Energy Markets Are On The Brink Of Crisis
June 17, 2014 by Brandon Smith
The multitudes of people, especially Americans, who view U.S. government activity in a negative light often make the mistake of attributing corruption with 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 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 for such reasons. Modern wars 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-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 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.
However, certain political and regional events are currently in motion that could, in fact, change investor perception to the negative. 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 low gas prices they have come to expect.
In the span of only a few years, as the derivatives crisis took hold, petroleum costs have doubled. It wasn’t that long ago that someone could fill his 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, 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 fed by a lack of knowledge and common sense.
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.
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 information cripples the arguments of dollar cheerleaders who have always claimed that even if Russia broke from the dollar, no one else would go along. China is currently striking oil deals not only with Russia but also with Iran. New oil deals are being struck even after a $2 billion agreement fell through this spring.
Despite common misconceptions, 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.
And 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, and it is unlikely that Iraqi oil will be traded for dollars. 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, new information suggests that Saudi Arabia has been a primary funding source for the ISIS movement. I would point out that the U.S. has been covertly supporting such extremist groups in the Mideast for many years, but this is not discussed in the mainstream narrative. 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.
This places 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, the dollar will lose its petrodollar status. Period.
Now, my regular readers understand that this was going to happen eventually anyway. The Federal Reserve’s quantitative easing bonanza has destroyed 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 is the key to 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 repositioning itself around oil resources in an environment of East versus West conflicts. 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.
What does this mean for us? It means much higher gas prices in the coming months and years. Is this $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 and the introduction of a basket currency system that will ultimately benefit a select few global financiers while disrupting the quality of living for millions, if not billions, of people.