Showing posts with label Colder War. Show all posts
Showing posts with label Colder War. Show all posts

Friday, January 9, 2015

Keystone XL Veto is Partisan Political Disaster for America

By Marin Katusa, Chief Energy Investment Strategist

The controversy over the Keystone XL pipeline is proof positive that American politics have gone from debate to pure partisan propaganda – at the expense of business and even common sense.  With over half a million miles of pipeline already, failing to replace that aging infrastructure only means more oil flowing via crumbling pipelines – some 50 years old – and dangerous rail cars, like the one that killed dozens in Quebec in 2013. 

NY Times Best-selling author of The Colder War, Marin Katusa, explains why President Obama’s veto of the Keystone legislation is far riskier than the pipeline itself in this riveting, short video:


For a better understanding of just how much political spin, and outright lies, now come along with news on global energy, read USA Today and Amazon.com best seller: The Colder War: How the Global Energy Trade Slipped from America's Grasp. Get a free sample chapter at www.colder war.com.



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Friday, January 2, 2015

America is Going to Have to Learn to Play Nicely......Where Have All the Statesmen Gone?

By Marin Katusa, Chief Energy Investment Strategist

One of the most striking things about the Colder War—as I explore in my new book of the same name—has been the contrast between the peevish tone of the West’s leaders compared to the more grown-up and statesmanlike approach that Putin is taking in international affairs.

Western leaders and their unquestioning media propagandists appear to believe that diplomatic relations are some kind of reward for good behavior. But it’s actually more important to establish a constructive dialogue with your enemies or rivals than your friends, because that’s where you need to find common ground. Indeed, it’s been the basis for diplomacy since time immemorial.

Reassuringly, despite having been the target of the Ukraine crisis rather than the instigator, Putin still sees the West as a potential partner, not an enemy. Nor does, he says, Russia have any interest in building an empire of its own. In theory, if Putin is sincere, there should be plenty of room for cooperation, especially in the fight against terrorism.

As Putin said in his speech at the Valdai International Discussion Club in Sochi in October—whose theme was “The World Order: New Rules or a Game without Rules”—he hasn’t given up on working with the West on shared risks and common goals, provided it’s based on mutual respect and an agreement not to interfere in one another’s domestic affairs.

Putin has, of course, already shown that he can rise above the fray. By negotiating the destruction of Assad’s chemical weapons arsenal under international supervision, he did Obama a big favor and got him off the hook in Syria. But his collaboration with Obama went further than that. Putin had helped persuade Iran to consider making concessions on its nuclear program and was working behind the scenes on North Korean issues.

But as we’re discovering, this was precisely the sort of statesmanship that the neoconservative holdouts in Washington could simply not abide, because it would wreck the plan they’d been hatching for decades to bring about US military strikes against Assad and to move beyond sanctions and more aggressively confront Iran.

Determined to drive a wedge between Obama and Putin and punish Putin for interfering with their goal of regime change in the Middle East, these masters of chaos—like National Endowment for Democracy President Carl Gershman, the US Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland, and Senator John McCain—sprang into action.

These crazies first started fantasizing openly about regime change in Russia, and demonizing the “ideology of Russian imperialism that Putin represents,” before helping to topple Ukraine’s constitutionally elected government.

This is hardly the sort of behavior, to put it mildly, that would lead the Russians to trust American motives—especially after two rounds of NATO expansion in Central and Eastern Europe.

And the Russians also really don’t know what to make of the fact that one second Obama is including them on the list of the top global threats, and the next they’re being asked—yet again—to help secure a truly historical rapprochement with Iran. “It’s unseemly for a major and great power to take such a flippant approach toward its partners. When we need you, please help us, and when I want to punish you, obey me,” Russia’s foreign minister Sergei Lavrov said last week.

The West has squandered the opportunity, after its victory in the Cold War, to establish a new stable system of international relations, with checks and balances, said Putin in Sochi. Instead, the US trashed the system to serve its own selfish ends and made the world a more dangerous place.

A particularly disturbing accusation Putin made is that the U.S. has been using “outright blackmail” against a number of world leaders. “It is not for nothing,” he added, “that ‘big brother’ is spending billions of dollars keeping the whole world, including its own allies, under surveillance.” If true, it would put the US beyond the pale of the civilized global diplomatic community.

Last year Putin reminded Americans, in a New York Times op-ed, that the UN was founded on the basis that decisions affecting war and peace should happen only by consensus, and that it’s this profound wisdom that has underpinned the stability of international relations for decades. The UN risked suffering the same fate as the League of Nations, he said, if America continued to bypass it and take military action without Security Council authorization.

What really amazes Putin—and most right-minded people—is that even after 9/11, when the US finally woke up to the common threat of Islamic terrorism and suffered the most epic blowback of all time, it continued to use various jihadist organizations as an instrument, even after getting its fingers burnt every time.
What did toppling Gaddafi achieve? Nothing, except to turn Libya into a total mess and fill it with al-Qaeda training camps. And what is Obama’s present strategy of funding “moderate” rebels in Syria going to achieve, if not more of the same mayhem, as one US-backed group after another joins forces with the Islamic State?

It’s hard to disagree with Putin that America’s neoconservatives have sown geopolitical chaos, by almost routinely meddling in others’ domestic affairs. He lists the many follies the US has committed, from the mountains of Afghanistan, where al-Qaeda had its roots in CIA-funded operations against the Russians, to Iraq and Saddam’s phantom weapons of mass destruction, to modern-day Syria, where the Islamic State appears to have benefited at least indirectly from some serious funding—and weapons smuggled out of Libya by the CIA.

Instead of searching for global solutions, the Russians think the US has started believing its own propaganda: that its policies and views represent the entire international community, even as the world becomes a multipolar one. It would appear that Putin is in good company. No less a statesman than former US Secretary of State Henry Kissinger agrees with him.

Sanctions against Russia are a huge mistake, says Kissinger: “We have to remember that Russia is an important part of the international system, and therefore useful in solving all sorts of other crises, for example in the agreement on nuclear proliferation with Iran or over Syria.”

Like Putin, Kissinger argues that a new world order is urgently needed. In an interview in Der Spiegel, he adds that the West has to recognize that it should have made the negotiations about Ukraine’s economic relations with the EU a subject of a dialogue with Russia. After all, he says, Ukraine is a special case, because it was once part of Russia and its east has a large Russian population.

So how has the current generation of American leaders responded to Putin’s accusation—shared by his allies Argentina, Brazil, China, India, and South Africa—that the U.S. is riding roughshod over the interests of other nations?

By mocking him with the sort of childishness that was on display at the G20 summit, where Canadian Prime Minister Stephen Harper grabbed headlines when he told Putin: “Well, I guess I’ll shake your hand, but I only have one thing to say to you: you need to get out of Ukraine.” While Putin is obviously no saint, his presence at the G20 summit shows that far from being isolated, he continues to be treated as respectable company, despite his actions over Ukraine.

At least Germany and the EU now appear to understand that diplomacy, not military action, is going to resolve differences between Russia and the West—even though Russia expelled one of Germany’s diplomats in Moscow last week. Following up on the four-hour meeting Merkel had with Putin in Melbourne and the call for intensified diplomacy by the EU’s new foreign policy chief, Federica Mogherini, German Foreign Minister Frank-Walter Steinmeier is now engaged in intensive shuttle diplomacy with Moscow.

The world will be better off if we all stop using the language of force and return to the path of civilized diplomatic and political settlement, as Putin says. That’s what real statesmen would do, rather than trying to provoke Russia into a new Colder War. America is going to have to learn to play nicely. Otherwise, as Putin says, “today’s turmoil will simply serve as a prelude to the collapse of the world order.”

As you can see, there’s no greater force in geopolitics today than Vladimir Putin. But if you understand his role and how it influences the energy sector as Marin Katusa does, you’ll know how to get out in front of the latest moves and profit along the way. Of course, the situation is fluid, which is why Marin launched a brand new advisory dedicated to helping investors avoid energy companies that are being left behind and move into ones that will benefit from the tremendous shifts in capital being created by Putin. (In fact, Marin has the very best plays for taking advantage of cheap oil.)

It’s called The Colder War Letter. And it’s the perfect complement to Marin’s New York Times best seller, The Colder War, and the best way to navigate today’s fast-changing energy sector. When you sign up now, you’ll also receive a FREE copy of Marin’s book. Click here for all the details.

The article Where Have All the Statesmen Gone? was originally published at casey research


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Tuesday, December 23, 2014

Make No Mistake, the Oil Slump Is Going to Hurt the US Too

By Marin Katusa, Chief Energy Investment Strategist

If you only paid attention to the mainstream media, you’d be forgiven for thinking that the US is going to get away from the collapse in oil prices scott free. According to popular belief, America is even going to be a net winner from cheaper oil prices, because they will act like a tax cut for US consumers. Or so we are told. In reality, though, many of the jobs the U.S. energy boom has created in the last few years are now at risk, and their loss could drag the economy into a recession.

The view that cheaper oil automatically boosts U.S. GDP is overly simplistic. It assumes that US consumers will spend the money they save at the pump on U.S. made goods rather than imports. And it assumes consumers won’t save some of this windfall rather than spending it. Those are shaky enough. But the story that cheap fuel for our cars is good for us is also based on an even more dangerous assumption: that the price of oil won’t fall far enough to wipe out the US shale sector, or at least seriously impact the volume of US oil production.

The nightmare for the US oil industry is that the only way that the market mechanism can eliminate the global oil glut—without a formal agreement between OPEC, Russia, and other producers to cut production—is if the price of oil falls below the “cash cost” of production, i.e., it reaches the price at which oil companies lose money on every single barrel they produce.

If oil doesn’t sink below the cash cost of production, then we’ll have more of what we’re seeing now. US shale producers, like oil companies the world over, are only going to continue to add to the global oil glut—now running at 2-4 million barrels per day—by keeping their existing wells going full tilt.

True, oil would have to fall even further if it’s going to rebalance the oil market by bankrupting the world’s most marginal producers. But that’s what’s bound to happen if the oversupply continues. And because North American shale producers have relatively high cash costs (in the $30 range), the Saudis could very well succeed in making a big portion of US and Canadian oil production disappear, if they are determined to.


In this scenario, the US is clearly headed for a recession, because the US owes nearly all the jobs that have been created in the last few years to the shale boom. All those related jobs in equipment, manufacturing, and transportation are also at stake. It’s no accident that all new jobs created since June 2009 have been in the five shale states, with Texas home to 40% of them.


Even if oil were to recover to $70, $1 trillion of global oil sector capital expenditure—in fields representing up to 7.5 million bbl/d of production—would be at risk, according to Goldman Sachs. And that doesn’t even include the US shale sector! Unless the price of oil miraculously recovers, tens of billions of dollars worth of oil and gas related capital expenditure in the U.S. is going to dry up next year. While US oil and gas capex only represents about 1% of GDP, it still amounts to 10% of total US capex.


We’re not lost quite yet. Producers can hang on for a while, since there has been a lot of forward hedging at higher prices. But eventually hedges run out—and if the price of oil stays down sufficiently long, then the US is facing a massive amount of capital destruction in the energy industry.

There will be spillover into the financial arena, as well. Energy junk bonds may only account for 15% of the US junk bond market, or $200 billion, but the banks are also exposed to $300 billion in leveraged loans to the energy sector. Some of these lenders are local and regional banks, like Oklahoma based BOK Financial, which has to be nervously eyeing the 19% of its portfolio that’s made up of energy loans.

If oil prices stay at $55 a barrel, a third of companies rated B or CCC may be unable to meet their obligations, according to Deutsche Bank. But that looks like a conservative estimate, considering that many North American shale oil fields don’t make money below $55. And fully 50% are uneconomic at $50.

So if oil falls to $40 a barrel, a cascading 2008-style financial collapse, at least in the junk bond market, is in the cards. No wonder the "too big to fail banks" slipped a measure into the recently passed budget bill that put the US taxpayer back on the hook to insure any ill advised derivatives trades!

We know what happened the last time a bubble in financial assets popped in the US. There was a banking crisis, a serious recession, and a big spike in unemployment. It’s hard to see why it should be different this time. It’s a crying shame. The US has come so close to becoming energy independent. But it’s going to have to get its head around the idea that it could become a big oil importer again. In the end, the US energy boom may add up to nothing more than an illusion dependent upon the artificially cheap debt environment created by the Federal Reserve’s easy money policy.

However, there are a handful of domestic producers with high operating margins that are positioned to profit right through this slump in oil prices. To find out their names, sign up for Marin Katusa’s just launched advisory, The Colder War Letter.

You’ll also receive monthly updates on the latest geopolitical moves in this struggle to control the world’s oil pricing and the energy sector at large and what it means for your personal wealth. Plus, you’ll get a free hardback copy of Marin’s New York Times bestselling book, The Colder War, just for signing up today. Click here for all the details.



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