Tag Archives: Libya

Did the Feared October Surprise Arrive Early?

Image representing YouTube as depicted in Crun...

Image via CrunchBase

The killing of the US Ambassador to Libya and three of his staff, the sacking of the US embassy in Egypt and a copycat attach on our embassy in Yemen is projecting foreign policy into the heart of the 2012 presidential election campaign.  In the Middle East, the facts surrounding the attacks are still being clarified but the feigned outrage over the YouTube posted video involving the Prophet Muhammad looks more like a convenient pretext for radicals looking for just such opportunity.

Meanwhile, stuff is happening that in reaction and anticipation of more to come.

What should we make of this?

President Obama must feel blindsided by tragic events not of his making that nonetheless risk spinning out of control when he least needs to give his electoral opponent more ammunition.  Just as the President hoped for a bump in the polls after the Democratic Party convention he finds himself stuck in the mud of what some are trying to characterize as Iran 1979 all over again with the embassy attacks taking place on the anniversary of the 9/11 attacks.

Governor Romney calls the president’s foreign policy feckless and failed trotting out the ‘apology tour’ videos and telling the likely voters—See!!!!  The president’s weak positions of national defense and weak position on projecting American strength internationally are leading to more insecurity. But if he presses too far he risks looking like piling on when America is vulnerable.

The President then steps in it big time by telling the Israeli Prime Minister he is too busy campaigning to meet with Netanyahu over Iran.   Israel smacks him upside the head by telling the world just that only souring an already bad relationship.

The President of Egypt takes a LONG TIME to condemn the embassy attack in Cairo.  Not a smart move for a government that counts on $1.5 billion of US military aid each year.  Republicans call for suspending US aid to Egypt and Pakistan and Afghanistan in retribution for the attacks and the lack of confidence that these places are really friends.  Even the president says that Egypt is NOT an ally, but neither is it an enemy.  HUH? Are you kidding me?  This really is amateur hour at the White House!

Behind the scenes these events in the Middle East, upon reflection, look TOO planned, TOO well timed, TOO orchestrated to be coincidence.  Is this Iran’s hand at work through proxies?  Are the jihadists really able to orchestrate such large scale multi-faceted events—again?

So What?

Part of me just wants to take two Tylenol PM and get a good night’s sleep hoping these crazy events will blow over and things will be better in the morning—-it won’t!  The fear is this is just the start of a period of skirmish, displays of plumage and posturing stunts designed to undermine the credibility of the US in the Middle East before Israel bombs the holy crap out of Iran in an effort to degrade the nuclear option, buy time and force the Obama team to come to its rescue BEFORE the election—or else.

That is the President’s real October surprise nightmare scenario.   And the jihadists know just as they knew in Iraq when Sunni insurgents attacked Shi’a causing a counter reaction.  Or when Iran tells Hezbollah to lob rockets into Israel.  Stuff happens!   Are the people of Egypt at fault because stuff happens?  Of course not.  Do they run into the street waving American flags and cursing the jihadists because Americans are their friends, of course not.

We are at the crazy time in our electoral cycle and the international trouble making cycle that symbolic dates like 9/11 or Election Day bring out the troublemakers.  We should expect it, but we don’t have to like it or overreact to it.

The Administration is trying to contain the violence by condemning the You Tube video the jihadists claim provoked it. This is worse than dumb.  The American Government should be defending the American value of freedom of speech not make apologies for it pandering to terrorists.  WEAK!  WEAK!  WEAK!

But there are also lessons for Muslims.  Chill out people!  Don’t let a bunch of nutcases hijack your religion.  And cut us a little slack will you, we believe in freedom of speech and not everything that comes out of someone’s mouth or shows up on YouTube is justification for stupid behavior on your part. Get over it!

The worry is this is only September and the October surprise is yet to come before election day.

Should we Prepare for Oil Price Spikes Ahead?

This graph shows the development of oil prices...

Oil Prices (Brent) over 10 years in Dollars and Euros via Wikipedia

Now that the Obama Administration and the International Energy Agency have teamed up to release 60 million barrels of oil from strategic reserves in a politically timed move to drive down oil prices what should we anticipate the reaction and counter reaction to those moves will be?

Short Term Gain, Long Term Pain?

If the politicians wanted a ‘feel good’ press release experience from their action they got it as global oil prices fell 5.5% the first day but by the second day they had begun to creep back up slightly as the markets digested the true significance of the action and speculated on what it meant for the future.

To put the action taken in context, the 30 million barrel release from the U.S. strategic petroleum reserve (SPR) is about 4% of total reserve but those reserve levels are high with 727 millions barrels of oil on hand.  So President Obama had the reserve capacity to take this action but needed to decide whether the big bang short term impact of releasing the reserves to bring down prices was worth the risk of a big bang counter reaction that might pike oil prices even higher at a future time.

The calculus for the Europeans is about the same since the IEA’s 30 million barrel release represents about 5% over total reserves, but the IEA has made unexpected oil releases in the past and on three separate occasions the result was a counter reaction of higher oil price spikes down the road.

The question is ‘do you feel lucky’?

For economists and corporate executives these are long term strategy decisions, but for politicians these are short-term choices revolving largely around when the next election will be, what bad can happen between now and then, and how can to divert accountability for this problem to others. For consumers the result is often higher retail prices since the typical market action for falling wholesale prices is to reduce prices slowly while wholesale price spikes result in rapidly increasing retail price response.

The Europeans have a more legitimate short term worry from the disruption of Libyan oil but cheating on production quotas is historically common among OPEC and non-OPEC market participants.  Given relatively weak demand due to the weak recovery the short-term disruption seemed manageable.  The EU could actually improve that situation if it got off its hands to step-up action by NATO to unseat Col Gaddafi rather than dither and drag out the conflict.  But cheating alone by oil producers will likely be enough as oil prices stay high or creep higher.

Higher Risk of Oil Price Spikes

The bottom line for politicians responsible for this strategic petroleum release action is not likely to be very satisfying.  Oil prices will not go down measurably at the gas pump or stay down long enough to improve consumer confidence or make a positive impact on the economy.  But price volatility will increase and the risk of even higher prices from worry and speculation about the impact of future supply disruptions given smaller reserves could actually make things worse.

Back to consumer confidence for a minute, the lack of confidence is one of the biggest factors in holding down growth.  It is caused by uncertainty about the policies being used by politicians and their impact on business and job creation.  In the US, the huge federal deficit, the huge uncertainty over health care policy and costs, the threat of higher taxes, higher inflation and more regulation in financial, investment, environmental and employment areas is causing business to hoard cash and hunker down.  It is discouraging consumers fearful for their jobs, with houses with negative equity as home prices fall, and fear of loss of health insurance and of rising inflation starting with those gasoline prices.

If politicians want economic growth and improved consumer confidence they must deal with these uncertainties in real and constructive ways to unleash investment, encourage consumer spending and stabilize housing prices.  Political stunts like the SPR release avoid the real problems and add even more uncertainty and volatility in an already nervous market environment. It is both economic and political malpractice.

Will Middle East Turmoil Change America’s Energy Strategy for the Better?

The events in the Middle East are a stunning reminder that we live in interesting and dangerous times.  The Middle East has always been unpredictable, volatile and sometimes hostile place but our dependence upon oil imports has forced America to do business with some unsavory characters.  Our only consistently reliable ally is also the only democracy in the neighborhood.  So if America is worried about its strategic interests in the Middle East you can image the anxiety in Jerusalem.

One look at Figure 1 above from the US Energy Information Administration describing the sources of much of the world’s conventional oil drives home the point much better than my next one-thousand words about why we need a national energy strategy that protects our strategic national interest now more than ever.

While the youthful enthusiasm of protesters in Cairo, Bahrain, Tunisia, Jordan, Libya and elsewhere offer the promise of a better life, more freedom and democracy in the region such an outcome is not a sure thing.  Filling our gas tanks at prices we can afford and keeping our economy on track for recovery are as important as these events in the Middle East.

We know how to fix this, but it requires determination and a willingness to break with past and current policies that don’t serve our strategic interests.

There can be good news in these changes as well as heartburn.  Do we really need to use all that oil to ship raw materials and finished goods around the world several times?  Could we save oil, bring home jobs and keep more of our money by changing our tax code and regulations to build more of what we need right here at home?

This is just one more wake-up call that we need to realign our spending, tax code and regulations with our strategic priorities if we’re going get America’s mojo back.