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
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.
For The Daily Reckoning Australia