What do you call it when the supplier raises the price FOUR times and also says that you have to change your foreign policy if you are to get anything at all?
Ukraine and Syria are part of the global battle in which Europe is the target, victim and the source of blackmail revenue. Europeans have been behaving stupidly since the 1950s, when the Founding Fathers of the European Communities warned them of the dangers. They ignored the warnings.
What would you call it if you were getting oil at a dollar-and-a-half a barrel and the supplier was making such a profit from it they were living the life of Reilly? You might call it free trade. Both parties are happy.
What do you call it when the supplier raises the price FOUR times and also says that you have to change your foreign policy if you are to get anything at all?
You should call it blackmail. Europeans have been stupidly grinding their teeth and paying through the nose ever since they began to give in to it.
It only works if the buyer --the Europeans -- think that they are incapable of producing energy themselves and must rely on suppliers who turn out to be a cartel or multiple cartels. With all their science and technology can't Europeans produce energy and electricity and maintain their independence from financial and political exploitation?
Who is persuading them to stay on the oil drug? Maybe we should look where oil drug profits are going.
Yesterday it was the Middle East -- where Europe got entangled in Arab wars and hatreds. Today Europe is not free from that bowl of spiders. It has also gotten involved with the Russian energy cartel which works on the same principles of extortion. Now they are competing with each other.
The Joker in the power game is shi'ite Iran which could try to block the Mid-East transport routes for oil and gas out of the Gulf. It can also play nuclear blackmail among the neighbouring States. Iran has been fighting in Syria. Qatar, a mere pimple on the east of Saudi Arabia, has the largest Liquid Natural Gas (LNG) operation and one of the biggest gas fields in the world. How will it get its gas delivered if the Strait of Hormuz is blocked? Saudi Arabia and other Gulf States have broken off diplomatic relations with Qatar over its 7.5 billion dollar support for the Muslim Brotherhood in Egypt and refuse to allow it a pipeline across to the Mediterranean.
What plans do the Saudis have if the Gulf is blocked? What if there is again trouble in Egypt and Suez? The Saudis too would like a pipeline to the Mediterranean. But what happens as these players approach the Mediterranean's eastern coast? They are met first with Jordan, run by the Hashemite family expelled from Mecca, an unstable State carved out of the Jewish Homeland Mandate territory, composed of former PLO refugees and now Syrians. Then the pipeline must find a port -- either (horrors!) in Syria which was run by the pseudo shi'ite Alawite clan as a secular dictatorship or -- horror of horrors! -- Israel.
For all the players, the competition is about who can leach the most blood from the Europeans before the whole world goes down the tubes.
Europe turned to Russian gas and oil as an alternative when it was still the Soviet Union. Now Russia, troubled by sunni terrorism at home has its own 'understanding' with Iran and nuclear exports.
Crimea is a vital warm-water naval base for Russia. (Its other ports are frozen in winter.) It gives it access to Syria. It is also vital for control of the Mediterranean. In the early 1970s NATO was worried that the Mediterranean was becoming a Soviet lake. The USSR was the main arms supplier to the most populous Arab country there, Egypt. It also controlled the Suez Canal. The Soviets had bases along the North Africa coast and in Syria.
Today Egypt has washed its hands of Obama's USA (that supported the Muslim Brotherhood and undermined Mubarak). It is now getting arms supplies from Russia.
In 1973 Europeans were getting oil at under two dollars a barrel from a wide variety of suppliers throughout the Middle East and North Africa. When Arab armies attacked Israel while the nation was fasting on the Yom Kippur holy day, the Arab suppliers formed their own cartel. With their Oil Weapon, they placed a total embargo on Europe and the USA. They demanded that the West cease from henceforth to support Israel. They declared that any country that did not change its foreign policy would get zero oil. President Nixon considered declaring a state of war.
Thanks to the European Communities, each with an energy component (Coal and Steel, Euratom and the 'Common Market'), Europe was able to survive. It did not have a real common foreign policy nor did it create an energy policy (and still doesn't have one!). In 1959 the three Communities had formed an 'Inter-executive Group' to coordinate national energy policy. But General de Gaulle not only froze such initiatives - he reversed France's Middle East policy for the sake of cheap Arab oil. That only encouraged the setup for blackmail.
In 1973 Europe was able, however, to buy oil on foreign markets and swap it between Member States in the nascent Single Market to help them survive. Denmark and Holland (who saw no reason not to support the Jewish State of Israel) imported mainly from the Middle East. Faced with a total cut-off, they were in dire straits. Oil was shared with the other EC countries who imported from elsewhere.
In December 1973 the European Summit in Copenhagen was disrupted by an uninvited delegation of Arab oil exporters. They were determined to see that their Oil Weapon had maximum effect and no 'European solution' that favoured Israel and democracy in the Middle East was undertaken.
The effect of the oil embargo was devastating on the economies. Factories closed or went on part time. Motorways were bare of cars and vehicles. There was mass unemployment.
The Arab Oil Exporters quadrupled the price again in 1979! This was the Second Oil Shock. It exercised the ratchet mechanism to boost prices, not untypical of all cartels.
The Economist opined on 22 December 1979:
"OPEC's interests are increasingly inimical to those of the west. ... Their underlying interests will push them into actions that harm the rest of the world. ... Unrest in the Middle East often takes the form of austere reformist Islam, yet further reducing production. .. OPEC's existence, as a device for producing a floor (for minimum prices) under past gains, while leaving 'free market' forces which are nothing of the kind to push prices further upwards, does indeed reflect the interests of its members. .. When people talk or write about OPEC, in this materialist age, they turn first to the tools of economics. But politics is also a necessary part of the solution to the problem. The west's governments have to muster political weapons both to achieve their aims at home and to constrain OPEC's power abroad."
Cartels benefit from time to time when prices fall. Why? They wipe out any alternative supplier. Energy infrastructure takes time and investment. When oil prices crash, these programmes are binned. As the same article in The Economist prescribed, Europe needs to pass on the full price of oil to the consumer. Even more, it needs to maintain high prices for the long-term, by tariffs if necessary, so that conservation will become a way of life and native energy-making inside Europe becomes common.
That requires a fully-fledged Energy Community with democratic institutions and powers. How can this be done? It could start by placing solar panels on all buildings, public and private. Europe needs a common, intelligent grid. It could stop using tarmac for roads and replace them with safe, solar panels made out of reinforced glass. What's glass made of? Sand and there is plenty of that! Europe could thus become a major exporter of electricity to the world! I am sure its scientists can come up with many technologies if given half a chance. Freedom of thought is the great asset of European culture. Other nations with lots of sand seem in a cultural timewarp.
An Energy Community as a new SUPRANATIONAL institution would help resolve the dilemma over Ukraine. About 16 percent of Europe's gas comes via Ukraine. It could immediately become a member. But it requires major revision of the present EU to make it democratic according to the treaties.
It took nearly two decades for the oil price to fall to anywhere near 'free market' levels. That was due to squabble among the Arab OPEC members and world competition but little effort was made by Europeans to gain energy independence to avoid future blackmail.
The Shah of Iran, one of the most enthusiastic proponents for higher oil prices, was replaced in 1979-80 by the shi'ite leader Ayatollah Ruhollah Khomeini. Iran promptly got into a war with secularist Iraq. The sunnis were not to happy about the revolutionary terrorism of the shi'ites, but both were in agreement of squeezing the Western lemon till the pips cracked.
So what did passive Europe get? More blackmail by the cartel! By 1999 oil prices had fallen to around 9 dollars a barrel. The Economist magazine with its extensive intelligence and expertise forecast a long-term price of five dollars a barrel. It was not alone. Western oil companies like BP and Shell said the same thing. But they were no longer in control of the game, or the taps. The Arab oil suppliers had nationalized the oil supplies, so many western companies were merely helpers and exporters of this Arab oil.
The guys who could turn the taps off at will were at OPEC. When prices rose, they cut off supplies so that oil prices stayed high and rose higher. The others, like the subservient western oil companies, were left with their own cartels on downstream operations and financial operations. The oil-producers recycled their profits using short-term financial instruments like derivatives or bonds. At compound interest the petro-profits must now amount to a financial bubble multiple times the size of the real economy. (The US Treasury long ago identified five cartels operating in the oil industry at various chokepoints. Today we seem to have more.)
So what happened with the new century? The price tripled immediately in 2000. It then took a rocket trajectory upwards. This was the third oil shock. Oil went from nine dollars to 147 dollars a barrel -- an increase 1633 per cent! At that price the oil exporters were extracting around 10 percent or more of world GDP for a product worth a couple of dollars in a free market.
The International Energy Agency shows this THIRD oil shock is the most serious one. Oil prices have never been higher in real terms since the modern oil industry began in 1859. No wonder the EU is in the economic doldrums.
It is not only this generation of politicians that are acting stupidly. Immediately after the initiation of the Community system, politicians went into a nationalist relapse. International cartels pick off nation States like minnows! By not acting for decades, Europeans have compound interest on their stupidity. Europe is still sleep-walking in a dreamland with its plans for 2020 and 2030.
Today, the implications of this ignorance has moved from amber doldrums to Red DANGER.
The Russian take-over and military invasion of Crimea is part of Russia's strategy to survive its own uncertain future. Russians are a highly educated people. They are capable of great achievements. But hindered by their own useless ideologies, from atheistic Marxism to the present Putinism, they have been unable to compete with the West. Dimitry Medvedev wanted to turn Russia into a high tech society -- but that requires a free society with open democracy. Instead their economy and all political power is based on the export of gas and oil.
Putin knows the implications full well. He is an expert in oil and gas prices. His whole policy is based on these strategic raw materials. Properly applied, these raw materials can lever Russia back to great power status after the collapse of the Soviet Union. He called it the 'greatest geopolitical catastrophe' of the last century. It was a geopolitical disaster, not a communist one.
Russia was a centre of a world ideology -- communism. It gave the USSR world clout. Putin was the clever KGB officer that thought up Plan B to restore Russia's fortunes. He wants to control not only Crimea, but access of non-Russian oil and gas that drives the world economy.
The new key for Russia as a world power is not ideology, but energy. Today the EU imports more than half its energy with a third of its gas and oil coming from Russia. Some countries are 90 percent dependent on Russia. Germany is a main customer.
As a KGB officer in Germany he was well aware of Europe's dependency on imported oil and gas. In his time of secret service office, the 1980s, a major trans-Atlantic row broke out between the USA and Europe about financing Russian pipelines. It nearly tore NATO apart. Mrs Thatcher joined with her French and German colleagues and opposed Ronald Reagan. The Soviet pipeline row became one of the biggest political crises of the West since WW2. (See my book, Russia and the Danger for the European Union, pp88ff second edition, published in 2000 and first edition 1995. It proposes a pan-European Energy Community that would drive the democratization of both the European Community members and the Former Soviet Union and its former satellite States.)
Why did Putin act now? He is in a race against time. Previously Russia had pledged its great support for the international rule of law. Now he has permanently lost any claim to that. The population of Crimea may be pro-Russian. There may be unsavoury characters in Kiev. Khrushchev, acting as the Dictator of the Proletariat, may have acted foolishly to declare Crimea Ukrainian. But to move in Russian troops, to take-over all the communications, to force a referendum without a debate and then sign it off as a legal act in the Kremlin won him the condemnation of all other countries as a patent lack of legitimacy. Putin retorted that NATO had also broken its promises not to expand.
The colour of the Russian policy is clear from the fact that it took over a gas plant outside the area of Crimea.
Acting like a bandit State is a severe loss to Russia's prestige -- after the Sochi Olympic games that won it acclaim. Why did he do it? He faced open hostility with the Saudis over the outcome in Syria, even threats of terrorism at Sochi. Instead Putin moved his armed forces to protect Sochi from terrorism. It turned out (coincidently?) to be very handy for taking over Crimea.
The rapid and smooth turn of events that caught the west by surprise indicate strategic planning. Without the exorbitant price that Europeans are paying for gas, the
Russian economy would crash, its people starve. The Russian State and its budget depends on the viability of the huge energy monopoly, Gazprom. For President Vladimir Putin it is now a race against time to save his country. Two factors threaten Russia's future: price and the bust-up of a cartel operation.
Russia fixed its gas price in parallel with the oil market. Why? This was the highest price Russia could get. When the Netherlands was under total oil embargo, it found it had huge gas deposits. So taking a leaf from OPEC, it set the price as high as it could to be able to survive. Russia merely copied this ploy, although there is no good reason why European consumers should support another cartel dictating prices.
There is no real free market in oil and gas. It is run by numerous cartels. This has been going on for more than a century. In the 1950's the US Treasury identified FIVE cartels that worked in conjunction to control high prices to the customers. They ranged from exploration cartel, to down stream retailing and we can now add a financial cartel that recycles vast amounts of oil and gas profits through banks and derivatives that are multiple size of the 'real economy'. You can control the price by stopping research, drilling, turning off the oil taps, creating refining bottlenecks or applying the massive oil profits to control the economy. Some analysts estimate that Goldman-Sachs boosted the price of oil by 30 dollars a barrel before the 2008 crash.
Russia's gas price is now threatened by shale gas. The USA is producing massive quantities and this has hugely cut price of gas. If Europe produces its own gas in such quantities in a free market or imports gas from the USA -- bang goes the Russian-based gas cartel. Today European industries pay more than twice as much for electricity as the USA, and pay four times the price for gas, according to BusinessEurope, the companies' lobby group! That is the measure of a cartel vampire.
US President Obama wanted to declare red lines over some dubious poison-gas weapons in Syria. However Putin made Obama and the State Department with its close links to Saudi oil look stupid. The greatest scandal is religious persecution and ethnocide that is brought about by the invaders. Syria used to have vibrant Christian communities since the time of Christ. The Jews, who were there even longer, preserving precious manuscripts over many centuries, have now disappeared.
Meanwhile the massacres of Christians in Syria go almost unreported by the West. Why is the media muted? The destabilization of all countries in the eastern Mediterranean is only part of a global power game.
The revolutionary Islamists who want to 'free Syria' behead Christians and those who are unable to pay the ransom after kidnapping. Christians who don't convert or agree to become dhimmis (subject peoples) and pay the dhimmi taxes are treated in the same way.
The West's leaders are numbed into silence at Islamist atrocities by decades of blackmail. They need to start taking wake-up pills! now!