Iran: This week could be the beginning of the end for one side or the other

As I wrote in my blog earlier this week entitled “Iran: Whispers from within the State Department and the Foreign Office,” the word from colleagues in the State Department and the British Foreign Office is that the Supreme Leader, Ayatollah Khamenei, cannot let the demonstrations last much longer.

As Supreme Leader, Khamenei, is superior in governmental matters to Ahmadinejad, and just as the Ayatollah declared the election was decided yesterday, the Ayatollah could declare, after the upcoming 10% recount, that Ahmadinejad had lost.

Of course that is hardly likely.

What is known however, according to my whispering colleagues from State and the BFO, is that the the religious leaders in Iran are seriously split over the demonstrations with approximately 1/3 supporting Ahmadinejad, 1/3 Mousavi, and 1/3 undecided or aloof.

This split is critical because the position of Supreme Leader is an elected one, not by the people, of course, but by the Assembly of Experts. This group of 86 Mujtahids (Islamic scholars), could depose Khamenei, especially if the demonstrations are repressed today or over the next few days in a Tiananmen Square horror.

One important wild card regarding the Assembly of Experts is that it is headed by Akbar Hashemi Rafsanjani, President of Iran from 1989 to 1997, who lost to Ahmadinejad in 2005. Unlike Khamenei, Rafsanjani is a moderate, “support[ing] a centrist position domestically and a moderate position internationally, seeking to avoid conflict with the United States.”

Peter B. Hayward

Social Justice – We need to strive to change what we cannot accept for our all fellow human beings. We do not have the option of silence.

Copyright © 2009 Peter B. Hayward. All Rights Reserved

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Iran: Whispers from within the State Department and the Foreign Office

One advantage of passing 60 is that colleagues from your graduate studies in the US and England are often in senior positions in the US or UK government.

I attended two universities from which graduates found access to the ranks of the State Department and the UK Foreign Office. I hear from my friends on an occasional private mailing list, and right now, there is a circle of emails rapidly flowing from the bowels of each county’s foggy bottom about the crisis in Iran.

First, some background. President Mahmoud Ahmadinejad does not have the same powers as does President Obama. That responsibility is held by the Supreme leader, Ayatollah Khamenei.

Khamenei controls the Judiciary, the Police, the National Security Council, and appoints the heads of the Islamic Revolutionary Guards. Khamenei countered Ahmadinejad’s statement that Israel should be “wiped off the map” by saying Iran “will never threaten any country.” Ahmadinejad does not even have the ability to tell the military to bomb Israel.

Khamenei alone has the power to overturn the results of the election or, alternately, to clampdown on the demonstrations in a Tiananmen Square horror.

So the buzz amongst the experts on this mailing list is as follows:

As is well known, Mir Hossein Mousavi, Ahmadinejad’s primary candidate in the multi-candidate election is no rebel or outsider but a member of the establishment. His candidacy, however, was latched onto by democracy starved students and middle classed Iranians who demonstrated their support prior to and after the election in a manner totally unexpected by Khamenei. The Supreme leader, according to the experts, had grown weary of Ahmadinejad’s saber rattling on the international stage which had lead to a marginalization of Iran.

One does not get on the ballot in Iran without Khamenei’s approval, and Khamenei believed that as an establishment figure, Mousavi could placate the West and allow movement towards the development of widespread nuclear power (not weapons), Khamenei’s long held goal, stymied because of Ahmadinejad’s threat to develop nuclear weapons.

What Khamenei did not anticipate, because of the closed nature of Iran, was the development of the incredible support for Mousavi. The students and the middle class knew he came from the establishment, but their hope and belief was that, if elected, Mousavi would move the country towards democracy.

As female diplomat from State wrote in an essay on the list this week: “Mixing democracy and theocracy is even worse than mixing gas and water. Doing the later dilutes the gas making it harder to ignite the gas; mixing democracy and theocracy makes inevitable and the explosion greater .”

Those at State and the FO indicate that as the University and middle class agitation increased prior to the election, Mousavi “saw the light” and sent messages to France, the UK and the US indicating that he would take strong pro-democracy and pro-west stances that might not be evident in his history.

Obviously, the heads of these countries could say nothing of this, as is witnessed by President Obama’s statement today “the difference between Ahmadinejad and Mousavi in terms of their actual policies may not be as great as has been advertised.”

Obama had little choice: to say otherwise, according to the list, would be to endorse Mousavi, and thus cause Khamenei more worry. In diplomacy, as in Obama’s basketball, you feign one way, and with the State department or Foreigh Office, through a backchannel, you go another.

And the list indicates that the backchannels are working overtime.

With pro-democracy, pro-Mousavi demonstrations of well over 100,000 every day in Tehran, the Republican Guard are pressing Khamenei to take action. The buzz from the State Office and the FO is that if it goes into another week, Iran’s theocracy could be greatly weakened.

Today’s mailing circle around the possibility that Thursday MAY be the big day. While TV and newspapers have declared the day to be Friday, the mailing list points out that would be illogical as Friday is Jumma, the day of assembly when men must pray for 2 hours beginning at mid-day. That alone would take the steam out of any demonstrations prior to 3 PM.

Already several Mullahs have broken from Khamenei, and are marching in the demonstrations; a number of women have been seen without head cover in Western coverage of the demonstrations; and one commentator on CNN estimated that half of the demonstrators’ signs were in English.

In the event Thursday is not the day, it is not because my colleagues in Washington or London were wrong, but it is instead that Khamenei and the the forces within Iran, being as Iran is largely an enigmatic State, are still twisting and turning.

Peter B. Hayward

Social Justice – We need to strive to change what we cannot accept for our all fellow human beings. We do not have the option of silence.

Copyright © 2009 Peter B. Hayward. All Rights Reserved

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Why is gas so high? Because it is being manipulated again.

Remember Fall 2007 and Spring 2008 when heating oil was above $4+ a gallon, gas the same, and in July the price of a barrel (bbl) of crude oil hit $147?

Well, unless you are a fact freak like I am, you might not remember the $147 number, but at that time we were projecting $8 gas, thinking about wind turbines on Munjoy hill, about clear cutting the Northern woods of Maine for firewood and pellets, everyone was buying wood and pellet stoves, and the Government worried about people actually freezing to death over the 2008/2009 Winter.

Then something strange happened: the price of crude oil plunged $20 over two weeks to $125, then to below $100 by September 15, and finally on December 21, crude was trading at $33 a bbl.

Why? Did we drill, baby, drill? Did we discover a cheap way to extract oil from shale rock? Did the idea of biodiesel cars running on french fry fat from McDonalds force the oil producing countries to lower the price of crude?

Nope.

Common wisdom is that the slide started when America and much of the world cut back on demand, largely by driving less. However, I contend that the documented 4% – 6% drop in demand experienced in the US could not have caused the spectacular collapse from $147 to $33.

Rather, I believer it is because the speculators were caught, or about to be caught with their feet on the accelerator pedal.

In late June and the first weeks of July, the Congress was laying the ground work for an investigation into speculation of commodities trading in crude futures.

Here is how commodities trading works.

Let’s say I win $50,000 in the Megabucks and want to spin the wheel.

I can buy a futures contract on just about any commodity: wheat, copper, pork bellies (bacon), and yes, crude oil, for a future delivery. Farmers like this trading because they obtain their money even before the seed goes in the ground. However, most traders do not get in at the beginning – buying a contract from the farmer – but at some time later.

As with any trading, I am buying the contract at a price at which I believe I can make a profit at some time down the line. I may hold this contract for a month or for a day based on changes in the weather, the economy, international politics, etc. Anything can drive up (or down) the price of the contract.

Or I might get together with friends who have billions of dollars, and buy so many contracts that supply and demand simply drives up the price. And institutions like pensions and cultural institution endowments might jump into the game with me when they see a chance of a big, easy profit.

During Fall 2007 and Spring 2008, speculators were wildly bidding up the price of crude oil, even though there was no shortage of oil, there had been no oil field failures, the pipelines were flowing on 3/1/2008 at the same rate they were flowing on 7/1/2007. Hedge funds, largely made up of overseas billionaires pooling their money to buy oil futures on margin (ie., with maybe only 30% down) were driving up the price of crude. There was talk that major American cultural institutions were in on the game.

There were no speculation in crude between March 2007 and the end of August 2007. Crude traded between $62 and $74. By November 2nd the price had jumped to $95, by April 11, $116, by May 23, $131, and July 11, $147.

And as I noted, then came the announcement of a planned inquiry, and the price dropped $114 within five months.

So what is happening right now?

On Tuesday, the price of a barrel of oil closed at $70.01 for July delivery.

According to the US government’s Energy Information Administration (EIA), the national average price of gas on June 9 was $2.62, almost 60 cents more than at the end of April, less than six weeks ago. The EIA projects that the average price of a barrel of crude in the second half of 2009 will average $67, up $16 from the first half.

In January, the EIA predicted crude would average $43 for 2009 and $54 for 2010; the average price of gas for 2009 would be $1.87. The EIA projection was accompanied by the statement: “The oil price path going forward will be driven mainly by the depth and duration of the global economic downturn, the pace and timing of the recovery, and actual OPEC production.”

In the first week of May, the EIA projected that gas would average $2.12 for the year. Coincidentally, that is the week that crude began its jump from $50 to $70.

The oil is still coming out of the ground, the American storage tanks are full; the economy is still struggling. From the economic law of the supply and demand we would expect the price of crude gas to go down, but the prices are still going ups.

Why?

The speculators are back in the market, and the Congress has other things to worry about than a 60 cent increase in the cost of gas in less than six weeks.

The speculators are playing because the value of the dollar is falling on the world market as a result of President Obama’s borrowing to fund his spending, and a lower dollar makes futures trading on crude even more attractive. As more come to play and the price up, the speculators make a paper profit on every uptick of the contract. And remember, these the $70/bbl amount quoted before was for July delivery; the wheels are only beginning to turn for contracts with September, October, etc, delivery.

Speculators are also playing because they are anticipating a global economic recovery with increases in oil consumption very, very soon. Why do I say very soon. Because of where the oil is located.

So where is the oil?

It is in tankers, lots of tankers off the coasts in calm waters. That way, it can’t be counted as inventory by any country. On May 10 it was reported that 100 million bbls of crude and 25 million bbls of refined products such as gas were in tankers off Europe, West Africa, the U.S. Gulf and Asian ports.

In that report, the 125 million bbls would represent nearly 3 days of oil demand for the OECD (the 30 major developed nations of the world). On June 4, Reuters reported that the world-wide energy conglomerate, Total, was storing 100 million bbls in land and sea storage. It is highly probable that the oil in floating storage was purchased at late winter contract prices about $40+ bbl.

On Wednesday, the EIA released its weekly report on crude, gas and other petroleum inventories, and largely on the basis of this report, crude jumped $1.32 from Tuesday to close at $72.33. The EIA reported that crude inventory dropped nearly 4.4 million bbls during the week, but noted that the crude inventories are still “above the upper boundaries of the average range for this time of year.” Gas inventories dropped by 1.6 million bbls and and are below the average range.

I paid $2.67/gallon for gas Tuesday before the market closed; it should not be at this level. As I wrote this Tuesday evening, it had already been increased because of crude closed higher. As I update this Wednesday afternoon, it is higher again..

The world is awash in crude. And when the price of crude jumps by a dollar on the commodities market in Chicago, that should not instantly make the gas in the tanks in the gas station across the street be worth more — the crude that made that gas was probably bought in January, but the price still went up this evening.

Last year, we were able to have an impact on the price of gas and oil and the speculators.

1) Congress called for an investigation into the incredible run up in the commodities market.

2) With gas at $4+ a gallon, we drove much much less and our reduced demand resulted in a slow down in consumption and an increase in inventories.

This summer, the inventories are neither in the ground nor in the refinery holding tanks, they are literally at sea. I am told the situation is so bad navigating the Strait of Malacca between Indonesia and Thailand (through which 25% of the world’s oil is moved) that some supertankers that normally use that passage to Japan or China have to take the more dangerous southern route.

To mix metaphors, we at at sea and over a barrel on this one. I do not believe we will see $4 a gallon gas or oil this winter, but unlike the EIA, I think $3.10 is a very real possibility by December 15.

Update: July 6

Yesterday The New York Times, always slow to the mark, ran a article on the volatility and its impact on the recovery, To its credit the NYT accompanied the article with an excellent IMF/Bloomberg chart of the price of crude adjusted for inflation since 1983. Note the price hovering at or below $30 a bbl from 1986 to 2003 until the commodities market manipulation and then the fall back to that level last December.

The chart implies a fact that I poorly referenced in the blog; as the crude market has climbed rapidly since 2000, the crude market was already being manipulated with no really significant demand/supply imbalance to justify the rapid growth in the price.

Peter B. Hayward

Social Justice – We need to strive to change what we cannot accept for our all fellow human beings. We do not have the option of silence.

Copyright © 2009 Peter B. Hayward. All Rights Reserved

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Personal Reflections on D-Day

Each June 6th, I honor the D-Day landings, and I think of my Father’s dangerous duty on that day nearly 6,000 miles away.

On the five year commemoration of the landings, I glue myself to the television, and I think of the incredible 160,000 Allied troops that landed on the beaches of France that day, and of the 1 million troops that would be landed on the continent by July 1.

Allied casualties on D-Day (killed, wounded and missing in action) are estimated at 10,000: killed were approximately 2,500: 1,465 American, 676 British, and 359 Canadian. The precision of the prior numbers is very misleading in light of the word “approximate.” The missing in action figure for casualties has never been resolved into killed, and exhaustive research by the National D-Day Foundation has documented 2,477 American dead on D-Day. Each few months Allied bones wash up on the Normandy beaches.

Often forgotten is the fact that in the two months leading up to D-Day, the Allies lost 12,000 fliers in air operations which prepared the way for D-Day.

Nearly all of the troops landing that day on the beaches of France had never heard a shot fired in battle.

On that June day, my father was a quarter of a world away doing what he did six days a week, serving as a bombardier in the Army Air Corp. He analyzed sites and worked out difficult, precise mathematical formulas. Then in the air in a massive bomber over Japanese-occupied China, he released bombs at the exact moment miles before the target.

Bombing raids such as these prevented Japan from continuing their drive further into South East Asia and Australia.

My father, of course, knew nothing of what was happening on D-Day until the news started to leak out over shortwave radios. The Army Air Corp withheld the official information for some time so as not to distract the airmen from their missions.

D-Day, and the A-bombs dropped on Japan were certainly the driving forces that made the end of World War II inevitable, but we must never forget that D-Day was one step of many, and that the American deaths on D-Day were but a part of a incredibly large number.

If the Normandy beach landings had failed, it would have taken longer, much, much longer to defeat Hitler, but in the end the Axis powers would have been defeated.

Approximately 416,800 Americans soldiers were killed in World War II.

My father avoided the gun fire from the ground and from Japanese planes that doomed other bombers, and he came home to South Portland.

Three years and one month after D-Day I was born.

Peter B. Hayward

Copyright © 2009 Peter B. Hayward. All Rights Reserved

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