Signs of the Economic Apocalypse, 6-23-08

From SOTT.net:

Gold closed at 903.70 dollars an ounce Friday, up 3.5% from $873.10 for the week. The dollar closed at 0.6408 euros Friday, down 1.5% from 0.6502 at the close of the previous Friday. That put the euro at 1.5606 dollars compared to 1.5381 the week before. Gold in euros would be 579.07 euros an ounce, up 2.0% from 567.65 at the close of the previous week. Oil closed at 134.90 dollars a barrel Friday, up four cents from 134.86 for the week. Oil in euros would be 86.44 euros a barrel, down from 87.68 at the close of the Friday before. The gold/oil ratio closed at 6.70, up 3.6% from 6.47 for the week. In U.S. stocks, the Dow Jones Industrial Average closed at 11,842.69 Friday, down 3.9% from 12,307.35 at the close of the previous Friday. The NASDAQ closed at 2,406.09 Friday, down 2.0% from 2,454.50 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.17%, down 9 basis points from 4.26 for the week.

Oil prices had been easing back last week until it was revealed that Israel conducted military exercises in preparation for an air attack on Iran. Worked like a charm as oil prices soared Friday closing up slightly for the week. U.S. stock prices plunged on Friday and closed down sharply for the week. The real fear now in the U.S. is that there is no way out of the downward spiral. Rising prices and the falling dollar would normally induce the Fed to raise interest rates but if they did that now to any significant extent it would plunge the economy into a depression.

Price Increases Put Pressure on the Fed

Floyd Norris

June 21, 2008

Inflation is suddenly turning into a worry for the Federal Reserve, which knows that its credibility as a central bank would be damaged if investors concluded it was not determined to combat the recent rise in prices.

It still seems unlikely that the Fed will actually raise rates in an election year when the economy is probably in recession. But the surprisingly strong increases in producer prices for May, reported by the government this week, increased the pressure on the Fed at least to sound tough about inflation.

The report showed that, over all, producer prices of finished goods rose 1.4 percent in May, raising the 12-month increase to 7.2 percent. That annual gain is still smaller than the 7.8 percent increase reported in the year through January, a figure that was the highest in a quarter century.

Not since September 1981, when a severe recession brought on by a large Fed increase in interest rates was beginning to bring down inflation, has the overall producer price inflation rate been that high.

Until recently, the Fed has emphasized the so-called core rate of inflation, which excludes energy and food prices. But in recent speeches, officials have conceded the obvious fact that increases in those prices have been large and serious for many consumers.

The core rate is up 3.0 percent over the last 12 months, well below the overall rate but still higher than at any time in the last 16 years. A Duke University/CFO Magazine poll of chief financial officers released this week found that 45 percent of the American executives said their companies had raised prices to offset their higher energy costs. They now expect their own firms to raise prices by 4.1 percent over the next 12 months — twice the rate they forecast nine months ago.
As yet, however, the price increases are concentrated in some areas. The accompanying charts show that over the last 12 months, the producer prices of grains soared 64.8 percent, but the producer price for livestock edged up just 1.5 percent. Some farmers are selling off cattle quickly, depressing prices, because they cannot afford to feed them…

Every now and then a news story appears that needs no comment and cannot be spun. Friday it was announced that U.S. and British oil companies were awarded no-bid contracts to develop Iraqi oil fields. Given the state of Iraq now, it won’t be easy to bring the oil to market. To the not-quite-victors belong the not-quite spoils:

Deals With Iraq Are Set to Bring Oil Giants Back

Andrew E. Kramer

June 19, 2008

BAGHDAD — Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power.

Exxon Mobil, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq’s Oil Ministry for no-bid contracts to service Iraq’s largest fields, according to ministry officials, oil company officials and an American diplomat.

The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations.

The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production.

There was suspicion among many in the Arab world and among parts of the American public that the United States had gone to war in Iraq precisely to secure the oil wealth these contracts seek to extract. The Bush administration has said that the war was necessary to combat terrorism. It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq’s Oil Ministry.

Sensitive to the appearance that they were profiting from the war and already under pressure because of record high oil prices, senior officials of two of the companies, speaking only on the condition that they not be identified, said they were helping Iraq rebuild its decrepit oil industry.

For an industry being frozen out of new ventures in the world’s dominant oil-producing countries, from Russia to Venezuela, Iraq offers a rare and prized opportunity.

While enriched by $140 per barrel oil, the oil majors are also struggling to replace their reserves as ever more of the world’s oil patch becomes off limits. Governments in countries like Bolivia and Venezuela are nationalizing their oil industries or seeking a larger share of the record profits for their national budgets. Russia and Kazakhstan have forced the major companies to renegotiate contracts.

The Iraqi government’s stated goal in inviting back the major companies is to increase oil production by half a million barrels per day by attracting modern technology and expertise to oil fields now desperately short of both. The revenue would be used for reconstruction, although the Iraqi government has had trouble spending the oil revenues it now has, in part because of bureaucratic inefficiency.

For the American government, increasing output in Iraq, as elsewhere, serves the foreign policy goal of increasing oil production globally to alleviate the exceptionally tight supply that is a cause of soaring prices.

The Iraqi Oil Ministry, through a spokesman, said the no-bid contracts were a stop-gap measure to bring modern skills into the fields while the oil law was pending in Parliament.

It said the companies had been chosen because they had been advising the ministry without charge for two years before being awarded the contracts, and because these companies had the needed technology.

A Shell spokeswoman hinted at the kind of work the companies might be engaged in. “We can confirm that we have submitted a conceptual proposal to the Iraqi authorities to minimize current and future gas flaring in the south through gas gathering and utilization,” said the spokeswoman, Marnie Funk. “The contents of the proposal are confidential.”

While small, the deals hold great promise for the companies.

“The bigger prize everybody is waiting for is development of the giant new fields,” Leila Benali, an authority on Middle East oil at Cambridge Energy Research Associates, said in a telephone interview from the firm’s Paris office. The current contracts, she said, are a “foothold” in Iraq for companies striving for these longer-term deals.

Any Western oil official who comes to Iraq would require heavy security, exposing the companies to all the same logistical nightmares that have hampered previous attempts, often undertaken at huge cost, to rebuild Iraq’s oil infrastructure.

And work in the deserts and swamps that contain much of Iraq’s oil reserves would be virtually impossible unless carried out solely by Iraqi subcontractors, who would likely be threatened by insurgents for cooperating with Western companies.

Yet at today’s oil prices, there is no shortage of companies coveting a contract in Iraq. It is not only one of the few countries where oil reserves are up for grabs, but also one of the few that is viewed within the industry as having considerable potential to rapidly increase production…

The New York Times is polite in expressing it’s scepticism, using phrases like “The Iraqi government’s stated goal in inviting back the major companies…” and referring to “suspicion” in the Arab world (just the Arab world?) and describing U.S. officials as “sensitive” to the appearance of profiting from the war. Let’s let Bill Van Auken dispense with the politeness and describe the story for what it is:

Big oil cashes in on Iraq slaughter

Bill Van Auken

20 June 2008

Four major US, British and French oil companies are getting their hands on the petroleum reserves of Iraq for the first time in 36 years, based on no-bid contracts, the New York Times reported Thursday.

These deals reached with the US-backed regime in Baghdad have placed the five-year-old US war of aggression in the clearest possible perspective.

For the thousands of American families who have seen their sons and daughters killed in the Iraq war or return maimed or psychologically damaged, the knowledge that their sacrifices have opened up potentially huge new profit streams for Exxon-Mobil, Shell, British Petroleum and Total will provide cold comfort.

For the over one million Iraqis killed and the millions more turned into refugees or made homeless in their own land, an overriding justification for their suffering has now been laid bare. It was to further enrich the already obscenely wealthy corporate executives and major shareholders of Big Oil.

As the New York Times reported Thursday: “The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations.”

The Times acknowledged that “The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India.”

No-bid deals in the oil sector are not only “unusual,” under conditions in which oil demand is at an all-time high crude is selling for nearly $140 a barrel and energy-producing countries around the world—Russia, Kazakhstan, Venezuela, Bolivia and others—are exerting a tighter national grip over their reserves. Such contracts cannot be explained outside of their being negotiated at the point of a gun.

The deals have been structured as “service agreements” in order to circumvent restrictions that would have ensued under Iraq’s draft oil law, which the Iraqi parliament has proven unable to pass because of both nationalist opposition to foreign exploitation of the country’s reserves and disputes between the federal government and Iraqi regional entities over control of the oil fields.

In reality, however, the two-year deals provide for payment to foreign companies in oil, opening up the possibility of substantial profits. Moreover, as one oil expert commented, they provide the “foothold” for the four major Western companies, paving the way to far more intensive exploitation.

A total of 46 companies, including Lukoil of Russia, China National, India’s major oil company and others had memorandums of understanding with the Iraqi Oil Ministry, according to the Times.

Yet none of them were allowed to bid for contracts. Instead, the deals are being handed over without any competition to Exxon-Mobil, Shell, Total and British Petroleum.

The Times comments, “While the current contracts are unrelated to the companies’ previous work in Iraq, in a twist of corporate history for some of the world’s largest companies, all four oil majors that had lost their concessions in Iraq are now back.”

In a similar vein, US Secretary of State Condoleezza Rice told Fox News: “The United States government has stayed out of the matter of awarding the Iraqi oil contracts. It’s a private sector matter.” However Rice, a former director of Chevron, which is participating in one of the contracts in a consortium with Total, acknowledged that with the new deals “it’s starting to get interesting in Iraq.”

This is all nonsense and lies. The new contracts have everything to do with the role played by these companies decades ago and their determination to wrest back the control they exercised before Iraq nationalized its oil industry and ejected the US and British oil giants in 1972, a move that ushered in a wave of nationalizations throughout the oil-producing countries.

Before then, the Iraq Petroleum Company was dominated by the US and British companies, which controlled three-quarters of the country’s oil production.

Moreover, the US government has worked over decades to re-impose American domination over Iraq, which has the second largest proven oil reserves—115 billion barrels—and the largest unexplored reserves of any country in the world.

The disingenuous explanation given by the US-dominated Iraqi regime—and echoed by the Times—for the supposedly serendipitous return to dominance of the very companies that controlled the country’s oil production 36 years ago is that “they had been advising the ministry without charge.”

Yet, as the Times article notes, Russia’s Lukoil, which had been training Iraqi oil engineers free of charge, is being thrown out of an oilfield where it held a previously signed contract, in order to make way for Chevron and Total.

The reality is that these contracts are the direct product of armed aggression. In the wake of the invasion, US troops seized control of the oilfields and secured the Oil Ministry in Baghdad, even as it left every other governmental and cultural institution to the mercy of the looters. It then selected Phillip Carroll, the former president of Shell Oil, to head up an “advisory board” to assume control over the ministry.

As the Times delicately notes: “It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq’s Oil Ministry.”

The drive by the US government and the oil monopolies to regain their control over Iraq’s oil wealth began well before the Bush administration launched its unprovoked war in March 2003 and constitutes a bipartisan policy that has been pursued by Democratic and Republican administrations alike.

In the wake of the dissolution of the Soviet Union in 1991, the conditions emerged for US imperialism to pursue this strategic aim with continuously escalating violence and aggression.

After Iraq’s infrastructure was shattered in the Persian Gulf War of 1991, the Clinton administration campaigned for punishing United Nations sanctions that choked off essential food and medical supplies and resulted in the loss of hundreds of thousands of additional lives.

The critical strategic aim of these sanctions was to block the resumption of oil production and prevent the realization of contracts signed between the government of Saddam Hussein and foreign rivals of the big US and British companies, particularly Russian and Chinese producers as well as France’s Total.

This was combined with stepped-up military attacks, as the Clinton administration hammered Iraq with cruise missiles in a series of strikes dubbed Operation Phoenix Scorpion, Operation Desert Thunder and Operation Desert Fox, all preludes to the ultimate invasion.

At the same time, Clinton signed into law the “Iraq Liberation Act of 1998,” leveling the charges of “weapons of mass destruction” that would be used to justify war less than three years later and declaring that US policy was “to support efforts to remove the regime headed by Saddam Hussein from power in Iraq.”

With the installation of the Bush administration, preparations for the armed takeover of Iraq began in earnest. Documents released under the Freedom of Information Act from a national energy task force chaired by Vice President Dick Cheney in early 2001 included a map of Iraq’s oilfields and a list of “foreign suitors for Iraqi oilfield contracts.”

The imposition of the contracts for the four big oil firms has confirmed what the Iraq war was about from its conception—well before the September 11, 2001 attacks. The false claims about “weapons of mass destruction” and the invention of ties between Baghdad and Al Qaeda were pretexts for a war aimed at re-establishing semi-colonial control over Iraq and its oil wealth, thereby furthering the US drive for global hegemony.

What is involved is a conspiracy by the government and powerful corporations to foist a war of aggression onto the American people.

Far from provoking outrage or the calls for investigations, however, news of the oil contracts has been met with a deafening silence from the mass media and the political establishment alike. The same television news outlets that trumpeted the Bush administration’s lies about WMD and terrorism passed over the oil deals without a mention.

There is ample evidence that furthering the interests of the oil conglomerates and American imperialism as a whole by continuing the war and occupation in Iraq remains a consensus policy supported by Democrats and Republicans alike.

On the same day that news of the oil contracts broke, the Democratic leadership of the House moved to approve another $165 billion Iraq war funding package, bringing the total amount legislated by Congress to continue a war that is opposed by the overwhelming majority of the American people to over $600 billion.
The 2008 presidential election contest has been presented by the media and the two presidential candidates—Democrat Barack Obama and Republican John McCain—as a choice between a US withdrawal from Iraq or continuing the war until victory.

Yet, the ongoing negotiations over a “Status of Force Agreement,” or SOFA, providing for the long-term presence of US occupation troops in the country has pointed to an underlying agreement on Washington’s future course.

Iraq’s Foreign Minister Hoshyar Zebari, in Washington for the talks on the SOFA, held discussions this week with both McCain and Obama on future US policy in the country.

The Washington Post quoted Zebari Wednesday as saying that Obama had assured him that a Democratic administration would “not take any irresponsible, reckless, sudden decisions or actions.” Obama explained, he said, that he “wants redeployment,” but that he “is not interested to pull all troops out. He wants a residual force” in Iraq to carry out anti-terrorist operations, protect US facilities and train Iraqi security forces.

According to the Post the Iraqi foreign minister concluded that “there was ‘not too much difference’ between Obama’s position and that of the presumptive Republican nominee...”

In other words, both candidates are determined to continue shedding blood—Iraqi and US alike—to advance the cause of securing Iraq’s oil reserves for Exxon-Mobil and the other energy corporations and to create a base of operations for new and even bloodier wars of aggression in the region, including against Iran.

Unfortunately for the people of the Middle East, the invasion of Iraq served the purposes of both Anglo-U.S. imperialism and Zionist imperialism. It is not clear that both elements are in agreement on an attack on Iran. If they were it probably would have happened by now, most likely undertaken by the United States on behalf of Israel. Threatening an attack furthers the interests of the oil companies, though. But since the U.S. military seems to be against expanding the war into Iran, it looks like Israel will take matters into its own hands. This will likely draw the United States into open war with Iran.

Israeli attack on Iran: “not a matter of if, but when”

Stefan Steinberg

20 June 2008

An Israeli military strike is not a matter of if, but when, according to the German magazine Der Spiegel. The latest edition of the news weekly carries a four-page article entitled “Plan to Attack” devoted to preparations currently underway in Israel for air strikes against Iran.

The article begins by noting that the Israeli government has rejected economic sanctions as a means of preventing Iran from developing nuclear weapons. It states that “a broad consensus (in Israel) in favour of a military strike against Tehran’s nuclear facilities — without the Americans, if necessary — is beginning to take shape.”

The main propagandist for a military strike against Iran is the current Israeli Transport Minister and former defence minister Shaul Mofaz, who has been widely quoted as saying that military action against Iran is “unavoidable.” Mofaz first made this remark following recent talks with senior US officials in Washington.

He repeated his comments most recently in an interview with the mass-circulation Yedioth Ahronoth newspaper last Friday. Referring to threats made by the Iranian president Mahmoud Ahmadinejad against Israel, Mofaz declared menacingly that Iran “would disappear before Israel does.”

Mofaz continued: “If Iran continues with its programme for developing nuclear weapons, we will attack it. The sanctions are ineffective... Attacking Iran, in order to stop its nuclear plans, will be unavoidable.”

With his close links to the military establishment, Mofaz is regarded as a “hardliner” on the issue of Iran. Illustrating the “broad consensus” that exists in Israel for a military strike against Iran, Der Spiegel also cites the opinion of Dani Yatom, a retired major general and member of the Israeli parliament for the Labour Party. Yatom declares: “We no longer believe in the effectiveness of sanctions...A military operation is needed if the world wants to stop Iran.”

The article then quotes Israeli historian Benny Morris, who also favours a military solution: “If the issue is whether Israel or Iran should perish, then Iran should perish.”

Der Spiegel concludes: “In truth...there is now a consensus within the Israeli government that an air strike against the Iranian nuclear facilities has become unavoidable.”

Agreement over a military strike against Iran is virtually unanimous in the Israeli cabinet, the article argues. The only outstanding issue is the timing of an attack: “In Israel, it is no longer a matter of whether there will be a military strike, but when.”

According to Der Spiegel: “The doves argue that diplomatic efforts by the United Nations should be allowed to continue until Iran is on the verge of completing the bomb. That way, Israel could at least argue convincingly that all non-military options had been exhausted.

“The hawks, on the other hand, believe time is running out. They stress that there is now a ‘favourable window of opportunity’ that will close with the US presidential election in November, and that Israel can only depend on American support for as long as current US President George W. Bush is still in charge in Washington.”

The report then deals with the feasibility of an Israeli air strike, featuring a map of Iran with potential targets for Israeli aircraft. The article notes that the Israeli air force had already carried out a successful bombing raid against Iraq’s Osirak nuclear reactor in 1981 and more recently in September 2007 destroyed a target identified by Israeli intelligence as a suspect nuclear site in eastern Syria.

Israel recently signed a deal with Washington involving the purchase of F-22 Stealth bombers, which are ideally suited to the type of targeted bombing raids planned by the Israeli air force command. Israel’s existing fleet of F15 jet fighters could also be used to launch a multi-pronged attack on Iranian uranium enrichment facilities.

The article concludes by citing Middle East expert and former CIA agent Bruce Riedel, who declares that while an American president could anticipate opposition to a US-led strike, “the situation is different from Israel’s perspective...There is some risk that Israel thinks it has limited time to act and it has a green light from American politicians.”

Questioned as to the consequences of such an Israeli strike, Riedel stressed that it would be seen as a US attack, and Iranian retaliation would be directed “at both Israel and the US.” The consequences, says Riedel, would be fatal. “We will see a Middle East in flames.”
…

No wonder oil prices are high even though there is no shortage of oil. This may also help explain the way financial insiders and policymakers have been acting like there is no tomorrow, buying time with short-term steps to keep the financial system afloat for a few more months. Such steps have no hope of longer-term stability (see this interview by Mike Whitney of Michael Hudson). There may well be no tomorrow for the financial system as we have known it. A Middle East in flames, global trade grinding to a halt with food shortages that could make today’s higher food prices seem like a golden age, all this makes those controlling the world economy think they will be able to create the new system. Given what we know about the psychopathic nature of these people, if we let them write the new script it won’t be pretty.