Sunday, January 30, 2011

Saudi Arabia

What is transpiring right now in Egypt is a non-event to the West - sort of.

The 800-pound-gorrila-in-room is Saudi Arabia ("SA").

If Mubarak falls, and I see little chance that that does not happen, then at some point I believe Saudi Arabia's monarchy falls, too. The argument against that rests largely on the monarchy's ability to spread Oil income around. I think this to be specious and faulty reasoning.

The ruling elite in SA have already spread that wealth around in ever increasing circles, to the point where the bizzilions of princes can no longer count on a $1mm annual allowance any more.  SA has created the most extensive welfare state in the world (relative to population) and the country can barely afford that state now... and their population is growing incredibly.  The idea that they possess vast amounts of excess wealth to spread around to keep people happy is absurd in the extreme. NAFC.

SA is one of the most heavily internet censored nations in the world - so is Egypt. 20% of the people living and working in SA are "guest workers". Most blue-collar work is beneath the dignity of a Saudi and so the nation must bring in massive numbers of people from South and Southeast Asia to do that work.  These people have NOT been censored all of their lives, nor have they been sexually repressed.

The power of the Ulema in the event of a challenge to the monarchy has been overrated in the extreme.  These guys are the equivalent of the SS in Nazi Germany.  Their fate will mirror the fate of many of the SS officers after the fall of Hitler's government.  Establishment western thinking is that the Ulema would fill the power vacuum... my vision is that many of the Ulema will find themselves being flogged, hands amputated, and bodies decapitated... with body parts cooked to a nice medium rare over a street fire... and it couldn't happen to a nicer bunch of guys.

When SA falls, there will likely be several turnovers at the top of government, so to speak. The U.S. is in no position to put hundreds of thousands of boots on the ground, and even if it could that would be counter productive in the extreme. It is simply not possible to occupy all of the Oil producing Middle East, and the other military powers (China) would simply not tolerate that in any event.

No, this is the 21st century, and monarchies and dictatorships do not belong, and cannot survive, in our time. That includes the House of Saud. How and when this comes about might be up for some discussion... but not a lot. And Oil? It is simply not in the people of SA's interest to sell Oil as fast as possible - and they will see this as clearly as the nose on your face when the people, however you define that, come to power.

And the people are coming to power. One way or another.

When those people over there come to power, the people over here are going to be challenged a great deal. The great lie of the Great Society programs will come to light in ways I am not poetic enough to describe.  Federal budgets for EVERYTHING are going to get vaporized.

And life will go on, perhaps better in many ways than it has been (here in the U.S., anyway).

31 comments:

Michel Petit said...

Agree 100% Greg

westexas said...

In our early 2006 paper on using Texas and the US Lower 48 as models for Saudi Arabia and the world, we suggested that Saudi Arabia, in 2005 was at about the same stage of depletion at which Texas peaked in 1972, and we lined up the 1972 Texas peak (in black) with Saudi production through 2005 in the following graph:

http://i1095.photobucket.com/albums/i475/westexas/Slide10.jpg

The subsequent 2006 to 2010 Saudi points have been added (est. for 2010). Note that four of the five past years have shown year over year increases in oil prices, so the decline in Saudi oil production and more importantly, net exports, is in marked contrast to the rapid rise in production and net exports from 2002 to 2005, in response to rising oil prices.

Greg T. Jeffers said...

Westexas:

link does not work

westexas said...

If you copy it from below, it works, but here it is again:

http://i1095.photobucket.com/albums/i475/westexas/Slide10.jpg

bureaucrat said...

Also remember, WesternTexas, that, using gold as a reference, oil prices haven't really changed that much in the last few years. The increasing prices you see are from inflated US dollars. You may not be seeing oil depletion at all. Not to mention the oil from Canada, Mexico, Saudi and Nigeria continues to roll in to the US year after year in increasing amounts. Only Venezuela is reducing their shipments, and I'm sure thats cause they are helping their friends, the Chinese.

Greg T. Jeffers said...

Bur:

Not even remotely relevant.

Westexas:

Gotcha, thanks

Anonymous said...

The Saudis have already begun moving away from pumping as fast as they can. They were doing that in the 80’s as a partnership with Ronald Regan to drive the Soviets out of Afghanistan. Basically KSA would open the spigot to drive down the price of oil and strangle the Soviets financially while we guaranteed their security while doing so. It never ceases to amaze me how people look at something that is a response to other temporary conditions; then go on to assume that what they are looking at is permanent.

Incidentally here are a couple of windows on that opaque part of the world. They are both old but nothing much has changed.

The Religious Policeman

The Kingdom of Silence

Best,
Dan

Anonymous said...

Does this happen in every generation or so? The people with come to power? Not a chance - just some other crook will take the seat. That is the way it has been and the way it will always be. We had a chance here in the US but we have squandered it......

s4r

P.S. yes at some point our entitlements will collapse but what takes its place and how many or on the other side - that is the question.....

westexas said...

Bur: "You may not be seeing oil depletion at all."

Depletion is a one way street, and it is always increasing.

Canada is showing a very slow rate of increase in net exports, but their 1998 to 2009 increase in net exports was not even sufficient to offset the decline in Texas production over the same time period.

Mexico peaked in 2004, and their net exports are down by about 50%.

Saudi net exports have been below their 2005 rate for five straight years.

Nigeria's net exports have similarly been below their 2005 rate for five straight years.

Venezuela's net exports have been in decline since the late Nineties, down by over a million barrels per day.

Anonymous said...

Westexas-

Thank you for your input. I have a question for you.

What is your feeling about how the downside of Hubbert's curve will manifest? It seems that the downside will be a much rougher ride than the cheap oil upside as EROEI goes into reverse and the financial system destabilizes etc.

Thanks,
Marshall

westexas said...

Marshall,

From the point of view of oil importing countries, the key metric is the supply of global net oil exports, and IMO global net exports peaked in 2005/2006.

There are three key characteristics of net export declines: (1) The net export decline rate exceeds the production decline rate; (2) The net export decline rate tends to accelerate with time and (3) Net export declines are front end loaded, with the bulk of post-peak net exports being shipped early in the decline phase.

Furthermore, recent data suggest that importing regions like "Chindia" are outbidding developed countries, for (so far) slowly declining global net exports.

So, it's not going to be pleasant, but we are on the road to "freedom" from our dependence on foreign sources of oil.

Incidentally, I found some footage of Bureaucrat at his prior job in Iraq:

http://www.youtube.com/watch?v=s27Oq5ot0ZI

PioneerPreppy said...

ncidentally, I found some footage of Bureaucrat at his prior job in Iraq:

LMAO

That was during his "crybaby" days :)

bureaucrat said...

Gentlemen,

It is not me talking almost exclusively about "oil Prices," as good friend WesternTexas does (oil prices in inflated dollars). I prefer to talk barrels. And both the anecdotal and "data" are still clear ... no shortage of anything, no gas stations closed, no decrease in oil imports (except Venezuela) ...

You can not believe your eyes if you want, but the evidence is in (for now) ... plenty of oil for this country's use.

I've been watching the oil thing since 2006, and you/we all face being dismissed by the public (yet again) for all the "the sky in falling" stuff until something actually happens.

Iraq (and Canada and Venezuela) COULD start producing a hell of a lot of oil. China could finally hit a wall and stop buying oil. What you see can indeed be watch you see sometimes. :)

westexas said...

Combined net exports from Canada and Venezuela:

http://i1095.photobucket.com/albums/i475/westexas/Slide2.jpg

(Copy from below to capture entire link)

westexas said...

Egypt is a prime example of Net Export Math. From 1995 to 2009, their total liquids oil production fell by 20%, and their consumption increased by 52%, resulting in a 95% reduction in net exports.

Most oil analysts would just focus on the 20% production decline, and remain oblivious to the 95% reduction in net oil exports.

bureaucrat said...

Give us a chart with all 5 major import sources into the United States, please. No one is doubting Venezuela is coming up short (EIA 15 biggest import sources confirms that), but they are just one of five major import sources, and the other FOUR are increasing their exports to the US, at least after the last 2 years they were. :)

Anonymous said...

As bad as a new government in SA curtailing exports, if the insurgents were to send the oilfields up in flames, repair would take a while.

Even with economic activity picking up a bit, net imports are down. Were it not for ethanol and a 10% production increase in the US, we'd be in much worse shape than we are right now. There will be political pressure to reduce ethanol production in the face of high food prices and potential food shortages.

Up until now, I haven't felt an urgent need to keep a cache of food and fuel at home. I'm thinking 2 months may be a minimum prudent amount. I'm starting today. I'm not so much afraid of a chronic food shortage in the US, but there could be supply disruptions, and empty shelves from hoarding to get through before thins settle down.

Regards,

Coal Guy

Anonymous said...

We are living on borrowed time- and not using the remaining petroleum deposits and time to prepare a plan B.

The reason the US is able to suck down 25% of the world's oil and 30% of the world's various other resources is because of the extensive machinery of US hegemony-

*Wall St/London control of global financial system. Note that the British Empire was upheld by the strong Brit financial system.

*A military that consumes more resources than the rest of the globe combined w 800+ military bases.

*A favorable situation after WW2 where the US remained the only player standing with over 50% of global manufacturing capacity and most of the world's gold. The post WW2 world rebuilt under UScentric guidelines and has kept up that momentum until recently.

The situation is changing rapidly. The US/London financial system collapsed in 2008 and has not returned to health- and is facing heavy restrictions on activities in EU and Asia. Losing political control in the ME. Military funding coming under the budget axe. Also, it doesn't help our global toughguy image in that the US is having such trouble dealing with medieval level opponents in Afghanistan and still unable to prevail after 10 years.

What this means is that US oil lifeblood cannot be produced at home except fractionally. US manufacturing has been largely exported so we have no real way of production to trade for oil imports. And the world is trying every way possible to rid itself of the dollar reserve currency straightjacket- which means that by the end of this decade we will not be able to print up a bunch of T-bonds and trade them for our national lifeblood- crude oil. So oil imports to the US will be an increasingly endangered species.

Bur- have you read some history? It is replete with instances of unstable situations that persist for a long period of time- and then change suddenly and dramatically.

BEST,
Marshall

Anonymous said...

Seems that the markets aren't too worried about the mid east today...

Regards,

Coal Guy

bureaucrat said...

Yes, Marshall, I've read some history. Have you?

I see mostly beneficial steps over time toward: better government (except for giving the people all the benefits they want without them having to pay for them), better food, better weather forecasting, better cars, better appliances, less pollution, less waste, healthier children, more freedom, more "stuff", etc. etc. etc.

All you guys seem to have is visions of Yosemite Sam sitting with his shotgun atop his pile of gold, with a big smile on his face. :)

To be honest, I'm a disaster-monger too. A current events junkie (Egypt made my weekend!) But I'm also an investor, and a real investor does not deny what is going on around him. For the time being, things seem pretty good. If they aren't, "show me the money." :)

bureaucrat said...

A fun chart for all you Libertarians and Communists alike :) ...

http://www.oftwominds.com/
blogfeb11/freedom-
chart1.html

bureaucrat said...

Hey WesternTexas, they mention your Egypt/net-oil-exports concept in the Agora 5 Minute Report for today ...

http://5minforecast.
agorafinancial.com/
current-issue/

Anonymous said...

Greg-

Any way to get Bureaucrat out of here?

His posting is really out of control and his content is just about worthless.


Thanks,
Marshall

westexas said...

A Fortune article on the net export topic:

http://finance.fortune.cnn.com/2011/01/31/how-egypt-spells-oil-spike/

bureaucrat said...

Marshall, you old communist. You want one-party rule. You want to hear only what you think is relevant. Only a fool listens solely to one side of an issue.

And better yet ... name me one .. ONE .. incidence where any of the end-of-the-world crap you and your fellow "doomers" push has actually occurred.

Good luck.

Anonymous said...

Just think of Bureaucrat as the sites doggerel, sort of like Johnny on Airplane.

Best,
Dan

PioneerPreppy said...

And better yet ... name me one .. ONE .. incidence where any of the end-of-the-world crap you and your fellow "doomers" push has actually occurred.

Commodity (including various grain and PM's) inflation.

Continued import declines in oil and misrepresented in ground reserves don't count? I suppose to you they don't since you don't believe them.

I believe us "doomers" correctly called the last elections as well :)

Not that I am a doomer by rights. I am a prepper who believes in local self sustaining communities as the eventual future, but believe what you will... you do anyway.

Greg T. Jeffers said...

Bur:

Marshall has a point.

You are not making any meaningful contributions here. Most of your commentary is meant to incite anger, not debate.

Please stop.

Stephen B. said...

Bur said: "And better yet ... name me one .. ONE .. incidence where any of the end-of-the-world crap you and your fellow "doomers" push has actually occurred."

Hunger increased substantially around the world in 2008 as grain prices exploded. After a bit of a reprieve in 2009/10, we're seeing food prices and associated protests increase again. While it is true that world hunger never really ever went away, the problem has gotten much worse as food/fuel competition has inflated grain prices.

You'll say this isn't so which undoubtedly is possible to say from the relative affluence of your government job and life in and around Chicago. But I've read and spoken to people who have traveled some since food prices started marching up and I KNOW the hunger is real and has gotten worse since oil production stagnated.

But you won't believe it until your own larder is empty, which, by then, of course, it will be too late to do anything about it.

As well, arguably, people have suffered more in the housing fiasco because high energy prices took money out of their wallets, money that had been intended for debt service but instead had to go to energy and food price increases. We have more homeless people now, partly because energy siphoned money away from mortgage and/or rent payments.

There's two examples of "doomer" stuff right there, hungry people and homeless people. Granted, it didn't happen to everybody, and it didn't happen to you Bureaucrat, but that doesn't mean it didn't happen to some people, and in greater numbers than it would have happened if not for energy price run ups.

And spare me the chatter about energy price run ups being all the fault of speculators and traders. We've had such traders for years and years and the only time they could drive up energy prices is when there was already a real tightness in energy markets developing as was the case two years ago and as probably will be the case in the next 6 to 18 months.

Anonymous said...

Glad you brought that up PP, I had completely glazed over it, along with the rest of his post....

“ONE .. incidence where any of the end-of-the-world crap… has actually occurred.”

Right now it is happening in Egypt, Tunisia, Jordan, Yemen, Lebanon, Albania, and Algeria. They are not revolting because of rights; they are revolting because they are starving. Recently in Rwanda the Tutsis were nearly wiped out by machete wielding Hutus. Again, hunger is the main culprit.

Some historical examples would be the Mayans after they denuded the land of trees. The Western Roman Empire after they denuded the land of slaves. Easter Island collapsed due to deforestation. Pitcairn Islanders, deforestation again. If you are thinking that using up all your resources is bad, you’d be correct. Angkor Wat collapsed due to 30 year drought . Looking forward fresh water is going t be a bigger problem than oil.

The Anasazis collapsed for unknown reasons, however war is suspected. Finaly The Byzantine Empire, the Masada Jews, the Aztecs , the Incas, and the Nazis all collapsed due to war.

That’s just off the top of my head. I’m sure if I wanted to take the time to look, the list could go on and on.

Best,
Dan

bureaucrat said...

No