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Trump and Putin Change the U.S. – Russia Conversation

by John Brian Shannon

Q: What could be worse than another Cold War between the United States and Russia?

A: Nothing. There isn’t anything that could be worse than another Cold War breaking out between nuclear armed superpowers that could conceivably destroy all life on the planet many times over. At the push of a button.

Boom! In an instant we’d be blinded by a flash and our bodies would heat up to 3 million degrees within seconds and everyone on Earth would end up floating around as carbon dust at 100,000 feet before finally settling down on top of the nuclear-winter snow that would cover the entire planet for about 40-years. (Nuclear weapons experts call that snow/radioactive carbon dust mixture, ‘grey goo’)

It’s a miracle it didn’t happen during the 40-year long Cold War, but we came within seconds of such annihilation many times over the course of those perilous four decades.


What the Helsinki Meeting Represents

For some people, the meeting between America’s President Trump and Russia’s President Putin represents an opportunity to catch either president in some sort of verbal gaffe, or to capture a sound-bite and milk it for all it’s worth — while for others, a meeting between the two major nuclear powers represents the best opportunity in the 21st-century to reverse the downward spiral in relations between the two nuclear hyperpowers.

That’s what is at stake here.

Anything else (and that means everything else!) just isn’t important when you’re playing at that level.

Whether 12 or 13 Russians may or may not have interfered in the 2016 U.S. election is orders of magnitude less important than the chance of nuclear war breaking out between the nuclear superpowers.

Also orders of magnitude less important is the purported (but not proven) collusion between Trump’s people and certain Russian citizens who may, or may not be spies or some kind of fixers or operators, and also orders of magnitude less important is Hillary’s purported carelessness in using a non-government (and therefore, non-secure) server to send or receive classified emails that Russian agents (purportedly) were able to hack and read. (That’s a lot of ‘purportedly’s’ — but everyone in America is presumed innocent until proven guilty in a court of law)

And yes, those are all very interesting stories that will probably have a long shelf life and keep reporters buzzing until a bigger story replaces them.

But let’s not get distracted by sensational headlines, nor should we be complacent and forget what’s really at stake.

The leaders of two nuclear powers met, apparently had a businesslike and friendly meeting, and important matters were discussed. That in itself was almost a miracle after the goings-on between the two superpowers over the past decade, which between them, possess over 13,300 nuclear warheads, while the rest of the declared nuclear powers in the world account for a total of 1065 nuclear weapons.

G7 comparison: Estimated Nuclear Warhead Inventories, 2018. Federation of American Scientists

Estimated Nuclear Warhead Inventories, 2018. Federation of American Scientists


Building On A Successful Helsinki Meeting

Rather than let the present momentum lapse, President Trump and President Putin must ‘strike while the iron is hot’ and schedule some arms control talks.

“If not us, who? If not now, when?” — President John F. Kennedy

In 1963, the Comprehensive Test Ban Treaty (which banned atmospheric atomic and nuclear bomb testing) was signed by the United States and the Soviet Union and in 1996 was passed by the UN General Assembly.

The Strategic Arms Limitation Treaty (SALT I) was signed and ratified by both sides in 1972 which paved the way for SALT II in 1979 which was signed by both parties in 1979 but not ratified due to unrelenting bad press in the United States. However, both sides decided to adhere to the terms of SALT II even though it was never ratified. Which is the only reason we see near-parity in nuclear warheads and delivery vehicles between the United States and Russia today.

To keep the present momentum going, SALT II could be re-signed and ratified to pave the way for a SALT III treaty to be created — as per the original plan.

The logic of the SALT agreements is clear: The SALT I treaty limited Anti-Ballistic Missile sites and froze the number of missiles each side could possess, while SALT II established numerical equality in nuclear weapon delivery systems and also limited the number of Multiple, Independent Re-entry Vehicles (bombs) per missile, while the proposed SALT III was designed to draw down and place firm and verifiable caps on the nuclear bomb arsenals of both the United States and the Soviet Union to around 2400 each.

Before the present momentum between the two leaders fade, both men should push their respective administrations to re-commit to SALT II (as a formality) and ratify it before the end of 2018.

That would allow the necessary time to author a fresh SALT III agreement and schedule a signing ceremony for both SALT II and SALT III at the same time.

It’s not rocket science, it’s politics. But previous leaders just couldn’t get it done. Both sides have wanted to do this for almost 40-years, but (very suspiciously) something always cropped-up at the last minute to prevent forward progress on this most important of geopolitical issues.

“Things don’t happen, things are made to happen.” — President John F. Kennedy


Turning Nuclear Bombs into Electricity

At the end of the Cold War a deal was struck between the United States and Russia whereby excess nuclear bombs (remember; any number of nuclear bombs higher than 2400 for the United States and for Russia is complete overkill from a strategic defense perspective) were sold-off to nuclear power plants and used to produce many years worth of high grade, clean electricity.

The program was called the Megatons to Megawatts program and was called one of the greatest diplomatic achievements ever by Harvard’s Matthew Bunn.

The problem is that it had just begun to hit its stride when President Barack Obama cancelled the program unilaterally, and after not much fanfare (only one NPR article) M2M ended.

Assuming both superpowers want to pare-down their nuclear arsenals to 2400 each, that leaves them with 4050 bombs (United States) and 4450 (Russia) to dispose-of. That’s 8500 bombs-worth of clean nuclear power, folks! For example, that’s enough nuclear fuel to power America until the year 2100 at present rates of nuclear fuel usage.

It’s a shame that this noble program was ended long before the most amount of good could be obtained from the Megatons to Megawatts program.

Right now, President Trump could phone President Putin and offer to resume this super-successful program — and he might find a willing partner in Putin who seemed fine with M2M until it was suddenly cancelled in 2013.

Building on success is so much better than re-inventing the wheel, as the saying goes.


A Plug for the Big 5 – as Opposed to the G7

The trouble with the G7 is that the United States GDP, military, number of nuclear bombs, and balance of trade (and in many other metrics) is bigger than all the other G7 nations combined! The U.S. is just too big! It’s the proverbial elephant in the room. The other countries just can’t relate, so they overcompensate.

The recent problems between the U.S. and other G7 members at the recent Charlevoix G7 summit are systemic — the fault isn’t with any of the members. Whatsoever.

And now is as good a time as any for the United States to champion the creation of a new organization, an organization dedicated to superpowers and near-superpowers like Russia, China, Japan, and the EU. Alternatively, if one of those countries or blocs didn’t want to join, The Commonwealth of Nations bloc could join instead.

In such an organization, members would find that the problems that superpowers and near-superpowers encounter would be similar problems and that solutions might also be found to be similar. At best, the world’s major powers could work together on their common problems, while middle powers could create the middle-power ‘Next-20’ Group, or N20.

In that way, superpowers and near-superpowers would be grouped together (logical) and middle powers would be grouped together (also logical) and the previously noted systemic problems would disappear, allowing politicians to roll up their sleeves and get to work on common issues instead of struggling with one giant stuck in a group of middle powers.

Read about the astonishing differences between the U.S. and the other G7 powers here.


Geopolitical Momentum is Vital and Precious – It Must Never Be Wasted

Now that the two presidents have had their first major meeting that seemed to go very well, it’s time to capitalize on the goodwill before events sweep away those good feelings and opportunities bigger than the sky are (again) allowed to slip away!

Whether the next phone call between the two men is about restarting the highly-successful Megatons to Megawatts program, or plans to meet with President Xi Jinping to discuss the Big 5 organization, or build onto the world-changing SALT treaties — or to discuss some other plan the two presidents discussed — now is the time to build on the initial meeting success and thereby positively change the conversation between superpowers and change the entire conversation that is happening in the global media because no other, better story appears to replace all that sniping.

One of the ways leaders lead effectively is to know when it’s time to change the conversation the media is having with itself and with its viewers.

I respectfully suggest, that time is NOW.

Crude Oil or Value-Added Oil Products?

by John Brian Shannon | May 8, 2016

For decades, easy access to crude oil powered the global economy and this is especially true in developed nations where the huge investment pool allowed governments and industry to capitalize on cheap energy costs. Cheap and easily available crude oil was a very necessary building block for the Western economies.

But the world is changing and although we aren’t yet at the end of the ‘Age of Oil’ we’re starting to see that day from afar.

We’ve come from $2 per barrel of crude oil (less than the cost of production at the time) to $125 per barrel and every price in between. On the supply side, we’ve seen the world’s largest oil consumer (the U.S.) increase domestic production from 10% of its demand to meet almost 100% of its demand — an unprecedented change in the global oil industry.

Due to that farsighted U.S. policy, the world became mired in its own crude oil glut and correspondingly, crude oil prices fell in recent months, only now rebounding after visiting the $26 per barrel netherworld. As of this writing, crude oil is hovering around the mid-$40 range and looks set to end 2016 in the low $50’s assuming the geopolitical paradigm remains stable.

Crude oil refining: Motiva Enterprises refinery, Port Arthur, Texas

Cheap crude oil was a necessary building block in building the world economy. Saudi Aramco through its wholly owned Saudi Refining Inc. subsidiary and Royal Dutch Shell plc. announce they’ve signed a non-binding Letter of Intent to divide the assets of Motiva Enterprises LLC. The Motiva joint venture was formed in 1998 and has operated as a 50/50 refining and marketing joint venture between the parties since 2002. Photo caption and image courtesy of; Motiva Enterprises refinery, Port Arthur, Texas

How to Change the Oil Industry into a ‘Win-Win’ Proposition

Like many industries, the oil industry has evolved over decades of time and from humble beginnings. Had it been planned the oil industry wouldn’t have its present structure and there wouldn’t have been a need for a ‘crude oil price’ — as refining crude oil into finished products would’ve been the norm.

Evolution of the World’s Largest Oil Producer

For decades the Saudis pumped and sold oil to the Allied Powers for less than the cost of production as their contribution to the massive Western effort against Nazi Germany and later against the West’s Cold War competitor, the Soviet bloc nations.

Until the Arab Oil Embargo in 1974, the only money the Saudis made from oil was where they competed against every other oil speculator in the commodity market. They certainly didn’t make anything on the extraction of the black stuff.

The Speculators in a Supply/Demand World

From the time each supertanker left port in Saudi Arabia until the moment they tied up at an oil refinery in the United States, speculators made huge sums or lost huge sums of money playing the crude oil supply/demand equation as each supertanker made its way from a Saudi port to an American port.

After some initial horrendous errors, the Saudis learned how to play the markets as well as New York’s best oil speculators, and in that way many individual investors and Saudi Aramco (the largest oil company in the world by a significant margin) saw some amount of wealth created from their resource.

Prior to the Arab Oil Embargo the Saudis didn’t make anything on the extraction side, but made it on the margins (speculating) by making educated guesses about the daily oil supply/demand equation of the United States. That’s no way to run a railway!

The Rise of OPEC

By 1974 the Saudis and the other OPEC nations had had enough and via the Arab Oil Embargo were able to get a reasonable price for their crude oil and not be forced to rely on notoriously unreliable oil price speculation to finance 80% of their economy.

Since 1974, the Saudis (along with every other oil producer, including the United States) have been making money on (1) the extraction side, and (2) on speculation, and (3) on the refining side of the oil business.

Too many middlemen! You can plainly see that where there are three steps with each having its own profit, there should’ve only been one.

Had the oil business been planned-out from the beginning, we would’ve seen Vertical Integration — where one oil company owns its own oilfields and extracts its own oil, refines their own oil into useful products, and only then offers those value-added fuel products as commodities in the world marketplace.

What we have now is a paradigm where gross total demand sets the wellhead price on crude oil (which has a profit attached to it) and the speculating of oil-in-transit (which is where big profit gets attached) and then more profit is attached by an oil refinery — which are usually owned by a third party. No wonder they call it black gold!

In a suddenly very competitive oil world, how to cut ‘fat’ and add profit?

By creating vertically integrated oil companies where only one company extracts the crude oil, transports it to a refinery, refines it into useful products, and then sells those products as commodities, we cut out the middlemen while raising profits for oil companies and lowering costs for consumers. Perhaps by a significant margin.

How to ‘Win-Win’ in the 21st-century oil industry: Don’t ever sell crude oil!

Sell finished petroleum products exclusively

Saudi Aramco is transferring to a Vertically Integrated business model — buying-out it’s partner Royal Dutch Shell in a multi-billion dollar deal at it’s massive Port Arthur, Texas oil refinery (the largest in the U.S.) which can process 600,000 barrels per day.

Saudi Arabia is already the largest single oil producer in the world (presently pumping just under 11 million bpd, but with the ability to pump 12.5 million bpd) and have been in the crude oil business longer than any other country, and own more supertankers than any other organization, business, or country, and are now purchasing oil refineries to complete the vertical integration of their business model.

This will allow the Saudis to lower their concern about wellhead price, and the speculation factor, and concentrate on supporting their best player — which is the refining stage. That is where the entire oil industry is going, some faster than others.

By concentrating on end products, Aramco and others will create new thrust towards the Vertically Integrated business model where resource extraction and transport are geared towards supporting their star player, their own oil refineries — wherever they may be located in the world. Profit at each step of the way will no longer be necessary nor desirable, cutting costs throughout their supply chain and adding profit to their value chain.

In a perfect world the Vertically Integrated business model will sweep past the existing ‘multiple middleman’ business model over the next decade and leave it in the dustbin of history.

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BONUS GRAPHIC

Average annual OPEC crude oil price from 1960 to 2016 (in U.S. dollars per barrel)

OPEC crude oil price from 1960 through 2016.

OPEC crude oil price from 1960 through 2016.

 

‘Free Riders’ or ‘A New Hope’?

by John Brian Shannon | April 27, 2016

In a recent interview, President Barack Obama called some U.S. allies “free riders” in regards to perceived American largesse, but supposedly “cleared the air” while meeting with King Salman of Saudi Arabia at the April 20th Gulf Cooperation Council meeting in Riyadh, Saudi Arabia.

Now that one side has ‘cleared the air’ let’s allow the other side to share their grievances publicly — except they won’t because there is danger in that for them — and also because ‘it’s just not done’ diplomatically-speaking.

FACT: From 1932 through 1973 (in almost every year) the U.S.A. purchased Saudi oil at a price lower than the cost of production.

Yes, you read that correctly. For most of 41 years, Saudi Arabia massively subsidized the American economy by selling it’s oil for lower than the cost of production. (“Otherwise, the West will lose the Cold War.”) Does everybody understand how that card was played?

I’d call that a very big debt.

(Yes, such treatment ultimately led to the Arab Oil Embargo, although events surrounding Israel were cast as the publicly-stated reason for the Embargo. ‘Those in the know’ at that time are very well aware of this and it’s an open secret among historians and the people who were present in the halls of power in that era)

FACT: During the Cold War, Saudi Arabia mounted more Cold War operations against the former Soviet Union than all other countries combined. (Let that one sink in for a moment!) Saudi Arabia’s Cold War operations against the Soviets were second only to the United States — and countless operations were joint U.S./Saudi operations.

I’d call that a very large debt.

FACT: During the massive Soviet invasion of Afghanistan in the 1980’s, the CIA, Pakistan’s ISI, and the Saudis combined forces to evict America’s #1 enemy the former Soviet Union from Afghanistan. (See the movie, ‘Charlie Wilson’s War’ which isn’t far off the truth — except it misses the point that Saudi Arabia paid for the whole effort)

The CIA provided a dazzling array of options (technical support, 3rd-rate new or refurbished weapons, realtime satellite intelligence to designated ‘advisors’ on the ground, and cover) while the ISI provided transport, shelter, fighters, and other logistical capabilities.

(In retrospect, in exchange for *being allowed* to get a reasonable price for their oil, it almost looks like Saudi Arabia was expected to shoulder the entire cost of the Soviet/Afghanistan war. Which probably removed most of whatever profits they had hoped to achieve from the new, post-Embargo oil price that the Saudis were *allowed* to charge)

Another big debt to Saudi Arabia.

FACT: “Saudi Arabia has *executed* more terrorists than the U.S. has ever *captured*.” (That was true until 2004, but it was a common refrain until then)

Yes, in Saudi Arabia, when they catch terrorists, they generally execute them with little fanfare. Good riddance!

Saudi Arabia has passed onto the United States intelligence agencies more information about terrorist individuals than any other country.

Of course, U.S. intelligence agencies and some law enforcement units are only too happy to take the credit for apprehending such terrorists, rendering them abroad, incarcerating them without trial, and then casting vague aspersions at Saudi Arabian culture for (possibly) creating them.

Which works quite well, I must say. It has kept the Saudis busy trying to dig themselves out of a contrived hole — a hole contrived by some Western intelligence agencies in order to keep the Saudis quiet about all the free riders Saudi Arabia has given the West since 1932.

I’d call that a moderate debt to the Saudis.

It’s interesting that there was little ‘Islamic terrorism’ prior to the Soviet/Afghan War. And what there had been, was tiny bits of terrorism scattered around Asia and the Middle East. (Usually it was a case of personal attacks — one warlord against another)

But there is a reason for the rise of Islamic Terrorism and we in the West, helped create it.

Instead of castigating people for being ‘free riders’ — trying to keep them ‘down’ and ‘on the defensive’ — we should be meeting every country ‘where it is’ and helping them to destroy terrorist networks and individual terrorists wherever they may be on the planet.

That’s the difference between managing a problem on the one hand and scoping out a much broader, more inclusive, and cooperative vision on the other hand — one that has an infinitely better chance of success.

Finally, terrorism didn’t suddenly just happen. We in the West helped to create it during the Soviet/Afghan War with CIA training, the ISI’s training, and Saudi money.

When our allies the brave Mujahadeen sometimes called the West’s freedom fighters returned home to places like Yemen, Saudi Arabia, Iraq, and other Middle Eastern nations, their particular indoctrination did not simply vanish…

A New Hope

We need a better vision — one that is at least one order of magnitude better — for dealing with what is probably going to become a widespread problem in this world, with many Western-educated young people joining such groups.

Yes, thousands of Western non-Muslims are joining ISIS and other groups — and in the future it’s likely that other groups will arise with even more tantalizing ideologies (at least to easily-swayed and ‘out-of-place’ young people) who feel they haven’t a real chance at fulfilling their potential in our world.

Every one of our young people who leaves to join such a group represents a massive failure on the part of our society.

And we will only have ourselves to blame for what comes after — whatever that may be.

Therefore, let us put our efforts into providing real opportunities for our young people, and with some urgency, create employment opportunities in the Middle East where the youth unemployment rate ranges from 29% (Saudi Arabia) to 24.8% in Egypt and worse, in rural areas.

Young people from any country with a promising future ahead of them, do not run away from their communities to join groups like ISIS. Providing the opportunity for a real future for young people is where we must put our best effort — and we can’t afford to waste a moment in support of that important goal.


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