International – Midwest Moderate

OPEC Cuts – What’s Happening…Background

Many observers were surprised today, when OPEC announced that it had reached a deal to cut production. The actual cuts will not start until January, but the immediate result was a significant rise in the price of oil. US crude settled at $49.44 today, up 9.3%.

The price increase reflects a rush to hedge oil prices at what may be seen as future prices, which some are predicting to rise to the $55 to $60 level.

OPEC Oil Ministers Meeting Image: Via latimes.com

The reason for the pre-agreement scepticism lie in the complex interrelationships among the key players. OPEC leader is clearly Saudi Arabia, which took the deal on the chin,so to speak. They will be absorbing the biggest single cuts in the amount of half a million barrels a day. The perceived winner is Iran which will not be required to take any cuts at all.

The big non OPEC lynchpin to this deal was the willingness of non-OPEC member Russia to agree to its own production cut of about 300,000 barrels a day. Something that previously was thought to be out of the question and which has been opposed by its major oil producing company.

Russia however, will want to see that OPEC doesn’t cheat, and OPEC will be watching to see that Russia doesn’t cheat either. The trust levels are not high.

As such the deal may still fall out of bed. Not clearly stated so far on the part of Russian is 300,000 off of what level. They have been aggressively ramping up their production of late. The answers will likely be spelled out at another set of meetings in Moscow on Dec 9.

In addition to Russia cutting its 300,000 barrels the cartel is looking for another 300,000 cut for other non-OPEC sources, just who they will be is not clear.

The complicated politics behind the deal were clearly difficult. Afterall Russia and Iran are currently engaged in not one, but two proxy wars against the Saudis, in Syria and Yemen, with Bahrain also under fire.

Iran insisted in an increase in its allotment as it is still in recovery post the ending of sanctions.

Iraq also was demanding increased allotments rather than a cut as they are engaged in a fight against ISIS. Their willingness to take a cut was perhaps the biggest surprise. They will be producing .2 million barrels less.

One factor that may explain the willingness to allow an increase to Iran, may be that some doubt it really as the current capacity to pump that much oil. It’s infrastructure is said to be outdated and desperate for upgrades. Upgrades that seem to be hampered by internal politics that make it next to impossible for international oil companies to enter the country to provide the capital and technology needed.

One source suggests that Iran is actually shipping oil that has been in storage, accumulated during the sanctions when they were unable to ship. So while they will be allowed to ship more, some of that will have the benefit of bleeding down surplus storage that could depress the market in the future.

Perhaps the greatest reason, the Saudi’s were willing to take the biggest hit is that they are planning on capitalizing 10% of the oil they have in the ground in the near future. They plan on setting up an offering for a minority stake in ARAMCO, their state owned oil company for Trillions of dollars. The amount of which will certainly depend upon the perceived value of a barrel of oil naw and into the future.

What’s ironic about this is that part of the plan for the $trillions is to develop Saudi Arabia’s Solar industry.

It will also provide the government with ample capital to bolster its domestic needs as well as its military ability to cope with the challenges presented by a hostile Iran.

Today’s cartoon from TheWeek.com

Trump Castro Cuba

The long awaited death of Fidel Castro, has cast the initiative by Obama to work toward a normalized relationship with the one time US territory of Cuba back into the limelight.

cuba-map

I noticed a meme on Facebook that suggested that the “Left” in the US was mourning Castro.

That is of course a flat out “Fake News-ish” characterization and typical calumny the right has been fostering for some time.

The truth of the matter, it tends to be the Left that opposes human rights violations in the world, and is willing to do something about them. The Right tends to prefer the status quo and doing business with despotic rulers. This seems to be the direction, Trump is heading, if the tea leaves toward support for Putin and Syrian President Bashar Hafez al-Assad are any clue.

Now it is also true, some on the Left have pointed out that despite the horrible human rights record, authoritarian and despotic rule, the Cuban people have at least gotten a good medical and education system. Those accomplishments should not be allowed to overshadow the dark side of the Castro legacy, but only fools are unwilling to acknowledge pluses and minuses in any honest calculation.

The Kowtowing to the Old Cuban Refugee leadership with their bankrupt strategy that has failed to work for over 50 years by the Republican right is understandable – but only in terms of its rank subservience to political expediency and tradition. There can be no doubt that this Cuban electoral block has been a key bastion of votes for Republicans in the critically competitive state of Florida.

It is unfortunate that this strategy is also counter-productive to overall US national interests and the Trump administration’s goals of creating new jobs in the US.

Every other nation in the world trades with Cuba. The Embargo failed. Obama’s opening to Cuba is a far better approach. One that will build more contact, and more pressure internally for reforms.

Now as is characteristic of Trump, it seems his pronouncements to date are of the huff and puff variety. NEW YORK — While conducting another round of job interviews — including a highly public battle for secretary of State — President-elect Donald Trump again threatened Monday to terminate emerging diplomatic relations with Cuba if it does not somehow reform.

“If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal,” Trump tweeted two days after the death of former Cuba leader Fidel Castro.

NEW YORK — While conducting another round of job interviews — including a highly public battle for secretary of State — President-elect Donald Trump again threatened Monday to terminate emerging diplomatic relations with Cuba if it does not somehow reform.

“If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal,” Trump tweeted two days after the death of former Cuba leader Fidel Castro. read more at usatoday.com

The one thing Trump has going for him is the complete lack of certainty as to what he really believes and intends to do.

Just because he said something, doesn’t mean that he means it. That much has been amply proven during the campaign and its immediate aftermath.

My bet is that he finds a symbolic way to refute Obama by canceling one or another small part of the existing US-Cuban framework, and then proceeds with a slow but ongoing gradual improvement in the basic US-Cuban relationship.

He likes winning both sides of the issue, and in this case, I hope he is successful. If and only if, I am right on this point.

2016-11-28_1123

cartoon credit:

The Middle East Geo & Oil Politics of Trumps Potential Revocation of the Iran Nuclear Deal

If Trump Pulls Out of the Iranian Nuclear Deal, the Middle East Could Well Implode.

Now it was clear that not everyone was happy with the Iranian Nuclear deal when it was proposed. Mostly due to fears that the Iranians would not hold up their end of the deal.

As appears to be the rule on the right, no good can ever be expected of an enemy. They get cast as evil incarnate, unless they are seen to ride horses bare shirted – in which case they become beloved cowboys.

Confounding the nay sayers expectations, it appears that the Iranians are in fact living up to their part of the agreement. We should see this as an indication, that they can be seen as potential partners for future negotiations on any number of issues that continue to exist. We should not reject negotiations because we do not like them or their actions.

On the campaign trail, the Trump campaign often pledged that they would throw out the Iranian nuclear accord. Hopefully, this was mostly for vote getting show.

There were clearly aspects of the agreement which were not fully understood or appreciated by the general public. And as has been typical, the right has done everything they could to denigrate the deal, despite its historic accomplishment, and its strong support from the world community, with a few notable exceptions.

With any luck, Trump will back track on the stated aim of negating the treaty, and find some other way of claiming victory on the score without doing more damage. If not the consequences could be severe.

The biggest damage to my point of view is the abrogation iranian-nuclear-deal-many-partners of one administrations actions by the next and what that does to world confidence in the word of American diplomacy.

But the on the ground ramifications could dwarf that philosophical complaint.

If Tehran were to begin another arms race, it would have at its side the emerging strength of an emboldened Russia, and a new trading partner capable of providing arms and technology.

With Putin’s already muscular presence in Syria serving as a beachhead, the emergence of a bear and lion axis can only further complicate the situation on the ground.

Syria is already on fire as is Yemen to the South and a difficult situation in the Shiite majority Bahrain, ruled with Saudi support by a Sunni monarch.

The Saudi’s are already concerned that Trumps talk about restricting international oil imports will further distort the ambiguities of the oil markets.

This turmoil could weaken their ability to stand up to a resurgent Iran and set the stage for a proxy war between the US and Russia of a far greater scale than we are now experiencing in Syria.

All of this with an Iraq that stands to win against ISIS only to see the victors then split into a new religious war within its borders.

Throw in the Kurds and the soup gets thicker as in bloodier, and the kurdish-map complications more trying as they aspire a state of their own, a direct challenge to Turkey as well as whatever form a new Syria and Iraq take.

As the Kurds are also in northwestern Iran, such a move would seem to invite US support for Kurdistan against Russian, Turkish and Iranian interests. Possibly to the point of pushing Turkey into Russian and Iranian arms.

The Middle East has never been easy. Pulling the rug out from under, the one multi national agreement that actually reduced the threat of nuclear war in the area seems to be more than foolish.

Certainly not a move that can or should be entered into hastily.