Oil Prices Too Low Even For Saudi Arabia

From CBS….

Saudi Arabia reportedly needs to sell oil for at least $55 dollars a barrel to cover the cost of running the country. Fossil fuels finance 75 percent of the country’s entire domestic spending budget, but oil is selling for below that breakeven price.

This metric is a little misleading. Saudi Arabia needs to sell a certain amount of oil at $55 dollars a barrel to fund their country. I have never seen anyone say what that amount is, but the point is an important one to remember. It is the reason that OPEC has little real pricing power in an economic downturn.

In theory OPEC can raise the price of oil just by cutting production. In fact, Saudi Arabia could do this all by themselves if they wanted to. The problem is that a price rise is not enough solve many oil producers funding problems . To keep from going broke, a lot of oil producing countries (Iran, Venezuela, Russia, among others) need a rise in the price of oil without demand destruction. In the current environment, that is a quite a trick to pull off.

That is why when Iran and others scream for OPEC to cut production they really mean that they want Saudi Arabia to cut production. They have no intention to cut production themselves. The Saudi oil minister Ali Al-Naimi makes this very point later on in the article saying….

“Iran tries to keep the price way up; and Venezuela’s trying to keep the price way up. You don’t consider that oil as a weapon?” Stahl asked.

“If you looked at these countries you just named, every one of them would like to sell every barrel they can,” Al-Naimi commented.

“At as high a price as they can get away with,” Stahl remarked.

“Right,” Al-Naimi said.

As a result of these kinds of games, I don’t see OPEC cuts as being very successful at raising the real price of oil anytime soon no matter what headline cuts they announce. Oh sure, the price might jump up and down some, but I don’t think you will see a sustained rise anytime soon (short of a war occurring).

However, in the long term, the real price of oil is going to rise. Simply put, if Saudi Arabia can’t support itself at the current price, no petro state can support themselves. That means that a lot of petro states are going to go bankrupt in the near future. Iran and Venezuela are in a particularly weak position with Russia and Mexico not far behind. The resulting chaos will drive prices back up. It may even drive them way up.

So enjoy the cheap gas you are going to get for the next year or so. It will not last.

Essay of the Week: 12/7/08-12/13/08

A common argument is that terror should not be fought through war, but rather, terror should be treated as a police matter. But the truth of the matter is that people have the stomach for neither war nor justice.

The assassination of Lebanese Prime Minister Rafiq al-Hariri is good case in point. If any other nation’s political leader was killed by agents of another, it would be considered an act of war. But the assassination of Hariri is being treated as a police manner and it is being conducted to the highest standards that any liberal could wish. But in the end, there is likely to be no justice.

And this lack of justice is the not the result of the matter being treated as a crime as opposed to an act of war. The investigation has almost certainly fingered the guilty parties.

Rather the lack of justice will come about because Bush, Israel, and the world at large have no use for justice when it is inconvenient. At least, that is the conclusion that Getting Away With Murder? by Joshua Hammer points towards.

Pakistan In The News

From the Telegraph….

Hundreds of Taliban fighters have stormed a crucial Nato depot outside the Pakistani city of Peshawar, destroying over 100 lorries which would have taken supplies to American and British forces in Afghanistan.

The gunmen overpowered and disarmed the security guards, before setting fire to the vehicles, many of which were laden with Humvee armoured cars intended for Western forces.

About three quarters of all the ammunition, food, weapons and other supplies needed by Nato’s troops in Afghanistan, including 8,000 British soldiers, pass through Pakistan. The Taliban have clearly identified this route as a crucial vulnerability.

I may be getting too paranoid, but I wonder if these attacks were done with the encouragement of Pakistan’s army. It would be good way of reminding the US of how critical Pakistan was for American success in Afghanistan. The Pakistani army might figure that the US needs a reminder given the pressure that the US has started to put on Pakistan. From the Belmont Club….

Whatever the American attitude towards the Government of Pakistan will be, the US already openly believes that certain former (thanks for spotting the difference, readers) Pakistani officials are in fact, terrorists. Bill Roggio reports that “the US wants the United Nations Security Council to designate several senior former officers of Pakistan’s Inter-Service Intelligence agency as international terrorists.”

It may be paranoia to connect these two stories. But Pakistan has openly threated to let to allow the Taliban a free hand if too much pressure is put on it by India. From the New York Times….

Ms. Rice’s diplomatic agenda takes place as Washington is seeking high-level cooperation in different spheres with both India and Pakistan, nuclear-armed neighbors. Washington wants Pakistan to help defeat Al Qaeda and Taliban insurgents along the border with Afghanistan.

But Pakistani security officials have threatened to withdraw troops from the lawless border region to redeploy them if India and Pakistan slide toward their fourth war since independence from Britain in 1947, Reuters reported.

More ways for your Identity to be Stolen

From NewsMax…

The devices, called Radio Frequency Identification (RFID) machines, allow officials to read remotely any passports, pass cards, and driver’s licenses that contain special chips with personal information.

The RFIDs are so sensitive that, even before a vehicle pulls up at a border checkpoint, agents already will have on their computer screen the personal data of the passengers, including each person’s name, date of birth, nationality, passport or ID number, and even a digitized photo.

The new gadgets are in place, or soon will be, at five border crossings: Blaine, Wash.; Buffalo; Detroit; Nogales, Ariz.; and San Ysidro, Calif. They are slated to have a dramatically expanded presence in June.

Lee Tien of the Electronic Frontier Foundation argues that the technology could make Americans less secure because terrorists or other criminals may be able to steal the personal information off the ID cards remotely.

Tien and other critics warn that people up to no good can use their own RFID machines in a process called “skimming” to read the information from as far as 50 feet.

Of course, the government assures you that only their machines can read the data so you have nothing to worry about.

A Tough Business Just Got Tougher

From NPR…

The publishing world is still trying to absorb this week’s bad news: Several publishing houses announced layoffs or salary freezes, and a major reorganization at Random House left two major players in the business without jobs. All this comes as booksellers head into the holiday season — when 25 percent of all book sales occur.

No one thought that publishing would be spared from the current economic turmoil. But when the fallout from the Random House reorganization was announced on the same day that Simon & Schuster and the Christian publishing company Thomas Nelson announced layoffs, it stunned the book world, says Sara Nelson, editor-in-chief of Publishers Weekly.

The Old Russia is Not Quite Dead

From Moscow Times…

At Sterligov’s log cabin about 100 kilometers northwest of Moscow one recent afternoon, hens pecked grain from the snow in front of the porch as he scolded his four sons — aged 4 to 12 — for neglecting to feed the chickens properly and for “messing up the stove.”

His wife, Alyona Sterligova, who wears a traditional Russian Orthodox head scarf, and a teenage daughter also help him run the farm.

Until 2004, Sterligov was, by his own account, a tycoon with hundreds of millions of dollars in the bank, dozens of businesses, offices on Wall Street and in London and a villa in Rublyovka, a Moscow suburb for the superrich.

If more Russians were like this guy, they would be better off. At the very least, they would not be having the demographic problems they are having now. If you read the whole article, you will find that he even home schools his kids.

Edit: Found this BBC article with more.

I know people like this in real life, and their life is often far from ideal. Sometimes their kids grow up hating their parents, sometimes they grow up grateful. It is a mistake to assume either that Sterligov’s family is happy or that they feel oppressed. But given Russia’s current state, I think his family could have it a lot worse no matter what their family life is like.