This month, the cost of West Texas Intermediate oil, a US benchmark, has been hovering at just over $50 a barrel – down from about $110 over the past year. Meanwhile, the number operating oil rigs in the country has fallen to just 645. That was lowest rig count in almost five years, down from more than 1,500 a year ago. Opec said last month that it would continue to pump 30m barrels a day, despite low prices, sending a strong signal to US competitors that it had no plans to let up the pressure on the Americans.
And now there is a new pressure on the scene. The decision to strike a nuclear agreement with Iran, which has more oil reserves than all but four Opec countries, will over the coming months unleash new Iranian oil into the markets. Analysts expect Iran to pump 1m or more barrels a day as a result, so the prospect of the deal has been driving prices down in recent weeks – by about 15% – interrupting a stabilising in the price of oil since the big plunge last year...
in late November, for the first time, Saudi Arabia embarked on a new strategy, refusing to cut production to prop up prices. That decision turned a gradual price decline into a free fall.
The Saudis were influenced by a bitter memory from the mid-1980s, when declining global demand had led to a similar oil glut. To try to keep prices stable, the Saudis went from producing 10m to about 2m barrels per day. Its customers flocked to other Opec nations, and the Saudis fought for years to get them back.
“We learned from that mistake,” Ali al-Naimi, the nation’s oil minister, said at a March conference in Berlin. “Today, it is not the role of Saudi Arabia, or certain other Opec nations, to subsidise higher-cost producers by ceding market share...
Since last fall, US drillers have shuttered 60% of their rigs, seen share prices tumble with little recovery, and laid off tens of thousands of workers who might not return even if prices were to recover. Only a handful of companies have so far faced questions about their solvency, but they have been furiously cutting projects that are no longer viable. The pullback has been severe enough to slow down the broader US economy, which for years had been powered by oil job growth and investment.
2---China's Record Dumping Of US Treasuries Leaves Goldman Speechless
We explained all of his on Friday in "China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium", and frankly we have been surprised that this extremely important topic has not gotten broader attention.
Then, to our relief, first JPM noticed. This is what Nikolaos Panigirtzoglou, author of Flows and Liquidity had to say on the topic of China's dramatic reserve liquidation
Looking at China more specifically, it appears that, after adjusting for currency changes, Chinese FX reserves were depleted for a fourth straight quarter by around $50bn in Q2. The cumulative reserve depletion between Q3 2014 and Q2 2015 is $160bn after adjusting for currency changes. At the same time, a current account surplus in Q2 combined with a drawdown in reserves suggests that capital outflows from China continued for the fifth straight quarter. Assuming a current account surplus in Q2 of around $92bn, i.e. $16bn higher than in Q1 due to higher merchandise trade surplus, we estimate that around $142bn of capital left China in Q2, similar to the previous quarter....
Back to Goldman:
The big question is obviously what is driving these flows and how long they are likely to continue. We continue to take the view that a stock adjustment is at work, although it is clear that the turning point is yet to come. We will look at this in one of our next FX Views. In the interim, we think an easier question is what this means for G10 FX. This is because this shift in China’s balance of payments is sure to depress reserve accumulation across EM as a whole, such that reserve recycling – a factor associated with Euro strength in the past – is unlikely to be sizeable for quite some time.
3---The Geopolitics and Economics of the Iran Nuclear Deal, eric draitser
As Bloomberg correctly noted in late March 2015 on the eve of the initial framework agreement which laid the groundwork for the negotiations in Vienna, “[Iran] is emerging again as a potential prize for Western oil companies such as BP, Royal Dutch Shell Plc, Eni SpA and Total SA. The Chinese can also be expected to enter the race, while U.S. companies, more burdened by sanctions and legacy, will be further down the pack…‘Iran is the big prize…The resource size is very attractive.’” Depending on political circumstances both in the US and Iran, US oil companies such as Exxon-Mobil and Chevron might have a difficult time penetrating that market, but that shouldn’t be an issue for their European competitors, nor for China’s massive Sinopec and Chinese National Petroleum....
Perhaps the single most important objective for US strategic planners though is to prevent Iran’s integration into the emerging non-western, Eurasian political, economic, and military architecture. Washington has watched over the last few years as institutions such as BRICS, the SCO, the New Silk Roads, and the EEU grew from drawing board ideas into tangible realities which now threaten to coalesce into all-encompassing geopolitical alliances.
With Russia and China becoming closer by the day, and the former Soviet Republics of Central Asia following suit, regional integration has been proceeding at breakneck speed. Add to that the emergence of a still chaotic, but increasingly less NATO-dependent Afghanistan, along with the newly added SCO members India and Pakistan, and it is clear that the United States is faced with a daunting geopolitical imperative.
Therefore, the US must create a mechanism to slow down, if not stop and reverse, this burgeoning integration. It is here that Iran serves its most useful purpose in the eyes of imperialists in the US whose primary goal is the maintenance and expansion of US hegemony for another hundred years....
They want to force Iran into a competitive, rather than cooperative, relationship with Russia. Additionally, they’d like to see Iran playing the role of SCO home-wrecker, as it plays China against India in major investments such as Chabahar, the all-important Iranian port seen as a major prize by both Beijing and Delhi.
In this way, the US wants to remake Iran from a bulwark against US-NATO-GCC-Israeli hegemony, into a weapon to be used as a wedge against BRICS-SCO-EEU-New Silk Road cooperation. If this sounds far-fetched, it shouldn’t; this is precisely the same sort of tactics the US employed throughout the Cold War with many different countries that it sought to “weaponize” against the Soviet Union and the non-aligned states.
4---The return of the “German question”
In September 2014, a PSG conference resolution noted: “The country’s ruling elites, which have thrown the world into the abyss twice before, are once again calling for ‘German leadership’ (Führung) and preparing to realise their imperialist interests through military violence… Almost 70 years after the crimes of the Nazis and Germany’s defeat in World War II, the German ruling class is once again adopting the imperialist great power politics of the Kaiser’s Empire and Hitler.”.....
now the return of the “German question” has become a central issue in the international media. After the events of recent days, it can no longer be denied that the country’s ruling elites are seeking supremacy over Europe so that German imperialism can play the role of world power as it did under Kaiser Wilhelm and Adolf Hitler.
In London’s Financial Times, Wolfgang Münchau accused Greece’s creditors of having “destroyed the euro zone as we know it and demolished the idea of a monetary union as a step towards a democratic political union.” He added, “In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century.”
In the Telegraph, London Mayor Boris Johnson spoke for the Tory right, accusing “the Germans” of tabling “a document that is breath-taking in its candour and brutality.” He added, “If Greece wants to stay in the single European currency, Athens must prostrate herself in an act of doglike self-abasement… These Schäuble proposals are tyrannical. They should be bitterly resisted.”
5---Wesley Clark’s internment proposal: The specter of military dictatorship
It would appear that the subject of internment camps is under intense and ongoing discussion within the top echelons of the state and the US ruling establishment.
If one takes Clark’s statements at their face value, the term “Orwellian” does not do them justice. “We have got to identify people who are most likely to be radicalized,” he said in his television interview. “We’ve got to cut this off at the beginning.” In other words, the massive and ongoing surveillance of the American population must be intensified to identify potential radicals and jail them based on their alleged thoughts or expressions.
In World War II, if someone supported Nazi Germany at the expense of the United States, we didn’t say that was freedom of speech, we put him in a camp, they were prisoners of war,” he added.
Making the implications of his reasoning unmistakable, Clark continued: “If these people are radicalized and they don’t support the United States and they are disloyal to the United States, as a matter of principle, fine. It’s their right, and it’s our right and obligation to segregate them from the normal community for the duration of the conflict.”
People are to be imprisoned in camps for the “duration” of the never-ending “war on terrorism” for being deemed “disloyal” or insufficiently supportive of the United States, a charge that could be leveled against anyone expressing opposition to US imperialist war abroad, police repression at home or even the profit interests of US corporations and banks...
The alleged ubiquitous threat of terrorist attack is the pretext for, rather than the real motive behind, the extraordinary police state measures that have already been implemented—the establishment of the Department of Homeland Security, the enactment of the USA Patriot Act and wholesale spying on the population of the US and the entire planet, the creation of the Pentagon’s Northern Command overseeing the US itself, and the unceasing militarization of US police departments—as well as even more sweeping fascist-style measures like those proposed by Clark.
Over the past two years, beginning with the imposition of virtual martial law in Boston following the Boston Marathon bombings, military-police lockdowns have taken place in Ferguson, Missouri and Baltimore, Maryland.
At its heart, this process is driven by the insoluble contradiction between basic democratic rights and the unprecedented levels of social inequality and continuous eruptions of US militarism that are the sharpest expressions of the historic crisis of American capitalism
6--Although Washington will not be invited to participate in the Normandy peace process, it has become part of a "special bilateral format" of talks on Ukraine, announced by Russian Presidential Chief of Staff Sergei Ivanov earlier this week.
The geopolitical intelligence firm frames the Ukrainian crisis as essentially a clash between two conflicting geopolitical imperatives with long-term implications.
"Russia wants to protect its interior by using its surrounding territories to establish a buffer. The United States wants to prevent the rise of regional powers that could potentially challenge US hegemony," Stratfor explained.
Western attempts to drag Ukraine (and other post-Soviet countries) into its sphere of influence through greater involvement both with the EU and NATO and disregard for Moscow's concerns and interests are apparently in line with this thinking....
Kiev wants to provide less autonomy and is ready to amend the constitution after self-defense forces disarm, while independence supporters are seeking greater autonomy and are ready to lay down arms only after appropriate changes are introduced and Kiev fulfills all its promises.
The United States largely supports Kiev's stance but it might have become more flexible on the issue.
Recently, Nuland urged Kiev authorities to grant "the country's eastern regions a controversial and highly debated 'special status' under the law. Officials had not included the term in the constitutional amendment draft, but US pressure to deliver more on the sensitive issue could be seen as a nod to Russia," the think tank asserted
"The evolution of Ukraine's conflict and the political reform process will be the true test of the effectiveness of this new bilateral dialogue between the United States and Russia," Stratfor concluded.
7---NATO Will Not Create Permanent Bases in Poland
8---Forget Recession: According To Caterpillar There Is A Full-Blown Global Depression
One wouldn't know it by looking at CAT stock, which has gone very much nowhere in the past 5 years thanks to just one thing - an exponential increase in the company's share buybacks...
... but the company's publicly disclosed monthly retail sales have just one message for anyone who follows them: forget recession, there is a global depression going on.
And it is not just in China as many would like to scapegoat: in June, in addition to a -19% drop in Asia Pacific (following a 30% Y/Y plunge a year ago, which in turn followed a 21% drop in 2013), US retail sales posted their first Y/Y decline since February, dropping by 5%.
But the real depression is in Latin America, where CAT retail sales plummeted by a whopping 50%: the most in reported history, and follow an 18% drop from a year earlier.
Summarizing it all, after an increasingly shallower series of dead CAT bounces in the past year, first thanks to Latin America, and then the US, global retail sales just dropped by 14% - marching the biggest Y/Y decline since the financial crisis.
And the cherry on top: there has now been an unprecedented 31 consecutive months of CAT retail sales declines
9--Three Huge Reasons Why the Fed Cannot Let Rates Normalize
In short, the world is awash with debt. The bond market has ballooned up to $100 trillion in size. And most nations are struggling to service their debt loads even with rates at historic lows.
At some point, the bond bubble will burst. And when it does, entire countries will go bust.
10--Iran to rejoin SWIFT
Iran and Germany have discussed expanding banking cooperation which is vital to Tehran’s rehabilitation into the global financial fold from which it was shut off for years under draconian US and European sanctions.
A major achievement of last week’s finalization of nuclear talks for Iran was its restored access to the global financial transfer system called the Society for Worldwide Interbank Financial Telecommunication or SWIFT.
While UN Security Council’s Monday endorsement of the talks virtually marked Iran’s re-integration into the financial society, the country is still likely to face unwarranted hurdles in its cross-border transactions.
11---Iran will sell oil to EU and china in dollars?
I sat down with Sharon Squassoni, director of the Proliferation Prevention Program at the Center for Strategic and International Studies (CSIS), for our latest iTunes podcast, Smart Women Smart Power....
Despite all the attention to U.S. sanctions, the short-term economic game changer for Tehran will be the lifting of European Union bans. “We haven’t had significant trade with Iran since 1979,” Squassoni notes. “[The regime] is most interested in reconvening trade with the EU, with China, with countries that are big buyers of oil.” That said, lifting the U.S. sanctions will give Tehran access to oil markets trading in dollars.
12---Pentagon's Panic Over 'Russia Threat' May Well Be Genuine
The two highly provocative statements – the Pentagon report entitled 2015 National Military Strategy and the Marine Corps General Joseph Dunford’s announcement that Russia poses the biggest threat to American national security – have added fuel to the fire, exacerbating further tensions between Washington and Moscow, former Indian Ambassador and expert in foreign affairs Melkulangara K. Bhadrakumar noted.
“If you want to talk about a nation that could pose an existential threat to the United States, I’d have to point to Russia,” General Joseph Dunford told the US Senate Armed Services Committee last week.
Dunford’s statement would have been dismissed as utter nonsense if these words had not come from the US Joint Chief of Staff nominee.
Dunford’s statement would have been dismissed as utter nonsense if these words had not come from the US Joint Chief of Staff nominee.
This new “strategic depth” in Sino-Russian relations has brought into reality the greatest nightmare of the father of British geopolitics, Sir Halford Mackinder, whose views shaped the US postwar foreign policy.
The geo-strategist had repeatedly warned against Russo-German rapprochement, saying that such a force may crush the British Empire, while his followers stressed that a Sino-Russian alliance would ultimately hammer the last nail into the coffin of the US global hegemony.
“However, the Chinese high command as well as the Russian also studied Mackinder thoroughly. This is today’s Silk Road, integrating for the first time in history the vast untapped resources of Eurasia,” American-German strategic risk consultant and lecturer F. William Engdahl notes.