August 21, 2004

Money, Money, Money

Oil prices are now up over US$49 a barrel, sparked by fears that (a) the US puppet regime in Iraq cannot control the country, and/or (b) Iraqi insurgents are now increasingly likely to target oil exports.

The seige of Al-Sadr's forces around the Imam Ali mosque is seen as a major test of the new Allawi government. If Allawi cannot prove that his US-backed forces have control of Iraq, oil prices are not likely to come down anytime soon. Perhaps that's why there are some apparently premature rumours going around saying Iraqi Police have seized control of the mosque? (I sense the dark influence of John Negroponte here).

It's all about perception. If the media say all is well, investors do not panic and oil prices can cool down. So why not spread a few false rumours? By the time the public discovers the truth, things will have changed, right?

There are two problems here with this perception-based approach:

1. People - including investors - are losing faith in everything the media and Western governments tell them. When you lose your credibility, it's gone. If the markets cannot trust the data they receive, expect instability.

2. It's not just Al-Sadr, even though that is how the media portrays Iraq's problems at the moment. The insurgents have widespread support across Iraq and even internationally.

Adding to all this pressure on oil prices are the booming oil-reliant economies of China and India. Given that countries like the US and Australia have abandoned the Kyoto treaty on climate control, there appears to be little way for Bush, Howard and others to pressure these countries into seeking alternative fuel sources.

And speaking of money, three US senators are asking Donald Rumsfeld to explain what happened to US$8.8 BILLION in funds given to the Iraqi CPA, headed by Paul Bremer.

Christian Aid are still asking what happened to the $US 20 BILLION generated by Iraqi oil revenues under the CPA's stewardship.

Meanwhile, back on the election trail, a new poll says war has overtaken the economy as US voters' main concern. Given all the stories above, what's the difference?

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