Friday, February 22, 2008
$100 Oil Puzzles BBC
It shouldn't, according to Canadian Randy Johnson, Country Chairman of Chevron Oil in The Philippines, who I met yesterday at the Philippine Business Leaders Forum. His presentation was principally about bio-fuels, bio-diesel and ethanol, though his introduction gave some interesting stats about the oil market. Current worldwide consumption is 85 million barrels a day, up from 75 million barrels a day 10 years a go. Maximum production capacity is 90 mbd.
The cushion of about 5 mbd is vulnerable, however to both supply interruption and increase in demand. The World Bank expects the world's energy demand to double between 2005 and 2030, and oil demand to increase by 50% within 15 years. Reserves are concentrated to a very large extent in Saudi Arabia and Iran, both of which control reserves between 100-160 billion barrels. Second tier countries such as Qatar, Kuwait, Iraq and Venezuela only have around 20-25 billion barrels.
Randy also mentioned another factor - that oil industry costs both upstream and downstream had increased in the last 30 months by no less than 64%. He did not go into the detail of that statistic, but clearly shipping rates have soared, and security issues have put pressures on the industry. Yesterday there was, coincidentally a huge explosion at a Texas Oil refinery.
Looking at the bigger picture of world security, within which all markets have to function, there is little to reassure. Pakistan, with the assassination of Benazir Bhutto, is left with a progressively disintegrating democracy, as violence becomes the currency of power. This puts further pressure onto Afghanistan, where the few countries doing the real fighting, Canada, Australia, UK and especially the US are tiring of the unwillingness of the Europeans in the Afghanistan NATO force, especially France and Germany to do their fair share. NATO, the organisation that has guaranteed the peace of Europe since 1945, is being brought into crisis by the unwillingness of the Europeans to pull their weight. What would a bigger military crisis do to NATO's cohesion, one wonders? The memory of war is too distant in Europe, after so many years of peace, that no one there seems to understand the need to keep the world safe any more.
The United Nations, another critically important organisation for maintaining international law, and reducing the risks of war, has also been dealt a blow, by the EU's backing the Unilateral Declaration of Indpependence by Kosovo's majority Albanians. UN Resolution number 1244, issued in 1999, recognises that Kosovo is a part of Serbia, and yet the EU, backed by the US has decided to override the UN and back Kosovo's independence. When the world's most powerful countries decide to ignore the rule book, and undermine the principle guardian of peace in the world, it is a highly significant event.
It was almost comical, if it wasn't so tragic, to read the UN complaining to Serbia after the US and other Embassies were attacked yesterday in Belgrade in these terms....
in New York, the UN Security Council condemned what it called "mob attacks" on US and other embassies in Belgrade. In a unanimous statement, the council recalled the inviolability of diplomatic missions under international law
If they want to enforce the law on the Serbs, then they should also be doing the same to the US and the EU.
It was the US and the EU which abandoned international law by declaring Kosovo independent in breach of the UN Resolution. Maybe no one told them that the principle of the Rule Of Law means that the law applies to everyone or no one. It is not good for the world that the EU is so casual about degrading the institutions on which peace, and the law on which it is based, depend.
The BBC might not be able to see it, but when events of this kind occur, markets react. Germany, France, the US and Britain above all should have a vested interest in maintaining peace and stability in their region and they are acting unwisely in that regard. The EU's hasty recognition of Kosovo is the event above all which has demonstrated that the current batch of world leaders are not capable of handling the challenges the world is facing.
The US elections in November are looking more hopeful, with McCain having long experience and much wisdom about international events. But it looks more likely that, in Novemeber 2008 it will be the relatively unknown Barack Obama, on whom world leadership will come to depend. Until markets see some convincing and capable leadership from somewhere around the globe, they will nervously keep raising the prices of commodities such as oil.
UPDATE - Russia Threatens Use Of Force Over Kosovo
Russia has not ruled out using force to resolve the dispute over Kosovo's declaration of independence from Serbia if NATO forces breach the terms of their U.N. mandate, Moscow's ambassador to NATO warned on Friday.
"If the EU works out a single position or if NATO steps beyond its mandate in Kosovo, these organizations will be in conflict with the U.N., and then I think we will also begin operating under the assumption that in order to be respected, one needs to use force," Dmitry Rogozin said, in comments carried by Russia's Interfax news agency.