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Global Affairs

The US and Venezuela: How Oil Holds the Cards

 5 min read / 

Much was made of the US imposing sanctions on Nicolas Maduro and 13 of his government colleagues. Some saw it as another example of US attempts at imperialist regime change, others as a necessary curb on the increasingly dictatorial and authoritarian rule of Chavez’s successor. As polemic as the issue is, the real statement will come with what the US does next. With threats of imposing sanctions including trade embargos restricting the flow of oil between the two states, don’t be fooled into thinking this is about democracy. This is about oil and America’s relationship with it.

America’s Obsession with Oil

Conservative opinion for years has bemoaned the USA’s dependency on foreign oil. President George W Bush summed it up in his 2006 State of the Union Address:

“America is addicted to oil, which is often imported from unstable parts of the world”.

It has been at the mercy of OPEC and has led to diplomacy with oil as an ever present bargaining chip on the opposition’s side of the table. According to this criticism, whilst this continues to occur the US will be weaker both economically and in terms of security.

President Trump has been no different. One of his first acts as President was the White House’s “America First Energy Plan” specifically aiming to eliminate the US dependence on the OPEC Cartel:

“Imagine a world in which our foes and the oil cartels can no longer use energy as a weapon. Wouldn’t that be nice?”

For Trump and his Republican backers, the US is to be oil independent, and for as long as it is not, it is a national security risk.

Changing Shift

Recent years have been a story of an American fightback in oil production. A combination of increased offshore drilling in the Gulf of Mexico and a ramp up in Shale projects onshore have meant a 57% rise in production between 2011 and 2016, with exports increasing tenfold in the same period. All this has meant that net imports have fallen from 65.8% as a percentage of consumption in July 2008 to 25% in 2016. Analysts at Raymond James has gone as far as predicting this figure to drop to 11% by 2020.

Whilst progress has been made, the US is still far short of independence for now, with the continued trajectory dependent on a rebound in the oil price and a sustained rise in domestic production. Despite the decline in imports, the US still imports over 2.8 billion barrels of crude oil from overseas. Indeed, despite Venezuela’s much-highlighted troubles, almost 1/10th (271 million) of this still come from the South American state. As much as the rhetoric says otherwise, the much-despised OPEC “cartel” still plays a crucial role in America’s energy security.

Making a Statement

In installing an oil embargo, Trump must weigh a brash political statement against the practicalities of America’s energy requirements. The reason such an announcement is so tempting for the President is that it portrays him in a position of strength both to the rest of the world and to his critics at home.

To those powers abroad, it displays the clear message; America will not tolerate authoritarian rule and will intervene if necessary (or the agenda suits). To those within America, it sends a commanding statement; America does not need Venezuela and it will no longer be held to ransom by OPEC countries such as it. What makes the message all the more powerful is the historic status Venezuela have had as the symbolic subject of such scorn, the socialist state the antipathy of the US’s free trade economics.

Not So Bold A Statement

The headline numbers paint a picture that such a move would be a bold and reckless gambit, but don’t be surprised if it happens.

First of all whilst Venezuela still represents a large amount of US Crude Oil imports, the majority of this oil is what is termed as “sour (heavy) oil”, simply put oil that must be further refined for practical use, often in the US itself. The US exported 6.8 million barrels of distillate to Venezuela in 2016 to enable this process to happen within the country. Currently, the majority of Gulf of Mexico refineries are geared towards dealing with sour oil but there are signs that the approach is shifting.

Trump’s abandonment of the Paris Climate Accord took the headlines, but what perhaps went under the radar was what he did next. Overturning Obama’s decision to reject the Keystone XL pipeline, he set about the next phase of development in transporting sweet (light) crude oil into the north of the country from Canada approving, in addition, the Dakota Access pipeline.

Whilst America’s imports have declined in general, from Canada they actually rose by over 46% from 2011 to 2016. America is still to be dependent on foreign oil but for the Trump administration, and indeed Obama’s before, Canada provides a more acceptable seller.

Political Opportunity

An embargo placed on Venezuela would provide an undeniable propaganda coup for a Trump administration war-weary over the defeat of Obamacare reversals. With climate change considerations seemingly off the table and an increasing focus on Canada, the risks associated with such action do to an extent diminish. Nevertheless, oil independence is, for now, an aspiration and not a reality.

If Trump decides against oil sanctions, one should not see it as an acceptance of an authoritarian state, but instead as an acceptance of economic pragmatism over political opportunity.

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Global Affairs

BP and Iraq Sign Development Deal for Kirkuk Oil Fields

 2 min read / 

BP Kirkuk deal

Iraqi Government and British energy giant BP have signed an agreement for the future development of the Kirkuk oil fields in Northern Iraq.

A statement on the Iraqi Oil Ministry’s website said the “memorandum of understanding” between the government and the London-based oil company would enable further development of the oil fields as well as “to open a new page of work” for the North Oil Company, a subsidiary of the Oil Ministry, on “solid foundations”.

BP Director, Michael Townsend, said the company would conduct the necessary surveys and prepare the required statistics.  He claims the company will increase production by 750,000 barrels of oil a day.

The Kirkuk Oil Field, discovered in 1927, is one of the largest oil fields in the world, producing half of Iraq’s oil exports, a reported million barrels a day. However, it has also been a wellspring for local instability: the fields had been seized in 2014 by the Kurdistan Regional Government, who piped oil across the Turkish border, a few hundred kilometres to the north. The fields were only retaken by government forces in October 2017.

Baghdad is attempting to reassert its authority throughout its provinces and according to Iraq’s Minister for Oil, Jahbar Ali al-Allaibi, Thursday’s announcement will “speed up the rehabilitation process”.

During the Saddam Hussein era, the fields suffered irrecoverable damage due to poor management. Excess production was reinjected back into the ground making Kirkuk’s oil thicker and therefore harder to extract.

On Wednesday al-Allaibi met with Britain’s ambassador, John Wilkes, where according to the ministry’s website, they talked about joint cooperation between the two countries in the oil and gas industry.

Keep reading |  2 min read

America

Trump’s Presidency and Russian Relationship: The Future

 4 min read / 

Trump Russia

Much has been said about Donald J. Trump’s love affair with Russia. Questions deserve a thorough and honest investigation. As distasteful and risky it may be, the best outcome of the enquiry is accusations continue to swirl, Trump limps through three more years, and in 2020, he is crushed at the ballot box. The world moves on. If removed from office, odds are Trump whips his base into a frenzy. Only the height and duration of civil unrest is in question. A worse case is that Trump emerges emboldened, eager to settle Putin’s longstanding challenge.

Putin Mocks Trump

The competition is real. Putin’s economic and political dominance gnaws Trump. Putin knows this. So, he taunts the President and dares Trump to employ the same ruthless tactics he exploited to consolidate power and possibly become the world’s richest man. Since Trump only sees green, he took the bait. The race is on to be the world’s first trillionaire.

Russia’s population is 142 million. Its $3.86trn translates into a measly $26,900 per capita GDP. In contrast, the 326 million people of the United States generate $18.62trn in GDP, nearly five times Russia’s total. The US per capita GDP of $57,600 more than doubles Russia’s. Despite Russia’s meek economy and reports  that Putin has embezzled up to $200bn in assets, Putin remains incredibly popular in Russia.

The apathy regarding this unparalleled heist makes Trump and Putin salivate over what they could jointly pilfer from the world economy. To advance their contest, the pair will identify a common threat. US-Russia relations will warm. Under the guise of “Peace through strength,” Russian sanctions will be lifted, and the Magnitsky Act repealed.

The administrative state in retreat, animal spirits will run wild. Trump’s name will be emblazoned across the globe. Countries desperate for jobs will be compelled to forge deals sponsored by Putin and Trump. Ethics be damned, the race to the bottom of the $120trn global economy will prompt a wave of corruption never seen before. Every facet of human decency will be compromised: environmental regulations, free and fair-trade by-laws, intellectual property, and human rights protections. The collusion is real.

In time, complicity will turn to double-crossing. It’s the Trump-Putin way. Makeshift “me-first” trade deals will collapse. Boycotts, divestitures and sanctions will be commonplace. Cooperation will evaporate. New political boundaries will be drawn with little world condemnation.

It doesn’t have to happen this way. Patience is a virtue. The checks and balances of the three branches of government are powerful mechanisms to thwart overt corruption.

Yet, for the impatient who seek Trump’s impeachment or removal via the 25th Amendment, be careful what you wish for. Only Trump can tame his army. To assume Trump will plead mercy at the feet of the administrative state contradicts Trump’s lifelong persona. He will relentlessly counterpunch and encourage his followers to do likewise. The short and long-term political and social risks are astronomical.

If Trump stems the tide, consolidates power and aggressively partakes in Putin’s race for two terms, the risks outstrip his forced removal. The consequences will be multi-generational.

Rope-a-Dope Is the Key to Containing Trump

The only path that possibly prevents extensive collateral damage is to check Trump into policy oblivion. Legislators must play rope-a-dope for as long as it takes, even three years if necessary. If Democrats take back both houses in 2018, the tactic will not set up Trump and his base for a final knock-out punch in 2020. For that to occur, numerous members of the GOP must join the effort. They too must throw periodic jabs at Trump then absorb a barrage Trump’s counterpunches.

With foes in every corner, even Trump – the self-proclaimed greatest counterpuncher in history—and his base will wear themselves out well before 2020. Then the decisive knockout punch can be delivered at the ballot box—without collateral damage.

Trump is severely wounded. If he gracefully and peacefully surrenders the Presidency, great. But don’t expect it. Rope-a-dope deployed by both parties is the countries best hope for a peaceful end to the Trump Presidency. Any other scenario risks the once unthinkable; an ‘American Spring’.

Keep reading |  4 min read

Europe

May Meets Macron

May Macron

The UK prime minister agreed to pay £44.5m towards tighter border security at Calais.

Editor’s Remarks: The French president arrived in the UK for the Anglo-French summit amid widespread complaints from the Tory party about just why Britain is paying another £44.5m for tighter security in France. One Tory MP pointed out that this addition brings the total figure the UK has paid to France in recent years up to £170m. France, meanwhile, says that the amount is necessary because the migrants in Calais are trying to get to the UK, who must, therefore, contribute towards their costs. The talks were also consumed by the imminent task of reaching consensus over the UK’s trade deal with the UK after Brexit goes through.

Read more on Europe:

Keep reading |  1 min read

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