Shirt Fronting and the Politics of Energy

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Markets were down again overnight…it’s getting monotonous. While the Dow was off by more than 200 points, the Australian stock market is so far faring okay…only down 10 points as I write.

But I’m not going to talk markets today. Something for more interesting is going on in the world of politics and energy. And the story starts here in Australia…

In case you had any doubt, Tony Abbot just settled it…he is an idiot.

Yesterday, the petty pugilist who masquerades as Australia’s leader threatened to ‘shirtfront’ Russian President Vladimir Putin when he arrives in Australia next month for the G20 conference in Brisbane.

In case you were wondering, to ‘shirtfront’ someone means to take them out. It’s an old-school AFL term. Good luck with that Tone. There’s more chance of Vlad taking Abbott out with his shoelace in the bathroom at the conference. Putin is ex-KGB after all.

If this is what passes for statesmanship these days, heaven help us all.

Abbott’s strongman rhetoric relates to the shooting down of MH17 over Ukraine, a tragedy which killed dozens of Australians, as well as hundreds of others. And in a sense it’s fair enough…he has a right to be angry. But he’s the leader of the country, not the alpha male in a pub conversation.

If anything, he should be ‘shirt fronting’ the head of Malaysian Airlines. What was the plane flying over that war-torn airspace for anyway?

But that doesn’t make for good political point scoring. And our best mates the Yanks are no doubt happy with the continuing demonisation of Mr Putin. That’s been their whole strategy in all of this. That is, get a bunch of pro-US leaders in Ukraine to thwart any territorial ambitions Russia may have, regardless of what the people on the ground actually want.

And as far as MH17 goes, we’re still waiting for conclusive evidence as to what actually happened. From the moment the aircraft hit the ground, the West blamed Putin and Russian-backed separatists. In fact, the US and its allies repeated the accusation so consistently it started to smell a bit fishy. It reminded me of that political maxim that if you say something often enough, people will come to believe it as truth.

I don’t know about you, but whenever our political ‘leaders’ start asserting something repeatedly without evidence to support it, I become suspicious.

Whatever the truth of the matter, it enabled the West to marginalise Russia and impose economic sanctions.

Why the belligerence towards Russia?

Energy, of course. It’s geopolitics at the highest level, and I don’t pretend to understand it all. But it concerns Iran and Syria trying to bring gas into Europe with Gazprom’s help…and Russia gaining increasing power through a strengthening alliance with China.

This development doesn’t suit Saudi Arabia or the US. The Saudi’s are the undisputed power in the region and don’t want to see a rising Iran. Iran is majority Shia, while Saudi is Sunni. Syria is majority Sunni too, but ruled by Assad, who is from the Shia sect.

This is why the Saudi’s are funding the war to unseat Assad in Syria. Take out Assad and they take power away from their biggest rival, Iran.

The US likes this arrangement too. A destabilised Syria and dominant Saudi Arabia is preferable to a rising Iran/Syria/Iraq power bloc. Iraq has a majority Shia population too. And with Russia lingering in the background to help distribute Iran’s vast gas reserves, well, you don’t have to be Einstein to see that the US doesn’t like it.

To give you some context, here’s a bit of information on the potential gas development, from Wikipedia:

The Iran-Iraq-Syria pipeline is a proposed natural gas pipeline running from the Iranian-Qatari South Pars / North Dome Gas-Condensate field field towards Europe via Iran, Iraq, Syria and Lebanon to supply European customers as well as Iraq, Syria and Lebanon.

In July 2011 Iran, Iraq and Syria said they planned to sign a contract potentially worth around $6bn to construct a pipeline running from South Pars towards Europe, via these countries and Lebanon and then under the Mediterranean to a European country, with a refinery and related infrastructure in Damascus.

In November 2012 the United States dismissed reports that construction had begun on the pipeline, saying that this had been claimed repeatedly and that "it never seems to materialize." A framework agreement was to be signed in early 2013, with costs now estimated at $10bn; construction plans were delayed by the Syrian civil war.

In December 2012 the Oxford Institute for Energy Studies said that the project "remains doubtful. It is not clear how such a project will be financed given that both Iran and Syria are subject to strict financial sanctions."

The pipeline would be a competitor to the Nabucco pipeline from Azerbaijan to Europe. It is also an alternative to the Qatar-Turkey pipeline which had been proposed by Qatar to run from the South Pars field (which Qatar shares with Iran) to Europe via Saudi Arabia, Jordan, Syria and Turkey. Syria’s rationale for rejecting the Qatar proposal was said to be "to protect the interests of [its] Russian ally, which is Europe’s top supplier of natural gas."

Funnily enough, the Syrian Civil War started around the same time as discussions for the proposed pipeline took place. The generous funding of rebels opposed to Assad by Saudi Arabia and others has backfired, with the rise of ISIS, which is now going medieval all over the region.

In short, it’s a basket-case…and it’s all about the politics of energy.

Which puts recent Saudi comments about oil prices into perspective:

(Reuters) – Saudi Arabia is quietly telling the oil market it would be comfortable with much lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.

Some OPEC members including Venezuela are clamoring for production cuts to push oil prices back up above $100 a barrel.

But Saudi officials have given a different message in meetings with investors and analysts: the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.

It seems more likely that Saudi Arabia wants to pressure other energy producers (like Iran and Russia) whose budgets rely on US$100-plus per barrel oil prices. It’s just another form of economic sanction.

Whatever it is, it’s working. The oil price, as represented by Brent crude (chart below), is now below US$90/barrel. The recent falls are a combination of slowing global growth prospects as well as an unwinding of speculative interest on the back of Saudi Arabia’s comments.


Brent crude — shirt fronted



As always, energy remains at the forefront of global conflict. Vladimir Putin knows this game better than anyone. That doesn’t mean he’s going to win it, though. Russia, as a major commodity producer, will be under the pump while energy prices and other commodities remain in a slump.

Which is the whole point. The US is trying to weaken Russia economically, and lowering oil prices is a good way to do it.

But as a major commodity exporter, what hurts Russia hurts Australia too. The difference between the two countries, politically and strategically at least, is that Russia is close to China while we’re close to the US.

I’m not sure what that means for the future. We’re backing the US because we always have. And mostly it’s been the right thing to do. But continuing to follow the US in an endless series of energy wars (designed to maintain US global hegemony) looks increasingly ill-advised.

It might divert attention away from a faltering economy and poorly managed budget, but that’s just a short term cover up. In the longer term, Australia could be isolating itself from its largest and most important trading partner.

What we need at a time like this is a genuine statesman to navigate us through these tricky waters. Instead we have Testosterone Tone wanting to punch on with a global heavyweight.

Great…

Regards,

Greg Canavan+
For The Daily Reckoning Australia

Join The Daily Reckoning on Google+

Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.
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10 Comments on "Shirt Fronting and the Politics of Energy"

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Lyle Upson.
Guest
it should be noted that an unlawful threat to assault is a police matter … in the joke of what is being discussed throughout the news and blogs is a police matter going ignored although masked by the joke factor, how certain can one now be that the Abbott will restrain from taking a swing at the Russian President ?? give some thought to a vision of events if the Abbott loses the plot, does some silent head nodding with fists clenched, then in a blind rage, the Abbott lunges at the President, and think about the myriad of paths… Read more »
David
Guest

Well Greg

I could not disagree with you more.
Putin needs to be held to account.
There is no doubt that the only capability to shoot down a plane in the Ukrain region was with the Russian Separatists.
My money would be on Tony to take out Vlad. Vlad is looking a bit pudgy these days.

slewie the pi-rat
Guest
what Tony is doing is goal-oriented and serves a purpose, imo. Vlad is the guy pointing out that the present “plans” of the US [and its coalition partners, one of which is Tony’s Oz] to topple the Assad regime are illegal. coupla weeks ago at the UN, prez0 and Kerry laid out the rationale for getting in there [Syria] to weaken ISIS and fight it from the air. and US action was “apparently” accepted, at that time, given the explanations provided. but Vlad’s point had been, and remains: ~unless Assad invites the US into Syria [won’t happen] OR: ~the UN… Read more »
slewie the pi-rat
Guest

Tony Abbot’s behavior is for a reason.
but this article does not address what the reason is.
i addressed the reason for the “idiotic” behavior, but the post was censored and not allowed up.

slewie the pi-rat
Guest

oops!
now my original post is up.
so pls disregard my 2nd comment.

shortchanged
Guest
You have the situation about right Slewi, except the bit about International Law. What law, Washington makes its own laws and cares nothing for International Law, it is disregarded at all turns, the UN is a joke and should be disbanded, now. Russia is demonised and provoked by Washington to the point of insanity, knowing full well it won’t be US grunts being killed in a shooting war but its ‘allies’.Obama hides behind the UN like a sneak thief, making trouble, then scuttling back to his hole, in his case the golf course. Lets stop the bs about Russia ‘annexing’… Read more »
lachlan
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I understand your anger shortchanged and share your sentiments. Abbot must know full well that his mates in the US etc have directly aided a group of people who self identify as, speak, appear and behave no different then Nazis in Germany and who have since left Eastern Ukraine covered in mutilated civilians and bombed out infrastructure. There is no denying for example the nature of what happened in Odessa at the trade union building where a massacre took place while here in Oz the media covered it up. Also there is so much death and destruction in Syria levied… Read more »
shortchanged
Guest
Genocide!! thanks lachlan, just the word I was looking for. Unfortunately here in the UK, (still here) we have as big a fool named Cameron; it’s nauseating and embarrasing to listen to his fawning and flatering of Obama, and the MSM not reporting the real news. We know nothing in the UK of whats going on in the world, we are the original mushrooms, kept in the dark and fed on bovine excrement. Thank goodness we have the alternative media, including DR. I haven’t been reading much lately, old age catching up. Still, I do like to read DR, it’s… Read more »
lachlan
Guest

Money has certainly contracted over here old mate. Make sure you bring a barrow load with ya…we need it lol.

Ray
Guest

International law does not exist, it’s a figment of the imagination. Law requires a legitimate law giver, implying there is a single world government.

wpDiscuz
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