The Saudis Hold the Line

The big news in the oil world last week was a do-nothing policy by OPEC, and especially by the Saudis, the swing producer of oil. By swing producer I mean that Saudi Arabia has the physical, political and financial capacity to adjust its oil output to suit its policy goals. OPEC met this last week and decided to leave its output at 30 million barrels a day, despite the abrupt drop in world oil prices. Crude oil closed Friday at $66, down from $110 not long ago.

You’d think that the Saudis would want to cut production to tighten supply and bring the price back up. By some accounts, they can’t meet their national fiscal goals unless the price of oil is above $90 a barrel. They aren’t losing money, even at $66, as their cost of production is the lowest in the world at $3-6 a barrel. However, oil being essentially their only source of income, their national budget is in deficit at present prices.

My guess, along with some other observers, is that they are playing the long game.

The rising production of shale oil in the U.S. is a big part of the problem for the Saudis. Although temporary, our production increase has pushed down our demand for oil on the international market. It’s an expensive process, though. A shale exploration company has to drill multiple boreholes that turn horizontally and follow the thin layer of oil containing shale. Then they have to force fluid and sand into the holes in order to fracture the shale and let the oil out. This is hydrofracturing, popularly known as fracking. The nature of these wells is that they produce large amounts of oil initially and then rapidly decline, sometimes within months. Then the driller has to pack up the equipment and repeat the process elsewhere.

There are a number of oil producing shale formations in the U.S., but only a small percentage of the total shale area is highly productive. Some of the shale exploration and production industry was losing money even at higher prices. The business plan for a number of companies seemed to consist of outlasting competitors and reaping the benefits of future high prices.

The expensive production cycle and money-burning nature of the industry requires a constant influx of money, both as investment and credit. That is what the Saudis are after.

By maintaining the world supply of oil at present levels OPEC can keep the price of oil below the breakeven price for many shale oil companies. Beyond that, a lower oil price means that drillers lose access to credit. Just as the resale value of your house backs your low-interest mortgage, the estimated value of a drilling company’s oil reserves serves as security for loans. When the price of oil drops they have to resort to higher interest unsecured loans and divert present income to exploration, all of which discourages both banks and investors.

 OPEC doesn’t have to drive all of them out of business. They can pick off the stragglers, the companies most overextended and possessing the least productive oil field leases. A string of bankruptcies in the shale oil industry would not only lower production, but also choke off investment and credit. That would hamper present production and slow the return of the shale oil industry when prices recover. The threat of repeated Saudi intervention would keep banks and investors at a distance.

The Saudis are willing to spend some sovereign wealth to clear the field of competition. With currency reserves over $700 billion, they can endure $66 oil for a while longer. Much longer, I’ll bet, than the U.S. shale industry.


Putin’s Speech at Valdai 

This is a point-at post. I don’t have all that much to say except that you should set aside about 15 minutes and read the speech Vladimir Putin just gave at the Valdai Conference in Sochi. Vlad drops his gloves and wades into the U.S. like an NHL enforcer. The importance of this speech is not about belligerence, though. It is straight talk about Russia’s attitude towards the pseudo-unipolar world we’ve had since around 1990. The one sentence summary is that a unipolar world doesn’t work, and even if it did, the U.S. has massively screwed up the opportunity, so the rest of the world is going to make other plans.

Of course, Putin glosses over the sins of Russia. This is predictable. Nevertheless, as a critique of U.S. hegemony and a discussion of the consequences, it is valuable.

I should note that it has received almost no attention in the U.S. mainstream news media, despite the huge foreign policy implications.

At Club Orlov, here.


The Politics of Desperation

There’s a dear old friend of mine, a former Marine, who forwards me emails that he gets from his conservative friends. Just to “light you up,” as he puts it. I oblige with rebuttals, Fisking the mostly fantasy-based talking points.

Recently he sent me a wild one, which got me thinking about the politics of desperation. This last email purported to be a summary of a couple of national television appearances (Face the Nation, in one case) by the Obamas. I’ll spare you the bulk of it, but one bit was about Obama wanting to change the national anthem to “I Want to Teach the World to Sing” and another bit was about Michelle admitting to attending flag burnings. The Onion could do no better. I mean, even if someone could conceive of the Obamas approving of those things, could anyone think that they were so lacking in political awareness that they would admit to these things on national television? It goes beyond being unhinged into not believing in hinges.

As other political observers have noted, it’s as if history began in January of 2009. President Obama does things that previous presidents have done and advocates for policies that previous presidents have advocated, but somehow his acts are cast as uniquely undignified, lazy, disrespectful, or misguided. Visit, the urban myth debunking site, and put “Obama” in the search bar for some entertaining mythology. The email rant barrage gives Nigerian prince scams a bad name.

It reminds me of a talk I attended earlier this summer, given by Dan Fenn. Dan is an old family friend, a longtime political observer, and perhaps the last surviving member of the Kennedy Administration. Although in his early nineties, he is still sharp and vital, working as a management consultant. He was speaking on the subject of the presidency, its relationship with congress over the years, and the difficulties experienced by the Obama administration.

One point that Dan emphasized was the outright heels-dug-in obstructionism of the Republican House and the filibustering Republican minority in the Senate, combined with a staggering lack of interpersonal respect from Republican members of Congress. Dan spent a few minutes on the source of that disrespect. It is racial, of course.

His point was about demographics. We are still a majority white country. I should note here that the definition of who is “white” has expanded over the past hundred years as various immigrant groups became more numerous and gained political power. The people who would now still be considered non-white are gaining numbers and it looks as if the people we now call white will no longer be a majority in 2050. It’s an inexorable demographic trend, and a certain subset of white people is panicking.

As Dan put it, if they could see Barack Obama as a one-off non-white president then he would only have to put up with run of the mill racism. In 2016 it would be back to middle aged white guys forever. This would be reassuring for both overt and covert white supremacists.

But no, what demographers know and white racists either know or sense is that this is not an aberration. The era of middle aged white guy dominance is slowly passing. This is a source of desperation that drives the absurd and vicious attacks on our first mixed-ethnicity president. Although I’m not a fan of his many Bush 2.0 policies, I have sympathy for him in this case.

Sidebar on covert racism: In a 2003 study by the National Bureau of Economic Research, resumes with white-sounding names got 50% more callbacks than similar resumes with black sounding names. In another job hunting study by a sociologist at Northwestern University, young white men with felony convictions got more callbacks than young black men with equal qualifications and no criminal records. Being white was equal to eight extra years of experience. Welcome to post-racial America.

I’ll leave you with the Minor Heretic’s Law of Email Probability. The number of recipients of an ad hominem email concerning a major political figure equals the number of nines in the probability that it is false. One email address equals a 90% probability of bullshit. Two addresses equal 99%. Three addresses equal 99.9%, and so on.


Getting Played, Again, and How to Predict the Future 

ISIS, ISIL, IS, Khorosan, and so on. It’s time for bombing again. Time for just a few boots on the ground again. Time for aid to doubtful “allies” again. Time for completely mishandling the situation, yet again. It’s time to get played again, by the propaganda masters in the deserts of the Middle East and offices in Washington, D.C., for they are symbiotic. Both need a legitimate enemy, the more hateful and frightening the better.

The timing of our about-face on Saddam Hussein (remember him?) was not random. We lost our legitimate enemy, the Soviets, and needed a new one. Hence our message to him, through Ambassador Glaspie, that “..your Arab vs. Arab conflicts are of no interest to us. We view them as an internal matter.” This, when he was massing troops on the Kuwaiti border, a week before invading.

This is why we never pressed our agreement with the Taliban government of Afghanistan to cooperate on the killing of Osama bin Laden back in 2000.  The military industrial complex and its servants needed bin Laden. He was so much more valuable out there somewhere.

Well, Hussein was hanged and bin Laden was shot, so what is the military-security-fear industry to do? 12,000 Sunni rebels have flowed into the vacuum created by our Shia-ization of the Iraqi state (de-Baathification, meaning purging Sunnis from the Iraqi military) and the near destruction of the Syrian state. They face 195,000 Kurdish fighters and a similar number of Iraqi soldiers, plus the Syrian military. And they are, somehow, an existential threat to us. So we are told. Billions of dollars surge into the accounts of bomb, missile, and aircraft manufacturers. Security firms get their share of the take. Looks as if the war on whoever is next in line will go on forever. 

How to predict the future of U.S. foreign policy: It will be done in the most expensive way possible. Effectiveness is irrelevant. Capital intensiveness is the predictor. This includes intelligence, military operations, humanitarian foreign aid, the works. Most of this money will be stuffed into the accounts of large corporations.

Bombs are the ultimate in planned obsolescence; make it (in secrecy), transport it, drop it, buy another. Political negotiations are labor intensive and capital light, and therefore undesirable to the military industrial complex.

This ties into the whole concept of supply side versus demand side solutions. The corporate conglomerate that runs this country prefers supply side solutions. Drugs? Spend billions trying to interdict the supply and imprison users and dealers. Oil? Spend billions protecting international supplies and developing domestic sources (even though we only have 3% of world reserves). Terrorism? Spend billions on weapons and surveillance.  Fail, fail, fail. If we spent a tenth of the money on demand side management, meaning drug treatment, energy efficiency, humanitarian aid, plus some effort at political reconciliation, we’d get better results. The problem, in the eyes of the CEOs, is that we’d spend a tenth of the money.

So, we get played again. The debate in the corporate media isn’t about a range of responses to ISIS, it’s about the range of *military* responses.

Here are a couple of ideas, thrown into the public debate like a pine tree air freshener into a sewage treatment plant.

Tell the Iraqi government to get some Sunnis into real positions of power and to rein in the Shiite militias or we’re out of there. No money, no weapons, the Green Zone empty. Reconciliation, REAL reconciliation, or they are on their own. If they don’t reconcile their factions the whole place will implode no matter what we do.

Tell the auto makers that they will double their fleet mileage in five years or we’ll nationalize them (in the case of U.S. manufacturers) or ban them. When they scream, point out that we are having a serious crisis and refer them to the companies that converted from typewriters to rifles in 1942. That would eventually lower worldwide oil demand by about 5%, which in turn would temporarily collapse the price of oil, leaving the Russians and the Middle Eastern monarchies extremely short of cash. Work out the knock-on effects for yourself.

Ban speculation in energy commodities. If you buy the futures, you have to take physical delivery from the tanker. That would knock 20-40% off the price of oil all by itself. See Russians and M.E. royalty, above.

Defund a few gold plated weapons systems and sink the money into nationwide energy efficiency programs. Aim for a 20% reduction in oil use. See R’s and M.E.R., above.

But this won’t happen. Go back to the link under, “Billions of dollars surge into the accounts of bomb, missile, and aircraft manufacturers.” Look at the timing of stock price increases of all the major players in the military supply chain. Middle East chaos isn’t a bug, it’s a feature.

Everything I write on policy comes back to corporate power and money in politics.


The Courageous French Soldier 

The other day I was consuming some Twitter and read a tweet by Dan Snow, a historian who hosts on the BBC. It was the 100th anniversary of the Germans first aerial bombing of Paris during WW1 – five small bombs and some “Surrender!” leaflets. All the responses were some variant on “Hur-hur-hurrr, cowardly Frenchmen surrender!” This kind of sneering has become more common since the French took a pass on joining the invasion of Iraq.

Ca suffit!

Even the most minimal survey of military history will show that French soldiers have maintained, and suffered from, an excess of valor. The fatal flaw of the French military has been incompetence among the generals.

Writers as far back as Aristotle have commented on the excessive bravery of the Gauls. The Roman historian Polybius considered them braver soldiers than the Romans.

At the battle of Agincourt in 1415 mounted French knights charged into a hail of English arrows and perished by the hundreds. After witnessing this, thousands more French knights on foot immediately pressed another attack and were slaughtered as well. It was a case of pride leading to tactical incompetence, but the French had no lack of bravery.

During the Napoleonic wars at the turn of the 19th century French troops often advanced in column, that is, a mass of men perhaps 40 files wide. The 40 men in the front line, along with the two or three lines behind them, bore the brunt of enemy fire and had a low chance of survival. And yet they did bear it, and carried Napoleon almost as far as Moscow.

In the First World War the French command had a theory of the “offensive à outrance” or the    “attaque à outrance,” which translates roughly as “attack to excess.” The French military operated by a handbook written by a misguided student of General Foch, which advocated constant massive attacks. The gallant French soldiers charged to their deaths again and again. Charles de Gaulle later wrote about the first French assault into Alsace:

“Second by second the hail of bullets and the thunder of the shells grew stronger.  Those who survived lay flat on the ground, amid the screaming wounded and the humble corpses.  With affected calm, the officers let themselves be killed standing upright, some obstinate platoons stuck their bayonets in their rifles, bugles sounded the charge, isolated heroes made fantastic leaps, but all to no purpose.  In an instant it had become clear that not all the courage in the world could withstand this fire.”

The story of the French 137th Regiment and the so-called Tranchée des Baionnettes (Bayonet Trench) is illustrative. During the fighting around Verdun in 1916, the 137th was surrounded and partially obliterated by German artillery. Quoting Alistair Horne from his book, The Price of Glory:

“It was not until after the war that French teams exploring the battlefield provided a clue as to the fate of 3 Company. The trench it had occupied was discovered completely filled in, but from a part of it at regular intervals protruded rifles, with bayonets still fixed to their twisted and rusty muzzles. On excavation, a corpse was found beneath each rifle. From that plus the testimony of survivors from nearby units, it was deduced that 3 Company had placed its rifles on the parapet ready to repel any attack and — rather than abandon their trench — had been buried alive to a man there by the German bombardment."

“Cheese eating surrender monkeys,” indeed.

Of course, what garners the most abuse for the French is their (temporary) defeat by the Nazis at the beginning of World War 2. Again, it was a case of bad strategy.

During the 1930s the French had committed much of their military budget to the static defenses of the Maginot Line along their border with Germany. Some members of the French general staff had advised against static defense, emphasizing tanks and air power. They were overruled by General Petain and other veterans of the failed attempts at dynamic warfare 25 years earlier.

The Wehrmacht did an end run around the strongest parts of the Maginot Line and the Luftwaffe flew over it. Still, French troops engaged in the tenacious defense of the strong points, some units fighting to the last man. The French were defeated in weeks, not due to any lack of courage, but adherence to outdated ideas.

The French weren’t even unique in their strategic errors. “The generals are always fighting the previous war” has been true for many nations in many conflicts. Considering that the most recent surge in anti-Gallic slander was prompted by their refusal to join in our invasion of Iraq, perhaps their strategic drought is over. So, I say, enough. Let’s stop this libel against the French.

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