Is The United States Going To Go To War With Syria Over A Natural Gas Pipeline?

PipelineWhy has the little nation of Qatar spent 3 billion dollars to support the rebels in Syria?  Could it be because Qatar is the largest exporter of liquid natural gas in the world and Assad won’t let them build a natural gas pipeline through Syria?  Of course.  Qatar wants to install a puppet regime in Syria that will allow them to build a pipeline which will enable them to sell lots and lots of natural gas to Europe.  Why is Saudi Arabia spending huge amounts of money to help the rebels and why has Saudi Prince Bandar bin Sultan been “jetting from covert command centers near the Syrian front lines to the Élysée Palace in Paris and the Kremlin in Moscow, seeking to undermine the Assad regime”?  Well, it turns out that Saudi Arabia intends to install their own puppet government in Syria which will allow the Saudis to control the flow of energy through the region.  On the other side, Russia very much prefers the Assad regime for a whole bunch of reasons.  One of those reasons is that Assad is helping to block the flow of natural gas out of the Persian Gulf into Europe, thus ensuring higher profits for Gazprom.  Now the United States is getting directly involved in the conflict.  If the U.S. is successful in getting rid of the Assad regime, it will be good for either the Saudis or Qatar (and possibly for both), and it will be really bad for Russia.  This is a strategic geopolitical conflict about natural resources, religion and money, and it really has nothing to do with chemical weapons at all.

It has been common knowledge that Qatar has desperately wanted to construct a natural gas pipeline that will enable it to get natural gas to Europe for a very long time.  The following is an excerpt from an article from 2009

Qatar has proposed a gas pipeline from the Gulf to Turkey in a sign the emirate is considering a further expansion of exports from the world’s biggest gasfield after it finishes an ambitious programme to more than double its capacity to produce liquefied natural gas (LNG).

“We are eager to have a gas pipeline from Qatar to Turkey,” Sheikh Hamad bin Khalifa Al Thani, the ruler of Qatar, said last week, following talks with the Turkish president Abdullah Gul and the prime minister Recep Tayyip Erdogan in the western Turkish resort town of Bodrum. “We discussed this matter in the framework of co-operation in the field of energy. In this regard, a working group will be set up that will come up with concrete results in the shortest possible time,” he said, according to Turkey’s Anatolia news agency.

Other reports in the Turkish press said the two states were exploring the possibility of Qatar supplying gas to the strategic Nabucco pipeline project, which would transport Central Asian and Middle Eastern gas to Europe, bypassing Russia. A Qatar-to-Turkey pipeline might hook up with Nabucco at its proposed starting point in eastern Turkey. Last month, Mr Erdogan and the prime ministers of four European countries signed a transit agreement for Nabucco, clearing the way for a final investment decision next year on the EU-backed project to reduce European dependence on Russian gas.

“For this aim, I think a gas pipeline between Turkey and Qatar would solve the issue once and for all,” Mr Erdogan added, according to reports in several newspapers. The reports said two different routes for such a pipeline were possible. One would lead from Qatar through Saudi Arabia, Kuwait and Iraq to Turkey. The other would go through Saudi Arabia, Jordan, Syria and on to Turkey. It was not clear whether the second option would be connected to the Pan-Arab pipeline, carrying Egyptian gas through Jordan to Syria. That pipeline, which is due to be extended to Turkey, has also been proposed as a source of gas for Nabucco.

Based on production from the massive North Field in the Gulf, Qatar has established a commanding position as the world’s leading LNG exporter. It is consolidating that through a construction programme aimed at increasing its annual LNG production capacity to 77 million tonnes by the end of next year, from 31 million tonnes last year. However, in 2005, the emirate placed a moratorium on plans for further development of the North Field in order to conduct a reservoir study.

As you just read, there were two proposed routes for the pipeline.  Unfortunately for Qatar, Saudi Arabia said no to the first route and Syria said no to the second route.  The following is from an absolutely outstanding article in the Guardian

In 2009 – the same year former French foreign minister Dumas alleges the British began planning operations in Syria – Assad refused to sign a proposed agreement with Qatar that would run a pipeline from the latter’s North field, contiguous with Iran’s South Pars field, through Saudi Arabia, Jordan, Syria and on to Turkey, with a view to supply European markets – albeit crucially bypassing Russia. Assad’s rationale was “to protect the interests of [his] Russian ally, which is Europe’s top supplier of natural gas.”

Instead, the following year, Assad pursued negotiations for an alternative $10 billion pipeline plan with Iran, across Iraq to Syria, that would also potentially allow Iran to supply gas to Europe from its South Pars field shared with Qatar. The Memorandum of Understanding (MoU) for the project was signed in July 2012 – just as Syria’s civil war was spreading to Damascus and Aleppo – and earlier this year Iraq signed a framework agreement for construction of the gas pipelines.

The Iran-Iraq-Syria pipeline plan was a “direct slap in the face” to Qatar’s plans. No wonder Saudi Prince Bandar bin Sultan, in a failed attempt to bribe Russia to switch sides, told President Vladmir Putin that “whatever regime comes after” Assad, it will be “completely” in Saudi Arabia’s hands and will “not sign any agreement allowing any Gulf country to transport its gas across Syria to Europe and compete with Russian gas exports”, according to diplomatic sources. When Putin refused, the Prince vowed military action.

If Qatar is able to get natural gas flowing into Europe, that will be a significant blow to Russia.  So the conflict in Syria is actually much more about a pipeline than it is about the future of the Syrian people.  In a recent article, Paul McGuire summarized things quite nicely…

The Nabucco Agreement was signed by a handful of European nations and Turkey back in 2009. It was an agreement to run a natural gas pipeline across Turkey into Austria, bypassing Russia again with Qatar in the mix as a supplier to a feeder pipeline via the proposed Arab pipeline from Libya to Egypt to Nabucco (is the picture getting clearer?). The problem with all of this is that a Russian backed Syria stands in the way.

Qatar would love to sell its LNG to the EU and the hot Mediterranean markets. The problem for Qatar in achieving this is Saudi Arabia. The Saudis have already said “NO” to an overland pipe cutting across the Land of Saud. The only solution for Qatar if it wants to sell its oil is to cut a deal with the U.S.

Recently Exxon Mobile and Qatar Petroleum International have made a $10 Billion deal that allows Exxon Mobile to sell natural gas through a port in Texas to the UK and Mediterranean markets. Qatar stands to make a lot of money and the only thing standing in the way of their aspirations is Syria.

The US plays into this in that it has vast wells of natural gas, in fact the largest known supply in the world. There is a reason why natural gas prices have been suppressed for so long in the US. This is to set the stage for US involvement in the Natural Gas market in Europe while smashing the monopoly that the Russians have enjoyed for so long. What appears to be a conflict with Syria is really a conflict between the U.S. and Russia!

The main cities of turmoil and conflict in Syria right now are Damascus, Homs, and Aleppo. These are the same cities that the proposed gas pipelines happen to run through. Qatar is the biggest financier of the Syrian uprising, having spent over $3 billion so far on the conflict. The other side of the story is Saudi Arabia, which finances anti-Assad groups in Syria. The Saudis do not want to be marginalized by Qatar; thus they too want to topple Assad and implant their own puppet government, one that would sign off on a pipeline deal and charge Qatar for running their pipes through to Nabucco.

Yes, I know that this is all very complicated.

But no matter how you slice it, there is absolutely no reason for the United States to be getting involved in this conflict.

If the U.S. does get involved, we will actually be helping al-Qaeda terrorists that behead mothers and their infants

Al-Qaeda linked terrorists in Syria have beheaded all 24 Syrian passengers traveling from Tartus to Ras al-Ain in northeast of Syria, among them a mother and a 40-days old infant.

Gunmen from the terrorist Islamic State of Iraq and Levant stopped the bus on the road in Talkalakh and killed everyone before setting the bus on fire.

Is this really who we want to be “allied” with?

And of course once we strike Syria, the war could escalate into a full-blown conflict very easily.

If you believe that the Obama administration would never send U.S. troops into Syria, you are just being naive.  In fact, according to Jack Goldsmith, a professor at Harvard Law School, the proposed authorization to use military force that has been sent to Congress would leave the door wide open for American “boots on the ground”

The proposed AUMF focuses on Syrian WMD but is otherwise very broad.  It authorizes the President to use any element of the U.S. Armed Forces and any method of force.  It does not contain specific limits on targets – either in terms of the identity of the targets (e.g. the Syrian government, Syrian rebels, Hezbollah, Iran) or the geography of the targets.  Its main limit comes on the purposes for which force can be used.  Four points are worth making about these purposes.  First, the proposed AUMF authorizes the President to use force “in connection with” the use of WMD in the Syrian civil war. (It does not limit the President’s use force to the territory of Syria, but rather says that the use of force must have a connection to the use of WMD in the Syrian conflict.  Activities outside Syria can and certainly do have a connection to the use of WMD in the Syrian civil war.).  Second, the use of force must be designed to “prevent or deter the use or proliferation” of WMDs “within, to or from Syria” or (broader yet) to “protect the United States and its allies and partners against the threat posed by such weapons.”  Third, the proposed AUMF gives the President final interpretive authority to determine when these criteria are satisfied (“as he determines to be necessary and appropriate”).  Fourth, the proposed AUMF contemplates no procedural restrictions on the President’s powers (such as a time limit).

I think this AUMF has much broader implications than Ilya Somin described.  Some questions for Congress to ponder:

(1) Does the proposed AUMF authorize the President to take sides in the Syrian Civil War, or to attack Syrian rebels associated with al Qaeda, or to remove Assad from power?  Yes, as long as the President determines that any of these entities has a (mere) connection to the use of WMD in the Syrian civil war, and that the use of force against one of them would prevent or deter the use or proliferation of WMD within, or to and from, Syria, or protect the U.S. or its allies (e.g. Israel) against the (mere) threat posed by those weapons.  It is very easy to imagine the President making such determinations with regard to Assad or one or more of the rebel groups.

(2) Does the proposed AUMF authorize the President to use force against Iran or Hezbollah, in Iran or Lebanon?  Again, yes, as long as the President determines that Iran or Hezbollah has a (mere) a connection to the use of WMD in the Syrian civil war, and the use of force against Iran or Hezbollah would prevent or deter the use or proliferation of WMD within, or to and from, Syria, or protect the U.S. or its allies (e.g. Israel) against the (mere) threat posed by those weapons.

Would you like to send your own son or your own daughter to fight in Syria just so that a natural gas pipeline can be built?

What the United States should be doing in this situation is so obvious that even the five-year-old grandson of Nancy Pelosi can figure it out…

I’ll tell you this story and then I really do have to go. My five-year-old grandson, as I was leaving San Francisco yesterday, he said to me, Mimi, my name, Mimi, war with Syria, are you yes war with Syria, no, war with Syria. And he’s five years old. We’re not talking about war; we’re talking about action. Yes war with Syria, no with war in Syria. I said, ‘Well, what do you think?’ He said, ‘I think no war.’

Unfortunately, his grandmother and most of our other insane “leaders” in Washington D.C. seem absolutely determined to take us to war.

In the end, how much American blood will be spilled over a stupid natural gas pipeline?

Who Benefits From A War Between The United States And Syria?

Saudi Arabia - Photo by KeepscasesSomeone wants to get the United States into a war with Syria very, very badly.  Cui bono is an old Latin phrase that is still commonly used, and it roughly means “to whose benefit?”  The key to figuring out who is really behind the push for war is to look at who will benefit from that war.  If a full-blown war erupts between the United States and Syria, it will not be good for the United States, it will not be good for Israel, it will not be good for Syria, it will not be good for Iran and it will not be good for Hezbollah.  The party that stands to benefit the most is Saudi Arabia, and they won’t even be doing any of the fighting.  They have been pouring billions of dollars into the conflict in Syria, but so far they have not been successful in their attempts to overthrow the Assad regime.  Now the Saudis are trying to play their trump card – the U.S. military.  If the Saudis are successful, they will get to pit the two greatest long-term strategic enemies of Sunni Islam against each other – the U.S. and Israel on one side and Shia Islam on the other.  In such a scenario, the more damage that both sides do to each other the happier the Sunnis will be.

There would be other winners from a U.S. war with Syria as well.  For example, it is well-known that Qatar wants to run a natural gas pipeline out of the Persian Gulf, through Syria and into Europe.  That is why Qatar has also been pouring billions of dollars into the civil war in Syria.

So if it is really Saudi Arabia and Qatar that want to overthrow the Assad regime, why does the United States have to do the fighting?

Someone should ask Barack Obama why it is necessary for the U.S. military to do the dirty work of his Sunni Muslim friends.

Obama is promising that the upcoming attack will only be a “limited military strike” and that we will not be getting into a full-blown war with Syria.

The only way that will work is if Syria, Hezbollah and Iran all sit on their hands and do nothing to respond to the upcoming U.S. attack.

Could that happen?

Maybe.

Let’s hope so.

But if there is a response, and a U.S. naval vessel gets hit, or American blood is spilled, or rockets start raining down on Tel Aviv, the U.S. will then be engaged in a full-blown war.

That is about the last thing that we need right now.

The vast majority of Americans do not want to get embroiled in another war in the Middle East, and even a lot of top military officials are expressing “serious reservations” about attacking Syria according to the Washington Post

The Obama administration’s plan to launch a military strike against Syria is being received with serious reservations by many in the U.S. military, which is coping with the scars of two lengthy wars and a rapidly contracting budget, according to current and former officers.

Having assumed for months that the United States was unlikely to intervene militarily in Syria, the Defense Department has been thrust onto a war footing that has made many in the armed services uneasy, according to interviews with more than a dozen military officers ranging from captains to a four-star general.

For the United States, there really is no good outcome in Syria.

If we attack and Assad stays in power, that is a bad outcome for the United States.

If we help overthrow the Assad regime, the rebels take control.  But they would be even worse than Assad.  They have pledged loyalty to al-Qaeda, and they are rabidly anti-American, rabidly anti-Israel and rabidly anti-western.

So why in the world should the United States get involved?

This war would not be good for Israel either.  I have seen a number of supposedly pro-Israel websites out there getting very excited about the prospect of war with Syria, but that is a huge mistake.

Syria has already threatened to attack Israeli cities if the U.S. attacks Syria.  If Syrian missiles start landing in the heart of Tel Aviv, Israel will respond.

And if any of those missiles have unconventional warheads, Israel will respond by absolutely destroying Damascus.

And of course a missile exchange between Syria and Israel will almost certainly draw Hezbollah into the conflict.  And right now Hezbollah has 70,000 rockets aimed at Israel.

If Hezbollah starts launching those rockets, thousands upon thousands of innocent Jewish citizens will be killed.

So all of those “pro-Israel” websites out there that are getting excited about war with Syria should think twice.  If you really are “pro-Israel”, you should not want this war.  It would not be good for Israel.

If you want to stand with Israel, then stand for peace.  This war would not achieve any positive outcomes for Israel.  Even if Assad is overthrown, the rebel government that would replace him would be even more anti-Israel than Assad was.

War is hell.  Ask anyone that has been in the middle of one.  Why would anyone want to see American blood spilled, Israeli blood spilled or Syrian blood spilled?

If the Saudis want this war so badly, they should go and fight it.  Everyone knows that the Saudis have been bankrolling the rebels.  At this point, even CNN is openly admitting this

It is an open secret that Saudi Arabia is using Jordan to smuggle weapons into Syria for the rebels. Jordan says it is doing all it can to prevent that and does not want to inflame the situation in Syria.

And Assad certainly knows who is behind the civil war in his country.  The following is an excerpt from a recent interview with Assad

Of course it is well known that countries, such as Saudi Arabia, who hold the purse strings can shape and manipulate them to suit their own interests.

Ideologically, these countries mobilize them through direct or indirect means as extremist tools. If they declare that Muslims must pursue Jihad in Syria, thousands of fighters will respond. Financially, those who finance and arm such groups can instruct them to carry out acts of terrorism and spread anarchy. The influence over them is synergized when a country such as Saudi Arabia directs them through both the Wahhabi ideology and their financial means.

And shortly after the British Parliament voted against military intervention in Syria, Saudi Arabia raised their level of “defense readiness” from “five” to “two” in a clear sign that they fully expect a war to happen

Saudi Arabia, a supporter of rebels fighting to topple President Bashar al-Assad, has raised its level of military alertness in anticipation of a possible Western strike in Syria, sources familiar with the matter said on Friday.

The United States has been calling for punitive action against Assad’s government for a suspected poison gas attack on a Damascus suburb on August 21 that killed hundreds of people.

Saudi Arabia’s defense readiness has been raised to “two” from “five”, a Saudi military source who declined to be named told Reuters. “One” is the highest level of alert.

And guess who has been supplying the rebels in Syria with chemical weapons?

According to Associated Press correspondent Dale Gavlak, it has been the Saudis

Syrian rebels in the Damascus suburb of Ghouta have admitted to Associated Press correspondent Dale Gavlak that they were responsible for last week’s chemical weapons incident which western powers have blamed on Bashar Al-Assad’s forces, revealing that the casualties were the result of an accident caused by rebels mishandling chemical weapons provided to them by Saudi Arabia.

“From numerous interviews with doctors, Ghouta residents, rebel fighters and their families….many believe that certain rebels received chemical weapons via the Saudi intelligence chief, Prince Bandar bin Sultan, and were responsible for carrying out the (deadly) gas attack,” writes Gavlak.

And this is someone that isn’t just fresh out of journalism school.  As Paul Joseph Watson noted, “Dale Gavlak’s credibility is very impressive. He has been a Middle East correspondent for the Associated Press for two decades and has also worked for National Public Radio (NPR) and written articles for BBC News.”

The Voice of Russia has also been reporting on Gavlak’s bombshell findings…

The rebels noted it was a result of an accident caused by rebels mishandling chemical weapons provided to them.

“My son came to me two weeks ago asking what I thought the weapons were that he had been asked to carry,” said Abu Abdel-Moneim, the father of a rebel fighting to unseat Assad, who lives in Ghouta.

As Gavlak reports, Abdel-Moneim said his son and 12 other rebels died in a weapons storage tunnel. The father stated the weapons were provided to rebel forces by a Saudi militant, known as Abu Ayesha, describing them as having a “tube-like structure” while others were like a “huge gas bottle.”

“They didn’t tell us what these arms were or how to use them,” complained a female fighter named ‘K’. “We didn’t know they were chemical weapons. We never imagined they were chemical weapons.”

“When Saudi Prince Bandar gives such weapons to people, he must give them to those who know how to handle and use them,” she warned. She, like other Syrians, do not want to use their full names for fear of retribution.

Gavlak also refers to an article in the UK’s Daily Telegraph about secret Russian-Saudi talks stating that Prince Bandar threatened Russian President Vladimir Putin with terror attacks at next year’s Winter Olympics in Sochi if Russia doesn’t agree to change its stance on Syria.

“Prince Bandar pledged to safeguard Russia’s naval base in Syria if the Assad regime is toppled, but he also hinted at Chechen terrorist attacks on Russia’s Winter Olympics in Sochi if there is no accord,” the article stated.

“I can give you a guarantee to protect the Winter Olympics next year. The Chechen groups that threaten the security of the games are controlled by us,” Saudi Prince allegedly told Vladimir Putin.

Yes, the Saudis were so desperate to get the Russians to stand down and allow an attack on Syria that they actually threatened them.  Zero Hedge published some additional details on the meeting between Saudi intelligence chief Prince Bandar bin Sultan and Russian President Vladimir Putin…

Bandar told Putin, “There are many common values and goals that bring us together, most notably the fight against terrorism and extremism all over the world. Russia, the US, the EU and the Saudis agree on promoting and consolidating international peace and security. The terrorist threat is growing in light of the phenomena spawned by the Arab Spring. We have lost some regimes. And what we got in return were terrorist experiences, as evidenced by the experience of the Muslim Brotherhood in Egypt and the extremist groups in Libya. … As an example, I can give you a guarantee to protect the Winter Olympics in the city of Sochi on the Black Sea next year. The Chechen groups that threaten the security of the games are controlled by us, and they will not move in the Syrian territory’s direction without coordinating with us. These groups do not scare us. We use them in the face of the Syrian regime but they will have no role or influence in Syria’s political future.”

It is good of the Saudis to admit they control a terrorist organization that “threatens the security” of the Sochi 2014 Olympic games, and that house of Saud uses “in the face of the Syrian regime.” Perhaps the next time there is a bombing in Boston by some Chechen-related terrorists, someone can inquire Saudi Arabia what, if anything, they knew about that.

But the piece de resistance is what happened at the end of the dialogue between the two leaders. It was, in not so many words, a threat by Saudi Arabia aimed squarely at Russia:

As soon as Putin finished his speech, Prince Bandar warned that in light of the course of the talks, things were likely to intensify, especially in the Syrian arena, although he appreciated the Russians’ understanding of Saudi Arabia’s position on Egypt and their readiness to support the Egyptian army despite their fears for Egypt’s future.

The head of the Saudi intelligence services said that the dispute over the approach to the Syrian issue leads to the conclusion that “there is no escape from the military option, because it is the only currently available choice given that the political settlement ended in stalemate. We believe that the Geneva II Conference will be very difficult in light of this raging situation.”

At the end of the meeting, the Russian and Saudi sides agreed to continue talks, provided that the current meeting remained under wraps. This was before one of the two sides leaked it via the Russian press.

Are you starting to get the picture?

The Saudis are absolutely determined to make this war happen, and they expect us to do the fighting.

And Barack Obama plans to go ahead and attack Syria without the support of the American people or the approval of Congress.

According to a new NBC News poll that was just released, nearly 80 percent of all Americans want Congress to approve a strike on Syria before it happens.

And according to Politico, more than 150 members of Congress have already signed letters demanding that Obama get approval from them before attacking Syria…

Already Thursday, more than 150 members of Congress have signaled their opposition to airstrikes on Syria without a congressional vote. House members circulated two separate letters circulated that were sent to the White House demanding a congressional role before military action takes place. One, authored by Rep. Scott Rigell (R-Va.), has more than 150 signatures from Democrats and Republicans. Another, started by Rep. Barbara Lee (D-Calif.), is signed by 53 Democrats, though many of them also signed Rigell’s letter.

But Obama has already made it perfectly clear that he has no intention of putting this before Congress.

He is absolutely determined to attack Syria, and he is not going to let the U.S. Congress or the American people stop him.

Let’s just hope that he doesn’t start World War III in the process.

The Biggest Oil Discovery In 50 Years?

Coober Pedy - Photo by Thomas SchochIn a virtually uninhabitable section of South Australia, a discovery has been made which could rock the world.  Some are calling it the biggest discovery of oil in 50 years.  Earlier this year, a company called Linc Energy announced that tests had revealed that there was a minimum of 3.5 billion barrels of oil equivalent sitting under more than 65,000 square kilometres of land that it owns in the Arckaringa Basin.  But that is the minimum number.  It has been projected that there could ultimately be up to 233 billion barrels of recoverable oil in the area.  If that turns out to be accurate, the oil sitting under that land is worth approximately 20 trillion dollars, and it would be roughly equivalent to the total amount of oil sitting under the sands of Saudi Arabia.  In essence, it would be a massive game changer.

If the 233 billion barrel figure is accurate (and some have even suggested that the true number could actually be 400 billion barrels), that would make it nearly 10 times larger than the Bakken formation, 17 times larger than the Marcellus discovery and 80 times larger than the Eagle Ford deposit down in Texas.

It would also mean that Australia now has more “black gold” than the nations of Iran, Iraq, Canada and Venezuela.

The closest town to this oil discovery, Coober Pedy, is in the process of being totally transformed.  It normally only has about 1,700 inhabitants, but news of this discovery has drawn in 20,000 additional people already and real estate prices in the town are absolutely skyrocketing.

So does all of this mean that gas prices will go down soon?

Well, unfortunately that is not likely to be the case.

First of all, the oil in this formation in Australia is going to be quite expensive to extract.  It has been estimated that it is going to cost up to 300 million dollars just to get this site ready for production.

In addition, many of our politicians are absolutely determined to greatly punish the use of oil because they believe that it is the primary cause of global warming.  So they continue to raise taxes on gasoline consumption.

Today, motorists in the United States pay an average of 49.5 cents of taxes per gallon of gasoline, and in the state of California motorists pay an average of 71.9 cents of taxes per gallon of gasoline.

Hopefully the price of gasoline will come down a bit over the next few years, but even if it does I would not expect it to come down too much.

But what we can be sure of is that the world is not going to run out of oil any time soon.  Those that have been predicting that we are are on the verge of an “energy doomsday” can take a rest for a while.

Sometimes it is funny to look back and remember some of the ridiculous things that our politicians were saying about oil in the old days.  For example, U.S. President Jimmy Carter made the following statement back in 1977….

“Unless profound changes are made to lower oil consumption, we now believe that early in the 1980s the world will be demanding more oil than it can produce”.

That prediction didn’t exactly work out for him did it?

It is time that the American people were told the truth about our energy situation, and the truth is that we have plenty of energy resources.  The following stats have been updated from one of my previous articles

#1 Back in 1995, the U.S. Geological Survey told the American people that the Bakken Shale formation in western North Dakota and eastern Montana only held 151 million barrels of oil.  Today, government officials are admitting that it holds 7.4 billion barrels of recoverable oil, and some analysts believe that the actual number could be closer to 24 billion barrels of oil.

#2 It is estimated that there are 19 billion barrels of recoverable oil in the tar sands of Utah.

#3 It is estimated that there are 86 billion barrels of recoverable oil in the Outer Continental Shelf.

#4 It is believed that there are 800 billion barrels of recoverable oil in the Green River formation in Wyoming.

#5 Overall, the United States is sitting on approximately 1.442 trillion barrels of recoverable oil.

#6 According to the Institute of Energy Research, the United States has an 88 year supply of natural gas.

#7 According to the Institute of Energy Research, the United States has a 169 year supply of oil.

#8 According to the Institute of Energy Research, the United States has a 465 year supply of coal.

#9 Goldman Sachs is predicting that the United States will be the number one oil producing country in the world by the year 2017.

So the bottom line is that we have plenty of energy resources.  We do not need to be importing oil from OPEC or anyone else.

But just because we are not going to run out of oil, natural gas or coal any time soon does not mean that we should not be developing alternative energy resources.  We should definitely be seeking ways to produce energy more cheaply, more cleanly and more efficiently.

If America does not end up leading the world in developing new forms of energy, we should be ashamed of ourselves.  And right now, the Chinese appear to be way ahead of us as far as thorium energy is concerned, and Italian scientists appear to be ahead of our own scientists in developing “cold fusion” technology.

So yes, let’s be glad that we are not going to be facing a crippling energy crisis in this generation, but let’s also not be complacent.  There are lots of new technologies out there just waiting to be developed, and the rewards are going to go to those that are able to develop them first.

South Australia

China And Russia Are Ruthlessly Cutting The Legs Out From Under The U.S. Dollar

The mainstream media in the United States is almost totally ignoring one of the most important trends in global economics.  This trend is going to cause the value of the U.S. dollar to fall dramatically and it is going to cause the cost of living in the United States to go way up.  Right now, the U.S. dollar is the primary reserve currency of the world.  Even though that status has been chipped away at in recent years, U.S. dollars still make up more than 60 percent of all foreign currency reserves in the world.  Most international trade (including the buying and selling of oil) is conducted in U.S. dollars, and this gives the United States a tremendous economic advantage.  Since so much trade is done in dollars, there is a constant demand for more dollars all over the globe from countries that need them for trading purposes.  So the Federal Reserve is able to flood our financial system with dollars without it causing a tremendous amount of inflation because the rest of the world ends up soaking up a lot of those dollars.  But now that is changing.  China and Russia have been spearheading a movement to shift away from using the U.S. dollar in international trade.  At the moment, the shift is happening gradually, but at some point a tipping point will come (for example if Saudi Arabia were to declare that it will no longer take U.S. dollars for oil) and the entire global financial system is going to change.  When that tipping point comes the global demand for U.S. dollars is going to absolutely plummet and nightmarish inflation will come to the United States.  If such a scenario sounds far out to you, then you have not been paying attention.  In fact, China and Russia have been working very hard to move us toward exactly such a scenario.

China and Russia are not the “buddies” of the United States.  The truth is that they are both ruthless competitors of the United States and leaders from both nations have been calling for a new global currency for years.

They don’t like that the United States has a built-in advantage of having the reserve currency of the world, and over the past several years both countries have been busy making international agreements that seek to chip away at that advantage.

Just the other day, China and Germany agreed to start conducting an increasing amount of trade with each other in their own currencies.

You would think that a major currency agreement between the 2nd and 4th largest economies on the face of the planet would make headlines all over the United States.

Instead, the silence in the U.S. media was deafening.

At least there were some reports in the international media about this.  The following is from a Reuters article about this very important deal….

Germany and China plan to conduct an increasing amount of their trade in euros and yuan, the two nations said in a joint statement after talks between Chancellor Angela Merkel and Chinese Premier Wen Jiabao in Beijing on Thursday.

“Both sides intend to support financial institutions and companies of both countries in the use of the renminbi and euro in bilateral trade and investments,” said the text of the statement.

By itself, this deal would not be that alarming.

However, the truth is that both Russia and China have been making deals like this all over the globe in recent years.  I detailed 11 more major agreements like the one that China and Germany just made in this article: “11 International Agreements That Are Nails In The Coffin Of The Petrodollar“.

In that article I listed a few of the things that will likely happen when the petrodollar dies….

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

So enjoy going to “the dollar store” while you can.

It will turn into the “five and ten dollar store” soon enough.

Okay, so if you are China and Russia and you are working hard to undermine the dollar, how do you get prepared for the fiat currency crisis that your hard work will eventually create?

You guessed it.  You hoard gold and other precious metals.

And that is exactly what China and Russia has been doing.

A recent MarketWatch article detailed the massive hoarding of gold that Russia has been doing….

I can’t imagine it means anything cheerful that Vladimir Putin, the Russian czar, is stockpiling gold as fast as he can get his hands on it.

According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars’ worth every month.

Of course Russia is not alone in hoarding gold.  According to Zero Hedge, China has quietly been importing gigantic mountains of gold….

In July, Chinese gold imports from HK, after two months of declines, have picked up once more and hit a 3-month high of 75.8 tons. While it is notable that this number is double the 38.1 tons imported a year prior, and that year-to-date imports are now a record 458.6 tons, well over four times greater than the seven month total in 2011 which was 103.9 tons, what is far more important is that in the first seven months of 2012 alone China has imported nearly as much gold as the total holdings of the hedge fund at the heart of the Eurozone, elsewhere known simply as the European Central Bank, and just as importantly considering the import run-rate has hardly slowed down in August, which data we will have in a few weeks, it is now safe to say that in 2012 alone China has imported more gold than the ECB’s entire official 502.1 tons of holdings.

And all over the world Chinese companies are buying up gold producers.  China National Gold Group Corporation has put in a $3.9 billion bid to buy African Barrick Gold PLC, but that is only one example.

A recent Fox Business article listed a bunch of other similar transactions that have taken place recently….

Zijin Mining Group Co. (2899.HK), China’s second-largest gold producer by output, said last week that its subsidiary has acquired more than 50% of Kalgoorlie’s Norton Gold Fields (NGF.AU).

That deal gives it a foothold in the Australian market, the world’s second-largest source of gold output after China itself. In 2011, Zijin bought 60% of Kazakhstan-based miner Altynken, which has access to a gold mine in Kyrgyzstan.

Since 2008, Chinese companies have completed 10 US$20-million-plus acquisitions of Australian gold assets, worth a combined $1.6 billion, according to Dealogic. Half were initiated since last year.

In November, Shandong Gold-Mining Co. (600547.SH) launched a bid to acquire Brazilian gold miner Jaguar Mining Inc. (JAG.T) for $1 billion.

You would have to be blind to not see what is happening.

Other big names have been hoarding gold as well.  In a previous article I detailed how George Soros, John Paulson and central banks all over the planet have been hungrily accumulating gold.

So what does all of this mean for the price of gold?

That’s right – it is likely to keep heading up.

In fact, Citi analyst Tom Fitzpatrick believes that the price of gold will likely hit $2500 within 6 months.

Personally, I believe that there will be times when precious metals both fall and rise in price dramatically.  It is going to be a wild ride.  But in the long-term I believe that all precious metals will be going up as fiat currencies such as the U.S. dollar fail.

Sadly, most Americans have no idea just how incredibly vulnerable the U.S. dollar really is.

The following is an excerpt from a recent piece by investigative journalist Bob Woodward.  It shows just how worried our leaders are about a crash of U.S. Treasuries….

Another possible outcome, Geithner said, was perhaps worse. “Suppose we have an auction and no one shows up?”

The cascading impact would be unknowable. The world could decide to dump U.S. Treasuries. Prices would plummet, interest rates would skyrocket. The one pillar of stability, the United States, the rock in the global economy, could collapse.

What happens someday if the rest of the world decides to reject our currency and our debt?

Right now we are able to trade our dollars for the things that we “need” such as oil from the Middle East and cheap plastic consumer products from China.

But what happens if the Federal Reserve keeps printing and printing and printing and the rest of the world eventually decides that the U.S. dollar is not even worth the paper it is printed on?

The truth is that the amount of printing the Federal Reserve has been doing and the amount of borrowing the federal government has been doing are both completely and totally unsustainable.

At this point, Moody’s is threatening to cut the credit rating of the federal government if a deal is not reached soon to reduce our debt to GDP ratio.

And Moody’s is not the only one concerned about our exploding debt.

German Finance Minister Wolfgang Schaeuble recently stated that he believes that “there is great uncertainty about the course American politics will take in dealing the U.S. government’s debts, which are much too high”.

Just because the economy is relatively stable right now does not mean that it is always going to be that way.

If we keep debasing our currency like this, at some point the rest of the world is going to decide that China and Russia have been right all along and that we need a new global reserve currency.

That day is coming.  It might not come tomorrow or next week or next month but it is definitely coming.

Once the U.S. dollar loses reserve currency status, that will be a major turning point in the history of our country.  We will never fully recover from that, and we will never get back to the same level of prosperity that we are enjoying today.

So enjoy spending those dollars while you can.  The party is almost over.

Saudi Arabia And China Team Up To Build A Gigantic New Oil Refinery – Is This The Beginning Of The End For The Petrodollar?

The largest oil exporter in the Middle East has teamed up with the second largest consumer of oil in the world (China) to build a gigantic new oil refinery and the mainstream media in the United States has barely even noticed it.  This mammoth new refinery is scheduled to be fully operational in the Red Sea port city of Yanbu by 2014.  Over the past several years, China has sought to aggressively expand trade with Saudi Arabia, and China now actually imports more oil from Saudi Arabia than the United States does.  In February, China imported 1.39 million barrels of oil per day from Saudi Arabia.  That was 39 percent higher than last February.  So why is this important?  Well, back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in U.S. dollars.  This petrodollar system was adopted by almost the entire world and it has had great benefits for the U.S. economy.  But if China becomes Saudi Arabia’s most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars?  And if the petrodollar system collapses, what is that going to mean for the U.S. economy?

Those are very important questions, and they will be addressed later on in this article.  First of all, let’s take a closer look at the agreement reached between Saudi Arabia and China recently.

The following is how the deal was described in a recent China Daily article….

In what Riyadh calls “the largest expansion by any oil company in the world”, Sinopec’s deal on Saturday with Saudi oil giant Aramco will allow a major oil refinery to become operational in the Red Sea port of Yanbu by 2014.

The $8.5 billion joint venture, which covers an area of about 5.2 million square meters, is already under construction. It will process 400,000 barrels of heavy crude oil per day. Aramco will hold a 62.5 percent stake in the plant while Sinopec will own the remaining 37.5 percent.

At a time when the U.S. is actually losing refining capacity, this is a stunning development.

Yet the U.S. press has been largely silent about this.

Very curious.

But China is not just doing deals with Saudi Arabia.  China has also been striking deals with several other important oil producing nations.  The following comes from a recent article by Gregg Laskoski….

China’s investment in oil infrastructure and refining capacity is unparalleled. And more importantly, it executes a consistent strategy of developing world-class refining facilities in partnership with OPEC suppliers. Such relationships mean economic leverage that could soon subordinate U.S. relations with the same countries.

Egypt is building its largest refinery ever with investment from China.

Shortly after the partnership with Egypt was announced, China signed a $23 billion agreement with Nigeria to construct three gasoline refineries and a fuel complex in Nigeria.

Essentially, China is running circles around the United States when it comes to locking up strategic oil supplies worldwide.

And all of these developments could have tremendous implications for the future of the petrodollar system.

If you are not familiar with the petrodollar system, it really is not that complicated.  Basically, almost all of the oil in the world is traded in U.S. dollars.  The origin of the petrodollar system was detailed in a recent article by Jerry Robinson….

In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia’s willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.

By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection. 

This petrodollar system, or more simply known as an “oil for dollars” system, created an immediate artificial demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand for U.S. dollars.

Once you understand the petrodollar system, it becomes much easier to understand why our politicians treat Saudi leaders with kid gloves.  The U.S. government does not want to see anything happen that would jeopardize the status quo.

A recent article by Marin Katusa described some more of the benefits that the petrodollar system has had for the U.S. economy….

The “petrodollar” system was a brilliant political and economic move. It forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

So what happens if the petrodollar system collapses?

Well, for one thing the value of the U.S. dollar would plummet big time.

U.S. consumers would suddenly find that all of those “cheap imported goods” would rise in price dramatically as would the price of gasoline.

If you think the price of gas is high now, you just wait until the petrodollar system collapses.

In addition, there would be much less of a demand for U.S. government debt since countries would not have so many excess U.S. dollars lying around.

So needless to say, the U.S. government really needs the petrodollar system to continue.

But in the end, it is Saudi Arabia that is holding the cards.

If Saudi Arabia chooses to sell oil in a currency other than the U.S. dollar, most of the rest of the oil producing countries in the Middle East would surely do the same rather quickly.

And we have already seen countries in other parts of the world start to move away from using the U.S. dollar in global trade.

For example, Russia and China have agreed to now use their own national currencies when trading with each other rather than the U.S. dollar.

That got virtually no attention in the U.S. media, but it really was a big deal when it was announced.

A recent article by Graham Summers summarized some of the other moves away from the U.S. dollar in international trade that we have seen recently….

Indeed, officials from China, India, Brazil, Russia, and South Africa (the latest addition to the BRIC acronym, now to be called BRICS) recently met in southern China to discuss expanding the use of their own currencies in foreign trade (yet another move away from the US Dollar).

To recap:

  • China and Russia have removed the US Dollar from their trade
  • China is rushing its trade agreement with Brazil
  • China, Russia, Brazil, India, and now South Africa are moving to trade more in their own currencies (not the US Dollar)
  • Saudi Arabia is moving to formalize trade with China and Russia
  • Singapore is moving to trade yuan

The trend here is obvious. The US Dollar’s reign as the world’s reserve currency is ending. The process will take time to unfold. But the Dollar will be finished as reserve currency within the next five years.

Yes, the days of the U.S. dollar being the primary reserve currency of the world are definitely numbered.

It will not happen overnight, but as the U.S. economy continues to get weaker it is inevitable that the rest of the world will continue to question why the U.S. dollar should automatically have such a dominant position in international trade.

Over the next few years, keep a close eye on Saudi Arabia.

When Saudi Arabia announces a move away from the petrodollar system, that will be a major trigger event for the global financial system and it will be a really, really bad sign for the U.S. economy.

The level of prosperity that we are enjoying today would not be possible without the petrodollar system.  Once the petrodollar system collapses, a lot of our underlying economic vulnerabilities will be exposed and it will not be pretty.

Tough times are on the horizon.  It is imperative that we all get informed and that we all get prepared.

Will The Day Of Rage In Saudi Arabia On March 11 Send The Price Of Oil Into Unprecedented Territory?

The price of oil is shaping up to be the number one economic story of 2011, and right now the eyes of the investing world are closely watching the developing situation in Saudi Arabia.  All of the other recent Middle East revolutions have been organized on the Internet, and now all over Facebook and Twitter there are calls for a “Day of Rage” in Saudi Arabia on March 11.  The Saudi monarchy is attempting to head off any protests by promising to give $37 billion in “benefits” to the people and by publicly proclaiming that all political demonstrations are specifically banned.  In addition, the Saudi government is stationing thousands of security forces at various potential “hot spots” around the country.  So far similar measures have not done much to quell unrest in other nations in the Middle East, but Saudi Arabia will be a true test of the revolutionary fervor that is sweeping the region.  The Saudis have a long history of brutally repressing their own people.  They simply do not mess around.  So a revolution in Saudi Arabia will not be nearly as “easy” as it was in Tunisia, Egypt or Libya.  However, if a revolution does sweep across Saudi Arabia, it is going to send the price of oil into unprecedented territory.  Saudi Arabia is the number one exporter of oil in the world, and if their oil fields get shut down even for a little while it is going to have a dramatic effect on the global economy.  With the world already on the verge of a major sovereign debt crisis, the last thing it needs is for the price of oil to start soaring into the stratosphere.

Right now the investing world is not sure what to think about all of this, and financial markets do not like uncertainty.  One piece of really bad news could send markets all over the globe crashing down.

Speculation in oil futures is absolutely rampant.  A recent report on CNN noted the following….

The speculative fervor is so remarkable that the big trading firms now have nearly twice as many long contracts open as they did in 2008, when oil spiked to $147 in the summer, a development that either foreshadowed or caused the global economic meltdown, depending on how you look at it.

In particular, the number of investors that are betting that a revolution in Saudi Arabia is going to send the price of oil up to $200 a barrel has exploded in recent days.

$200 a barrel?

Are people actually betting that is going to happen?

The all-time record is only $147 a barrel.  Just a few months ago it was absolutely unthinkable to most economists that we could potentially see $200 oil in 2011.

But it would be a mistake to assume that a full-blown revolution is guaranteed to break out in Saudi Arabia.  Remember, this is a nation that has a very, very long history of denying even the most basic freedoms to the people.

For example, in Saudi Arabia the practice of any religion other than Islam is strictly forbidden.  By law, citizens of Saudi Arabia are not permitted to change religion.  Even foreign visitors are forbidden to openly practice any other religion.  It is a whole different world.  You cannot go to the store and buy a Bible in Saudi Arabia.  In fact, if you try to pass out Bibles in Saudi Arabia you will be thrown into prison.

Beheadings and other brutal public executions still happen in Saudi Arabia to this day.

So if you plan of being a revolutionary in Saudi Arabia you had better put your big boy pants on, because the Saudis play hardball.

Much of the rest of the globe is desperately hoping that a revolution does not happen in Saudi Arabia because the global economic situation is precarious at best.

In Europe, if the price of oil causes a significant economic slowdown right now it could have global implications.  Moody’s Investors Service just slashed Greece’s debt rating three levels all the way down to B1.  But Greece is far from alone.  Several European governments are finding it much more expensive to finance their debts these days.  We are right on the edge of a major European sovereign debt crisis and the chaos in the Middle East could potentially be just the thing to spark a panic.

The United States could feel a rise in the price of oil even more than Europe because the U.S. economy is so spread out and it is so dependent on products from overseas.

Did you know that in 1960 only 8 percent of the things Americans bought were made overseas but that today 60 percent of the things Americans buy are made overseas?

It’s true.

So what would happen if the cost of transporting all of those products suddenly doubled?  All of the products we buy must be transported somehow, and a rise in transportation costs will be passed on to U.S. consumers.

But the truth is that the pain is already here.  Already, millions of American families are starting to feel some very real financial pain from the chaos in the Middle East.

From February 18th to March 4th, the average price of gasoline in the United States rose 33 cents.  That was the biggest two week increase ever recorded.

Ouch.

The rise in the price of oil has some broader economic implications as well.

The more the price of oil goes up the bigger our trade deficit is going become.  As the trade deficit gets bigger, that means that more money is going out of the country and less money is going to support American businesses and American workers.  When American workers lose jobs, that means that they aren’t producing wealth anymore and they aren’t paying taxes anymore.  Instead, they become a drain on the system as they start receiving government handouts.

When millions of Americans go from being productive, taxpaying workers to unemployed welfare cases it causes our federal budget deficit to become even larger.

Most Americans do not understand how connected our trade deficit and our federal budget deficit really are.  One feeds right into the other.

Unfortunately, the Federal Reserve seems to think that the solution to any economic problem these days is to print more money.

According to Atlanta Fed President Dennis Lockhart, if the price of oil goes up high enough, it could force the Federal Reserve to do even more quantitative easing.

Really?

One of the reasons why the price of oil and other commodities has been going up over the last six months is because of all of this reckless money printing.

Now Lockhart is saying that because of the oil price increases they may have to do more money printing?

How bizarre is that?

Unfortunately, several other top Fed officials have dropped hints about a possible “QE3” lately.  It just seems like the insanity never stops.

Let us hope that the Fed does not go there because the U.S. dollar is falling apart fast enough already.

In any event, the rest of 2011 is certainly going to be very interesting to watch.

Even if a revolution does not happen in Saudi Arabia, the price of oil will most likely continue to slowly move higher just as it has been doing for months.

But if a full-blown revolution does happen in Saudi Arabia, it could literally change the global economy almost overnight.  The entire world financial system would be thrown into a state of chaos.

Oil is the lifeblood of the world economy.  Without a continuous supply of very inexpensive oil, life as we know it would dramatically change.  Most of us just assumed that we would always live in a world where we would always have an endless supply of very cheap oil.

Well, the times they are a changing.

You had better buckle up because it is going to be a bumpy ride.

5 Dollar Gas? Get Ready To Pay An Arm And A Leg For Gasoline

One of the quickest ways to bring down the U.S. economy would be to dramatically increase the price of oil. Oil is the lifeblood of our economic system. Without it, our entire economy would come to a grinding halt. Almost every type of economic activity in this country depends on oil, and even a small rise in the price of oil can have a dramatic impact on economic growth.  That is why so many economists are incredibly alarmed about what is happening in the Middle East right now.  The revolution in Libya caused the price of WTI crude to soar more than 7 dollars on Tuesday alone.  It closed at $93.57 on Tuesday and Brent crude actually hit $108.57 a barrel before settling back to $105.78 at the end of the day.  Some analysts are warning that we could even see 5 dollar gas in the United States by the end of the year if rioting spreads to other oil producing nations such as Saudi Arabia.  With the Middle East in such a state of chaos right now it is hard to know exactly what is going to happen, but almost everyone agrees that if oil prices continue to rise at a rapid pace over the next several months it is going to have a devastating impact on economic growth all over the globe.

Right now the eyes of the world are on Libya.  Libya is the 17th largest oil producer on the globe and it has the biggest proven oil reserves on the continent of Africa.

Libya only produces 2 percent of the oil in the world, but with global supplies so tight at the moment even a minor production disruption can have a dramatic impact on the price of oil.

Before this crisis, Libya was producing approximately 1.6 million barrels of oil per day.  Now the rest of the world is wondering what may happen if revolution spreads to other major oil producing nations such as Kuwait (2.5 million barrels of oil per day) or Saudi Arabia.

Saudi Arabia produces 8.4 million barrels of oil a day.  It produces more oil than anyone else in OPEC.

If revolution strikes in Saudi Arabia and a major production disruption happens it could be catastrophic for the global economy.

David Rosenberg, the chief economist at Gluskin Sheff & Associates, is warning that if there is major civil unrest in Saudi Arabia we could end up seeing oil go up to $200 a barrel….

“If Libya can spark a $10-a-barrel response, imagine what a similar uprising in Saudi Arabia could unleash. Do the math: we’d be talking about $200 oil.”

200 dollar oil?

Don’t laugh – it could happen.

In fact, if it does happen the global economy would probably go into cardiac arrest.

The truth is that if the flow of oil from Saudi Arabia gets disrupted there is not enough spare capacity from the rest of the globe to make up for it.

Paul Horsnell, the head of oil research at Barclays Capital, recently said that the world does not currently have enough spare capacity to be able to guarantee that an oil “price shock” will not happen….

“The world has only 4.5m barrels-per-day (bpd) of spare capacity, which is not comfortable.”

Horsnell also said that even in the midst of potential supply problems, the global demand for oil continues to grow at a very robust pace….

“In just two years, the world has grown so fast as to consume additional volume equal to the output of Iraq and Kuwait combined.”

For now, Saudi officials are saying all the right things.  They say that there will be no revolution in Saudi Arabia and that there are not going to be any supply problems.

For example, Saudi Arabian Oil Minister Ali al-Naimi recently announced that the rest of the world should not worry because his country is definitely going to be able to make up for any shortage in the global supply of oil….

“What I would like you to convey to the market: right now there is absolutely no shortage of supply.”

But what happens if revolution comes to Saudi Arabia?

Suddenly the whole game would change.

But even with a peaceful Saudi Arabia the price of gasoline in the United States is already rising to alarming levels.

The average price of gasoline in the United States reached $3.14 a gallon last week.  This closely mirrors what happened back in 2008.  Three years ago at this time the average price of gasoline was right around $3.13 a gallon.

Let’s certainly hope that we don’t see a repeat of what happened to oil prices back in mid-2008.  The price of oil reached an all-time record of $147 a barrel and gas prices in the United States absolutely skyrocketed.

So how high will the price of gas in the U.S. go in 2011?

We haven’t even come close to 4 dollar gas yet, but a large number of analysts believe that it is coming this summer.

Is there even a possibility that we could see 5 dollar gas in America at some point in the next couple of years?

Well, there are some in the oil industry that are convinced that it could actually happen.  Just consider the following quotes….

Darin Newsom, senior analyst at energy tracker DTN….

“If this thing escalates and there’s a good chance that there’d be a shift in supplies, $5 gas isn’t out of the question.”

Peter Beutel, president of energy adviser Cameron Hanover….

“If you are looking at the disruption of movement and production in countries such as Saudi Arabia and the UAE, you’re easily talking $5 gas.”

John Hofmeister, the former president of Shell Oil, on his belief that we could see 5 dollar gas by 2012….

“I’m predicting actually the worst outcome over the next two years which takes us to 2012 with higher gasoline prices.”

So why is everyone so concerned about gas prices?

Well, because it affects the price of almost everything else in the economy.

David Wyss, the chief economist at Standard & Poor’s, says that every extra dollar that is spent on gasoline is a dollar that will not be spent somewhere else….

“The money that you spend filling up your car is money you don’t have to spend at the shopping mall.”

Not only that, but when gasoline costs more it has a negative effect on economic growth.  Almost all economic activities involve the use of oil in one form or another.  When the price of oil starts getting really high it motivates people to start cutting back on many of those activities.

The truth is that our whole economic system is based on the ability to use massive amounts of very cheap oil.  Now that the price of oil is rapidly rising again, many economists are becoming very alarmed.

Nobuo Tanaka, the Executive Director of the International Energy Agency, recently told CNBC that his organization is extremely concerned about what high oil prices could do to the global economy….

“That is our concern, regardless of the margins of disruption, if the $100 per barrel of oil is continued in 2011, the burden of oil to the global economy is as bad as 2008.”

So what was so bad about 2008?  Well, the price of oil soared to $147 a barrel in mid-2008 and this was a huge factor in the financial collapse that happened a few months later.  Now oil prices are returning to levels that we have not seen since 2008….

So if the price of oil breaks the all-time record this year will we see another global financial crisis?

It is hard to say.  But what almost everyone agrees on is that it will not be good for the global economy at all.

In addition, a higher price for oil will also have a huge impact on the trade deficit.  Because oil prices were at such a high level back in 2008, oil imports actually made up almost 50 percent of the U.S. trade deficit that year.

In 2010, the U.S. trade deficit was just a whisker under $500 billion.  If the price of oil gets up to 140 or 150 dollars a barrel we could easily see the U.S. trade deficit explode to 700 or 800 billion dollars in 2011.

That would be really, really bad for the U.S. economy.

So where are oil prices going next?

Well, if you could predict that with 100 percent certainty you could make a whole lot of money.  Nobody knows for sure.

But almost everyone believes that the price of oil is going to go up.  In fact, a lot number of investors have been making some very large bets that the price of oil is going to go up very significantly this year.

Recently, large numbers of investors have been betting that the price of oil will rise to $125 a barrel by May.  Shockingly, some investors have even been betting that the price of oil will rise to $250 a barrel by next December.

Let us hope that the price of oil does not rise that rapidly, but as the past couple of months have demonstrated, the world is becoming a very unstable place.   Just about anything is possible at this point.

If the price of oil rises significantly above $100 a barrel and it stays there for an extended period of time, it is going to be absolutely devastating for the U.S. economy.

So what do you all think is going to happen to the price of oil in 2011?  Please feel free to leave a comment with your thoughts below….