Month: October 2022

OPEC+ decision to cut oil production will impact gas prices

Posted on by j.giglio

Earlier this month, the 23-member oil-cartel known as OPEC+ (Organization of the Petroleum Exporting Countries), of which Russia is a member and led by Saudi Arabia, announced it would slash production by 2 million barrels per day.  The production cut is equal to 2% of the world’s daily oil production.  The cut was seen as a slap in the face to President Biden.  The move by OPEC+ drew angry criticism from Washington and the White House accused the Kingdom of taking sides with Russia.

In response the Biden Administration said it plans to re-evaluate the U.S.’s eight-decade old alliance with Saudi Arabia. It is hard to forget that during the Presidential campaign in 2020, the president’s money quote was he promised to make Saudi Arabia a “pariah” state.  He said there is “very little social redeeming value in the present government in Saudi Arabia.” He has criticized the Crown Prince for his role in the killing of Washington Post journalist and political opponent Jamal Khashoggi.  All this while courting Iran, an arch enemy of Saudi Arabia, in the hopes of striking a nuclear deal that would give Tehran billions of dollars to threaten the security of Gulf States.

Still for months the leader of the free world lobbied Saudi Arabia to help ease energy prices by pumping more oil into the market.  These pleas fell on deaf ears. The Administration urged the Saudis to wait for the next meeting of OPEC+ on Dec. 4 before making a decision on production cuts.  The Administration wants to hold down gas prices to advance the Democrats’ chances in the midterm congressional elections. Now the administration has announced it will sell 15 million more barrels of petroleum from the nation’s strategic reserve, aiming to ease gas prices.  The White House said it was prepared for more sales of the $400 million barrels in the strategic petroleum reserve if there are further disruptions in the world markets.

Not only that but the White House is starting to relax some of the sanctions on the authoritarian government in Venezuela which sits atop some of the world’s largest oil reserves to allow Chevron to resume pumping oil and exporting oil to the U.S.  There is an ominous sound of barrel scraping here.

Congressmen from both parties called for retribution against the cartel as well.  Some called for taking direct action against Saudi Arabia such as denying it access to military hardware and passing legislation allowing OPEC+ members to be sued under antitrust laws.

The Saudi’s rejected the accusation that it was getting in bed with Russia. They stated that the decision to cut output was driven purely by economic considerations and in response to future uncertainty about demand for oil.   OPEC+ was doing what it usually does.  They want to regulate the flow of crude oil to world markets in an effort to control prices. That is what the cartel is all about, full stop.. They are seeking to protect their national economic interests as has always been the case. The Saudi’s need money to provide for a decarbonized future and to fund its on-off war in Yemen.

The irony here is that according to the U.S. Energy Information Administration in September 2019, the U.S.  became a net exporter of crude oil and petroleum products for the first time since 1973.  In 2022, the U.S. will again be a net oil importer.  The Administration’s policy has been to ween the American economy off fossil fuels in favor of clean energy.  Quite apart from bans on fracking, bans on drilling, the President’s first act in 2021 was to scrap the cross-border permit for Canada’s XL pipeline which was projected to carry 900,000 barrels of crude oil a day into the U.S.

Events like the coronavirus and the tragic war in Ukraine should have revealed the dangers of being dependent on unreliable regimes and geopolitical adversaries.  These choices have left the U.S. in  an untenable, vulnerable place.

Insider Trading in Congress

Posted on by j.giglio

A New York Times analysis found that between 2019 and 2021, 97 senators and representatives or their family members bought or sold stocks or other financial assets in industries that could be affected by their legislative committee work, violating a law designed to prevent insider trading and stop conflicts of interest.

Over the three -year period, more than 3,700 trades posed potential conflicts between lawmakers’ public responsibilities and private finances.

For example, 15 lawmakers tasked with shaping US defense policy actively invested in military contractors.  Still further, Senators, House members, and top Capitol Hill staffers who will help decide whether the government regulates cryptocurrency are themselves invested in bitcoins and altcoins.

All this while ordinary Americans are losing their shirts, if not their entire wardrobes, dealing with the pandemic and the rising cost of living while lawmakers ae making hay.  Sure, consumers may be getting some relief at the gas pump, but they are having to dig even deeper to pay for groceries.

The price of eggs is up about 40 percent since this time last year.  They are paying 20 percent more for milk, bread, and a staple in many Americans’ diet—chicken. Many of these working-class individuals risked their lives on the frontline of the COVID-19 crisis to stock grocery shelves, work in hospitals, or deliver food to homes, among other things.

To prevent members of Congress from taking advantage of their positions for personal gain, the U.S. passed the Stop Trading on Congressional Knowledge Act, known as the STOCK Act, signed into law in April 2012, an election year.  At a highly visible signing ceremony, it was said that the legislation would address the “deficit of trust” that divides Washington and the rest of America.

The STOCK Act prohibits members of Congress and senior executive and legislative branch officials from trading based on knowledge obtained as a result of their jobs. It increased transparency by beefing up financial disclosure requirements on stock trades and posting the annual financial disclosure forms federal officials file on a publicly available online database.  A key provision of the law mandates that lawmakers publicly and quickly disclose any stock trades made by themselves, a spouse, or a dependent child.

But transparency only works if people abide by the rules.  Congress and top senior Capitol Hill staff have violated the STOCK Act hundreds of times, but they face minimal penalties that are inconsistently applied and not recorded publicly.  If they file their disclosure more than 30 days after it’s due, they have to pay a fee this being the U.S. Congress of no more than $200.  And Congress has the discretion to waive the fines stipulated in the law.

Is it any wonder that the average American does not understand why elected officials do not play by the same rules as everyone else?  The hard truth is that the American people simply do not trust the federal government.  Only two-in-ten Americans trust leaders in Washington to do what is right, according to the Pew Research Center.

There are a variety of rare bipartisan proposals floating around the House and the Senate to tighten the rules on stock trading, and key details still need to be ironed out.  The only way lawmakers can earn back trust is to hold themselves to a higher standard, starting with an outright ban on the trading of stocks and other financial assets such as cryptocurrencies by members of Congress, their immediate family members and senior congressional staff.

Members of Congress should spend their time working for the American people. But persuading them to start putting the public ahead of their personal financial interests is like asking them to perform surgery on themselves.  And you can take that to the bank.

Russian ruble rebounds as Russia and China work hard at de-dollarization

Posted on by j.giglio

“Russia’s ruble is reduced to rubble. Their economy will be cut to half. The ruble is crumbling now,” President Biden said during a speech on March 26 while visiting Poland, a country that has been taking in refugees from neighboring Ukraine.

The value of the Russian ruble tumbled 30 percent after the U.S. and its allies, including most of the European Union, Canada, Japan, Australia and almost all other major Western economies imposed sanctions in response to the Russian invasion of Ukraine. But the ruble has bounced back, almost doubling in value from its low point on March 7.

The recent gains mean the currency is now back to its level before broad based, hellish sanctions on the Russian government and its oligarchs were imposed, continuing its streak as the best performing currency in the world this year.  This strong performance once again demonstrates the body politic in the U.S. has become like the other woman, wanting to believe the promises all too many politicians make about the future.  They never change.

Russian energy exports drive ruble rebound

Why has the Russian ruble made large gains in spite of the sanctions?  Reasons for that rebound include, surging energy prices, support from the Russian government putting huge capital controls in place to stabilize the ruble and the Russian Central Bank raised interest rates by as much as 20 percent.

Additionally, Russia required the European Union and other nations guzzling Russian oil and gas, to pay for the energy commodities in rubles since the U.S. and Europe weaponized the dollar denominated financial system.  In effect, Russia has weaponized its energy in response to Western sanctions.  Given super high energy prices, Bloomberg Economics estimates that Russia’s energy exports will increase this year by one-third to $321 billion.

Still further it is hard to ignore the lifeline other nations such as China, India, Brazil, South Africa, NATO member Turkey and others have tossed Russia by purchasing its oil and gas in rubles. Also, Riyadh is in discussions with Beijing to sell its oil to China for yuan in lieu of dollars.   These purchases have given Russia a current account surplus—exporting more than it imports, stabilizing the ruble.

The decision to link oil and gas and other raw materials to the ruble threatens the hegemonic order of the U.S. dollar.  In effect, Russia, the eleventh largest economy in the world by nominal Gross Domestic Product, has accelerated its de-dollarization.  For the last several years, China and Russia have sought to reduce their use of the dollar in an effort to shield their economy from existing and potential future U.S. and other Western nations sanctions and assert global economic leadership.

Dollar dominates global economy, for now

The U.S. government has acknowledged that it can’t stop these purchases because there are no secondary sanctions on countries doing business with Russia.

The U.S. can use sanctions as a weapon and compel allies to go along with it or else because the U.S. dollar is the world’s reserve currency.  For nearly 80 years the dollar has dominated the global economy because it is needed to conduct global trade.  The U.S. dollar controls about four-fifths of all currency operations in the world. It is hard to imagine things being done in a different way.

The U.S. accumulated about two-thirds of the world’s gold reserves at the end of World War II. This was the basis for the Bretton Woods system of monetary management that ensured the U.S. dollar hegemony in the western world for many years.

China and Russia have tried for some time to de-dollarize in trade and investment with limited success but if their de-dollarization efforts gain traction there could be major implications for the U.S. economy, U.S. sanctions, and U.S. global economic leadership.