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Brent to Hike

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If Syria is invaded by the West, then we should be getting ready for a hike in the price of Brent that some say may reach a much as $150 since it will escalate into a regional problem and affect supplies coming out of Iraq. Société Générale warns that there will be a “significant supply disruption in Iraq or elsewhere”. That will mean that there will be a knock-on effect that will disrupt from anywhere between 500, 000 and 2 million barrels per day.

Brent is expected to increase by as much as $5 to $10 in the coming days as the West ponders over whether they should intervene in Syria and go over the United Nations Security Council’s authority. It could go as high as $125 very quickly and already today Brent crude oil has increased by $2 and was trading at a high of $117.34. That’s a high that hasn’t been seen since the start of this year. When the chemical attack was reported, Brent increased and hit a five-month high on Monday this week at $111.68 as the US government suggested that they would respond with military intervention of President Obama’s ‘red line’ had been crossed, changing the game entirely.

As the possibility of stepping in regarding the internal conflict in Syria approaches faster and faster, there is a proportional escalation of the price of Brent.

Brent

It is difficult to know just how high the prices might go but the latest analysis by the French bank Société Générale seems to suggest that we are in for a hike. Secretary of State John Kerry’s comments on Bachar al-Assad and the use of chemical weapons which were described as ‘moral obscenity’ had the immediate effect of making a strike imminent. It is thought that there would first be a strike from the Mediterranean Sea using cruise missiles. The other factor that will necessarily push oil prices higher is the increased need for oil in the US due to the hurricane season. Both the geopolitical strife and the pressure on supply that the US is currently applying mean that prices will rise beyond levels seen before.

A rise in Brent crude oil prices would be bad for everyone. Prices have risen by about 15% since the lows that were experienced in April this year. The already hard hit economies of emerging nations that are suffering from the cash being withdrawn from them after the tapering threats that have been bandied about by the Federal Reserve will come in for a second hammering with the hike in Brent. The West will also suffer the immediate consequences of any strike that results and inflict a damping down of the slight upturn in the economic situation we are being told is taking place.

India would be particularly hit as it is very much exposed to the brunt of oil price fluctuations. That would be catastrophic for the country in particular today given the trouble the Rupee is experiencing. Inflation will worsen and so will the fiscal deficit of India. The Rupee has already lost 44% of its value in the last two years and the country fears having a sovereign downgrade slapped on it in the coming weeks as the country has difficulty repaying $20 billion in debt. The economy only grew by 5% (year ending March 31st 2013) and it will suffer the consequences even more due to Brent shooting through the roof.

7 Countries


Wesley Clark

However, that is the immediate effect. The US will, in the long-term, (if it does manage to oust Bachar al-Assad, which will be no mean feat) benefit from the assurance of the stable dollarification of yet another oil nation in the world. Thus, the future of the Dollar as the world’s major currency for trade will once again be the promise of a healthy economy. As General Wesley Clark (Retired 4-star U.S. Army General, Supreme Allied Commander of NATO during the 1999 War on Yugoslavia) stated in 2007 that a memo from Secretary of Defense Donald Rumsfeld (2001-2006) outlined a plan: “we’re going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran”.

Those seven countries were problems for the US because they undermined the strength of the Dollar in the world. Libya needed to be knocked on the head since Colonel Gaddafi had started selling his oil in the Gold Dinar. He was cutting the ground from under the very feet of the hegemonic rule of the US Dollar and doing it right in front of the Americans.

The idea was that African and Middle Eastern countries would join forces and use the Libyan Gold Dinar together to purchase and sell oil. The plan had been hatched decades before and President Reagan declared the Libyan leader an ‘international pariah’ in 1981, with the obvious undertones of the botched June 27th 1980 assassination attempt on the belligerent Libyan leader (amongst many others). But Libya is now safely back in the hands of the Dollar and the hegemony assured to some extent. The decision to enter the Middle East and to gain control of those countries that might have turned elsewhere to trade in another currency than the US Reserve needed to be done before China took over.

Petroyuan


Petroyuan

But, China is already trading Brent in the Yuan today. There are not just a few that are moving over to the Yuan either. There are 20 countries including Japan and Australia that are side-stepping the US Dollar, using the Yuan.

The Petroyuan has been born and it’s time for another war to gain control of the oil in Syria today.

Syria currently produces over 400, 000 barrels a day. China has every possibility of transforming itself into the petrol currency of the world by the mere fact that it is estimated that it will become the world’s largest importer of Brent sometime in 2014 (OPEC). This is also due to the fact that the US is concentrating on its own domestic supplies. Has the US realized that it is fighting a losing battle over this?

  • China’s annual imports of Brent increased over an eight-year period (2002-2010) from 70 million tons to 270 million tons.
  • There have been recent months when surges in imports have meant that China has imported more than the US already.
  • For example, Chinese imports stood at 6 million barrels a day in December 2012, while the US imported just under that at 5.98 million per day.
  • China’s oil imports are predicted in the current circumstances to increase by 40% before 2015.

Reuters has provided reports that China is now using the Yuan to trade with oil suppliers. It has been calculated that with just Russia, Iran, Angola, Sudan and Venezuela there will be 5 million barrels per day that are traded in Yuan, to the detriment of the Dollar. The war is even more needed today in the eyes of the American administration to ensure that the Dollar doesn’t quite lose its magic touch and control on the world. But, just how long that will last is another matter. Controlling the central banks to all intents and purposes of the Middle Eastern producers of oil means that Brent will be traded still for a while in the US Dollar.

But, what the US is banking on is the winning of any war with Syria. That is another matter and the past record is not looking good.

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