
and the NY Times
<http://www.nytimes.com/2008/06/19/opinion/19evans.html?ref=opinion>
headlined these *Sue OPEC*.
The Saudis have called for an international meeting on oil prices that
is taking place right now. Pat Lang thinks they are very
<http://turcopolier.typepad.com/sic_semper_tyrannis/2008/06/the-oil-meeting.html>
serious
<http://turcopolier.typepad.com/sic_semper_tyrannis/2008/06/the-oil-meeti-1.html>
about the issue.
The U.S. position is that there is no speculation
<http://news.yahoo.com/s/afp/20080621/pl_afp/saudioilcommoditiesus_080621162812>
and no action needed:
US Energy Secretary Samuel Bodman said on Saturday that speculators
were not forcing up global oil prices, which nearly hit 140 dollars
per barrel this week.
"There is no evidence that we can find that speculators are driving
futures prices," Bodman told a press briefing ahead of Sunday's
summit in Jeddah that will bring together consuming and producing
nations to address the global energy crisis.
Bodman isn't even lying. He can not find the evidence because the U.S.
Commodity Futures Trading Commission allows U.S. financial institutions
to trade unregulated and unsupervised in the London ICE Futures market.
If you don't look for evidence, you will not find any.
OPEC, and especially the Saudis, will have to think of new ways to
pressure the U.S. for more regulation in the future markets. They also
have to look at serious local inflation issues connected to their
currency peg
<http://www.thewashingtonnote.com/archives/2008/06/the_cost_of_peg/> to
the dollar. I can think of several possible tools available to them to
help on both issues. Watch the dollar to go down much further when this
economic war escalates.
This leaves the question why the U.S. administration is allowing such
speculation that will likely hurt its party in the next election and
might bring serious economic harm. I believe this is out of necessity.
Financial institutions lost about $1 trillion in the credit bubble and
many of them are in dire state. The Fed gave them $500 billion in fresh
money taking junk bonds as collateral and keeps the interest rates much
lower than justified. The banks now again have the money to speculate in
the markets and to use the profits from these speculations to heal their
balance sheets.
The commodity bubble is to a large part a concerted action to keep the
USuk financial system alive. Consumers all over the world and the oil
producer have to pay for that.
If the Saudis see this the same way than I do, they will recognize that
only severe financial action will stop the scheme.
