Which will be first? World War or World Recession ?

International Perspective, by Martin Hutchinson at Prudent Bear

The Bear’s Lair: Towards energy autarky / August 21, 2006

Here are a couple of extracts from an article well worth reading ...

"It’s now clear that a large portion of the world’s oil production volume derives from countries whose motivations are not primarily economic. Venezuela under its current government is motivated primarily by dislike of the United States, while Russia is motivated by the strategic leverage brought by its position as a major oil producer. Iran’s motivations are unclear; dislike of the United States and the West is certainly part of them, however. More ominously, the long term political stability and pro-Western orientation of Saudi Arabia, the world’s largest oil producer, cannot be assured in an era when radical jihadism commands substantial popular support across the Middle East. Thus a moderate share of the world’s oil production is already controlled by governments motivated by political/strategic rather than economic objectives; if Saudi Arabia were to fall, the non-economic portion of the world’s internationally traded oil production would become a majority."

The Final paragraph ....

"The use of oil as a political weapon by producers, and the attempts by consumers to lock up long term supply contracts or move to other energy sources that are only marginally competitive even at present prices will keep oil prices at or above $70 much longer than they need to be. Eventually, of course, the oil market will break, reducing Russia once again to a second class power with a bankrupt economy, removing the Middle East almost entirely from the world’s headlines, and producing a fawning Venezuelan government that begs for World Bank handouts to feed its starving people. However that outcome, so devoutly desired by armchair strategists of the neocon persuasion, will only happen in only one way: through a really devastating world recession that slashes oil demand."

au·tar·ky or au·tar·chy A policy of national self-sufficiency and nonreliance on imports or economic aid.

If that doesn't depress you, your wife, your bank manager just consider these two modest financial items that surfaced last week .....

Real estate investment trusts this year have sold more than $4.1 billion of bonds convertible into stock, almost triple the amount issued in all of 2005 e.g Sam Zell’s Equity Office Properties Trust and Mortimer Zuckerman’s Boston Properties Inc.

Total Commercial Paper (in the US) jumped $10.4 billion last week to $1.805 Trillion. Total CP is up $164 billion YTD, or 15.8% annualized, while having expanded $228 billion over the past 52 weeks (14.5%).