The Problem with North Korea

North Korea has reached the point where they think that just to threaten to attack Guam will change the direction of US policy and get the US to apologize and perhaps end the embargo. At the same time the NK’s are saying how foolish the US is proceed on the course it is. This is a paradox, the North in the first place is expecting a rational reaction (appeasement) while saying how foolish the US is, which recognizes what the NK’s consider irrational behavior.

All the while North Korea is painting itself into a corner where you go so far with threat that even if you don’t mean it you have to do it to maintain credibility. At that point, attacking Guam, the NK’s have to wonder, will the US retaliate with conventional or nuclear weapons?

As for solving the Gordian knot, that is China’s problem. If they hadn’t supported NK in the Korean War, there wouldn’t be any NK today. And ever since the Korean War, China has used NK as a proxy to goad the US into spending it’s treasure while the Chinese just sat back and built up their treasure. It is a very old principle of how to bleed your enemy into losing without a shout being fired.

An important question for China is, will the NK’s turn on them? Russia is cozying up to NK now and undermining Chinese influence, which the Chinese cannot like. They would have Russia to the north of China and a Russian client state to the south with NK. China is very sensitive about their borders.

What can China do? A “shock and awe” attack on NK – they have been building up troops on the China/NK border – and eliminate the NK state. Then to buy goodwill with the international community, China lets the Koreas unify with the understanding that above the 38th parallel. Korea would be a de-militarized zone except for the equivalent of a “national guard” for civil order, rescue and humanitarian services.

The Chinese have to be mindful of any radioactive fallout, with prevailing winds, would blow from NK right into the heart of China. For America, that would be, in diplomatic speak, “oops”. But karma is like that

Iran, Sanctions and the Global Economy

Now that Iran can return to the global economy and sell oil openly, I see one of three things happening

1) Oil prices will collapse beyond the short term (they will collapse in the short-term regardless)

2) Oil prices will stay down but the global economy will improve with all the money Iran has to spend

3) The global economy will improve and oil prices will go back up from additional consumption

Iran is going to be on a buying binge but some of it will not be reflected in the global economy improving in the short term of 1 to 3 years because Iran has to boot strap itself back up. There is a lot of infrastructure that needs work and people trained. Even the potential sale of planes from Airbus will take time to realize. It could be Iran buys a lot of stuff now and it just sits. The Iranian hardliners are going to insist on a lot of new “toys” for the nuclear deal and that will cut into improving the economy and standard of living.

There is also the geopolitical conflicts Iran participates in like those of Yemen, Syria and Lebanon. Iran has yet to renounce the destruction of Israel and sanctions are still in place for military equipment and the ballistic missile program. If Iran keeps picking fights with Saudi Arabia, the Saudi’s will go ahead and acquire nuclear weapons from Pakistan, a program the Saudi’s paid for. 

Iran is still a long ways from being stable or a reliable place to do business

There is an additional feature to the end of Iranian sanctions – the demise of Russian oil and gas sales. Western Europe wants to get away from Russian supplies as Russia is even more willing then OPEC to use oil and gas supplies as a political weapon. Although Russia like to think it’s more then a one-trick pony, it isn’t and the second collapse of the Russian economy – and government – may only be weeks or months away. 

Worried about sub-$20 crude? Some sellers are already there

The Iranians well and truly played the Russians and Putin. China, as Russia’s only market that wants them, now owns Putin. Putin will desperately need a deal with the West to get sanctions lifted as soon as possible or he will be looking for a new job.

Russian ruble drops to a new low, battered by weak oil prices

It could be considered something of a “backdoor” legacy for President Obama that this is happening. he was trying to wreck the U.S. oil industry to drive up prices to make electric cars more viable by ending access to to federal lands. Instead he created the rush to private land and the fracking boom that led to America to becoming virtually energy independent. And with the end to oil export embargo, pressure is being created on OPEC and “near-OPEC” countries, like Russia, to defend their market share.

OPEC and “near-OPEC” countries are in a bind. If they raise prices it opens the door to American producers and loss of market share for the 20 or so years that Brent LCOc1 and West Texas Intermediate (WTI) CLc1 would run wild or to keep prices down and suffer the effects to their economies. It might seem after that 20 years OPEC and “near-OPEC” countries would regain the power to control oil again, but that will be enough time for countries importing oil to make the shift to a renewable energy economy, perhaps even a fusion economy (if Lockheed can deliver), which would be a genuine revolution

The course of history hasn’t changed, but a page has been turned and the one-trick pony economies will fade into the background