Give Me Energy Security And I Will Give You A Foreign Policy

David J. Jonsson

Summary: The world stands today at the precipice dividing the eras of the post-Cold War which we have know since 1989—one of expanding democracy and free markets—and a new world order which is unknown and certainly a much less prosperous and friendly place. The Leftist/Marxist – Islamist Alliance through joining together a global cabal of nations for the control of the world's energy infrastructure, finance, media and transportation assets present a real and current danger to the West. The cost of defending a policy of Energy Interdependence as a cornerstone of foreign policy is huge in terms of potential loss of lives and impact on our economy. The West and particularly America cannot maintain our economy by assuming that the developing world along with the “recycle” of oil wealth will continue to provide a market for debt and our energy resources without extracting the huge price of our security, freedom and liberty. Spreading democracy requires us to take responsibility for our financing and energy needs. A program leading to Energy Independence is both feasible and desirable. The risk of failing to act now are presented along with a proposed strategy for energy independence to make the world a safer and environmentally sustainable place for our children to grow up.

The New World Order

The world stands today at the precipice dividing the eras of the post-Cold War which we have know since 1989—one of expanding democracy and free markets—and a new world order which is unknown and certainly a much less prosperous and friendly place. The geopolitical uncertainties of the future could have far reaching consequences. The control of the world's energy infrastructure may well determine the future of the Western world. No war has been won without the availability of energy and food. Both are now being threatened. The control does not concern only how Russia and China deal with Iran's nuclear ambitions, but extends to events in Africa and Latin America as well. We ignore crude politics at our peril. The Russians, on the other hand, may resort to an en passant on its chessboard of energy geopolitics and catch many by surprise. If the conditions are right, there is a possibility here of losing Japan and South Korea - due to its proximity to the Siberian and Sakhalin oil and gas fields - to Moscow's orbit. Japan could also find itself in a dilemma over how to reconcile its stance against nonproliferation with its desire to develop Iran's Azadegan oil field – a key element of its future energy strategy. Adding to Japan's dilemma is the fact that China may invest in Azadegan, which is believed to contain 26 billion barrels of crude oil, should Japan pull out from there.

The Currency Card and Iran Oil Bourse

Tehran, Feb 17, IRNA - The first phase of Iran's oil stock market started its work on Kish island in the Persian Gulf, southern Iran, on Sunday presenting oil and petrochemical products. The stock market was inaugurated in a video conference ceremony from the capital Tehran attended by ministers of oil, finance and economic affairs as well as chairman of Iran's Stock Exchange and a number of other officials and financial experts.
While the media is paying attention to energy security, the nuclear threat posed by Iran, and the cartoons another potential crisis is developing—the currency issue. The long term goal of the Organization of Islamic Conference (OIC) and its sister organization the Islamic Development Bank is seeking to reduce the strength of the United States through the replacement of dollar as the reserve currency for world trade. Iran and their allied countries are playing a key role in this strategy. Syria changed their currency to euro, and Iran plans for the opening of Iran Oil Bourse (IOB) in March 2006, which will trade oil and products in the euro. Iran and Venezuela have joined forces in an effort to undermine the U.S. dollar. In October 2005, Venezuelan President Hugo Chavez announced that Venezuela was ready to move the country's foreign-exchange holdings out of the dollar and into the euro. He also called for the creation of a South American central bank designed to hold in euros all the foreign-exchange holdings of the participating countries.

The United States relies on approximately 70 percent of all foreign-exchange currency to be held in dollars because we sell Treasury debt into that foreign-exchange market. Should Venezuela and other South American countries and Iran and other members of the OIC succeed in creating a worldwide flight of foreign-exchange reserves away from the dollar and into the euro, the move could depress the value of the dollar. The ultimate goal is to bring down America and possibly the entire West.

Dwindling foreign exchange dollar holdings could end up pushing the Treasury to sell debt into a smaller international supply of dollars, with the dollar not being as strong as it is today. Increasing the cost of our "twin deficits" – the budget deficit and the trade deficit – would have detrimental effects on the U.S. economy. All Western countries will feel the impact. Transferring the euro into the currency for the global reserves will potentially increase its value 20 to 40 percent, and such an increase will weaken the exports of the euro countries considerably. The European economy is not powerful enough to tolerate such a pressure.

Tehran-Caracas Axis

A Tehran-Caracas Axis clearly extends also to Havana and Damascus. Whether we realize it or not, we are already involved in an economic war that could easily turn into a shooting war, starting with Iran.

While the Tehran-Caracas Axis grows stronger so does the Venezuela-Bolivia-Cuba Axis. The Axis has coined the slogan “axis of good.” "Evism" comes from Evo Morales, the first name of the Aymara Indian who won Bolivia's presidency after a campaign in which he described himself as a nightmare for the U.S. Evism joins "Fidelism" (after Cuba's Fidel Castro) and "Chavism" (after Venezuela's Hugo Chavez) on the list of Latin American "isms." The grouping in tern is rallying the Latin American leftists to seek open borders for the immigration into the U.S. to gain their favor, win agreement for the Free Trade Zones for the Americas and supply of oil.

Not only is the West becoming more reliant on the Middle East for crude oil, but also on finished products. According to an article published in the Financial Times (Mideast to dominate petroleum products export market – 2/14/06) Europe and the U.S. will become more dependent on the Middle East as an exporter of refined petroleum products over the next 10 years, according to data published on February 13, 2006. Aggressive investment in expanding and building new refineries is forecast to boost capacity in the Middle East by 60 per cent, according to the study published by Wood Mackenzie. This would make the region, chiefly the Gulf, the main exporter of finished petroleum products such as petrol, diesel, heating oil and jet fuel. Unfortunately even some leading major oil executives are buying into the concept that there is not sufficient risk for the West to pursue strategic energy security.

Energy Security Through Energy Interdependence

Peter Robertson, Vice Chairman of Chevron Corporation of the U.S. in a presentation to Jeddah Economic Forum on February 11, 2006 said “the United States would be better off working for ``interdependence'' with oil producing countries rather than seeking to cut dependence.” He went on to add: “_ U.S. President George W. Bush's desire to cut U.S. dependence on Mideast oil shows a ``misunderstanding'' of global energy supply and the critical role of Saudi Arabia.”

Security of oil supply and from weapons of mass destruction is not limited to the Middle East but extend to our shores. There are links to the shores of America. “Is there a Caliphate coming to a country near you?”

Cuba and Weapons of Mass Destruction

In a letter to then Russian Premier Nikita Khrushchev regarding his role in the 1962 Cuban Missile Crisis, Cuban dictator Fidel Castro reflected upon the possible use of nuclear weapons during the U.S.-Soviet confrontation, “It was my opinion that, in case of an American invasion [Cuba], a massive and total nuclear strike would have to be launched.” Given Castro's affection for nuclear weapons, it should come as no surprise to observers that the aging terrorist has befriended Iranian President Mahmoud Ahmadinejad.

The Soviet Union's nuclear option vis-à-vis Nikita Khrushchev and a younger Fidel Castro seem suddenly quaint compared with the havoc that could result should Cuba and Iran consummate their mutual hatred of the U.S.

In a disquieting development, Castro visited Tehran in November 2005 where he was given sacred Islamic texts in Spanish and was invited by Iran's religious leadership to convert to Islam. “We spoke to Castro for several hours and I think we even almost managed to convince him to convert to Islam,” said one source close to the meeting. “Castro is certain that the Cuban people are suffering from a lack of spiritually, and seems interested in Islam, above all the writings of Iranian leader Khomeini,” the source said.

But Castro's initial interest in Islam actually surfaced many years ago. Shortly after Ayatollah Khomeini's followers drove the Shah into exile in 1979, Castro dispatched Cuban envoys to Tehran to rekindle bilateral relations, professing his admiration for the “revolutionary role of Islam.”

If life were a football game, we'd be commending Muslims for an artful fake. While half the Muslim world was rioting in reaction to a few unremarkable cartoons—thanks to the fancy footwork of the anti-West Muslim Brotherhood—nuclear-minded Iran was making new kissy sounds with head cheerleader Fidel Castro.

Among Castro's proudest achievements is his Center for Genetic Engineering and Biotechnology, a huge research and development enterprise in which he has invested much of his cash-strapped nation's resources and intellectual capital. While some of his shipments to Iran are surely to provide medical drugs for Iranians, skeptical observers suspect there's more than altruism at work.

Dr. Jose de la Fuente, who headed the biotechnology research and development at the center through most of the 1990s, wrote in 2001: "There is no one who truly believes that Iran is interested in these technologies [solely] for the purpose of protecting all the children in the Middle East from hepatitis, or treating their people with cheap streptokinase when they suffer sudden cardiac arrest."

What else might biological agents be used for? Biological weapons of mass destruction spring to mind. Speaking to students at the University of Tehran in 2001, Castro praised the Islamic revolution for ousting the shah, then mentioned the "shah of imperialism which is entrenched near my homeland." He promised that “ . . as the shah of Iran was overthrown, this shah too will fall."

Ovations, riots - Islamist passions provide ample fuel for the kind of dreams Castro nurses. Dreams that, unfortunately, are shared by much of the Muslim world.

The thoughts of an Islamic terrorist state located 90 miles off of the Florida coast should enough to keep the people of America and even President Bush up for weeks.

According to AKI Adnkronos International Gholam Ali Haddad Adel, the president of the Majlis, the Iranian parliament, who is related by marriage to Ayatollah Seyyed Ali Khamenei, the spiritual leader of the Islamic republic, met on February 13 with the president of Venezuela, Hugo Chavez. Haddad Adel arrived in Caracas on Sunday night with a delegation including agriculture minister Mohammad Reza Eskandari and industry minister Ali Reza Tahmasebi. After the visit to Venezuela, Iran's main ally in Latin America and within OPEC, the Iranian delegation is set off to travel to Cuba, Brazil and Uruguay.

In his first foreign visit as Iran's newly elected president, Mahmoud Ahmadinejad visited Cuba and Venezuela before heading to the United States for a UN summit in September last year. Ahmadinejad met with Venezuelan president Chavez and the Cuban leader Fidel Castro.

While the Cuba visit itself may be of little consequence, the invitation offers a reminder that our Cuban neighbor is ceaselessly working to pursue anti-American foreign policy. It also offers a heads-up that Iran's nuclear aspirations may as well be Cuba's.

Security for U.S. Ports

But, it is not only Cuba that is necessary to consider. The UAE owned Dubai Ports World (DP World) finalized a $6.8 billion deal on February 13, 2005 to buy the English firm P&O Ports, which now runs Manhattan's cruise-ship terminal on the West Side and the Port Authority's Newark Container Port, as well as ports in New Orleans, Philadelphia, Baltimore and Miami. Do the feds really want to place the ports of New York and New Jersey in the hands of a Middle East country with ties to the Sept. 11 hijackers?

If a terrorist organization decided to infiltrate this company, what would stop them? Dubai has become one of the White House's close allies in the war on terror, but many of the 9/11 hijackers passed through the country and had cash wired from there.

The port risk is not limited to the East Cost and the Gulf. COSCO [China Ocean Shipping Company] has, since the signing of an Executive Order by President Bill Clinton in January of 1998, sought to take over and totally controls the former U.S. Naval Port Facilities at Long Beach, California. This port is the largest container port on the West coast of North America and is a major conduit through with our technology is being transferred to China.

However the acqusition of U.S. Naval Port Facilities was blocked. Port of Long Beach officials were officially stripped of their ability to lease the former Navy land to COSCO, when congressional conferees submitted to Congress the 1998-1999 defense authorization bill. The legislation's final language effectively prohibits the Chinese company from leasing any part of the Long Beach Naval Station after it is converted into a cargo terminal.

COSCO is intimately linked with the Hutchinson- Whampoa Group of Hong Kong which is 100% owned by Li Ka-Shing, of the very powerful LI family of China, Ka-Shing is a very close associate of former Chinese President Zhao Zemin.

The Hutchinson-Whampoa Group controls the Panama Canal and is linked to the PLA like a Siamese Twin. Hutchinson-Whampoa Group operates ports in Argentina, Bahamas, Mexico, Panama and Mexico.

Richard (Dick) Blum the wife of Senator Dianne Feinstein is a partner at San Francisco-based Newbridge Capital which served as a consultant to a Hong Kong subsidiary of COSCO, the state-owned shipping company among other direct involvements in China.

However Pacific Container Terminal (Cosco) Long Beach has a terminal adjacent to the City of Long Beach on Pier J Ave. It has 256 acres increasing to 283 acres in 2007. SSA Marine is the port operator. SSA has had a 25-year business relation with COSCO. Since entering into US trade, SSA Marine has handled every COSCO container in every port on the West Coast totalling 7.7 million.  SSA Marine completed a USAID contract in Umm Qsar, Iraq in 2004.  The operations team was on site at the port from April 2003 to June 2004.

Foreign control of our ports that are vital to homeland security is a risky proposition. The acquisition of the ports was made possible by utilizing the “recycled” profits made possible by relying on foreign oil and need to fund our mounting national debt and foreign trade inbalance.

Hamas Interest in Spain

There is much more at stake for Europe than its own energy supplies.

Iran has reached the shores of the Mediterranean with the recent elections bringing Hamas into Palestine and the Hezbollah in Lebanon. The Muslim Brotherhood succeeded in the elections in Egypt.

The children's web site al-Fateh, property of the Palestinian terrorist group Hamas, demands in its most recent issue the return of the Spanish city of Seville to the "lost paradise" of Al Andalus, as the Muslim part of Spain was called during its existence between 711 and 1492. The web magazine, whose name means "conqueror," says it is for "the young builders of the future."

Italy has evolved from a logistics base for Islamic militants to a de facto base of operations for Algeria's Salafist Group for Preaching and Combat (GSPC) targeting Italy, other European countries and the United States. While the GSPC continues to engage in and support terrorist operations in Algeria, the group's emphasis on "out-of-Algeria" terrorist operations has made it the largest, most cohesive and dangerous terrorist organization in the al-Qaeda orbit.

GSPC cells in Italy employ a dual-track approach to planning terrorist attacks and provide support infrastructure—safe houses, communications, weapons procurement and documentation—to GSPC networks in other European countries.

Moscow's increasing control of the energy infrastructure and markets in central Europe has long-term implications for the security and not just energy security, for all of Europe. The trafficking in weapons by China and Russia to obtain political control and control of energy resources impacts global relations. Putin before he was elected said his strategy is to utilize control of energy for geopolitical power. He fired the first salvo with his curtailment of natural gas to the Ukraine and in turn to Europe.

The issue of control of the energy infrastructure not only affects the price of oil, but also could impact the total availability of oil at any price. The availability of oil is not the only issue at stake; the countries supplying much of the world oil also supply needed products for an industrial country to continue to prosper but also to eat.

Natural Gas and America's Food Supply

Let me explain: natural gas is the starting source for the production of ammonia and urea—the fertilizers that drive the agriculture sector of the United States and the rest of the Western countries. Because of increased price of natural gas in the United States, large portions of U.S. ammonia production has shut down and moved to countries with lower cost gas, such as to the Middle East. In the Gulf of Arabia (Persian Gulf) the price of gas is less than $1.00/MMBU compared to $6.00-14.00/MMBU in the U.S. Over 50% the urea used for agricultural production in the U.S. is now imported. The price of imported fertilizers could significantly increase or reduced in availability at any price if the Strait of Hormus were blocked. Remember it also takes urea to grow corn for production of ethanol. The production of ethanol as a means to replace oil is not secure and in the end may not reduce import dependence on foreign supply.

There have been numerous embargos on oil, but the recent events may result in embargos of other critical materials including petrochemicals, aluminum, etc.—products produced in the Gulf because of low cost gas. The increased use of natural gas for power generation developed in the U.S. and Europe because of its low cost and importantly because of environmental pressure to reduce CO2 emissions to meet the Kyoto Protocol. Thirty-five percent of the UK power generation depends on natural gas. The UK began inports in 2005 and within 15 years, the UK will be dependent on 90% imported gas, largely from Russia. The UK's foreign policy will be influenced by heat for their homes and factories. The "oil weapon" has been used on many occasions in the past.

The "oil weapon" may be used by restricting oil supply to raise prices or increasing oil supply to bring down prices. Restricting oil supply to Japan in World War 11 impacted the demise of Japan. Increasing oil supply and lowering the price brought down the Soviet Union. The Wall Came Down!

Russia and Saudi Connection

However, it should be noted that Saudi, in its battle against Russia prior to the fall of the Soviet Union, used the reverse tactic—increasing oil production to bring down the price of oil, thus reducing the major export of Russia, and ultimately, resulting in the economic collapse of the Soviet Union. It is because of this history that Russian President Vladimir Putin met on September 1 and 2, 2003, with then Crown Prince Abdullah of Saudi Arabia to coordinate oil production and for Russia to become an observer in the Organization of Islamic Conference (OIC) on July 1, 2005. Saudi Arabia succeeded in getting Russia to reduce oil production expansion.

According to diplomatic sources, in seeking to become a permanent observer in the OIC, Russia relied on the fact its population included 21 million Muslims, approximately 15 percent of its population and the invitation of Pakistan into the Shanghai Cooperation Organization (SCO) in 2005. It should be noted that the SCO represents as type of 'Warsaw Pact' among three-fifth of the world population. But, the cabal of the Leftist/Marxist – Islamist Alliance also extends into Latin America and even the shores of America.

It should be noted that this economic jihad against Russia allowed the rise of the Taliban in Afghanistan and the breakaway of the Stans. With the break up of the Soviet Union we saw the creation of newly independent states in Central Asia that were then Islamizied, with the building of mosques staffed by the imams from Saudi, Iran and other Muslim states. More importantly, the opening of the Central Asian states to Saudi influence also allowed for the Saudi and China interests to gain significant control of the oil resources in the region, which were estimated to have a value in excess of $1 trillion. Such control increased the share of world oil controlled by Islamists. Economic jihad succeeded.

However, the nuclear standoff surrounding Iran remains the central focus. In this battle the events and actions in the coming months of Russia and China will determine if we end the post Cold War ear of relative peace and prosperity. If Iran—a Shiite country—does develop nuclear weapons, the Sunni nations will follow suite. The Sunni Arabs can tolerate Israel with weapons, but cannot overlook the Shiites having a bomb.

However it should be noted that the cartoon riots raised another issue. The Muslim ummah brought together both the Sunnis and the Shiites in a unified action. This could portend significant implications for the pan-Islamic Union unified for the control of energy resource infrastructure and currency this impacting the global economy. On February 13, 2006 Syria has switched all of the state's foreign currency transactions to euros from dollars amid a political confrontation with the United States. The switch would mean euro pricing for crude oil sales, a major foreign currency earner for Syria.

Imagine the oil producing countries, with $60 oil and weapons of mass destruction including nuclear weapons.

The China-Iran Connection

In fact, the China-Iran connection transcends energy and covers a whole spectrum of economic activities - dam-building, steel mills, ship-building, transport and dozens of other projects. At present, more than 100 Chinese firms are involved in Iran, also cooperating to develop ports, jetties, airports in six cities, mine-development projects and, of course, oil and gas. Trade between the two countries in 2005 hit a new record of US$9.5 billion, compared with $7.5 billion in 2004.

China currently gets 13.6% of its oil imports from Iran. Beijing is also in the process of importing Iranian natural gas. China's plan is to become a comprehensive participant in exploration, drilling, petrochemicals, pipelines and other upstream and downstream services related to Iran's oil and gas industries.

What worries China in this game is its heavy reliance on foreign intermediaries to transport most of its oil from the Middle East (where China obtained 45% of its imported oil in 2004) and Africa (which contributed to 29% of China's oil imports) to its ports, and its lack of navy capacity to protect oil cargoes on the high sea and patrol the Malacca Strait (oil choke point), through which four-fifths of its oil imports pass.

Global demand for oil is increasing sharply, fueled by China's large and energy-hungry economy and the growing demand for oil in developing countries. With the U.S. consuming 25-percent of global oil, with Europe accounting for three-fifths of consumption of Persian Gulf oil, and with China expected to consume the equivalent of three-quarters of Persian Gulf oil by 2017, it is obvious that simply these three economies are on a collision course even if current oil production rates could be maintained indefinitely. In a situation where energy reserves are actually decreasing, the emergency seems clear.

To compensate for its sources of energy security, China has engaged in a spirited energy diversification, production-sharing and other creative oil contracts around the world, as well as beefing up its military power projections by, among other things, developing Gwadar Port in Pakistan's Balochistan province at the mouth of the Persian Gulf, some 400 km from the Strait of Hormuz, at the estimated cost of $1.16 billion.

Moreover, recently China consented to Iran's accession to the Shanghai Cooperation Organization (SCO) as an observer, thus adding to the geostrategic dimension of its energy-led cooperation with Iran. Simultaneously, China's cooperation with other Persian Gulf countries—Kuwait, Qatar, the United Arab Emirates and Saudi Arabia—has increased dramatically recently. According to one China watcher penning in a recent issue of the Washington Quarterly, increased China-Saudi cooperation could translate into a weakening of the oil kingdom's US dependency.

The Iran Oil Bourse Begins

In a threat certain to unsettle the NYMEX and IPE oil markets, a senior Iranian official said in February 2006 that if Iranian oil exports are sanctioned it will ban transit of oil tankers in the Gulf.

Iran's Mehr news agency reported that Shura Council national committee for security and foreign policy member Sulaiman Jaafar Zadeh said, "If a ban is imposed on our oil exports, we will not allow oil tankers to sail in the Gulf waters."

The New York Mercantile Exchange NYMEX and the London's International Petroleum Exchange (IPE), are the world's leading commodity markets for energy. Iran has announced its intention to set up a rival oil bourse in Teheran in March 2006 that will trade in euros and possibly other currencies rather than dollars. Why not, in short, end the monopoly rule of the almighty dollar?

The prospect of a mushroom cloud rising from the Dasht-e-Lut, Iran's Desert of Stones, may not be Tehran's greatest threat to international stability. A successful test of an Iranian nuclear weapon at some point in the next few years may prove less destabilizing than a simple free market economic measure that Iran is said to be planning for March 20 of this year—the opening of the Iran Oil Bourse. The currency bomb took a longer time to arm and required the building the Leftist/Marxist – Islamist Alliance. And, it is equally difficult to disarm.

The Leftist/Marxist – Islamist Alliance is in fact an alliance of “odd-fellows” brought together because of the their common goals of world domination. For the alliance to hold, China and Russia must remain as partners. They were not partners over much of recent history and only recently have become so. A key factor in this Russia-China alliance or potentially a war between Russia and China is the control of the world's energy infrastructure of Central Asia and Siberia. However, the alliance is also based on accepting the the reported oil reserves of the member countries and reported world oil consumption. The assumption utilized for consumption and reserves lack transparency and may be subject to gross error as will be explained below.

The Issues Surrounding the Conversion to Euro

This feat of implementing conversion of euro will be difficult to accomplish. The conversion of the currency from dollars to other currencies has been attempted previously and been unsuccessful. The reasons for potential success this time rest on a number of factors not previously available. The countries involved in desiring the demise of West and particularly America is large and spans the globe.

The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead use their own currency.

The Chinese and the Japanese will be especially eager to adopt the new exchange. It will allow them to drastically lower their enormous dollar reserves and diversify them with euros. One portion of their dollars they will still want to hold onto; another portion of their dollar holdings they may decide to dump outright; a third portion of their hoards they will decide to use up for future payments without replenishing their dollar holdings, but building up instead their euro reserves.

The Chinese central bank holds foreign currency reserves that have reached $819 billion, a foreign currency reserve second only to Japan and expected to exceed that nation's reserves this year. China has invested about three-quarters of this reserve in U.S. Treasury bills and other dollar-dominated assets. China's purchase of Treasury bills, in additions to similar purchasing by Japan and other nations (predominantly OPEC members) is responsible for much of the value of the U.S. dollar, and China uses the purchases to keep its own currency—the yuan—undervalued, thus maintaining a balance of trade that vastly favors cheap Chinese manufacturing goods. This also has the effect of holding U.S. interest rates at low levels, besides keeping the dollar at a high value worldwide. Chinese currency reserves are growing at an average rate of $15 billion each month.

The Russians have economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold: their central bank is diversifying out of dollars and accumulating gold. The Islamic Development Bank (IDB) desires to see all trade with OIC countries in Islamic Gold Dinars. Russians have also revived their nationalism; if embracing the euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.

The Arab oil-exporting countries will eagerly adopt the Euro and/or Islamic Gold Dinars as a means of diversification against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk.

As mentioned above Venezuela and the other Latin American countries are already seeking an alternative to the dollar.

The differences in trading oil in euro are first, that this one would price its energy in euros, not dollars, and second, that it would not use West Texas Intermediate or Brent Crude (from the North Sea) as its standard oil for pricing. It would use a Persian Gulf-produced oil instead.

So what? This sounds like a minor change, and possibly even a useful one, broadening the choice among traders and consumers in the kind of way that Adam Smith, the 18th century father of modern capitalism, would have recommended.

Not so. This could be a far more profoundly punishing blow to American interests than Iran's ability to manufacture a crude atom bomb that would have little credibility until it became small and stable and reliable enough to be delivered on some putative target.

The relationship between the oil price and dollar is intimate and important, and very useful to the dollar's highly profitable status as the world's reserve currency. The prospect of a rival bourse and futures market opens the intriguing possibility, beyond hedging the future oil price, of profitable arbitrage between the euro and the dollar. There are of course potential issues resulting from Shariah Law which may ultimately restrict the hedging.

There are, naturally, limits to the degree to which the United States can debase its currency, as the world found with the first great OPEC price rise of 1973, when the price per barrel tripled. This is usually attributed to the political decision by Saudi Arabia and other Arab oil producers to punish the United States for its decisive support of Israel in the Yom Kippur War (October 1973). That is partly true, but the crucial OPEC decision was as a direct result of President Richard Nixon's Aug. 15 decision to end the dollar's link to the gold standard.

The dollar declined in value, which meant the OPEC producers received less value for their oil. So at their Beirut meeting on Sept. 22, OPEC adopted resolution XXV:140, which resolved to take "any necessary action ... to offset any adverse effects on the per barrel real income of member countries resulting from the international monetary developments as of Aug. 15."

The then Minister of Oil (Petroleum), Sheikh Zaki Yamani first mentioned the oil embargo. He is best known for his role during the 1973 oil embargo, when he spurred OPEC to quadruple the price of crude oil. During that time, Yamani gained a colourful international reputation, known in the West for both diplomatic skills and characteristic goatee. In reality; the American control of the oil fields was entering its final decade; the Saudi government nationalized Aramco in the 1970s after extensive negotiations in which the the Saudis were as relentless as the Americans were reluctant. By the 1970s, the era of the Middle East oil concessions was over: Iraq, Algeria, and Libya had followed Iran's lead and ended foreign control. In 1974 the Saudi government had taken 60% participation in Aramco, Yamani reached final agreement in 1976 to acquire all of Aramco's assets and facilities in Saudi Arabia based on book value. Since that time information is not available concerning the true status of the fields and reserves. Many projections of oil reserves have been made based on hypothetical assumptions and limited information provided by Saudi Aramco. Saudi Arabia will need foreign investment and technology to expand production. A decline in production will not only limit availabilty of oil for the world, but may cause the fall of the House of Saud.

Most of the financial world is currently awaiting another, similar devaluation of the dollar, in response to the monstrous scale of current deficit on the U.S. current account. Harvard Professor Marty Feldstein writing in the Financial Times (Uncle Sam's bonanza might not be all that it seems – January 9, 2006) suggested that on the basis of the 1985-87 Louvre and Plaza devaluations, the dollar could fall as much as 40 percent or even more.

As reported in the Financial Times on February 16, 2006 (Magellan looks overseas to boost returns) Fidelity's flagship Magellan fund has redrawn its strategy, dumping big-name US consumer stocks such as Procter & Gamble and Pfizer and moving a fifth of its $51bn under management into overseas markets
. Magellan raised its non-US holdings to 25 per cent from only 4 per cent during the December quarter, according to regulatory filings

Oil Choke Points

At its narrowest point the Strait of Hormuz is only 21 miles wide, two 1-mile-wide channels for inbound and outbound tanker traffic, as well as a 2-mile-wide buffer zone. Iran has deployed Chinese HY-2 "Silkworm" anti-ship missiles along its Persian Gulf coast and its Abu Musa, Qeshm and Sirri islands. Over 14 million barrels of oil pass through the Strait of Hormuz each day.

There is an ominous precedent for the Iranian threat. During the 1980-1988 "tanker war," between Iran and Iraq, there were 543 attacks on ships, with approximately 200 merchant sailors killed. More than 80 vessels were sunk or written off, causing more than $2 billion in losses and a 200 percent increase in global hull insurance rates. The U.S. State Department urged the government to re-flag 11 Kuwaiti oil tankers, which it did as well as providing naval escort through the Strait of Hormuz.

Any Iranian action to carry out its threat would undoubtedly involve the U.S. Navy's Fifth Fleet, home-ported in Bahrain.

U.S. and Western countries "don't have the ability to take decisions in the Middle East. Iranian supremacy in the region cannot be denied, and any threat or pressure on Iran will make the West receive a severe hit in Afghanistan and Iraq."

Since China has scanty strategic oil reserves of about 30 days, the "nightmare scenario" itself is a powerful motivating force for China to play crisis-prevention, and yet, since it has limited influence on Iran and the other players in this dangerous crisis, it must also consider the option of sacrificing some of its shared interests with the US for the sake of safeguarding its cherished energy stakes in the Middle East. The energy card may be played by China to the detriment of the West. It must be realized the China and Russia and Iran as an observer are part of the Shanghai Cooperation Organization (SCO).

Discrepancies in International Oil Statistics

Currently, China is importing 20-percent of its oil needs from the Middle East. As China's economy continues to grow at double-digit rates; as its manufacturing sector likewise expands; as Chinese citizens increasingly seek personal vehicles for transportation; and as the Chinese military expands, China's energy consumption is expected to skyrocket. While three-fifths of Persian Gulf oil is now consumed in Europe, by 2017 China will consume the equivalent of three-fourths of Persian Gulf oil. And the U.S. is responsible for about one-quarter of global oil consumption. With such statistics in mind, and as the U.S. occupation of Iraq continues to face difficulties and Iran is threatened with U.N. sanctions, China is under intense pressure to find sources of energy outside the Persian Gulf. This pressure has led China to develop strong relations with Venezuela and supply military support in exchange for oil supply. China also is investing in the Canadian tar sands projects and building an oil pipeline to export oil from Canada to China thus further potentially reducing Canadian supply of oil to U.S.

According to the Energy outlook for China report prepared by KMPG, in a bid to check its growing reliance on imported oil and energy security, China is turning to its greatest energy resource—coal. Coal liquefaction (also known as coal-to liquids, or CTL) involves transforming coal into refined oil through a series of processes in an environment of extreme pressure and high temperature.

China has been quick off the mark. The world's largest coal liquefaction project is already under construction in China's Inner Mongolia Autonomous Region, and is due for completion in 2007.

In the long term, Beijing hopes to replace up to 10 per cent of oil imports through coal liquefaction. According to the China Coal Research Institute, it costs around US$25 per barrel to produce a ton of coal-liquefied oil, with 3-5 tons of coal used in the production.

However, despite this conventional wisdom about China's obvious economic expansion and the inherent need for increased energy sources, China stunned the energy markets on Friday, January 13, 2006, by claiming their crude oil imports rose only 1.2-percent while their oil products imports actually fell 34-percent, and that total oil demand dropped by 0.3-percent. With an economy growing at double-digit rates, China is behind only the U.S. in terms of its energy consumption, consumption which rose by 15-percent in 2004. Deutsche Bank and International Energy Agency (IAE) figures on Chinese oil consumption suggest an eleven month rise in demand that is at or greater than 3-percent.

The Chinese may be is using short-term tactics to disguise their true oil consumption and keep prices from rising too quickly; to build a bundle of reserve currency in U.S. dollars to keep their exports cheap and their currency undervalued; to develop multiple oil deals with nations outside of the Middle East; to secure an infrastructure deal in Siberia; and to swell their global trade surplus to amass as much hard currency as possible to finance their oil deals, manufacturing industry, and military.

The fallout from China's announcement was mostly skepticism. Energy analysts pointed to the Deutsche Bank and IEA statistics to suggest China is for some reason providing misleading data about their energy consumption and oil import needs. A planned OPEC increase in production capacity, in response to sharply rising global oil demands (and China's own 15-percent rise in consumption), could be postponed if China's data are accepted as accurate. The data might also help stem the rise of crude oil futures, which stand at over $60 per barrel, and which are rising in response to increased global tensions over Iran's nuclear program and due to recent attacks on oil infrastructure in Nigeria. Another announcement by China of a significant rise in oil consumption, similar to that in 2004, might have sparked or will in the future cause a more rapid rise in crude oil futures. For these reasons or perhaps others, China could be attempting to disguise its actual oil demand and consumption, according to some energy analysts.

It is important for countries to report accurately both their consumption and reserve data. Discrepancies also exist in reserve estimates among the oil producing countries, this has not been the case.

OPEC set up their original quota system in 1982, OPEC oil ministers set quotas on each member nation, based upon the size of that nation's oil reserves, to help regulate oil production to maintain a healthy global price for oil. The response might have been expected – many nations simply recalculated the amount of their oil reserves to show a huge increase and thus avoid decreasing their production. Global reserve estimates shot up by several hundred billion barrels between 1985 and 1990. In 1985, Kuwait was the first nation to adjust their reserve estimates to avoid decreasing their production, so that Kuwaitis went to bed with stated reserves of 65 billion barrels of oil and awoke the next morning with 90 billion barrels. In 1988, Abu Dhabi followed suit and adjusted their reserves from 31 billion to 92 billion barrels. Iran and Iraq raised theirs as well, and Saudi Arabia adjusted their estimates in 1990 from 170 billion barrels to 258 billion barrels. In total, the Middle East raised their proven reserve figures from oil fields already identified by 300 billion barrels between 1985 and 1990. That these new estimates are for fields already identified is significant, because it means that the countries were not claiming to have discovered new oil fields, they were claiming 300 billion new barrels of oil in pre-existing fields. In addition, most major oil producing states—especially in the Middle East and South America – are now adding water injection into their reserves, as already mentioned with regard to Saudi Arabia.

In 1993, following the Iraq/Kuwait war, they readdressed the problem, adjusting the the quota distributions to the then upgraded production of the member countries.

On January 20, 2005, Reuters reported Kuwait oil reserves only half official estimate according to the Petroleum Industry Weekley (PIW). "PIW learns from sources that Kuwait's actual oil reserves, which are officially stated at around 99 billion barrels, or close to 10 percent of the global total, are a good deal lower, according to internal Kuwaiti records." PIW said the official public Kuwaiti figures do not distinguish between proven, probable and possible reserves.

But it said the data it had seen show that of the current remaining 48 billion barrels of proven and non-proven reserves, only about 24 billion barrels are so far fully proven –15 billion in its biggest oil field Burgan. Similar reduction have been reported by other state owned and international oil companies

Other Impacts on the Availability of World Oil

There are two other significant factors affecting the availability oil—the petro-commons and the government-to-government oil agreements.

The petro-commons issue deals with indigenous peoples such as the tribes in Latin America preventing the drilling for oil on their lands. Similar issues arise in the oil producing regions of Nigeria. The United Nations Global Compact also has a potential negative influence on oil availability. Similarly, Islamic countries applying the Shariah law exclude private ownership and thus restrict foreign ownership of oil resources. Such restriction on ownership by the International Oil Companies (IOCs) reduces investment and hence exploration and production. A good saying concerning this issue is: “Have you ever washed a rented car?” Private ownership of oil reserves is critical to maximize economic value and environmental control. These actions limit supply.

The second factor is the government-to-government deals for oil supply usually supported by supply of weapons–weapons trafficking. Examples of such transactions include those of China with Venezuela, Syria and Sudan. India and China both recognize that energy security depends on government-to-government deals to assure control of the critical energy sources. These actions increase competition and price for the limited available oil traded on the open market.

It is my hypothesis that developing alternative sources of natural gas and oil and petroleum products (increasing the pool of available resources in an environmentally sustainable manner) would alleviate the issues raised and reduces the cost of oil while increasing security of supply and delivery while reducing foreign debt exposure and the need to support military action to maintain energy interdependence.

Alternative Fuel Sources

Alternative sources for the production of liquid fuels, natural gas and fertilizers are critical to maintain the economies of the West. The United States has the opportunity to utilize its massive coal reserves, which can be converted to natural gas and liquids using proven technology to initially meet this need and ultimately to tap the shale oil reserves and the natural gas hydrates. Gas hydrates are crystallized methane gas molecules trapped inside water molecules. Hydrates are found naturally in Arctic regions, some areas of the continental U.S. and in abundance on the sea floor where the frozen gas cements sediments together. Large hydrate reserves have also been found off the coast of the Carolinas and the Bermuda Triangle. Broken down, the hydrates can yield 160 cubic feet of natural gas from 1 cubic foot of hydrate ice. Not only do gas hydrates themselves represent an enormous potential fuel source, but scientists at the USGS believe there to be reserves of traditional natural gas and oil resources trapped underneath the hydrates in the ocean floor.

On February 10, 2006, Interior Secretary Gale Norton cited the potential of gas hydrates but warned that a lack of technology still made it economically viable.

"The estimate is that we have – based on our current usage of natural gas – about 100,000 years worth of our current usage," said Norton. "...We don't yet have the technology to develop that resource and don't know if that would be economic at all."

The utilization of America's abundant energy natural resources combined with conservation and renewable sources can provide both energy security and a sustainable environment.

Economics, the environment and ultimately security will determine the ultimate sources to meet our future energy needs. Unfortunately the federal budget for fiscal 2007 cuts overall funding for natural gas research in an effort to get the oil and gas industry, which displayed record profits in 2006, to fund research and development. It should be noted that U.S. government actions against the IOC's and proposed windfall profits taxes led to increased taxes on these companies by foreign governments. Such actions reduce world oil availabilty and increase cost to U.S. consumers. The increase in taxes by the British government on off-shore development led to some oil companies dropping development programs in the North Sea, thus reducing potential gas availabity for homes and industry and increasing future import requirements. The plan to slim down natural gas research has lawmakers who supported the energy act talking. I cannot understand why President Bush is proposing to zero out the entire natural gas technology program, which includes gas hydrates. The national economy of America and that of the Western World as we know it depends on the availibility of transportation fuels to support our military and natural gas to provide the fertilizers to grow our crops. The West and particularly the United States cannot rely on the dogma of “energy interdependence” to provide the energy security.

The Military Cost of Energy Interdependence

Energy interdependence is only possible with a sizable U.S. military force literally sitting atop most of the Persian Gulf region's oil, and with military bases and personnel placed in strategic locations in Central Eurasia. This presence also must extend over to the Horn of Africa, and into Northern and Western Africa. Not only must the oil reserves themselves be within a U.S. sphere of military protection and influence, but so to are all the major pipelines and shipping routes in the Mediterranean Sea and across into the Caribbean Basin. The military must also protect the oil choke points of the oil infrastructure delivery system. The Panama Canal is a typical example of an oil choke point. U.S. dominance of the Middle East and its energy reserves must be indisputable, such that no nation could realistically hope to challenge that control any time in the near future. Energy interdependence also does not add reserves to dwindling reserves of oil and gas.

The U.S. Department of Energy, in a 2005 analysis, stated that peak oil (the point at which global oil production will reach its zenith and then begin to plummet) could be reached as early as 2016. This analysis also stated that the U.S. will face a "severe liquid fuels problem" if the nation does not begin planning a post-petroleum economy prior to peak oil. Further, the D.O.E. said that if such planning starts ten years prior to the peak, the U.S. will still face a decade of "hardship". If peak oil is reached in 2016, then the time to prepare a post-petroleum economy without "hardship" has already passed.

Both issues—location and availibility must be addressed in an energy security strategy.

The energy strategy enunciated by President Bush in his State of Union message of building nuclear power plants to provide the energy for the developing countries of the world by 2025, although admirable, will not provide the energy security for the West nor necessarily make the world a safer and environmentally sustainable place of our children to grow up. The West can not be subservient to the Leftist/Marxist – Islamist Alliance.

If regimes like those in Iran, Venezuela, Syria, Burma, Sudan and Nigeria have the benefit of $60 oil for 10 years, the democratic process, which occurred in post-Cold War years, will end. The totalitarian regimes with the most repressive governments will control the energy infrastructure and the access to freedom and liberty.

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Islamic Economics - Author David Jonsson  The Clash of Ideologies

David J. Jonsson is the author of Clash of Ideologies —The Making of the Christian and Islamic Worlds, Xulon Press 2005. His next book: Islamic Economics and the Final Jihad: The Muslim Brotherhood to the Leftist/Marxist - Islamist Alliance will be released in spring 2006. He received his undergraduate and graduate degrees in physics. He worked for major corporations in the United States and Japan and with multilateral agencies that brought him to more that fifteen countries with significant or majority populations who are Muslim. These exposures provided insight into the basic tenants of Islam as a political, economic and religious system. He became proficient in Islamic law (Shariah) through contract negotiation and personal encounter. David can be reached at: uk

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