Archive for the ‘Uncategorized’ Category

America: The Dictatress of the World

by Jacob Hornberger via The Mises Institute

Zero Hedge (October 10 2017)

On July 21 1821, John Quincy Adams, who would go on to become the sixth president of the United States, warned that if America were ever to abandon its founding principle of non-interventionism in foreign affairs, she might well become the dictatress of the world.

Adams issued his warning in a speech he delivered to Congress, a speech that has gone down in history with the title “In Search of Monsters to Destroy”:

Adams was referring to the fact that the United States was founded as a constitutional republic, one whose military forces did not go around the world helping people who were suffering the horrors of dictators, despots, civil wars, revolutions, famines, oppression, or anything else. That’s not to say that America didn’t sympathize with people struggling to experience lives of freedom, peace, and prosperity. It was simply that the US government would not go abroad to slay such monsters.

Here is how Adams expressed it:

Wherever the standard of freedom and independence has been or shall be unfurled, there will her heart, her benedictions and her prayers be. But she goes not abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own. She will recommend the general cause, by the countenance of her voice, and the benignant sympathy of her example.


Adams was summing up the founding foreign policy of the United States, a policy of non-interventionism in the affairs of other nations, specifically Europe and Asia.

And that’s the way the American people wanted it. If Americans had been told after the Constitutional Convention that the US government would be intervening around the world, there is no way that they would have ever approved the Constitution.

In fact, as a practical matter, throughout the 18th and 19th centuries, there is no way that US officials could have gone abroad in search of monsters to destroy. That’s because a nation needs a powerful military to go abroad and free people from dictators and despots or save people from famines or other bad things that happen in life.

When the Constitution called the federal government into existence, the last thing the American people wanted was a powerful military. They were overwhelmingly opposed to what they called “standing armies”, which was a term used describe a big, permanent military establishment. That was why there was no Pentagon, no big, permanent military-industrial complex, no CIA, and no NSA for more than 100 years after the country was established. The American people didn’t want those types of governmental apparatuses to be part of our nation’s political system.

The reason Americans were so opposed to standing armies is because they believed that standing armies constituted a grave threat to their freedom and economic well-being. They knew, from both first-hand experience and through history, that dictators and despots used powerful military establishments to destroy the freedom and prosperity of the citizenry, oftentimes in the name of keeping them safe, secure, and prosperous.

So, while there was a basic military force throughout the 19th century – large enough to suppress Native Americans or even to defeat a neighboring Third World nation like Mexico in the Mexican War, it certainly was nowhere near as large enough to cross the oceans and invade and conquer European or Asian countries. The one big exception, of course, was the Civil War, but the army immediately demobilized upon the conclusion of the war.

Things started changing with the Spanish American War in 1898. There were those who argued that America could not be a great nation without owning overseas colonies, like the British and French Empires. Opposed to that sentiment was the mindset that had guided the founding of the country: that empire and foreign interventionism would end up destroying the country from within.

The interventionists prevailed.

First, US officials misled and double-crossed the colonies of the Spanish Empire by leading them to believe that the United States was intervening against Spain to help the colonies win their independence. It was a lie. As the colonies soon learned, the real aim was to step into the shoes of the Spanish Empire by acquiring its colonies. That’s how the United States ended with Puerto Rico, Guam, the Philippines, and Cuba.

Second, the trend toward empire as a way to make America great was followed by foreign interventionism, with World War One and World War Two being premier examples.

That was followed by the conversion of the US government from a constitutional republic to what is known as a “national-security state”, a governmental apparatus characterized by a massive, permanent standing military establishment and secretive agencies with the power to assassinate and spy on the citizenry, in the name of preserving “national security”.

That was followed by massive interventions “in search of monsters to destroy” through assassinations, coups, invasions, occupations, support of dictatorships, and regime change: Korea, Guatemala, Iran, Cuba, Congo, Brazil, Chile, Grenada, Panama, Iraq, Afghanistan, Yemen, Syria, and others.

Here is how Adams eloquently expressed what would happen to America if she were ever to abandon our nation’s founding principles of anti-empire and non-interventionism:

She well knows that by once enlisting under other banners than her own, were they even the banners of foreign independence, she would involve herself, beyond the power of extrication, in all the wars of interest and intrigue, of individual avarice, envy, and ambition, which assume the colors and usurp the standard of freedom. The fundamental maxims of her policy would insensibly change from liberty to force. The frontlet upon her brows would no longer beam with the ineffable splendor of freedom and independence; but in its stead would soon be substituted an imperial diadem, flashing in false and tarnished lustre the murky radiance of dominion and power. She might become the dictatress of the world: she would be no longer the ruler of her own spirit.


No one can seriously deny that Adams has been proven correct – that America – or, more correctly, the US government – has become the dictatress of the world – issuing orders and commands to people and regimes all over the world and backing them up with coups, assassinations, sanctions, embargoes, invasions, and occupations, and all headed today by a democratically elected president who has all the traditional traits of an old-fashioned dictator or despot.

Categories: Uncategorized

America’s Imperial Unraveling

by Asli U Bali, Aziz Rana

Boston Review (October 16 2017)

Image: A still from a video of Trump’s visit to Saudi Arabia.

The news that President Donald Trump will not recertify the Iran nuclear deal – despite the fact that Iran is in compliance with the terms of the Joint Comprehensive Plan of Action – hardly comes as a surprise. The deal, forged between Iran, the permanent members of the United Nations Security Council, and the European Union greatly curtails Iran’s right to refine nuclear fuel and requires that the country’s nuclear program be put only to peaceful uses, instead of the production of weapons. Trump made plain while campaigning and since taking office that the signature foreign policy accomplishment of the Barack Obama administration was in the crosshairs and that he sees Iran, not the Islamic State, as America’s principal adversary in the region.

By giving ethno-nationalists a seat at the foreign policy table, Trump has sanctioned a racialized fixation with Iran as the paramount national threat, more dangerous even than Russia.

In the short term, Trump’s decision to not recertify the deal amounts to a tense stalemate between the foreign-policy hawks and ideologues in the administration, and the Secretaries of Defense and State, who have made clear that, from their perspective, the deal is in the best interest of US national security. It also places the fate of the agreement in the hands of Congress, which will now have to decide whether to reimpose sanctions on Iran, an act that would violate the terms of the deal. Derailing a deal that limits Iran’s nuclear activities would likely be the first step on a path to direct confrontation with Iran, to the joy of the Trump administration’s allies in the Gulf, including Saudi Arabia and Israel.

For many commentators, Trump’s refusal to recertify the deal looks like the final death throes of US global leadership and thus the end of the American Century. Combined with Brexit, the sense of disorientation among global leaders has been palpable, with questions abounding about whether the post–World War Two order may be nearly over. But if we are today witnessing the collapse of this order, it is an unraveling more than a quarter-century in the making. While the Trump administration has certainly broken with the conventional decorum and diplomacy of the presidency, Trump’s rise is hardly the triggering cause of the breakdown. Indeed, the new administration is best seen as a culmination, a product of the United States’s steady defection from the very order it was essential to establishing and sustaining.

If there is something like a “Trump Doctrine”, it lies in two developments: the boldness with which a declared reliance on coercion and conquest now sits uncomfortably beside America’s professed moral authority; and the implications of Trump’s ethno-nationalism for how global allies and enemies are conceived. For starters, whereas earlier administrations emphasized the need for diplomacy even as they consistently preferred unilateral uses of military force, Trump eschews such niceties. Instead, his administration is at pains to dismantle the infrastructure of the State Department, with the president declaring that the United States intends to “take Iraq’s oil” and plunder “Afghanistan’s minerals”. Trump’s bald reliance on strongman tactics is difficult for elites to reconcile with their persistent belief in American exceptionalism. Yet, this is simply the culmination of the last quarter-century’s cleaving of US power from its classic justifications.

The other development is that by giving a seat at the foreign policy table to proponents of a virulent ethno-nationalism, Trump’s presidency marks a shift in US self-presentation. Such ethno-nationalists contest the universalist and inclusive premises of Cold War rhetoric. They defend a harsh anti-immigrant position and proclaim the link between Americanism and European racial and cultural identity. These racialized premises are central to the fixation with Iran – rather than say Russia for example – and to the insistence that a country with which the United States was, until recently, able to conduct complex diplomacy now presents the paramount national threat.

The United States remains the preeminent economic and military power in the world, yet it has embarked on a project to dismantle its own hegemony.

The best way to appreciate the meaning of the Trump presidency for American foreign policy is by turning to the Middle East, a region that – perhaps more than any other – has been a hot zone of American power in the years since the end of the Cold War. In many ways, American priorities for the region have remained continuous since then, namely, the pursuit of privileged access to oil markets and the preservation of a set of security arrangements organized around the Gulf States and Israel. But in the context of unipolarity, the United States has increasingly pursued these objectives outside the frameworks of the multilateral global order and in ways that repudiate an international system of mutual self-constraint. And under the War on Terror, the region has, if anything, become a testing ground for a new American model premised on unilateralism and preventative military action. Placed in this context, the Trump administration’s verbal bellicosity, loosening of military rules of engagement, and a spike in civilian casualties is properly understood as an acceleration of practices long underway.

. . . . .


When commentators bemoan the collapse of the American postwar order or the end of the American Century, what exactly do they mean? The brand of American power that took root in the early days of the Cold War had a series of connected elements. The starting point was US policymakers’ contention that the United States was an exceptional nation because from its founding it had been committed to the principles of the Declaration of Independence: self-governance, universal equality, and personal liberty. This meant that, unlike its global adversaries, the Soviet Union chief among them, American interests were coterminous with the world’s interests. And for this reason, it should serve as the world’s steward and first nation.

In practice, this justified restructuring foreign societies on US terms by spreading abroad both market-based capitalism and the institutions of liberal democracy. It also called for the creation of an international framework marked by these same principles, especially through multilateral and consensus-based legal structures, to address the problems of global governance. The United States was at the forefront of establishing the Universal Declaration of Human Rights, the United Nations Charter, the Bretton Woods institutions, the North Atlantic Treaty Organization (“Nato”), and a plethora of other interlocking institutions aimed at shaping everything from international monetary policy and global trade to health, education, and scientific cooperation. The overall aim was a US-led world driven by collective security and capitalist economic principles, with US military power and wealth as the ultimate backstop.

Obama’s use of diplomacy with Iran to deescalate any nuclear confrontation was the single most significant foreign policy move in recent decades consistent with the old US postwar liberalism.

In reality, this utopian vision left much to be desired. The rosy picture of a United States “born free” cut against persistent and obvious issues of racial oppression and domestic class conflict. As for foreign policy, the Cold War saw direct US involvement or complicity in truly staggering forms of mass violence across large swathes of the world, from the Vietnam War to countless coups, political assassinations, and small-scale interventions. For critics of US imperium, rather than generating a stable and prosperous community of liberal democracies, US power often seemed to entail economic exploitation and illiberal authoritarianism (as in Chile, Argentina, Brazil, Greece, Saudi Arabia, Iran, Indonesia, and South Africa, to name just a few client states). But it is still worth noting that for much of the Cold War, the example of a growing US economy and the commitment of policymakers to investing in multilateral economic and security institutions sustained faith that the United States could lift all boats. It gave a sense of real purpose to US policymakers and to US-aligned elites, in Europe and in the Global South. These groups could look to the United States’ example as a viable model, even if it went hand in hand with political violence.

. . . . .


While the end of the Cold War meant the end of the perceived Soviet threat, it also decreased the pressures that had led US leaders to value international institutions as conducive to national self-interest. The consequence was a systematic withdrawal by American administrations from the multilateral global order. From the International Criminal Court to the Kyoto Protocol, US elites continued to pay lip service to multilateral institutions and even presided over the drafting of new treaties for global governance, but increasingly opted not to join the institutions they themselves had negotiated.

The effects of this quickly became apparent in the Middle East, given the near continuous exercise of American military power that has marked the region since the 1991 Gulf War. In the beginning, it seemed that the first Gulf War – authorized by the United Nations Security Council – signaled a new potential for international unity under American unipolar leadership. But 1991 proved to be the high-water mark for international security cooperation. Such cooperation was soon displaced by a growing US preference for selective ad hoc coalitions and for unilateral and preemptive uses of force. While this also played out in Kosovo, at the European periphery, it especially came to define how the United States engaged with Muslim and Arab states, from the bombing of Sudan in 1998 through the Iraq invasion of 2003. Indeed, the War on Terror only intensified what had already been established during the Clinton era. The George W Bush administration repudiated the Geneva Conventions when justifying its use of force against al Qaeda, withdrew from arms control agreements, and promulgated a national security strategy premised on preemption.

Where the promotion of democracy once served as the go-to rhetoric of US policymakers, the War on Terror introduced priorities that clash with even an aspirational invocation of global democracy.

Following the spectacular failure of the Bush administration’s military enterprises in Iraq and Afghanistan, Obama rekindled international hopes for American recommitment to a rule-based international order. Yet the awarding of a Nobel Peace Prize to Obama during his first year in office proved premature. His administration was at best ambivalent about multilateralism and it repeatedly defended the US prerogative to use force in counterterrorism operations around the world. If anything, the 2011 intervention in Libya, which recalled the chaos and violence of the Iraq invasion a decade earlier, raised doubts about whether the United States was legitimate – or even competent – in its uses of force. Whatever the stated aim – whether fighting terrorism, countering arms proliferation, or serving humanitarianism – US military force seemed ill-suited for the task. Simultaneously, the prospect of an alternative multilateral approach to security dilemmas or “fragile states” continued to be remote under US leadership.

As the logic of anti-communism has come to be replaced by the logic of counterterrorism, US commitment to a liberal transnational project has waned. Where the promotion of democracy once served as the go-to rhetoric of US policymakers, the War on Terror introduced new priorities that often clash with even an aspirational invocation of global democracy. For example, Cold War support for anti-communist dictatorships was presented as transitional, a regrettable compromise on the road to democratization. By contrast, support for authoritarian rulers in the age of the War on Terror is effectively disconnected from even cursory calls for democratic transition. Rather, in a region presented as an incubator of terrorism, US actions consistently aim to consolidate executive power, banking on pliable elites regardless of the implications for the liberal order. In the face of expanding doubts in Washington about the capacity of Arab and Muslim states to reform themselves, the goal is simply a pro-American and largely authoritarian stability.

. . . . .


And thus we arrive at our present circumstance, with the United States routinely operating without regard for multilateral cooperation, international constraints, or external accountability. Nothing illustrates this better than the unfolding humanitarian disaster in Syria, where the United States has been continuously intervening – albeit with little domestic awareness – throughout the country’s six-year civil war.

Trump’s posture on Syria is to treat the country as a sandbox where he can try out various regional alliances, without any actual plan for – or regard to – how lasting peace might be generated there. In this, there is much continuity between Trump and Obama. The Arab uprisings that began in late 2010 allowed the Obama administration to capitalize on instability and popular demands to unseat US foes, while simultaneously resisting any currents of change that threatened US interests. In February 2011, even as the mildest expressions of peaceful dissent were brutally repressed with American support in Bahrain, the US embraced armed opposition to the Libyan regime. Within weeks, as the Saudi military rolled across the causeway to assist the US-allied Bahraini government in its brutal crackdown on a nonviolent democracy movement, the United States began offensive aerial support to Libyan rebels taking up arms to oust that persistent thorn in the side of the United States, Muammar Gaddafi.

Trump has loosened whatever constraints existed for the United States’s most aggressive allies in the Middle East, including Saudia Arabia, the United Arab Emirates (“UAE”), and Israel.

In Syria, the United States has sought to simultaneously flip a regional adversary, constrain Iranian and Russian influence, and shore up the position of its Gulf allies, chiefly Saudi Arabia, the United Arab Emirates, and Israel. Trump’s sword-dancing performance last May in Riyadh followed by his direct flight to Tel Aviv make evident that these policies have earned his administration a warm welcome in some quarters. Indeed, the Saudis and Israelis have much to celebrate in a Trump presidency, which is helping to realize their ideal regional order. Leaders of these countries are delighted that Trump is derailing the Iran agreement – with Israeli Prime Minister Netanyahu praising the decision as both “brave” and “right” and the Saudi and UAE governments joining in a chorus to express their full support. Similarly, the US escalation of support for proxy wars from Syria to Yemen has earned accolades in the Gulf. All of this may be building toward a reckless, elective war with Iran provoked by the United States, to the satisfaction of our partners in Riyadh and Tel Aviv.

The larger implication for the Middle East is that Trump has loosened whatever constraints existed for the United States’s most aggressive allies in the region. We see this in everything from the metastasizing war in Syria and the destabilizing pursuit of the Islamic State in Mosul, to the violence, cholera, and famine that have consumed Yemen and the attempt to immiserate and isolate Qatar. Bent on establishing Sunni domination and displacing a supposed Shia crescent, a Gulf coalition centered on Saudi Arabia and the United Arab Emirates has enlisted Israel to its cause and transformed the United States into its enforcer. In many respects, the United States now behaves as both the most powerful pro-Sunni actor in the region and as a backstop for Saudi Arabia’s expansionist aims.

This is a striking development. Sixteen years after 9/11, the policy choices made by US elites have turned the United States into the military muscle of forces seeking to construct Sunni hegemony in the region. And at present, the Trump administration has essentially handed the tacit anti-Iranian alliance between the Saudis, Emiratis, and Israelis a carte blanche, setting the scene for the intensification of violence and further disorder.

In this respect, the War on Terror drift of American foreign policy has converged with the ascendance of ethno-nationalist approaches under the Trump administration. Obama officials tended to present Iran alongside Russia as two enemies threatening American dominance in the Middle East, but also as each containable through military and diplomatic strategies. However, the ethno-nationalist wing of the Trump administration splits the two. Despite the tensions over Syria, Russia is seen as potentially an ally rather than an old Cold War foe, since it aligns with right-wing populists across Europe, embracing an ethno-religious account of national identity as well as market principles and strongman political tactics. The real enemy is Iran, which is depicted as an implacable foe. As an opposed Muslim power, the country is viewed in racialized terms as inherently violent and incapable of assimilating into a Western global order.

Sixteen years after 9/11, the United States has become the military muscle of forces seeking to construct Sunni hegemony in the Middle East.

What the rise in anti-Iranian sentiment underscores is how, for many in the Republican Party, not to mention allies like Saudi Arabia and Israel, it is Obama – rather than Trump – who should be viewed as the outlier and threat to national interests. For all the ways that the Obama years continued the basic orientation of US foreign policy – highlighted specifically by the intervention in Libya and the arming of factions in Syria – the one break was his focus on using diplomacy with Iran to deescalate any nuclear confrontation. In truth, this effort was the single most significant foreign policy move in recent decades consistent with the old American postwar vision of multilateralism and faith in international legal arrangements. But it cut against the right’s growing Islamophobia as well as the desire of elites in Saudi Arabia and Israel for the United States to directly confront their regional nemesis. For this reason, despite all the general consternation at home and abroad about the meaning of Trump’s victory, some nonetheless hailed it as a return to foreign policy normalcy.

. . . . .


Ultimately, it is no surprise that this administration, so fond of authoritarian strongmen abroad, also pursues similar strategies at home. Expressing his admiration for manipulated elections, the dismantling of the free press, and the jailing or killing of political opponents, Trump has offered warm praise and even congratulations to a range of violent plutocrats besides Putin, from Viktor Orban to Rodrigo Duterte to Recep Tayyip Erdoğan. In the place of a faith in US exceptionalism, Trump sees neither a qualitative nor an ethical distinction between US and Russian politics. Rather than projecting a model of governance and rule-based order globally, the United States now borrows from a global authoritarian playbook.

This inversion has profound implications. The United States remains the preeminent economic and military power in the world, yet in many respects, it has embarked on a project to dismantle its own hegemony. In part, this is because the reliance on a politics of unilateral force has produced an interesting disconnect. While during the Cold War the United States faced serious adversaries, it was nonetheless largely able to avoid any real experience of existential threat. Today, faced with far more limited foes, the country has adopted a politics that presents the real possibility of existential violence and nuclear confrontation. As with the decline of earlier empires, the threat does not lie so much with the rise of an alternative power but with the actions of the United States itself, which has slowly repudiated the very order it once authored. Trump is little more than a symptom of the forces that over decades have produced this gradual decline, though he may also prove to be the final nail in the coffin.

Categories: Uncategorized

Five Reasons …

… Prescription Addiction Turns to Heroin

Prescription drugs heroin

With recent news and national surveys indicating that more and more prescription addicts are turning to heroin, we decided to investigate the five main reasons why this is happening. Here is what we found:

1. Heroin is a Prescription Drug

Heroin is itself a prescription drug that was more widely used around the turn of the nineteenth century. When used for prescription purposes, it is referred to as diamorphine. It has recently been studied by researchers in the Netherlands who were looking for a way to more effectively treat heroin addicts. The routine treatment for heroin addiction in the mainline medical community has been to give the person methadone, which is actually a synthetic opioid very similar to heroin. The Dutch researchers were investigating to determine whether treatment might be more effective if the patients were given a limited dosage of heroin in addition to the methadone, and they report that the answer was “Yes.”

2. Heroin is a Good Substitute for Prescription Painkillers

The most common prescription painkillers on the market, including hydrocodone (Vicodin) and oxycodone (OxyContin, Percocet), are actually opioid drugs, just like heroin. All of these drugs are derived from opium. One of the major derivatives of opium is morphine, from which heroin is derived, whereas the pharmaceutical painkillers are derived from the other major element, known as codeine. Heroin has similar effects to painkillers in terms of the high that users experience, making it an ideal substitute for those looking for a way to replace their painkillers.

See our video on the effects of heroin:

3. Heroin Is Cheaper than Pain Pills

Once a person gets hooked on painkillers, he or she is tied into an enormously expensive habit. At anywhere from $60 to $100 per pill, a painkiller addiction is enough to throw one onto hard times financially, especially considering that an addict will normally require several doses per day. Heroin is not cheap, but it is significantly less expensive than painkillers. A single dose of heroin usually costs around $10, depending on the city where it is purchased.

4. Heroin is Easier to Find

Prescription painkillers are so widely abused throughout the United States that overdose on pain meds now kills more Americans than both heroin and cocaine combined. With so many people suffering from addiction to these powerful medications, state legislatures, law enforcement, and medical regulatory agencies are taking measures to crack down and prevent the drugs from being abused or falling into the wrong hands. One example is the implementation of statewide prescription monitoring programs which keep track of how many painkiller prescriptions that doctors write. This makes it harder for unscrupulous physicians to operate as “pill mills”, selling prescriptions to people who want to get high. The drugs are now far more difficult to come by, whereas heroin can easily be found both in the city and the suburbs, provided that one has the right connections.

5. Heroin Is Easier to Use

People who abuse painkillers do not simply swallow the pills. After all, pain pills are designed not to get a patient high, but to provide an extended low dosage for the management of pain. To get high on Vicodin or OxyContin, it is necessary to crush the pill up into a powder so that it can be snorted or injected in a dissolved solution. To fight back against painkiller abuse, many of the pharmaceutical drug companies have begun formulating their pills in ways that make them harder to crush. The new version of Oxycontin, for example, cannot easily be ground to a fine powder but instead breaks up into chunks. Even if an addict is successful in dissolving the pill in water, it will not be a solution that can be injected. Instead, the solution comes out as a stringy and sticky goop. Heroin, on the other hand, is delivered as a fine powder that is ready for use as soon as the person gets his or her hands on it. For these reasons, heroin abuse rates are on the increase following the massive explosion in the numbers of prescriptions written for painkillers over the past several years.

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Categories: Uncategorized

Making History

China and Russia are Transforming Enemies into Friends

by Federico Pieraccini

Strategic Culture Foundation (October 18 2017)

In the previous articles, the military and economic means by which the United States initially aimed for global hegemony were addressed, detailing how the US became the (declining) superpower it is today. In both analyses, I highlighted how the threat of US military power is no longer credible, and how sanctions and the strong-arming behavior of corporate giants and international bodies (IMF, World Bank, BIS, et cetera) have ceased their effectiveness. This has made the United States increasingly irrelevant, leaving in the process a vacuum to be filled by emerging powers like China and Russia, which effectively ushers in a new world order based on multipolarity. In this third and final part of the series, I will dive into the specific events that show how the military, economic and diplomatic combination of Iran, Russia, and China have forged, by known as well as less-known means, an alternative world order to the unipolar American one.

Russia, China, and Iran have in recent years drawn enormous benefit from the declining military and economic power of the United States, further propelled by a general mistrust of Washington’s diplomatic and political abilities, both with Obama and now with Trump. The two previous articles showed that Moscow, Beijing, and Tehran, even as they addressed different situations, shared similar interests and came to coordinate their military, economic, and diplomatic strategy.

The success of the Euro-Asian triptych is based on the essential principle of transforming enemies into neutral players, neutral players into allies, and further improving relations with allied nations. In order for this project to be realized, economic, military and diplomatic efforts are variously employed, depending on the country and the general regional context. The flexibility shown by Moscow and Beijing in negotiations has delivered historic deals, not only in the energy sector but also in the military sphere and also in education and poverty reduction, as seen in Africa.

Saudi Arabia, Turkey, and Syria are three countries that, when analyzed individually, reveal this precise strategy of Russia, China, and Iran. Particular attention is focused on the Middle East for several reasons. It is the region where America’s declining military power, unable to achieve its geopolitical objectives in Syria, meets with the progressive loss of Washington’s economic influence, highlighted by the increasingly precarious position of the petrodollar that is about to be challenged by petroyuan deals between Saudi Arabia and China.

From Enemies to Neutrals

The military defeat of Syria’s enemies was mainly due to the Syrian Arab Army (“SAA”) together with Iran (plus Hezbollah) and Russia’s military cooperation, together with Beijing’s diplomatic and economic support. Thanks to the strategy adopted by Putin in Syria, Russia was able to stop the advanced project of the United States, Saudi Arabia, Turkey, Qatar, France, the United Kingdom, Jordan, and Israel to dismantle Syria. The Russian Federation gradually entered into the Syrian conflict, and the military results immediately favored the axis of resistance, the US military unable to intervene directly to change the course of events.

The consequences of this choice have led historic allies in the region to doubt Washington’s real commitment to the region and America’s military ability to intervene in a conflict in the Middle East and North Africa (“MENA”) and change its course in favor of Riyadh, Doha, Ankara, or Tel Aviv. The new Trump administration has shown itself not to live up to the expectations of Saudi regional hegemonic plans, even though the Kingdom agreed to buy up to $110 billion worth of US weapons and commit to further investments in the US.

Riyadh is in an even tighter position than one would ordinarily think. It has to individually support the weight of the petrodollar, which is increasingly shaky thanks to the Chinese desire to eliminate forms of payment in US dollars by switching to the petroyuan. Moreover, Riyadh sees little tangible benefits to the US militarily backing its aggressive anti-Iran policies, even though Trump has shown to different ideas than Obama on the Iran deal. Saudi Arabia shares a common interest with Israel in the region with regard to their shared anger concerning Washington’s diminishing effectiveness in the region.

From the Saudi point of view, everything went downhill within a relatively short period. The defeat in Syria that coincided with the agreement on the nuclear deal (Joint Comprehensive Plan of Action – JCPOA) between Iran and the 5+1 countries. In both these scenarios, Riyadh feels the profound betrayal of its old North American ally. The Chinese economic pressure on Riyadh to accept yuan payments for oil, coupled with the growing ability of Moscow to effectively intervene in the region, and the renewed diplomatic and political role of Iran thanks to the JCPOA agreement, has left Riyadh on a certain path to destruction. The only solution is a strategic change that could affect the region in a significant manner.

The visit of Saudi King Salman to Moscow to sign trade agreements (an investment fund of over one billion dollars has been created) was of symbolic importance. The King’s actions, conducted in person, reflected recognition of Russia’s new dominant role in the Middle East as a result of American intentions to withdraw influence in the region. The need for the Saudi king to appear in person in Moscow also directly concerns the succession to the throne, with Mohammed bin Salman to inherit the keys to the kingdom, in spite of the disasters in Yemen and the Gulf Cooperation Council (“GCC”) crisis caused by the clash with Qatar. In a situation of extreme weakness, especially with oil prices so low, the Saudi monarchy is left with few cards to play and has to initiate a dialogue with Moscow and possibly start some kind of cooperation in various fields related to energy and investment. Initially, the main excuse for the Moscow meeting between Putin and the Saudi king was to coordinate the production and sale of petroleum and gas, a necessity for both countries given falling oil prices over the last 24 months. The first goal achieved by Putin and the Saudi king appears to be a spike in oil prices to acceptable levels, following Washington and Riyadh’s failed strategy to bankrupt Moscow by plunging oil prices.

Secondly, the meeting focused on the acceptance of Riyadh’s defeat in Syria, recognizing Assad as the only legitimate leader of the Syrian Arab Republic.

A lot is developing behind the scenes, and this is evident with Riyadh now recognizing a political solution as the only way to end the conflict, something never mentioned by Saudi state representatives. It will be very difficult for Riyadh to give up the regime-change project, even if the political, diplomatic, military and economic pressure from China and Russia increases. A common faith accompanies Riyadh and Tel Aviv, as shown with both repeatedly trying to persuade Putin to abandon his friendship with Iran and Assad, but without success. The loyalty demonstrated by Moscow to Tehran and Damascus has also had a positive effect on the Saudis, who must recognize that while Putin may have different views on certain issues, he is a man of his word; unlike the United States, where new administrations may sometimes throw friends under the bus, Putin maintains his promises, even under extreme pressure. In this sense, Trump’s decision to decertify the Iran deal is a demonstration of good will to Israel and Saudi Arabia by the new administration.

Saudi Arabia finds itself with very low monetary reserves as a result of the lowered price of oil and involvement in several wars. To add to this is a military defeat in Syria and an even bigger debacle in Yemen. To cap it all off, the United States, its most valuable ally, is increasingly disinterested in the fate of the Saudi monarchy and the kingdom, thanks to increasing energy independence as a result of fracking. Adding to this, the Gulf Cooperation Council (“GCC”) has split as a result of the economic warfare against Qatar, representing another example of Washington not supporting Riyadh to the full extent the monarchy in Saudi Arabia would have been expecting. The reasoning for Riyadh is as simple as it gets. If Washington is not able to support Saudi Arabia militarily, but Riyadh has to bear the burden economically, then the Kingdom is in enormous trouble and needs alternatives like Russia and China. It is unthinkable for Saudi Arabia to continue supporting petrodollar hegemony while Iran becomes a regional leader in the Middle East.

The best way is by negotiating with the main players, and Russia looks like the perfect mediator, as recently announced. China is just waiting for all these disputes to settle down to bring to bear its economic power to definitively relegate to the past the last forty years of chaos in the region stemming from Saudi-Iranian rivalry.

For Riyadh, even if the attempt to separate Russia and Iran were to fail, it would nevertheless bring about relations that send a clear signal to the West. The purchase of S-400s is a clear demonstration of expanding Russian influence in the Middle East, and Riyadh perhaps has an understandable fear of American retaliation in the event that it starts to change course regarding the sale of oil in currencies other than the dollar.

Moscow has achieved a diplomatic miracle with Saudi Arabia, thanks to the military efforts in Syria, Chinese economic pressure through the issuing of petroyuan, and Iranian diplomatic success, stemming especially from the nuclear energy agreement, which has served to rehabilitate Tehran on the international political scene.

The purchase of advanced Russian weapons systems sends a clear signal and indicates that the Saudi kingdom is ready to assume a more neutral position and has started to knock on the door of the multipolar world, an acknowledgment of Chinese economic power and the military-technological predominance of the Russian Federation.

From Neutral to Friends

In transforming itself into a more neutral country, Riyadh may be attempting to balance American economic and military influence with Russian and Chinese support. The importance for Russia and China in having a neutral country with great spending capacity in the region should also be noted. In the case of Turkey, Russian intervention in Syria, coupled with Turkish aspirations to become a Euro-Asian energy center, progressively pushed Moscow and Ankara together. As a result of effective diplomatic work following Turkey’s downing of a Russian jet, relations have gradually improved, occurring in parallel to the operational success achieved by the Syrian army and Russian Air Force against Turkish-backed terrorists. The military defeat of Turkey was already clear twelve months ago. In the last three to four months, Erdogan seems to have changed priorities, focusing on the Kurdish issue and on growing relations with Qatar (the political movement of the Muslim Brotherhood is key in both countries and essential to their relationship). In the meantime, Turkey is distancing herself from her Nato allies, gravitating more and more towards the orbit of the “axis of resistance” that consists of Iran, Iraq, and Syria.

The Syria peace talks held in Astana laid the foundation for diplomatic efforts by Tehran and Moscow to persuade Ankara to abandon the military option (even though this was already clear once Russia decided to intervene). Instead, Ankara would be encouraged to open up important energy deals between Ankara and Moscow. It seems that Ankara has now decided to become an energy hub, carrying Turkish Stream gas from Russia to Europe as well as gas from Qatar and Iran. It even seems that China has every intention of connecting with the Turkish facilities for the supply of gas and oil, thus increasing Ankara’s role as a central energy-transit hub for the region.

The other aspect that has firmly convinced Erdogan to yield on Syria concerns the Kurdish issue. The Syrian Democratic Forces (“SDF”), consisting mainly of Kurdish fighters, operate in Syria under the command and on behalf of the US-led international coalition. Ankara has nominated the Kurds of the SDF as an armed extension of the Kurdistan Workers’ Party (“PKK”), considered a terrorist group in Turkey. This divergence between Washington and Ankara has continued to grow, even during the Trump administration, contrary to forecasts during the US election period.

With the progressive use of the SDF in Syria by the international coalition headed by the US, Trump and Erdogan’s strategies have ended up clashing. Trump needs to give his domestic audience the impression that the US is devoted to fighting ISIS, even if this means relying on Kurdish soldiers that entails severing relations with Turkey. Erdogan sees this as a matter of national security. The situation has escalated to a point where a few days ago, a diplomatic dispute led to the suspension of the issuing of visas from the respective embassies in Ankara and Washington. Erdogan considers American aid to the Kurds as a betrayal of the worst kind from a Nato ally. A natural reaction to these actions by the US, therefore, was the agreement between Iraq, Iran, Syria, and Turkey to preserve territorial integrity vis-a-vis the Kurdish issue.

The blessing of the Chinese and Russians is evident in this situation. In order to pacify the region, rebuild it, and incorporate it into the One Belt One Road project, the Maritime Silk Road, and the North-South Transport Corridor, wars have to stop and diplomacy must prevail. For Ankara, it is a unique opportunity to exit the war in Syria without appearing as one of the defeated factions (hence the Turkish participation in the Astana talks with Russia and Iran). At the same time, Turkey emphasizes the importance of its geographical position as a center for energy distribution on the Eurasian supercontinent. This is all at the expense of the US, with Turkey breaking free from Washington’s pressure.

Moscow has already removed all sanctions against Turkey, and vice versa, greatly increasing trade with considerable prospects for growth in the coming years. As for weapons sales to Saudi Arabia, Russian influence is expanding, thanks to the S-400 systems in the process of being sold to Ankara over the vehement protests of many Nato countries. The S-400 system is a further effort to deter US aggression but is also the first indication of Ankara’s will to diversify, this time militarily, constituting a pillar of the new multipolar world order.

Ankara, after numerous diplomatic and military failures, has rebuilt its role in the region alongside Iran and Qatar, in a context where its partnership with Moscow and Beijing will guarantee Erdogan a margin of maneuver to progressively disengage from the Nato system that has brought so many problems to the country. A future entry into the Shanghai Cooperation Organization (“SCO”) could seal Ankara’s passage into the multipolar world, becoming in the process a fully fledged ally of Moscow and Beijing. In the meantime, it is already possible to say that Moscow and its allies have succeeded in the unlikely task of turning a nation that was on the brink of a direct involvement in Syria in the effort to remove Assad into one of the most important guarantors of Syria’s territorial integrity. Erdogan has agreed to Assad staying in power into the near future and has even agreed to help fight terrorists in Syria, as evidenced with the recent Turkish military operations in Idlib.

How deep these new friendships between Moscow, Riyadh, and Ankara are yet to be tested. Erdogan and the Saudi monarchs have been known not to keep their word. At it stands, this appears to be an economic, political, and military masterpiece of the Iranian, Russian, and Chinese triad. The war in Syria has almost been won, the terrorist groups supported by the Saudis and Turks have been neutralized, and the conditions for a full Eurasian economic and military integration of Riyadh and Ankara have been set.

Supporting Friends in Need.

Ultimately, it is worth pointing out the contribution of Russia, China, and Iran to the Syrian government and people. Over the six years of aggression against the Syrian Arab Republic, Iran has never failed to contribute in terms of manpower, equipment, and logistical support in the battle against terrorism. Moscow, in the early stages of the conflict, even before intervening directly, took steps to settle the Syrian foreign debt to Russia, and in fact lent money by providing armaments, energy, and logistics as a way of actively contributing to the defeat of terrorists in Syria.

The People’s Republic of China has already paved the way for the future of Syria in economic terms, declaring the country an important transit route and a final destination of a part of the Belt and Road Initiative (“BRI”). Chinese economic power will allow Damascus to rebuild a nation devastated by six years of terrorism and foreign aggression. With Russian military capabilities, Damascus will have all the necessary means to end the conflict and stabilize the country, laying the foundation to prevent any future Western aggression. From a political and diplomatic point of view, the joint actions of Tehran, Beijing, and Moscow, together with Damascus, are an integral part of the axis that stretches from Iran to Iraq and Syria and arrives at the Mediterranean, or could even go to Turkey. With the combination of economic, military, and political elements, Syria has survived almost unprecedented aggression, emerging as the winner, thus ensuring its ability to determine its future autonomously without external impositions.

Series Conclusions

The path traced by Moscow, Beijing, and Tehran is expected to stabilize the Middle East, thanks to the resolution of the Syrian conflict. Some key elements of this global change we are witnessing are Chinese economic pressure on the Saudis to accept payment for oil in yuan; the eradication of terrorism in Iraq and neighboring countries, thereby circumventing sanctions imposed on Iran by the US and its allies; and transforming Turkey into a regional energy-distribution center.

China intervenes economically in a number of regions, particularly in the Middle East, to support Russian military power through money, diplomacy, economic investment (“OBOR”) and by providing liquidity to allies, as seen with Moscow when it was hit with Western sanctions. For Beijing, the decline in terrorism is a key factor in fostering China’s development of the Silk Road 2.0 infrastructure, allowing Beijing to enter into areas destroyed in the Middle East to offer easy reconstruction plans. At the moment, Syria, Egypt, Libya, and Pakistan seem to hold great importance for China’s future strategies.

Russia and China lead organizations such as the BRICS, the UEE, the SCO, and the AIIB. The grand strategy is to support the creation of an alternative to the US dollar-based neoliberal world order and to contain the effects of declining US empire. Nations will increasingly have to choose between two systems: whether the multipolar world order, based on friendship and win-win cooperation, or the unipolar one, based on the America’s declining military and economic power.

Strong Chinese economic support, together with Russian military might as well as Iran’s importance in the Middle Eastern region, are successfully shielding countries like Syria from American military interventions, driving a wedge between old US allies and paving the way for Washington’s planned economic and military isolation in the region. Thus, countries similarly facing US pressure, such as South Korea, Mexico, and Venezuela, will increasingly gravitate toward the multipolar world led by Russia and China, accelerating the decline and influence of the United States beyond the Middle East.

The multipolar world order is here to stay. The US is no longer the lone superpower but rather one among two other nuclear-armed powers. The sooner the US realizes this, the better it will be for humanity and for peace around the world.


Republishing is welcomed with reference to Strategic Culture Foundation on-line journal

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Oil Company Stock Buybacks Stoke Tax Debate

Energy giants undermine case for incentives, critics say

by Brett Clanton

Houston Chronicle (May 23 2011)

The five biggest oil companies in the US argue that recent efforts to abolish $2 billion a year in industry tax breaks would take away money they need to grow domestic energy supplies and create jobs. But they rarely mention another place where their money often goes: buying back their own stock.

Exxon Mobil Corporation, Chevron Corporation, Royal Dutch Shell, BP, and ConocoPhillips have poured millions in recent years into share repurchase programs, which help increase the value of the companies’ stock.

Stock buybacks are perfectly legal, and investors can benefit. But critics say the practice undermines industry arguments that doing away with $21 billion in federal tax incentives over the next decade will jeopardize energy production and jobs.

“If they’re going to take their huge profits and invest them in enriching themselves, then surely the American taxpayers don’t need to give them another $21 billion”, said Daniel Weiss, a senior fellow at the left-leaning Center for American Progress, a think tank.

The oil companies, however, defend stock buybacks as an important tool for creating shareholder value that they use only after meeting top spending priorities such as funding oil and natural gas projects.

“If there’s anything left beyond that, we return it to shareholders through share repurchases. It’s their money”, Exxon Mobil CEO Rex Tillerson told a Senate Finance Committee hearing recently.

“I know it’s a novel thought up here in Washington, but we actually give the money back to our shareholders that belongs to them”.

Stock buybacks have fueled debate before, but the issue has re-emerged as Congress considers repealing certain tax credits and deductions for the top five oil companies to help reduce the national deficit.

Last week, the measure failed a key Senate procedural vote, but Democratic leaders vowed to keep the effort alive.

The debate comes as Americans seethe over near-$4 gasoline and near-record profits by the five major oil companies of more than $35 billion in the first quarter.

Fewer Shares

When a company buys back its own stock – offering stockholders cash for surrendering their shares – it reduces the number of shares in the market, increasing the value of those remaining.

Companies sometimes buy back stock when management believes share prices are too low or wants to acquire stock for employee and executive stock option plans.

In recent years, share repurchases also have provided a way for major oil companies to unload windfalls of cash they get because of higher oil prices and can’t invest immediately.

Irving-based Exxon Mobil, for instance, spent $30 billion last year on capital projects like drilling in the Gulf of Mexico or building natural gas plants in Qatar.

But it distributed nearly two thirds that amount to shareholders, through $11.2 billion in share repurchases and $8.5 billion in dividend payments.

“I think when the public sees this, they go, ‘Gee, it would be better if that money went back to more jobs, more investment and so forth’ “, said Senator Max Baucus (Democrat, Montana) during last week’s hearing at which senators grilled top oil executives about industry tax breaks.

Exxon Mobil’s Tillerson replied: “We’d love to. Give us something to work on.”

Oil companies have long urged the government to open more public lands and federal waters to exploration.

Responding to public anger about energy prices, President Barack Obama last weekend announced plans to expand domestic oil production in Alaska and the Gulf of Mexico. But oil companies also face increasingly limited exploration options around the world, with much of the globe’s remaining oil reserves off limits or under the control of national oil companies.

“If there were more areas open, for example, if Shell were actually able to develop in Alaska, we would be spending money in Alaska today, and we would for several years”, Marvin Odum, Royal Dutch Shell’s top US executive, told reporters after the hearing in Washington last week. Though Shell has not bought back stock since late 2008, it paid $10.2 billion in dividends last year.

Kurt Glaubitz, a spokesman for San Ramon, California-based Chevron, agreed that limited access plays a role in buybacks.

“We want to make investments that are going to yield returns that shareholders expect”, he said. “We’re not going to spend our money unwisely”.

But he noted that the company often reinvests in the business at a rate higher than its annual profits. Last year, Chevron earned $19 billion and had a capital spending budget of $21.6 billion. It spent $750 million on share repurchases, after reinstating a program in the fourth quarter. It steered another $5.7 billion to dividends.

No Effect, CEO Says

Houston-based ConocoPhillips spent $3.9 billion on stock buybacks in 2010, but that was funded by its sale of most of its ownership stake in Russia’s Lukoil. It plans to buy back another $10 billion in shares this year.

“The stock buybacks have no impact on our capital spending program”, CEO James Mulva told reporters after ConocoPhillips’ annual shareholder meeting this month in Houston. Its $3.2 billion in dividend payments last year came from cash flow and other asset sales, he said.

BP has not done buybacks since 2008. And the beleaguered British oil giant only resumed dividend payments in the fourth quarter, after suspending them last April after the Deepwater Horizon rig explosion that killed eleven workers and launched a massive oil spill in the Gulf of Mexico. But BP had been more active with shareholder payouts prior to the disaster.

In fact, the top five oil companies spent $450 billion on share repurchases and dividends from 2005 through the first quarter of 2011, according to Public Citizen, a consumer watchdog group in Washington.

Tyson Slocum, director of Public Citizen’s energy program, said the payouts help underscore why the companies do not need billions in tax breaks from the US government and suggested that high crude prices are providing all the incentive the companies need to hunt for oil.

“At a time when families are being asked to belt-tighten through the targeting of various federal spending programs”, he said, “I think it’s reasonable for us to say, Big Oil doesn’t need the icing on the cake anymore”.


Jennifer Dlouhy contributed to this report from Washington.

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World’s Largest Oil Companies

Deep Trouble As Profits Vaporize While Debts Skyrocket

by SRSrocco Report

Zero Hedge (October 17 2017)

The world’s largest oil companies are in serious trouble as their balance sheets deteriorate from higher costs, falling profits, and skyrocketing debt. The glory days of the highly profitable global oil companies have come to an end. All that remains now is a mere shadow of the once mighty oil industry that will be forced to continue cannibalizing itself to produce the last bit of valuable oil.

I realize my extremely unfavorable opinion of the world’s oil industry runs counter to many mainstream energy analysts, however, their belief that business, as usual, will continue for decades, is entirely unfounded. Why? Because, they do not understand the ramifications of the Falling EROI – Energy Returned On Invested, and its impact on the global economy.

For example, Chevron was able to make considerable profits in 1997 when the oil price was $19 a barrel. However, the company suffered a loss in 2016 when the price was more than double at $44 last year. And, it’s even worse than that if we compare the company’s profit to total revenues. Chevron enjoyed a $3.2 billion net income profit on revenues of $42 billion in 1997 versus a $497 million loss on total sales of $114 billion in 2016. Even though Chevron’s revenues nearly tripled in twenty years, its profit was decimated by the falling EROI.

Unfortunately, energy analysts, who are clueless to the amount of destruction taking place in the US and global oil industry by the falling EROI, continue to mislead a public that is totally unprepared for what is coming. To provide a more realistic view of the disintegrating energy industry, I will provide data from seven of the largest oil companies in the world.

The World’s Major Oil Companies Debt Explode Since the 2008 Financial Crisis

To save the world from falling into total collapse during the 2008 financial crisis, the Federal Reserve (“Fed”) and Central Banks embarked on the most massive money printing scheme in history. One side-effect of the massive money printing (and the purchasing of assets) by the central banks, was that it pushed the price of oil to a record $100+ a barrel for more than three years. While the large oil companies reported handsome profits due to the high oil price, many of them spent a great deal of capital to produce this oil.

For instance, the seven top global oil companies that I focused on made a combined $213 billion in cash from operations in 2013. However, they also forked out $230 billion in capital expenditures. Thus, the net free cash flow from these major oil companies was a negative $17 billion … and that doesn’t include the $44 billion they paid in dividends to their shareholders in 2013. Even though the price of oil was $109 in 2013; these seven oil companies added $45 billion to their long-term debt:

As we can see, the total amount of long-term debt in the group (Petrobras, Shell, BP, Total, Chevron, Exxon & Statoil) increased from $227 billion in 2012 to $272 billion in 2013. Isn’t that ironic that the debt ($45 billion) rose nearly the same amount as the group’s dividend payouts ($44 billion)? Of course, we can’t forget about the negative $17 billion in free cash flow in 2013, but here we see evidence that the top seven global oil companies were borrowing money even in 2013, at $109 a barrel oil, to pay their dividends.

Since the 2008 global economic and financial crisis, the top seven oil companies have seen their total combined debt explode four times, from $96 billion to $379 billion currently. You would think with these energy companies enjoying a $100+ oil price for more than three years; they would be lowering their debt, not increasing it. Regrettably, the cost for companies to replace reserves, produce oil, and share profits with shareholders were more than the $110 oil price.

There lies the rub …

One of the disadvantages of skyrocketing debt is the rising amount of interest the company has to pay to service that debt. If we look at the chart above, Brazil’s Petrobras is the clear winner in the group by adding the most debt. Petrobras’s debt surged from $21 billion in 2008 to $109 billion last year. As Petrobras added debt, it also had to pay out more to service that debt. In just eight years, the annual interest amount Petrobras paid to service its debt increased from $793 million in 2008 to $6 billion last year. Sadly, Petrobras’s rising interest payment has caused another nasty side-effect which cut dividend payouts to its shareholders to ZERO for the past two years.

Petrobras Annual Dividend Payments:

2008 = $4.7 billion

2009 = $7.7 billion

2010 = $5.4 billion

2011 = $6.4 billion

2012 = $3.3 billion

2013 = $2.6 billion

2014 = $3.9 billion

2015 = Zero

2016 = Zero

You see, this is a perfect example of how the Falling EROI guts an oil company from the inside out. The sad irony of the situation at Petrobras is this:

If you are a shareholder, you’re screwed, and if you invested funds (in company bonds, et cetera) to receive a higher interest payment, you’re also screwed because you will never get back your initial investment. So, investors are screwed either way. This is what happens during the final stage of collapsing oil industry.


Another negative consequence of the Falling EROI on these major oil companies’ financial statements is the decline in profits as the cost to produce oil rises more than the economic price the market can afford.

Major Oil Companies’ Profits Vaporize … Even At Higher Oil Prices

To be able to understand just how bad the financial situation has become at the world’s largest oil companies, we need to go back in time and compare the industry’s profitability versus the oil price. To find a year when the oil price was about the same as it was in 2016, we have to return to 2004, when the average oil price was $38.26 versus $43.67 last year. Yes, the oil price was lower in 2004 than in 2016, but I can assure you, these oil companies weren’t complaining.

In 2004, the combined net income of these seven oil companies was almost $100 billion … $99.2 billion to be exact. Every oil company in the group made a nice profit in 2004 on a $38 oil price. However, last year, the net profits in the group plunged to only $10.5 billion, even at a higher $43 oil price:

Even with a $5 increase in the price of oil last year compared to 2004, these oil companies combined net income profit fell nearly ninety percent. How about them apples. Of the seven companies listed in the chart above, only four made profits last year, while three lost money. Exxon and Total enjoyed the highest profits in the group, while Petrobras and Statoil suffered the largest losses:

Furthermore, the financial situation is in much worse shape because “net income” accounting does not factor in the companies’ capital expenditures or dividend payouts. Regardless, the world’s top oil companies’ profitability has vaporized even at a higher oil price.

Now, another metric that provides us with more disturbing evidence of the Falling EROI in the oil industry is the collapse of the “Return On Capital Employed”. Basically, the Return On Capital Employed is just dividing the company’s earnings (before taxes and interest) by its total assets minus current liabilities. In 2004, the seven companies listed above posted between twenty and forty percent Return On Capital Employed. However, this fell precipitously over the next decade and are now registering in the low single digits:

In 2004, we can see that BP had the lowest Return On Capital Employed of 19.68% in the group, while Statoil had the highest at 46.20%. If we throw out the highest and lowest figures, the average for the group was 29%. Now, compare that to the average of 2.4% for the group in 2016, and that does not including BP and Chevron’s negative returns (shown in Dark Blue & Orange).

Note: I failed to include the Statoil graph line (Magenta) when I made the chart, but I added the figures afterward. For Statoil to experience a Return On Capital Employed decline from 46.2% in 2004 to less than one percent in 2016, suggests something is seriously wrong.

We must remember, the high Return On Capital Employed by the group in 2004, was based on a $38 price of oil, while the low single-digit returns by the oil companies in 2016 were derived from a higher price of $43. Unfortunately, the world’s largest oil companies are no longer able to enjoy high returns on a low oil price. This is bad news because the market can’t afford a high oil price unless the Fed and Central Banks come back in with an even larger amount of Quantitative Easing (“QE”) money printing.

I have one more chart that shows just how bad the Falling EROI is destroying the world’s top oil companies. In 2004, these seven oil companies enjoyed a combined net Free Cash Flow minus dividends of a positive $34 billion versus a negative $39.1 billion in 2016:

Let me explain these figures. After these oil companies paid their capital expenditures and dividends to shareholders in 2004, they had a net $34 billion left over. However, last year these companies were in the HOLE for $39.1 billion after paying capital expenditures and dividends. Thus, many of them had to borrow money just to pay dividends.

To understand how big of a change has taken place at the oil companies since 2004, here are the figures below:

Top Seven Major Oil Companies Free Cash Flow Figures

2004 Cash From Operations = …………$139.6 billion

2004 Capital Expenditures = ……………..$67.7 billion

2004 Free Cash Flow = ………………………$71.9 billion

2004 Shareholder Dividends = …………..$37.9 billion

2004 Free Cash Flow – Dividends = $34 billion

2016 Cash From Operations = ……………..$118.5 billion

2016 Capital Expenditures = ………………..$117.5 billion

2016 Free Cash Flow = …………………………..$1.0 billion

2016 Shareholder Dividends = ……………….$40.1 billion

2016 Free Cash Flow – Dividends = -$39.1 billion

Here we can see that the top seven global oil companies made more in cash from operations in 2004 ($139.6 billion) compared to 2016 ($118.5 billion). That extra $21 billion in operating cash in 2004 versus 2016 was realized even at a lower oil price. However, what has really hurt the group’s Free Cash Flow, is the much higher capital expenditures of $117.5 billion in 2016 compared to the $67.7 billion in 2004. You will notice that the net combined dividends didn’t increase that much in the two periods … only by $3 billion.

So, the lower cash from operations and the higher capital expenditures have taken a BIG HIT on the balance sheets of these oil companies. This is precisely why the long-term debt is skyrocketing, especially over the past three years as the oil price fell below $100 in 2014. To continue making their shareholders happy, many of these companies are borrowing money to pay dividends. Unfortunately, going further into debt to pay shareholders is not a prudent long-term business model.

The world’s major oil companies will continue to struggle with the oil price in the $50 range. While some analysts forecast that higher oil prices are on the horizon, I disagree. Yes, it’s true that oil prices may spike higher for a while, but the trend will be lower as the US and global economies start to contract. As oil prices fall to $40 and below, oil companies will begin to cut capital expenditures even further. Thus, the cycle of lower prices and the continued gutting of the global oil industry will move into high gear.

There is one option that might provide these oil companies with a buffer… and that is a new even larger Fed and Central Bank money printing scheme which would result in severe inflation and possibly hyperinflation. But, that won’t be a long-term solution, instead just another lousy band-aid in a series of band-aids that have only postponed the inevitable.

The coming bankruptcy of the once mighty global oil industry will be the death-knell of the world economy. Without oil, the global economy grinds to a halt. Of course, this will not occur overnight. It will take time. However, the evidence shows that a considerable wound has already taken place in an industry that has provided the world with much-needed oil for more than a century.

Lastly, without trying to be a broken record, the peak and decline of global oil production will destroy the value of most STOCKS, BONDS, and REAL ESTATE. If you have placed most of your bests in one of these assets, you have my sympathies.

Check back for new articles and updates at the SRSrocco Report.

TOTTEN COMMENT: And this article doesn’t even mention the oil companies’ buybacks of their shares. See, for example,

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Oil Profits …

… Go to Dividends, Buybacks

by John Porretto

Associated Press (July 22 2008)

In this May 14 2008 file photo, Jim Mulva, CEO of ConocoPhillips, uses a chart to explain the high cost of gasoline during a press conference in Houston. In the second quarter of 2008, ConocoPhillips says it spent $275 million before taxes on exploration in the second quarter. It spent $2.5 billion repurchasing shares. (AP Photo/Pat Sullivan, file)

As giant oil companies like Exxon Mobil and ConocoPhillips prepare to report what will probably be another round of eye-popping quarterly profits, just where is all that money going?

The companies insist they’re trying to find new oil that might help bring down gas prices, but the money they spend on exploration is nothing compared with what they spend on stock buybacks and dividends.

It’s good news for shareholders, including mutual funds and retirement plans for millions of Americans, but no help to drivers already making drastic cuts to offset the high cost of fuel.

The five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends last year, up from thirty percent in 2000 and just one percent in 1993, according to Rice University’s James A Baker III Institute for Public Policy.

The percentage they spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.

The issue has become more sensitive as lawmakers and Americans frustrated by high gas prices have balked at gaudy reports of oil industry profits.

Oil prices are set on the open market, not by the oil industry. But that hasn’t stopped public protests, a series of congressional grillings for top oil executives, and a failed attempt by lawmakers to slap Big Oil with a windfall profits tax.

In the first three months of this year, Exxon Mobil Corporation, the world’s biggest publicly traded oil company, shelled out $8.8 billion on stock buybacks alone, compared with $5.5 billion on exploration and other capital projects.

ConocoPhillips has already told investors that its stock buybacks for April to June of this year will come to about $2.5 billion – nine times what it spent on exploration.

Stock buybacks are common throughout corporate America. They shrink the amount of stock on the open market, essentially increasing its value and giving individual shareholders a bigger stake in the company.

But some critics say the oil companies focus too much on boosting stock prices in an industry that sometimes ties executive pay to stock price.

And in focusing on buybacks and dividends over exploring for oil, some critics say, oil companies jeopardize their already dwindling share of world supply.

“If you’re not spending your money finding and developing new oil, then there’s no new oil”, said Amy Myers Jaffe, an energy expert at Rice University who’s studied spending patterns of the major oil companies.

Investor-owned companies like Exxon Mobil and Chevron hold less than ten percent of global oil and gas reserves, way down from past decades. And finding new oil has become harder and more expensive.

State-run oil companies, such as those in Saudi Arabia and Venezuela, control about eighty percent of oil reserves – and at today’s prices, it’s not surprising they’re keeping a tight grip on what they have. Scarce equipment and hard-to-find labor also pose problems.

The companies say they are doing what they can to find more fossil fuels around the world, but the easy oil is gone. Exploring these days may mean expensive projects in thousands of feet of water in the Gulf of Mexico or costly ventures pulling petroleum from Canada’s vast oil-sands deposits.

It also can take several years before a company produces the first barrel from a new field. One example is an oil field in the Gulf of Mexico called Thunder Horse. Operated by BP and partly owned by Exxon Mobil, the platform only last month began producing oil and gas – nine years after its discovery.

Exxon Mobil, known for its disciplined approach to investing in energy projects, has drawn criticism for its reluctance to invest in alternative energy sources such as wind and solar power.

The company expects to spend up to $30 billion on capital and exploration projects in each of the next five years. Last year, it spent about $32 billion on

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