Vultures on the
Power Lines
Sightings from The Catbird Seat
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April 1, 2008
There Is No Gas Shortage
But Washington, Wall Street, and ethanol and oil and gas companies want you to think there is, says automotive expert Ed Wallace
by Ed Wallace, Business Week
"They see speculation in the market, I see decline in global inventories. I don't think this is a big surprise, that we've had a jump in price when there has been a decrease in crude inventories."— Energy Secretary Sam Bodman, Bloomberg News, Mar. 5, 2008
"It should be obvious to you all that the [gasoline] demand is outstripping supply, which causes prices to go up." — President George W. Bush, Associated Press, Mar. 5, 2008
One wonders if verifiable facts ever get in the way of this administration's statements on issues that are critical to the average American's wellbeing. After all, last time I checked, when politicians are elected to public office, or appointed, as is Energy Secretary Samuel W. Bodman, they must take an oath to the American people before assuming their new positions. How can they forget a sacred oath so quickly? Were they daydreaming when they took it, so it never meant anything to begin with? Maybe it's just another promise you have to make to get into office: When you're securely incumbent you can ignore even solemn oaths you took.
Obviously, the two quotes that led this article came from discussions concerning the current high price for oil on the futures market. Bodman appears to be protecting the speculators in oil, as opposed to looking after the interests of all Americans. President Bush, apparently, has never talked to the Energy Dept.'s Energy Information Agency to see whether gasoline demand is actually up. More troubling, the writer of that particular Associated Press article obviously didn't look up the EIA's numbers to verify the President's assertions. They weren't accurate.
1. There Is No Shortage
Gasoline reserves on hand are at the highest levels since the early 1990s, which is remarkable considering the nation's refineries have been cutting back on the production of gasoline because their margins have declined. In fact, average gasoline reserves on hand have risen since this past October, while oil reserves in this country have gone up virtually every week this year—and only fog in the Houston Ship Channel that kept oil tankers from unloading their crude one week kept it from being every week.
In the same Bloomberg article that quotes from Bodman's CNBC appearance on Mar. 4, he also said that it was thanks to ethanol that the gasoline problem isn't even worse. He then added that the fact that making ethanol is forcing up prices of other farm commodities, including hog and chicken feed, is "nowhere near as important as trying to relieve pressure on [gasoline] supplies."
Of course, there is no pressure on gasoline supplies in this country as of today, but Bodman's statement must have made eyes roll among the executives at Pilgrim's Pride PPC; the Pittsburg, (Tex.) poultry producer announced 1,100 layoffs on Mar. 13, closing one processing plant and 6 of their 13 distribution centers because their company's outlay for chicken feed went up $600 million last fiscal year and was on track to increase by another $700 million this year.
Here's the scorecard, in case you missed it. There's no shortage of gasoline or oil in the U.S. today, and we have near-record reserves on hand. Meanwhile the Congressional mandate for ethanol has jacked up the price of chicken feed for Pilgrim's Pride, which is the U.S.'s largest processor of chickens and turkeys—by $1.3 billion. And that's for just one company processing chicken. This is what passes for acceptable to our Energy Secretary?
2. Demand Is DOWN, Yet Prices Are UP
Just so we can all get on the same page, here are the verifiable facts on oil supplies, production, and gasoline demand.
In January of this year, the U.S. used 4% less petroleum than we did a year ago. (Oil demand was down 3.2% in February.) Furthermore, demand has been falling slowly since July of last year. Ronald Bailey of Reason Online has pointed out that worldwide production of oil has risen 2.5% in the first quarter, while worldwide demand has grown by only 2%. Production is expected to increase by 3.3% in the second quarter, and by as much as 4.1% by the third quarter. The net result is that the U.S. daily buffer for oil production against demand, which was a paltry 1.5 million barrels as recently as 2005, is now up to 3 million barrels in excess capacity today.
So what is going on here? Why would our Energy Secretary say there's a supply and demand problem when none exists? Why would he say that speculators have little or nothing to do with the incredibly high price of oil and gasoline, when it's clear they do? President Bush—a former oilman—gives the ever-growing demand for gasoline as the primary reason prices are so high, yet that notion can be dispelled with one minute of research. That's the problem with rhetoric; it rarely matches the facts.
3. Speculation is Up, and the Dollar Is Down
On the same day the President and our Energy Secretary made those foolish comments, no less an authority than ExxonMobil (XOM) Chief Executive Officer Rex Tillerson was quoted by Marketwatch as saying, "The record run in oil prices is related more to speculation and a weakening dollar than supply and demand in the market." He added, "In terms of fundamentals, fear of supply reliability is overblown."
As for the speculators, in 2000 approximately $9 billion was invested in oil futures, while today that number has gone up to $250 billion. Now, if any publicly traded company had an additional $241 billion put into its stock in the same period, its stock would rise out of sight too—even if the company was not worth anywhere near that amount of market capitalization.
Moving on to the weak U.S. dollar as a primary cause for skyrocketing oil prices—there is "some" truth in that statement. But consider this: The dollar has depreciated 30% against the world's currencies since 2002, while the price of oil has gone up 500%. So is it the weak dollar that has caused a 500% increase in the price of oil, or is it the extra $241 billion worth of speculation? You can make the call on that one.
Possibly just to ensure oil prices don't respond to real-world market conditions, Goldman Sachs (GS) forecast on Mar. 7 that turbulence in the oil market could cause oil to spike as high as $200 a barrel. This flies in the face of all known information—but then again, Goldman Sachs is the world's biggest trader of energy derivatives, and its Goldman Sachs Commodities Index is a widely watched barometer of energy and commodities prices.
What Is Washington Thinking?
Rounding out the list of experts discussing our oil and gasoline situation is Bill Klesse, head of San Antonio (Tex.) Valero Energy (VLO). He spoke in San Diego a week after those comments from Goldman Sachs, the President, and Secretary Bodman. Believe it or not, Klesse said poor margins may cause Valero to sell one-third of its refinery operations; he stated that poor margins in recent months had caused planned refinery expansions—which would have produced 500,000 more barrels per day—to be canceled. Moreover, according to a report from Reuters on Mar. 11, 2008, Klesse recently released the information that gasoline production has been curtailed in response to slowing demand.
Imagine that: Refiners cut gasoline production, yet gasoline reserves have grown to their largest since late 1992. So much for "surging demand."
Klesse also called for the government to start imposing a tariff on imported gasoline to protect U.S. refiners' profits. Protectionism? As famed economist John Kenneth Galbraith correctly said, "In America, the only respectable form of socialism is socialism for the rich."
Which takes us back to the original question: Why is Washington doing everything it can to convince us there is a shortage when there isn't one? After all, the only people they're protecting are those heavily invested in oil futures—and that's to the detriment of all other Americans.
We're Paying for What?
When it became undeniable that poor decision-making by company executives had put a respected 85-year-old U.S. institution in financial peril, why did the Federal Reserve rush in to save investment bank Bear Stearns (BSC)? Of course, we need to restore confidence in our financial institutions, but why protect the personal assets of those who were responsible for the mess? Both the corporation's officers and its board members should contribute their personal assets toward saving the bank they put in the ditch—the bank all of us are going to pay to bail out.
Instead, the Bush administration is protecting those responsible for creating yet another speculative bubble in oil futures, and is protecting investors in the ethanol industry—much to the detriment of food-processing companies such as Pilgrim's Pride. And the net result of all this is that the prices of crude and gasoline rise ever higher thanks to a "shortage" that does not exist, while food costs are soaring thanks in part to the ethanol mandate.
The Federal Reserve lowers interest rates, but the cost of mortgages goes up six weeks in a row—and last month Bank of America (BAC) credit-card holders started being charged more than 24% interest on new purchases.
This is what they call "Republican Prosperity?" Ronald Reagan was both right and wrong when he said, "Government is not the solution, government is the problem." And government is still the problem. Instead of a fair and open market they gave us a free-for-all marketplace with no regulations at all, which lately these "bubble boys" have sent south for all of us.
One would guess that Washington missed the obvious: Protect all U.S. consumers and you're also protecting business expansion.
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Ed Wallace holds a Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA. His column heads the Sunday Drive section of the Fort Worth Star-Telegram, and he is a member of the American Historical Society. The automotive expert for KDFW Fox 4 in Dallas, Wallace hosts the top-rated talk show Wheels, Saturdays from 8 a.m. to 1 p.m. on 570 KLIF AM in Dallas.
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March 31, 2005
Who profited from Goldman Sachs’
$105 oil price scare headline?
Arjun Murti moved the entire stock market today.
Murti is the Goldman Sachs managing director who made waves by indicating $105 per barrel as a possible oil price. AP via NYT:
Stocks sagged Thursday, ending a lackluster quarter in negative range as investors weighed rising U.S. incomes and consumer spending against lofty oil prices, which rose following an investment bank’s suggestion that energy was in the early stages of a bull market.
The report from Goldman Sachs warned oil was entering a “super spikeperiod that could drive prices as high as $105 per barrel, but many on Wall Street were skeptical about the call. The only thing that could take crude to such high levels would be a major disruption in supply from Iran, Iraq or Saudi Arabia, which seems unlikely at this point, said Tracy Herrick, chief economist for the Private Bank of the Peninsula, in Palo Alto, Calif. The report seemed to have an impact on trading, nonetheless; crude futures surged $1.41 to $55.30 per barrel on the New York Mercantile Exchange — difficult for stock investors to ignore.
WSJ:
Oil, however, was in the spotlight once again after Goldman researcher Arjun Murti said “oil markets may have entered the early stages of…a ’super spike’ period,” described as a multiyear timeframe during which oil prices shoot up high enough to reduce consumption and create extra capacity, “only after which will lower energy prices return.”
Reaction to the report varied. Michael Guido, director of commodity strategy at Societe Generale, said refinery-capacity issues and rising demand from China are solid fundamental reasons to expect crude prices to continue rising, and that $105-a-barrel oil was not “unrealistic.” Scott Meyers, a trading analyst at Pioneer Futures, said the report was “irresponsible.” To forecast crude prices of $105 is “a little over the top,” he said, since it can send shockwaves through the market.
$105 a barrel is a very provocative number, and the phrase “super spike” is no less provocative. We have a lot of questions about Murti’s analysis, since there is a very important difference between the 1973 and 1979 oil spikes and where we are today; namely, we no longer have the ridiculous domestic oil price controls in place that distorted the market back then. Arguably, oil prices might not have risen so much on those prior occasions if American consumers were not receiving the false price signals arising from the controls.
But that is an academic discussion for a different day. The management of Goldman Sachs would understand that the “super spike” mention of $105 a barrel would be a market moving event. In the era of Ken Lay, Marrtha Stewart, AIG and on and on, would it be too much to ask what oil futures positions the firm held as Murti made his prediction?
We refer you to an article from 2002 by Rebecca Byrne in The Street.com called “Goldman’s Luster May Be Fading.”
For a long time, Goldman had largely escaped the criticism that Merrill Lynch (MER:NYSE - news - commentary - research - analysis), Citigroup’s (C:NYSE - news - commentary - research - analysis) Salomon Smith Barney and Credit Suisse First Boston (CSR:NYSE - news - commentary - research - analysis) had received for their investment banking practices. Yes, New York state attorney general Eliot Spitzer included Goldman among the Wall Street firms he was investigating. But Goldman has been burnishing its image as “different” in the past few months — a little cleaner than its rivals — and the efforts had been successful.
Then came the revelation late Wednesday that Goldman doled out coveted IPO shares to executives at 21 companies and may have engaged in “spinning” — allocating IPOs to top executives as an incentive to win investment banking business. Goldman denies the spinning allegation, and some analysts agree with the firm. The company’s stock eased 4% to $62.90 — not much damage in these scandal-phobic days. However, the damage to Goldman’s reputation may have long-term repercussions, denting the escutcheon of the 136-year-old firm and undermining its cachet as an underwriter and a stock. “It’s terrible public relations,” noted Brad Hintz, an analyst at Bernstein…..
Even up until this year, Goldman had engaged in some unpalatable dealings. Consider Tesoro Petroleum (TSO:NYSE - news - commentary - research - analysis). Analyst Arjun Murti put the stock on the firm’s recommend list on Jan. 8, just six weeks before Goldman would be named as a co-manager on a $245 million secondary stock offering for the Texas-based oil refiner. At the time, the stock was trading for about $13 and Murti said it was “poised for a major breakout.” It subsequently plunged in value, prompting Murti to reduce his rating to market outperformer. Tesoro now trades for about $2.
Matthew Goldstein wrote another article in TheStreet.com which also discussed the Tesoro situation. The article, while critical, also noted, “In fairness, Goldman is hardly the only Wall Street firm with investment banking ties to Tesoro that’s been overly bullish on the stock.”
We also note that Murti has been very bullish on oil prices for some time. Two weeks ago, he suggested that oil prices might have to reach $80 for demand to be dampened. Bloomberg:
Oil prices may have to rise to $80 a barrel or higher before U.S. demand for gasoline, diesel and other fuels slows, Arjun Murti, an analyst with Goldman Sachs Group Inc., said yesterday in San Francisco. “At $80 oil, we might expect some negative reaction on the demand side,” he said. “We think we’re going to need changes in consumer behavior, and it’s going to take higher prices to do that. It’s going to take a lot to change consumer behavior.”
Still, the provocative nature of the report, which appeared to be issued Thursday morning, is troubling. As the WSJ notes in its article: “Prediction of ‘Super Spike’ As High as $105 a Barrel Puts Jolt in Crude Futures:”
In the energy boom of recent years, Goldman Sachs Group’s influence has grown in myriad ways. For starters, it runs one of Wall Street’s most active energy-trading desks and owns a closely watched commodity index heavily weighted toward crude oil. Yesterday, it was a different group within the investment bank — the equity analysts — that shook up the commodity markets. A team led by analyst Arjun N. Murti repeated its assertion that the oil market is going through a “super spike” and raised the upper range of its price forecast for such a spike to $105 a barrel. The report helped send the most active crude futures for May delivery soaring to $55.40 a barrel, up 2.6%, or $1.41, at the New York Mercantile Exchange. On the year, prices are up 28%.
Perhaps it would be a better practice to issue provacative reports in the evening, rather than at the beginning of the trading day, as this appears to have been done.
– This entry was posted on Thursday, March 31st, 2005 at 5:42 pm and is filed under General, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
ENERGY AND WAR: CHENEY’S
DELUSIONS OF POWER
By Paul Krugman, New York Times
They considered themselves tough-minded realists and regarded doubters as fuzzy-minded whiners. They silenced those who questioned their premises, even though the skeptics included many of the government’s own analysts. They were supremely confident – and yet with shocking speed everything they had said was proved awesomely wrong.
No, I’m not talking about the war; I’m talking about the energy task force that Dick Cheney led back in 2001. Yet there are some disturbing parallels. Right now, pundits are wondering how Cheney – who confidently predicted that our soldiers would be “greeted as liberators” – could have been so mistaken. But a devastating new report on the California energy crisis reminds us that Cheney has been equally confident, and equally wrong, about other issues.
In spring 2001, the lights were going out all over California. There were blackouts and brownouts, and the price of electricity was soaring. The Cheney task force was convened in the midst of that crisis. It concluded, in brief, that the energy crisis was a long-term problem caused by meddling bureaucrats and pesky environmentalists, who weren’t letting big companies do what needed to be done. The solution? Scrap environmental rules, and give the energy industry multibillion-dollar subsidies.
Along the way, Cheney sneeringly dismissed conservation as a mere “sign of personal virtue” and scorned California officials who called for price controls, claiming that the crisis was being exacerbated by market manipulation. To be fair, Cheney’s mocking attitude on that last point was shared by almost everyone in politics and the media – and yes, I am patting myself on the back for getting it right. For we now know that everything Cheney said was wrong.
In fact, the California energy crisis had nothing to do with environmental restrictions, and a lot to do with market manipulation. In 2001 the evidence for manipulation was basically circumstantial. But now we have a new report from the Federal Energy Regulatory Commission, which until now has discounted claims of market manipulation.
No more: The new report concludes that market manipulation was pervasive, and offers a mountain of direct evidence, including phone conversations, e-mail and memos.
There’s no longer any doubt: California’s power shortages were largely artificial, created by energy companies to drive up prices and profits.
Oh, and what ended the crisis? Key factors included energy conservation and price controls.
Meanwhile, what happened to that long-run shortage of capacity, which required scrapping environmental rules and providing lots of corporate welfare? Within months after the Cheney report’s release, stock analysts were downgrading energy companies because of a looming long-term capacity glut.
In short, Cheney and his tough-minded realists were blowing smoke. Their report described a fantasy world that bore no relation to reality. How did they go so wrong?
One answer is that Cheney made sure that his task force included only like-minded men: As far as we can tell, he didn’t consult with anyone except energy executives. So the task force was subject to what military types call “incestuous amplification,” defined by Jane’s Defense Weekly as “a condition in warfare where one only listens to those who are already in lock-step agreement, reinforcing set beliefs and creating a situation ripe for miscalculation.”
Another answer is that Cheney basically drew his advice about how to end the energy crisis from the very companies creating the crisis, for fun and profit. But was he in on the joke?
We may never know what really went on in the energy task force since the Bush administration has gone to extraordinary lengths to keep us from finding out. At first the nonpartisan General Accounting Office, which is supposed to act as an internal watchdog, seemed determined to pursue the matter. But after the midterm election, according to the newsletter The Hill, congressional Republicans approached the agency’s head and threatened to slash his budget unless he backed off.
And therein lies the broader moral. In the last two years Cheney and other top officials have gotten it wrong again and again – on energy, on the economy, on the budget. But political muscle has insulated them from any adverse consequences. So they, and the country, don’t learn from their mistakes – and the mistakes keep getting bigger.
From The Great Divide, by John Sperling, others:
Energy: The Economics
of Corporate Welfare
The Political Power of Extraction Industries
In the decade 1991-2001, Metro America paid $1.6 trillion more in taxes that Retro America, and Retro America received $0.8 trillion more in federal payments than it paid in federal taxes. ...
Much of this $0.8 trillion goes to Retro America in the form of the lion’s share of subsidies and tax breaks to the energy industry – oil, gas, and coal.
The primary reason these noneconomic subsidies continue to flow decade after decade is the political power of the extraction industries, a power that has been wielded in both Republican and Democratic administrations but has been greatly magnified under the Bush administration. During the Clinton administration, the extraction industries had limited influence: We have been able to identify only two cabinet, subcabinet, and White House staff members with extraction industry connections.
In contrast, we have identified 53 members of the Bush administration with close ties to the extraction industries....
Clinton’s two extraction industry appointees were Thomas F. (Mack) McLarty III - a childhood friend whom the president appointed as his Chief of staff – and Joshua Gotbaum, whom he appointed to the subcabinet post of Executive Associate Director and Controller of the Office of Management and Budget.
Prior to joining the White House, McLarty was the chairman and chief executive officer of Arkla Inc., a natural gas company.
Mr. Gotbaum was a partner in Lazard Freres and Co., specializing in energy-related products....
President Bush and the Bush family have strong ties to the oil industry going back to John D. Rockefeller and the early days of the industry. George W. Bush’s great-grandfather, Samuel Bush, was an associate of John D. Rockefeller and ran Buckeye Steel Castings in the early 20th century. The daughter of George Herbert Walker, the financier and associate of the Harrimans, married Samuel’s son, Prescott Bush, investment banker, U.S. senator, and father of George Herbert Walker Bush (Bush senior).
President Bush Junior and his closest advisers have heavy ties to oil. Bush’s own oil venture was unsuccessful, but because of his family ties, he sat on the board of directors of Harken Oil, which saved him from bankruptcy by buying his company.
Vice President Cheney served as a congressman from energy-rich Wyoming and was Chief Executive Officer of Halliburton, an oil service company.
National Security Advisor Condoleezza Rice was a member of the Chevron Corp. A Chevron oil tanker was named “Condolezza Rice,” but due to adverse publicy was renamed in April 2001 the “Altair Voyager.”
These crony capitalists gain power and often personal wealth by switching between high-ranking positions to business and government and using their influence in one to promote projects and points of view sympathetic to the other. This kind of behind the scenes manipulation can undermine the positive effects of entrepreneurial capitalist development and is anathema to a free enterprise system.
Of course, crony capitalism is always a factor in government and big business, but in the Bush administration it is rampant and harks back to the robber barons of the president’s great grandfather’s generation....
www.retrovsmetro.org/downloads/chpfull/Ch5_full.pdf
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For more, GO TO > > > Aloha, Harken Energy; The Carlyle Group: Birds that Drink from Cesspools; Dirty Money, Dirty Politics & Bishop Estate; Hawaiian Airlines; Nests in the Pentagon; The Myth and The Methane; The Rand Corporation; The Strange Saga of BCCI
December 31, 2004
Gas Price Scheme Alleged
State official seeks damages from Reliant
By John G. Edwards, Las Vegas Review-Journal
Outgoing consumer advocate Tim Hay, who negotiated a $48 million settlement for Nevada in a natural gas conspiracy case against El Paso Corp., filed a class-action lawsuit Thursday against Reliant Energy over an alleged anti-competitive gas trading scheme with Enron Corp.
The lawsuit accuses Houston-based Reliant of conspiring with and unidentified Enron official in a trading scheme to drive natural gas prices first up then down at Topock, a key trading point near Needles, Calif. It doesn’t see a specified amount of damages but Hay expects it will be in the billion-dollar range....
The lawsuit complains that Reliant and Enron employees used a technique called “churning” to increase the volume of gas traded. Reliant bought from and sold to Enron large quantities of gas, which made it appear demand was increasing. The gas was sold through the Enron Online trading platform between November 2000 and March 2001, according to the lawsuit....
For more, GO TO > > > I Sing the Hawaiian Electric; The Story of Enron
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October 28, 2002
THE RACE FOR IRAQ’S OIL
By Paul Klebnikov, Forbes
CHARTING A MILITARY OUTCOME IN IRAQ IS DICEY, and some say a bad turn of events could mean $100-a-barrel oil. But after any brief disruption, the oil-market effects of a neutralized or pro-Western successor to Saddam Hussein are unmistakably positive. Iraq sits on 120 billion barrels of proven oil reserves, second only to Saudi Arabia’s 260 billion.
“Since 1961, only in the years between 1973 and 1980 was there any exploration of Iraq’s oil reserves,” says Fadhil Chalabi, who was a ranking official at the Iraqi Ministry of Oil from 1968 to the mid-1970s....
Chalabi now directs the Centre for Global Energy Studies, a London think tank founded by former Saudi oil minister Sheikh Ahmed Zaki Yanani. He has ominous news for the sheikh’s countrymen: Iraq’s real recoverable oil reserves could be double today’s estimate. “Ultimately they could exceed those of Saudi Arabia,” Chalbi says.
Wow. Therein lies a partial, if hardly party-line, answer to the doubters who say that an attack on Saddam would plunge Iraq into economic chaos. After the chaos, it is hoped, would come some oilfield development that would leave both Iraqis and the world’s energy buyers better off....
A lot of Iraq’s oil lies in huge virgin fields, discovered in the 1970s before Saddam turned the place into a military bastion, but not touched since. The Majnoun field close to the Iranian border, for instance, contains recoverable reserves of 11 billion barrels. That’s equivalent to a third of the proven reserves of the entire U.S. And Majnoun is only one of several monster Iraqi oilfields still waiting for the first pump to get cranking.
Not only is the oil in these Iraqi fields low in sulfur, it is also close to the surface. No need to inject water or gas or chemicals in order to upgrade recovery. In short, it’s cheap to produce....
Another reason Iraqi oil production could take off quickly is that pipelines and terminals are already in place, though underutilized. Same with Iraq’s many qualified engineers and technicians. . . . Moreover, through pipelines that terminate in Turkey, Syria and (potentially) Israel, Iraq has the ability to funnel most of its oil directly to the eastern Mediterranean, bypassing the Persian Gulf entirely.
Who would be likely to get juicy deals in postwar Iraq?
None of the big American or British oil companies are there. But if a U.S.-led force succeeds in ousting Saddam, it’s a good bet that these companies will come in as soon as the fighting has died down....
THE FINGERPRINTS OF CONSPIRACY
From Rule by Secrecy, by Jim Marrs
Copyright 2000
War is a racket.... War is largely a matter of money. Bankers lend money to foreign countries and when they cannot pay, the President sends Marines to get it.
– Marine Maj. Gen. Smedley D. Butler (1881-1940)
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THE PERSIAN GULF
The Allied victory in the Persian Gulf war of 1991 was loudly trumpeted by the American mass media, but the actions leading to this conflict were sparsely reported throughout the coverage. These machinations involved people in secret societies and indicated a very different rationale for the war than the one presented to the public.
No one can argue that the United States military, with some assistance from British, French, and Arab forces, did not perform magnificently during this brief conflict. It took only between January 17 and February 28, 1991, for the coalition of Operation Desert Storm to soundly defeat the Iraqi forces of Saddam Hussein, then representing the fifth largest army in the world. This astounding military success was due primarily to the Allied forces’ superiority in both weaponry and training as opposed to Saddam’s conscripts who, through veterans of combat against Iran, had limited training and low morale.
This disparity created a lopsided war which resulted in more than 300,000 Iraqi casualties, both military and civilian, and 65,000 prisoners, compared to the extraordinary low Allied losses of 234 killed, 470 wounded, and 57 missing.
Primary leader of the war was U.S. President George Bush, a former CFR member, Trilateralist, and Skull and Bonesman.
As with most Middle East conflicts, the primary issue was oil. Both Bush and then Secretary of State James Baker were deeply involved in the oil business. Any Bush policy which increased the price of oil meant more profit to his companies, those of his oilmen supporters and, of course, to the Rockefeller-dominated oil cartel.
An added bonus was that any conflict which divided the Arab world would only strengthen the power of the U.S., Britian, and Israel in the region. A coalition of countries fighting for the United Nations could only advance the globalists’ plan for a one-world military force.
This “battle of the New World Order was some kind of manufactured crisis with a hidden agenda,” wrote conspiracy researchers Jonathan Vankin and John Whalen after study of the events leading to this conflict.
Bush and Saddam Hussein had had a close relationship for many years. In his role as CIA director, and later as vice president, George Bush had supported Saddam through his eight-year war against Iran following the ouster of the Shah in 1979.
By 1990 Saddam’s Iraq was a primary threat to the balance of power between Israel and its Arab neighbors, but Saddam was strapped for cash due to the Iraq-Iran War and couldn’t pay his bills. Under pressure from the international bankers for slow repayment of loans and from the Organization of Petroleum Producing Countries (OPEC), which refused to allow him to raise oil prices, Saddam turned his eyes to Kuwait as a source of income. At the time it was the third largest producer of iol next to Iraq and Saudi Arabia.
Kuwait had been carved out of Iraq by Britain, who in 1899 took control of Kuwait’s foreign policy under an agreement with the dictatorial Sabah family. The Sabahs had produced a series of ruling sheikhs since assuming control of the area’s nomad tribes in 1756. Kuwait became a British Protectorate in 1914 when German interest suddenly gave the area strategic importance. British dominance was solidified by sending British troops to the area in 1961 after Iraq sought to reclaim it.
The Pentagon had known that Iraqi troops were massing along the Kuwait border since mid-July 1990. On July 25 Saddam sought advice from the United States on his intentions to reclaim Kuwait. He met with U.S. ambassador April Glaspie, who told him, “I have direct instructions from President Bush to improve our relations with Iraq. We have considerably sympathy for your quest for higher oil prices, the immediate cause of your confrontation with Kuwait....
“I have received an instruction to ask you, in the spirit of friendship not confrontation, regarding your intentions: Why are your troops massed so very close to Kuwait’s borders?”
According to transcripts released long after the war, Hussein explained that, while he was ready to negotiate his border dispute with Kuwait, his design was to “keep the whole of Iraq in the shape we wish it to be.” This shape, of course, included Kuwait, which Saddam considered still a part of Iraq.
“What is the United States’ opinion on this?” he asked.
“We have no opinion on your Arab-Arab conflicts, like your dispute with Kuwait,” replied Glaspie. “Secretary Baker has directed me to emphasize the instruction, first given to Iraq in the 1960s, that the Kuwaiti issue is not associated with America.”
“Shortly after this, April Glaspie left Kuwait to take her summer vacation, another signal of elaborate American disinterest in the Kuwait-Iraq crisis,” noted authors Tarpley and Chaitkin in George Bush: The Unauthorized Biography.
On July 31, Bush met with GOP congressional leaders but said nothing about the Gulf situation.
The crisis escalated on August 2, when Iraqi troops moved into Kuwait. Bush froze all Iraqi assets in the United States, adding to Saddam’s money woes, which had worsened in 1990 after international bankers refused him further loans. Glaspie was prohibited from speaking out by the State Department, so the American public could not learn of Bush’s duplicity.
In later testimony before the Senate Foreign Relations Committee, Glaspie pointed out that the July 25 conference was her first and only meeting with Saddam, who had not met with any foreign ambassador since 1984, the midpoint of his war with Iran.
But if Saddam had not met with U.S. diplomats, the same could not be said of American businessmen. Economist Paul Adler noted, “It was known that David Rockefeller met with the Iraqi leader on at least three known occasions after the Chase Manhattan consortium became the lead banker in a number of major Iraqi credit syndications.”
It was also reported that Alan Stoga, a vice president of (Henry) Kissinger Associates met with Iraqi leaders during a two-year period preceding the Gulf conflict.
“Saddam began to realize that he could not get what he wanted from the striped-pants set. He began doing business with the people who mattered to him – foreign businessmen, defense contractors, technologists and scientists, occasionally even visiting newsmen,” reported the Washington newspaper, The Spotlight.
Following the money trail of such non-diplomatic contacts which led to the Gulf War, Congressman Henry Gonzalez, chairman of the House Committee on Banking, Finance and Urban Affairs, discovered that almost $5 billion in loans had been passed to Saddam Hussein in the 1980s through the Atlanta, Georgia, branch of Italy’s government-owned bank, Banca Nazional del Lavoro (BNL). The branch manager, Christopher Drogoul, was finally brought into federal court, where he pleaded guilty to approving this huge cash transfer without the approval of BNL’s head office in Italy. However, the whole investigation was put on hold during the Gulf War.
Most observers disblieved that Drogoul could have conducted such a massive transaction without the knowledge of his superiors. Bobby Lee Cook, one of Drogoul’s several defense attorneys, argued that his client had been made the patsy in “a scheme orchestrated at the highest levels of the U.S. Government.”
In court, BNL official Franz von Wedel testified that his boss Drogoul had acted on the advice of the bank’s consultants, Kissinger Associates.
In both 1989 and 1990 the Bush Justice Department had quashed indictments against the BNL by the Atlanta Attorney General’s office following an FBI raid on the bank on August 4, 1989. Action against the bank managers was held up for more than a year. Indictments were finally handed down one day after Bush declared a cease-fire in the Gulf War.
This scandal – dubbed “Iraqgate” – prompted Gonzalez to prepare a House resolution called for the impeachment of Bush Attorney General William Barr for “obstruction of justice in the BNL scandal.” House Judiciary Committee Chairman Jack Brooks called on Barr to appoint a special prosecutor in the case.
In a classic case of who-will-watch-the-watchers?, Barr said he could find no evidence of wrongdoing on his part and refused to appoint a special prosecutor. It was one of the only times that an attorney general had failed to appoint a special prosecutor when asked to do so by Congress.
WHO PAYS THE TAB?
The clincher of this sordid story of financial scheming and official malfeasance was that not only had most of the $5 billion been used by Saddam to buy weaponry to be used against American servicemen, but the U.S. taxpayers picked up the tab.
Gonzalez said $500 million of the loans to Saddam came through the government-backed Commodity Credit Corporation (CCC) and had been intended to purchase grain from U.S. farmers. However, grain shipped though the port of Houston had gone to then-Soviet bloc nations for weapons, while the remainder of the grain purchase had freed Saddam’s limited cash reserves to buy more military materials.
The Bush administration had pledged taxpayer guarantees should Saddam default on the loans, which he did after sending troops to Kuwait. According to at least one public source, more than $360 million in American tax money was paid to the Gulf International Bank in Bahrain which was owned by seven Gulf nations including Iraq. This amount was only the first of an estimated $1 billion to be paid to ten banks by the CCC to cover the $5 billion of Saddam’s defaulted loans.
“The $1 billion commitment, in the form of loan guarantees for the purchase of U.S. farm commodities, enabled Saddam to buy needed food on credit and to spend his scarce hard currency on the arms buildup that brought war to the Persian Gulf,” wrote author Russell S. Bowen.
Even after the Iraqi invasion began on August 2, Bush publicly appeared strangely noncommittal. Asked by reporters if he intended any intervention in the Gulf crisis, Bush said, “I’m not contemplating such action....”
His attitude apparently changed drastically that same day after meeting with British prime minister Margaret Thatcher, a regular attendee of Bilderberg meetings who had been implicated with Bush in both the Iran-Contra and October Surprise scandals.
After meeting with Thatcher, Bush began to describe Saddam as a “new Hitler” and said “the status quo is unacceptable and further expansion [by Iraq] would be even more unacceptable.”
Despite assurance from Saddam that Kuwait was his only objective and with no concrete evidence to the contrary, Bush nevertheless personally telephoned the leaders of Saudi Arabia and warned that they would be the next target of the “new Hitler.” Panicked, the Saudis handed over as much as $4 billion to Bush and other world leaders as secret payoffs to protect their kingdom, according to Sabah family member Sheik Fahd Mohammed al-Sabah, chairman of the Kuwait Investment Office.
Long after the Persian Gulf War, when audits found this money had been diverted into a London slush fund, anti-Sabah elements in Saudi Arabis criticized the payoff. They were told by al-Sabah, “That money was used to buy Kuwait’s liberation. It paid for political support in the West and among Arab leaders – support for Desert Storm, the international force we urgently needed.”
Whether this money played any role or not, Bush soon drew a “line in the sand” to block further Iraqi intrusion. It is interesting to note that this line was located between the Iraqi forces and oil interests owned by his son, soon-to-be Texas governor George W. Bush.
Bush, the president’s eldest son, was a $50,000-a-year “consultant” to and a board member of Harken Energy Corp. of Grand Prairie, Texas, near the home of the Texas Rangers baseball team of which the younger Bush was a managing general partner.
In January 1991, just days before Desert Storm was launched, Harken shocked the business world by announcing an oil-production agreement with the small island nation of Bahrain, a former British protectorate and a haven for international bankers just off the coast of Saudi Arabia in the Persian Gulf. Bahrain was listed among the top forty countries of the world with the highest per capita Gross Domestic Product in 1996.
Veteran oilmen wondered aloud how unknown Harken, with no previous drilling experience, obtained such a potentially lucrative deal. Furthermore, it was reported that “Harken’s investments in the area will be protected by a 1990 agreement Bahrain signed with the U.S. allowing American and ‘multi-national’ forces to set up permanent bases in that country.”
The younger Bush, in October 1990, told Houston Post reporter Peter Brewton that accusations that his father ordered troops to the area to protect Harken drilling rights were “a little