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Tuesday, August 12, 2014


ISIS militants are selling oil from their conquered territories, further fueling tensions in the region. This has caused uncertainty on the world market, but could also lead to a drop in global oil prices.Source: ISIS, oil and war

Submitted by Andrew McKillop, 12Aug2014

Oil and Humanitarian War

Portraying American intervention in Iraq as a purely humanitarian effort, president Obama is following the same script he read in March 2011 for Libya, when he justified American intervention as an effort to prevent a civilian massacre in Benghazi. In 2011 he addressed the American nation and said the US was acting militarily, without “boots on the ground”, as a response to “brutal repression and a looming humanitarian crisis.”

Obama was much too polite to mention oil at the time, and again today when it concerns Iraq. Libya in 2011 was the world’s sixteenth-largest world producer and was supplying about 19.5% of all European oil imports at the time, but since 2012 the oil production of Libya is much lower and very erratic.

Toppling the regime of Muammar Qaddafi was seen by Obama's advisors and Secretary of State Hillary Clinton as easier than toppling Saddam Hussein of Iraq. But as in Iraq in 2003, US strategists claimed that they would open a gateway to more and further oil supplies from Libya.

Iraq today supplies almost exactly twice as much oil to world importers as Libya did in 2011 - but no longer does. Depending on he state of sectarian fighting in Libya, oil exports by Libya can be practically zero. Now that Obama has moved “on and up” to Iraq he has seriously raised the stakes. Taking Iraq out of the world oil export “supply loop” would almost certainly cause enough supply shortage that oil prices would “bounce” out of their current downward trend below the “magic three-digit” price in US dollars per barrel, of $100.

Is this the real US strategy?

When Libya fell apart and descended into chaos, and its oil production plunged from 2012, this did nothing to bounce oil prices upwards. This was because of ultra-basic reasons of supply and demand – world oil markets were more than amply supplied and the loss of Libya had no impact. Doubling the stakes in Iraq, however, can achieve the goal of a $150-per-barrel “sticker price”, if very high-priced oil, which will be very bad for the global economy, is the real goal.
Libya Times Two or Times Five?

ISIS to date has captured around $1.25 billion worth of American supplied military equipment according to Turkish media including 'Daily Sabah', most spectacularly in June when the IA-Iraqi Army threw off their uniforms and ran on the approach of ISIS to Mosul. ISIS was far fewer in numbers (below 10,000) and far less equipped than the IA around Mosul at that time but this is certainly not the case today.

Although ISIS has a probably low number of captured Middle Eastern versions of US M1 Abrams tanks, built in Egypt, it has larger numbers of Russian T-55s and T-72s captured in Syria, and at least 350 – 1500  US Bradleys, Humvees and other armored cars, a few military helicopters, some Manpads anti-aircraft missiles, at least 50 - 100 field howitzers, multiple rocket launchers and large numbers of anti-tank RPGs. It also has very large stocks of ammunition and other military supplies including night fighting equipment. ISIS also probably obtained a large part of the estimated $425 million of deposits held in Mosul banks when it took the city in June, and may be able to use this to buy weapons.

No reliable estimate exists of actual field numbers of ISIS fighters today, but they are growing. Controlling the Mosul and Haditha dams supplying Mosul and a string of cities to Baghdad in the south, and numerous electric power plants and water-sewage infrastructures it can paralyze Iraq when it wants. Under a worst case scenario, ISIS kamikaze “scorched earth tactics” can also enable it to paralyze oil production, refining and transport infrastructures across a swath of northern Iraq.

Outside the US and inside the Middle East warnings of this threat have multiplied for several months but Obama and his administration “didn't want to know”. We therefore have to ask if his administration wants a run-up of world oil prices as in 2008, which helped create or trigger the 2008 financial crisis which endures today?

Why High Oil Prices

We can list several supposedly-perverse reasons. Both Goldman Sachs and the so-called energy market maker banks including JP Morgan, Barclays and Societe Generale have tirelessly worked to push oil market prices – upward – since the brief crash of oil prices in 2009 when prices fell, for a short while, to about $40 per barrel. The energy market maker banks and the major brokers like Goldman Sachs have abandoned the coal, natural gas and most recently electric power markets, following major regulatory investigations and large penalties on their price-rigging. This has led Deutsche Bank to abandon all energy and commodities market activity. 

The oil market is however still under their control. 

World oil and gas spending on exploration and production, and its financing benefits directly from high oil prices. This spending was running at around $640 billion in 2013 according to estimates from Citigroup, Barclays and Morgan Stanley. Major loans for this activity are directly dependent on oil prices staying high.

Continuously high oil prices are forecast by the International Energy Agency as certain for at least the next 20 years, to 2035.

High oil prices are the cornerstone of the so-called “low carbon strategies” to beat global warming and develop alternate and renewable energy supplies, using state subsidies. High oil prices are also a major support factor for maintaining, or increasing inflation which is judged necessary or vital by central bank chiefs including Janet Yellen and Mario Draghi. High oil prices therefore provide another rationale for “print and forget” quantitative easing.

The near-automatic increase in daily traded oil prices when equity markets rise is another proof of the vital role for high oil prices in financial asset expansion, albeit totally fictitious.

Sabotaging Iraq's oil supply to the world after the “non-performance” of allowing or encouraging Libya to descend into chaos, is therefore logical. Geopolitically however, regional Middle Eastern states facing serious economic difficulties as “blowback” from the G7 Group's enduring economic crisis will be active also in Iraq, not only in humanitarian-designated military action.

The Obama administration may or may not want high oil prices, but its actions to date only lead to that conclusion.