Olduvaiblog: Musings on the coming collapse

Home » Posts tagged 'Saudi Arabia' (Page 2)

Tag Archives: Saudi Arabia

Can we depend on a “Call on OPEC”, or has OPEC peaked? » Peak Oil BarrelPeak Oil Barrel

Can we depend on a “Call on OPEC”, or has OPEC peaked? » Peak Oil BarrelPeak Oil Barrel.

Steve Kopits, in his recent presentation at Columbia University, ridiculed the IEA’s often used term a “Call on OPEC“. That is, the IEA looks at the world oil supply and if they see a supply shortage looming on the horizon they then issue a “Call on OPEC” to supply x number of extra barrels and fill that gap. But the next time the IEA issues such a call can OPEC deliver? Or, is OPEC already producing every barrel they possibly can.

One thing for sure, there are eight OPEC countries that are definitely producing every barrel they possibly can, those countries are Algeria, Angola, Ecuador, Iran, Libya, Nigeria, Qatar and Venezuela. The chart below is the combined production of those 8 nations.

All charts in this post are “Crude Only” in kb/d with the last data point Jan. 2014.

OPEC 8

There can be no doubt that all eight of these OPEC countries are producing every barrel they possibly can. While it is true that Iran and Libya have political problems that is holding their production back, but political problems in that part of the world are likely to get worse rather than better.

But what about the other four OPEC nations. The chart below shows the combined production of Iraq, Kuwait, Saudi Arabia and the UAE.

OPEC 4

It is my contention that not only are these four OPEC nations producing every barrel they possibly can but that they have little prospect of producing much more. I will examine each country one by one.

Iraq has not been subject to OPEC quotas since the the beginning of Mr. Bush’s war and make no bones about producing every barrel they can and hope to produce more, a lot more.

Iraq

But their production has been relatively flat for almost two years. They may be able to squeeze out a few more barrels in the future but any increase will be very slow in coming.

But what about the other three. First Kuwait.

Kuwait

Kuwait initiated Project Kuwait in 1997 in hopes of slowing the decline of Burgen and increasing production in their northern fields. The project was delayed by political bickering about bringing in outside contractors but finally got underway in early 2007 only to be delayed a year later by the crash. But the project, really a massive infill drilling program, got underway again in early 2011 and has managed to increase their production by some 200,000 bp/d over their 2008 peak. That simply means more infill drilling. But they are clearly at peak right now.

However their production has been flat for almost two years. Recently they announced an effort to increase their “Production Capacity” by another 150 kb/d. Like all other OPEC countries they claim to be able to produce a few more barrels than they are actually producing.

The United Arab Emirates?

UAE

The UAE has learned the same trick as every other nation with tired old fields. That is if you drill new horizontal wells that run along the length of the top of the reservoir, they can increase production slightly or at least slow the decline rate. They are looking toppy right now and can expect decline to set in soon.

That leaves Saudi Arabia.

Saudi Arabia

Saudi Arabia was among the first nations in the world to initiate new infill drilling programs. Before they they did this their decline rate of their old fields was averaging 8% per year. They claimed, with that drilling program, they got that decline rate down to almost 2% per year. But that was over eight years ago. I suspect that the decline rate has increased considerably since then.

Saudi has however, been able to keep from declining in net production by bringing on new fields, or rather old mothballed fields back on line. The most recent being Khurais which was brought on line in 2009 and Manifa which came on line last year with 500,000 bp/d and is ramping up to its full capacity of 900,000 bp/d this year. The spike you see in 2013 is Manifa ramping up.

Saudi may be able to produce a few more barrels but not very many. But as, Sadad Al Husseini a former executive at Aramco, said in 2012 “Saudi is producing flat out”. If they did manage to squeeze out a few more barrels it would be only temporary. Saudi is about to go into decline, or at least that is my opinion.

Any “call on OPEC” by the IEA would likely produce about as much new oil as a call on their grandma.

Note: I send out an email notification to about 100 people when I have published a new post. If you would like to be added to that list, or your name removed from it, please notify me at: DarwinianOne at Gmail.com

Arab States "Unprecedentedly" Withdraw Ambassadors From Qatar After "Stormy" Meeting | Zero Hedge

Arab States “Unprecedentedly” Withdraw Ambassadors From Qatar After “Stormy” Meeting | Zero Hedge.

The UAE, Saudi Arabia and Bahrain said on Wednesday they were withdrawing their ambassadors from Qatar after it had not implemented an agreement among Gulf Arab countries not to interfere in each others’ internal affairs. The move, unprecedented in the 30-year history of the Gulf Cooperation Council (GCC), follows the Bahrain state minister for information Samira Rajab saying she has evidence of Qatari media provocation against her country. As Gulf News reports, Qatar has been a maverick in the region, backing Islamist groups in Egypt, Syria and elsewhere in the Middle East that are viewed with suspicion or outright hostility by some fellow GCC members. Not a good sign for the oil-generating center of the world.

Via Gulf News,

The move by the three countries, conveyed in a joint statement, is unprecedented in the three-decade history of the Gulf Cooperation Council, an alliance of Saudi Arabia, Bahrain, Kuwait, Qatar, UAE and Oman.

The statement said GCC members had signed an agreement on November 23 not to back “anyone threatening the security and stability of the GCC whether as groups or individuals – via direct security work or through political influence, and not to support hostile media”.

GCC foreign ministers had met in Riyadh on Tuesday to try to persuade Qatar to implement the agreement, it said. Media reports described the meeting as “stormy”.

“But unfortunately, these efforts did not result in Qatar’s agreement to abide by these measures, which prompted the three countries to start what they saw as necessary, to protect their security and stability, by withdrawing their ambassadors from Qatar starting from today, March 5 2013,” the statement said.

The nations have also asked Qatar “not to support any party aiming to threaten security and stability of any GCC member,” it added, citing media campaigns against them in particular.

Media reports have said that Shaikh Tamim was given an ultimatum by Saudi Arabia in the November meeting in Riyadh that was facilitated by the Kuwaiti emir, Shaikh Sabah Al Ahmed. The new emir was told to change Qatar’s ways and bring the country in line with the rest of the GCC with regards to regional issues. The GCC has in particular been concerned about Qatar’s support for the Muslim Brotherhood, its close relations with Turkey, its opposition to the new regime in Egypt and its perceived support for Al Houthi rebels in Yemen.

Relations between Qatar and the UAE have been rocky lately. A top UAE court on Monday sentenced Qatari national Mahmoud Al Jidah to seven years in prison followed by deportation after he was convicted with two Emiratis of raising funds for a banned local Muslim Brotherhood-linked group, Al Islah. The move was criticised by Qatar’s National Human Rights Committee, which is close to the government.

Early in February, in a rare move for Gulf countries, the UAE announced that it had summoned Qatar’s ambassador in Abu Dhabi for remarks made by controversial Egyptian-Qatari cleric Yousef Al Qaradawi. Dr Anwar Mohammad Gargash, Minister of State for Foreign Affairs, expressed the UAE Government’s “extreme resentment” over Al Qaradawi’s statement. Speaking live on Qatari state TV from a Doha mosque, Al Qaradawi criticised the UAE for supporting the current Egyptian government. He claimed that the UAE “has always been opposed to Islamic rule”.

We have held back so that our neighbour can clearly reject such insult, extend sufficient clarifications and guarantee that such provocation and defamation will not recur,” Gargash said then.

Qatar, which used to enjoy close relations with Hamas, Hezbollah, Iran, Turkey and Bashar Al Assad’s Syria, has in recent years found itself isolated after relations with Hezbollah, Iran and Al Assad deteriorated. The GCC’s decision is expected to further isolate the new emir.

Arab States “Unprecedentedly” Withdraw Ambassadors From Qatar After “Stormy” Meeting | Zero Hedge

Arab States “Unprecedentedly” Withdraw Ambassadors From Qatar After “Stormy” Meeting | Zero Hedge.

The UAE, Saudi Arabia and Bahrain said on Wednesday they were withdrawing their ambassadors from Qatar after it had not implemented an agreement among Gulf Arab countries not to interfere in each others’ internal affairs. The move, unprecedented in the 30-year history of the Gulf Cooperation Council (GCC), follows the Bahrain state minister for information Samira Rajab saying she has evidence of Qatari media provocation against her country. As Gulf News reports, Qatar has been a maverick in the region, backing Islamist groups in Egypt, Syria and elsewhere in the Middle East that are viewed with suspicion or outright hostility by some fellow GCC members. Not a good sign for the oil-generating center of the world.

Via Gulf News,

The move by the three countries, conveyed in a joint statement, is unprecedented in the three-decade history of the Gulf Cooperation Council, an alliance of Saudi Arabia, Bahrain, Kuwait, Qatar, UAE and Oman.

The statement said GCC members had signed an agreement on November 23 not to back “anyone threatening the security and stability of the GCC whether as groups or individuals – via direct security work or through political influence, and not to support hostile media”.

GCC foreign ministers had met in Riyadh on Tuesday to try to persuade Qatar to implement the agreement, it said. Media reports described the meeting as “stormy”.

“But unfortunately, these efforts did not result in Qatar’s agreement to abide by these measures, which prompted the three countries to start what they saw as necessary, to protect their security and stability, by withdrawing their ambassadors from Qatar starting from today, March 5 2013,” the statement said.

The nations have also asked Qatar “not to support any party aiming to threaten security and stability of any GCC member,” it added, citing media campaigns against them in particular.

Media reports have said that Shaikh Tamim was given an ultimatum by Saudi Arabia in the November meeting in Riyadh that was facilitated by the Kuwaiti emir, Shaikh Sabah Al Ahmed. The new emir was told to change Qatar’s ways and bring the country in line with the rest of the GCC with regards to regional issues. The GCC has in particular been concerned about Qatar’s support for the Muslim Brotherhood, its close relations with Turkey, its opposition to the new regime in Egypt and its perceived support for Al Houthi rebels in Yemen.

Relations between Qatar and the UAE have been rocky lately. A top UAE court on Monday sentenced Qatari national Mahmoud Al Jidah to seven years in prison followed by deportation after he was convicted with two Emiratis of raising funds for a banned local Muslim Brotherhood-linked group, Al Islah. The move was criticised by Qatar’s National Human Rights Committee, which is close to the government.

Early in February, in a rare move for Gulf countries, the UAE announced that it had summoned Qatar’s ambassador in Abu Dhabi for remarks made by controversial Egyptian-Qatari cleric Yousef Al Qaradawi. Dr Anwar Mohammad Gargash, Minister of State for Foreign Affairs, expressed the UAE Government’s “extreme resentment” over Al Qaradawi’s statement. Speaking live on Qatari state TV from a Doha mosque, Al Qaradawi criticised the UAE for supporting the current Egyptian government. He claimed that the UAE “has always been opposed to Islamic rule”.

We have held back so that our neighbour can clearly reject such insult, extend sufficient clarifications and guarantee that such provocation and defamation will not recur,” Gargash said then.

Qatar, which used to enjoy close relations with Hamas, Hezbollah, Iran, Turkey and Bashar Al Assad’s Syria, has in recent years found itself isolated after relations with Hezbollah, Iran and Al Assad deteriorated. The GCC’s decision is expected to further isolate the new emir.

Commentary: Iran and Saudi Arabia: A Power Struggle and A Way Forward | The National Interest

Commentary: Iran and Saudi Arabia: A Power Struggle and A Way Forward | The National Interest.

|

February 27, 2014

Al Arabiya, the news agency owned by Saudi Arabia, recently reported that Frederic Hof, a State Department official, has saidthat he was told by Iranian diplomats that their country considers Saudi Arabia, not Israel or the United States, as the main threat to its national security. This is important, but not new to Iranians. Ever since the Islamic Revolution of 1979 in Iran, the relations between the two nations have been strained. Saudi Arabia has always helped in propagating the Salafi-Wahhabi sect of Sunni Islam and considers itself the guardian of Islam’s holiest shrines in Mecca and Medina, but the Shiite-led revolution in Iran challenged its authority and created a competitor and alternative for what it preaches.

The first challenge to Saudi Arabia after the Iranian revolution was about Palestine. The Islamic Republic considered itself the most important supporter of the Palestinians, constantly espousing the view that the Arab governments are puppets of the United States and, hence, do not react strongly to occupation of Palestinian lands by Israel. This could not be considered as mere Shiite propaganda, as Iran was giving funds and weapons to Sunni Palestinian groups, such as Hamas and Islamic Jihad. To protect itself against Israel and to expand its influence in the region, Iran also helped in the founding of Lebanese Hezbollah.

Saudi Arabia’s Support for Iraq during its War with Iran

Less than two years after the Islamic Revolution, Saddam Hussein’s regime invaded Iran. The Arab nations of the Persian Gulf provided Iraq with tens of billions of dollars in aid. During the first 20 months of the war Saudi Arabia was giving $1 billion a month. A report by the CIA stated that Western powers gave Iraq $35 billion, while Saudi Arabia, Kuwait, and the United Arab Emirates provided another $30-40 billion. Another report indicated that the trio gave Iraq $30.9, $8.2, and $8 billion, respectively.

Breakdown of the Diplomatic Relations

But, two events during the war led to termination of diplomatic relations between the two countries, both tied to Iranian pilgrims to Mecca. In his daily memoirs of the war, former president Akbar Hashemi Rafsanjani wrote on 11 August 1986, “[Interior Minister} Mr. [Ali Mohammad] Besharati informed me that Saudi Arabia has announced that the explosive T.N.T. has been found in the luggage of several Iranian pilgrims.” On 28 August 1986 he wrote that Saudi Arabia had released 110 of the 113 of the Iranians that it had detained, and Mehdi Karroubi, a representative of Ayatollah Ruhollah Khomeini was to thank King Fahd of Saudi Arabia for their release.

In his resignation letter to then President Ayatollah Ali Khamenei on 5 September 1988, former Prime Minister Mir Hussein Mousavi wrote, “I became aware of the explosives in Saudi Arabia only after they had been discovered. Unfortunately, and despite all the damage that such moves have inflicted on our nation, they can still happen at any moment and in the name of the government.” In a letter to Khomeini dated 10 October 1986, Grand Ayatollah Hossein-Ali Montazeri who was Khomeini’s deputy at that time, wrote , “During Haj [Islamic pilgrimage to Mecca] the Sepaah [IRGC] commits inappropriate acts, abusing the luggage of old men and women without informing them, and making a bad name for Iran and the Revolution, so much so that Mr. Karroubi must ask [King] Fahd for a favor [to release the arrested people].” In response, Khomeini’s son Ahmad wrote, “Is there any other way to carry out revolutionary acts in Mecca? Sometimes such acts go smoothly, sometime they create problems. I do not necessarily support them, but this is typically how they are done.”

Then, in a demonstration on 31 July 1987 in Saudi Arabia, Iranian pilgrims chanted “death to America” and “death to Israel.” The Saudi security forces opened fire on the demonstrators, killing 402, of whom 275 were Iranians, and injuring 649. Saudi Arabia closed its embassy in Tehran and cut off its diplomatic relations.

Resumption of Diplomatic Relations

The Iran-Iraq war ended in July 1988, but on 2 August 1990 Iraq invaded Kuwait and annexed it to its territory. The Arab nations of the Persian Gulf asked Iran for help. On 23 August 1990 Kuwait’s foreign minister visited Iran, followed by Saudi’s foreign minister’s visit on October 28. Then Iran’s Foreign Minister Ali Akbar Velayati spoke by phone with Prince Saud al-Faisal, the Saudi Foreign Minister, on 13 February 1991, and a few days later the two met in Geneva. Diplomatic relations between the two countries were resumed on 20 March 1991.

Terrorists attacked the Khobar Towers in Saudi Arabia on 25 June 1996, where U.S. military personnel were living, killing 19 and injuring 400. President Bill Clinton ordered the Pentagonto update its plans for bombing Iran, but did not order any attacks. The next year the reformist Mohammad Khatami was elected Iran’s president and Clinton wanted to pursue diplomacy with Iran. Saudi officials believed that the bombing had been done by domestic dissidents, who might have received some help from Iran. A report in 2003 indicated that the attacks had been carried out by Al Qaeda. In his memoirs, Clinton wrote that during summer of 1996 there was no definitive evidence as to who had carried out the attacks.

Saudi Arabia Demand Bombing of Iran

Saudi Arabia views Iran as its most dangerous enemy. A document released by WikiLeaks indicates that in a meeting in April 2008 between King Abdullah of Saudi Arabia, then U.S. Ambassador to Iraq Ryan Crocker and General David Petraeus, the King urged the United States to bomb Iran. King Abdullah had reportedly said that the U.S. “must cut off the head of the snake,” namely, Iran’s nuclear infrastructure. Another secret cable released by WikiLeaks indicated that in December 2005 King Abdullah lashed out at George W. Bush’s administration for ignoring his warnings against invading Iraq in 2003, noting that the new Iraqi government was dominated by Shiites with close ties to Iran. “Whereas in the past the U.S., Saudi Arabia and Saddam Hussein had agreed on the need to contain Iran, U.S. policy had now given Iraq to Iran as a ‘gift on a golden platter,’” the U.S. Embassy cable quoted the king as complaining. And, in his memoirs Bush wrote that both Israel and Saudi Arabia pressured him to attack Iran, and that when he met with King Abdullah in January 2008, he told him that he was angry with the National Intelligence Estimate of November 2007 that stated that Iran did not have an active nuclear-weapons program. Saudi Arabia has also always supported imposition of crippling economic sanctions on Iran, which are now in effect.

Saudi Arabia Confronting the Arab Spring

Saudi Arabia has been opposed to the Arab Spring, because it was meant to replace dictatorships with democratic systems that respect human rights. Former Saudi ambassador to the U.S. Prince Turki al-Faisal declared that Arab Spring is a cause of “ruin and destruction.” The Arab Spring is “evil,” declared a member of the Grand Oulemas, Sheikh Saleh al-Fawzan, and Saudi officials have referred to the Arab Spring as fitnasedition. On the other hand, Saud al-Faisal declared arming the opposition in Syria “a duty.” Thus, Saudi Arabia began countering the democratic aspirations of the Arab people by carrying out major plans for financial and military backing to those that it saw fit. Some of what the Saudis have done is as follows:

One is transforming the struggle for democracy to a sectarian war between the Shiites and Sunnis. The sectoring war has been consolidated, leading to more religious killings. But, the Islamic Republic fiercely opposes such a war because Shiites are a minority in the Islamic world, and Iran’s Supreme Leader Ayatollah Khamenei has called Arab Spring an “Islamic awakening” against Israel and the United States. Muslims killing other Muslims also benefits only their enemies, a point emphasized by Khamenei time and again, who has warned against what he calls “Islamic takfiri terrorists.” A takfiri is a Muslim that accuses other Muslims of apostasy, which is what some Sunnis do routinely against the Shiites. In addition, Iran lacks the resources to fight the Arab nations of the Persian Gulf and Saudi Arabia, even if it were inclined to—during 2012-2013, for example, Saudi Arabia increased its military budget by 111 percent, totaling $59.6 billion in 2013. Iran cannot match this.

Second, the secular regime of President Bashar al-Assad tried to violently put down its opponents. Russia, China and Iran are allies of Assad’s regime, but the U.S., its European allies, a majority of Arab nations and Saudi Arabia want to overthrow the regime. Thus, the war in Syria, in addition to being sectarian, has also become one of vicegerency, one in which each side fights on behalf of its supporters. In the process, Syria has been destroyed and tens of thousands of people have been killed. It has become a great magnet to, and a center of terrorism in the world, and the Salafi fundamentalists that are supported by Saudi Arabia and are the enemies of democracy and human rights have become stronger. Saudi Arabia is still pursuing the fall of the Assad regime and its replacement by the groups that it supports. It is also opposed to Iran’s participation in the Geneva peace conference. Iran, while having no particular attachment to Bashar al-Assad, views his leaving the scene as the complete collapse of his regime and the dominance of Al Qaeda-linked groups, which it opposes.

Third, Saudi Arabia also opposed the Arab Spring in Bahrain, dispatching its troops there and helping the ruling Sunni minority to violently crackdown on the protestors, hence playing the most important role in the defeat of Arab Spring in Bahrain.

Fourth, Saudi Arabia has been an ardent supporter of Egypt’s military regime that staged the July 2013 coup and overthrew the regime of President Mohamed Morsi and the Muslim Brotherhood. It has given the Egyptian regime billions of dollars in aid. The Brotherhood did have close relations with Iran either. In fact, it is in Iran’s interest to see the Middle East run by secular governments, as religious ones do not tolerate one another.

Finally, the Shiite power in Iraq, Lebanon and Yemen provoked Saudi Arabia and, thus, it has transformed the three nations to its battlegrounds with Iran. In 2013 alone, 8868 Iraqis were killed in the fight with Al Qaeda and Salafi groups, and another 1013 in January of this year. Iraq has repeatedly accused Saudi Arabia of supporting the terrorists. 45 percent of Yemen’s population is Shiite, and that has turned Yemen to another stage for the war between Saudi Arabia and Iran. Many believe that the Yemeni government is under the control of the Saudis.

Saudi Arabia Support for Terrorism in Iran

There have been many reports on Saudi Arabia’s support for the rise of new Salafi groups in Iran’s provinces that are on its borders with Iraq and Pakistan. For example, Jundallah, a Baluchi separatist group, is one that employs the language and methods of Salafi groups. And there are reports indicating Salafi jihad In Iran’s province of Kurdistan.

Saudi Arabia’s Opposition to the Geneva Nuclear Accord

Saudi Arabia has been concerned about a rapprochement between Iran and the U.S., and the Geneva Accord between Iran and P5+1 further frustrated it. Anne Patterson, Assistant Secretary of State for Near Eastern Affairs and former U.S. Ambassador to Egypt,acknowledged recently the sectarian nature of the war in Syria, and said that Iran and Saudi Arabia have never liked each other, but their current enmity toward one another is at its most intense level ever. The U.S., she says, must explain to the Saudis its policy toward Iran on a daily basis. The President will also go to Saudi Arabia in March to further explain this policy. Jordan and Saudi Arabia’s kings have told President Obama that he should try to end Iran’s nuclear program through diplomacy—but if that does not succeed, that he should try to achieve the goal through crippling economic sanctions and, if necessary, military strikes.

The Way Forward

Given Saudi Arabia’s enmity toward Iran, what can Iran do to lower the tension?

One is to improve its relations with the United States and other Western powers. Friendly relations between Iran and the U.S. are in the national interests of both countries. Confronting the terrorist groups, and addressing the crises in Syria, Iraq, Afghanistan, and elsewhere in the region put the two nations in the same front.

Second, Iran must improve its relations with the countries of the region. This entails recognizing the legitimate interests of these countries in having national security, political independence and sovereignty. Proposing practical ways of ridding the region of weapons of mass destruction, guaranteeing collective security for all, and agreeing not to resort to force for solving problems between the nations of the region will greatly help the cause. Turki al-Faisal has described the Saudis views about the principles of a collective agreement on the security of the region. Iran must also do the same and begin negotiating with Saudi Arabia and the Arab nations of the Persian Gulf.

The fault lines of the regions are between democracy and dictatorship. Every regime in the region is trapped by corruption, repression and violent crackdowns on their own people. No problem will be solved without democratization of the region. The Islamic Republic too faces similar problems, and cannot escape them without recognizing the legitimate rights of its people—respecting their votes and their rights as citizens and as humans. Iran’s present rulers can also be a part of this process, to the extent that their social base of support indicates. Either all the political forces and groups in Iran, including the current ruling group, accept pluralism in Iran or the repressed aspirations and demands of the Iranian people will, at some point, lead to social explosion and possibly another revolution.

If the West, led by the United States, supports peace, stability and elimination of terrorism in the Middle East, it must set aside its double standards. Protesting the gross violations of human rights and repression of the dictatorial regime must be uniformly done, without differentiating between allies and foes. The West must support the transition process to democracy and respect for human rights, but the experience with Afghanistan, Iraq and Libya—which has been practically partitioned into two parts—and Syria taught everyone a great lesson: military intervention cannot democratize any country. Such interventions have destroyed the invaded nations, and helped terrorism grow.

In a recent interview with the BBC, former CIA director and secretary of defense RobertGates questioned whether “artificial” states in the Middle East “like Libya, Iraq and Syria can be held together absent of repression,” because in his opinion they were made up of “historically adversarial groups.” Thus, Gates seems to have recognized that regime change based on military intervention may lead to the disintegration of the invaded countries. Is it not sad and depressing that after twelve years of intervention in that region, invading Iraq and Afghanistan for “democratizing the Middle East” and imposing a terrible fate on the people of the region, a statesman like Gates talks about the region in this fashion?

Akbar Ganji is an Iranian investigative journalist and dissident. He was imprisoned in Tehran from 2000 to 2006, and his writings are currently banned in Iran.

 

Cheap Gasoline: Why Venezuela Is Doomed To Collapse – Forbes

Cheap Gasoline: Why Venezuela Is Doomed To Collapse – Forbes.

Christopher HelmanChristopher HelmanForbes Staff

Riots in the streets. Killings of protesters. Shortages of consumer staples liketoilet paper and flour. Power outages. Confiscations of private property. Capital flight. Inflation running at more than 50%. The highest murder rate in the world.

The situation in Venezuela has grown so terrible that we could very well be witnessing the waning days of the Chavez-Maduro regime.

But don’t hold your breath. Despots propped up by revenues from natural resources have had a surprisingly robust track record over the past 100 years. Saddam Hussein survived through ruthlessness and handouts to Baath party loyalists. Khadafi perfected the same model in Libya. The Saudis and other Gulf sultanates and emirates have survived by paying off tribe members. Zimbabwe’s Robert Mugabe is still around thanks to his trade in blood diamonds.

In each case, the big boss keeps his head by paying off everyone who matters.

Hugo Chavez appeared to have the same kind of staying power. But with a difference. Rather than just focusing on lining the nests his generals and ministers and doers, Chavez, and Nicolas Maduro after him, found a different way to squander Venezuela’s great oil wealth. They could have created a mechanism by which the people of Venezuela could leverage oil wealth to finance investment and capital formation (like, say, Norway). Instead they’ve simply given it all away.

Indeed, it might not happen this month or this year, but Venezuela is ultimately doomed to collapse because of cheap gasoline.

Befitting Venezuela’s position as holder of the world’s biggest oil reserves, Chavez set the price of gasoline at the official equivalent of 5 U.S. cents per gallon. Using the more realistic black market exchange rate, a gallon of gas in Venezuela costs less than one penny. You can fill up an SUV for less than the price of a candy bar.

It’s one thing for a dictator to curry favor among his subjects by handing out cash. You can trade cash for goods today. You can save it up and buy something bigger tomorrow. And vitally, you can invest cash and create capital. Cash has unsurpassed option value.

But in Venezuela, cheap gasoline doesn’t. Sure, some enterprising Venezuelans would fill up their tanks, drive to Colombia, siphon it out and sell it for a profit. But most just take it for granted, like breathable air. You can’t trade it, can’t sell it, can’t store it up.

Over time, when a government continually gives its people a non-tradable subsidy, they will come to consider it a right, not a privilege. When that happens it will no longer occur to them to be thankful toward their generous president for the handout. When that take-it-for-granted moment occurs, the handout no longer retains any political capital for the ruler who presides over it. On the contrary, once the populous sees the subsidy as a right, it necessarily become a political liability for the leader — tying his hands and preventing the implementation of a more reasonable policy.

Grant people a right and they will thank you, for a little while. Try to take away that right and they will revolt. The last time Venezuela tried to hike gas prices, in 1989, there were riots in the streets.

Cheap gasoline is why the government of President Nicolas Maduro is doomed to collapse. He can’t raise gas prices meaningfully without setting off an even greater populist uprising than the one already wracking the capital. But without change, the Venezuelan economy and its state-run oil company Petroleos Venezuela (PDVSA) cannot last long.

Let’s work through the numbers to see how bad it is:

3bd6e10e2d322bc918e7bad254b169f2_10150

Pres. Maduro with PDVSA workers. (Credit: AP)

Venezuela produces about 2.5 million barrels of oil per day, about the same as Iraq.

About 800,000 barrels per day of gasoline and diesel is consumed domestically for which PDVSA doesn’t make a dime. That’s about 290 million barrels per year in subsidy oil.

What’s that cost PDVSA? Oil minister Rafael Ramirez has said that the breakeven cost to supply refined gasoline to the masses is $1.62 per gallon, or about $70 per barrel. But because Venezuela’s refineries can’t even make enough fuel to meet demand, PDVSA also has to import about 80,000 bpd of refined products (for which they must pay the far higher market price in excess of $2.50 per gallon). All told, the subsidized fuel costs PDVSA about $50 billion a year — that’s at least $25 billion a year in fuel subsidies plus another $20 billion or so in foregone revenue that PDVSA desperately needs to reinvest into its oil fields. Even a well managed company would have trouble climbing out of such a big hole.

Deducting that 800,000 bpd of domestic consumption from the 2.5 million bpd total leaves a subtotal of 1.7 million bpd that Venezuela can sell into the world market.

But we have more deductions. In order to finance fuel subsidies and other social spending, PDVSA has borrowed massively. According to PDVSA’s statements, its debt has increased from $15.5 billion in 2008 to $43 billion now. Venezuela’s biggest creditor is China, which has reportedly loaned the country $50 billion since 2007. China is not interested in getting Venezuelan bolivars; it insists on being paid back in oil — about 300,000 bpd worth of oil.

Paying China its oil knocks PDVSA’s saleable supply down to 1.4 million bpd.

We’re not done yet. Chavez was not just generous to his own people. In an effort to make friends with his neighbors, he forged a pact called Petrocaribe, through which PDVSA delivers deeply subsidized oil to the likes of Cuba, Jamaica, Haiti and Nicaragua. Though shipments at peak were more than 200,000 bpd, including 100,000 bpd to Cuba, there’sevidence that PDVSA has cut the volumes. No wonder, when the Dominican Republic has reportedly been paying back PDVSA in black beans. Cuba sends doctors and athletic trainers. (Jamaicaputs its PetroCaribe debt to Venezuela at $2.5 billion.)

As if that weren’t enough, PDVSA, through its U.S. refining arm Citgo has even donated more than $400 million worth of heating oil to poor people in the United States. That’s about 4 million barrels over nine years.

So all that largesse knocks off another 200,000 bpd or so, bringing PDVSA’s marketable supply down to 1.3 million bpd.

Over the course of a year, selling that 1.3 million bpd of oil brings in about $50 billion in hard currency (assuming about $100 per barrel). This contrasts with PDVSA’s reported revenues of $125 billion, most of which is not in dollars, but bolivars, of uncertain worth.

That $50 billion might seem like a tidy sum, but keep in mind that this represents more than 95% of Venezuela’s foreign earnings. And that’s not enough for a country of 40 million to live on.

Because no one in their right mind would want to exchange goods for bolivars, it’s out of this pile of greenbacks that Venezuela has to pay for all its imports as well as about $5 billion a year in dollar-denominated interest payments. Venezuela’s foreign currency reserves have plunged from $30 billion at the end of 2012 to about $20 billion today.

Newspapers have closed because they can’t import paper. Toyota has stoppedmaking cars because it can’t get dollars to import parts. Shortages of sugar, milk and butter are common. The CEO of Empresas Polar, a big food manufacturer, has rejected Maduro’s criticisms that his company is to blame for shortages, insisting that because the government holds all the country’s dollars he can’t get the hard currency he needs to import raw materials.

Venezuela’s official exchange rate stands at about 6 bolivar to the dollar. But on the black market one greenback will fetch 87 bolivars or more.

If you’re an entrepreneur or a business owner in Venezuela, you’re not likely to keep throwing good money after bad there, especially if you’re a retailer like Daka. Last November Maduro ordered soldiers to occupy Daka’s five stores and forced managers to sell electronics at lower prices. In some cases looters just helped themselves.

Reuters reported that Maduro was outraged at a store selling a washing machine for 54,000 bolivars — $8,600 at the official rate. That might seem high until you hear from a business owner: “Because they don’t allow me to buy dollars at the official rate of 6.3, I have to buy goods with black market dollars at about 60 bolivars, so how can I be expected to sell things at a loss? Can my children eat with that?” said the businessman, who asked Reuters not to identify him.

When the president of the country speaks to the merchant class saying, “The ones who have looted Venezuela are you, bourgeois parasites,” that’s a sign to any entrepreneur that it’s time to round up whatever dollars you can and get out.

Venezuela is more likely past the point where it can grow out of its problems. Oil production is believed to have fallen as much as 400,000 bpd in the past year due to natural decline rates from mature fields. PDVSA says it is on track to invest more than $20 billion in its operations this year — but are those official dollars or black market dollars? Western oil companies are wary about putting their capital into the fields, considering that Chavez has famously nationalized assets of ExxonMobil, ConocoPhillips , Harvest National Resources, Exterran and others. PDVSA says it owes oil company partners and contractors $15 billion.

Some partners, like Chevron CVX -1.68%, Repsol, Eni, Rosneft and Total, have pledged to invest in increasing production and even to extend more loans to PDVSA. But like China they want to get paid back in oil. Not much is likely to come of these ventures: 10,000 barrels here and 10,000 barrels there is not going solve the problem. What’s needed is a real plan. The analysts at oil consultancy WoodMackenzie tell me that Venezuela’s best bets for growing production lie in the ultra heavy oil deposits of the Orinoco Basin. There, to increase output by 1.5 million bpd will require investment of $100 billion to drill enough wells and build enough “upgraders” to take the heavy oil and transform it into something readily exportable. So far PDVSA hasn’t gotten any interest in this plan.

The oil is there, but the oil companies are in no hurry to get at it. They have plenty of opportunities to drill in the United States, and are looking forward to the first exploration contracts to be awarded in Mexico. They know someday Venezuela will again become a safe place to invest.

That day may be approaching. Venezuela’s credit default swaps are at five-year highs. According to Reuters, prices for some of its debt issues have fallen to 63 cents on the dollar. Some short term issues are yielding 20%. These are the kind of sovereign yields that presage defaults.

The sad thing for Venezuela is that (barring an explosive rise in oil prices) it’s hard to imagine the situation not getting worse before it gets better. In time the government will simply run out of the dollar reserves it needs to pay its debts and import goods. Trading partners will refuse to ship. Oil companies will refuse to invest. Those tankers of cheap PetroCaribe oil will stop arriving in Havana. Chavez’s daughters will be kicked out of their presidential party palace. And the people of Venezuela will some day be forced to pay more than a dollar to fill up their SUVs.

Meanwhile, In Saudi Arabia… | Zero Hedge

Meanwhile, In Saudi Arabia… | Zero Hedge.

When the Arab Spring sprung a few years ago, the world’s eyes only really cared about one nation. If Saudi Arabia’s elite could not keep paying off their poor, an uprising in the world’s largest oil supplier could have significant (and catastrophic) consequences for the rest of the world. Of course, between being paid to lose weight (in gold) and raising unemployment insurance, the government has kept trouble at bay. However, things are shifting. As DPA repots, two police were killed after coming under heavy gunfire while trying to arrest several Shiite activists. Of course, this is a one off but notable in its occurrence for the first time since 2011. Saudi Arabia blames Iran of inciting its Shiite citizens to disturb security and stability.

Via DPA,

Two policemen and two fugitives were killed Thursday in Saudi Arabia when security forces tried to arrest the wanted men, the Interior Ministry said.

 

The incident occurred in Awwamiyyeh, in Qatif governorate, a stronghold of the country’s Shiite opposition.

 

Police came under heavy fire while carrying out the arrest operation and were forced to shoot back, ministry spokesman General Mansour al-Turki said.

 

A wave of protest swept the Shiite-dominated Qatif area, in eastern Saudi Arabia, in 2011. Since then there have been a number of shooting incidents, while authorities have pursued wanted Shiite activists.

 

The Shiites accuse authorities in the kingdom, which is dominated by the hardline Sunni Wahhabi tendency, of discrimination. Saudi Arabia denies this, describing the protesters as “rioters” financed by foreign countries to cause unrest in the world’s top oil exporter.

Saudi Arabia blames Iran of inciting its Shiite citizens to disturb security and stability.

In January, the US embassy in Riyadh warned its citizens against travelling to the district after gunmen attacked the car of two German diplomats.

 

Security forces who tried to arrest those suspected of being behind “armed unrest” were shot at and retaliated, a ministry spokesman was quoted as saying.

 

They seized “two weapons, a large quantity of ammunition, a bulletproof vest and weapons sights,” he added, warning the  authorities would crush any such resistance with “an iron fist”.

Awamiya has continued to experience problems despite the end of mass protests that erupted in the eastern region in March 2011 in the wake of the Arab Spring.

 

This Is How Ukrainian Protesters Attack An Armored Personnel Carrier | Zero Hedge

This Is How Ukrainian Protesters Attack An Armored Personnel Carrier | Zero Hedge.

Watch as sparks fly between a Ukrainian military APC, possibly the same one we revealed earlier, as it gets into some blazingly close encounters with the Kiev protesters. It is unclear who won however it is quite clear that at this point the proxy war in Ukraine between
Russia/Gazprom and the European Union/US State Dept/Saudi/Qatar can be upgraded to “hot.”

And the death and injury toll, which is rising by the hour:

  • 6 policemen dead
  • 6 protestors dead
  • Police HQ in Ternopli on fire
  • Police HQ in Lviv occupied
  • More than 150 injuries

Finally this:

  • KLITSCHKO ARRIVES AT YANUKOVYCH’S OFFICE FOR TALKS: REUTERS

In short: things have spiraled out of control, and the only possible outcome is another new all time high in the Spoos overnight.

Saudi Regime Working to Lure the Arab League into Attacking Syria | Global Research

Saudi Regime Working to Lure the Arab League into Attacking Syria | Global Research.

Global Research, February 17, 2014
Fars News Agency
obama saudi arabia
After its failure in coaxing the US into war on Syria, Saudi Arabia is now attempting to persuade the Arab League (AL) to issue permission for military attack against the crisis-hit country, Arab media reports said.

“The Saudi regime is now making extensive contacts with a number of Arab governments to call for an Arab League ministerial meeting in the Egyptian capital, Cairo, on Syria,” sources told the Palestinian al-Manar weekly.

According to the sources, Riyadh is seeking to persuade the League to approve a resolution which would call on the UN Security Council to use Chapter 7 of the UN Charter to launch a military attack on Syria to be led by the US and France in partnership with certain regional states and Israel as well as Saudi Arabia’s financial support.

Syria has been gripped by deadly unrest since 2011. According to reports, the western powers anad their regional allies – specially Qatar, Saudi Arabia, and Turkey – are supporting the militants operating inside Syria.

According to the United Nations, more than 120,000 people have been killed and a total of 7.8 million of others displaced due to the violence in Syria.

Riyadh is considered as the main supporter of the terrorist Takfiri and Salafi groups fighting in Syria.

Late in December, Syrian Deputy Foreign Minister Faisal Miqdad said Damascus views Saudi Arabia as its number one enemy, accusing Riyadh of trying to destroy the country by arming extremists and militants fighting in Syria.

Miqdad told AFP that Saudi Arabia was providing unfettered support for “terrorist groups” in Syria, while other nations had reviewed their positions.

FBI Documents Raise Questions about Saudi and al-Aulaqi Connections to 9/11 Attacks | Judicial Watch

FBI Documents Raise Questions about Saudi and al-Aulaqi Connections to 9/11 Attacks | Judicial Watch.

February 12, 2014 |
Judicial Watch: FBI Documents Raise Additional Questions about Saudi and al-Aulaqi Connections to 9/11 Attacks

 

(Washington, DC) – Judicial Watch announced today that it has obtained 79 pages of investigative reports from the Federal Bureau of Investigation (FBI) providing further evidence of ties between terrorist leaders Anwar al-Aulaqi and Omar al-Bayoumi, the government of Saudi Arabia, and FBI and Drug Enforcement Administration (DEA) counter-terrorism investigations in the days leading up to the 9-11 terrorist attack.

Included in the new documents are dozens of pages of a case-establishing “Letterhead Memorandum” from the FBI’s Washington headquarters and San Diego field office. Limited portions of some of the memos had been previously released, but with many of the key elements heavily redacted. The documents came in response to a Freedom of Information Act (FOIA) lawsuit filed by Judicial Watch against the U.S. Department of State and FBI on June 4, 2012.

Among the new revelations contained in the 79 pages of documents are the following:

  • The FBI had early suspicions about closer ties between Aulaqi and 9-11 hijacker Nawaf al-Hazmi than Aulaqi admitted: “This data suggests a more pervasive connection between al-Hazmi and Aulaqi than he [Aulaqi] admitted to during his interview with the FBI.”
  • The FBI had confirmed Aulaqi’s nexus with other FBI counter-terrorism investigations: “[Investigations] of Aulaqi reveal further links to other FBI International Terrorist investigations including … the Palestinian Islamic Jihad (PIJ) in the United States.”
  • The documents explicitly state that as far back as 2001, Omar al-Bayoumi was reportedly a Saudi intelligence agent: “An individual who has requested confidentiality has stated al-Bayoumi is believed to have worked for the Saudi Arabian Intelligence Service and reports on dissident Saudis in the U.S. Rental and other records indicate al-Bayoumi consistently indicated his occupation as a student.”
  • Several pages of heavily redacted investigative reports contain analysis of pen registers of al-Aulaqi calls. These include a reference to an al-Aulaqi nexus with the DEA investigation, as well as contacts between al-Aulaqi and al-Bayoumi: “DEA Analysts are continuing analysis of telephone call activity …” and al-Aulaqi “… was also involved in call activity with … San Diego PENTTBOM subject OMAR AL-BAYOUMI. AL-BAYOUMI cosigned the lease of an apartment rented by [terrorist hijackers] NAWAF ALHAZMI and KHALID ALMIHDHAR.”
  • Omar al-Bayoumi’s activities while in San Diego, California, were apparently on behalf of the government of Saudi Arabia according to an unidentified FBI source: al-Bayoumi disclosed “to others at the Islamic Center of San Diego (ICSD) he had friends or contacts at the Saudi Consulate in Los Angeles, California … [redacted] advised AL-BAYOUMI was extremely close to other ICSD Saudis … believed AL-BAYOUMI was in the United States on scholarship from the Saudi Airport Authority of Saudi Airlines ….” Saudi Airlines is the flag-carrying airline of Saudi Arabia.
  • Omar al-Bayoumi was one of dozens of other Saudis in the U.S. on similar arrangements: “[Redacted] identified AL-BAYOUMI as a ghost employee of AVCO Oversees … estimated that there were approximately fifty (50) individuals carried on the books and PCA or Dallah and being paid for doing nothing.” Dallah AVCO is headquartered in Jeddah, Saudi Arabia.

According to a New York Times article on a secret Congressional report in 2003, Omar al-Bayoumi, a Saudi national, was suspected of being a Saudi intelligence agent who may have reported to Saudi government officials. The article said that al-Bayoumi was employed by a contractor to the Saudi civil aviation authority, and received payments authorized by a Saudi official. According to the Times story, “The payments authorized by the Saudi official increased significantly after Mr. al-Bayoumi came in contact with the two hijackers in early 2000, the classified part of the report states.”

On September 11, 2013, Judicial Watch released surveillance reports and logs it had obtained from the Federal Bureau of Investigation (FBI) revealing that FBI agents trailed al-Aulaqi to the front doors of the Pentagon on the day he spoke as an invited guest at a Department of Defense luncheon.  The day before the surveillance and luncheon, al-Aulaqi had been identified as a “terrorist organization member,” and an FBI alert had been issued reading, “Warning – approach with caution . . . Do not alert the individual to the FBI’s interest and contact your local FBI field office at the earliest opportunity.” [Emphasis added] Judicial Watch had previously obtained documents from the U.S. State Departmentindicating that the (FBI) was aware on September 27, 2001, that al-Aulaqi had purchased airplane tickets for three of the 9/11 terrorist hijackers, including mastermind Mohammed Atta. Subsequent to the FBI’s discovery, al-Aulaqi was detained and released by authorities at least twice.

“These documents suggest that there remain serious questions about what is obviously Saudi intelligence asset was doing in assisting the 9/11 hijackers,” said Judicial Watch President Tom Fitton. “As these newly released documents confirm, as far back as the 9-11 attacks, the FBI had substantial evidence that both al-Aulaqi and al-Bayoumi were involved in 9/11. Yet, neither was arrested, one was not punished for a dozen years, and the other still roams free. We intend to keep digging into this critical issue.  It should cause concern that none of these questions were answered before Obama ordered al-Aulaqi’s controversial assassination.”

Syria: “There are Terrorists from 83 Countries, Armed and Funded by Saudi Arabia” | Global Research

Syria: “There are Terrorists from 83 Countries, Armed and Funded by Saudi Arabia” | Global Research.

Global Research, February 09, 2014
Syria Information Minister, Omran al-Zoubi said Saudi Arabia’s decision that Saudi citizens who fight in conflicts outside the Kingdom would face harsh punishment does not mean that the Kingdom will stop funding and arming terrorist groups.

In reply to journalists’ questions on a Saudi decision which says that Saudis who join fighting outside the kingdom would incur punishment, al-Zoubi described it as “unrealistic and not possible to implement,” since terrorists coming from Saudi Arabia are sneaking into Syria from Jordan, Lebanon and Turkey via illegal crossings.

”There are terrorists from 83 countries who are armed and funded by Saudi Arabia…The Saudi decision says nothing about stopping funding, arming and training terrorists, be them Saudis or of other nationalities,” the minister said.

He added that the decision does not imply punishment for media incitement and psychological support to terrorists happening inside Saudi Arabia.

”Certain Gulf states are acting like Saudi Arabia…the religious and sectarian channels are receiving sustained support and funding from figures and institutions that are supposedly meant for charity, not bloodshed.”

”If the Saudi decision is intended to embellish the image of the Kingdom, then it is not useful and is not an expression of an international commitment to fight terrorism,” the minister pointed out.

%d bloggers like this: