Georgia and Russia - a wake up call and a party crash -- Watch oil and gold prices now!

Just as US financial and political powerhouses were celebrating the results of their demand destruction and the "recovery" of our financial markets after the terrifying June/July run-up in oil prices, the Russians went and messed everything up. Even I had forgotten for a moment the Hegelian dialectic which says that if you create (or worsen) a problem (soaring fuel costs), you can solve it and get a result you wanted from the start. In this case U.S. interests got relief for terrified consumers, good news for CNN, CNBC and Wall Street, suppression of rising gold prices and a massive reinvestment of fresh cash in the markets. They found the price point at which Americans stopped (fled from) consuming: $4 a gallon. Yippee, let's go back to talking about windmills, ethanol, offshore drilling and tirepressure. I had forgotten that the last two espisodes of summer demand destruction, both connected to British terror threats, hadn't really accomplished that much in the way of demand destruction. I guess Bush overdid it with the Iran rhetoric. Oops. Can we talk about John Edwards please?

Russia has just brought the energy discussion back to the only real problem there is, Peak Oil. For the moment the Baku-Tiblisi-Ceyhan(BTC) pipeline is its reigning symbol. In six months it might be Nigeria. In six weeks it might be a Cat 4 in the Gulf of Mexico. Supplies are tighter now than ever before. These "tweaks" from opposing sides are producing wild and schizophrenic market fluctuations that threaten to topple the teetering gyroscope of the global economy and its shifting balances of power. I wonder if Zbig Brzezinski can keep up with all this speed chess.

The BTC pipeline, so familiar to FTW and Rubicon readers, carries about a million barrels a day of Caspian oil around Russia to a Turkish port in the Mediterranean from whence it gets shipped to Europe AND the U.S. It happens to run right through Georgia. Mor eimportantly, since it strated operations just a few years ago, it has represented Europe's last (belated) futile hope for energy independence from Russia. Take a million barrels a day offline, or threaten to in a global oil market with no elasticity or swing producers, and watch what oil and gold prices do. The ramifications of this are enormous as the Saudis get pushed nearer the inevitable point at which they have to admit decline as the world will inevitably run to them for another dog-and-pony show of increased production.

I am laughing at all the pundits who were predicting this week that oil would drop back below $100.

This new Georgian conflict is not going away soon and I doubt if it'sgoing to calm down. In fact, the first 24 hours have signalled thatit is going to intensify rapidly. Russian planes have been shot downand there are heavy casualties on both sides. Today, Reuters is reporting that Georgian officials have claimed that Russian attack aircraft attempted (unsuccessfully) to hit the pipeline itself. Clearly it (which runs just south of the Georgian capital, Tiblisi) is threatened and going to stay that way. Europe is almost totallydependent upon Russian oil and especially natural gas to keep from freezing in the winter. That dependence has been worsening every year since (ironically) 2001. Just three years ago Britain surrendered its energy sovereignty to the EU because it couldn't survive without Russian natural gas. So America will be going this one alone (again). Until this war started, Georgian troops represented the third-largest international "coalition" force in Iraq after the U.S. and Britain. Those troops have all just been called home. I tracked U.S. Special Forces activity in Georgia for many years. Georgia's tough little army is a U.S. client, but no medium or long-term match for Russian military might. If -- or should I say "when" -- the pipeline isbreached it will signal a major earthquake along the over-strained east-west fault line that is Russia v. the West. This earthquake has been inevitable for years and I predicted it clearly. This conflict could signal a point of no return which would play into John McCain'seagerly awaiting hands. Brinksmanship is about to be reintroduced to awhole new generation only this time there is no place to "duck and cover".

The war began just as both U.S. presidential candidates were welcoming a breather from the energy crisis which has left them looking like the total incompetents they are. The bombs started falling just as U.S.financial markets were sucking in new cash flows away from gold and as consumers started returning habitually and dangerously to old habits."Hey America," says Vladimir Putin, "Think you have the energy problem under control? Think again." Britain, France and Germany have no choice but to soft-pedal their response. The Ukraine was a bitter object lesson for Europe. This will leave the U.S. and lesser lights standing alone against "Russian aggression". This is the same problem the U.S. always faced over Iran. Neither it or Israel could ever attack Iran because that would have taken oil away from Japan, China, India and much of Europe -- and they would never have stood for it.

We now live in a world governed by the black rule of oil which saysthat he who has or controls the oil makes the rules. The U.S. has no right to complain about this posture. It's the one we defined, adopted and set in motion after 9-11 and the one with which we justified our invasion of Iraq to secure control over the second-largest kown oil reserves on the planet. Remember Dick Cheney's war that would go around the world and not end in our lifetimes?

Be careful what you ask for. What I wouldn't give to be a fly on the wall as Bush and Putin talk"turkey" in Beijing...

Olympics? What Olympics?

MCR


Since Mike wrote that, a related article has surfaced concerning the bombing of the Baku-Tbilisi-Ceyhan pipeline by Kurdish rebels. The timing is striking, no pun etc.

J.O.


Later: MCR has now commented on that news:

Re: simultaneous "Kurdish" bombing of BTC pipline in Turkey with Russia/Georgia war, shutting it down. I hate to say it but this makes more sense...

The Russians have penetrated and run PKK as an asset. (That would be a coup, but I've been out of touch.) They have launched a second-front attack, threatning the pipleine from both sides. If that's the case then this is the worst tension I've seen since 9-11. We may have gone to Defcon 2 already. The message is clear: 'We can take out this pipeline easily from any direction. There's some high stakes bargaining going on and it looks like the U.S. has a bluff hand.

Another option: It wasn't the Kurds -- It's Gladio. If that's it then all I can say is, "Bend over...".

Monday there's going to be mayhem on the markets. If there isn't, then we're watching a charade... I doubt that.--

MCR


The possibility that Russia is running the Kurds as an asset seems plausible. See:
Russia Urges Turkey to Show Restraint Over Iraq's Kurds

JO


I got the PKK confused with our old allies from the al Barzani era, another combination of Ks and Ps. The PKK is Marxist/Leninist, always has been.

So what we have here is an out and out Russian smack in the face, or something intended to appear that away. This then, is terribly overt and direct.

Might the Russians be saying, "You just rocked the global economy for your own ends. Now see how it feels."I think the Russians have the stronger hand. China's in on it too I suspect.

There might be good to come from this. It might force the players away from tinkering further and risking an absolutely insane economic meltdown that would crash everybody. It's also pushing Peak Oil much closer to the center of the table.

Remember a few weeks back when I wrote that the biggest tipping point that would start a collapse is official acknowledgment of Peak and what it means. But the sooner that happens, the sooner we stop digging the hole deeper and begin to dig out.

-- MCR

JO adds: MCR has now seen the article posted above about Russia urging Turkey to show restraint towards the Kurds. He writes:

"This makes it look like Gladio...

time will tell. This is through the Looking Glass."