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Russia may cut off oil flow to the West... this could get interesting really fast!



August 29, 2008 – Comments (2)

Russia may cut off oil flow to the West
By Ambrose Evans-Pritchard
Last Updated: 4:02pm BST 29/08/2008

Fears are mounting that Russia may restrict oil deliveries to Western Europe over coming days, in response to the threat of EU sanctions and Nato naval actions in the Black Sea.

Any such move would be a dramatic escalation of the Georgia crisis and play havoc with the oil markets.

Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert.

"They have been told to be ready to cut off supplies as soon as Monday," claimed a high-level business source, speaking to The Daily Telegraph. Any move would be timed to coincide with an emergency EU summit in Brussels, where possible sanctions against Russia are on the agenda.

Any evidence that the Kremlin is planning to use the oil weapon to intimidate the West could inflame global energy markets. US crude prices jumped to $119 a barrel yesterday on reports of hurricane warnings in the Gulf of Mexico, before falling back slightly.

Global supplies remain tight despite the economic downturn engulfing North America, Europe and Japan. A supply cut at this delicate juncture could drive crude prices much higher, possibly to record levels of $150 or even $200 a barrel.

With US and European credit spreads already trading at levels of extreme stress, a fresh oil spike would rock financial markets. The Kremlin is undoubtedly aware that it exercises extraordinary leverage, if it strikes right now.

Such action would be seen as economic warfare but Russia has been infuriated by Nato meddling in its "backyard" and threats of punitive measures by the EU. Foreign minister Sergei Lavrov yesterday accused EU diplomats of a "sick imagination".

Armed with $580bn of foreign reserves (the world's third largest), Russia appears willing to risk its reputation as a reliable actor on the international stage in order to pursue geo-strategic ambitions.

"We are not afraid of anything, including the prospect of a Cold War," said President Dmitry Medvedev.

The Polish government said yesterday that Russian deliveries were still arriving smoothly. It was not aware of any move to limit supplies. The European Commission's energy directorate said it had received no warnings of retaliatory cuts.

Russia has repeatedly restricted oil and gas deliveries over recent years as a means of diplomatic pressure, though Moscow usually explains away the reduction by referring to technical upsets or pipeline maintenance.

Last month, deliveries to the Czech Republic through the Druzhba pipeline were cut after Prague signed an agreement with the US to install an anti-missile shield. Czech officials say supplies fell 40pc for July. The pipeline managers Transneft said the shortfall was due to "technical and commercial reasons".

Supplies were cut to Estonia in May 2007 following a dispute with Russia over the removal of Red Army memorials. It was blamed on a "repair operation". Latvia was cut off in 2005 and 2006 in a battle for control over the Ventspils terminals. "There are ways to camouflage it," said Vincent Sabathier, a senior fellow at the Centre for Strategic and International Studies in Washington.

"They never say, 'we're going to cut off your oil because we don't like your foreign policy'."

A senior LUKoil official in Moscow said he was unaware of any plans to curtail deliveries. The Kremlin declined to comment.

London-listed LUKoil is run by Russian billionaire Vagit Alekperov, who holds 20pc of the shares. LUKoil produces 2m barrels per day (b/d), or 2.5pc of world supply. It exports one fifth of its output to Germany and Poland.

Although Russia would lose much-needed revenue if it cut deliveries, the Kremlin might hope to recoup some of the money from higher prices. Indeed, it could enhance income for a while if the weapon was calibrated skilfully. Russia exports roughly 6.5m b/d, supplying the EU with 26pc of its total oil needs and 29pc of its gas.

A cut of just 1m b/d in global supply – and a veiled threat of more to come – would cause a major price spike.

It is unclear whether Saudi Arabia, Kuwait or other Opec producers have enough spare capacity to plug the shortfall. "Russia is behaving in a very erratic way," said James Woolsey, the former director of the CIA. "There is a risk that they might do something like cutting oil to hurt the world's democracies, if they get angry enough."

Mr Woolsey said the rapid move towards electric cars and other sources of power in the US and Europe means Russia's ability to use the oil weapon will soon be a diminishing asset. "Within a decade it will be very hard for Russia to push us around," he told The Daily Telegraph.

It is widely assumed that Russia would cut gas supplies rather than oil as a means of pressuring Europe. It is very hard to find alternative sources of gas. But gas cuts would not hurt the United States. Oil is a better weapon for striking at the broader Western world.

The price is global. The US economy could suffer serious damage from the immediate knock-on effects.

While the Russian state is rich, the corporate sector is heavily reliant on foreign investors. The internal bond market is tiny, with just $60bn worth of ruble issues.

Russian companies raise their funds on the world capital markets. Foreigners own half of the $1 trillion debt. Michael Ganske, Russia expert at Commerzbank, said the country was now facing a liquidity crunch. "Local investors are scared. They can see the foreigners leaving, so now they won't touch anything either. The impact on the capital markets is severe," he said.





2 Comments – Post Your Own

#1) On August 29, 2008 at 3:14 PM, lquadland10 (< 20) wrote:

The price they make up in the cost will offset the loss they will take in Fan and Fred. If cutting the supply doesn't work they can always sell the mortgage's of 1/4 of the country they own to Chavez or Iran. Personally I think that Iran would be much better. Think ..they don't have to do that all they have to do is freeze future loans and then what do you think will happen? Yep we didn't care what the world thought when we went into Afghanistan then Iraq and now threaten Iran. So why should they? Or they can have an uneasy alliance with China. After all we did go with Russia against Germany in the past. Why not Russia and China? Personally I think we all need a time out in the corner and review World Wide bad behavior.

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#2) On August 29, 2008 at 3:28 PM, lquadland10 (< 20) wrote:

Little background on James Woolsey He wants a WW III
ast updated: February 16, 2007

A vocal proponent of the idea that the war or terror is actually World War IV, James Woolsey, former director of the Central Intelligence Agency under President Bill Clinton, wears may hats. He is an active member of several hardline and neoconservative advocacy organizations, has served in a number of high-profile government posts, has advised a long line of military contractors, and is an influential presence in the U.S. media.( lq; media cartel spinning their webs of lies???? )

Appointed to the Pentagon's Defense Policy Board after Donald Rumsfeld became defense secretary, Woolsey is vice president of Booz Allen Hamilton, a high-powered consulting firm and military contractor based in Virginia. He also serves as the honorary co-chair, along with Sen. Jon Kyl, of the hardline Center for Security Policy; is a member of the recently revived Cold War-era anticommunist group the Committee on the Present Danger; is a distinguished adviser for the neoconservative-led Foundation for the Defense of Democracies; serves on the advisory board of the Jewish Institute for National Security Affairs, described by one observer as "a think tank that puts Israel and its security at the heart of U.S. foreign policy" (Sunday Herald, April 13, 2003); and supported the advocacy work of two letterhead groups that played influential roles generating support for invading Iraq and fighting an expansive war on terror in the wake of 9/11, the Project for the New American Century (PNAC) and the Committee for the Liberation of Iraq.

Woolsey's multiple connections in both government and the private sector have often been criticized by observers and watchdog groups. In a March 2003 report about the potential conflicts of interest of several members of the Defense Policy Board, the Center for Public Integrity highlighted Woolsey as a case in point: "Former CIA Director James Woolsey is a principal in the Paladin Capital Group, a venture-capital firm that, like [Richard] Perle's Trireme Partners, is soliciting investment for homeland security firms. Woolsey joined consulting firm Booz Allen Hamilton as vice president in July 2002. The company had contracts worth more than $680 million in 2002. Woolsey told the Wall Street Journal that he does no lobbying and that none of the companies he has ties to have been discussed during a Defense Policy Board meeting."

Woolsey's government service dates back to the early 1970s, when he served as an adviser to the U.S. Delegation to the Strategic Arms Limitation Talks. He also helped lead talks on a number of other arms control negotiations, including the U.S.-Soviet Strategic Arms Reduction Talks and the Nuclear and Space Arms Talks (see Center for Strategic and International Studies, Biography of R. James Woolsey).

In the early 1980s, Woolsey became acquainted with a number of high-powered figures, including Dick Cheney and Rumsfeld, with whom he would later team up on numerous occasions over the next three decades to support controversial defense and security polices. Although a conservative Democrat, Woolsey served—with Cheney and Rumsfeld—as a team leader for secretive doomsday scenario exercises organized by the Reagan administration as part of a continuity of government program aimed at ensuring the survival of the U.S. government in the event of a nuclear war (Rise of the Vulcans, pp. 140, 335).

After a brief, unhappy tenure as director of the CIA during Clinton's first term, Woolsey joined the law firm of Shea & Gardner, which serves a number of major corporate clients, including the defense contractors Boeing and Lockheed Martin and which counts among its former employers Stephen Hadley, who was appointed national security adviser during George W. Bush's second term.

During this period and continuing into the Bush administration, Woolsey continued to serve as a government consultant and adviser. Prior to his appointment to the Defense Policy Board, he served on the controversial Donald Rumsfeld-chaired Commission to Assess the Ballistic Missile Threat, whose final report, issued in 1998, argued that several "rogue" countries would be able to target the United States with ballistic missiles in a few short years. Other members of the congressionally mandated commission included William Schneider Jr., Stephen Cambone, and Paul Wolfowitz.

Woolsey again teamed up with the usual suspects in 2001 as a participant in a study group that produced "Rationale and Requirements for Nuclear Forces and Arms Control," a report published by the hawkish National Institute for Public Policy (NIPP). According to the World Policy Institute, the NIPP study served as a blueprint for George W. Bush's Nuclear Posture Review. Among the study participants were several current and former Bush administration officials, including Cambone, Hadley, Robert Joseph, and Keith Payne (NIPP's director).

Woolsey, along with several other NIPP study participants—including Payne—moved directly from the NIPP study into the Pentagon's Deterrence Concepts Advisory Panel, which was tasked with implementing George W. Bush's Nuclear Posture Review.

Even before 9/11 Woolsey was an outspoken proponent of invading Iraq. A founding member of PNAC, the influential neoconservative-led letterhead group founded in the late 1990s by William Kristol and Robert Kagan to champion a "Reaganite policy of military strength and moral clarity," Woolsey signed—along with the likes of Perle, Rumsfeld, Cheney, and Wolfowitz—a number of PNAC's open letters to government figures aimed at pressing an aggressive overseas military agenda. One such letter was PNAC's 1998 missive to Clinton, which served as an opening salvo of the neoconservative advocacy effort to support a U.S. invasion of Iraq. The letter argued that deterring Saddam Hussein had failed and that the "only acceptable strategy is one that eliminates the possibility that Iraq will be able to use or threaten to use weapons of mass destruction. In the near term, this means a willingness to undertake military action as diplomacy is clearly failing. In the long term, it means removing Saddam Hussein and his regime from power."

Woolsey was among the first government advisers to call for ousting Hussein after 9/11. Immediately after the attacks, Woolsey joined Wolfowitz and Perle in pressing for an expanded war on terror that would include removing Hussein from power. According to the Atlantic Monthly's James Fallows, "The very next day, September 12, 2001, James Woolsey, who had been Clinton's first CIA director, told me that no matter who proved to be responsible for this attack, the solution had to include removing Saddam Hussein, because he was so likely to be involved next time."

Woolsey quickly turned into a prominent media presence after 9/11, issuing broadsides on right-wing outlets like FoxNews against opponents of the Bush administration's war on terror and characterizing the conflict in stark, existential terms. Regarding European and Arab reluctance to support an expansion of the war on terror to Iraq, Woolsey argued that "only fear will reestablish [Arab] respect for us ... we need a little bit of Machiavelli ... We really don't need the Europeans. Anyways, they will be the first in line patting us on the back following our success and saying they were with us all along'' (quoted in the Sunday Herald, April 13, 2003).

In late 2002, Woolsey gave a widely quoted speech at the Restoration Weekend convention, an annual conference of high-profile conservative figures, during which he argued that the United States was fighting World War IV, a term that had earlier been promoted by the likes of Norman Podhoretz, a central figure in the neoconservative faction, and Eliot Cohen, a Woolsey colleague on the Defense Policy Board and professor at the Johns Hopkins School for Advanced International Studies who was an important academic supporter of the Bush administration's response to 9/11. Said Woolsey: "Let me say a few words about who our enemy is in this World War IV, why they're at war with us and (now) we with them, and how we have to think about fighting it both at home and abroad. First of all, who are they? Well, there are at least three, but I would say principally three movements, of a sort, all coming out of the Middle East. And the interesting thing is that they've been at war with us for years. The Islamist Shia, the ruling circles, the ruling Clerics, the Mullahs of Iran, minority—definite minority of the Iranian Shiite Clerics, but those who constitute the ruling force in Iran and sponsor and back Hezbollah, have been at war with us for nearly a quarter of a century. They seized our hostages in 1979 in Tehran. They blew up our embassy and our marine barracks in Beirut in 1983. They've conducted a wide range of terrorist acts against the United States for something now close to a quarter of a century. The second group is the fascists, and I don't use that as an expletive. The Baathist parties of Iraq and really Syria as well, are essentially fascist parties or modeled after the fascist parties of the '30s. They're totalitarian, they're anti-Semitic, they're fascist ... The third group, and the one that caused us finally to notice, is the Islamist Sunni. And this is the most, in some ways, I think virulent and long-term portion of these three groupings that are at war with us, and will be at war, I think, for a long time."

Woolsey added: "This is going to be a long war, very long indeed. I hope not as long as the Cold War, 40 plus years, but certainly longer than either World War I or World War II. I rather imagine it's going to be measured, I'm afraid, in decades."

Woolsey repeated the main items of this speech during another conference held at UCLA that was organized by campus Republicans and Americans for Victory over Terrorism, a letterhead group sponsored by the right-wing Claremont Institute and for which Woolsey once served as a senior adviser (The Nation, April 4, 2003).

Commenting on the World War IV rhetoric in vogue among neoconservatives, the conservative scholars Stefan Halper and Jonathan Clarke wrote in their 2004 book America Alone: "Clearly, [such rhetoric] grabs headlines and, in its evocation of the Trotskyite notion of permanent revolution, keeps us alert. But is this, in fact, the most useful way of looking at the global problems facing the United States? As Americans ponder the ways in which they can promote American interests and values ... we wonder ... whether the best image the world can have of America is engagement in warfare 24 hours a day, seven days a week, 365 days a year" (pp. 29-30).

Woolsey has also been a proponent of expanding government powers to wage the war on terror. In February 2006, Woolsey supported the controversial phone-taping program of the National Security Agency in testimony before the Senate Judiciary Committee. He said: "Unlike the Cold War, domestic terrorism in this country cannot solely be dealt with by criminal law. It is difficult to understand how one deters through criminal law individuals who want to die themselves while killing thousands of others. Unlike the Cold War, security can come more into conflict with liberty than we wish would be the case."

More recently, Woolsey seems to have adopted contrasting attitudes toward World War IV. At the same time that he has vociferously hawked threats from Iran and Syria, Woolsey has also joined a host of neoconservatives—including Ken Adelman and Perle—in expressing a profound pessimism over the direction of the Iraq War.

In November 2006, Woolsey was the keynote speaker at a conference sponsored by the hawkish American Foreign Policy Council titled "Understanding the Iranian Threat." He told the audience: "First of all, the Persians invented chess, and they are very good at it," he began, calling Iran's nuclear program a "queen" that it was protecting using various other "lesser pieces," such as Syria, Moqtada al-Sadr, Hezbollah, and Hamas. Woolsey went on to suggest that North Korea might ship Iran plutonium or highly enriched uranium in diplomatic pouches for weapons-making purposes. Other speakers at the conference included Patrick Clawson of the Washington Institute for Near East Policy and Walid Phares of the Foundation for the Defense of Democracies.

In a widely noted January 2007 article published by Vanity Fair, Woolsey added his voice to the growing chorus of former Iraq War supporters among the neoconservatives in arguing that the conflict was spinning out of control and hinting that it could turn out to be a tremendous foreign policy blunder. Drawing parallels between Iraq and Vietnam, Woolsey argued that if the war ends in a U.S. defeat, the consequences will be "awful, awful ... It will convince the jihadis and al-Qaida-in-Iraq types as well as the residual Baathists that we are a paper tiger, and they or anybody they want to help can take us on anywhere and anytime they want and be effective, that we don't have the stomach to stay and fight."


Jewish Institute for National Security Affairs: Member, Advisory Board Foundation for the Defense of Democracies: Distinguished Adviser Freedom House: Chairman, Board of Trustees Center for Security Policy: Honorary Co-Chair, National Security Advisory Council Coalition for Democracy in Iran: Supporter Committee for the Liberation of Iraq: Member American for Victory over Terrorism: Former Senior Adviser National Institute for Public Policy: Study Participant Project for the New American Century: Signatory, PNAC Advocacy Letters Center for Strategic and International Studies: Former Trustee

Government Service

Defense Department: Member, Defense Policy Board Defense Department: Member, Deterrence Concepts Advisory Panel National Commission on Energy Policy: Member National Commission on Terrorism: Member (1999-2000) Commission to Assess the Ballistic Missile Threat to the U.S. (Rumsfeld Missile Commission): Member (1998) Central Intelligence Agency: Director (1993-95) Negotiations on Conventional Armed Forces in Europe (CFE): Ambassador and U.S. Representative (1989-91) President's Commission on Federal Ethics Law Reform: Member (1989) President's Blue Ribbon Commission on Defense Management (Packard Commission): Member (1985-1986) U.S.-Soviet Strategic Arms Reduction Talks (START): Delegate at Large (1983-1986) Nuclear and Arms Space Talks: Delegate at Large (1983-1986) President's Commission on Strategic Forces (Scowcroft Commission): Member (1983) Department of the Navy: Under Secretary of the Navy (1977-1979) U.S. Senate: General Counsel, Committee on Armed Services (1970-1973) Strategic Arms Limitation Talks (SALT): Adviser, U.S. Delegation, Helsinki and Vienna (1969-1970)

Private Sector

Booz Allen Hamilton: Vice President, Global Strategic Security Division (2002-) Paladin Capital Group's Homeland Security Fund Investment Committee: Principal and Member Linsang Partners, LLC: Board Member BC International Corporation: Board Member Fibersense Technology Corporation: Board Member Invicta Networks, Inc.: Board Member DIANA, LLC; Agorics, Inc.: Board Member Sun HealthCare Group, Inc.: Board Member Global Options LLC: Vice Chairman, Advisory Board Benador Associates: Member, International Speakers Bureau Shea & Gardner (Washington, DC): Former Managing Partner (1995-2001) Martin Marrietta: Former Board Member Fairchild Industries: Former Board Member DynCorp: Former Board Member British Aerospace: Former Board Member Titan Corporation: Former Board Member Yurie Systems, Inc.: Former Board Member USF&G: Former Board Member Aerospace Corporation: Former Director


Yale Law School: L.L.B. (1968) Oxford University: M.A., Rhodes Scholar (1963-1965) Stanford University: B.A.

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