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Black GoldCraig Harris
So, maybe I was off a little bit on the order. Syria is going to come before IRAN. In this essay, I'm going to talk about what I think is one of the most important economic issues going forward, and something that is very much related to what is now going on in the Mideast, the price of crude oil. The first thing I'm going to do in this essay is to discuss the role of crude oil in our economy. I like to say that crude oil is "at the bottom of the economic food chain." What I mean by that is that the price of crude oil is a fundamental driving force towards the cost/price of just about everything. We still have an oil based economy in the sense that for any goods, the price of crude is a factor in transport, maybe raw materials, and maybe directly, like gasoline. Then the price of gasoline affects... etc. etc. It's like the plankton of the economy. In my way of thinking, the price of crude oil has everything to do with everything. Next, I'm going to argue that it's no coincidence that many high level administration officials have oil connections. I believe it's foolhardy to ignore the fact that we have oilmen in the White House. Did I mention oil women? Dr. Condoleezza Rice, our national security advisor, even has a supertanker named after her. So, let's not ignore the obvious. I'm also going to argue that maybe they are right. Maybe the only way to fix long term financial structural problems in the US coming out of the biggest mania in history is to cause the demise of OPEC and the ownership or control of a large percentage of Mid East oil. Maybe the fiat money that's being printed at double digit rates in order to attempt to stave off a post bubble financial apocalypse needs what I would call "legitimacy." Maybe if it (the USD) doesn't have legitimacy, the financial engineers risk a severe decline in the US dollar as the money keeps rolling off the presses and double digit rates. Maybe there is a way to gain that legitimacy? Maybe for a relatively modest sum, the hyperpower could obtain a real asset to back it's currency? In other words, maybe the US administration is planning to "fix" the economic problems by controlling the key. The key is at the bottom of the economic food chain. Outrageous you say? Well, one of my themes is to take my clients from this fantasyland of "infotainment" that some people are calling news and get to what is real. What I'm talking about here are the sorts of things discussed by very powerful people behind closed doors, with a department of disinformation, which I like to give due credit and call "the Mihistry of Truth.".. Big Brother is ready to tell people what they're supposed to believe, which is likely to be the furthest thing from the truth. An aspiring hyperpower simply must have a Ministry of Truth. A recent article in Haaretz said it best... "everybody is lying about everything." Of course they are, your reality is being manufactured for you by an aspiring hyperpower. I believe that unless you understand this, you will understand nothing about the big picture and be relegated to the mindless masses... the herd... the sheep. I like thought experiments. Here is a thought experiment. Let's assume that you are looking at the earth from a perspective on another planet. Let's assume that it was explained to you what the valuable resources were and that there was only one great superpower country (with what I like to call "hyperpower" aspirations) in the word. Now let's assume someone asks the question, who has control of the most valuable natural resource on the planet? Well, if I was the person from another planet and you asked me that question, I'd say that the hyperpower is probably sitting on top of the most valuable natural resource. If someone explained to me that the hyperpower just had an outpost there I could probably accept that. My point is that I believe economics and politics "evolve" similarly to the laws of natural selection... survival of the fittest. If that is the case, ultimately, sooner or later, you'd expect the hyperpower to be sitting on top of the oil... wouldn't you? I'd argue it would be a natural evolution. I look at the futures markets the same way. In a zero sum game, it's survival of the fittest... isn't it? It's survival of the fittest not with clubs and claws, but with brains and economic/political clout. I think everything in the modern world is easy to map back to very primitive behaviors and processes. Anyway, The reason I started off with this high level view is that I believe these people in power are looking pretty far down the road, 5-10-20 years. If you're going to be a hyperpower you have to be sitting on top of the oil. It's what you'd expect in a highly evolved system. It's not a lot of fun to live in the desert so even better if you can own it by remote control. I believe a plan is being executed that they believe will provide global dominance through control of the key. Furthermore, I'm not sure that the rest of the world leaders get that, although I think some are suspicious. I'm not saying oil is the only or the main reason for foray into IRAQ, not by any means... I've discussed the other reasons at great length. The question I'm posing is maybe... just maybe... this is happening is part of a well thought out master plan that involves re-cutting the pieces of the jigsaw puzzle to fit together differently. It all gets back to the "hyperpower" vs "colossal mistake" question. Is this effort going to result in hyperpower status or will it cause a global war while attempting to reach that untouchable "hyperpower" plateau. I believe that clearly, there is a master plan being executed to achieve the hyperpower status. As to the ultimate outcome, I think it will in large part depend on whether the black gold is successfully secured. Moving down to lower level analysis, there is currently a lot of speculation and debate about how long it will take to get the oil flowing out of IRAQ and how much international political wrangling will there be before it actually starts shipping. Serious oil analysts are debating these things. Many think it's going to take a long time. For the reasons I discussed above, I don't. I think it is a key focus to get that oil flowing pronto and the directive probably was told to state department officials something like... "the first oil shipment is planned to leave IRAQ on x/y/z. It will leave IRAQ on x/y/z whether or not your diplomatic efforts are successful so make them successful." By the way I think that's the same way the IRAQ directive went out except that the diplomatic efforts were not successful and I expect the same outcome in this case. So to sum that up, I believe it is going to surprise people how fast that IRAQI oil gets pumping. There is another major wildcard in the mix. What's going to happen with Turkey the Kurds and northern IRAQ? IRAQ has roughly 1500 oil wells and as much as 25% of the worlds oil reserves. Many of those reserves are largely untapped in Northern IRAQ. The Kurds represent the worlds largest ethnic population (around 25 million) that has no homeland. The largest natural oil reserve on the face of the planet lies in Northern Iraq in an area presently occupied by the extreme eastern and south-eastern tip of Turkey, the Northern tip of Iran, a large portion of Armenia, and the Southern half of Azerbaijan. This area is occupied by the Kurdish people. There is a belief, and probably rightfully so, that whoever controls the flow of oil within the Middle East controls much of Western Europe and many of the countries previously known as the Eastern Bloc... necessity for hyperpower status. Many strategic interests lie within this 250X250 square mile plot of land. This is truly, "securing the realm." There are 75,000 Turkish troops sitting in Southern Turkey itching to move into Northern Iraq and help the US redraw post-Saddam borders. I think it is reasonable to believe that the only reason they have stayed put is because the US has told them, in so many words, that they will be taken care of and fear of losing this chaotic post-war window of opportunity may not be allowed. They can be a hyperpower "employee" if you will. Maybe that's not good enough though. My point is that this issue of turkey, the Kurds and Northern IRAQ is a tinderbox. So, it's very important how this situation is all resolved. If it results in conflict, then it could be a serious destabilizing force in the crude market, followed by all markets. I think there's a good chance we could see conflict in Northern IRAQ, especially if people start to figure out that the agenda is what I think I've figured out. One thing I'd like to caution on... the crude oil market maintains a delicate, dynamic balance. In general, this market is in balance because OPEC attempts to titrate it's output with demand. That's what they try to do anyway. Of course they overshoot and undershoot, but they attempt to keep a balance. My point is going to be that a sudden increase of production even if it is small, say 5% of total world supply, could have a significant short term effect on prices. Furthermore, the oil men are going to bring high technology into IRAQ. I wouldn't be surprised if they have plans to get a heck of a lot of oil out of IRAQ, more than anyone is speculating about. Here's a nutshell analysis. The OPEC wants $25 a barrel crude. The US wants $10 a barrel crude. Who is going to win? That's what it really gushes down to. So what happens to OPEC if this plan is successful and hyperpower status is achieved? Well, I believe OPEC goes away, and I believe Saudi Arabia falls. I think that is a fundamental goal of this "securing the realm" plan that I believe is being executed. I believe It's a 20 year plan. So, I think it's safe to say there's a lot to think about regarding the crude market right now. I think there's tremendous uncertainty as the US executes a strategy that will achieve one of two outcomes, the "hyperpower" status, or else a gigantic global mess with wars into the foreseeable future in what I have dubbed the "colossal mistake" outcome. As far as the gold market goes, there is nothing more important than which of these outcomes is achieved, because one outcome points to low gold prices and the other points to high gold prices. ** Dimitri Chalvatsiotis contributed to this essay April 17, 2003 Mr Harris offers a free 30 day trial subscription to his daily market letter. For a free trial please contact bcharris@gate.net. The risk of trading commodity futures contracts can be substantial. You should therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. 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