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Quick jump to below stories:
Iran may face naval blockade in Arabian Sea
The Death of the Dollar
Cape Wind damage
World's thirst for oil makes falling output worse

Iran may face naval blockade
in Arabian Sea

"Island Occupation" issues: will there be a worldwide show of force?

Sudhir Chadda
India Daily
March 15, 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Iran is facing possible US Naval blockade. According to popular Radio shows in America, there is a strong rumor that US is going to put Navy fire power around Iran and stop Iran from selling any oil through the sea routes using merchant navies.

In the middle of this Iranians kept their hard word on Bush up. The naval blockade is designed primarily to stop Iran from delivering oil to other countries especially China.

According to sources, US wants to make Iran come to an understanding that they will not be allowed to have nukes. The million dollar question is what will be the impact of the naval blockade on Iranian economy?

Another major issue has come into focus. Abu Musa and the Greater and Lesser Tunbs islands will always belong to Iran, an Iranian Foreign Ministry spokesman said March 14. The Persian Gulf Cooperation Council (PGCC) released a statement that backs the United Arab Emirates'' claim to the islands and calls Iran's presence an "occupation." The spokesman said the PGCC statement has no legal basis and will not help to remove the misunderstanding of a 1971 agreement on Abu Musa Island.

The island controversy with UAE will also put pressure on Iran. Iranians though are looking towards China for help. The Chinese are in deep-rooted contracts with Iran in getting oil delivered for the world's fastest growing economy. There are indications that China may throw in Veto power in favor of Iran in the UN Security council. The wild card is what will China do if and when Iran faces a naval blockade?

The other wild card is what will Iran do on the controversial island issues. But the most likely outcome is that the Europeans will be able to find a solution with the Iranians and avoid the all out war against Iran.

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The Death of the Dollar

By Jason Hommel
March 18, 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

Caesar was supposed to be a god. Julius Caesar was killed on the Ides of March.

Today, we don't make men gods. Instead society has made our financial system into a false god.

On March 15th, 2005, (the Ides of March) we may have just witnessed the beginning of the death of our financial system as General Motors stock took a nosedive from $34/share down to $30.

It does not seem like much (GM down just over 10% in one day), but as of March 17th, the stock is down to $28.35, and the market cap is down to $16 billion. (GM is down nearly 18% for the week.) It's the type of volatility that we usually only see in silver stocks!

What does this mean?

GM's stock price decline is like a dagger right into the heart of the U.S. financial system, and the dollar itself!

Why did it happen?

Apparently, someone in power did the equivalent of shouting "the emperor has no clothes" and people woke up, and are beginning to see more clearly! The media decided it was time to expose the truth that GM is nearly insolvent, and will expect to lose $1.50/share in the first quarter alone!

But the story is worse than that! GM has $300 billion in debt

...and has a market cap, now, of $16 billion. See the problem there? The bondholders could buy the company nearly 20 times over if they used their money to buy stock instead of loan it to the company. The implication is clear--that GM is headed towards bankruptcy, and will default on the bondholders, who will then own a company worth less than $16 billion dollars!

For every one point that interest rates rise, refinancing GM's debt will cost an additional $3 billion in annual interest payments -- money that they clearly do not have! Where is GM going to get another $3 to $6 to $9 billion as interest rates rise by 1%, 2%, and 3% more? Selling cars? Nope. Selling stock? Unlikely in this market! Borrowing more? From who? The U.S. government itself is propping up this bond market, and there are no buyers even for U.S. bonds, and there haven't been for months now!

So, therefore, GM will soon be a $300 billion dollar blow-up!

How big is that? It's bigger than Enron, Global Crossing, LTCM, K-Mart, and the IRAQ war all put together!

$300 billion going belly up is a big enough event to topple the U.S. government! How so? It will shake the confidence in the entire financial system. Companies as big as GM are not supposed to go bankrupt in our "normal" world. They are "supposed" to be "too big to fail".

The value of the "official" U.S. gold hoard of 261 million oz., at $440/oz. is only a mere $115 billion.

See what this $300 billion blow-up will mean? Imagine the financial chaos as a pile of wealth almost three times larger than the current value of the U.S. "official" gold hoard evaporates!

The annual deficit is around $700 billion. How will the U.S. government sell bonds to finance the deficit if bondholders are getting wiped out?

If the government can't sell bonds while running a deficit, then the government must simply be printing money to fund the deficit--and they are, as can be seen in the rate of growth of the money supply, M3! Therefore, inflation is raging, and interest rates must keep pace, which is why GM is doomed!

Interest rates must head up, as confidence in the U.S. dollar bond market will be shaken like a tree in a hurricane!

Foreign nations are all sounding the alarm already that they will be selling U.S. bonds to diversify the holdings of their central banks: Russia, India, China, South Korea, Japan... what major foreign nation is left to buy them?

A tsunami of dollar selling is about to begin, and will make the recent dollar decline seem like a small bump in the road.

It may take a few months for this to play out. You may have time to buy silver at under $10/oz. for a few more weeks or months. But after GM declares bankruptcy, which may take between 3 months to a year, get ready for the dollar to crash by more than 90% in the following 6-12 months.

Germany's hyperinflation in the 1930's took about a year and a half. Recently, Argentina's took place nearly overnight. Who knows which way the dollar will die, whether a quick death, or a more slow and painful one?

Either way, the dollar is dead. Long live gold and silver!

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Cape Wind damage

By Henry Lee
The Boston Globe
March 14, 2005

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

As the battle over whether to site a large wind farm off the coasts of Martha's Vineyard and Cape Cod continues to rage, a number of critical points seem to have been forgotten or ignored. Certainly, locating any large project within eyesight of wealthy coastal communities is asking for trouble since its inhabitants will have no trouble hiring high-priced lawyers and lobbyists. But there is a larger set of issues at stake.

Massachusetts is one of the few states in the country that has decided to address the climate problem and restrict carbon dioxide emissions from power plants. On paper, it has extolled the virtues of renewable energy and has put in place requirements that will force its utilities to purchase an ever increasing amount of their power from renewable sources. At this time, the only feasible renewable option for meeting a significant portion of these requirements is to build a measurable amount of wind generation. Since no one is suggesting that the state or federal government build this capacity themselves, private developers have to be willing to step up to the plate and invest their money to meet their goals.

Opponents make several arguments. First, the developer is trying to site the facility in the wrong place, and if he would move it or if someone else would propose a wind farm in another location, the reception would be different. There are two faults with this argument. No one is proposing a large wind farm in another location, and there is no location that would be free of well-heeled opposition. The reality is that even moderately sized energy projects have an environmental footprint. The developer and the government can do their best to reduce the footprint or compensate for it, but they cannot make it disappear.

Until a project receives a permit and financing, all costs are paid out of the developer's pockets. The longer the permit process is extended, the harder it is for the developer to bear the growing expense of keeping the project alive. In reality, the opponents do not have to persuade the government to reject the permit application; all they need to do is stretch out the process and the developer is likely to throw in the towel.

If this happens with Cape Wind, why would any sane investor expose himself to this same risk off Gloucester or Hull or even out in the Berkshires? The citizens who live in these areas can hire good lawyers just as easily as the residents of Martha's Vineyard. Maybe the government would look more kindly on another site, but it is unlikely that any developer will spend the money to find out.

A second argument is that if the project were smaller or used different wind machines, it would be vastly improved. But no one is proposing such projects. The only large-scale renewable project is Cape Wind. If it is disapproved there is no backup wind project waiting in the wings. The tendency of some advocates to pit actual projects against hypothetical, unfunded projects is not reasonable.

Finally, Cape Wind, for better or worse, has gained so much press coverage that it has become a national news story. If Cape Wind is defeated, its demise will not only impact future projects in the state and region, it will affect the willingness of investors and developers to pursue these projects in other parts of the country. The stakes have grown, and they are much higher than they were two years ago.

There is no question that for some citizens and environmental groups, wind energy has serious land-use implications and is perceived as an ''aesthetic polluter." To others it is one of the principal options for developing an environmentally sustainable energy system.

In the last four years only one wind project of any appreciable size has come forward; the Cape Wind project. If this project is scuttled, the state's goal of deriving 4 percent of its electricity from renewables by 2009 will be unattainable. Even if you believe that Cape Wind is undesirable, its demise requires all the parties to go back and rethink their electric policy and the environmental regulations that accompany it.

Henry Lee is director of the Environment and Natural Resources Program and a lecturer in public policy at the Kennedy School of Government's Belfer Center for Science and International Affairs.

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[With the presentation of Representative Roscoe Bartlett to the House of Representatives on March 14th, 2005, Peak Oil has finally been recognized by the US Congress. Dr. Bartlett's presentation should hopefully serve as a wake up call to those congresspeople who have no previous awareness of this issue. While he emphasized the necessity of conservation and a program to develop alternatives, Dr. Bartlett's presentation made no bones about how serious the problem is. He talked about the affect of peak oil on the economy and about the associated agricultural problems. And he made it quite plain that we have no substitutes adequate to replace fossil fuels. In his presentation, Dr. Bartlett gave substance to fears for the end of modern civilization. Finally, he stressed the implications of Jevon's Paradox, which states that frequently when one works to solve a problem, the solution really makes the situation worse. This happens because of limited perception: the potential solution has unforeseen ramifications outside of the problem as it has been framed. Jevon's Paradox leaves us in a situation of game theory, where if one person or country tries to do the right thing, then the other players can take advantage of that player's conservation for their own aggrandizement. The effort has to be unilateral, and the US - especially under George W. Bush - has shown that it is not interested in unilateral action or conservation, but has every intention to grab whatever it can.

Considering the nature of our political apparatus, the fact that this presentation was even made before Congress suggests that peak oil is upon us. Due to the limited scope of political perception, our elected officials are not apt to address a subject unless it is having an immediate effect upon them and their constituency. Dr. Bartlett hinted in his presentation that there is little time in which to seek an answer to this problem, but he did not say that there are many powerful forces which will be opposed to the solution. - MCR]

World's thirst for oil makes
falling output worse

By Javier Blas
Financial Times
March 15 2005 19:12,ft_acl=,s01=1.html

In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.

The Cantarell oil field, in the shallow waters of Campeche Bay, is regarded by Mexicans as their crown jewel. It is the second largest oil field in the world by production, behind Saudi Arabia's mammoth Ghawar oil field, pumping 2.2m barrels a day, the same amount as all the Kuwaiti fields together.

For that reason, Mexicans were recently dismayed when Petróleos Mexicanos, the state oil company, said that the field's production would decline this year, signalling a trend towards its depletion.

Cantarell's difficulties are not unique. Other mature oil provinces outside the Organisation of Petroleum Exporting Countries, such as the North Sea and Alaska, are now suffering huge yearly declines, constraining the world's supply of oil and helping to push up prices.

Last year's surge in oil prices was driven by the biggest yearly increase in demand since 1976. But analysts say today's high prices are the result of strong demand and a significant slowdown on oil supply growth from non-Opec countries. Barclays Capital estimates that non-Opec supply outside the former Soviet Union rose by 700,000 a year between 1990 and 2000. But since then growth had been roughly flat every year.

This slower increase in non-Opec supply is boosting demand for the cartel's oil, reducing Opec's already low spare capacity. The market takes the reduction of this cushion against unexpected shocks as a bullish signal, sending prices higher.

"We got a lot of new capacity additions, but the problem is when you net those with the declines in mature regions, you got a flat line," said Paul Horsnell of Barclays Capital. Economists at PFC Energy add: "A number of large and long- anticipated supply projects are coming on stream in 2005. However, these projects will only offset . . . declining rates in mature regions and slowing Russia growth."

Among the new projects are several deep-water platforms in Brazil, the BTC pipeline project in Azerbaijan, the Thunderhorse field in the Gulf of Mexico and the huge Kizomba field in Angola.

The International Energy Agency, the industrial countries' energy watchdog, forecast non-Opec supply would grow this year by 900,000 barrels a day, but Russia and other countries of the former Soviet Union would account for about 60 per cent of the increase.

However, Russian production, which helped non-Opec supply to achieve growth in the last year, has itself slowed significantly.

Production elsewhere in Europe, Asia and North America will decline, with significant increases only in west Africa, Brazil and Ecuador. Even non-Opec countries in the Middle East, such as Oman, Syria and Yemen, would see production declining by nearly 100,000 barrels a day.

At the same time, world oil demand would jump by 1.8m barrels a day, increasing the dependence on Opec oil for the third year in a row.

Analysts said the trend would continue because oil companies were not investing enough and also lacked the opportunity to drill in promising regions such as Mexico whose constitution bars foreign oil companies.

Lehman Brothers and Citigroup, the investment banks, forecast an increase in worldwide exploration budgets of less than 6 per cent for 2005, a significant slowdown from last year's 12 per cent.

"With increasingly depleted reserve bases, non-Opec declines are only expected to gather steam in the years to come," Washington-based PFC Energy said in a report.

Reduced exploration spending translates into less oil being found.

IHS Energy, a leading consultancy advising oil majors on upstream operations, estimates that the world has been consuming oil faster than discovering it since 1986.

Analysts also warn that new non-Opec production, which in the past came from politically stable places such as Alaska and the North Sea, is now coming from more volatile countries. In addition, new discoveries are more expensive than those of the early 1990s, as a large proportion of oil fields are found in deep waters rather than onshore or the shallow continental shelf.

In 2003, about 70 per cent of the largest oil discoveries were in deep waters, with a large proportion of that in waters more than 1,000 metres deep. A decade before, only 16 per cent were in deep waters.

With specific reference to non-Opec countries, the IEA has warned that "a rising share of production will have to come from smaller oilfields, where the unit costs are higher."

For this reason, the marginal cost of production in mature basins in non-Opec countries is rising. "This may well deter investment and capacity additions in the long term," the IEA warned in its latest outlook for the oil market.

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