06 July 2008

Stock Markets Down Worldwide: What's Next?

The connection between high oil prices and the global economic downturn seems fairly solid. Regardless of the reasons behind the current high oil prices, the fact of high energy costs casts a dark shadow over the chances for a rapid rebound from a global bear market. As you can see, the choices for equity investments worldwide are not very good right now.

What this means is that the future of the global economy is now being held hostage to the cost of energy. In the absence of leadership from the US Congress, most of the world's oil and gas supplies continue to be controlled by quasi-dictatorial national governments. The conditions under which the world is held hostage is far from comfortable.

National oil and gas companies such as those in Russia, Saudi Arabia, Venezuela, Mexico, Kuwait, Libya, etc. are living on seized infrastructure that was developed by others. They are mismanaging the infrastructure, and through cronyism and lack of maintenance and upkeep are allowing the infrastructures to run down.

In other words, the future of the global economy is largely in the hand of crooks, kleptocrats, and political forces that are not particularly friendly toward the current world financial and political order. In such a situation, advisers to a wise ruler would be enumerating the various ways that this group of "corrupt and usual suspects" might be working together or separately to use energy as a "blunt instrument" with which to influence the actions of governments, which they would otherwise be powerless to influence. These advisers would then proceed to test the different enumerated strategies in order to prioritise them in order of likelihood. They would then examine these strategies in terms of counter-actions available to the government being advised.

The global economy is entering uncharted waters. This is not a simple supply/demand situation. Besides the incompetence of nationalised oil suppliers leading to reduced ability to match supply to demand, is the distinct lack of incentive on the part of decision makers in those countries to modernise infrastructure or increase exploration in preparation for future expansion. Remember, these countries did not build what they have. They confiscated it after it was developed by someone else. When trying to entice a multi-national company to return to build more infrastructure, how can these kleptocrats assure the companies that they will not once again confiscate the infrastructure as soon as it is built?


Bookmark and Share


Blogger Will Brown said...

I don't know about "uncharted", yesterday's Al Fin post regarding the history of the spice trade would seem more or less directly analogous to the present energy-as-commodity situation. I think the manipulations and strategic circumlocutions from the historic slave trade might be applicable too. I suspect there is an inverse correlation between the degree of technology an industry claims and it's practitioner's willingness to consider the lessons of history, it's own history if NASA is any example, so your point is well taken.

The one aspect I do think uncharted is the degree of complexity the entire energy market entails. I don't believe there has ever been anything that is itself so convoluted and that interacts so extensively with so much else. There's the concept of "Bysantine politics" from the late eastern Roman Empire period example of course, but even that wasn't as wide-ranging or invasive as is energy in the modern industrial context. I don't think any government, no matter how totalitarian, can equal the complexity a market can achieve.

I suspect the governments you mention, along with the markets and oil industry in particular, are going to create the circumstance for their own demise by means of supercession by others. The rest of us are simply going to have to survive the experience as best we are able, I'm afraid.

Sunday, 06 July, 2008  
Blogger Will Brown said...

In other words, the future of the global economy is largely in the hand of crooks, kleptocrats, and political forces that are not particularly friendly toward the current world financial and political order.

So, that part at least is normal then.


It's a strategic fundamental that all involved will seek to advance their own position relative to other's. Platitudes, pretence, laws or Commandments to the contrary, human nature remains what it always has been, all name-calling to the contrary. Putting something in a place (or condition) where it can be taken usually results in it being taken.

It should be acknowledged that the ability to take something is commonly achieved at the expense of learning how to make or improve that thing. There was and remains good reason merchants were historically some of the most heavily armed members of society, regardless of the commodity they traded in. Oil is no different in that regard.

Sunday, 06 July, 2008  
Blogger al fin said...

This is why Al Fin focuses on alternatives to oil and oil-equivalents such as shale oil, oil sands, and coal to liquids. If Obama listens to Al Fin, OPEC will have little power over an Obama administration. If Obama listens to Pelosi and Boxer, very bad things will happen.

And then there is this piece that points out that the price of oil has ballooned before, and that balloon has been popped--more than once.

Al Fin warned OPEC not to push things this far, but did OPEC listen to Al Fin? No, it is far too stupid to learn. OPEC, with the assistance of the US Congress of Pelosi and Boxer, is acting out a play called "political peak oil."

Political peak oil simulates a genuine peak in oil reserves for a time, but since it is not a real peak or decline in oil reserves, the long term effects are the opposite of what a genuine peak oil would do.

Plenty of oil lies underground and undersea, and oil-equivalent by the trillions of barrels lies undisturbed beneath North America. And still, high oil prices will have the effect of pushing even green politicians and functionaries toward nuclear power, and toward less dogmatic forms of CO2 emissions controls.

And yes, Al Fin's dream of cheap bioenergy from many sources will become a reality that much more quickly.

Key members of OPEC may want to teach the US a lesson about interfering in the middle east. More likely, after a turbulent decade, the last laugh will be on OPEC.

Sunday, 06 July, 2008  

Post a Comment

“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

<< Home

Newer Posts Older Posts