China and Saudi Arabia together, What does it mean for the US…

China Arabia Whats Next?
China Arabia Whats Next?

What happens when East meets Middle East? Who wins and who loses?

Sitting here in Southeast Asia as I write this, the news seems to be all about Chinese Premier Wen Jiabao visit to the Saudi kingdom as tensions appear to grow over Iran’s nuclear ambitions.  At stake for the Saudi Kingdom is $58.5 billion which is the amount China spent on oil with the Arab Kingdom in only the first 11 months of 2011.  To add to this, at least 11 percent of the oil hungry China’s imports come from the rogue Islamic republic of Iran.  Therefore it’s clear as the west moves to lobby sanctions upon Iran, the big losses may in fact be China.

What’s concerning here is what kind of sports will the Chinese be about this, well if I had to bet dollars to donuts, would say not good.  As memories grow old, the pacific component of World War II was driven by the embargoing of materials into Japan and while I’m not trying to say this will be World War III, it surely could lead to an economic show down on a global scale.

What folks especially in the United States are missing is that all roads are crossing in the east. As we drive our large cars and consume all that gasoline, our dollars flow east.  Then as we fill those SUVs at the super stores with goods manufactured in China, more of our dollars end up in the East as in middle with China passing the “buck” along.  This is creating an increasingly large void in the American economy as we run out of cash.  Yes we’ve waxed on this before, yet it’s growing like a malignant tumor with no end in sight other than the consumption of the American economy upon itself.

As come upon the 2012 election year, there will be discussions of illegal immigration, terrorism, and my favorite healthcare.  Yet there is one thing which matters and its critical, that one thing is the repatriation of cash and not going to be easy as it will mean a return to a greater self-sufficiency upon energy being new nuclear developments as well as a greater attempt at oil recovery in the continental US.    While yes what I say is social as well as environmental blasphemy, the fact is the horse is out of the barn and we aren’t going to revert to Amish ways in mass and forego those things which make modern life modern…

 

With this said the win here is to make the best out of what we have learned from the past as the future is all we have left…

Strategic Oil Reserve, Fact, Fiction or Plain Folly…

Fact, Fiction or Plain Folly…

Why is it every time that fuel prices spike, there is someone who wants to sell off part of the US’s “Strategic Oil Reserve” in the hope of starving off yet another specter of economic down turn?  Look folks, economic down turns are part of the capitalistic life style, as what goes up must come down it’s the law of physics as wages go up so does the cost of the goods to pay those salaries.  Sorry there isn’t any magic in all of this as basic economics drives this because you have only so much money in a given system against a specified workforce and set of raw materials (which will become products).

If logic would prevail the only reason to have a “Strategic Oil Reserve” would be to maintain the sovereignty of the nation as we currently sport a stock of two and a quarter months worth of oil on hand.  However should we need to defend ourselves or impose our influence abroad this will come at a cost of oil as the best laid plans of mice and man are driven by oil.  So we are out there imposing our influences abroad and there are many landscapes where this is likely to happen where oil might be involved, for success its key to have a stock of fuel on hand and 2.25 months is not a lot in the grand scheme of things.

So back to those pundits who are in favor of selling down the reserves in order to artificially boost the economy, what will you do the next time around as you know there will be one.  You can only sell down so far until the natural course of events must play out.  Otherwise you’re simply starving off what will become inevitable anyway.  The prime example is the US automotive industry which at the turn of millennium was in a precarious position built up over years upon questionable management decisions then came the terrorist attacks which drove them over the edge per-say.  Forcing  the practice of robbing Peter to pay Paul by offering unrealistic rebates, zero percent loans and the like which drove them even further into the red and years later this required billions in bailout dollars*.

Much like the tidal swells which built up outside the dyke’s of New Orleans during hurricane Katrina, the same happened economically in the auto industry.  Thus instead of accepting a still painful, however more “reasonable” adjustment to the business model, we staved off the inevitable and the nation instead was drawn into the bailout which dragged us towards Quantitative Easing one and its sequel two.  With this said we don’t need to be in the same boat with our oil reserves.  As even though we are sitting on an economic windfall, oil is a commodity therefore what has to be remembered is that in the long run it never gets cheaper as it always gets scarcer in supply and demand is the ultimate measure in determining prices.

Also, high fuel cost aren’t all bad in they will drive policy makers who have dodged the hard issues of high fuel costs for far too long in doing something about the consumption market place.  Included in this are the needed investments to develop alternative sources of energy as well as promoting stainable conservation methods…

*Note: It’s worth sharing we (Americans) require the auto’s to exist as in the case of war they provide our ad-hoc manufacturing backbone.