THE PUZZLE IS ALMOST COMPLETE

April 30 was the day that Iran stopped selling oil in US dollars. April 30 was the cut off date offered by the USA in regard to Iranian US dollar denominated assets. Seizure of Iranian assets was threatened under the terms of UN sanctions. In early May, Russia executed an agreement to assist the USA in enforcing the third and most stringent round of UN sanctions. During the first week of May, Iran started renting VLCC oil tankers for oil storage. Within two weeks, Iran had 28 million barrels in floating storage (12 days of production from its two large heavy oil fields). Iran apparently tried to corner the market and to restrict international shipping by trying to lease several more tankers. Of course, a number of tankers were already under lease by others. At least one US licensed tanker refused to accept the exorbitant rate offered. VLCC rates went from about $40,000 per day in early May to $140,000 per day by mid may. Iran was ultimately able to lease one more Suez Max tanker (VLCCs hold two or even three million barrels but ships of more than 1.5 million barrels cannot make it through the Suez canal). On May 6, Putin's last day in office, he and Bush signed the nuclear 123 agreement to beat all other 123 agreements. One of the sections of the 123 agreement called for Russia and the USA to assist each other in helping to stop nuclear proliferation and there is at least the indication that Iran's program was specifically mentioned in the agreement. A week or so after this agreement, European members of the UN negotiating team suggested that Iranian Euro denominated deposits were also subject to seizure. Iran is like the hockey player who has angered his team and the opponents by unsportsmanlike like play, Iran has been placed in the penalty box and it will be mugged by players from both teams if it does not give up the puck.


It has taken a lot of reading to assemble the thoughts contained in this report. The is mis-information and red herrings all over the place. Of course the billionaire market players have purchase info or sent spies to gather it. An international reporter who has written some of the details mentioned above tells me that additional reporting is being strongly discouraged and he is getting a cold shoulder from prior good sources. The indications are that Iran cannot sell its heaviest crudes at any price. The talk of additional sanctions implies that another tightening of the oil spigot could follow.

By late May, the slow down in fuel deliveries showed up in lower US inventories and the price of futures contracts shot up to $135 per barrel. During the week that followed, both Syria and Iran made negotiating concessions and it appeared that peace deals were getting close. About that time, a dramatic slow down in consumption showed that the world could get along fine without a couple of million barrels per day from Iran and the futures fell to $122 in just a few days. A week later, the negotiations jammed up again. One new sticking point is that the US wants to sign a deal with Iraq that will allow the USA to maintain bases like those in Germany and Korea. The US wants the agreement to include the right of the US to use these bases to attack other countries, to have the right to the airspace over Iraq and to be able to continue to kill or detain enemy combatants in Iraq. Of course, Iran wants the USA to leave. Since Iran is a Shiite nation and since the new central government of Iraq is dominated by Shiite Muslims, Middle Eastern Sunni nations, such as Saudi Arabia quietly want the USA to remain in country. Iraqi government officials want the US to stay but for political reasons they must take a cautious attitude.

After the negotiations stopped dead, Ehud Olmert visited Bush in the White House. Over the next couple of days, an Israeli official in the Olmert administration said that the sanctions were not working and the time has come for Israel to attack Iran. Israeli officials believe Iran is very close to gaining the knowledge, fuel and rocket technology to build a nuclear missile. Once learned, how can they forget? From the Israeli point of view, the options available are to drop a few bombs on the Iranian nuclear facilities or risk the total annihilation of Israel. While Bush haters believe he is preparing to strike Iran, if it comes to that, Israel will probably strike a couple of key installations while the USA stands ready to defend Israel if necessary.

TOO MANY DEAD MUSLIMS

The Economist has posted an informative article about the status of al Qaeda. This terrorist organization has lost much support among Arabian nations because too many Muslims have been killed. In Iraq, there have been about 4,100 American deaths and almost 100,000 Iraqi deaths. The number of deaths in Afghanistan over the past 20 years must be a sizable percentage of the whole population. In addition, there have been 10's of thousands of other Muslim deaths in Lebanon, Pakistan, many other predominantly Islamic nations plus many more in the Gaza Strip and the West Bank.

The Islamic nations are ready for peace. Syria has signed a joint military pact with Iran but when asked what Syria would do if Iran is attacked, Assad said that Syria has no interest in going to war. In the mean time, oil rich nations, that have a lot to lose, including Qatar, UAE and Saudi Arabia are actively engaged in peace negotiations. These nations have joined Turkey in serving as mediators whenever they have the opportunity. Qatar, UAE and Turkey have each moved negotiations forward and Saudi Arabia has provided funds and offered pipeline and other deals to help grease the wheels of progress. Should the deal between Israel and Syria become reality (there are great financial and security incentives for both countries to go along), all of Israels borders will be with Arabian countries that have signed peace agreements with Israel. Egypt is actually the largest supplier of natural gas to Israel and a pipeline from Iraq to Jordon could easily be extended through Israel to the Mediterranean Sea, the "rent" on this pipeline could provide funding for the new Palestinian State.

The moderate leadership of the West Bank and Israel are close to agreement. Condi Rice is on yet another trip to discuss the "two state solution" which includes joint occupancy of Jerusalem (Last week, Obama went from the leftest dove of the democratic primary to the centrist hawk of the general election but then had to back track when he went too far to the hawkish side. He nor his advisers seemed to realize that Israel is willing to give up partial control of Jerusalem in order to have peace.)

How badly does Iran want to take out Israel? No one can know for sure but Israel is a tiny natural resource poor country that should mean nothing to Iran. On the other hand, Gaza was the location of one of the most famous and most well fought battles in the history of the world. It is where hundreds of Persian soldiers laid down their lives in a suicidal counter offensive that turned the tide against Israel. The first 6 day war, was fought at the Golan Heights something like 1,400 years ago. Sometimes, it might be better if history were forgotten. In any event, it is clear that Iran has used its "hate Israel" rhetoric as a rallying cry and a negotiating tactic. The verbiage reminds one of Chavez in Venezuela and Castro in Cuba and the fanaticism of government leaders reminds one of leaders who ultimately ordered mass killings in Russia, China and a host of Asian and African countries. The great irony is that while the world with few exceptions is moving toward greater individual economic and political freedom, the USA has joined Iran and Venezuela in moving toward less. The big difference is that Iran and Venezuela have gone so far as to lose some of the checks and balances against corrupted power. The US federal government has gotten to be so big and so liberal with its spending that almost every one is "on the take" in multiple ways.

Chavez is taking over one industry after another and severely punishing all who oppose him. Iran is supposedly an Islamic Republic but only the selected are allowed to run for office and the media is controlled by the state. Voters are allowed to vote for selected candidates with only limited information available (sounds a lot like the current US system). The citizens of Venezuela, Iran and Cuba have suffered greatly but Cubans may be at the start of a long road to economic and political freedom. It is most remarkable that Iran sits on the second largest oil and gas reserves but has failed to develop enough of these reserves since becoming an Islamic Republic in 1979 to avoid heat and air conditioning shortages. Here again, the USA sits on massive deposits of energy but, in our case, it is the environmental gestapo that prevents development.

THE MOTHER OF ALL 123 AGREEMENTS

The USA has signed 22 agreements for the "civil and prosperous use of nuclear energy". One of these agreements is with Euratom which is the umbrella for 27 European nations. The premier of India and the President of the USA signed a 123 agreement about a year ago. An agreement was signed with Saudi Arabia on the famous trip by Bush last month where he failed to get more than 300,000 in new barrels of production from Saudi Arabia. The World Politics Review has posted a nice article about the 123 agreement signed by Bush and Putin on May 6. None of these last three agreements have been ratified by congress.

The agreement with Russia allows enriched uranium to be sent directly from Russia to nuclear power plants in the USA. The general wording is that the agreement facilitates the transfer of technology, materials and equipment between the parties. Right now, 80% of the worlds uranium is refined in the USA. The USA and countries such as South Korea which get uranium from the USA have a problem, what to do with the nuclear waste? Before the agreement, Russia sat on rich deposits of uranium with few markets available. Russia also sits on many tons of super enriched uranium in thousands of "spare" nuclear bombs.

Treaties are usually just like free trade agreements in that they are win-win. Treaties must be very well thought out and very well negotiated, because mistakes can be extremely costly in both lives and treasure and treaties can be win-lose agreements. This is the reason that Obama's willingness to just go sit down with any old dictator to talk is outright dangerous. It is good news that Obama has backed away from his early foolish position. I dare say that few of the people who have voted for Obama know what the word appeasement means. What it means is that 400,000 plus Americans and millions of others died in WWII because we were happy to just sit down and talk to any old dictator.

From what we know so far, the 123 treaty with Russia appears to be a great win-win. Of course, all who oppose nuclear power, no matter what, will think differently, but the treaty solves a number of problems and makes the world a safer place.

One of the problems solved is to patch loop holes in prior Nuclear Proliferation Treaties. Another is what to do with spent fuel.

One of the technologies, apparently being transferred, is the US ability to mix super rich uranium from bombs in with other power plant fuel. As a result of this treaty, the number of bombs in storage will go down while the enriched uranium will produce abundant supplies of very low cost electricity. Again, Russia has a lot of spare bombs on its hands and the USA has previously agreed to reduce its number of bombs after Russia gets to the same ball park with the number of US bombs.

A deal a few years ago provided for bomb fuel to be shipped to the USA for use in our power plants but that program was most likely halted in response to constant legal pressure from environmentalist. Under this new deal, Russia will build 42 nuclear power plants between now and 2030 with financing and technical knowledge provided by the USA. The big win for the USA will be the agreement of Russia to take back spent fuel from power plants around the world. It is my understanding that the USA and Russia will still provide nuclear fuel to nations that have signed 123 agreements which include UN supervision of the use of this fuel. The USA will no longer have to fight to put the waste in storage. By the way, one gets more radiation in about 5 minutes on the beach than from all the waste fuel in a thousand years or so. If you want to reduce the death from cancer, stay out of the sun.

It seems that the technical knowledge to be transferred to the USA will include how to reuse the spent fuel again and again until there is virtually nothing left. It is not clear if Russia will take all spent fuel or just spent fuel provided by Russia but, in any event, countries such as Iran will have no need to learn how to further refine fuel in order to get rid of the stuff. This is an important point as bomb making knowledge is gained as part of the process of refining fuel beyond the need for nuclear power fuel.

Russia will earn a "reasonable storage or reprocessing fee" for taking back spent fuel. Russia will make 10 to 20 billion dollars per year providing enriched fuel to other countries (which could include the USA). One source has said that the incentive package being offered to Iran includes free enriched uranium and free storage and reprocessing of fuel waste.

IT IS NOT ALL ABOUT NUCLEAR FUEL

In earlier postings, I have written about the enormous oil and gas deals that are in progress or ready to go as soon as a deal is made with Iran and Syria. I will not review those now but will simply say that these deals do not add up to millions or billions of dollars but over the next 30 years to trillions of dollars. Provided Iran does not have a nuclear bomb, the rest of the world can do trillions of dollars worth of business while bypassing Iran or by cooperating with Iran, their choice. It would be better for Iran and for the rest of the world for the peaceful development of Iran's abundant resources. No matter who is elected president, it is highly unlikely that the UN sanctions will be withdrawn. Iran is not likely to "win" by holding out past our elections. If the oil spigot is totally turned off, Amadenijhad will not remain in power for long.

A number of nations realize how great the risk of failure to achieve nuclear power if a deal is not concluded during the Bush term. The 123 treaties negotiated by the executive branch can only be voted up or down by the congress. The failure of the congress to vote up or down is the same as an affirmative vote to pass. This part of the equation could be very different after the November elections as the executive branch must initiate the process. It is time to stick in the last several pieces of this puzzle!