Investor Eye
"An idealist is one who, on noticing that a rose smells better than a cabbage, concludes that it is also more nourishing." - H.L. Mencken
The "war protest" marches clearly demonstrated just how small our world has become and how complex are the problems that we face. The 1960s and early 1970s were a time of real "geopolitical uncertainty." At that time, individuals were constructing "nuclear fallout shelters" in their back gardens and stocking up on canned food. I decided that I would prefer to die quickly rather than linger on for a few more years.
It would appear that we have turned full circle. Today Americans are urged to use plastic sheets and duct tape in order to create their own mausoleums.
In 1942, the UK military carried out a small experiment by infecting Gruinard Island off the coast of Scotland with anthrax. It was quarantined for 48 years. Even though the topsoil was removed and the land soaked with 280 tonnes of formaldehyde diluted in 2,000 tonnes of seawater, scientists are still not certain that it is safe for humans as the anthrax spores may still be alive.
We live and have always lived thought-myths and catchphrases. Simple solutions for simple minds. The myth now is that America is to blame and it's all about oil. Let us look at some facts.
The Middle East was based on promises made by a vertically challenged and sexually ambivalent junior British Army officer to a bunch of goat and camel herders wandering lost in the desert some 80 years ago, a promise made important by an ambitious journalist, Lowell Thomas.
In May 1916 the Sykes-Picot Agreement divided the remnants of the Ottoman Empire between Britain and France. The League of Nations determined the unnatural borders of the respective countries and confirmed the pact between the French (who colonised) and the British (who administered).
The fist attempt to restore "Arab pride" by former Egyptian president Gamal Abdel-Nasser in 1956 was met with force by France, Britain and Israel. It was only resolved peacefully by the direct intervention of President Dwight D. Eisenhower and the US.
Over the years, the British withdrew semi-peacefully, while the French were ejected violently from each country they colonised. Iraq was a British protectorate. It achieved full independence in 1932 as a kingdom ruled by Emir Faisal Ibn Hussein.
Saddam Hussein (no relation) became the ruler in July 1979 and after eliminating his poli-tical rivals, started a war with Iran on September 22, 1980, which lasted for eight years and cost more than a million lives.
On August 2, 1990, two years after the Iran War ended, Saddam invaded Kuwait. Four days later, the United Nations Security Council, passed resolution 986, which imposed an economic embargo on Iraq that prohibited nearly all trade.
In order to produce its oil, Iraq was allowed to enter into contracts with foreign firms to sell parts and equipment for its oil industry. Those contracts must be approved by the UN. Today, France, Russia, and China have 798, 862 and 227 contracts, respectively, in various states of approval with Iraq. The US has one contract and the UK has eight, two of which have been nullified and six of which have been approved.
Russia has ranked first among nations doing business with Iraq under the oil-for-food program, with sales exceeding €3.7 billion. France sold €1.4 billion worth of goods to Iraq in 2002, the most of any nation for the year. Russia's Lukoil and France's TotalFinaElf have already secured options on a quarter of Iraq's total reserves. Russia is owed several billions of dollars by Iraq for past arms deliveries, and has a strong interest in Iraqi oil development, inclu-ding a €3.3-billion, 23-year deal to rehabilitate Iraqi oilfields. TotalFinaElf reportedly has signed a deal with Iraq on development rights for Majnoon, the largest of Iraq's oilfields.
You can throw the Chinese and Germans on the pile, too. The black gold rush has been going on for 12 years under the tight control of the UN. There are only two major countries that don't seem to be getting in on the act: the US and the UK.
In October 2000, Saddam insisted on euro payments for the oil he was allowed to sell via the UN. Then the euro reached its lowest ebb, buying just $0.82. Since then, the currency has risen 30% to $1.08. The marked appreciation of the euro is believed to have made hundreds of millions for Iraq.
However, just before you invest money on the possibility of a market rebound, consider the fact that inspections would not have taken place without "the credible use of force," and listen to the words of Hans Blix: "At this point, I will only mention that there are indications suggesting that Iraq's account of its production and unilateral destruction of anthrax during the period 1988 and 1991 may not be accurate."
Terrorism, the use of biological weapons and a disruption to oil supplies will provide increa-sing instability to world economies. The French will never forgive Poland for supporting the US. By the way, how many French troops does it take to defend Paris? No one knows - it hasn't been tried yet.
On the WSE: I believe that regardless of the outcome of the impending war, the price of oil is in a multiyear uptrend even though demand may decrease. Fear is a great mover of price, and people will be scared that supplies will be disrupted. Economies dependent on oil imports will be at a great disadvantage.
In the short term, I am still bearish, and the highs of January 13 will not be exceeded for some time to come. Prepare for new lows. However, the final capitulation is still some months away.
Zbigniew Piekarski is a portfolio manager based in Warsaw. He can be e-mailed at zbigp@bipnet.pl.
The "war protest" marches clearly demonstrated just how small our world has become and how complex are the problems that we face. The 1960s and early 1970s were a time of real "geopolitical uncertainty." At that time, individuals were constructing "nuclear fallout shelters" in their back gardens and stocking up on canned food. I decided that I would prefer to die quickly rather than linger on for a few more years.
It would appear that we have turned full circle. Today Americans are urged to use plastic sheets and duct tape in order to create their own mausoleums.
In 1942, the UK military carried out a small experiment by infecting Gruinard Island off the coast of Scotland with anthrax. It was quarantined for 48 years. Even though the topsoil was removed and the land soaked with 280 tonnes of formaldehyde diluted in 2,000 tonnes of seawater, scientists are still not certain that it is safe for humans as the anthrax spores may still be alive.
We live and have always lived thought-myths and catchphrases. Simple solutions for simple minds. The myth now is that America is to blame and it's all about oil. Let us look at some facts.
The Middle East was based on promises made by a vertically challenged and sexually ambivalent junior British Army officer to a bunch of goat and camel herders wandering lost in the desert some 80 years ago, a promise made important by an ambitious journalist, Lowell Thomas.
In May 1916 the Sykes-Picot Agreement divided the remnants of the Ottoman Empire between Britain and France. The League of Nations determined the unnatural borders of the respective countries and confirmed the pact between the French (who colonised) and the British (who administered).
The fist attempt to restore "Arab pride" by former Egyptian president Gamal Abdel-Nasser in 1956 was met with force by France, Britain and Israel. It was only resolved peacefully by the direct intervention of President Dwight D. Eisenhower and the US.
Over the years, the British withdrew semi-peacefully, while the French were ejected violently from each country they colonised. Iraq was a British protectorate. It achieved full independence in 1932 as a kingdom ruled by Emir Faisal Ibn Hussein.
Saddam Hussein (no relation) became the ruler in July 1979 and after eliminating his poli-tical rivals, started a war with Iran on September 22, 1980, which lasted for eight years and cost more than a million lives.
On August 2, 1990, two years after the Iran War ended, Saddam invaded Kuwait. Four days later, the United Nations Security Council, passed resolution 986, which imposed an economic embargo on Iraq that prohibited nearly all trade.
In order to produce its oil, Iraq was allowed to enter into contracts with foreign firms to sell parts and equipment for its oil industry. Those contracts must be approved by the UN. Today, France, Russia, and China have 798, 862 and 227 contracts, respectively, in various states of approval with Iraq. The US has one contract and the UK has eight, two of which have been nullified and six of which have been approved.
Russia has ranked first among nations doing business with Iraq under the oil-for-food program, with sales exceeding €3.7 billion. France sold €1.4 billion worth of goods to Iraq in 2002, the most of any nation for the year. Russia's Lukoil and France's TotalFinaElf have already secured options on a quarter of Iraq's total reserves. Russia is owed several billions of dollars by Iraq for past arms deliveries, and has a strong interest in Iraqi oil development, inclu-ding a €3.3-billion, 23-year deal to rehabilitate Iraqi oilfields. TotalFinaElf reportedly has signed a deal with Iraq on development rights for Majnoon, the largest of Iraq's oilfields.
You can throw the Chinese and Germans on the pile, too. The black gold rush has been going on for 12 years under the tight control of the UN. There are only two major countries that don't seem to be getting in on the act: the US and the UK.
In October 2000, Saddam insisted on euro payments for the oil he was allowed to sell via the UN. Then the euro reached its lowest ebb, buying just $0.82. Since then, the currency has risen 30% to $1.08. The marked appreciation of the euro is believed to have made hundreds of millions for Iraq.
However, just before you invest money on the possibility of a market rebound, consider the fact that inspections would not have taken place without "the credible use of force," and listen to the words of Hans Blix: "At this point, I will only mention that there are indications suggesting that Iraq's account of its production and unilateral destruction of anthrax during the period 1988 and 1991 may not be accurate."
Terrorism, the use of biological weapons and a disruption to oil supplies will provide increa-sing instability to world economies. The French will never forgive Poland for supporting the US. By the way, how many French troops does it take to defend Paris? No one knows - it hasn't been tried yet.
On the WSE: I believe that regardless of the outcome of the impending war, the price of oil is in a multiyear uptrend even though demand may decrease. Fear is a great mover of price, and people will be scared that supplies will be disrupted. Economies dependent on oil imports will be at a great disadvantage.
In the short term, I am still bearish, and the highs of January 13 will not be exceeded for some time to come. Prepare for new lows. However, the final capitulation is still some months away.
Zbigniew Piekarski is a portfolio manager based in Warsaw. He can be e-mailed at zbigp@bipnet.pl.
