Wednesday, July 09, 2008

A Ham Sandwich and Air Conditioning For Two Hostages

The negotiations between the USA and Iran have taken on the attributes of a hostage negotiation. The Iranian leaders are trapped inside a large bank but they have numerous assets and they hold hostages. The USA is gradually starving them out. Some of the recent negotiate trades have been the equivalent of a ham sandwich and turning on the air conditioning in a "show of good faith" in exchange for two hostages. Of course, one of the prime reasons to acquire the release of hostages is to gain additional information or just to keep a conversation going. In a hostage crisis, it is not unusual to go from talks over ham sandwiches to more important topics.

An Israel site, DEBKAfile, reports that in a recent round, the USA and Iran each agreed not to "play games" that would temporarily force oil prices above $150 per barrel. It is known that the number of VLCC tanker ships holding millions of barrels of oil off the nose of Iran, has been reduced from 13 to 11. The amount of oil in tanker storage has fallen from the 30 million barrel range to the 22 million barrel range. It appears that two shiploads of oil were part of a recent exchange. The deal to cap oil at $150 and the release of two shiploads of oil, which was probably a favor granted to Iran, may seem weird but not much different than a ham sandwich or two for a couple of hungry bank robbers.

Too prove that the bank robbers are still alive, awake and well, they just shot off their most powerful gun. The Iranians just test fired a missile capable of carrying a 1 ton nuclear bomb all the way to Israel. The missile actually has a 2,000 kilometer range. Over the protest of Russia, Czechoslovakia and Poland just signed onto an Eastern European Missile defense shield being promoted by the USA. The USA has told Russia repeatedly that the defense system is not an aggressive move against Russia but a defensive move against Iran. Russia is simply not the same power as was the Soviet Union. Ironically, this new age, in which rich Russians vacation on Mediterranean coasts, will lead Russia back to being a great power. Russia is going to make money by selling oil, nuclear power and farm goods, not by dominating poor neighbors.


How much "extra" diesel fuel is stored "down on the farm"?

Every farmer worth his salt has protected himself against the possibility of a shut off of fuel. Millions of farmers and millions of other businesses have topped off their storage tanks to hedge soaring prices and in order to be prepared for the worst. A few days ago, I mentioned that China has topped off a new Strategic Petroleum Reserve, nothing like the 706 million barrels held in the US SPR but another chunk of emergency oil. A company in Amsterdam just won a contract to build yet another storage facility in China. At what point are emergency reserves more than enough? When does the cost of storage begin to bite? The answer is when the price to buy new oil is cheaper than the price of the oil in storage. If there are ample supplies of oil, then paying to store oil is nothing but extra cost.

The leak of stored oil into oil supplies is likely to start soon. As major users begin to realize that a power crunch is not in the near future, some will stop paying so much to store oil. The meeting of the G-8 has let the world know that leaders are no longer pushing for rapid reductions in CO2. Each country has been given the freedom to come up with its own plans for reducing CO2 by 50% by 2050. It is quickly becoming clear that new nuclear power will start coming on line just after new oil production comes on line from Iraq, Saudi, Brazil, Kuwait, etc. If countries must temporarily use more coal, so be it. The final deal with Iran will allow millions of additional barrels per day to be developed.


Yesterday, Shell Oil (Royal Dutch Petroleum) announced that a 27 billion dollar refinery only recently planned for Canada has been scrubbed. One does not build a 27 Billion Dollar refinery unless one is very confident that it will be able to run at 85+ percent of capacity. Many a refinery in the world today is running at less than 85%. The world wide economic slow down is already causing major capital expenditures to be postponed or canceled. The plan to produce abundant nuclear power is also having an effect.

Since the democrats took control of congress 18 months ago, the price of gasoline at the pump has gone straight up. The response has been talk of wind fall taxes on the oil companies, investigations of traders, the threat of law suits against OPEC, derision of McCain's summer time rebate of gasoline taxes and forcing republicans to vote on an energy bill that would have tightened trading rules. Since the July 4th break, the democrats have refused to bring this energy bill back to the floor because the republicans are prepared to offer an alternative drill, drill, drill bill. Pelosi has sent the energy bill off to three committees in order to have maximum media coverage in regard to hearings and to control the timing of its return. She has also called on Bush to release oil from the SPR; Bush once again said no. Some want to make us believe that war with Iran is imminent and others want us to use up the reserves that were set aside just in case there is a war with Iran. Bush has built the reserve for its purpose and he has refused to use the reserve for short term political gain. The flip flopping from the other side is being led by Obama.

Now that Obama is running in the general election, he has been trying to move to the political middle before the conventions and debates begin. He has suddenly come out in support of faith based charities and FISA while making great strides toward the McCain positions on Iraq. Obama is starting to anger his leftist supporters but a politician has to do what a politician must do. The left sees FISA as illegally breaking the 4th amendment to the constitution. The congress just voted to give Bush all he wanted and more in a 6 year extension of this law. Obama voted for a "compromise"! Did he read the bill at all or is he trusting the liberal media to support him by not blasting him for calling capitulation compromise? Obama 's only solution to the energy crisis is the failed technologies that have been subsidized to the tune of billions of dollars in recent years. After spending billions on solar research, less than one half of one percent of our energy is produced by this shamefully expensive technique.

Obama is now talking the Bush play book in regard to Iran, he is simply calling the plays that are in progress while making them sound like they are his ideas. This morning, in response the the 2,000 KM, 1 ton payload missile test fire by Iran, Obama called on the US to tighten sanctions and to open additional channels of communication. Only yesterday, the USA added a number of important Iranian businesses and businessmen to the sanction list. Any assets these companies and owners have in the USA are now subject to seizure. The Israel site says that the recent "ad hoc deal" with Iran was made by direct negotiations between US and Iranian diplomats. Obama understands that there is a good shot at a deal with Iran, he also understands that the great majority of the American people have no idea about the extensive negotiations that have taken place. By talking the Bush play book in advance of the deal, Obama is setting himself up to take at least partial credit for the deal.

Have you seen this movie before?

In movies and in real life, bystanders stand ready to criticize the unsuccessful hostage negotiation team but ready to welcome the survivors home if there is success. In Iraq, the war is going "almost too good". In a political show worthy of a US Senator, Iraqi government officials are bravely suggesting that Iraq will not need US military support much longer. The reality is that the war has been going very well but not so great that US support is no longer needed. Both Sunnis and Shiites in Iraq support the deployment of US troops. Good news is flooding forth from all corners (even the Taliban in Pakistan have turned against one another) but the absence of US air power, in particular, could embolden the opposition. The key point is that while a lot of US troops will come home, others will stay but in a capacity similar to the troops that are stationed in Germany and South Korea. Had US troops not been stationed in Germany after WWII, the people of Berlin would have lost their freedom and the close ties between the US and Germany would never have developed.

The success of the USA in Iraq and the republican support for lower gasoline prices could turn the 4 point lead of Obama into a McCain lead. Can democrats afford to leave Washington around August 8 without having voted on an energy bill? "Blue Dog Democrats" are anxious for the opportunity to vote for drill, drill, drill. For two years, I have maintained that energy prices will fall before the election. I still expect to be correct on this point while having to admit that I did not expect the fall to be from such lofty levels.

Crazy things happen during hostage negotiations. In a successful negotiation, the opposing parties often become friends. In the old days, when a young lady had no choice but to marry the selection made by her parents, the marriages often got off to rocky starts. After a lot of hours together, a lot of marriages have gone from bad to worse to great; sometimes one has to live through worse to get to great. In a hostage crisis, those who have the power to grant ham sandwiches and air conditioning can use this power to make friends. It appears that the USA is a long way from being friends with Iran but a whole lot of talking is going on. With stored oil starting to leak back into the supply chain, any hint of an end to the Iranian crisis will result in a drop in oil prices. The test firing and the additional sanctions are a couple of steps backward but a lot of progress has been made. I reiterate that the recent addition of India to the GNEP (Global Nuclear Energy Partnership) was a major triumph for the "good guys". More than 72 nations have joined the underfunded GNEP. Once again, the democratic congress has not fully supported Bush initiatives. Iran really needs to join the world in the peaceful use of low cost, low emission, nuclear power. With Iran on board, the US Congress will be forced to proudly claim success.

New refinement facilities are being built in North Carolina and in West Virginia. Under terms of the US-Russia agreement, the US will supply nuclear materials for new "fast burn" reactors. These reactors being built in Russia will consume more fuel while reduciong waste. It is going to be interesting to see how the congress handles the upcoming adjournment. In recent times, the congress has kept congress in session for a few seconds each day during "vacations". The congress has held up hundreds of appointments and prevented recess appointments by keeping the congress in session. The 90 day clock for the 123 Agreement with Russia started on May 13. Each day that congress is in session counts. The pressure on congress and on Iran is growing by the day. How about two ham sandwiches and air conditioning in exchange for a deal?