Australia's lop-sided economy: Given the jobless, growthless doldrums affecting most of the world's economies, does it pay to rev up your economy and employment rolls with the engine of natural resources, as long as you are careful to avoid the dreaded resource curse? As it happens, this experiment -- being pushed by loud voices in the United States -- has been under incubation for several years in Australia, the leading producer of coal, iron ore and (in coming years) liquefied natural gas for booming Asia. As I write this week at EnergyWire, this raw materials juggernaut has resulted in a 51 percent Australian economic expansion over the last two years alone. And the plans are to go even bigger. The country plans a 20 percent, $23 billion expansion in coal production, adding some 75 million tons a year to the current production of some 350 million tons. On top of that, mining companies have proposed $46 billion in added coal projects that would more than triple current production to some 1,100 million tons.

As one might suspect, there are some problems with these numbers. First, the raw materials boom has not led to economic nirvana for Australia. According to the country's Bureau of Statistics, mining has added 103,000 jobs to the Australian economy over the last four years, but almost an identical number -- 97,200 jobs -- has been lost in manufacturing. Almost all the mining jobs have come in just two provinces -- Queensland and Western Australia. The rest of the country has largely stagnated. Meanwhile, Australians have turned profligate. As the boom has built, Australians have gone into debt -- last year, they owed an average of 156 percent of their disposable household income, more than triple their 49 percent debt load in 1991. "The amount of jobs being generated in the mining sector is really not that many compared with the lost tourism service jobs, the manufacturing jobs," Neil Bristow, managing director of H&W Worldwide Consulting," told me. "The commodities are bringing in significant money to the economy, but it's only very much in part of the economy."

And what about the coal projections themselves? Are they reasonable? Perhaps not, suggests Nikki Williams, CEO of the Australian Coal Association. "Australia has little or no chance of actually delivering growth of this magnitude," Williams told me in an email exchange. "Limitations to our access to capital, human resources and the capacity of our project approvals systems are just some constraining factors." And the projections of Australia's surge as an LNG exporter -- plans to become the world's largest LNG producer, and build from there? Joshua Meltzer, a former Australian diplomat and now a senior fellow at the Brookings Institution, says the scale of LNG production will be "fairly ground-breaking." Yet experts tell me that there simply is insufficient capital, equipment and manpower to manage everything on the drawing boards.

This is part of the point in evaluating the robust projections of oil and gas abundance we are hearing around the world. Paraphrasing Williams, will there be the capital, the people and the pure capacity to actually carry out the projects, presuming that all or most pass muster with the public and government agencies? The answer is most probably no.

Go to the Jump for the rest of the Wrap.

Read on

Sudan has declared war on South Sudan, India has fired a long-range missile, yet oil and gasoline prices are down.What is going on?

Common sense has come over our much-scorned oil trader friends in New York and London.

For months, there has been a global surplus in oil and gasoline, which should mean lower prices than we have seen. Yet, because of geopolitical tension such as the trouble between Iran and the rest of the world, prices have not dropped -- until now.

Oil prices are down again today, a declining trend that seems genuine when you get no bump-up despite official war between two modest oil-producers, and a missile test by a nuclear power with menace toward China.

The turn began two weeks ago with a sharp withdrawal from the futures market by hedge fund and investment bank traders, writes the Wall Street Journal's Konstanin Rozhnov. Venezuela is unhappy about the supply bulge, which has been assisted by growing volumes from Libya and Saudi Arabia. But, short of outright war involving Iran, prices look like they will continue to moderate.

I exchanged emails with Nick Butler, a former top lieutenant to John Browne at BP and now chairman of King's Policy Institute at King's College London. In an op-ed at the Financial Times, Butler forecast a plunge in oil prices, and I asked whether he thinks U.K.-traded Brent crude -- currently trading at over $117 a barrel -- will fall as far as the $80s-per-barrel range. "Who knows?" he replied. "I think [prices] will overshoot going down, and then stabilize back at $95 to $100.  But that is probably too rational." Butler does not think, like some of us, that pure good sense has conquered the market for now.

Read on

A coming U.S. renaissance -- and an oil price crash: Citibank's Ed Morse unloads a monster, 92-page report forecasting no less than a new American Industrial Revolution. This economic resurgence is carried on the back of low natural gas prices as far as the eye can see (pictured above, hydraulic fracturing in Pennsylvania), in addition to a shale-oil, oil-sands, deepwater-oil boom that makes the U.S. "the new Middle East." In line with other top analysts, notably Deutsche Bank, Morse forecasts a tight global market in the next few years, notwithstanding the U.S. abundance, with the suggestion that prices will be high as well. But nirvana will arrive by the end of the decade with the convergence of U.S. oil abundance and a burst of production from west and east Africa, the Gulf of Mexico, India and the Caspian Sea. By the 2020s, we will see maximum oil prices of $85 a barrel, Morse writes in a teaser at the Wall Street Journal. There are of course potential geopolitical consequences, Morse writes:

It is unclear what the political consequences of this might be in terms of American attitudes to continuing to play the various roles adopted since World War II -- guarantor of supply lanes globally, protector of main producer countries in the Middle East and elsewhere. A U.S. economy that is less vulnerable to oil disruptions, less dependent on oil imports and supportive of a stronger currency will inevitably play a central role globally. But with such a turnaround in its energy dependence, it is questionable how arduously the U.S. government might want to play those traditional roles.

I have noted previously that some of us are suffering whiplash since just a few months ago the conventional wisdom was energy scarcity. One is inclined toward caution regarding the new narrative of abundance, such as we see in the lead story today in the New York Times, where Clifford Krauss and Eric Lipton depict a future of "independence from foreign energy sources." Morse, the dean of oil analysts, must be taken seriously. Yet the forecast oil bonanza is still largely on paper -- the crude is not pumping through the country's petro-arteries. What if oil prices drop? Will the economics still support the type of drilling described? I urge continued and watchful caution.

Go to the Jump for more on the energy boom and the rest of the Wrap.

Read on

The Obama Administration discounts concern that oil sanctions on Iran have ironically succeeded too well, and risk pushing the global economy into recession, say people familiar with the administration's thinking. Against worries that the sanctions have gone too far, too fast -- removing too much Iranian oil from the global market -- the Administration intends to continue trying to choke off Tehran's oil revenue, with the hope of forestalling its nuclear development.

The Administration is pursuing two conflicting containment goals: to halt Iran's acquisition of nuclear weapons, and cap surging oil prices during an election year. Its bet is that it does not have to ease up on the former in order to achieve the latter.

The U.S. Treasury Department has clamped on banking restrictions punishing institutions that facilitate payment for Iranian crude, and U.S. officials have traveled around the world to persuade importing nations to buy less Iranian oil. The European Union meanwhile has decided to halt all Iranian oil imports by July 1. Analysts think that these dual tracks have worked so well that it is as though we are already at July 1 (pictured above, gasoline prices in Los Angeles three days ago).

Read on

Oil prices are going through the roof. As usual, we have actors tamping them down, and others pushing them up. All of it links with Iran, meaning there is no visible terminus.

On the tamping-down team, Saudi Arabia has raised exports to 9 million barrels a day -- a 1.5 million-barrel-a-day hike -- to help curb an Iran-driven panic that has kept prices well over $100 a barrel, write Reuters' Jeff Mason and Matthew Robinson. U.S. Treasury Secretary Tim Geithner says the Obama Administration is keeping open the option of providing a jolt of oil to the U.S. market through the Strategic Petroleum Reserve, as it did last year during the Libyan oil crisis. And the U.S. military is putting plans into motion to secure the Strait of Hormuz -- the channel for some 17 percent of the world's daily oil supply -- according to the Wall Street Journal's Adam Entous and Julian Barnes.

Ordinarily, the Saudi move should help. That it hasn't suggests the virulence of the virus it is attacking. Injections of strategic reserves should have little if any impact, since oil prices react to the ability to produce from newly available oil wells -- so-called spare capacity -- and not to sell already-produced oil whose existence is long recognized by the market. As for military preparedness -- that could play a role in the event the Strait is actually closed, but otherwise is no more than grist for barroom discussion.

Meanwhile, the market is putty to the provocateurs, among whose culprits we include the ratcheting up of a Western-led campaign to choke off Iran's oil export earnings, which were $100 billion last year; Iran's own politically minded bellicosity less than a week before hard-fought March 2 parliamentary elections; and general edginess linked to the Arab Spring.

Read on

Osama, Obama and Uzbekistan [This item has been updated with an interview Saturday with a senior Obama Administration official]: The Obama Administration, concerned about extreme tension with Pakistan since the May killing of Osama bin Ladin, has significantly shifted military supply lines for Afghanistan to Central Asia, say people with knowledge of the move. A senior Administration official tells me that just half of Afghan-bound U.S. military cargo now moves through Pakistan, down from 80 percent, with the other half now moving through Central Asia. But critics are assailing what they say is the result -- that the U.S. is cozying up to Uzbekistan, whose ruler, President Islam Karimov, has a long record of brutality.

The backdrop is that the Bin Ladin killing so embarrassed the Pakistani military, and shook up the Pakistan political edifice, that the already-troubled U.S.-Pakistani relationship became overtly bellicose. Given the risk that Pakistan could abruptly restrict or sever U.S. military supply lines, the U.S. acted to build up an existing alternative route north of Afghanistan called the Northern Distribution Network, people with knowledge of the move told me. U.S. officials have been holding intense meetings with officials across the oil-rich region in order to gain approval for increased traffic, including in Russia, Azerbaijan, Kazakhstan and Uzbekistan.

Uzbekistan actually borders Afghanistan, and has the best direct rail system right into the country. And it is the Uzbekistan discussions that have provoked criticism. Since 2004, U.S. aid to the country has been restricted because of its human rights abuses including summary imprisonments, torture and murder in prison. In 2005, Uzbek troops mowed down civilians in what is known as the Andijan Massacre.

New York-based Human Rights Watch has sent emails and issued statements highlighting an administration lobbying effort in Congress to loosen the aid restrictions. Providing aid in pursuit of the cargo buildup amounts to an attempt to "bribe the Uzbeks into greater cooperation on NDN," the activist group asserts.

The senior U.S. official, who asked not to be identified, argued that the U.S. is not bribing the Uzbeks, but "seeking congressional support so small amounts of non-lethal assistance can be provided so Uzbekistan can defend itself against possible retribution from militants who might attack them for supporting NDN." This assistance includes items such as body armor, he said. Regarding Karimov's intolerance of opponents and critics, he said that the U.S. presses Uzbekistan to improve its human rights record and "we have acheived some progress."

This is not the first time that tradeoffs have been sought to obtain Uzbek approval for greater U.S. cargo shipments. In a Wikileaks cable dated Jan. 10, 2010, the U.S. Embassy in Uzbekistan pushed the State Department to work for a congressional waiver in order to deliver much-desired U.S. military equipment to the Uzbeks. The cable said:

As we prepare to ask for further enhancements to NDN, we must first demonstrate that we can deliver the goods in the military-technical area.  This will require ... a clear commitment to pursue the necessary engagement with Congress to facilitate the delivery to Uzbekistan of some sort of military equipment.  Follow-through in this area, together with high-level Washington engagement, is necessary to secure expanded Uzbek cooperation and support on Afghanistan and NDN.

Another cable, dated Feb. 10, 2010, said 8,000 U.S. military cargo containers had already passed through Uzbekistan on the way to Afghanistan since early 2009.

Go to the jump for more of the Wrap.

Read on

The apparently successful Libyan uprising leaves a tattered playbook for the petro-rulers of the Middle East, and forces leaders from the West and especially China to rethink anew their interactions with these stewards of the heart of the global economy. Having learned from early stages of the Arab Spring that conciliation does not guarantee their survival, the toughest of the region's dictators now grasp from Libya that they cannot presume that deadly action will throw off the rabble, either -- they must find a new formula for sticking around. As for politically blithe China, it cannot assume that agnosticism is its best strategy for resource security -- it, too, must recalculate, and probably take an unaccustomed political position rather than straddle the fence.

The self-immolation of Tunisian fruit-seller Muhammad Al Bouaziz in January ignited the repressed aspirations of millions in the region, leading to the important abdications of Tunisia's Zine El Abidine Ben Ali and Egypt's Hosni Mubarak. But it was the Libyan rebellion in February that raised the specter of flaming oilfields in the nations that truly count in the global economy -- the oil-soaked monarchies of Saudi Arabia, Kuwait and Qatar. The price of oil surged (more on this matter below).

More important as far as the rulers were concerned, they seemed secure, but they could not be certain, and the biggest of them all -- the al-Saud family of Saudi Arabia paid out $129 billion to its people in various allowances as a cost of retaining power. Its neighbors did similarly. For the decades to come -- as long as these rulers remain in power -- they will go everywhere with the albatross of al Bouaziz hanging on their necks. Yemeni leader Ali Abdullah Saleh remains in Saudi Arabia, which has been nursing him back to health after he was badly injured in a palace explosion two months ago, but is it in King Abdullah's interest to allow Saleh to return home? Probably not -- if rehabilitation was previously in the cards, today's Tripoli events probably spell the end of Saleh's hopes.

As for outside powers, Western leaders anticipated today's events in Tripoli by demanding the resignation of Syrian leader Bashar al-Assad (who so far has responded by pushing ahead with the bloody end of the two options open to these rulers in the traditional Dictators Playbook).  The dancing in Tripoli tells the United States and the European Union that NATO bombing was the right thing to do, and that they must continue to be proactive or lose the Arab street.

Read on

Kremlin Contest: Who will be Russia's next president? Dmitry Medvedev, Vladimir Putin, or a surprising candidate? Put your conjecture to the test in the Kremlin Contest. It's dead easy -- tell me who will be president, who will be prime minister, and what date Putin will make his choice clear. This is a wagering contest - you must bet a small, non-cash item that, should you lose, you can mail to the winner (so far, glasses of alcohol drinks are favorites though no one has said how they will be mailed). The deadline is Sept. 1. Email me from the About this Blog box on the right on the site, or tweet at @stevelevine.

Worms, energy and war: If one ponders the biggest energy stories of the last couple of years, big accidents come to mind -- the BP oil spill in the Gulf of Mexico, the Fukushima nuclear reactor meltdown. But the one that gets overlooked, because most people regard it as a security matter, is Stuxnet -- the attempt by highly sophisticated hackers to seriously hobble Iran's nuclear weapons development program through the use of a diabolical computer worm. The hack had serious though apparently temporary impact, discombobulating hundreds of Iranian centrifuges. Stuxnet overlaps into energy by association -- Iran claims all it is doing is building a nuclear energy industry, while much of the rest of the world thinks that's naked subterfuge. If and when cyberwar becomes more common and dangerous, energy infrastructure will be serious targets, since they are among society's most sensitive nerve centers. In Wired this month, Kim Zetter deconstructs how Stuxnet was deciphered by ingenious cyber detectives. It is must reading.

Oil prices and optimism: There is the joke about the pummeled boxer who, asked by a neighbor how the fight went, replies: I got them best of him -- I hit him in the fist five times with my face. So goes the International Energy Agency's battle with oil traders. Over the last three weeks, traders have battered, spit, stomped and cackled at the IEA and the United States, which surprised them June 23 by announcing the release of 60 million barrels of light crude into the market from their strategic petroleum reserves. The idea was to shock and awe by making traders uncertain that their bets would prove good -- how could they be if IEA members might abruptly put more oil on the market? Nice idea, and it worked at first -- oil prices plunged to about $90 a barrel. But then traders brushed off their trousers and skirts, and piled back in with the implicit taunt: How often are you prepared to tussle with us and with what volume? It was a good bet, because while traders might be wrong-footed here and there, the IEA will not intervene with much frequency -- these are strategic reserves after all, and we are experiencing not Armageddon, but only annoyingly high oil prices. Since then, traders have pushed prices back through the pre-release price into the upper $90s a barrel, daring the IEA to attempt to outgame them again. Yet, like the proverbial boxer, the IEA may not be satisfied with its current bruises. The agency will decide next week whether to intervene again, the IEA's David Fyfe tells the Financial Times' David Blair.

Read on

The Kremlin Contest: Perusing the first week of entries in our friendly, low-risk wagering contest for who will be Russia's next president, I've discovered that I am not alone: Many conclude that Vladimir Putin will step aside and permit Dmitry Medvedev to remain Russia's president. But where are the Putin bettors -- the multitudes who are sure that Putin will return to the Kremlin in elections next year? Get your bets in: You must name who will be president, who will be prime minister, and the date on which Putin will disclose his choice. You must also name your small, non-cash wager (one contestant has wagered a shot glass; I have wagered a glass of Rioja). Remember that, if you lose, you must mail your wager directly to the winner. You can use the email link in the "About this Blog" box on the right, or my twitter address: @stevelevine. The deadline is Sept. 1.

When oil is next door: On paper, the gasoline-guzzling United States has no oil scarcity problem. To the south, Venezuela has 211 billion barrels of oil reserves, second only to Saudi Arabia. To the north, Canada's Alberta province possesses a conservative estimate of 175 billion barrels of oil. At home, there are the newly prolific volumes of the Bakken and Eagle Ford oil shales, and new plays in the Gulf of Mexico. So why do Americans fret about the supposed peaking of oil? Because of geopolitical, environmental and self-imposed impediments that keep these enormous volumes at arm's length.

Alberta  is the piece of this picture that's on my mind today. Chip Cummins and Edward Welsch weigh in with a long, page-one piece in the Wall Street Journal on the province's long, grueling campaign to persuade its southern neighbor -- the United States -- to accept a near doubling of current oil exports to 1.1 million barrels a day, and more down the road. The hang-up is that the crude comes from oil sands (pictured above), which get a lot of Americans riled up because of the pollution created during production and refining.

The worries about oil sands have led Alberta and the companies working there to try to make the sands more environmentally acceptable. For instance, unlike shale gas drillers in the United States, who all-but refuse to police themselves and go transparent, Alberta has adopted a pro-active carbon offset program. They say that, all in all, oil sands are now no more polluting than almost any other form of oil drilling.

Over at Time, Tara Thean asks validly whether new doubt is cast on Alberta's plans to pipe more oil to the United States because of a fresh oil spill from an ExxonMobil pipeline in the Yellowstone River. Alberta will have to respond. But if it does -- which one imagines it will -- U.S. environmentalists ought to reconsider their opposition to this expanded oil flow. Hydrocarbon developers have little incentive to repent if environmentalists demonstrate no capacity for compromise.

Read on for more of the Wrap

Read on

Oil prices have fallen again today, and among the victims of a U.S.-led intervention in the market are OPEC and oil speculators. But will they be for long? The answer is probably no.

As a reminder, a multinational cast of co-conspirators has opened the spillgates of their strategic petroleum reserves, adding 60 million barrels of oil onto the world market. The reason is economic: Oil prices were already declining, but the consensus is that they would have increased substantially toward the end of the year, with no end in sight, because of Chinese oil demand and constrained supplies, hence complicating the sluggish global economic recovery. Nobuo Tanaka, head of the International Energy Agency, which along with the United States coordinated the intervention with China, India, and Saudi Arabia, along with Japan, Germany, South Korea, and others, said the extra oil is intended to tide over the market until a planned Saudi increase in oil production takes effect.

Yet, as we've discussed, what we'll probably see in response to the intervention -- once traders get up from the mat and dust off their britches -- is a case of brinkmanship. Traders will redouble their bets in the futures casino, gambling correctly that neither the Obama administration nor other members of the Energy Information Agency will have the stomach to continue for long emptying out their reserves onto the market.

This is a wily market. Already U.S. regulators are investigating the possibility that some traders caught wind of the move before it happened and perhaps unlawfully profited, writes Jerry Dicolo at the Wall Street Journal.

A lot of observers have been impressed with the U.S. move. The New York Times, for instance, editorializes that it could provide a boost for the U.S. economy. At the Financial Times, James Macintosh writes that it's meant as a new global economic kick-start since the U.S. Federal Reserve's latest $600 billion pump-primer, known as "QE2" -- or a massive purchase of Treasury bonds whose impact is to lubricate the weak economy -- ends Thursday. And oil analyst Peter Beutel said the move "could work" in terms of helping the economy.

But at Deutsche Bank, oil analyst Paul Sankey said the United States has effectively injected itself into the equation as another speculator, and the result will not be as intended. "Every oil market comment from the White House will [now] become a market-moving event," Sankey writes in a note to clients. "In short, this move has added to oil markets' fear of volatility.

Oil analyst Stephen Schork told Bloomberg that the move will backfire and in fact convince traders that there is something very wrong in the market, which will be reason for them to push prices back up.

One big point is that it's highly unlikely that anyone is going to buy much of the offered-up barrels either from the SPRs or the Saudis, as David Bird and Ben Lefebvre write at the WSJ -- the market is satiated, and stockpiles overflowing. Instead, both the U.S.-led and Saudi interventions are more symbolic gestures -- a message to underscore the point, even for the hardheaded traders, that the market is fully supplied and that there is no reason for them to keep pushing up prices.

But in the end, traders will push up prices. Look for such a move toward the end of the year or the beginning of 2012.

I am adjusting to the knowledge that Shell has left one of its most valuable oilfields vulnerable to enterprising fellows with hacksaws. That's right folks: Shell has declared force majeure on its Nigerian Bonny oilfield, where it produces more than 200,000 barrels of exceptionally valuable light crude a day, because one or more guys with hacksaws went at the line in order to drain off oil for the black market. The loss of Bonny light is among the factors that are currently roiling the global market for Brent crude.

All this time, I had thought that fighting, sabotage and relatively sophisticated theft was responsible for outages in this Niger Delta field, which was producing 500,000 barrels a day until 2005. But that turns out to be terribly naïve.

Are there no pipelines invulnerable to hacksaws? I decided to investigate. As it happens, pipelines are not so formidable, especially if you are in possession of a handy-dandy portable model manufactured by CS Unitec. According to promotional material, the Unitec "will cut 24-inch diameter pipe at 90 degrees in one pass." A single pass! Easy to get away, it would. And, according to this equally handy map available on the Internet, part of the Shell pipeline is precisely 24" in diameter! The ad goes on:

It is ideal for on-site cutting of pipes, tanks, structural steel and many other materials. The hacksaw's compact, lightweight (16 lbs.) design makes it easy to handle and operate, even in confined spaces. With a 1.5 HP air motor, it has the strength and features demanded for tough environments in chemical plants, refineries, power generation, offshore oil, pipeline construction, mining and marine."

Is the Unitec not tailor made for Bonny light (potential target pictured above)? And at just $3,995, it has hydraulic, pneumatic and electric versions.

Enough on the trouble in Nigeria. Elsewhere, we are hearing everything on the global oil spectrum from dire forecasts of calamity including oil-driven confrontation between the West and China, to predictions of a possible price decline into the mid-$80-a-barrel range, made by analyst Phil Flynn of PFG Best. Read on to the jump for more on prices.

Read on

Russian election clues?   A couple of weeks ago, I ventured a bet that, contrary to the conventional wisdom, Russian President Dmitry Medvedev will run and win re-election in next year's elections; his mentor, Prime Minister Vladimir Putin, will opt to keep his protégé in place, I wrote. While for a variety of reasons I still think that is the case, it's understandable why many think otherwise: Putin is throwing up a lot of conflicting signals. Take his decision to eradicate much-hated and bribe-laden car inspections for the remainder of the year, worth up to $300, writes Will Englund at the Washington Post. And what about Putin's announcement of a $285 billion program to rebuild Russia's ramshackle roads, another bane of the country (that's Moscow traffic pictured above)? Is Putin announcing such programs from a simple sense of good governance? According to Robert Coalson of RFE-RL, the way Russia's strongman is presiding over the affairs of the ruling United Russia party, he is sending "the strongest signals yet that he intends to return to the presidency in 2012."

This is entertaining -- and convincing -- to be sure. But that's the point. Putin doesn't need to convince anyone -- all of Russia and the rest of the world know that the job of president is his for the taking. So why the show? Because he wants the accolades, the hero-worship, the pleading crowds and so on, but while pushing matters to the brink, in the end he will, for the good of the nation of course, step aside (technically, that is) and maintain the status quo. The system works the way it is. Ask yourself this question: why in the last month (as the Moscow Times rounds up in an editorial) have the killers of Stanislav Markelov been imprisoned; has imprisoned oligarch Mikhail Khodorkovsky, while not released, been permitted a fair hearing on state-run NTV television while announcing a decision to appeal; and has the alleged triggerman of murdered journalist Anna Politkovskaya been captured and charged? Is it because Medvedev is acting against Putin's wishes?

This is where it's possible to lose one's way. What seems dissonant in the tandem in fact isn't. It happens because Putin wants the balance that Medvedev provides. Not incidentally, Medvedev is content with this state of affairs as well. One way to understand Medvedev is as simply another expression of Putin -- that is, even if Putin stepped completely out of the picture, Medvedev would not turn Russia into bastion of liberalness. Rather, when Medvedev's Russia undoes some of the injustices in the country, "what might appear to be the dismantling of Putin's legacy is not a dismantling at all," the Moscow Times editorial board writes. It said:

Khodorkovsky, even if given parole for good behavior, will not be acquitted. Investigators might have found Politkovskaya's killer, but we are unlikely to ever know who ordered the murder. Ultra-nationalism is still not being fought outside the courtroom. And thousands of other murky cases -- such as the death of lawyer Sergei Magnitsky or the beating of Kommersant reporter Oleg Kashin -- have not been properly investigated. Most important, the power vertical, along with its creator, is as strong as ever. Medvedev may stay in the Kremlin without tackling these issues. But if a handful of high-profile cases is all that he has to offer in terms of political reforms, his second term in office will differ little from Putin's policy of status quo. A second Medvedev term might then be best described as 'modernized stagnation.'

Read on

Our list of factors affecting oil and gas prices already includes war, kidnapping, supply and demand, hurricanes, pipeline explosions and threats to tyrants. Add sexual assault.

Dominique Strauss-Kahn's arrest for allegedly assaulting a maid at the Sofitel in Manhattan is causing havoc not just in oil markets -- gold, currencies, and Asian stocks are all in a kerfuffle. Oil dropped below $98 a barrel; gold fell by $3 an ounce, and silver declined, too; the Euro plunged to a seven-week low against the dollar.

The stated reason is that the 62-year-old chief of the International Monetary Fund was supposed to swoop into Brussels today and tomorrow and help figure out how debt-laden European countries might get bailed out before seriously injuring the economies of the European Union. But why should that be the case since Strauss-Kahn's superlatively able deputy, John Lipsky -- who also has been named as the IMF's interim chief after the arrest -- has stepped in to the breach?

Is this a normal reaction? Out of curiosity, I Googled "sex scandal shakes market." There were 1,220,000 hits, including accusations against lifeguards in Florida ("Sex Scandal Shakes Volusia Beach Patrol"); a 1976 scandal involving then-Rep. Wayne Hays and a long-forgotten clerk named Elizabeth Ray ("Sex Scandal Shakes up Washington"); a sex tape that rattled Turkish politics ("Sex Scandal Shake-Up Reinvigorates Turkish Opposition Party"); and a two-decade-long controversy involving an Indian dessert shop ("Ice Cream Parlour Sex Scandal Returns To Shake Kerala Govt").

This unscientific survey turned up no immediately noticeable direct link between sexual assault and the markets. I was certain that the Monica Lewinsky case must have rattled markets in the mid-1990s -- and readers may recall better than I -- but had no luck with that specific search, either.

Curiosity aside, the Strauss-Kahn case is a wake-up call for those who do not yet realize that we are in a highly jittery moment, and perhaps on the edge of a new global economic dip. Read this piece by John Authers at the Financial Times.

Speculation: how oil prices (often) happen in the real world  Over the last couple of days, there has been a bloodbath in the oil market -- a "flash crash" as they call it. Today, prices are dropping further. What is going on? Well, the traders in the casino whom we've been discussing the last several months are taking their winnings off the table in a seriously panicked way and stampeding out the door. Oil is now in the mid-$90-a-barrel range. If this keeps up, gasoline will fall back from $4 a gallon here in the United States.

I raise this because of the news, but also because elsewhere we are seeing pushback from those who argue -- as similar individuals did the last time we had a price runup, in 2008 -- that not trading (speculation) but supply and demand are the motive drivers of oil prices. These folks' refrain goes like this: "People who say traders are behind the whole runup in oil prices are wrong wrong wrong, besides being paranoid and conspiratorial."

What's the problem with this argument? Nothing on its face -- after all, how can any one single factor be responsible in every case of a particular outcome? The law of averages tells you the dice won't come up sevens every time. But when you look underneath it, it falls apart. Why? Because its formulation is faulty. Speculation isn't always responsible for price swings. But often it is.

Back in 2008 -- and now -- a debate raged over steep increases in oil prices. Traders from Goldman Sachs and elsewhere, along with many observers, asserted that this was all about supply and demand (actually they use the code word "fundamentals"): There in fact were traders buying and selling cargoes and futures, but they had no or little ultimate impact because (gobbledygook alert!) "for every buyer, there is a seller," and "futures prices cannot be persistently high without the support of physical fundamentals." On the other side of the debate were lots of screamers using epithets against speculators (spit, spit), in addition to ordinary commodities analysts and reporters who simply watched the action before them, compared that with the movement of prices, and made their own assessment: Psychology drives the price of oil futures up, and down. Traders are aware at all times of supply and demand, but it is what they expect next that propels their trading, and hence prices of futures. After that, their decisions converge directly with what buyers pay in the physical (spot) market.

Again, let's use a betting metaphor. A group of men and women are sitting in a casino playing poker.  The pot grows larger as each player discards and picks up new cards, betting in rounds along the way. The question: What is causing the pot to grow? The bettors or the cards in their hands?

The first crowd -- the traders and absolutists -- will say it's the cards (the fundamentals): no cards, no bets. The second crowd will say, sure there are the cards -- no one would bet without their presence; but in the end, it is the bettors whose hubris, knowledge of their own cards, guesswork about others' cards, susceptibility to bluffing, and experience in the game drives how much they do or don't put on the table, and thus how large the pot grows.

Listen to Frank Cholly of Lind-Woldock, speaking after yesterday's selloff with the Wall Street Journal: "It's a mass liquidation. I think it's just hedge funds got scared and everyone's running for the door right now. It just seems to be contagion." Now listen to Douglas Hepworth of Gresham Investment Management, who spoke with the Financial Times:  "You want to be the first one out the door because the trip down can be even faster than the trip up."

Finally, watch this video featuring Liam Denning of the Journal, and Oppenheimer's Fadel Gheit, the dean of Wall Street oil analysts. Then look me in the eye and tell me traders and their day-by-day speculation are not singular and dominant factors in the oil price.

As for the morality of all this, are speculators bad people? No. Should they have to pay more to bet in the casino? Yes. Would that higher fee-per-bet cause a catastrophe to "the liquidity of the market," as the gobbledygook purveyors will argue? No.

Read on