Sunday, October 21, 2018

How Donald Trump saved Civilization (and lost the planet)

"Call it the Third Middle East Oil Shock."



The controversy swirling around murdered Saudi journalist Jamal Khashoggi has been moving Congress towards sending to the White House an Act* imposing broad sanctions on Saudi Arabia, effectively scrapping billions in pending arms sales.



Representative Adam B. Schiff of California, the senior Democrat on the House Intelligence Committee, said, “The kingdom and all involved in this brutal murder must be held accountable, and if the Trump administration will not take the lead, Congress must.” 
***
In internal discussions, Mr. Kushner has urged the president and his aides not to abandon Prince Mohammed. But as Turkish officials leaked details of the grisly killing of Mr. Khashoggi and of the dismemberment of his body, the White House has become increasingly isolated in its defense of Saudi Arabia.

Take a moment and picture this scenario.

Caving to his image-advisors and pollsters who fret about a Blue Tide surging into key states, POTUS inks the sanctions.

As its mercantile supply line begins to dry up, Saudi Arabia does not blink. It does precisely what it said it would do. It retaliates by hitting the world where it hurts most: the oil supply.

For decades Saudi Arabia has been OPEC’s swing vote, able to turn up or down the light sweet crude flowing to international markets. No other producers have either the reserves or production to control the volume and thereby the price of petroleum.

Suppose they tightened the spigot. It would not be enough to merely reduce the flow. If they have learned anything in their years of military alliance with the Great Satan, it is the tactic of Shock and Awe. They close the valves. All of them. Call it the Third Middle East Oil Shock.

In spite of a record production year for the cartel of 32.78 million b/d, US sanctions on Iranian oil and deteriorating output from Venezuela have already begun pushing prices towards $100/barrel. Demand might be marginally slowing in climate-minded Europe or in economically stressed Turkey, Brazil, and Argentina, but in North America and Asia, oil consumption is still on an exponential trajectory. Despite the US’s shale oil production having increased at a spectacular annualized rate of over 5 million b/d (estimated), the hole created by Saudi Arabia’s withdrawal, accompanied by withdrawal of like supplies from its Middle Eastern OPEC neighbors out of enforced loyalty, would dwarf anything POTUS might have thought he held as a hole card.

Economic ripples became waves. Waves became a tsunami. The price of oil shoots to $400/b virtually overnight. It would take some weeks for that price to pass through refineries and reach retailers but already gas stations around the US jack up the price at the pump. 

Then the Seventh Fleet sails into the Straits of Hormuz, but it is too little too late. The supertankers are empty. Short of landing the Marines to take the giant oil fields and recruiting an army of production engineers to run them, military options are few, and costly. Saudi Arabia, after all, is armed with state-of-the-art US weaponry, and with its honor at stake, is entirely capable of self-inflicting scorched earth if push comes to shove.

Meanwhile, back at home, everything descends to chaos. Markets crash. The most-energy-dependent sectors scramble to come up with downscaling plans that could keep the doors open, but within weeks — a month at the most — giants like WalMart and Amazon are shuttering million-square-foot warehouses. Freighters turn back to Shenzhen with full cargoes. Bankers are unwilling to extend lines of credit. 

Economic contraction would spread like a pandemic across the face of Europe. It would reach into Russia and China, who had imagined themselves immune, but were already weakened by US economic sanctions. China’s giant economy demands 9 million barrels of refined oil each and every day.

Russia, now importing only 30,000 b/d, is likely to be the least harmed by a global energy supply drop, but is helpless to fend off the knock-on effects of global economic downturn, especially when its Chinese trading partner goes belly up. It could extend credit for gas purchases both Eastward and Westward but any expectation that it would be repaid would eventually be dashed. The world economy would be as a boxer who has been struck a knockout blow, still standing, but bound for the canvas.

In Scandinavia and Germany, breadlines form. In Spain and Italy, fascist movements take to the streets and find broad support. We’ve seen all this before, but this is a different beast. The event will be enormous, and it will be fast.

Central Banks and the Fed can meet in emergency sessions but the tools they used in earlier crises are gone, spent in 2008 and the lingering QE programs. In any case, this situation is not something that can be remedied by rejiggering debt. Energy is not money. 

The televised bobbleheads we see wringing their hands over the Khashoggi affair, urging POTUS to stick up for “American values” would be mute. Their communications channels would be shutting down in any event. They might busy themselves thinking how they can feed their families as grocery store shelves go empty.

Of course, the other possibility would be that Donald Trump simply refuses to sign the sanctions bill and thereby saves Civilization. That is, until rising temperatures and rising seas erase it from memory.

Donald Trump has a chance here to do the right thing. He can kill Civilization and save the Earth. He just has to stick it to Saudi Arabia.

 ______
* Before Congress can take action of this kind, it is required to first invoke the Global Magnitsky Human Rights Accountability Act and give the President 120 days to investigate and recommend sanctions. Lawmakers did that on October 18.


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3 comments:

dex3703 said...

You've outlined my thinking. Gasoline in Seattle already went up 30-50 cents/gallon in the past week, though that will mostly be attributed to a Canadian gas pipeline explosion. (People now know gas is dependent on natural gas.)

While part of it may be schadenfreude and that sick delight I got from apocalypse B-movies as a kid, if something like this happened, it would ultimately be good. The Economy is killing us, in many ways.

Maybe you should call it The Cold Turkey Event?

dex3703 said...

Interesting knock-on effect: electric car inventories sell out overnight, for those who have cash....

Susan Butler said...

It does seem like a fast crash of civilization is more likely than a slower collapse scenario that would allow time for regenerative agriculture to save the planet. I wonder what you think of McPherson's claim that a fast crash will not avert climate catastrophe (by stopping 100% of emissions overnight) because the loss of albedo effect from fuel-burning particulates (general air pollution plus jet-trails) would stimulate a heat pulse that would kill off all plant life in one season?

Guy seems so credible, yet I suspect he is motivated by anger and exaggerates. I trust your perspective more than anyone else's.

Take care of yourself! Thanks!

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