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Decline in capital investment in 2016-2017 expected at Lukoil and Rosneft as the Russian government postponed a reduction in taxes on oil exports for 2016. Russia is dependent on oil exports for a third of its national output, and about half of its budget depends on oil revenues, a major weakness, but this is being managed carefully till oil prices recover. Russian officials say the $50 a barrel assumption for oil revenues in 2016 in the budget is optimistic. Yet Russian output decline is expected to be limited to about 3% a year from 5% for Lukoil in future years from decline in investment, because of drilling new wells and use of horizontal drilling technology on older fields. In 2015 oil output increased modestly to 10.73 barrels a day from 10.58 barrels a day in 2014. Russia's oil industry benefits from a tax system that favors the industry. The export duty on oil and the mineral extraction tax are based on price. A declining ruble which has gone from 35 to the dollar before its invasion of Ukraine in 2014 to 86 to the dollar in Jan 2016, has a favorable impact. This actually helps the industry because workers and oil equipment suppliers in Russia are paid in rubles, and oil revenues are earned in dollars. As a result new technologies such as horizontal drilling now make up one third of oil supplies from 11% in 2010. Chinese suppliers also provide new technology drilling equipment, as China is not part of the sanctions. Gazprom Neft's CEO Dyukov says it can make a profit at oil price of $15 a barrel. Because of the tax system after tax revenues are stable at the oil companies in Russia, even as government tax revenue declines. All this points to resilience in the short run for the Russian oil industry. The decline in the value of the ruble is seen as an opportunity to shift away from an overdependence on imports during the period of high oil prices. Alexei Kudrin, former Russsian finance minister, sees growth returning for the Russian economy in 2017. This may actually be good news for the struggling economies of U.S., Europe, India, China, and other countries which would be boosted by low oil prices sustained over a longer period- something made possible by competition between big oil producing countries Russia, Saudi Arabia, Iraq and Iran, and the profitability of oil production at prices below $30 to $20 a barrel....

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The Saudis fear a blowback from a military push by the US against the Taliban. Pakistan sees a push by the USA leading to Taliban concentrating in the Baluchistan part of Pakistan.

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Sharp drop in oil prices in Dec. 2015.

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No indication that Gulf money is that much better spent this time, as another flood of petrodollars hits the Emirates and Saudi Arabia, with no idea for how long. The huge reserves of dollars built up by the large exporting nations of manufactured products and commodities may have created a huge surge in liquidity that indirectly caused the spending boom that fueled realestate and domestic retail markets in the USA from which the US will take a long time to recover. So these large surpluses of petrodollars cannot be looked at without some concern as they create distortions in the allocation of resources and in spending habits in different nations in the world economy and in different ways. A too low price of oil simply let fuel economy fade as a concern and let fuel economy standards become stagnant for over two decades and a splurge in light trucks and large fuel guzzling vehicles. The freespending buying habits sustained development in China but the low prices of lowend manufacturing goods also led to too much concentration on that kind of manufacturing in China leading to an environmental breakdown. And corrective action comes a llittle late when a lot of the damage has been done and only after this is the alarm raised and the corective action taken. Meantime while these excesses are taking place its seen as a strength as some industrial sectors grow richer and as soon as the excesses become a problem these very industrial sectors become a weakness. Take a look at the auto industry in the USA and the small manufacturers in Guangdong province in China....

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As expected Iran boycotts the talks in Doha of 16 major oil producers seeking to stabilize oil prices. Saudi Arabia, Russia, Qatar and Venezuela sought to stabilize oil production at January levels to support oil prices. Wth the Saudia and Russia producing all out, Iran seeks to do the same, effectively closing the door on any agreement to freeze production levels.

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It makes for good political rhetoric, but in reality the flow of money goes both ways. A lot of investments are made by American companies overseas. This time the flow of oil money because of high oil prices, from the USA and Europe to the Middle East is being recycled back to the USA in the form of investments in the US through small equity stakes in companies and more so through purchases of capital equipment and services to build Saudi infrastructure projects. The $500 billion investment plan over several years in Saudi Arabia is to build everything from new cities, aluminium plants, electricity generation plants and chemicals and plastics plants. The fears and rhetoric are overblown, as the USA also invests overseas with holdings according to the Treasury department of $6 trillion of foreign stock and debt. The acceleration of foreign investment in the US is to be seen in the numbers, as the dollar gets weaker, and its more advantageous for Canadians and Euuropeans to invest here. Last year $414 billion of foreign investors money went into buying stakes in American companies and building factories and purchasing stock, according to Thomson Financial. Thats up 90% from 2006 and represented one fourth of all announced deals. This year in just 2 weeks foreign investors poured $22.6 billion in just the first 2 weeks of January, and that represents one half of all deals. Shows how quickly the picture is changing. One way of looking at it is that Americans buy a lot of foreign goods and the money Americans use to pay for a lot of imports is now being returned to the USA in the form of foreign investments. Note that foreign investment is desirable because it brings new ideas and technology and new management methods to the host country from other countries. These foreign investors in many cases are able to make these investments overseas because they are good at what they do, having them in the host country benefits the host country and shakes up competition in the particular industry in the host country that is receiving the investment. This is why economies once relatively unfavorable to foreign investors like Japan and S. Korea are now passionately seeking foreign investment to make their economies thrive through the exchange and inflow of new ideas and ways of doing things. The same can be and is true for the USA. The other aspect is that most of the investment is still from countries like Canada, Germany, Japan, S. Korea which are big free trade partners of the USA. Manufacturing investment is heavily skewed to European and Japanese companies. Foreign multinational investment (Sony, Toyota etc) grew to $43.3 billion in 2007 from $39.2 billion in 2006 according to OCO Monitor, and will accelerate significantly as companies like VW and other German companies find it cheaper to build in the USA and shift more manufacturing here. To get an idea why the rhetoric is overblown Canada spent the most in buying American companies, $65 billion in 2007, according to Thomson Financial. Russia spent $572 million and India $3.3 billion. How will this improve the chances of the USA making it out of this recession? Five million American work for foreign companies in the USA. Of these one third are manufacturing jobs. These jobs pay about 30% more than jobs in American owned companies. Figures from Treasury Department. There will be more of these jobs as companies like VW build plants here. Roubini Economics estimates that an infusion of about $300-400 billion is needed for the USA to overcome the effects of the current mortgage and credit crisis. $414 billion was invested in the USA by foreign investors according to Thomson Financial in 2007, going up from something like $200 billion in 2006. If this pace continues becasue of some of the same underlying reasons as the weaker dollar, stronger economies overseas, then $200 billion additional investments this year would add that much to a stimulus package of $150 billion by one estimate, to provide a boost of somewhere around $350 billion. In the range of the needed boost. Companies like IBM and GE which have significant investments in India and China and investments in software or infrastructure industries that are growing rapidly or Caterpillar with growth in construction overseas, may keep growing through this downturn. This recession may hit selectively and differently, not be a complete hit to the USA economy, and could prevent it from going beyond 2009 with recovery in 2010. ...

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The benchmark price of U.S. crude oil dropped to $31.41 a barrel on January 11, 2016, as oil prices continued to drop sharply following a slowdown in China, appreciation in the U.S. dollar and no cuts in production from Saudi Arabia. Analysts expect a crisis for energy producers that is deeper than ones in 1986, and five plunges in oil price all the way back to 1970. With the oil prices at $30 and expected to drop below $30, the companies that took on a lot of debt have no choice but to keep up production. In the process many may find themselves in bankruptcy. Private equity with capital of $100 billion is likely to come in at this point to buy cheap assets without the debt, say analysts. U.S. banks energy portfolios are small, with Wells Fargo energy exposure only 2% for oil and gas loans in the third quarter of 2015, or about $17 billion. Loans that are rated "sub-standard. doubtful or loss," are projected at 15% of loans to energy producers, about $34.2 billion, in a biannaual review by banking regulators. The unusual aspect of this energy price slump is that production is not declining with falling prices- oil production in the U.S. was estimated by the government at 9.2 million barrels a day in Jan 2016- 1% higher than at the beginning of 2015 when prices were over $40 a barrel....

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During the campaign and in the crucial Iowa primary Obama used newspapers, small and large, to get his ideas across. At one point he gave six interviews to one columnist for the Daily Times Herald of Carroll, Iowa, (circulation: 6,000). He chatted with reporters from papers like the Mason City Globe Gazette, Fort Dodge Messenger, and met with editorial boards of papers throughout Iowa. Some of these media may just be curious to hear a new kind of message, and Obama could use the communication skills developed in years of writing to express his ideas and his vision all in a casual setting, seeing faces, expressions, feeling the way the way people responded, and all the time listening to what they had to say. Now the same approach is to take world newspapers as another outlet through the Tribune Media Services which enables him to run an oped column in 30 papers around the globe. Here is the list: Arab papers are Al Wataan (Gulf States) Asharq Al Aswat (regional paper in Arabic), Gulf News (Gulf States), Saudi Gazette. European papers are: Corriere della Sera of Italy, Die Welt of Germany, International Herald Tribune of Paris, Eleftyropiea (Greece), Kristeligt Dagblad of Denmark, Le Monde of France, Lidove Noviny of Czechoslovakia, NRC Handelsblad of Netherlands, Svenska Dagbladet of Sweden, WPRost of Poland. South American papers: El Mercurio of Chile, Estado Sao Paulo of Brazil, Clarin of Argentina. South Asian and Asian papers: Hindusthan Times/ The Hindu of India, The News of Pakistan, South China Morning Post of HongKong, Straits Times of Singapore, Yomiuri Shimbun of Japan, Bangkok Post of Thailand. In South Africa the Sunday TImes, in Australia the Sydney Morning Herald, and The Australian, and in the USA, the Tribune papers which are Chicago Tribune, Los Angeles Times, Baltimore Sun. These are all distributed through the connection and means of the Tribune Media Services. The key point inthis communication effort is to signal something that may not have sunk in, in many parts of the world. A deep and all pervasive truth that is emerging from this crisis. We are all in this together in ways you can't imagine, as were in one boat and we float or sink in it together. Leave language, culture, borders aside, its aprofoundly new world in which the Obama story itself of multiculturalism may just be scratching the surface of really deep pervasive changes that are happening. Obama may actually not have hit this point hard enough. "Once and for all, we have learned that the success of the American economy is inextricably linked to the global economy.There is no line between action that restores growth within our borders and action that supports it beyond. If people in other countries cannot spend, markets dry up- already we have seen the biggest drop in American exports in nearly four decades, which has led directly to American job losses." This is dramatically proven by the latest Commerzbank estimates that show the 2 largest export based economies, Germany and Japan will see a contraction of GDP of 7%, USA 4% contraction and China, Eastern Europe and other parts of Asia and Latin America will also be impacted severely by the same phenomenon of markets drying up around the globe. And Obama offers the simple message that the United States is ready to lead, and asks its partners in the G20 to join with a sense of urgency and common purpose. Obama goes on to say that " we need not choose between a chaotic and unforgiving capitalism and an oppressive government-run economy. That is a false choice that will not serve our people or any people." ...

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Use of oil for transportation has increased from 30% ten years ago to nearly 50% in 2013, according to Sanford Bernstein, as more cars are added to China's roads. This makes it less likely that a slowdown in China's growth will affect demand for oil. Sales of passenger cars increased by 11% in January and February 2014. A study at France's central bank by Gauvin and Rebillard shows only a much smaller effect on oil prices from a hard landing of the Chinese economy, compared to the effect on metal prices. Passenger cars now make up two out of three vehicles on Chinese roads, according to LMC Automotive. The growth in cars is likely to continue, not just in China, but in other emerging markets such as India, Brazil, Mexico and Russia. Metal consumption is different, as it comes mostly from housing, infrastructure and factories which are the most affected parts of the economy in China.

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Daniel Yergin of consultancy firm IHS describes the geopolitical disputes in the Middle East between Russia, Saudi Arabia, and Iran that are leading to likely continued oversupply of oil in 2016, keeping prices in the $30-$40 range. Saudi Arabia is not likely to change its policy of going after market share, Venezuela is affected but lacks a voice in OPEC decisions, Russia continues its policies in Syria and Iraq under the Putin government affecting other Sunni states, and Iran following the lifting of sanctions is likely to ramp up supply to make up for its lost market share- all leading to an extended period of low prices. This situation benefits China, the European Union countries, India, Turkey and the U.S. in a period of slow economic growth in 2015-2016. Russia looks to use this period of low oil prices to shift to domestic industry after a period of rising imports when oil prices were high. The Saudis seeing their interests in the region threatened by Iran and Russia, and dissatisfied with the foreign policy of president Obama, see a policy of pushing for market share as appropriate in the current geopolitics of the region....

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U.S. Defense Secretary, Leon Panetta, held three way talks with Egypt's president, Mohamed Morsi and the head of the military, Hussein Tantawi. Panetta said of Morsi- " I was convinced that President Morsi is his own man." Panetta said Morsi is committed to democratic reforms and representing all Egyptians. President Morsi sent a letter to Israeli president Shimon Peres expressing deep thanks for a Ramadan greeting and expressing hope for new peace talks with the Palestinians. The U.S. preparations for a potential conflict with Iran and the civil war in Syria to oust the Assad regime have given new urgency to reduce tensions in Egypt between the different factions including the military.

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U.S. commercial oil inventories cover about 164 days of net imports by Jan. 2015. Excluding net imports from Canada and Mexico this reaches 279 days of net imports from other countries. When strategic oil reserves are included this goes up to 450 days, which will put pressure on oil prices in 2015 as the price of oil drops below $50. The surge in oil production in the U.S. by 1.2 million barrels a day contributed to this buildup.

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Iran plans an ambitious $50 billion investment program to expand oil and gas output in the next 4 years. About half of that coming from Iran and the rest from outside oil companies. Iran expects to earn $54 billion in oil exports in 2006 vs. $47 billion in 2005. Iranian production represents 5% of global supply, about 4 million barrels a day. Only about 2.5 million of this is available for export. Iran has 2 problems in oil use and production. Gasoline use is growing at about 10% a year. And oil production is declining by about 5-6% a year from existing fields. The investment program over the next 4 years would increase production from new fields by about 1.3 billion barrels, but with existing fields generating less each year this will only generate about 500,000 barrels of additional output beeyond the 4million barrels today. And with domestic use growing rapidly and new refinery capacity being added to meet domestic demand of 500,000 barrels a day even this would leave no more for export than the current level of 2.5 million barrels a day, or probably less with growing gasoline use inside Iran. These are Iranian Oil Minister Vaziri Hamaneh's numbers. What this means is that with economic sanctions the whole global supply picture and the world price of crude oil would be seriously affected by economic sanctions in the next 4 years, as the 2.5 million barrels a day export number would be reduced by the increase in domestic consumption of gasoline by 10% a year, and the decline in existing fields of 5-6% a year. In the short term two year horizon this adds upto loss of some 700,000 barrels a day, about 400,000 from decline in existing oil fields and 300,000 in increased domestic use, which are no longer available for export. Hamaneh pointed to the investment as evidence of Iran's good intentions as a supplier in an interview with te Wall Street Journal. He says Iran sees the importance of preserving its credibility as a reliable supplier. It does not want to cause hardship to consumers around the world. Another reason for the pragmatic position taken by Hamaneh is that Iran depends on oil exports for 40-50% of government revenue....

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Erdbrink describes the evolution of trade relations with China which helped Iran during the period of western sanctions. Because of trade with the U.S. and western partners, China was careful to use the Bank of Kunlun, created to handle financial transactions with Iran, for import of oil and export of automobiles and other products.

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A steady decline in the price of Brent crude from $115 to $92 in the period from June to October 2014. Slow or no economic growth in Europe, and declining growth in China was the main reason. A cut in oil price by Saudi Arabia in September with lack of coordination in OPEC to control supplies when prices are declining, and increasing supplies from the U.S., provided additional basis for price declines. This price decline comes as large energy companies invested heavily in mega-projects to bring more oil supplies when prices were up to $128 by mid-2012. Consulting company EY estimate is that there are 163 such mega projects worth $1.1 trillion underway, most behind schedule and over budget. The projects were based on oil prices being over $100. Oil field development costs are increasing rapidly. Douglas Westwood, a consulting firm, estimate is that productivity of upstream capital spending has fallen by a factor of 5 since 2000, declining by 5% a year, as oilfield equipment and services demand exceeds supply. Greater technological sophistication also adds to cost such as Shell's Nobel Bully platform for deep sea drilling. See link- Noble Bully. Oil majors are now cutting spending, and some planned big projects are on hold. About $300 billion in assets may be up for sale. Shell plans to cut spending by 20% in 2014, Exxon and Chevron 5-6%. Shale oil projects in America need about $57 to be profitable with an internal rate of return of 10%, by one estimate. Yet this is an average and does not reflect differing producer costs. This estimate does not reflect the high cost producers, some of whom need closer to $110....

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Egyptian president Morsi's address at the UN General Assembly as "the first Egyptian civilian president elected democratically and freely." On the Egypt-Israel treaty he said: "we are committed to what we have signed on." He defended the Syrian people, who he said were trapped in "the tragedy of our era." For Syria, Morsi has formed a contact group of Iran, Egypt, Turkey and Saudi Arabia to defuse tensions in the region. Egypt backs the initiative of the Arab League and the UN led by an experienced diplomat Lakhdar Brahimi, who recently visited Syria.

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Sabotage of two tankers in the Persian Gulf and reports of activity of Iranian proxy forces in Iraq and Syria have led to an American response with the dispatch of a aircraft carrier and other forces to the region.  This report in the NYT says Defense Secretary Shanahan has prepared plans for deployment of American forces in the region with one plan calling for 120,000 troops to be dispatched to the region. As president Trump is against American involvement in land wars in distant places, the force is designed as a precaution in case of an Iranian attack through proxy forces in Syria or Iraq and not for a land operation. National Security Adviser Bolton has taken a strong position on Iran since the days of the Bush administration. The U.S. withdrawal from the Iran nuclear deal, the sanctions on Iranian oil, are part of a new policy of the Trump administration. The European Union countries have followed a policy of preserving the nuclear deal of 2015, even though the U.S. is pressuring EU countries. The oil sanction have led to a sharp drop in oil exports and is hurting the Iranian economy. President Rouhani of Iran says Iran may withdraw from parts of the Iran nuclear deal and the Iranian response is leading to heightened tensions in the region.  It was only recently that the Democratic party Obama administration pursued the Iranian nuclear deal with opposition from Republicans in Congress and skepticism of Israel. The election of president Trump who says the deal was a bad one has reversed U.S. policy leading to a complete change in policy and a possible confrontation with Iran. U.S. policy can veer back and forth depending on the party or president in power who completely different perceptions of the region. Obama had sharp difference with Israel and Saudi Arabia, and a different perception of Iran. Trump and Bolton see Iran as a threat to the U.S. After Iran shipped most of its nuclear fuel out of the country in 2016 in exchange for lifting of economic sanctions under president Obama's nuclear deal it would take over a year for new uranium enrichment facilities to produce the materials for a nuclear bomb, according to this report in the NYT. When the Obama administration negotiated with Iran the window had shrunk to a few months.   ...

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A leader of the Syrian moderate democratic opposition to the Assad regime calls for help from the Obama administration for the moderates and Free Syrian Army. The request for Manpads to counteract Assad's air attacks and the deteriorating situation around the city of Aleppo and in Northern Syrian areas controlled by the Free Syrian Army. The collaboration between the Hezbollah, Assad's forces, and the ISIS as each attempt to increase the areas under their control pushing out the Free Syrian Army and moderate forces fighting the Assad regime. Hillary Clinton comes out against the Obama administration's policies in August 2014, saying "don't do stupid stuff" basis of Obama policies is not the basis for a sound foreign policy. Obama comes out with a $500 million aid plan for the Free Syrian Army but the approach is vacillating and slow, leading to a rapidly deteriorating situation, and a complete breakdown of what was a period of hope called the Arab Spring.

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What is the Muslim Brotherhood in Egypt and what does it mean for the US in the current protests? The Muslim Brotherhood was started in Egypt in 1928, in the colonial days, by an imam and schoolteacher named Hassan al-Banna. The intent was to act as a grassroots organization to promote the reform of Egyptian society through a greater adherence to Islam, by preaching and social services. Scott Shane talks with Reidel of the Brookings Institution and Shadi Hamid, director of research at the Brookings Quatar Center about the Brotherhood and Israel. Reidel was the Egypt desk officer at the CIA when Mubarak came to power in 1981, and is an experienced observer of the Muslim world at Brookings. Reidel says if we want democracy in Egypt, the Muslim Brotherhood is going to be a big part of this, and we should be engaging and talking to them now. Hamid responds to a question about terrorism by pointing out that the Al Quaeda hates the Brotherhood and the Brotherhood hates Al Quaeda, that for counterterrorism engaging with the Brotherhood would be helpful to the US. On Israel, Hamid says years of accomodation to the real world has brought a knowledge that the Brotherhood has to live in the real world and the geopolitics of the Middle East. Carrie Wickham, a political scientist at Emory University, is author of "Mobilizing Islam," a 2002 book on Egypt and the Muslim Brotherhood. Carrie says it was analogous to evangelical Christians and their goal of sharing the word of God, but Banna also referred to Jihad as a struggle against colonialism and Zionism. Some leaders such as Sayyid Qutb, who was imprisoned by the Egyptian government and executed in 1966, advocated violent jihad, but after the 1970's the Brotherhoods formally renounced violence as a means of achieving power. In 1984 the Brotherhood reached another point in its evolution when it competed in parliamentary elections. And estimates of its actual support begin at about 20% of the electorate. Another development is the relative youthfulness of the April 6th and other movements in Egypt, where two thirds of the people are under 30 years age. The Muslim Brotherhood leaders are much older and hesitated to join the popular movement in its early stages. On the question of the Brotherhood's future evolution and winning a large role in a future government, Carrie says that a system of checks and balances has to be established to ensure that the Brotherhood operates as a democratic party committed to the democratic process. The Wall Street Journal in an editorial on February 4, 2011, emphasizes the need for institutional checks and balances. Carrie says rewriting the constitution and electoral process to ensure that this happens and no one party can take abslute control is crucial. ...

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Turkey's prime minister Erdogan wins a third term. He wins half of the vote and gets 325 seats in parliament. But he fails to get the 330 seats in parliament needed to make changes to the constitution and submit it to a referendum. This also falls short of the 367 absolute majority to get a new constitution adopted by parliament without a referendum. WSJ says the Turkish prime minister appeared to get the message from Turkish voters- any change in the constitution should be done by national consensus and he needs to soften his authoritarian edges. In accepting the results he said: "We'll go to the opposition and we'll seek consultation and consensus. The responsibility has risen and so has our humility." Erogan's party gets credit for managing the economy, increasing exports fourfold in the last ten years and tripling per capita income. This also comes at a critical time in the Middle East as Turkey seeks to provide a role model for Egypt, Libya, Syria, Tunisia, Iraq and other countries in the Middle East becoming free from dictatorial rule and trying to establish democracy....