This page has been archived and commenting is disabled.

2015: Asymmetric Oil Warfare

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Let's consider some examples of potential asymmetric-warfare tactics as they relate to the price of oil.

The world has habituated to the never-ending undeclared war over ownership and access to hydrocarbons. Now we are entering a new phase of asymmetric war being waged not over oil but the price of oil. Many observers see a parallel in Saudi Arabia's stated intent to force other exporters to cut their production (if they want to maintain the price of their oil) to the mid-1980s, when a similar oil-pricing war drove prices to lows that helped bankrupt the Soviet Union.
 
While there are certainly parallels to that period of superpower confrontation and the Saudis' use of the oil weapon, it seems to me that the current era is less a replay of the 1980s than a new chapter in asymmetric warfare that may see a variety of oil-related weapons being deployed.
 
Asymmetric warfare is defined as war between belligerents whose relative military power differs significantly, or whose strategy or tactics differ significantly. Oil exporters come in a variety of sizes and favors, as do major oil producers and consumers (for example, the U.S. is a major producer but it still imports oil from other producers).
 
Each party with an interest in the price of oil has a different set of weapons, goals, and relative military/financial power.
 
What does that mean in the undeclared war over the price of oil? Let's consider some examples of potential asymmetric-warfare tactics as they relate to the price of oil.
 
1. One way to crimp the production of one's perceived opponents is to blow up a few pipelines or port facilities via guerrilla-type strikes, a.k.a. "terrorist attacks" that would have an immediate effect on supply and thus on the global price of oil, which is remarkably sensitive to supply and demand on the margins.
 
The ability to exploit physical supply vulnerabilities has become widespread, via proxy irregulars and relatively easy access to explosives.
 
The asymmetry between the enormous difficulty in protecting long supply chains and costly infrastructure and the relatively low cost of disrupting supply is obvious.
 
2. Digital disruption of supply facilities via Stuxnet-type computer worms. A thumb drive inserted into a network node can unleash all sorts of electronic mayhem that shuts down key oil-supply choke points.
 
3. Financial strategies that support one's domestic producers regardless of current global prices. Those producing nations that can print their own credit and currency--for example, the U.S. Federal Reserve--can quietly underwrite domestic production by buying shale-oil related junk bonds via proxies, effectively burying the debt.
 
Defaults? What defaults? The bonds are either refinanced via proxies or enter suspended animation in forbearance, i.e. the interest is not being paid but the owner of the debt (the Fed) doesn't care.
 
4. Oil exporters with decrepit oil-production infrastructure can be squeezed by restricting their access to the credit needed to repair/overhaul their infrastructure. Their production will decline as things literally fall apart.
 
Alternatively, cheap credit can be extended to underfunded exporters to keep production high.
 
5. A key central bank (for example, the Fed) can cease issuing money/credit and thereby trigger a global slowdown that constricts demand. If oil production remains high, price plummets as the erosion in demand takes hold.
 
6. A central bank might decide to support the price of oil not by influencing physical supply or demand but by buying up vast quantities of futures contracts. Such buying would eventually trigger a short-covering rally that would push the price of oil significantly higher, at least in the short-term, regardless of physical supply-demand.
 
These are a few of many possibilities of asymmetric warfare that could be applied to the price of oil.

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 01/07/2015 - 12:21 | 5632851 Newsboy
Newsboy's picture

Why are $30/bbl June puts on WTI 1.7 times the amount of oil sitting in cushing?

Whose move is that?

War?

Wed, 01/07/2015 - 12:25 | 5632863 kaiserhoff
kaiserhoff's picture

Because the are "fer cheap"?

Haven't looked, but I'll bet the two year puts are even cheaper.

Wed, 01/07/2015 - 12:40 | 5632918 KnuckleDragger-X
KnuckleDragger-X's picture

They make up a number then bet on it. Of course things will suck if it turns out close to reality.

Wed, 01/07/2015 - 13:03 | 5633008 SWRichmond
SWRichmond's picture

The asymmetry between the enormous difficulty in protecting long supply chains and costly infrastructure and the relatively low cost of disrupting supply is obvious.

This simple fact seems to escape "them". They believe they can control everything with force, and it is so remarkably obvious that they cannot. The power of assymetric warfare is illustrated by the most powerful military on the planet being unable to subdue and economically control Iraq, a land mass the size of Texas, using all of the means at their disposal: force, bribery, threats, payoffs, alliances, etc. it didn't, and doesn't, work. But they keep trying it like it does. Amazing.

It is so much simpler to fuck things up than it is to build and maintain them. How many times have we tried (unsuccessfully) "winning hearts and minds"? How many more times will we try? Using force only pushes people off the fence and into the camp of the resistance. It's almost as if human liberty terrifies them.
Wed, 01/07/2015 - 14:56 | 5633603 Chupacabra-322
Chupacabra-322's picture

I simplistically explained this issue to a buddy of mine at the gym & his head almost exploded. Especially the part of the FRN / Criminal Fraud UNITED STATES, CORP. INC aspect.

Wed, 01/07/2015 - 16:25 | 5634098 Money Boo Boo
Money Boo Boo's picture

 How many more times will we try?

 

Over and over again!

The use of force is a symptom not a result, it's the symptom of a regime using economic terrorism first to control either a specific commodity (like oil) or an entire economy (Russia). When this fails, the ball is turned over to the MIC thugs for them to resolve. Vietnam, Nicaragua, Venezuela, Honduras, Cuba, Iraq and on and on it goes

Thu, 01/08/2015 - 21:54 | 5639909 bitterwolf
bitterwolf's picture

Well said."it's almost as if human liberty terrifies them."

Wed, 01/07/2015 - 12:24 | 5632856 hedgeless_horseman
hedgeless_horseman's picture

 

 

A central bank might decide to support the price of oil not by
influencing physical supply or demand but by buying up vast quantities
of futures contracts.

Might?

Jeffrey Skilling is in prison for doing what our government does most every day.

Such buying would eventually trigger a
short-covering rally that would push the price of oil significantly
higher, at least in the short-term, regardless of physical
supply-demand.

lol

Ask the bond vigilantes about that, if you can still find one.


Wed, 01/07/2015 - 12:25 | 5632869 LawsofPhysics
LawsofPhysics's picture

They might also physically store oil in tankers before releasing those reserves and shorting as well.

Paper fucking games and "mark to fantasy" everywhere with 7+ billion and growing...

fuck em, get long anything of real value, including guillotines.

Wed, 01/07/2015 - 12:41 | 5632925 KnuckleDragger-X
KnuckleDragger-X's picture

Storage only works to a certain limit but it usally works, this time it might not which could be interesting.

Wed, 01/07/2015 - 12:56 | 5632933 hedgeless_horseman
hedgeless_horseman's picture

 

 

 

Those producing nations that can print their own credit and currency--for example, the U.S. Federal Reserve--can quietly underwrite domestic production by buying shale-oil related junk bonds via proxies, effectively burying the debt...for the mother-fucking win!!!

BONUS: Adds to GDP and therefore enables even MOAR debt...double plus good!

The Hockey Stick is alive and well thank you very much.


Wed, 01/07/2015 - 13:35 | 5633095 falak pema
falak pema's picture

Now its hitting the ZH crowd how brilliant the petrodollar construct was and WHY Reagan took it away from the salaried consumer to feed the Oligarchs. Dry up the inflation amongst the sheeple and pump it up amongst the US eagles.

The financial construct, all on steroids and outsourced cheap labour, will only come down :

1° When creditor nations pull the plug on petrodollar.

2° When there is war that costs more than what the US economy can sustain.

Maybe the Saud play is a signal that the petrodollar coalition is cracking from within. 

Putin of course is all about the two options converging from outside the coalition.

China is playing wait and see; as it has a lot of skin in petrodollar currency holdings.

2015 is all about the Eurozone now having to choose which way it leans. (As with the Trans Pacific coalition that Potus and Red team want to give the oligarchs).

Wed, 01/07/2015 - 14:27 | 5633469 LawsofPhysics
LawsofPhysics's picture

Pretty good summary. The petrodollar will continue only as long as people want to use it during the exchange of real goods and services.  Full "faith" and credit and all that.

same as it ever was...

Wed, 01/07/2015 - 12:28 | 5632870 Ignatius
Ignatius's picture

Speculation in the breadstuffs of the nation, isn't this fun!

Wed, 01/07/2015 - 13:50 | 5633258 The Wizard
The Wizard's picture

"Might?

Jeffrey Skilling is in prison for doing what our government does most every day.

Moral of the story: don't try to compete with the government, I mean the FED. It's too difficult to figure out who the government is nowadays.

Thu, 01/08/2015 - 22:04 | 5639946 bitterwolf
bitterwolf's picture

Yes....and ALL possible because...gold aint money.....see...its whatever the maker of the rules of the GAME say it is....and if you dont like it welcome to regime change...economic warfare...drone asassinations...midwifing ISIS into your countries...etc..et al....and lots more new rules for a new game down the road.....

Wed, 01/07/2015 - 12:23 | 5632860 Ignatius
Ignatius's picture

In the end my car runs on refined oil, not "the price of oil."  Or was I just dreaming?

Wed, 01/07/2015 - 12:32 | 5632889 Emergency Ward
Emergency Ward's picture

The next generation of hybrids is designed to run on junk paper.

Wed, 01/07/2015 - 12:36 | 5632905 nuubee
nuubee's picture

Why would that need to be a hybrid? Junk paper is already a renewable resource.

Wed, 01/07/2015 - 12:47 | 5632946 SWRichmond
SWRichmond's picture

Mere junk paper, or rehypothecated junk paper?

Wed, 01/07/2015 - 13:21 | 5633137 nuubee
nuubee's picture

I think the rehypothecated would burn cleaner, but it's a lot more volatile.

Wed, 01/07/2015 - 14:11 | 5633397 sleigher
Wed, 01/07/2015 - 12:26 | 5632865 quasimodo
quasimodo's picture

It's good to know our fearless leaders are stockingpiling this cheap oil in our strategic reserves by the VLCC loads. I would also bet they are paying for most of it with gold.

 

 

Wed, 01/07/2015 - 12:36 | 5632900 unionbroker
unionbroker's picture

when money cost nothing there is nothing you cant do

Wed, 01/07/2015 - 12:38 | 5632911 nuubee
nuubee's picture

I agree, let's go to Mars on junk bonds.... Hey, it's a much more useful goal than just sitting on a pile of paper.

Wed, 01/07/2015 - 12:43 | 5632934 KnuckleDragger-X
KnuckleDragger-X's picture

There is always a price to be paid but if they aren't the ones who have to pay it they don't care.

Wed, 01/07/2015 - 12:44 | 5632936 VWAndy
VWAndy's picture

HH beat me too it. Might my ass. By controling the relative values of oil and the usd they have tremendous control of most economies.

Wed, 01/07/2015 - 12:49 | 5632945 Son of Captain Nemo
Son of Captain Nemo's picture

And why not?...

Just like this one oil and gold are another set of tools to annihilate those other players that have them when the powers that be gave them up only to acquire them somewhere down the road at the looting price whenever they see fit to do so!

Only this time I'm pretty damn certain they will have to go to war to make those late acquisitions possible, and the only way to achieve that is through mass psychological warfare and terror both economic and other. Can't stir shit up at home and expect that Americans in the middle of a manufactured racial crisis with the "to serve and protect" crowd will also be eager to fight and die abroad after 14 years of "losing"!

Trouble is they've overplayed their hand with 9/11 and too many within the professional intelligence community are ready to pack it in and call it a day to say: Sorry we fucked things up so miserably for the rest of you as well as ourselves... It's all a fucking lie that didn't work and won't work!  Sorry we didn't care enough about the rest of you to make it stop!! We're so fucking stupid to have carried the water this long!!...Ain't worth thermonuclear war with the two Countries that just happen to be the most important bankers to the U.S.'s debt!!  Like the bankers that pay us and have been systematically "killing themselves"... Time for a New Year's resolution to invest in that "nail gun"!!!  Should have done it 6 years ago when it was so much less embarrassing!!!!! 

To a.k.a. Ed Snowden in the professional IC.  Why the fuck didn't you come clean when Goldman Sachs bailed itself out 7 years ago?  You knew what was coming, and you knew all along who pays your salary??? 

Stupid Fucks!

 

Wed, 01/07/2015 - 13:23 | 5633141 yrad
yrad's picture

And the "rant of the day" goes to... Son of Captain Nemo

Speech!

Wed, 01/07/2015 - 13:55 | 5633323 Son of Captain Nemo
Son of Captain Nemo's picture

yrad

I know.  I can see that you are worried. As well you should be!

Wed, 01/07/2015 - 14:21 | 5633440 philosophers bone
philosophers bone's picture

"Trouble is the overplayed their hand with 9/11"

So true.  They said "You're either with us or against us". 

Well, YOU are clearly not with US, so FUCK YOU, if those are the choices, then count me against!!

 

Wed, 01/07/2015 - 12:49 | 5632954 czarangelus
czarangelus's picture

and then asymmetric economic warfare over oil derivatives... then over securities on the derivatives... then over the derivatives on the securities on the derivatives... then a hot WWIII to burn everything down allowing the bankers to get away with the loot clean.

And based on my conversations with the psuedoeducated bourgeoise, they're absolutely going to get away with it. Again.

Wed, 01/07/2015 - 12:56 | 5632989 NotApplicable
NotApplicable's picture

I went to lunch with my IT coworkers yesterday only to discover they all think that NK was responsible for hacking Sony. I had to laugh in order to keep from crying, as these are network operations level people who should know better, but then again, they're blinded by false authority figures known as government.

Wed, 01/07/2015 - 13:01 | 5633006 czarangelus
czarangelus's picture

Yeah man. It's amazing how the people who should have the best tools at their disposal for seeing through the trickery and lies are so often the ones who are the most deluded. I guess it's because the System has given them so much that they feel they've got a stake in its survival, and can't or won't face up to the systematic inequalities under the law that allowed them to be uniquely empowered in the first place.

Wed, 01/07/2015 - 12:51 | 5632955 Dr. Engali
Dr. Engali's picture

Or maybe nothing has really changed except for the fact that global demand has fallen off a cliff. With seven billion people on this rock and growing does anybody really believe that we will be using less oil in the future and that exploration needs to be squashed in order to protect market share? I for one don't. 

Wed, 01/07/2015 - 12:51 | 5632958 VWAndy
VWAndy's picture

You cant outbid fiat for a stick of gum.

Wed, 01/07/2015 - 12:58 | 5632992 NotApplicable
NotApplicable's picture

Nor honest ROI.

Hence, Bizarro World.

Wed, 01/07/2015 - 13:00 | 5632997 NotApplicable
NotApplicable's picture

You can just go FOAD any time now, ass.

Wed, 01/07/2015 - 12:56 | 5632973 Last of the Mid...
Last of the Middle Class's picture

He who prints the money gets to decide who the bad guys are, and it will never be the crook in the back room printing his ass off and diluting everyone elses asset price or monkey hammering metals to keep his game in play. 

Wed, 01/07/2015 - 12:59 | 5633003 NotApplicable
NotApplicable's picture

Given there's no entity with jurisdiction over the BIS, there are no crooks, in a "legal" sense.

Wed, 01/07/2015 - 13:06 | 5633029 Last of the Mid...
Last of the Middle Class's picture

Thusly, game over. And by the way you and your progeny for the next few generations will be most excellent debt slaves.

Wed, 01/07/2015 - 13:21 | 5633128 Equality 7-25-1
Equality 7-25-1's picture

Thats what Bubble Gross said yesterday. The bastards he sold you to for 30 pcs are taking possession. Get your shit together. Remember how they looted the pensions in the 90s, couldn't wait? His sand castle won't get any special treatment.

Wed, 01/07/2015 - 13:30 | 5633180 VWAndy
VWAndy's picture

Now picture this. A fixed value coin that buys a specific amount of energy. A truly safe store of value of both the coin and the energy.

Wed, 01/07/2015 - 14:38 | 5633523 NoWayJose
NoWayJose's picture

Barrons is out with an oul services bashing article today - just as tose stocks and oil prices started to rebound. This is not a coincidence, but rather is targeted at waking up bearish algos. That is the real war.

Wed, 01/07/2015 - 18:07 | 5634653 theyjustcantstop
theyjustcantstop's picture

with less global independence on opec, BIS saw their strawman, global dependcy on opec oil slipping away, and along come 9-11-2001, and the word terrorism became the new straw man.

the big question on 9-12-2001 in america who do we declare war on, Afghanistan, or Iraq, give us proof, give us a reason to go to war.

the BIS decided on terrorism, then we can attack anyone, anywhere, continual war, continual crises, using the word terrorism, very profitable for them, which is good for the nwo agenda.

so the BIS has been redistributing tax-payers wealth at light-speed 24-7-for 14 yrs..

so the basic premise of the article is correct.

 

 

Do NOT follow this link or you will be banned from the site!