This is the first stage in what could be a very lengthy process to sell our share in TNK-BP. It is far too early to say what we will do with the money. All we have done today is announce an intention to look further at expressions of interest in purchasing some or all of our stake in TNK-BP. It is not about Arctic or other businesses in Russia, current or future.
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I wouldn't say Canadians were complacent about the U.S. market. But what has given them a bit of a wakeup call was that the evidence seemed so compelling why the U.S. should buy more oil from Canada, but yet the decision was delayed. We are not naïve about the politics in the U.S., but when we see such a compelling case, and yet it is not approved, it has given people a start. We need to look at alternatives.
When it comes to gasoline, are Americans transforming from the world's chief gluttons to models of moderation? According to Philip Verleger, the energy economist, that is more or less the country's direction, with surprising consequences.
Verleger spells out this scenario in a note to clients, his version of the narrative of coming fossil-fuel abundance that we have heard elsewhere. Verleger's 11-page note is as oil-bullish as his most enthusiastic colleagues, who as a group say the U.S. is on the cusp of near energy independence. The oil-abundance narrative is a global one, and asserts flatly that peak oil theory is wrong.
Where Verleger diverges is in ascribing most of the responsibility for this U.S. oil boom not to more prolific oilfields, but to consumer efficiency. "[Gasoline] use will drop significantly by 2020 thanks to conservation, natural gas substitution and the ethanol mandate," Verleger told me in an email.
By 2022, 36 billion gallons of renewable fuels must be blended into gasoline, in line with a George W. Bush-era law. On top of that, President Obama has raised the bar for vehicular fuel efficiency to 54 miles per gallon, up from the current 30 miles a gallon. Plus long-haul truckers are making a shift to natural gas fuel, Reuters reports.
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How to incentivize bad behavior for the greater good: Last year, Mark Dubowitz, a Washington-based advocate of regime change in Iran, was mulling a conundrum with a colleague -- how to clamp painful oil sanctions on Tehran while harming no one else. They knew that members of both political parties opposed cutting off Iranian access to the global export market if it meant an oil-price surge. And that, since everyone thought a price spike was inevitable, nothing was consequently done as oil revenue continued to flow freely into Tehran. So Dubowitz and Reuel Marc Gerecht, his colleague at the Foundation for Defense of Democracies, looked for an improbable, sanitized cordoning of fiscal pain. That's when they hit an apparent brainstorm -- a simple form of game theory that they thought would work.
The game went like this: You divide players into the "white hats" and the "black hats." Global players likely to honor sanctions (the white hats) would be incentivized to do just that -- completely stop buying Iranian oil. But nothing would be done to discourage global players likely to ignore the sanctions from following those very dastardly instincts (the black hats, primarily China, but also India and perhaps another country or two). If everything worked right, Iran -- selling only to this latter, much narrower band of tough-bargaining buyers -- would wield much-diminished pricing leverage. It would consequently be forced to yield substantial discounts, putting great pressure on the regime's ability to finance itself.
In November, Dubowitz and Gerecht distributed the idea as a confidential, 32-page white paper to the White House and Congress, in addition to European capitals, titled "Oil Market Impact of Sanctions Against the Central Bank of Iran." Synthesizing the idea in an op-ed in the New York Times, the pair argued that to move Iran, one needed "to learn how to leverage greed." As Dubowitz told me over palak paneer and dal yesterday, "You give market power to the black hats and allow them to push down the price to earn money."
As we know, the current sanctions regime closely resembles the devilishly clever white paper -- you get obstinate forces and inveterate violators of norms to do what you want by appealing precisely to their baser instincts. Which made me wonder -- what other big problems might be solved using the same logic?
I drew up with a short list of names, along with possible vulnerabilities for use as leverage. How about you -- what problematic situation could you see shaken up?
Go to the Jump for the suggested list, and the rest of the Wrap
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Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.