As the originator of the “Iran Oil Bourse” I hope you can spare me some space to comment in relation to Ms. Berg’s recent articles.
The original concept five or so years ago was not of an “Iran Oil Bourse” but of a “Middle East Energy Exchange” providing a new Gulf benchmark price which would not be manipulated by investment banks and oil traders as is the case with the North Sea “Brent” crude oil complex and has been for at least 10 years.
It makes no sense at all and never has for crude oil coming out of the Gulf and going to the Far East to be priced against a North Sea benchmark but Brent has always been used since it is the “least worst” solution.
From personal experience including very high level conversations I think that there is no prospect whatever that Iran would unilaterally attempt to create a crude oil benchmark contract whatever currency it may be priced in. A domestic market in products, petrochemicals, and so on, is another matter.
The current global market in oil is owned, controlled, and operated by intermediaries for their own benefit and is fast deteriorating as I warned it would five years ago into an “ICE-bound” (ICE = Intercontinental Exchange, currently completing an audacious but brilliant strategy by applying the coup de grace to NYMEX) global monopoly extracting ever increasing profits at the expense of producers and consumers. Barclays Capital recently estimated that intermediary profits from commodity markets (of which energy is a huge component) will double to $26bn in the next three years.
Moreover, this market is now awash with hedge fund money, and despite Ms. Berg’s confidence in NYMEX and IPE/LCH, I believe that these centralized institutions face little-appreciated systemic risks as “single points of failure” in the face of the unregulated, opaque, and massive off-exchange, or “OTC,” market in energy and energy derivatives.
The difference between the LTCM near-meltdown in the financial markets and an energy market crisis this winter or next is that the Fed can’t print oil to bail out the system.
In relation to clearing, Ms. Berg is unfamiliar with the concept of a “Clearing Union” because no partnership-based “enterprise model” (i.e., legal and financial structure) enabling one has ever existed. Naturally, market users would have to back up a mutual guarantee in some way, whether through margin, collateral, or otherwise.
It’s just that there isn’t the “central counterparty” Ms. Berg is used to.
In a nutshell, I believe that the future lies in the creation of a neutral global oil trading network and “Energy Clearing Union” owned by ALL market constituencies: and this concept is beginning to get across. Certainly the Norwegians were interested in it: “Norwegian Bourse Director wants oil bourse priced in euros” a development which followed a paper I submitted at the request of their consul-general in Edinburgh.
Ann Berg replies:
Mr. Cook raises an important point in warning that the Western oil exchanges NYMEX and ICE could face a “meltdown” at some point in the future. A sudden and unprecedented spike in volatility could cause a default on either exchange from a major player (i.e., a long or short fails to come up with the money to cover its overnight losses). If the clearing guaranty fund and calls for additional margins prove deficient, the exchange could simply collapse.
A Fearful Master
I recently read your article, “A Fearful Master.” First a little background on myself. I’m a member of the U.S. military, specifically the Air Force. Politically, I consider myself a libertarian. I think your Web site is excellent, and I applaud your efforts. Your site has contributed to, among many other things, my decision to leave the military after about four years of service (~five months to go) and enter the private sector workforce.
I have a comment on the part about the Marines restricting Internet access to various webmail sites (Yahoo Mail, Hotmail, Gmail, etc.). There’s actually a legitimate reason for the Marines to do so. Webmail access from inside a military network introduces a fairly large security hole. Many e-mails that go around these days have viruses and other malicious logic attached to them. All it would take is one unsuspecting user to click on the wrong attachment and these viruses could be introduced into the military network. The potential for harm is quite large if this happens, as I have firsthand experience in dealing with the blaster and welchia worms that were going around a few years ago.
That being said, any restrictions of sites that don’t have anything to do with network security (opinion sites, blogs, etc.) are reprehensible.
Justin just did a piece on Web site-blocking in Iraq. I’m writing from Iraq and, yes, Web sites are blocked, but so far Antiwar.com is not one of them. Although a few weeks ago Centcom blocked all Blogspot.com sites. Strangely, when I first arrived, Wonkette was blocked, but it isn’t now. Our S-6 (commo guy) said it as because she uses the f-word in her blog.
Justin also said that he’s never received a letter from Iraq. Actually, if memory serves me correctly I’ve written to you guys twice since I arrived here in July, and I think one letter was published. However, I don’t think I stated that I was in Iraq, so that accounts for the confusion.
Keep up the good work.
As a retired member of the armed forces (namely the Army and National Guard), I completely agree that George W. Bush and his entire cabinet are insane.
I’ll bet you thought I was going to jump right in and defend the CINC; however, in my 20 years of service, I have never seen a president deplete and exhaust our military so far and so horribly, that the constant influx of illegal aliens entering the United States daily could overthrow us with brooms and chopsticks.
I believe World War III already has begun. It is not a matter of the nuclear factor, but rather the selling of our nation’s soul by a man who is clearly out of his mind. I took a hardship discharge because I refused to deploy back to Iraq and leave my family back here at the mercy of the government for protection. There is nobody here to protect us from any sort of attack. Hell, even Madagascar could invade us now.
And to put a finer point on my years of experience, there are literally millions of illegal aliens here on our soil salivating at the idea of the rest of our soldiers going off to Iran on Emperor Bush’s Crusade. If that is not what this is then I do not know what to call it. Nobody who is rich and powerful cares right now, but when they see the Chinese and Mexicans rolling their tanks down Wall Street or Main Street USA they will realize it is too late and that our leader sold us out. (And just for the record, I am of Hispanic and German heritage, so I am no racist, just a realist.)
I say this as a patriot and an American, but I say it mostly because I have four children and they are going to have to live through the hell that is coming in the next few years if not months under George W. Bush, Emperor of the Planetary Senate. C’mon, even the CNN staff knows where we are headed. Katrina, 9/11, they were all calculated and ill-handled so Bush could finish what his inept Daddy started in 1991 where I was: over there in the Army wondering why then and why now.
So, in conclusion, I may have retired as a soldier, but I stand ready to fight for this land as a citizen and as an American. I have skill as a former Green Beret and Ranger, and if anyone wants to take what is left of the United States they are going to have to go through people like me to get it. Down with King George and to hell with his imperialistic quests to instill his religious will upon the world. And by the way, Israel can kiss my 37 medals and decorations on my a s s too. Who made them the only nation able to have nukes in the entire Middle East with our blessing anyway?
Kevin Zeese writes that “even leading conservative commentators” such as myself “now describe the invasion as a mistake.” For the record, I described the invasion before it happened as a “strategic blunder that will destroy Bush, the Republican Party, and the conservative movement.” I was always opposed to the invasion. Unlike Fukuyama, I have not just seen the light. I don’t remember for certain, but I believe Pat Buchanan had his doubts in advance as well.
I normally love your pieces, but the one on the cartoon war was poorly argued.
“Rose and his amen corner are taking up the banner of ‘free speech,’ but one has to wonder what their position is on the case of David Irving, the author and nutball of note who has made a career out of denying the Holocaust and glorying in his own persecution.”
Stop wondering; Jyllandsposten has condemned Irving’s imprisonment, as indeed has most of the mainstream press in Denmark, except Politiken, which was also the one most critical of the Muhammad cartoons.
Anyway, even if Jyllandsposten had been inconsistent, you are implying that two wrongs would make one right: that if Irving should be shut up, so should others. And you are assuming that supposed hidden agendas invalidate Jyllandsposten‘s argument. But this does not free you from taking their argument seriously; no matter however halfheartedly and hypocritically you feel it is being advanced, the point of free speech is still a fair one.
Finally, if you are so keen on “guilt by association,” why has the U.S. religious Right and President Bush been so keen to condemn these cartoons. Why have they failed to lend any support to the cornered Danish prime minister? Some people see in that a chilling tacit alliance between forces who agree on rolling back freedoms to hold religious dogma free from normal argument and satire.
Whatever you think of the actual drawings and their message, Islam is the fastest-growing religion in the world, and it has plenty to say about politics and social affairs. Why should we not be allowed to use the most time-honored weapons against self-pompous religious views, satire and mockery?
~ Rasmus Sonderriis, Denmark