Monday, August 11, 2008

Signs of the Economic Apocalypse, 8-11-08


Gold closed at 864.80 dollars an ounce Friday, down 6.1% from $917.50 for the week. The dollar closed at 0.6691 euros Friday, up 4.1% from 0.6425 at the close of the previous week. That put the euro at 1.4944 dollars compared to 1.5564 the week before. Gold in euros would be 578.69 euros an ounce, down 1.9% from 589.50 at the close of the previous week. Oil closed at 115.20 dollars a barrel Friday, down 8.6% from $125.10 at the close of the Friday before. Oil in euros would be 77.09 euros a barrel, down 4.3% from 80.38 at the close of the Friday before. The gold/oil ratio closed at 7.51 Friday, up 2.5% from 7.33 for the week. In U.S. stocks, the Dow Jones Industrial Average closed at 11,734.32 Friday, up 3.6% from 11,326.32 at the close of the previous Friday. The NASDAQ closed at 2,414.10 Friday, up 4.5% from 2,310.96 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.93%, unchanged for the week.

It was a dramatic week in the markets last week, with gold falling 6% against the dollar, oil falling almost 9%, and the dollar gaining 4% against the euro. The dollar’s strength was attributed to the realization that the whole world will share in whatever downturn is facing the United States. As for the fall in the commodities like oil and gold, it could either be a correction from a commodities bubble, or a tip of the balance toward deflation and away from inflation. All of the above bodes well for U.S. corporate profits, so U.S. stocks were up sharply.
Oil's plunge powers rally on Wall Street

Kristina Cooke

Fri Aug 8, 2008

NEW YORK (Reuters) - U.S. stocks soared on Friday rounding out their best week in more than three months, as oil plunged below $115 a barrel, easing inflation concerns and improving prospects for business and consumer spending.

The slide in oil prices to their lowest level in three months powered the biggest rally in retailing shares in six years, with Home Depot gaining 7.7 percent.

That eclipsed a steeper-than-expected quarterly loss from mortgage finance company Fannie Mae.

In fact, financials rallied, helped by the view that lower inflation will make it easier for the Federal Reserve to put off interest-rate increases, at a time when the financial sector is still struggling with tighter credit conditions.

"We're at the lowest level in oil prices in months and there is a real feeling that the trend has turned," said Al Kugel, chief investment strategist at Atlantic Trust.

"Lower oil prices are good for businesses and good for consumers, for the inflation picture, and they will improve growth somewhere down the line. So it's 'win win."'

…Concerns about slowing European and Asian economies boosted the dollar and fed worries about lower demand for oil. U.S. front-month crude dropped more than $5 inpost-settlement trading to $114.62 a barrel -- more than 20 percent below its July record high…

Not so fast on the “win-win” of low oil prices. That’s not a win for the oil companies, who have just recorded more record profits. Yet, as if by magic conjured up by oil companies, war broke out near a crucial oil pipeline:
Analysis: energy pipeline that supplies West threatened by war Georgia conflict

Robin Pagnamenta

August 8, 2008

The conflict that has erupted in the Caucasus has set alarm bells ringing because of Georgia's pivotal role in the global energy market.

Georgia has no significant oil or gas reserves of its own but it is a key transit point for oil from the Caspian and central Asia destined for Europe and the US.

Crucially, it is the only practical route from this increasingly important producer region that avoids both Russia and Iran.

The 1,770km (1,100 miles) Baku-Tbilisi-Ceyhan pipeline, which entered service only last year, pumps up to 1 million barrels of oil per day from Baku in Azerbaijan to Yumurtalik, Turkey, where it is loaded on to supertankers for delivery to Europe and the US. Around 249km of the route passes through Georgia, with parts running only 55km from South Ossetia.

The security of the BTC pipeline, depicted in the James Bond film The World is Not Enough, has been a primary concern since before its construction.

The first major attack on the pipeline took place only last week - not in Georgia but in Turkey where part of it was destroyed by PKK separatist rebels.

Output from the pipeline, which is 30 per cent owned by BP and carries more than 1 per cent of the world's supply, is likely to be on hold for several weeks while the fire is extinguished and the damage repaired.

But the threat of another attack by separatists in Georgia itself is very real.
Only a few days before the Turkish explosion, Georgian separatists threatened to sabotage the pipeline if hostilities continued.

The latest eruption of violence could easily spur fresh attacks. The BTC pipeline, which is buried throughout most of its length to make sabotage more difficult, was a politically highly charged project. It was firmly opposed by Russia, which views the Caucasus as its own sphere of influence and wants central Asian oil to be exported via its own territory.

Russia also backs the South Ossetian and Abkhazian separatists in Georgia and relations between Moscow and Tbilisi have curdled into outright hostility in recent months.

The BTC pipeline, which cost $3 billion to build, is a key plank of US foreign policy because it reduces Western reliance on oil from both the Middle East and Russia.

What is going on in Georgia? Don’t look to the mainstream western media for an answer. As usual, the alternative press proves a more reliable source for analysis.

US-Russian tensions in Caucasus erupt into war

Bill Van Auken

9 August 2008

Long-escalating tensions between Russia and the former Soviet republic of Georgia erupted into full-scale war Friday, leaving hundreds if not thousands of civilians dead and turning thousands more into refugees, forced to flee for their lives.

The immediate focus of the fighting is the attempt by Georgia to militarily seize control of the enclave of South Ossetia, which has existed as a de facto independent entity for the past 16 years, and Russia’s armed intervention to counter this assault.

Underlying this military confrontation, however, are far broader conflicts. Feeding the bloody confrontation in South Ossetia is US imperialism’s drive to establish hegemony over the vast energy resources of Central Asia and the Caucasus through the assertion of American military power in the region. The Russian ruling elite, for its part, is seeking to reassert its grip over a region that was ruled by Moscow for two centuries before the dissolution of the Soviet Union in 1991.

This bitter rivalry between Washington and Moscow—the world’s two greatest nuclear powers—lends the fighting in the Caucasus a particularly explosive and dangerous character. The tensions between the two countries have been exacerbated in the recent period by the Bush administration’s drive to incorporate Georgia into the NATO alliance, a move that Moscow sees as part of an attempt to establish a military encirclement of Russia.

The US-backed Georgian regime of President Mikheil Saakashvili sent massed military units into South Ossetia on Thursday morning, after claiming that South Ossetian military forces had shelled Georgian villages, supposedly violating a unilateral cease-fire declared by Tbilisi.

While the Georgian regime initially claimed it was carrying out a “proportionate response,” it quickly became clear that it had launched an all-out military offensive aimed at conquering the region. Using artillery, tanks, truck-mounted multiple rocket launchers and war planes, the Georgian military laid siege to the South Ossetian capital of Tskhinvali.

Much of the city was reportedly in flames Friday. The regional parliament building had burned down, the university was on fire, and the town’s main hospital had been rendered inoperative by the bombardment. The International Red Cross reported that ambulances were unable to reach the wounded.

“As a result of many hours of shelling from heavy guns, the town is practically destroyed,” Marat Kulakhmetov, the commander of Russian peacekeepers in the territory, told the Russian news service Interfax.

Eduard Kokoity, the South Ossetian leader, estimated late Friday that more than 1,400 civilians had been killed in the Georgian military assault.

“I saw bodies lying on the streets, around ruined buildings, in cars,” Lyudmila Ostayeva, 50, told the Associated Press after fleeing the city with her family to a village near the Russian border. “It’s impossible to count them now. There is hardly a single building left undamaged.”

Russian Foreign Minister Sergei Lavrov charged Georgia with utilizing massive violence with the aim of forcing the Ossetian population to flee. “We are receiving reports that a policy of ethnic cleansing was being conducted in villages in South Ossetia, the number of refugees is climbing, the panic is growing, people are trying to save their lives,” said Lavrov.

According to Moscow, among the dead were ten Russian peacekeepers, while 30 more were wounded in the shelling of their barracks by the Georgian forces. The peacekeepers were deployed in the area as part of an agreement reached between Moscow, Tbilisi and South Ossetia to end the fighting that erupted following the dissolution of the Soviet Union and the subsequent bid by the peoples of South Ossetia and Abkhazia to separate from Georgia. The inhabitants in both regions feared the newly independent Georgian regime would abolish their autonomous status.

Since then, however, Tbilisi has charged that the Russian troops are backing the South Ossetian forces.

Russia seized upon the deaths of its troops and the civilian casualties as the justification for sending a tank column and infantry into South Ossetia, where they have become engaged in fierce combat with Georgian units for control of Tskhinvali.

“In accordance with the constitution and federal law, I, as president of Russia, am obliged to protect lives and dignity of Russian citizens wherever they are located,” Russian President Dmitry Medvedev told a meeting of his security council at the Kremlin. “We won’t allow the death of our compatriots to go unpunished.”

Meanwhile, Georgian authorities charged that Russian warplanes had struck the country’s military bases, airfields and the main Black Sea port of Poti late Friday and early Saturday, killing some civilians. Bombs reportedly fell on the capital of Tbilisi and on the area of the Baku-Tbilisi-Ceyhan oil pipeline.

“All day today, they’ve been bombing Georgia from numerous warplanes and specifically targeting (the) civilian population, and we have scores of wounded and dead among (the) civilian population all around the country,” Saakashvili told the US news network, CNN.

Saakashvili announced that he had called up the country’s reserves, while sources in Georgia said he was expected to announce the imposition of martial law.

The timing of the Georgian incursion, on a day when world attention was focused on the opening of the Olympics in Beijing, where both Russian Prime Minister Vladimir Putin and US President George Bush are present, hardly seemed fortuitous.

Saakashvili, however, suggested that it was Russia that had chosen the date, calling it a “brilliant moment to attack a small country” and charging that the quick response by the Russian military demonstrated Moscow’s preparations for an intervention.

The Georgian president declared that his country was “looking with hope” to the US. The armed confrontation with Russia, he claimed, “is not about Georgia anymore. It’s about America, its values... America stands up for those freedom-loving nations and supports them. That’s what America is all about.”

Under the Bush administration, Washington has attempted to forge close ties with Georgia, particularly since the US-backed “Rose Revolution” that paved the way for Saakashvili’s rise to power.

US imperialism’s main interest in Georgia is as an American bridgehead into the oil and gas-rich Caspian Basin and as a strategic transit route for funneling energy supplies out of the region, while bypassing Russia.

To cement its ties with the Georgian regime, Washington has provided hundreds millions of dollars in military aid, while sending in large numbers of US military trainers for the country’s growing armed forces.

Georgian troops, meanwhile, account for the third largest contingent participating in the US occupation of Iraq, numbering some 2,000.
Tbilisi indicated Friday that it would seek US help in bringing at least 1,000 of these soldiers back to participate in the fighting in South Ossetia.

Russian Foreign Minister Lavrov alluded to the US military support for Georgia, declaring, “Now we see Georgia has found a use for these weapons and for the special forces that were trained with the help of international instructors.” He added, “I think our European and American colleagues... should understand what is happening. And I hope very much that they will reach the right conclusions.”

Last month, US Secretary of State Condoleezza Rice paid a provocative visit to Tbilisi, denouncing Russia and reiterating US backing for Georgian NATO membership. Washington’s NATO allies in Western Europe, however, have greeted the proposal coolly, seeing it as an unnecessary provocation against Russia, upon which they depend for energy supplies.

Whether Rice during her visit gave an explicit green light for the intervention in South Ossetia, or whether the Georgian regime felt the demonstration of US support gave it the assurance of Washington’s backing for such a military action, is not known.

Chevron named an oil tanker after Condoleezza Rice.
In the wake of Friday’s assault, Washington has stopped short of providing explicit support for the Georgian action, but has made it clear that it backs the position of its client state in the Caucasus.

The United Nations Security Council failed to support a Russian-backed resolution calling for an end to the fighting because of Washington’s opposition to a clause calling on all sides to “renounce the use of force.” The clear implication is that the US is backing Georgia’s right to take military action.

Secretary of State Rice, meanwhile, issued a statement effectively condemning Russia, while providing tacit justification for Georgia’s intervention. “We call on Russia to cease attacks on Georgia by aircraft and missiles, respect Georgia’s territorial integrity, and withdraw its ground combat forces from Georgian soil,” she said. “We underscore the international community’s support for Georgia’s sovereignty and territorial integrity within its internationally recognized borders.”

The eruption of war in the Caucasus is the end product of the increasingly aggressive policy pursued by US imperialism in the wake of the dissolution of the USSR nearly 17 years ago. Washington has systematically manipulated national conflicts in the region to further its own aim of military and economic hegemony. This began with the bloody wars in the former Yugoslavia.

All of the arguments used by Washington to justify its support for Bosnia and Kosovo and its military assault on Serbia during the Balkan wars of the 1990s could be employed just as effectively to condemn Georgia’s intervention and defend South Ossetia, as well as Russia’s military intervention on its behalf.

In this case, however, Washington has elevated Georgia’s “territorial integrity” as the paramount principle in the conflict, effectively justifying Georgia’s military intervention and an assault on the province’s Russian population that Moscow has branded as “ethnic cleansing.”

The apparent contradiction between these two policies only underscores the fact that US imperialism’s supposed aversion to ethnic cleansing and the suppression of ethnic enclaves is entirely dependent upon who is doing it and whether or not it serves US strategic interests.

There is a direct link between this latest war and those waged by the US in the Balkans. In February, the US and the West recognized Kosovo’s “independence” based on its unilateral secession from Serbia, in direct violation of various UN resolutions. The aim in backing this secession—as in its support for the suppression of similar secessionist entities in Georgia—was to further US military plans for the encirclement of Russia and the securing of access routes to the Caspian Basin.

In the run-up to Kosovo’s unilateral declaration of independence, Moscow had repeatedly warned that it would set a precedent for similar actions by other territories in the former USSR—Abkhazia and South Ossetia, in particular. In its aftermath, the Russian regime stepped up its support for both territories.

Now, the eruption of war in South Ossetia poses the threat of a regional conflagration that can bring the world’s two biggest nuclear-armed powers, the US and Russia, into direct military confrontation, with the immense dangers that such a conflict poses to humanity.

Presto, rising oil prices:
Oil Rises From 14-Week Low as Georgia Conflict Threatens Supply

Gavin Evans

Aug. 11 (Bloomberg) -- Crude oil gained in New York on concern oil supplies from the Caspian Sea may be disrupted should the conflict in Georgia escalate.

Oil rose from a 14-week low as fighting in the central European state entered a fifth day. Russian jets fired more than 50 missiles at the BP Plc-operated Baku-Tblisi-Ceyhan oil pipeline south of the Georgian capital of Tbilisi, the Daily Telegraph reported yesterday. There were no visible signs of damage to the pipeline, the newspaper reported.

“Whether we get an actual physical disruption in supply to Europe, that will be the critical thing,” said Gerard Burg, energy and minerals economist at National Australia Bank Ltd. in Melbourne. “If it impacts on Brent, it is going to affect a much wider market and has the potential to send prices higher.”
Crude oil for September delivery rose as much as $1.30, or 1.1 percent, to $116.50 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $115.99 at 7:58 a.m. in Singapore.

Brent crude for September settlement rose 92 cents, or 0.8 percent, to $114.25 on the ICE Futures Europe exchange the same time.

Russian troops entered the breakaway province of South Ossetia on Aug. 8 after fighting between local forces and the Georgian army. Georgia, which has withdrawn its forces, is now under attack from warplanes and artillery fire from neighboring Abkhazia province.

Baku Pipelines

The Baku-Tblisi-Ceyhan pipeline was shut Aug. 5 after a blast on part of the line in eastern Turkey. The pipeline had been delivering about 800,000 barrels of oil a day to the Turkish port of Ceyhan before the shutdown, BP said last week.

Crude oil deliveries on the Baku-Supsa pipeline to Georgia's Black Sea coast are unchanged from last week, BP Plc said yesterday.

Unless supplies are stopped or the conflict escalates, oil prices may come under pressure from the rising U.S. dollar and a more “bearish mood” toward most commodities, National Australia's Burg said.

New York oil futures fell 4 percent to settle at $115.20 on Aug. 8, after a plunge in the euro reduced the investment appeal of commodities. Gold, copper and grains also fell as weaker growth prospects in Europe reduced the likelihood of rate increases there and delivered the dollar its biggest gain against the euro since September, 2001.

The euro fell for a fourth day today, trading as low as $1.4911 in early Asian trading. It was last at $1.4950 from $1.5005 in late New York trading last week.
New York oil futures traded as low as $114.62 on Aug. 8, dropping below the $116.76 level that marks a 50 percent retracement of the climb in prices from February to July's record $147.27 a barrel. Some traders use the Fibonacci analysis to suggest prices that may encourage investors to buy or sell a commodity.

“It fell very heavily,” Burg said. “You can often see a little bit of a rebound in those situations.”

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