Energy Markets Are On The Brink Of Crisis
06/19/2014 Submitted by Tyler Durden by Brandon Smith of Alt-Market.com,
The multitudes of people, especially Americans, who view U.S. government activity in a negative light often make the mistake of attributing all corruption to some covert battle for global oil fields. In fact, the average leftist seems to believe that everything the establishment does somehow revolves around oil. This is a very simplistic and naïve view.
Modern wars are rarely, if ever, fought over resources, despite what the mainstream gatekeepers might tell you. If a powerful nation wants oil, for instance, it lines the right pocketbooks, intimidates the right individuals, blackmails the right officials or swindles the right politicians. It has no need to go to war when politicians and nations are so easily bought. Modern wars, rather, are fought in order to affect psychological change within a particular country or population. Wars today are fought to cover up corrupt deals and create desperation. Oil is used as an all-encompassing excuse for war, but it is never the true cause of war.
In reality, oil demand has become static and is even falling in many parts of the world, while new oil and gas-producing fields are discovered on a yearly basis. Petroleum is not a rare resource — at least, not at the present. And the propaganda surrounding the “peak oil” Armageddon scenario is pure nonsense. Oil prices, unfortunately, do not rise and fall according to supply – instead they rise and fall according to market tensions and, most importantly, the value and perceived safety of the U.S. dollar. Supply and demand have little to do with commodity values in our age of fiat manipulation and false investor perception.
That said, certain political and regional events are currently in motion that could, in fact, change investor perception to the negative, and convince the world of a false fear of reduced supply. While supply is more than ample, the expectation of continued supply can be jilted, shocking commodities markets into running for the hills or rushing into mass speculation, generally resulting in a sharp spike in prices.
A very real danger within energy markets is the undeniable threat that the U.S. dollar may soon lose its petrodollar status and, thus, Americans may lose the advantage of relatively low gas prices they have come to expect. That is to say, the coming market crisis will have far more to do with the health of the dollar than the readiness of supply.
In the span of only a few years, as the derivatives crisis took hold and the fed began its relentless bailout regime, petroleum costs have doubled. It wasn’t that long ago that someone could fill his vehicle’s tank with a $20 bill. Those days are long gone, and they are not coming back. The expectation has always been that prices would recede as the overall economy began to heal. Of course, our economy will not be healed until it is allowed to crash, as it naturally should crash. And as it crashes, because of our currency’s unique place in history, the price of oil will continue to climb.
The petrodollar has always been seen as invincible — a common denominator, a mathematical constant. This is a delusion propagated by a lack of knowledge and common sense amongst establishment economists.
As I have covered in great detail in numerous articles, the U.S. dollar’s world reserve status is nearing extinction. Multiple major economies now trade bilaterally without the use of the dollar; and with foreign conflicts on the rise, this trend is going to become the norm.
In the past week alone, Putin adviser Sergey Glazyev recommended to the Kremlin that a coalition of nations be formed to end the dollar’s reserve status and initiate a form of economic warfare to stop “U.S. aggression”. Of course, anyone familiar with the escapades of international banking cartels knows that it is the money elite that dictate U.S. aggression, just as they dictate the policy initiatives of Russia. I would note that there is only ONE currency exchange structure that could be used at this time to shift global forex reserves away from the dollar system, and that is the IMF’s Special Drawing Rights.
The argument has always been that the IMF is a U.S. controlled institution, however, this is a faulty assumption. The IMF is a GLOBAL BANKER controlled institution, a front organization for the Bank of International Settlements, which is why the recent refusal by the U.S. Congress to vote on new capital allocations for the IMF has resulted in the world’s central bank threatening to remove U.S. veto power. Globalists have no loyalty to any single nation, and the reality is, the fall of the dollar actually benefits these financiers in the long term.
Russia’s historic oil and gas deal with China, just signed weeks ago, removes the dollar as the petroleum reserve currency.
Russia’s largest gas company, Gazprom, has all but excluded the dollar in all transactions with foreign nations. In fact, nine out of 10 of Gazprom’s foreign clients were more than happy to buy their products without using dollars. This fact cripples the arguments of dollar cheerleaders who have always claimed that even if Russia broke from the dollar, no one else would go along.
Gazprom and the Russian government have followed through with their threats to cut off gas pipelines to Ukraine, and now, some analysts fear this strategy may extend to the EU, in which many countries are still 30% dependent on Russian energy.
China is currently striking oil deals not only with Russia but also with Iran. New oil deals are being signed even after a $2 billion agreement fell through this spring. And, despite common misinformation, it was actually China that was reaping the greatest rewards through the reopening of Iraqi oil fields, not the U.S., all while U.S. military assets were essentially wasted in the region.
Now, any U.S. benefits are coming into question as Iraq disintegrates into chaos yet again. With the speed of the new Islamic State of Iraq and Syria (ISIS) insurgency growing, it is unclear whether America will have ANY access to Iraqi oil in the near future. If ISIS is successful in overrunning Iraq, it is unlikely that Iraqi oil will ever be traded for dollars again. Unrest in Iraq has already caused substantial market spikes in oil prices, and I can say with considerable confidence that this trend is going to continue through the rest of the year.
Interestingly, mainstream news sources suggest that Saudi Arabia has been a primary funding source for the ISIS movement. It is true that the Saudis have warned for years that they would fund and arm Sunni insurgents if America ever pulled out of the country. But, I would point out that the U.S. has also been covertly supporting such extremist groups in the Mideast for quite some time, and this is not discussed at all in the MSM storyline. The mainstream narrative is painting a picture of betrayal by the Saudis against the U.S. through subversive groups designed to break the foundations of nations opposed to its policy views. When, in fact, the destabilization of Iraq has been nurtured by money and weapons from both America and Saudi Arabia.
It was the CIA which trained ISIS insurgents secretly in Jordan in preparation for their subversive war in Syria. It was an agreement signed by George W. Bush and delegated under Obama’s watch that allowed ISIS leader, Abu Bakr al-Baghdadi, to be set free in 2009. Saudi Arabia has been openly arming the Sunni’s for years with the full knowledge of the U.S. government. So then, why is the narrative being created that America and Saudi Arabia are at odds over ISIS?
Such a development would place the U.S. squarely in conflict with the Saudi government, our only remaining toehold in the global oil market. Without Saudi Arabia’s patronage of the dollar, most OPEC nations will follow (including Kuwait), and the dollar WILL lose its petrodollar status. Period.
In the past few days, Saudi Arabia has demanded that the foreign interests refrain from any military intervention in Iraq. While Barack Obama has repositioned an aircraft carrier, armed troops, and special forces in the area.
Now, my regular readers understand that this was going to happen eventually anyway. The Federal Reserve’s quantitative easing bonanza has destroyed true dollar value and spread unknown trillions of dollars in fiat across the planet. The dollar’s death has been assured. It has been slated for execution. This is why half the world is positioning to dump the currency altogether. My regular readers also know that the destruction of the dollar is not an accident; it is part of a carefully engineered strategy leading to the centralization of all economic power under the umbrella of a new global currency basket system controlled by the International Monetary Fund.
I believe Saudi Arabia may be a near term trigger in the next great shift in petroleum markets away from the dollar. Renewed U.S. involvement in Iraq, diplomatic tensions over ISIS, and more lucrative offers from Eastern partners have been edging Saudi Arabia away from strict petrodollar ties. This shift is also not limited to Saudi Arabia.
“Abu Dhabi, the most influential member of the United Arab Emirates,” has suddenly ended its long-standing exclusive relationship with Western oil companies and has signed a historic deal with China’s state-owned China National Petroleum Corporation (CNPC).
Russia has formed the new Eurasian Economic Union with Belarus and Kazakhstan, two countries with freshly discovered oil fields.
On the surface, it appears as though the world is huddling itself around oil resources in an environment of East versus West conflict. However, these changes are not as much about petroleum as they are about the petrodollar. The reality is the dollar’s reserve-status days are numbered and this is all part of the plan.
What does this mean for us? It means much higher gas prices in the coming months and years. Is $4 to $5 per gallon gasoline a burden on your pocketbook? Try $10 to $11 per gallon, perhaps more. Do you think the economy is straining as it is under the weight of current gas prices? Imagine the earthquake within our freight-based system when the cost of trucking shipments triples. And guess who will end up paying for the increased costs? That’s right: you, the consumer. High energy prices affect everything, including shelf prices of retail goods. This is just the beginning of what I believe will be ever expanding inflation in oil prices, leading to the end of the dollar’s petroleum reserve status, then it’s world reserve status by default, and the introduction of a basket currency system that will ultimately benefit a select few global financiers while diminishing the quality of living for millions, if not billions, of people.
Huge Water Resource Found in Africa: World Bank Steps In?
Friday, April 20, 2012 – by Staff Report
Huge’ water resource exists under Africa … Scientists say the notoriously dry continent of Africa is sitting on a vast reservoir of groundwater. They argue that the total volume of water in aquifers underground is 100 times the amount found on the surface. The team have produced the most detailed map yet of the scale and potential of this hidden resource. Writing in the journal Environmental Research Letters, they stress that large scale drilling might not be the best way of increasing water supplies. Across Africa more than 300 million people are said not to have access to safe drinking water. Demand for water is set to grow markedly in coming decades due to population growth and the need for irrigation to grow crops. – BBC
Dominant Social Theme: Water, water everywhere … it’s a miracle! Who would have thunk …
Free-Market Analysis: We’ve charted this elite meme for several years – water scarcity. The powers-that-be create fear-based scarcity promotions and then propose globalist solutions. Water scarcity is a big promotion for them – and this meme is a central one these days.
Right on schedule, it’s been determined that Africa has water after all. Of course, Western scientists had to make this determination. This is part of the larger “cult of the expert” that the elites seek to inculcate. Until it can be documented by elite facilities, it doesn’t exist.
But now it does. There’s LOTS of water in Africa after all (just as there is LOTS of oil in the world, and lots of food as well, if the powers-that-be would only stop tampering with seeds). Here’s some more from the article:
Now scientists have for the first time been able to carry out a continent-wide analysis of the water that is hidden under the surface in aquifers. Researchers from the British Geological Survey and University College London (UCL) have mapped in detail the amount and potential yield of this groundwater resource across the continent.
Helen Bonsor from the BGS is one of the authors of the paper. She says that up until now groundwater was out of sight and out of mind. She hopes the new maps will open people’s eyes to the potential.
“Where there’s greatest ground water storage is in northern Africa, in the large sedimentary basins, in Libya, Algeria and Chad,” she said.
“The amount of storage in those basins is equivalent to 75m thickness of water across that area – it’s a huge amount.” Due to changes in climate that have turned the Sahara into a desert over centuries many of the aquifers underneath were last filled with water over 5,000 years ago.
The scientists collated their information from existing hydro-geological maps from national governments as well as 283 aquifer studies. The researchers say their new maps indicate that many countries currently designated as “water scarce” have substantial groundwater reserves.
Note: the scientists didn’t really discover anything new. They “collated” their findings “from existing hydro-geological maps from national governments as well as 283 aquifer studies.” In other words, it was all a promotion, folks. “Parched Africa” was never more than an elite scarcity campaign. The maps showing plenty of water were there all along.
So what now? Having discovered that Africa has plenty of water, will the private market be left to make its magic? Not so fast.
A simple Internet search shows us that the other shoe may be dropped. That shoe, of course, would be globalist involvement. The whole point of creating scarcity memes is to propose globalist solutions that bring us closer to the world government so avidly sought by the powers-that-be.
Here’s an excerpt from a World Bank report, courtesy of Businessdayonline:
Finance required to raise infrastructure in Sub Saharan Africa to a reasonable level within the next decade is estimated at $93 Billion every year, a World Bank report has shown. The estimates cover the Information Communication Technology, Irrigation, Power, Transport and Water Supply and Sanitation sectors.
Of the total required, existing expenditure is estimated at $45 Billion per annum and after accounting for efficiency gains of $17 Billion, the funding gap remains at about $31Billion. ‘Infrastructure is a cardinal challenge facing Africa, thereby creating room for the inability of Africa to key into the avalanche of economic and commercial opportunities available in the continent,’ says Kenneth Okpara, Commissioner for Economic Planning, Delta State during March Breakfast forum of Nigerian-South African Chamber of Commerce sponsored by Warri Industrial Business Park.
Okpara noted that Africa’s infrastructure stocks and quality is among the least in the world, noting that lack of good governance is a major problem that prevents the continent from taking its rightful place as regards socio-economics. ‘One approach to address this challenge is to facilitate the increase of private provision of Public–Private Partnership (PPP),’ he notes, saying that the partnership assumes transactions where the private sector retains a considerable portion of commercial and financial risks associated with a project.
Okpara added that leveraging private sector financing through public private partnership and capital market (bonds) are the means through which the gap can be addressed.
It is fairly predictable, is it not? Africa suffers from a water problem – that turns out not to exist. But having raised the alarm, Western facilities stand ready to help. Chief among them is the World Bank that will provide much needed cash to reap the benefits of these aquifers, etc.
What may occur is wearily predictable. The World Bank lends cash to corrupt governments that squander or loot resources. The “country” is eventually unable to pay and the IMF arrives to impose “austerity” – including higher taxes and an asset sale.
Thus the powers-that-be consolidate command and control. Global governance – or at least its influence – expands.
Conclusion: Thanks to the Internet, we can clearly see the patterns now. Africa, in our view, is being readied for significant Western exploitation and it is no coincidence they are reappearing here – and now.
- Africa Has Incredible Amount Of Untapped Water Aquifers (inquisitr.com)
Your Quick Guide To The IMF-World Bank Meetings Today
World leaders are meeting in Washington, D.C., to attend a joint IMF-World Bank meeting.
Their focus? The funding available to the IMF, specifically to support the ongoing debt and bank crises in Europe.
Countries in Europe and Asia have expressed interest and even firm commitments in contributing more money to the fund. The U.S. and Canada, however, have said they won’t contribute any more cash to an effort EU leaders should be able to resolve themselves.
While we could hear more pledges over the course of the day, so far Japan, Switzerland, Poland, Sweden, Denmark, Norway, and the euro area have all made dollar commitments totaling $320 billion, according to Bloomberg:
Read more: BI
- Selected Headlines from Business Insider, April 19, 2012 (jhaines6.wordpress.com)
- IMF Director LaGarde responds to move to rescind U.S. tax dollars (humanevents.com)
- IMF Exploits Euro-Crisis to Create Global Money Power (mb50.wordpress.com)
Euro currency could collapse and trigger another Great Depression, IMF warns for the first time
End of the Euro?: The IMF warns that one country leaving the single currency could force its entire collapseBy Hugo Duncan PUBLISHED: 12:45 EST, 17 April 2012 UPDATED: 04:28 EST, 18 April 2012
The eurozone could break up and trigger a global economic slump to rival the Great Depression, the IMF warned last night.
In its World Economic Outlook report, the International Monetary Fund said the collapse of the crisis-torn single currency could not be ruled out.
It was the first time the Washington-based institution has accepted the prospect of the eurozone splitting up and follows fears over the health of the Spanish economy.
The IMF predicted a return to recession in the eurozone this year but upgraded its growth forecasts for Britain.
However, it warned that the world remains at risk of collapsing into a slump that would rival the Great Depression – with ‘acute risks in Europe’ the major threat.
‘Things have quietened down but there is a very uneasy calm,’ said IMF chief economist Olivier Blanchard. ‘I have a feeling that at any moment things could get very bad again.’
Speaking at the launch of the half-yearly report in Washington, Mr Blanchard said there was ‘no plan’ in place to deal with a country leaving the euro.
However Greece is widely expected to default on its crippling debts and quit the doomed single currency.
‘If such an event occurs, it is possible that other euro area economies would come under severe pressure as well, with a full-blown panic in financial markets,’ the IMF report said.
‘Under these circumstances, a break-up of the euro area could not be ruled out. This could cause major political shocks that could aggravate economic stress to levels well above those after the Lehman collapse.’
U.S. investment bank Lehman Brothers imploded in September 2008 – plunging the world economy into the worst recession since the 1930s. The IMF said that although ‘the outlook for the global economy is slowly improving again’ it is ‘still very fragile’.
It warned of the ‘possibility that several adverse shocks could interact to produce a major slump reminiscent of the 1930s’.
The IMF forecast growth of 0.8 per cent in Britain this year – more than the 0.6 per cent it predicted in January, but less than last September’s target of 1.6 per cent. Its 2013 forecast was unchanged at 2 per cent.
Asked about the IMF’s comments on the eurozone, a Downing Street spokesman said: ‘The eurozone still needs to get its house in order. Those issues still exist and no doubt will be a focus of discussions at the coming meeting of the IMF towards the end of the week, which the Chancellor will be attending.’
The IMF said Britain will outperform Germany and France this year – their economies are expected to grow by just 0.6 per cent and 0.5 per cent respectively.
The Italian and Spanish economies are forecast to decline by 1.9 per cent and 1.8 per cent, while a slump of 4.7 per cent is expected in Greece following a 6.9 per cent drop in 2011.
But the report warned that output in the eurozone could fall by 3.5 per cent over the next two years if the debt crisis escalates.
This would knock 2 per cent off the world economy, said the IMF, while a 50 per cent rise in the oil price would lower output by a further 1.25 per cent.
In the absence of such ‘shocks’ the global economy is expected to grow by 3.5 per cent this year, down from 3.9 per cent in 2011, with the U.S., Canada and Japan leading the way in the developed world.
‘Because of the problems in Europe, activity will continue to disappoint in the advanced economies as a group, expanding by only about 1.5 per cent in 2012 and by 2 per cent in 2013,’ said the report.
- Euro meltdown will be a bigger disaster than the credit crunch’ (express.co.uk)
- IMF: Euro Break-up Cannot Be Ruled Out (news.sky.com)
- IMF Exploits Euro-Crisis to Create Global Money Power (mb50.wordpress.com)
Debt Crisis Plotted to Deliver the Euro to the IMF?
Spanish bailout ‘impossible’ for eurozone, says prime minister Mariano Rajoy … The eurozone is not equipped to bail out Spain, the country’s prime minister Mariano Rajoy has admitted, as global traders continued to punish the nation’s stocks and bonds. Mr Rajoy said it was “not possible to rescue Spain” but insisted his country did not need a Greek-style international bail-out anyway …Christine Lagarde, the boss of the International Monetary Fund (IMF), also warned that Europe’s rescue mechanisms were not enough to restore confidence to global markets but said the IMF could provide a “global firewall”. Speaking in Washington on Thursday, Ms Lagarde, who is seeking to raise $500bn (£313.4bn) in extra funds for the IMF from the G20, warned risks to the global economy “remain high; the situation fragile”. “We need a broader approach – and a stronger global firewall – if we are to push back this crisis. The IMF can help. But to be as effective as possible, we need to increase our resources.” – UK Telegraph
Dominant Social Theme: What is needed is a global currency.
Free-Market Analysis: We’ve long since come to the conclusion that the EU‘s sovereign crisis is a manufactured one. This article supports such a conclusion, in our view.
One has to keep in mind the artificiality of the current economic construct. The economy of the world is run via monopoly fiat/paper money printed by central banks. It is this system that has seemingly crashed half of the world’s economy and is well on the way to delivering China into the same situation.
If China’s economy folds – and it seems well on the way – there will likely be a global depression. The elites, in our view, are preparing to offer up the International Monetary Funds’ SDRs as an alternate currency. The IMF is increasingly active as the “lender of last resort” throughout the world (see article excerpt above).
The EU crisis itself, as we have often pointed out, started when certain poorer countries were given large amounts of money by Brussels to “equalize” the economy. These funds were supposed to allow the bureaucracies to address native imbalances and create fiscal health.
Of course, this money was nothing but a kind of bribe. The elites of the given nation pocketed the funds and then made sure their countries entered the EU. After this occurred, further lending took place via the elite’s top, European commercial banks.
After the 2008 crash, it became clear that the EU’s PIGS couldn’t repay the loans. This was likely the plan all along. After this realization set in, the power elite that orchestrates this sort of thing ensured that the solution to this manipulated dilemma was “austerity.”
The idea is evidently and obviously to make people so miserable that they will eventually welcome world government and world money. The power elite orchestrating this has been using what we call directed history for at least a century and probably closer to three – within the context of the modern globalist conspiracy.
These elites, based out of the City of London it seems, with arms in Washington DC, Rome, Tel Aviv and elsewhere, have been working steadily toward world government and used fear-based promotions to achieve it.
These dominant social themes are generated to frighten people into seeking or at least accepting globalist solutions. These themes are usually accompanied by artificial crises – in this case, economic crises created by the boom/bust monopoly central banking system.
There is no doubt that “austerity” is not helping solve the apparently ginned-up economic crisis in Spain, Greece or Italy. Here’s more from the article excerpted above:
“To talk about a bail-out for Spain at the moment makes no sense,” he told reporters. “Spain is not going to be rescued; it’s not possible to rescue Spain, there’s no intention to, it’s not necessary and therefore it’s not going to be rescued.” Despite his comments, the Madrid bourse fell and the yields on the country’s benchmark bonds remained stubbornly high. While other European markets soared on Thursday following strong gains in America, Spain’s Ibex index lost 0.5pc.
Politicians in Rome tried to counter the markets’ view that Italy was in the same predicament as Spain.Vittorio Grilli, Italy’s deputy finance minister, said “markets are very nervous” but added: “We cannot talk about a derby between Italy and Spain.” Analysts at Bank of America Merrill Lynch said: “Although Spain and Italy face very different economic and fiscal issues, their yields are largely moving in tandem.”
Meanwhile, the Greek unemployment rate rose to 21.8pc, according to fresh figures from the national statistics office. During 2011, the average annual jobless rate soared to 17.7pc from 12.5pc the year before, revealing the toll of the crisis and resulting austerity measures that have seen one-in-10 jobs destroyed. One-in-five Greeks is now jobless, including 50.8pc of those aged under 25. The rate is twice as high as the eurozone average.
Various EU countries were manipulated into joining the EU, after which time a central-banking led economic crisis created a global meltdown. Then austerity was initiated to counter the “sovereign debt” crisis in Europe. The PIGS are now suffering from this faux-solution.
Even the name PIGS (PIIGS) is suspect. Developed years ago by a Goldman Sachs banker, the name denotes greed and has been applied to nation-states characterized in this way. It seems to us that this is all part of a larger manipulation. Directed history – from the nomenclature on down.
Meanwhile, the IMF continues to receive high-profile coverage in the elite controlled mainstream media. This high profile is being constructed within the context ongoing efforts to build up SDRs as a mainstream currency.
A good article on the moves being made to build this currency is entitled “The Triffin Dilemma Will Create a 3-G World” and was posted at Goldseek. In it, author Richard Mills points out the following:
In the wake of the financial crisis of 2007–2008, Zhou Xiaochuan the governor of the People’s Bank of China, said that a national currency is unsuitable as a global reserve currency … In a speech titled “Reform the International Monetary System” Zhou argued that part of the reason for the original Bretton Woods system breaking down was the refusal to adopt Keynes‘ bancor.
Calling Keynes’s bancor approach “farsighted” Xiaochuan proposed strengthening existing global currency controls through the IMF by the adoption of International Monetary Fund (IMF) special drawing rights (SDRs) as a global reserve currency. When Special Drawing Rights were originally created in 1969 one SDR was defined as having a value of 0.888671 grams of gold, equal to the value of one US dollar at that time. After the breakdown of the Bretton Woods system the SDR was redefined in terms of a basket of four currencies.
From January 1 2011, the IMF has determined that the four currencies will be assigned revised weights based on their roles in international trade and reserves. Due to varying exchange rates, the relative value of each currency varies continuously and thus the value of the SDR fluctuates. The IMF fixes daily the value of one SDR in terms of US dollars based on the exchange rates of the constituent currencies.
We’ve speculated that the elites want to create some sort of formalized gold standard in the past. But more and more the logic is inescapable: The elites are opposed to gold at every level (except for themselves). They hate the idea in fact that the common man owns either gold or silver. Monopoly fiat/paper offers much more control.
Having spent a century building up monopoly central banking, all the way to 150 central banks, the power elite seems in no mood to back-peddle. The IMF is apparently their chosen vehicle to create an international monopoly fiat currency, and it continues to have a high profile.
Conclusion: The IMF is presented as the “firewall” that can contain the European conflagration. Eventually the IMF’s SDR “currency” shall be elaborated on, perhaps sooner rather than later. The European crisis is a kind of shadow play and the IMF and its money are likely being positioned as a solution … if not THE solution.
- Spain Tries to Save Itself as Prospects Slip Away (247wallst.com)
- ECB Asmussen: To Use Monpol, Nonstandard Tools If Needed: WSJ (forexlive.com)
- IMF funds drive caught in global power shift (firstpost.com)
- Global growth forecasts to be revised down (independent.co.uk)
EL-ERIAN: Europe Threatens To Cripple The IMF
G20 finance ministers need to stand in the way of European manipulation of the International Monetary Fund when they meet in Mexico City this weekend, PIMCO chief executive Mohamed El-Erian writes in a column published today in the Financial Times.
A staunch critic of Europe‘s attempts to get around its internal problems by relying on IMF funding, he argues that non-European economies need to stand up for the IMF’s professed “uniformity of treatment,” particularly given the harsh rules the organizations have imposed on emerging market countries in Asia and Latin America in the past.
A few choice snippets:
It should come as no surprise that over the last couple of years Europe has pressed the IMF very hard to make exception after exception – and it has succeeded. This has resulted in a number of firsts by an organisation that prided itself on the “uniformity of treatment” for member countries.
This is an internal issue that the IMF cannot, and should not be expected to, solve. It is up to the eurozone to decide whether to go forward in its current configuration towards a fiscal union or whether to first slim down to a more coherent and stable configuration. This would provide a better basis for a larger European-financed firewall.
As tempting as it is, Europe should not seek to obfuscate this critical decision by using IMF financing to give the appearance of sustaining the unsustainable. It must start making the necessary, albeit very difficult, decisions. Until this happens, the G20 has a global responsibility to protect the IMF from further damage to its credibility and legitimacy.
Read El-Erian’s full editorial in the Financial Times >
- El-erian: Greece = Argentina (businessinsider.com)
- EL-ERIAN To IMF: Man Up! (businessinsider.com)
- EL-ERIAN: The REAL Reason Europe Is Begging For Help From The IMF (businessinsider.com)
- EL-ERIAN: Even EU Leaders Know This Greek Deal ‘Will Only Last A Few Months At Best’ (businessinsider.com)
- El-ERIAN: Behold The Disorderly Advent Of A New Global Economic Order (businessinsider.com)
Geopolitical stakes in Nigeria: Curious role of the IMF
Kaduna refinery (photo from nigerianbestforum.com)
Published: 29 January, 2012, 11:11
As Nigeria spirals into instability, historian and economic researcher Frederick William Engdahl argues a recent government decision to lift subsidies on imported fuel in the oil-rich nation bears the mark of Washington Consensus shock therapy.
In the article below, Engdahl explains his view.
Nigeria, Africa’s most populous nation and its largest oil producer, is from all evidence being systematically thrown into chaos and a state of civil war. The recent surprise decision by the government of Goodluck Jonathan to abruptly lift subsidies on imported gasoline and other fuel has a far more sinister background than mere corruption, and the Washington-based International Monetary Fund (IMF) is playing a key role. China appears to be the likely loser along with Nigeria’s population.
The recent strikes protesting the government’s abrupt elimination of gasoline and other fuel subsidies, that brought Nigeria briefly to a standstill, came as a surprise to most in the country. Months earlier, President Jonathan had promised the major trade union organizations that he would conduct a gradual four-stage lifting of the subsidy to ease the economic burden. Instead, without warning he announced an immediate full removal of subsidies effective January 1, 2012. It was “shock therapy” to put it mildly.
Nigeria today is one of the world’s most important producers of light, sweet crude oil—the same high-quality crude oil that Libya and the British North Sea produce. The country is showing every indication of spiraling downward into deep disorder. Nigeria is the fifth largest supplier of oil to the United States and twelfth largest oil producer in the world on a par with Kuwait and just behind Venezuela with production exceeding two million barrels a day.
The curious timing of IMF subsidy demand
Despite its oil riches, Nigeria remains one of Africa’s poorest countries. The known oilfields are concentrated around the vast Niger Delta roughly between Port Harcourt and extending in the direction of Lagos, with large new finds being developed all along the oil-rich Gulf of Guinea.Nigeria’s oil is exploited and largely exported by the Anglo-American giants—Shell, Mobil, Chevron, Texaco. Italy’s Agip also has a presence and most recently, to no one’s surprise, the Chinese state oil companies began seeking major exploration and oil infrastructure agreements with the Abuja government.
Ironically, despite the fact that Nigeria has abundant oil to earn dollar export revenue to build its domestic infrastructure, government policy has deliberately let its domestic oil refining capacity fall into ruin. The consequence has been that most of the gasoline and other refined petroleum products used to drive transportation and industry, has to be imported, despite the country’s abundant oil. In order to shield the population from the high import costs of gasoline and other refined fuels, the central government has subsidized prices.
Until January 1, 2012, that is. That was the day when, without advance warning President Goodluck Ebele Azikiwe Jonathan announced immediate removal of all fuel subsidies. Prices for gasoline shot up almost threefold in hours from 65 naira (35 cents of a dollar) a liter to 150 naira (93 cents). The impact rippled across the economy to everything including prices of grains and vegetables.
In justifying the move, Central Bank Governor Lamido Sanusi insisted that “The monies will be used in provision of social amenities and infrastructural development that will benefit Nigerians more and save the country from economic rift.”President Goodluck Jonathan says he is phasing out the subsidy as a part of a move to “clean up the Nigerian government.” If so, how he plans to proceed is anything but apparent.
The huge unexpected price hike for domestic fuel triggered nationwide protests that threatened to bring the economy to a halt by mid-January. The president deftly took the wind out of protester sails by announcing a partial rollback in prices, still leaving prices effectively double that of December. The trade union federation immediately called off the protests. Then, revealingly, Goodluck Jonathan’s government ordered the military to take to the streets to “keep order” and de facto prevent new protests. All that took place during one of the bloodiest waves of bombings and murder rampages by the terrorist Boko Haram sect creating a climate of extreme chaos.
The smoking gun of the IMF
What has been buried from international accounts of the unrest is the explicit role the US-dominated International Monetary Fund (IMF) played in the situation. With suspicious timing IMF Managing Director Christine Lagarde was in Nigeria days before the abrupt subsidy decision of President Jonathan. By all accounts, the IMF and the Nigerian government have been careful this time not to be blatant about openly announcing demands to ends subsidies as they were in Tunisia before food protests became the trigger for that country’s Twitter putsch in 2011.
During her visit to Nigeria Lagarde said President Jonathan’s ‘Transformation Agenda’ for deregulation “is an agenda for Nigeria, driven by Nigerians. The IMF is here to support you and be a better partner for you.” Few Nigerians were convinced.On December 29 Reuters wrote, “The IMF has urged countries across West and Central Africa to cut fuel subsidies, which they say are not effective in directly aiding the poor, but do promote corruption and smuggling. The past months have seen governments in Nigeria, Guinea, Cameroon and Chad moving to cut state subsidies on fuel.”
Further confirming the role US and IMF pressure on the Nigerian government played, Jeffery Sachs, Special Adviser to the United Nations (UN) Secretary General, during a meeting with President Jonathan in Nigeria in early January days after the subsidy decision, declared Jonathan’s decision to withdraw petroleum subsidy “a bold and correct policy.”
Sachs, a former Harvard economics professor, became notorious during the early 1990s for prescribing IMF “shock therapy” for Poland, Russia, Ukraine and other former communist states, which opened invaluable state assets for de facto plundering by dollar-rich western multinationals.
Even more suspicious is the manner in which Washington and the IMF are putting pressure on only select countries to end subsidies. Nigeria, whose oil today sells for the equivalent of $1 a liter or roughly $3.78 a US gallon, is far from cheap. Brunei, Oman, Kuwait, Bahrain, Qatar, Saudi Arabia all offer their petrol very cheap to their people. The Saudis sell their oil at 17 cents, Kuwait at 22 cents. In the US gasoline averages 89 cents a liter.
That means the IMF and Washington have forced one of the poorest economies in Africa to impose a huge tax on its citizens on the implausible argument it will help eliminate corruption in the state petroleum sector. The IMF knows well that the elimination of subsidies will do nothing about corruption in high places.
Were the IMF and World Bank genuinely concerned with the health of the domestic Nigerian economy, they would have provided support for rebuilding and expanding a domestic oil refinery industry that has been allowed to rot, so that the country need no longer import refined fuels using precious state budget resources.The easiest way to do that would be to expedite a two-year-old deal between China and the Nigerian government to invest some $28 billion in massive expansion of the oil refinery sector, to eliminate need for importing foreign gasoline and other refined products.
Quite the opposite—the criminal cabal inside the Nigerian National Petroleum Company (NNPC) and the Government making huge profits on the old subsidy system are suddenly making double and potentially triple more to maintain the old corrupt import system, and, of course, to sabotage Chinese refinery construction that could put an end to their gravy train.
Cutting their nose to spite the face…
Rather than benefit ordinary Nigerians as the IMF proclaims to want, the elimination of the subsidies has further pauperized the 90 per cent living on less than $2 a day, according to Mallam Sanusi Lamido Sanusi, the Nigerian Central Bank governor. An estimated 40 million Nigerians are unemployed in the country of 148 million.
Because transport costs are a significant factor in delivery of food to the cities, food price inflation has soared along with costs of public transportation for the majority of poorer Nigerians. According to the Nigerian Leadership Sunday, “prices of commodities which shot up as a fallout of the fuel pump price increase have refused to come down.” Everything from street vegetable sellers to carwashes to roadside photographers are feeling the shock of the rise in fuel prices. Unemployment is rising as small businesses fold.
The argument of the IMF and the Jonathan administration is that by freeing fuel prices, funds would be available to more social services and rebuilding Nigeria’s “infrastructure.” Both the IMF and the government know it would have been far more economically viable to replace the current corrupt system of importing refined gasoline and fuels with investing in rebuilding Nigeria’s domestic refining capacity.
Son Gyoh of the Nigerian Awareness for Development organization asks, “Would it not be more expedient to pressure government to service the refineries to full production capacity, given the implications on overhead and competitiveness for local industries?”
Gyoh pointed to the source of the problem: “Why have successive governments left the refineries in a state of disrepair while spending huge on subsidy? Is there any chance that the savings from subsidy withdrawal will go directly into rehabilitating the refineries? Does deregulation imply NNPC will no longer operate a monopoly in importation of refined petroleum product, or is this lobby a self-serving lifeline to continue its monopoly? ” He concludes, “In any case, there is good reason to doubt subsidy removal will solve the fuel scarcity problem as the cabal will only regroup to change tactics, a fact Nigerians are only too aware of.”
After Nigeria partly nationalized its oil sector in the late 1970s, it also took control of Shell Oil’s Port Harcourt I refinery. In 1989, Port Harcourt II refinery was built. Both refineries fell into serious disrepair after 1994, when the Abacha military dictatorship cut the “take” of the Nigerian National Petroleum Company NNPC from domestic sale of refined oil products such as gasoline from 84% to 22%. That caused a cash crisis for NNPC and a halt to refinery maintenance. Today only one of four refineries operates at all.
What developed since was a system of NNPC importing foreign gasoline and other refined products for Nigeria’s domestic needs, naturally at a far more expensive cost. The price subsidies were to relieve that higher import cost, hardly a sensible solution but a very lucrative one for those corrupt elements in the state and private sector making a killing, literally, off the import process.
NNPC criminal enterprise
The IMF is well aware of the real cause of Nigeria’s fuel industry problems. A Nigerian legislative committee examining the sources of the industry’s problems recently released a report documenting that at least $4 billion annually is taken from taxpayers in fuel industry corruption with the state Nigerian National Petroleum Company (NNPC) at the center. According to the commission, “every day, fuel importers drop off 59 million liters of fuel. The country consumes 35 million liters daily. That leaves 24 million liters of oil available for smugglers to export, paid for by government fuel subsidies. This costs the Nigerian people roughly $4 billion yearly, according to Reuters.”
The Nigerian government has said that the 7.5 billion dollars spent yearly on fuel subsidies could be used to provide desperately needed infrastructure. But they omit any mention of the rampant siphoning off of $4 billion of oil by black market smugglers, reportedly with connivance of high NNPC government officials, to sell to neighboring countries at a hefty profit. The refined imported fuel is reportedly smuggled into neighboring countries like Cameroon, Chad and Niger where petrol prices are far higher, according to Abdullahi Umar Ganduje, Deputy Governor of Kano State.
China as IMF target?
One major geopolitical factor that is generally ignored in recent discussion of Nigerian oil politics is the growing role of China in the country. In May 2010, only days after President Jonathan was sworn in, China signed an impressive $28.5 billion deal with his government to build three new refineries, something that in no way fits into the plans of either the IMF, or of Washington, or of the Anglo-American oil majors.
China State Construction Engineering Corporation Limited (CSCEC) signed the deal to build three oil refineries with Nigerian National Petroleum Corporation (NNPC), in the biggest deal China has made with Africa. Shehu Ladan, head of NNPC, said at the signing ceremony that the added refineries would reduce the $10 billion spent annually on imported refined products. As of January 2012, the three Chinese refinery projects were still in the planning stage, reportedly blocked by the powerful vested interests gaining from the existing corrupt import system.
A report in China Daily last November quoted Nigeria’s Olusegun Olutoyin Aganga, the minister of trade and investment, that Nigeria was seeking added Chinese investors for its energy, mining and agribusiness industries. Last September on a visit to Beijing, Nigeria central bank governor Lamido Sanusiannounced his country planned to invest 5 per cent to 10 per cent of its foreign exchange reserves in China’s currency, the renminbi (RMB) or yuan, noting that he sees the yuan becoming reserve currency. In 2010 China’s loans and exports to Nigeria exceeded $7 billion, while Nigeria exported $1 billion of crude oil, Sanusi stated.
Until now Nigeria has held some 79% of her foreign currency reserves in dollars, the rest in Euro or Sterling, all of which look dicey given their financial and debt problems. The move of a major oil producer away from dollars, added to similar moves recently by India, Japan, Russia, Iran and others, augurs bad news for the continued role of the dollar as dominant world reserve currency. Clearly some in Washington would not be happy with that.
The Chinese are also bidding to get a direct stake in Nigeria’s rich oil reserves, until now an Anglo-American domain. In July 2010, China’s CNPC (China National Petroleum Corporation) won four prospective oil blocks – two in the Niger Delta and two in the frontier Chad Basin, with plans to become core investor in the Kaduna refinery, and construction of a double track Lagos-Kano railway. China’s oil company, CNOOC Ltd also has a major offshore production area in Nigeria.
The IMF and Washington pressure to lift subsidies on imported fuels is at this point in question, as is the future of China in Nigeria’s energy industry. Clear is that lifting subsidies in no way will benefit Nigerians. More alarming in this context is the orchestration of a major new wave of terror killings and bombings by the mysterious and suspiciously well-armed Boko Haram. This we will look at next in the context of Nigeria’s recent transformation into a major narcotics hub.
F. William Engdahl, author of A Century of War: Anglo-American Oil Politics and the New World Order
The statements, views and opinions expressed in this article are solely those of the author and do not necessarily represent those of RT.
- Viewpoint: Nigeria’s President Jonathan backs down (bbc.co.uk)
- Seun Kuti: ‘End of fuel subsidy is treason against Nigerians’ (worldnewsflesh.wordpress.com)
- Nigerian leader Goodluck Jonathan defends fuel cut (direcmood.wordpress.com)
- Nigeria’s government squeezed by subsidy protests, militant movements (cnn.com)
- Occupy Nigeria – a reactionary occupy movement? (ethanzuckerman.com)
- REVELATIONS FROM HOUSE PROBE: Wanted; Subsidy on sincerity (vanguardngr.com)