Resource Insights

Why most economists vastly underestimate the economic damage of the Iran conflict

noreply@blogger.com (Kurt Cobb) — Sun, 12 Apr 2026 12:19:00 +0000

A priest, an engineer and an economist are stranded on a desert island. The first order of business is to get some food. The priest suggests that they all pray. The practical-minded engineer suggests that the three men make a net to catch some fish. But where will they find the necessary materials? The priest and the engineer turn to the economist and ask him if he has any ideas. The economist replies, "Assume a fish."

This well-worn economist joke summarizes one of the chief flaws in contemporary economic theory. That theory almost completely ignores the role of physical resources, assuming they will always be available in the quantities we need at prices we can afford at the time we need them. When those resources aren't available, that theory begrudgingly accepts that there will be some damage to economic activity, but tends to greatly underestimate the impact. This conceptual flaw explains why economists in most financial institutions and governments and thus investors are not especially alarmed at the loss of energy resources as stock market indices remain not too far from their recent highs.

For a good summary of how contemporary economic theory goes off the rails, Australian economist Steve Keen offers a mercifully brief and comprehensible explanation. Here I will relate one critical part of that explanation. About 5.7 percent of U.S. GDP is devoted to procuring and distributing energy. Most economists will tell you that a 10 percent decline in energy availability would have a small effect on the U.S. economy. They would take the percentage of the economy devoted to energy, in this case 5.7 percent, and multiply it by 10 percent to arrive at a 0.57 percent reduction in economic activity.

This conclusion is utter nonsense and not even close to what the effects would be. The reason is that energy is the master resource. It cannot be treated like other resources. Energy is the resource which makes all other resources available. Nothing gets done without energy. The correlation between economic activity and energy use is 0.9 (where 1.0 represents a perfect correlation). This should come as no surprise. When the economy is growing, energy use grows with it as energy fuels the economic activity that pushes growth.

What this implies is that a 10 percent reduction in energy availability is much more likely to result in a decline in economic activity closer to 10 percent than to one-half percent. For comparison, the real GDP of the United States fell 4.3 percent during the Great Recession which lasted from the December 2007 through June 2009.

So, how much energy is currently being denied to the global economy by the closure of the Strait of Hormuz? No one knows for certain. We do know that liquefied natural gas (LNG) exports from Qatar were previously transiting through the strait. And, close to 20 percent of the world's oil supply was also passing through the strait on a daily basis.

None of the Qatar's LNG exports are currently passing through the strait. Some estimates say 12 percent of the world's oil is now prevented from leaving the Persian Gulf (though a key pipeline in Saudi Arabia that sends oil to the Red Sea has now been damaged and may add to the total outage). Some oil cargoes from Iran have left the Persian Gulf, and Iraq may soon also send cargoes. Some oil is now being diverted via pipeline to ports other that those on the Persian Gulf. Those pipelines may be attacked as the war continues so the amount of oil previously exported via the Strait of Hormuz that is being diverted through them could decline.

Okay, here's some math to help you sort out what this all means:

1. Natural gas exports coming from Qatar are no longer being shipped. According to the U.S. Energy Information Administration in 2024 Qatar provided 3 percent of the world's natural gas primarily in the form of LNG. Since natural gas provides about 23.5 percent of the world's energy, by multiplying 3 percent by 23.5 percent, we arrive at a loss of 0.7 percent of the world's total energy. It doesn't seem like much except the effects are quite uneven. In the United States we fuel our economy with pipeline natural gas and send the extra abroad both via pipeline and LNG freighters. But 42 percent of Taiwan's electricity is generated using LNG imported primarily from the Persian Gulf. That's a huge hit. And, lack of electricity spells trouble for industry including the Taiwanese semiconductor industry which supplies much of the world. Of course, Taiwan will seek out other sources of LNG. But will the country be able to find LNG in sufficient quantities? LNG is usually delivered under long-term contracts and only a small fraction of it is available in what is called the spot market which isn't committed under long-term arrangements.

2. The situation with oil is much worse. Oil provides about 31.5 percent of total world energy. Losing 12 percent of it means that the world has lost about 3.8 percent of its energy supply. Again, it may not seem like much, but it is a commodity that has very broad and critical energy and non-energy uses in the economy, for example, as the basis for gasoline, diesel, heating oil and jet fuel; as a feedstock for many petrochemicals including plastics; and as a lubricant for countless machines and vehicles worldwide. That loss of oil availability has already had huge impacts—and has sent prices soaring because people and companies feel they cannot do without these oil products.

We must also keep in mind that the 12 percent estimate may be too small and that the loss is cumulative. Less oil is being delivered into the global economy every day the Strait is closed. As stored oil is depleted, the situation will get desperate and prices will move much higher. Again, effects are uneven. Countries which rely on imports and which aren't wealthy will suffer the most.

3. So let's put the loss of oil and natural gas together to arrive at a total loss of 4.5 percent of the world's energy supply. Since economic activity and energy are closely correlated at 0.9, we can multiply 4.5 percent by 0.9 to get about 4 percent of economic activity potentially subtracted from the world economy every day that the Strait of Hormuz remains closed. As mentioned above, the Great Recession caused a 4.3 percent drop in economic activity in the United States. So, it would appear that we are on track for consequences almost as severe as those of the Great Recession if this energy loss continues for much longer.

But this seriously understates the case. The Great Recession was primarily a financial crash. Though oil prices were high, there was no abrupt cutoff of supply to the market. Now, however, loss of energy and related chemical feedstocks is having many knock-on effects in the world economy. For example, rising costs for plastics will tend to curtail consumption of such products. Rising fuel costs will lead to more expensive air travel as airlines pass fuel costs on to passengers. That means there are likely to be fewer passengers as some choose to fly less often and others are simply priced out of the market altogether. And, that means further knock-on effects as fewer hotels rooms are booked and fewer rental cars rented. Rising diesel and fertilizer prices (nitrogen fertilizer is made primarily from natural gas) will mean higher crop production costs which are passed on to food processors and ultimately to consumers.

In addition to the squeeze on energy and non-energy products derived from oil and natural gas, about one-third of the world's helium (a co-product of natural gas reservoirs) is now unavailable. Helium is essential for the production of semiconductors. Manufacturers of semiconductors will have to pay much more for helium or curtail semiconductor production. If those manufacturers successfully purchase what they need, then other users such as hospitals (in MRI machines), university researchers, and welders (who use it as shielding gas to make strong welds) will have to go without.

In general, as consumers and businesses pull back on spending due to rising costs and economic uncertainty, demand for many products will fall and companies will be forced to cut back on production and ultimately on workers. As workers are laid off, this reduces overall demand more which can lead to a cascade of shrinking economic activity.

Even more danger lies ahead. If the war continues and threats on both sides to destroy oil and natural gas infrastructure are carried out in part or in whole, the world could be denied even more oil and natural gas—not just for duration of the war, but for years afterward since it would take years to rebuild this infrastructure. Some losses might be permanent for when underground reservoirs of oil and gas are closed in, they can be damaged for various reasons I won't go into here.

It is not easy for the economy to adjust to such a shock and the most likely outcome is a severe recession. Widespread destruction of oil and natural gas infrastructure in the Persian Gulf could quickly lead to a worldwide depression from which it would be difficult to emerge.

We cannot, as the joke above states, just "assume a fish" or, in this case, assume that oil and natural gas deliveries will resume soon at the levels we require at the time we need them to at prices we can afford. Rather, we are now obliged to take seriously the possibility that our energy-drenched lives will have to be curtailed in ways previously unthinkable. The risks of a fossil-fuel dependent economy that runs on a just-in-time basis have now become manifest and we have no choice but to adapt.

Kurt Cobb is a freelance writer and communications consultant who writes frequently about energy and environment. His work has appeared in The Christian Science Monitor, Resilience, Common Dreams, Naked Capitalism, Le Monde Diplomatique, Oilprice.com, OilVoice, TalkMarkets, Investing.com, Business Insider and many other places. He is the author of an oil-themed novel entitled Prelude and has a widely followed blog called Resource Insights. He can be contacted at kurtcobb2001@yahoo.com.

Martin Act to the rescue: Insider trading on Trump reversals in the legal crosshairs

noreply@blogger.com (Kurt Cobb) — Sun, 05 Apr 2026 11:41:00 +0000

Currently unknown investors netted tens of millions of dollars in profit by placing huge trades in the oil futures markets just 15 minutes before President Donald Trump announced he was extending the deadline for strikes on Iran's energy infrastructure by five days to allow for nonexistent "negotiations" (which then turned into an additional 10 days—which meant little since U.S. and Israeli bombing simply continued). Because these investors bet on a fall in oil prices, they made money when the price of oil dropped sharply after the announcement.

The same or other investors traded heavily in stock index futures before the Iran announcement and profited handsomely as stock futures soared. All these investors could end up in legal jeopardy for engaging in insider trading if they were somehow given a heads up about the announcement. Were their trades just coincidental to the announcement? It seems unlikely, but that's the big question an investigation would answer.

Those traders may have imagined that they would never have to answer for their conduct. The U.S. Department of Justice under any Trump-appointed attorney general won't investigate any matter involving possible illegal conduct linked to Trump. And, the traders may believe they would likely escape prosecution by a future administration as it struggles to investigate and bring charges before prosecutors run out of time. The statute of limitations—that is, the deadline for bringing charges in such matters at the federal level—is five years.

But those traders may have miscalculated. It turns out New York state has a powerful and effective tool for prosecuting securities fraud called the Martin Act. And, Letitia James, attorney general for New York state, has actually been on the case for months. (Yes, it's the same Letitia James who successfully sued Trump for fraud and who has been targeted through bogus unsuccessful indictments by the Justice Department.)

What a minute, you must be saying, how can it be possible for James to have been on the case for months when the suspicious trades took place a couple weeks ago? The answer is that James started investigating highly profitable impeccably timed trades linked to Trump announcements after Trump's reversal on tariffs last April. While there has been no information about whether these latest trading incidents will be included in the New York investigation, it's hard to imagine that investigators will just ignore them.

But how can New York state have jurisdiction? Isn't this a federal matter? First, states have securities fraud laws. Some laws are lax, but New York's Martin Act is expansive and powerful. Second, of those suspicious trades, the biggest trade in oil took place on the New York Mercantile Exchange. I'll bet you can guess where that's located. Actually, it turns out that all of the trades took place on exchanges that have offices in New York city. It seems the traders involved weren't thinking about the legal jurisdiction under which their trades would fall.

Perhaps the most powerful element of the Martin Act is that prosecutors do NOT need to prove intent. That is, they don't need to demonstrate what was going in the mind of the defendant. Federal securities fraud cases are much harder to make because intent must be established. In Martin Act prosecutions the prosecutor need only prove that the result was deceptive or fraudulent regardless of what was in the mind of the perpetrator.

Maybe you're wondering why anyone other than wealthy traders ought to be concerned with such matters, especially with a war raging in the Persian Gulf and a vital link to world energy exports, the Strait of Hormuz, closed thereby depriving global industrial society of a huge portion of its fossil fuel energy needs. My answer is that the ever increasing power of the rigged casino of international finance de-emphasizes the world of physical resources and production, the things which actually matter to our physical wealth and well-being. Instead, the wealthy make themselves richer by manipulating the symbols of wealth (stocks, bonds and other financial instruments such as futures contracts) while the material circumstances of the poor and middle classes are undermined with every passing day.

If there are no rules for the rich, only the rest of us, then everything in society becomes optimized for the rich including the fighting of expensive and, as it turns out for some, highly profitable wars regardless of the consequences for society as a whole.

Iran to Trump: If you destroy us, you destroy yourself

noreply@blogger.com (Kurt Cobb) — Sun, 29 Mar 2026 12:42:00 +0000

In the American streaming series "Bosch," the main character, a police detective named Harry Bosch, kills two bad guys in a plane who are trying to kill him. He then goes to the cockpit holding a pistol taken from one of the dead men. The pilot looks at him and says, "You kill me, you kill yourself." Bosch says, "I'm a f--king cop, asshole." The plane lands safely and the pilot is taken into custody.

In this analogy, President Trump is Harry Bosch; the pilot is the Supreme Leader of Iran, Mojtaba Khamenei; and the plane is the world economy. Khamenei can crash the plane, that is, kill the world economy by destroying the oil and gas infrastructure throughout the Persian Gulf so that it would take years to rebuild. Khamenei could go even further and destroy desalination plants in the following countries with noted dependencies on such plants for drinking water: Saudi Arabia (70%), Oman (86%), United Arab Emirates (42%), and Kuwait (90%). Doing this would make these countries largely uninhabitable. It's important to recognize that the Iranian military has demonstrated that it can hit precisely what it wants to hit with missiles and drones and destroy it.

Sticking with the Bosch analogy, it's still possible for Trump to let the plane land and save the world economy from complete destruction. The difference is that the pilot—in this analogy, Iran in the person of its Supreme Leader—must be allowed to go free and live undisturbed. That is what Trump believes he cannot allow because it would be a humiliating loss.

Some commentators have suggested that Trump or possibly Israel may out of desperation hit Iran with one or more nuclear bombs. There is no reason to believe that the Iranians haven't planned for this and have a dead-hand capability that would retaliate after such an attack and accomplish the destruction described above and probably much more.

So, there you have it. Trump and his team have stumbled into a war they cannot win. If the war does not end soon, it will likely destroy the world economy for lack of energy supplies and plunge it into a deep, years-long depression, one from which it will be difficult to emerge.

Someone needs to make clear to Trump that this is where we are headed. People say he will withdraw from the conflict and sue for peace (or more likely declare victory) when the stock market falls far enough. Even if he does (which I doubt he will), by the time the stock market sufficiently signals trouble, it may be too late to avoid an economic depression of long duration.

And, there is no guarantee that without meeting all of Iran's demands—complete U.S. withdrawal from the Persian Gulf, an end to all economic sanctions, reparations for the damage done to Iran, accepting Iranian control of the Strait of Hormuz (through which previously passed 20 percent of the world's oil and liquefied natural gas), and an end to attacks from all belligerants including Israel—that Iran will stop fighting and re-open the strait to ship traffic.

Is the complacency in global financial markets warranted?

noreply@blogger.com (Kurt Cobb) — Sun, 22 Mar 2026 12:47:00 +0000

Shortly before the war with Iran began, I wrote that the seeming complacency among government officials and financial market participants was based on two assumptions which I argued were unlikely to turn out to be true: 1) President Donald Trump would make a last-minute deal with the Iranians and declare victory and 2) even if Trump didn't make such a deal, the Iranians would not do all the things which they threatened to do if attacked.

Here we are three weeks into the conflict between the United States and Israel and Iran. There was, of course, no last-minute deal and the Iranians have done exactly what they threatened to do. Here is what I reported before the war were Iran's threats:

Those threats include attacking U.S. bases in the region, attacking any country that assists the U.S. and Israeli war effort, attacking U.S. naval vessels, and, most important, closing the Strait of Hormuz through which passes 20 percent of the world's exported oil and liquefied natural gas.

As I suggested, the complacency was likely to turn into panic in many capitals of the world. That has now happened. The governments and peoples of the Persian Gulf states allied with the United States have been directly attacked by Iran in response to attacks on it by Israel and the United States. Governments of countries dependent on the reliable delivery of Persian Gulf oil and liquefied natural gas (LNG) are desperately trying to find supplies elsewhere and adjust to the sudden shortage. Since most other oil and LNG is already delivered based on contracts, that has left countries scrambling for Russian oil and LNG on which U.S. sanctions have been lifted. But Russia's exports were already skirting sanctions so the increase in supply is likely to be minimal.

Given all this, it is somewhat baffling then that in the financial markets—with the exception of the oil market—complacency continues to reign. Stock markets are down, but there has been no crash. The widely followed S&P 500 Index is down from 6,900 at the the beginning of the war to near 6,500 on Friday, a level at which the index closed as recently as November 20 of last year. Markets for agricultural products are reflecting higher input costs, but there is no extreme run-up of food prices—yet! Prices for gasoline and diesel have risen quickly, but the public has been told again and again that this is just temporary.

Here is why I believe the complacency in the financial markets is misplaced:

The Iranians closed the Strait of Hormuz except to their own ships and those of friendly countries. But the ship traffic is now just a trickle of what it was before the war started. The Trump administration did not anticipate that the war would go on this long, nor did it believe that Iran would close the strait. That explains why there was no ready-to-execute plan to keep it open. The U.S. military is telegraphing that it may seize Kharg Island, Iran's major oil port in order to pressure the Iranian government to allow ships to pass through through the strait. Now this is where as I said in a previous piece, logic is your friend. Kharg Island is nowhere near the Strait of Hormuz. There is no way a U.S. military presence could possibly affect directly anything along the strait, so it's possible that the public discussion about seizing Kharg Island is just misdirection.

One thing you can be certain of: Unlike the Trump administration, the Iranian military has already carefully thought through how it would repel and defeat any force trying to take Kharg Island or landing far to the east on the Iranian side of the Strait of Hormuz, an area lined with caves and fortifications. Does it look like a small force could even survive such a mission? And how would such a force control the coastline anyway? So far no massive ground invasion is being contemplated, something that would take months to assemble. If the strait were to stay closed for several months, such a closure would almost certainly create a worldwide depression.

It is important to understand that if the U.S. military does attempt to take Kharg Island, the battle might result in the destruction of the oil port. Iran has already struck some oil and gas infrastructure in other countries in the Gulf region in response to the destruction of its own gas infrastructure by Israeli attacks on the world's largest natural gas field known as South Pars. There is every reason to believe that Iran would respond to the destruction of its own oil port in the same way. Persian Gulf oil infrastructure in other major oil and gas exporting countries could be damaged in a manner that could take years to repair or rebuild.

One more thing: Iran doesn't need to control its shoreline on the Persian Gulf to threaten gulf shipping. Iran has shown that it can target anything it wants with drones and missiles launched hundreds of miles away. Even if the U.S. military could control the entire Iranian Persian Gulf coast, that would not prevent Iran from threatening shipping anywhere in the gulf including the Strait of Hormuz.

Yet one more thing: Does anyone remember the Houthis of Yemen, allies of Iran, who successfully closed the Red Sea to cargo traffic starting in 2023 in sympathy with Palestinians in Gaza during the war between Hamas and Israel? The Houthis stopped harassing U.S. shipping after the United States agreed to a cease-fire and withdrew. Right now some of Saudi Arabia's oil has been diverted via pipeline to its Red Sea port. The Houthis could at any time open another front in the already complicated war with Iran. And the Houthis have drones and missiles and demonstrated the will and the ability to use them effectively.

The Trump administration believed that heavy targeted bombing and assassination of top leaders would lead to the quick surrender of Iran. That hasn't happened and so the administration kept bombing Iran thinking the regime would ultimately collapse, either through surrender or through an internal rebellion that overthrew the government. That still hasn't happened and doesn't look like it will. Any market participant who believes that it may still happen will likely have a long time to wait during which the world markets will adjust to the loss of energy, fertilizer and chemicals and the chaos unleashed in supply chains as a result.

Many market participants believe with justification that a frustrated Trump will at some point simply declare victory and withdraw. It's hard to see how he would do that given the strong influence on him of supporters of Israel in the United States and of the leader of Israel, Benjamin Netanyahu. Netanyahu wants Iran's nuclear program dismantled, all its ballistic missiles capable of reaching Israel destroyed, and a pliant new regime installed in Iran. None of that would be accomplished if the United States withdraws prematurely.

Let's assume though that Trump does simply declare victory and withdraw. That only meets one of Iran's conditions for peace: The U.S. military out of the Persian Gulf. But there are other conditions including the lifting of economic sanctions, security guarantees from major powers (presumably Russia and China) that Iran will not just be attacked again at a later date, and reparations for damage done to the country (which might take the form of tolls for ships carrying cargo for previous belligerents). It's hard to see the Trump administration agreeing to any of these other demands or even considering them seriously.

The bottom line: A U.S. withdrawal from the conflict with Iran will not automatically lead to the reopening of the Strait of Hormuz. The strait may remain closed until other conditions are met. And, of course, even if the United States withdraws from the conflict, that does not mean Israel will.

[This section was added after I had finished writing and editing this post. It is difficult at this time to weigh the seriousness of President Trump's rant on Truth Social discussed below.] President Trump announced Saturday night on Truth Social that if Iran does not open the Strait of Hormuz within 48 hours (which by my calculations means Monday night Eastern time), he will "obliterate" Iran's electric power generation plants. It's hard to know whether this is yet another Trump bluff and if it is not, how many power plants he would order destroyed, and whether the U.S. military would execute the order since to do so would clearly be an internationally recognized war crime.

Beyond that it would be economic suicide for the global system including the United States. Here's why: Such an attack would almost surely result in Iran attacking energy infrastructure throughout the gulf region and in Israel. That might mean major damage to critical oil and gas ports, pipelines and refineries far beyond what has already occured, damage that I indicated above would take years to repair. If Iran manages to do damage that is extensive enough, it would almost surely crash the world economy into an instant depression that would be difficult to emerge from. No amount of government spending or central bank money printing could make up for the lost physical energy supplies.

Please understand what this will mean if both Trump's threat and the expected Iranian response are successfully carried out to the fullest extent. Millions of people will perish within weeks in Iran as economic life comes to a halt. Millions more will flood out of the country in search of water, food and safety. If Iranian leaders believe the country is headed toward such a fate, those leaders may decide to target water desalination plants upon which Israel and several Persian Gulf nations depend for the bulk of their water. Extensive damage would essentially leave large swathes of the region immediately unhabitable. That would in turn lead to an instant mass migration out of the countries affected. All this would almost certainly become the largest humanitarian disaster in history. The result for those outside the war zone would be something akin to a peak-oil-precipitated economic and societal crash beyond any previously contemplated or discussed on this blog.

Will someone talk Trump off the ledge before the power plant bombing campaign begins?

The effects of the closure of the Strait of Hormuz on energy and other critical supplies are being discovered daily. There are the obvious effects: quick rises in gasoline prices and a shortage of gas used for cooking in many Asian countries. And there are the not-so-obvious effects: the sudden shortage of nitrogen fertilizer and the loss of an important source of helium. (Just in case you don't know, helium is critical in the manufacture of semiconductors and there is no replacement.) These and other shortages will mount and the prices will rise as long as the strait is closed.

How long a closure will it take to finally put the world into a recession or even a depression? Some economists are saying the risk of a recession is rising. I believe that this conflict will continue for much longer, perhaps months for the reasons stated above. If that turns out to be the case, the very high price of oil and other key commodities could bring what looks like an already overindebted financial system to its knees.

Iran already knows this. That's why it has chosen to use the closure of the Strait of Hormuz for leverage in this conflict. I don't expect the Iranians to give away that leverage for anything short of almost complete capitulation to their demands.

P.S. It is important to understand that even if by some miracle the Strait of Hormuz were opened tomorrow, it would take months before the wells, refineries and oil and gas ports would return to pre-war levels of operations. What I'm telling you is that immense economic damage has already been baked into the world economy.

Oil price manipulation, an unrecognized stratagem and an unhinged plan

noreply@blogger.com (Kurt Cobb) — Sun, 15 Mar 2026 11:34:00 +0000

Governments around the world are desperate to bring down oil prices in the wake of a cutoff of about one-fifth of the world's supply due to the Iran war. Here are some of the moves we've seen so far:

The International Energy Agency, a consortium of 32 countries which coordinate energy policy and emergency readiness, called an emergency meeting to discuss release of strategic petroleum reserves to ease prices. The countries agreed to a release of 400 million barrels from reserves held in underground caverns and above ground in storage tanks, the largest release ever of such reserves.

With about 20 million barrels per day no longer available from Persian Gulf exports because of the Iranian closure of the Strait of Hormuz, the narrow passage from the gulf to the open sea, this release represent just 20 days of oil deliveries. But it is unlikely that the daily release of oil will be more than a fraction of the lost barrels given constraints on how fast the reserve can be accessed. So it's not surprising that oil prices actually went up after the announcement.

Of course, I would be remiss in not pointing out that Iran's closure of the Strait of Hormuz was the initial manipulation of the world oil price as it vowed to push oil prices to $200 per barrel.

Some countries are implementing price caps, rationing and reducing the workweek in order to cope with shortages of oil products such as gasoline and diesel and to shield consumers from the rising cost of such products.

The U.S. Department of the Treasury announced that it may intervene in the futures market for oil to tamp down speculation. Oil market participants were somewhat skeptical that such intervention would have much effect because the oil futures market must ultimately take its cues from physical supply and demand. Oil futures contracts call for delivery of crude oil if they are not closed out before the delivery date specified in each contract. That keeps them closely tied to the physical market. And the physical market is where the problem is today.

Not surprisingly, the heads of major futures and stock exchanges didn't like the idea of the U.S. Treasury Department manipulating oil futures prices. After all, such manipulation would be considered illegal if private individuals did it. Moreover, public exchanges are meant to be places for price discovery. How can customers using those exchanges expect to discover the true price of oil if the U.S. government is putting its thumb on the scale? Government intervention will destroy the credibility of the futures exchanges sending customers elsewhere to hedge their exposures.

Then there is simple jawboning. After oil reached about $120 per barrel on March 8, the following day President Trump held a news conference in which he said the Iran war could be over "very soon" which caused the oil price to plummet.

Now, here is a stratagem that few people recognized as intentional manipulation: The following day the U.S. Secretary of Energy Chris Wright posted on social media that "the U.S. Navy successfully escorted an oil tanker through the Strait of Hormuz to ensure oil remains flowing to global markets." Or rather someone who manages his account posted that. The oil market swooned another 19 percent immediately afterward. The post turned out to be false and was quickly deleted. The market recovered but was down 12 percent for the day.

This move was either another attempt to jawbone the market lower or it was a scheme by administration insiders to profit from a move they engineered by making the post. Most media outlets simply portrayed the post as a mistake without understanding that it might have been deliberate for one of the reasons cited. The energy secretary has vowed to investigate. I'll be very surprised if we ever see any findings from that investigation. Was this part of the plan of the U.S. Treasury Department to manipulate the futures market or was it the action of a rouge employee? We'll probably never know.

There is additional jawboning in the form of the United States offering temporary waivers to countries that wish to buy oil from Russia. Russian oil is under sanctions that began after the Russian invasion of Ukraine as a way to punish Russia. U.S., European and G7 governments implemented the sanctions (which went well beyond oil) and have also imposed so-called "secondary sanctions" which means that businesses and banks in other countries who engage in commerce with Russia in violation of the sanctions may themselves be sanctioned. The oil sanctions consist of price caps, insurance bans for illicit ships, asset freezes on Russian oil companies, bans on foreign investment and projects, and many other measures. Here is an account of the energy sanctions on Russia, Iran and Venezuela.

The purpose has been to reduce the income Russia gets from exporting oil via price caps while NOT depriving the world market of oil from the world's second largest exporter. And, Russia has in any case has been successfully circumventing the sanctions by using its "shadow fleet", that is, a fleet the ownership of which is difficult to discover and which uses a host of tactics to keep from being detected. In addition Russia has sold much of its oil to China and India who never agreed to the sanctions.

So, why am I telling you all this? To demonstrate why the waivers are just another tactic to jawbone the price of oil down. They won't make much difference in the available supply and they are allowing the Russia to reap a huge windfall as Russian oil companies are allowed to charge market prices which are now well beyond the cap of $60 per barrel and well beyond the extra discounts ($40 per barrel) Russia was giving to those flouting the sanctions.

And finally, there is either the ultimate in jawboning or the ultimate in folly. There are hints that the U.S. administration is working on a plan to open the Strait of Hormuz. Navy Times reports that 5,000 personnel including marines are being deployed to the Middle East along with amphibious landing craft. Either the administration is trying to make the world think that the U.S. military is about to try to open the Strait of Hormuz or the administration actually is planning on trying to open the strait. If it is the latter, it seems to me to be a fool's errand that is unlikely to succeed. The Iranian military has demonstrated its ability to target whatever it wants to blow up very precisely with drones and missiles and the military appears to have an ample supply of these weapons.

Of course, the fastest way to bring down oil prices would be to end the war with Iran. The fastest way to do that would be to accede to all of Iran's demands which include retaining its nuclear development program, an end to all economic sanctions, retaining its military without restrictions on weapons, reparations for damage done to Iran and international guarantees that it will not be attacked again.

Given the rejection by Israel and the United States of these demands and given Iran's seemingly endless supply of drones and missiles and its stranglehold on the Strait of Hormuz, we can expect the war to drag on until Israel and the United States either take over Iran using ground forces or accede to some or all of Iran's demands. Otherwise, there will be no practical way to guarantee the safety of oil tankers transiting the Persian Gulf and the Strait of Hormuz. Gauge the likelihood of either side getting what it wants anytime soon in order to assess how long the world will be drastically short on its daily ration of oil.

Iran war: What we're in for and why logic is your friend

noreply@blogger.com (Kurt Cobb) — Sun, 08 Mar 2026 11:37:00 +0000

Two weeks ago I suggested that the complacency regarding war with Iran was misplaced and that that complacency was likely soon to be replaced by panic in the world's capitals and financial markets. The general belief was that President Donald Trump would relent, make a deal with Iran, and declare victory. Even if he didn't, the Iranian regime would be quickly overwhelmed by a combined American and Israeli attack and possibly be overthrown in a popular revolt or in the alternative, sue for peace within days.

Of course, neither of those things turned out to be the case. The complacency has now vanished. Leaders in at least some capitals are panicking though the financial markets continue to respond in a surprisingly muted way to the risks this war poses for the world economy.

Here is the most important thing readers should understand about this war: Iran defines winning the war very narrowly. Victory for the Iranian regime is that the regime survives. Israel and the United States define winning as the fall of the current regime leading either to a new friendly regime or a break-up of the country into various parts. And just last Friday President Trump added that the "unconditional surrender" surrender of Iran is the only acceptable outcome. Now consider the remarks of the Iranian foreign minister to NBC: "We are not asking for a cease-fire and we don't see any reason why we should negotiate with the U.S." He pointed out that the United States has used two previous negotiations as a deceptive cover for attacks. So, it looks like this conflict will be a fight to the finish.

Here's a second important thing to understand: To believe that the United States and Israel will prevail with air power alone flies in the face of all historical precedent. One prominent example is the Vietnam War. The United States dropped a greater tonnage of bombs on Vietnam, Laos and Cambodia than in all of World War II. And, the United States had a substantial force on the ground. At its peak the deployment was more than 500,000 military personnel. And yet, the North Vietnamese prevailed.

In trying to decipher the events of this war, logic is your friend:

Since the Iranians no longer believe that the Americans will negotiate in good faith, they seek no negotiated settlement. And, the Americans and Israelis no longer seek a negotiated settlement but unconditional surrender. This means that the members of the Iranian regime and its military have no incentive to do anything but continue their counterattacks and wait for the Americans and Israelis to land a ground force in Iran to come get them. This would likely be true even if Iran runs out of offensive drones and missiles.

The general belief is that the Americans will NOT deploy soldiers on the ground in Iran in large numbers because various members of the Trump administration have said that that will be unnecessary. That expectation could be wrong. If it is, it would likely take months to prepare an expeditionary force of sufficient size to successfully invade Iran. Then, that force would have to land on the coastline of Iran and make its way through mountainous terrain that characterizes much of Iran. Logic suggests that this could quickly become a catastrophic invasion for the Americans. (I'm assuming only minor participation by Israel whose military is already fully occupied.)

Even if a ground campaign were ultimately successful, it might take a year or two to subdue Iran. In a moderately bad scenario for the Americans, it could take many more years. In a seriously bad outcome, the United States military could be bogged down for a decade or more with no decisive result.

Let's assume that no invasion takes place. That means that the Americans and Israelis are left with bombing Iran into rubble. That might not lead to a clear victory, but it would destroy Iran's economy. In response and with nothing to lose, Iran may decide to use its remaining arsenal of missiles and drones to simply destroy the oil and gas infrastructure of every energy exporting country it can reach. The list includes some of the largest oil and liquefied natural gas exporters in the world: Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Such destruction would create a long-term energy crisis for the world. Iran has so far shown its willingness to engage in economic warfare—effectively closing of the Strait of Hormuz through which transits 20 percent of the world's crude oil and liquefied natural gas exports—even when it hurts its own economy. Why not hurt everyone else if there's nothing to lose?

I have no way of knowing how long this conflict will go on. But the longer it goes on, the larger its impact on energy prices and the world economy will be. For a comprehensive tally of what will be affected and when, read this analysis. For what exactly will be affected beyond oil and natural gas, here's a partial list: apparel (made from petrochemicals), food (because natural gas is a major feedstock for nitrogen fertilizer), copper (the mining of which requires chemicals derived from oil), packaging (made from petrochemicals), tires (made from petrochemicals) and electricity (natural gas and diesel fired power plants).

I have by no means provided anything close to an outline of all plausible trajectories for the war with Iran. I'm not sure anyone could. There are too many variables and this is a human endeavor. Humans are much more unpredictable than nature. What readers can do is apply logic to this situation and ask whether what they are hearing from each side of the conflict and from the media makes logical sense. Much of it does not.

Could AI lead to the destruction of civilization?

noreply@blogger.com (Kurt Cobb) — Sun, 01 Mar 2026 13:16:00 +0000

When it comes to the dangers of artificial intelligence (AI) and now artificial superintelligence (ASI) (sometimes called artificial general intelligence), I feel as if we've been transported onto the set of the 1983 film "WarGames."

In the film teenage hacker David Lightman stumbles onto the military's most sensitive war scenario planning computer while believing he has simply found a soon-to-be-released game called "Global Thermonuclear War" on the server of a computer game company. Lightman activates the game which ultimately makes personnel at the North American Air Defense Command (NORAD) mistakenly believe that the Soviet Union is preparing for an attack. On big screens throughout the war room, Soviet movements and preparations become ever more threatening by the hour. As we are told later, the object of the game is to win and so the computer sets out to win a thermonuclear war.

When Lightman realizes what he's done, he seeks out the one person he believes can stop the madness. (I'm skipping a lot of steps here.) He catches up with the architect of that war planning computer system, Stephen Falken. Falken is living a solitary, anonymous existence (under a different name) in a home that Falken says is near a primary nuclear target. He explains to the young hacker: "A millisecond of brilliant light and we're vaporized. Much more fortunate than the millions who'll wander sightless through the smouldering aftermath. We'll be spared the horror of survival."

Lightman pleads with Falken to call his former associates at NORAD to tell them what is happening. Falken refuses saying that the world might gain a few years if he makes the call, "but humanity planning its own destruction, that a phone call won't stop."

Like the fictional Stephen Falken, the computer industry's geniuses are now playing games with very complex systems (with literally trillions of inputs) called AI, systems that have emergent properties. Emergent properties are ones you don't program in and that you don't expect—not unlike the computer in "WarGames" making its users think that a simulation is the real thing. That's why we are now treated to a constant barrage of reports about so-called "hallucinations" emitted by AI programs, that is, information that is incorrect or simply nonexistent. See this listing for some interesting and disturbing "hallucinations." AI chatbots have also been known to counsel teenagers on how to commit suicide and one teenager succeeded.

Right now what is called AI is primarily based on what are called large language models. This type of AI hoovers up huge amounts of text, typically from the web (often violating copyright) and "trains" on that text. What it really does when it responds to an inquiry is predict based on statistical analysis what the next word on a particular topic should be. It doesn't have "knowledge," just statistical inclinations based on its training which is why it is prone to mistakes.

The many minor mistakes that current chatbots make may seem amusing or possibly inconvenient unless the AI is used for critical purposes such as surgery, when mistakes can and now already have been very damaging. In a piece I wrote in 2024 I noted: "Now think about the mess AI will make if used without respect for its limitations in the fields of medicine and law where honed judgment from seasoned professionals who know the subject matter extremely well is crucial." The mess is upon us.

We are seeing troubling results in other fields as well. "Futurism" magazine contemplates the damage to the food system if ordering and delivery systems now increasingly powered by AI go on the fritz or if such systems are intentionally disabled by a cyberattack. No one working in the grocery stores would have any idea about how to fix them, at least not in any timely manner. Unlike Stephen Falken, grocery workers may not be able to solve such a problem by simply picking up the phone to order more supplies. And, a phone call will certainly do nothing to put a dent in the long-term vulnerability.

Think about what happens when airline computer systems go down. If that happens to the food system—say, through a nationwide cyberattack—we will be in a race against time since due to increased logistics efficiency, most communities in the the United States have only a three-day supply of food in groceries and restaurants.

Okay, you say. But we are in the shakedown period for AI. AI is really going to supercharge the economy, so we should keep working on it. Maybe that's true. But maybe it's not. "Futurism" magazine again reports: "In a new analysis of a survey published by the National Bureau of Economic Research and highlighted by Fortune, around 90 percent of the nearly 6,000 interviewed CEOs, chief financial officers, and other top executives at firms across the US, UK, Germany, and Australia, said that AI has had no impact on productivity or employment at their business."

With a record like that I'm not concerned that AI as it is currently configured will destroy human civilization unless a bunch of idiots decide to allow it to run critical infrastructure autonomously without human supervision. I suppose that could happen, but I think the accumulating disasters on the way there would slow and then stop such a trajectory.

What may be of even more concern is ASI. This refers to AI that acquires a human-like general intelligence. There is no agreed definition of "intelligence" let alone "general intelligence" or "superintelligence" apart from saying that the latter two refer to the kind of intelligence that humans have. So, it's not clear how we'd know if we humans have engineered such intelligence. In fact, I'm not convinced that this kind of machine intelligence is even possible in an entity that does not have a body with the same biological apparatus as a human.

But that doesn't mean that AI couldn't become much more powerful and have much more power over us if we allow it to. With increasingly human-like capabilities unconstrained by human values and institutions, it's just possible that such an intelligence could pursue its objectives—say, maximizing production of computer chips—by draining all the water from a city's reservoir.

Of course, we wouldn't allow that, would we? Even assuming good motives, with AI or ASI we cannot be assured of good outcomes. The very structure of how they work does NOT allow us to put in high-level restraints such as "You must follow all of Issac Asimov's three laws of robotics." We can try, but these systems are designed in ways that create novel output and novel trajectories than cannot be foreseen. By the way, Asimov's three laws of robotics are:

A robot may not injure a human being or, through inaction, allow a human being to come to harm.

A robot must obey the orders given it by human beings except where such orders would conflict with the First Law.

A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.

Asimov later added a fourth law: "A robot may not harm humanity, or, by inaction, allow humanity to come to harm." This, of course, was the supreme law above all the others.

But as the co-author of "If Anyone Builds It, Everyone Dies: How Artificial Superintelligence Might Wipe Out Our Entire Species," points out in this interview, much of the excitement in Asimov's science fiction comes from robots that do NOT follow the laws of robotics.

The author, Nate Soares, notes that people who are developing AI and hoping soon to create ASI believe that ASI has a 10 to 25 percent chance of destroying civilization. Those are people inside the industry, not the critics! He explains that even if we accept the industry insiders' estimates of catastrophe, we should ask ourselves the equivalent of whether we'd get on a plane that has a 10 to 25 percent chance of crashing on the way to our destination.

In fact, any technology that has a nonzero chance of wiping out human civilization as a whole, that is, that carries such huge systemic risk, should by definition be abandoned. There is no amount of benefit that can outweigh even a small risk of destroying of the entirety of the human cultural project.

Soares thinks it's possible for ASI to be made safe, but he doesn't think politicians understand the gravity of the threat. And no one in the industry wants to be the first to put restrictions on development without the entire industry adopting similar restrictions. So, we are now locked in a potential suicide pact from which no one who is profiting has incentive to escape.

Soares imagines a day when robots mine and process the materials used to make more of them and then assemble more robots in a factory and deliver them to other places where they are needed for various tasks, all without human intervention. Such robot factories could engage in innovation without bothering to tell us humans. And that innovation may turn out to be great for robot efficiency and performance, but maybe not great for us because those "innovations" so degrade the environment that they make it increasingly uninhabitable for humans. (I've added to Soares' example just a little to draw out the possible bad conclusions.)

With robots doing most everything we need done, what would that do to human agency? That turns out to be an important question when seen in the context of other important questions as Soares writes in a separate article in The Atlantic magazine:

This all adds up to a worrying picture, where companies are racing to build a kind of AI that would be very dangerous. How could machines possibly do something other than what we ask? Why would they wind up with drives of their own that we didn’t put there on purpose? Because nobody puts much of anything into AIs on purpose in the first place. AIs aren’t like traditional software, where every piece was put there by some programmer who knows precisely what it means. All sorts of weird drives and behaviors get trained into them, for reasons nobody entirely understands. They can and do act in ways other than their creators intended, and we’re already seeing the warning signs.

The fictional Stephen Falken gave up on designing war games for the military. The military was trying to figure out how to win a nuclear war. But Falken said he could never teach his war planning computer program the most important lesson: "Futility. That there's a time when you should just give up." He meant that there is really no way to win a nuclear war.

It's hard to imagine the titans of AI all turning into Stephen Falkens. But it is not impossible for an informed public to say no to technology that might just wipe us out. The keepers of the so-called Doomsday Clock now include AI as a serious threat to civilization along with nuclear war, climate change and biological research that threatens catastrophe if turned into a weapon or a mistake releases a deadly novel micro-organism. Given the added dangers of AI, it shouldn't be surprising that the clock is set to its closest ever position to midnight which represents global cataclysm, just 85 seconds away.

It shouldn't be lost on us that these dangers are all of our own making. That means there's a possibility that we could unmake them if we have the will to do so.

Wars and rumors of wars: Iran edition

noreply@blogger.com (Kurt Cobb) — Sun, 22 Feb 2026 12:41:00 +0000

Last September I produced a brief survey of major conflict across the globe in which I wrote the following about the conflict with Iran and Israel, one which is now referred to as the 12-Day War: "[T]here is every reason to believe that the conflict between Israel and Iran is not over and that the United States may be drawn in again."

It appears the next phase of this war is about to begin. In fact, by the time you read this, attacks may already have begun.

It puzzles me that the rest of the world has treated the run-up to this second phase of the war as a non-event. Although the vast build-up of U.S. military forces has been covered in the media, other stories concerning the U.S. Supreme Court overturning tariffs imposed by the Trump administration and the ongoing fallout from the Epstein files are covered with equal if not greater weight. The financial markets have been barely roiled except for a relatively small uptick in oil prices.

The reason for this complacency appears to be twofold:

1. Many people believe that President Trump will go TACO, the informal acronym that stands for "Trump Always Chickens Out." The assumption is that, as he has done on so many other fronts, the president will not follow through with his initial threats, just as, for instance, he's done time and time again regarding the level of tariffs he announces and then retracts or reduces dramatically when it becomes clear that world financial markets are tanking. By extension, he supposedly 1) will stop short of an attack on Iran by announcing a deal that gives the United States far less than it has asked for and 2) will then declare victory.

2. The second pillar of this complacency is that most people apparently believe that the Iranians will NOT follow through with their threats should another conflict arise or at least will not be very successful in their execution. Those threats include attacking U.S. bases in the region, attacking any country that assists the U.S. and Israeli war effort, attacking U.S. naval vessels, and, most important, closing the Strait of Hormuz through which passes 20 percent of the world's exported oil and liquefied natural gas. Such a closure would not only affect Iran, but other major oil and natural gas exporters including Iraq, Kuwait, Saudi Arabia, Qatar and the United Arab Emirates.

In the spirit of the old adage that no plan survives first contact with the enemy, here's why these expectations may turn out to be too optimistic:

First, every pronouncement coming out of the government of Israel suggests that nothing less than a full-out attack on Iran will be satisfactory since the Iranian government will not agree to demands laid out by Israel that include limitations of Iran's ballistic missiles and an end to its assistance for groups such as Hamas and Hezbollah. The Iranians have so far said they want negotiations limited to the country's nuclear program. The United States has also indicated that missile limits and aid to Iran-aligned militias should be included as part of the negotiations.

The last conflict, the 12-Day War, began with an Israeli strike. I believe that if the United States does not strike first or in tandem with Israeli forces, Israel will simply start the war and ask for its ally, the United States, to offer assistance. This assistance will almost certainly be offered by Trump.

Second, both the Israeli and U.S. governments have made it abundantly clear that their preferred outcome is regime change in Iran. Whether the Iranian government believes them, I cannot know. But if it does, then this next phase of the conflict will be considered an existential threat to the regime. There will be no reason for the Iranians to restrain their response since the regime will figure it has little to lose by fighting all out. It should come as no surprise that the Supreme Leader of the Islamic Republic and the ruling clique have no desire to see the inside of an American jail (where the now deposed former president of Venezuela is residing).

If these two suppositions are correct, then complacency in the financial markets and capitals around the world will likely give way to panic. It is doubtful that Iran will overpower the United States and Israel militarily in the emerging conflict. But Iran can inflict a lot of damage with its missile and drone fleet. Iran's most potent weapon, however, is the closure of the Strait of Hormuz. Oil prices would skyrocket. The longer the strait remains closed, the more the world economy would seize up from both lack of fuel and high prices for what fuel is available.

Iran does not actually have to control the strait to prevent passage of tankers. All it needs to do is make it unsafe for oil tankers to pass through the strait. And it has the drones, missiles and patrol boats to do so. Insurance will become unavailable and that will put a stop to tanker traffic. No shipping company is going to ship 2 million barrels of oil—the amount carried by a typical large crude oil tanker—worth more than $132 million at today's prices without insurance.

Of course, the U.S. navy could escort tankers through the strait. But then those navy vessels and the tankers would become targets for Iranian missiles and drones using "swarm attacks." Ships need to destroy all incoming attacks to avoid damage. The attacker only needs one missile or drone to get through to create a lot of damage.

It's possible that the United States might be able to neutralize such threats. But it's hard to imagine a tanker captain and crew wanting to test whether such neutralization will work every time. Nor is an insurance company likely to write insurance for a tanker passing through the Strait of Hormuz under such conditions.

My hope is that this conflict is averted and an arrangement is arrived at that allows all parties to walk away permanently. Hope, however, is not a plan. And given Donald Trump's entertainment background and flair for the dramatic, we should not be surprised to see events unfold as they would in a Hollywood movie in which it is an iron law that once a gun is shown to the audience, it must be fired before the end of the film. Therefore, I think the world needs to plan for a less than felicitous outcome.

The chemical society and its discontents: Ozone layer edition

noreply@blogger.com (Kurt Cobb) — Sun, 15 Feb 2026 13:27:00 +0000

The history of chlorofluorocarbons (CFCs), their danger to the ozone layer, and the drive to replace them reminds me of an observation from former CBS news correspondent and commentator Eric Sevareid: "[T]he real cause of problems is solutions."

When chemists F. Sherwood Roland and Mario Molina asked where chlorofluorocarbons (CFCs) go after leaking from refrigerators and air conditioners or being intentionally released from aerosol cans, they did not know that the answer would lead to the world-shaking discovery that these chemicals were threatening the Earth's ozone layer with destruction. Since this layer protects the Earth's surface from most of the Sun's ultraviolet radiation—radiation that would threaten all life if unchecked—the countries of the world agreed to phase out the use of these chemicals in what is known as the Montreal Protocol.

Substitute propellants for aerosol cans—mostly what is called liquid petroleum gas—represent an explosion hazard, but no longer threaten the ozone layer. But the first substitute for refrigerators and air conditioners, hydrochlorofluorocarbons (HCFCs), still had some potential to damage to ozone layer. So, now those are being phased out and being replaced by hydrofluorocarbons (HFCs) "which contain no chlorine, and therefore pose no risk to the ozone layer."

So, problem solved. Except that the solution has led to another problem only recently discovered. Both HCFCs and their successors, HFCs, break down in the atmosphere to create trifluoroacetic acid (TFA). The TFA then rains down on the Earth and gets deposited in soil, absorbed by plants and animals, and concentrated in rivers. TFA takes a thousand years to break down much like the often discussed "forever chemicals." And, it turns out that TFA is toxic to humans and animals and may damage the reproductive system and the liver.

Researchers estimate that more than 300,000 tons have now rained down on the Earth's surface with more to follow. It should be no surprise that a "solution" to this problem has now been found. Hydrofluoroolefins (HFOs) are being offered as an "environmentally sustainable" substitute for HCFCs and HFCs. Trouble is, as the researchers point out, "HFOs are the latest class of synthetic refrigerants marketed as climate-friendly alternatives to HFCs [but] a number of HFOs are known to be TFA-forming."

The next time you read that the solutions to chemical pollution are new and different chemicals, thank Eric Sevareid for reminding us that it is almost certainly not so. And realize that it the way we think about problems and solutions that is the real problem.

Taking a break - no post this week

noreply@blogger.com (Kurt Cobb) — Sun, 08 Feb 2026 12:32:00 +0000

Your humble author has been so overwhelmed with work that he has been unable to find time to write a post this week. He promises to return next week Sunday, February 15.

Taking a break - no post this week

noreply@blogger.com (Kurt Cobb) — Sun, 01 Feb 2026 12:38:00 +0000

I am taking a break this week and plan to post again on Sunday, February 8.

World oil and natural gas consumption vs discoveries: Diverging trends mean trouble

noreply@blogger.com (Kurt Cobb) — Sun, 25 Jan 2026 14:33:00 +0000

Herbert Stein was an American economist who served in both the Nixon and Ford administrations. He is probably most famous for formulating Stein's Law, namely, "If something cannot go on forever, it will stop." This is, of course, an obvious statement. But I think it cannot be stated too often in a global society that believes in infinite economic growth.

I propose to take a subset of that growth to demonstrate Stein's point. The subset is world oil and natural gas consumption versus discoveries. It turns out that Rystad Energy, a major consulting firm at the heart of the global oil and gas industry, has taken note of the fact that "just 25–30% of the oil consumed each year is currently being offset by new discoveries."

In a separate piece on both oil and natural gas, the advisory firm notes:

Annual conventional discovered volumes once averaged more than 20 billion barrels of oil equivalent (boe) per year in the early 2010s, but these have fallen to nearly one-third of that, with analysis by Rystad Energy showing global discoveries have averaged slightly over 8 billion boe annually since 2020 despite several standout frontier finds in Namibia, Suriname and Guyana. Despairingly, the yearly average declines further to about 5.5 billion boe between 2023 and September this year [2025].

For the uninitiated "barrels of oil equivalent" means Rystad has converted natural gas discoveries into their equivalent in terms of the energy content of barrels of oil. One barrel of oil contains the energy equivalent of about 6,000 cubic feet of natural gas.

All these numbers mean something only when you compare them to current consumption worldwide. According to the U.S. Energy Information Administration (EIA), for oil in 2024 consumption was 82 million barrels per day or 29.9 billion barrels for the year. (I'm using the EIA's own definition of oil which is crude oil including lease condensate.) Natural gas consumption for 2023 (the last year for which totals are available) was 144.9 trillion cubic feet or 24.1 billion barrels of oil equivalent.

For the purposes of comparing to Rystad's numbers, let's add the oil and natural gas consumption together so we get 54 billion barrels of oil equivalent. Looking below at Rystad's graph of combined oil and natural gas discoveries worldwide going back to 2015, we can see that discovery is badly lagging consumption. Taking oil and natural gas consumption from 2015, we find that for oil the number was 29.5 billion barrels and for natural gas the number was 20.9 billion barrels of oil equivalent. Adding the two together and we get 50.5 billion barrels of oil equivalent. That's still far in excess of total combined discoveries of around 22 billion barrels of oil equivalent in 2015.

This other now outdated graph shows that for oil at least, the trend of consumption exceeding discoveries has actually been going on for a long time.

It's a simple statement of fact that when it comes to oil and natural gas, you can't produce what you haven't discovered. There is, of course, a lag between the time oil and natural gas are discovered and the fields containing them are fully exploited. That means production can continue to rise for some time, even decades, before lack of discovery leads to lower production. For oil that day seems nearer than ever. For natural gas it might be a decade or two away. But even that is a very short time to get ready for a world of declining oil and natural gas production.

And still we as a global society are pretending that increased consumption of oil and natural gas can go on, if not forever, at least for a very long time. Herbert Stein would be chastising us if he were still around.

Venezuela's goo-in-the-ground isn't usable oil at current prices (and may never be)

noreply@blogger.com (Kurt Cobb) — Sun, 18 Jan 2026 14:20:00 +0000

In the wake of Trump administration's prosecution of a war and blockade against Venezuela and the administration's promise to vastly increase oil production in the country, it's worth knowing why claims about Venezuela's oil "reserves" being the largest in the world are problematic. It's also important to understand what this implies for the future of oil production in Venezuela.

Consider the following:

Official oil reserves are just that. They are numbers reported by official government sources. Where these numbers come from large state-owned oil companies—as is the case with Venezuela—they are rarely verified through independent audits. And, those numbers tell you nothing about the economic viability of the claimed reserves.

There is a pattern among several OPEC countries including Venezuela of suddenly claiming vast increases in oil reserves without evidence of additional economically viable discoveries. Just to be clear, reserves are known deposits of minerals demonstrated to be extractable using current technology and profitable at current prices. The term "reserves" does not appear to apply to most of Venezuela's extra heavy crude at current prices which is believed to be 90 percent of its supposed reserves. This is true especially if upgrading facilities have to be built from scratch—Venezuela has only one extra heavy crude facility that began production in 1947. Such expensive long-term investment requires a belief that prices will reach and maintain much higher levels than today and that political and social conditions will remain calm and favorable over long periods. (For a comparison of Venezuelan crude oil with others in the world, see this infographic.)

In several Middle Eastern countries the sudden reserve increases mentioned above happened in the mid-1980s. In Venezuela it happened over a three-year period from 2007 to 2010. The following chart is based on the Statistical Review of World Energy (formerly sponsored by oil giant BP and now published by an independent organization):

The vast majority of Venezuela's so-called reserves are in the form of extra heavy crude in an area called the Orinoco Belt which lies in eastern Venezuela along the Orinoco River. The U.S. Energy Information Administration reported that Venezuela's state oil company claimed that there are 270 billion barrels of extra heavy crude oil reserves in this area in 1998. Venezuela today reports 303 billion barrels of reserves of all types including heavy crude which it currently processes and sells. But nobody knows the real numbers because there is no outside independent audit.

Extra heavy crude oil is a very viscous liquid—about the consistency of "cold peanut butter"—that is suitable for use in asphalt, but little else. To be useful as oil it must be upgraded using complex and costly processing that requires vast amounts of natural gas and also diluents such as naphtha which are mixed with the oil to make it feasible to transport through a pipeline. Just to get the heavy oil out of the ground requires steam or water injection. And during refining the high sulfur content—sulfur is an air pollutant that has to be removed—makes it more expensive to refine. In other words it takes a lot of energy to extract and process extra heavy crude oil to make it into something we call oil. And, all of that is quite expensive.

Which brings us to the price of oil and the economics of producing Venezuela's extra heavy crude. The world benchmark for crude is Brent Crude currently trading at around $64 per barrel. But because Venezuela's extra heavy crude is so difficult to refine it sells for a substantial discount to the world benchmark price, somewhere between $12 and $20. The cost of diluents adds another $15 to the costs of getting this extra heavy crude through a pipeline.

So the seller is already taking a financial haircut of between $27 to $35 compared to the world benchmark crude. For massive investment to take place in Venezuela, world oil prices would probably have to be and remain around $100 per barrel for years in order to convince oil companies to risk making the kind of investments that only provide a return over 20 to 30 years—the kind that extraction and upgrading of extra heavy oil requires.

All this suggests that oil production in Venezuela is probably not going to rise much in the coming years. And, the idea that increased Venezuelan oil production could bring down current oil prices is nothing short of ridiculous since producing the vast majority of the country's oil resources will require much higher prices.

Of course, I haven't even factored in the political and social instability that is plaguing Venezuela in the wake of the U.S. attacks and blockade. Nor have I considered the fact that despite the removal of Venezuelan President Nicolas Maduro, his vice president (now elevated to acting president) and administration are still in charge. These are the same people who expropriated U.S. oil company assets in the country previously and who levy high taxes on the remaining oil operations. Given this backdrop it's hard to imagine much investment going into the Venezuelan oil industry from foreign countries anytime soon.

The smash-and-grab diplomacy in which the United States is now engaged in Venezuela may seem like it will somehow liberate Venezuela's supposed oil riches. But all it is likely to do is demonstrate that those riches are as elusive as ever.

Venezuela and Greenland: 'Smash-and-grab' diplomacy in the age of scarcity

noreply@blogger.com (Kurt Cobb) — Sun, 11 Jan 2026 12:19:00 +0000

The United States is now engaged in what I am calling "smash-and-grab" diplomacy in Venezuela, and it will perhaps soon do the same in Greenland, a territory of the Kingdom of Denmark. In case you have never heard the term, smash-and-grab refers to robberies undertaken by smashing store windows and/or display cases and taking what is readily available without concern about alarms going off or people on the street or in the store seeing what the robbers are doing. The phrase seems more descriptive than the older one of "gunboat diplomacy" in which, not infrequently, the mere display of force was used rather than actual attacks to obtain concessions from a weaker nation.

The current practitioners of the U.S. form of smash-and-grab diplomacy leave little to the imagination, prefering big displays of violence and simply taking what they want with no pretext that the target country is accepting terms through negotiation. Witness the brazen taking of all exported oil from Venezuela, the proceeds from which are supposedly going to be used "for the benefit of the American people and the Venezuelan people" (whatever that means), according to U.S. President Donald Trump.

Readers certainly know that in the past there have been other more subtle ways that major powers have taken the resources they need for their industries and militaries. For instance, what followed the era of gunboat diplomacy—which more or less ran from the late 19th century through early 20th century—was a era of less direct bullying of weaker countries by major powers. As empires crumbled, newly independent countries were strongly encouraged to install leadership friendly to American and European foreign policy and economic interests—or else! One of the "or else's" was detailed in a book called Confessions of an Economic Hit Man, written by one of the unofficial emissaries from the United States who carried a message of consequences if the target countries' leaders did not acquiesce. The author began the book with this:

Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign "aid" organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet's natural resources. Their tools included fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.

As weaker countries across the world grew their economies and became more confident in their power, this form of intimidation ceased to be as effective. The rise of Hugo Chavez in Venezuela and Evo Morales in Bolivia are two examples.

In an age of rising prosperity and the free flow of resources around the world, the waning power of American and European institutions to impose their will did not seem as problematic as it might otherwise have been. But with the return of scarcity of key metals (think: China's restriction on strategically important metals), energy (think: natural gas in Europe), food (think: China's purchases of farmland around the world), and water (think: well, all over the globe), expect more countries to engage in some form of smash-and-grab diplomacy as shortages lead to military operations designed to alleviate those shortages and/or prevent future ones.

What the current U.S. administration is doing, though probably unwittingly, is saying the quiet part out loud. As the natural resources that the modern world depends on become more and more scarce, countries will more and more resort to openly violent methods to secure access to those resources.

Smash-and-grab robberies result in losses to the merchants affected and inconvenience and upset for the public. But as such robberies become an instrument of foreign policy over the decades ahead, they will only mean more chaos for everyone.

Of course, world society could arrive at a global "kumbaya" moment and decide to cooperate on dramatically reducing worldwide consumption, first by eliminating waste and then by prioritizing consumption that is essential for a healthy, functioning society. We can wish for this. But nothing in the crumbling international order suggests that it will happen.

Autonomous vehicles: Is necessity really the mother of invention?

noreply@blogger.com (Kurt Cobb) — Sun, 04 Jan 2026 12:57:00 +0000

Aesop's Fables date back to the 7th century BCE and may be the first known written expression of an often repeated proverb, namely: Necessity is the mother of invention. In the story called "The Crow and the Pitcher," during a terrible drought a thirsty crow finds water in a partially full water pitcher. But the mouth of the pitcher is too small to allow the crow to reach the water. The crow discerns that if it drops enough pebbles in the pitcher, this will raise the water level. So the crow proceeds with this plan and finally gets a drink.

Aesop's Fables come in many versions which often include a "moral" or "application" at the end. Hence, we have the summary of the lesson of the story that we recognize today.

Trouble is, it's all too easy to apply this idea to any invention and assume that "necessity" refers to some common problem that, if solved, helps the entire community or society. So, when I saw that Waymo's autonomous taxis had shut down, not once, but twice about five days apart in the same city—the first time from a power outage that darkened about one-third of San Francisco and the second due to concerns that a coming storm would create flash floods—I asked myself what necessity is pushing the deployment of autonomous vehicles forward. (To state the obvious, cars with drivers were still able to move about San Francisco during the blackout and adapt to the outage of traffic signals.)

First, I asked whether there is a shortage of taxi rides available for lack of drivers. With the rise of Uber, Lyft and other ride-hailing services alongside taxicab companies, there appears to be adequate availability of taxi rides in most cities around the world. So far, autonomous vehicles as taxis appear to be a solution looking for a problem.

Second, I wondered whether autonomous vehicles are safer for riders. There's not a lot of evidence since the use of these vehicles is in the early stages. What evidence there is seems equivocal and incomplete. An article in "New Scientist" begins with this:

One of the largest accident studies yet suggests self-driving cars may be safer than human drivers in routine circumstances – but it also shows the technology struggles more than humans during low-light conditions and when performing turns.

It's hard to understand how low-light conditions and performing turns are not routine parts of driving. So, I'm not persuaded by the reasoning of study. While this piece explains that 90 percent of all accidents are caused by human error, it also asks how autonomous vehicles could make eye contact with other drivers or pedestrians to sort out intentions. Then, there is our instinctive sense of whether another driver is not in good control of his or her car when we sense that car drifting toward the edge of the lane it's in.

It's true that autonomous vehicles don't get drunk or get tired. But then the human backup crew behind the cars—a crew that is constantly in touch with these vehicles as they roll—could get tired or be under the influence of drugs or alcohol—which would pose different kinds of problems for riders should an autonomous vehicle malfunction.

The jury is out on whether on balance autonomous vehicles are safer than those driven by humans. It's worth noting that so far we are referring to autonomous vehicles as ride-hailing services. The drivers for those services are required to be sober and alert as part of their job and so more likely to be so than average drivers driving themselves around. You should note whether any safety claims made for autonomous vehicles are made in comparison to drivers who do similar jobs, for example, ride services, delivery or long-haul freight, and not to the general run of drivers.

My third question was whether there is a shortage of truck drivers. This is relevant as trucking companies begin to test autonomous trucks. There is even less data on the safety of these vehicles on the open road as testing began only in May 2025.

As for whether there is a shortage of drivers, some say yes and some say no. It's easy to see why driving a truck may not be as attractive as other careers since truck driving requires long periods away from home, often alone in a truck cab, and long hours each day. But the naysayers to the shortage problem label it an ongoing myth perpetrated by the industry designed to "lower standards, suppress wages, and prioritize big carriers over safety and sustainability." As proof, they note the American Trucking Association's sudden change in wording in its public statements to a shortage of "quality" drivers. But, the real problem may be a shortage of freight which is sending many trucking companies to their deaths.

Assuming for the moment that there is a shortage of truck drivers, it turns out there's a solution. Walmart just upped its starting pay for truck drivers to $115,000 per year. High pay causes people to reframe their views of previously "undesirable" occupations. Bloomberg (cited just above) reports:

While competitors worry about potential worker shortages, Walmart Inc. has grown its trucking workforce by 33% in the last three years by making the job more attractive to people who might otherwise eschew the field.

The success Walmart is having can't really be all that surprising. I am reminded of the perpetual nursing "shortage" which we often hear about in the media. Perhaps those who employ nurses can take a page out of Walmart's book and simply give them better pay and working conditions.

So, after considering all this, I asked myself what "necessity" is really driving the autonomous vehicle push. The only answer I can think of is that employers, whenever possible, want to minimize labor costs and also the supposed aggravation of having to deal with people. If employers can eliminate drivers of all kinds, they can make more money (so long as their competitors don't do the same and underprice them). Clearly, employers believe all or most of the savings will go into their own pockets and those of their shareholders. Any safety issues will just be other people's problems.

And, of course, there is the problem of what to do with all those drivers (of which there was a supposed shortage). Back in 2011 I wrote that the Roman emperor Vespasian—under whom Rome's great Colosseum was built—was told by one of his engineers of a labor-saving machine that would hasten the work. He rejected the idea saying: "I must always ensure that the working classes earn enough money to buy themselves food."

I do not think the trucking industry will care about whether their former employees can buy themselves food. But I do think the owners of the growing fleet of autonomous vehicles have found a way to make it seem that such vehicles are a response to some necessity that will result in public good.

Previously, I have suggested that such vehicles will only be able to function safely on a closed course, something that is simply not in the cards for today's applications which are all on public roadways. There is no way to implant human judgement, perception and flexibility into a truly autonomous vehicle (without the eyes and ears of humans in the background in real-time) so that it can coexist harmoniously with human drivers and pedestrians.

One more note, in this case regarding autonomous semis—and I can't resist saying this again—I believe that we are unfortunately about to be reminded that force still equals mass times acceleration.

Taking a holiday break - no post this week

noreply@blogger.com (Kurt Cobb) — Sun, 28 Dec 2025 13:05:00 +0000

I am taking a holiday break this week and plan to post again on Sunday, January 4.

The fusion future that may never arrive

noreply@blogger.com (Kurt Cobb) — Sun, 21 Dec 2025 13:17:00 +0000

With the supposed need for vast new electricity generation to fuel the artificial intelligence (AI) boom, AI companies are pushing nuclear power as one solution to provide that power for the many data centers they plan to build. (Count me skeptical of the boom and therefore of the need for vast new electricity generation capacity. See here, here, here, here and here.) AI boosters usually talk about expanding existing nuclear power technologies, that is, fission reactors that run on uranium and (more dangerously) on plutonium.

But it is well to keep in mind that there are two kinds of nuclear power: fission and fusion. For now, there are no commercial fusion reactors since with current technology it takes far more than the equivalent of a kilowatt of energy to produce a kilowatt of electricity. This is because it takes a lot of energy just to get a fusion reaction going. The current state of affairs in fusion reminds me of the old joke about the manufacturer who admits he loses a nickel on every sale, but claims he makes it up in volume.

Fortunately, fusion researchers are smarter than this and await the day when fusion technology can produce more energy than it consumes. That waiting has spawned another well-worn joke about the coming of clean, limitless fusion energy, namely, that it's only 25 years away and always will be. (Whether fusion energy will be clean, that is, non-radioactive, is debatable.)

It's no surprise then that with the AI industry saying it needs a lot more energy now, the predicted advent of net-energy-positive fusion is being moved up. In this case Commonwealth Fusion Systems, a startup spun off by the Massachusetts Institute of Technology, claims that by 2027 it will achieve the feat of producing more energy from a fusion device than is consumed. The Chinese government is a bit more vague, saying its research program may within a few years produce more energy than is consumed by a fusion reaction.

When this achievement is announced, it will be important to read the fine print. Eleven years ago scientists working on fusion at the Lawrence Livermore National Laboratory in California were able to produce more energy output in a fusion experiment than was used to produce the fuel. That feat, however, didn't take into account the amount of energy needed by the entire system which was 118 times more than the energy output. Some media outlets (who apparently did not read or understand the background materials) erroneously reported that the experiment had, in fact, achieved the feat of producing more energy than it consumed.

In 2022 the same laboratory declared it had achieved a net energy gain (read the second subheading) from a fusion reaction. Again, reading the fine print is important. As this article points out, "while a single shot may produce more energy than the fuel absorbs, the entire facility, from lasers to cryogenics to control systems, still consumes far more power than it delivers." Said simply, you have to look at the whole system to understand the energy balance. This analysis suggests that the entire system actually consumed about 100 times the energy output of the experiment. The experiment did mark progress. But we remain nowhere near producing net energy from fusion reactions, not least because there is currently no system that can provide more than a momentary burst of energy instead of the sustained reaction seen in conventional fission reactors.

The Chinese government said it expects to have a pilot fusion plant operating by the 2030s or 2040s. First, that's pretty far away (and vague) and the realization of commercial fusion power is much further away, even if this plan comes to fruition. A pilot plant is only the second stage of the development of commercial fusion power. First, comes the prototype which helps validate the technology. Then comes the pilot plant which demonstrates that such technology will, in fact, integrate successfully with the existing electric grid.

Then comes a demonstration plant which is a full-size test of the economic and commercial viability of the technology. At this stage, utility managers want hard evidence that such plants are reliable and profitable. Demonstration plants could be as far off as the 2050s or 2060s, again, even if we assume the schedule for pilot plants proves to be doable. And then, utilities would have to decide to try to build their own fusion plants and that might only begin in the late 2050s. Widespread adoption might take another 20 to 30 years.

Even if fusion generating plants turn out to be feasible, the idea that they are going to provide any near-term fix for our energy needs or for addressing climate change is completely misguided.

Energy transitions take time. They occur over more than one generation. In times of great stress such as ours, people look for miraculous solutions. Fusion seems like one of those solutions. But it will almost certainly NOT turn out to be miraculous and, if feasible, will be painstakingly slow to emerge as a major energy source for human civilization.

Informers: The new drive to get Americans to spy on one another

noreply@blogger.com (Kurt Cobb) — Sun, 14 Dec 2025 13:43:00 +0000

It should come as no surprise that governments throughout history have enlisted their citizens to spy on one another. Some publicly stated reasons have included stopping subversives from overthrowing the government, catching foreign spies and agents, and stopping terrorist attacks.

For at least the fourth time in a little over a century, the U.S. government is publicly trying to enlist its citizens into a vast network of spies who will report behavior the current administration doesn't like. For the record the previous three times were:

The first Red Scare between 1917 and 1920 which rounded up thousands of supposed sympathizers of the Russian Revolution and imprisoned them, proving that such activities do not depend on which party is in charge of the federal government since, Woodrow Wilson, a Democrat, was president at the time.

The second Red Scare, often called the McCarthy Era, in the late 1940s and early 1950s after U.S. Senator Joseph McCarthy who publicly accused many prominent actors and writers, government employees and others of being communists disloyal to the United States and asking them to name others who were communists. McCarthy was famous for having "lists" of communists in various government departments and areas of public life.

Operation TIPS (Terrorism Information and Prevention System), in the wake of the September 11, 2001 attacks on the United States, a proposal by the George W. Bush administration in the early 2000s to enlist U.S. workers such as cable installers, home repair technicians, and U.S. Postal Service carriers to report suspicious activities in and around the homes of private citizens.

Now we have the fourth effort. The current U.S. attorney general, Pam Bondi, has provided a brief outline of what the Trump administration says it is doing to implement the president's National Security Presidential Memorandum/NSPM-7. The supposed targets of the effort are "Antifa and Antifa-aligned anarchist violent extremist groups." (Antifa is short for anti-fascist.)*

I'm reminded of a scene in the film "Stranger than Fiction" in which an IRS agent asks a bakery owner whom he is auditing whether she is a member of an anarchist group. He asks this because she has explained to him that she refuses to pay the portion of her taxes that represent military expenditures. Here's how the exchange goes:

Anna Pascal (Bakery Owner): I think, actually I sent a letter to that effect with my return.

Harold Crick (IRS Agent): Would it be the letter that begins,"Dear lmperialist Swine"?

Pascal: Yes.

Crick: Ms. Pascal, what you're describing is anarchy. Are you an anarchist?

Pascal: You mean am I a member of--

Crick: An anarchist group, yes.

Pascal: Anarchists have a group?

Crick: I believe so. Sure.

Pascal: They assemble?

Crick: I don't know.

Pascal: Wouldn't that completely defeat the purpose?

I note this exchange because Bondi's memo seems like life imitating art. There appears to be no group called Antifa with an address and a board of directors. It's merely a term used by some activists and by the media to describe disparate actions by a small number of loosely organized people in various locales protesting the Trump regime.

Given the ideological predilections of the Republican Party one would think its members would be favorably predisposed to the philosophy of anarchism which according to the Encyclopedia Britannica is "centered on the belief that government is both harmful and unnecessary." I seem to recall that Ronald Reagan, a long-revered Republican president, said: "Government is not the solution to our problem, government is the problem." But now that the Republican party has total control of Congress, the presidency and the Supreme Court, its members have renewed faith in the utility of government and its ability to shape American society.

But we have further guidance from Bondi on what to be on the lookout for: "adherence to radical gender ideology, anti-Americanism, anti-capitalism, or anti-Christianity" and "hostility towards traditional views on family, religion, and morality." Nowhere are these terms defined though President Trump has helpfully told us that the administration doesn't like so-called "liberals" and "liberal groups."

Still, there is no attempt to demonstrate how merely holding and espousing such (as yet undefined) views causes one to become dangerous. It is apparently left up to members of the Joint Terrorism Task Force (which is composed of federal, state and local law enforcement officers) to figure out what these terms mean and to target people for investigation accordingly.

Now, here is where you come in. You as a citizen can actually earn money by informing on your friends, family members, neighbors and co-workers. According to Bondi's memo: "[B]ecause information from within an organization is often necessary to effectively dismantle large, criminal enterprises, the FBI shall establish a cash reward system for information that leads to the successful identification and arrest of individuals in the leadership of domestic terrorist organizations that conspire with others to commit violations of the provisions of law." (By "domestic terrorist organizations" I'm assuming she means charitable foundations run by people the president doesn't like.)

For those with a more philanthropic turn of mind, there is also the Federal Bureau of Investigation tip line where you can leave information about anyone voicing (or writing down) anti-American, anti-capitalism and/or anti-Christianity ravings. You will, however, not be paid for doing so.

Returning to America in the early part of the 20th century, the first Red Scare produced a number of contradictory court rulings, some upholding convictions based on espousing one's beliefs and others ruling that Americans do indeed have free speech. Perhaps the most famous person to be imprisoned for exercising his First Amendment rights at the time was labor leader and Socialist Party candidate for president, Eugene V. Debs. Debs ran for president for his fifth and final time in 1920 while imprisoned for making a speech in 1918 against American involvement in the First World War. He received nearly 1 million votes (about 3.4 percent of the total vote). President Warren Harding subsequently commuted Debs' 10-year sentence and he was released in 1921.

The McCarthy Era came to an end after McCarthy was publicly excoriated on national television by Joseph Welch, chief counsel for the U.S. Army defending a colleague after that colleague was attacked by McCarthy as a communist. The most well-known section of Welch's response to McCarthy was: "Have you no sense of decency, sir, at long last? Have you left no sense of decency?"

After the exchange, McCarthy's support disappeared. He was censured by the Senate in December 1954. McCarthy finished his term in 1957 and died shortly thereafter at age 48.

In the aftermath of the September 11, 2001 attacks on the United States, the Bush administration proposed Operation TIPS. So unpopular was the idea of using service workers who install cable, repair household appliances and deliver the mail as spies for the government that Democrats and Republicans alike condemned the program. Reason, a libertarian magazine, wrote a piece about the program entitled "An American Stasi," a reference to the dreaded East German secret police famous for using a vast network of citizen spies. Operation TIPS never got off the ground.

It is one thing for the government to spy on its citizens. We Americans have come to expect that and yet abhor it and even try to roll it back through the courts and through the legislature. But it is quite another to turn neighbor against neighbor, to make refrigerator repairmen into agents of the police state, to create suspicion that fellow employees might be spies for a government that wants to curb your free speech and investigate you for it.

There is a kind of fascism that wants to force its citizens to be good fascists using the power of the government. There is another kind, even worse, that attempts to use average citizens to report on whether their neighbors are being good fascists. It is my experience that Americans hate tattletales and informers. It is therefore my hope that they will reject this latest attempt to enlist them in this freedom-killing exercise currently being pressed by the Trump administration and its (In)Justice Department.

__________________________________________

*It's difficult to see how being against fascism is somehow "un-American" as mentioned later. But it may be more relevant that self-identified Antifa activists believe that the Trump administration is fascist and therefore acting contrary to American values.

Some key metals are byproducts of mining other metals; that's a problem

noreply@blogger.com (Kurt Cobb) — Sun, 07 Dec 2025 13:29:00 +0000

When we hear the word "byproduct," it often designates something unwanted or even negative coming out of a decision or process that provides some product or outcome we do want. In the world of mining, however, byproducts are often valuable minerals produced in the course of extracting other desired minerals from their ores.

For example, zinc mines often also produce profitable quantities of lead and silver. And, it can be the other way round; gold, silver and copper mines can sometimes also contain profitable quantities of zinc. I mention zinc, in particular, because zinc mines are one source for gallium, a metal that is important for advanced semiconductors. Gallium is also used in aerospace, optical devices and medical devices. Needless to say it is in high demand and is important for military applications.

Another source of gallium is aluminum ore, usually bauxite, and it's the biggest source. What you will not find on planet earth are any gallium mines because geologic processes in the Earth simply do not allow gallium to concentrate in a manner that would create a profitable ore body. So, it turns out that no matter how high the price of gallium goes—and the price is up by almost a factor of five since 2016—its supply depends almost exclusively on the rate of extraction of aluminum and zinc ores (and not all such ore bodies have concentrations of gallium that are worth extracting).

It turns out that zinc ore is also the main source for indium, a metal currently crucial for the production of flat screens. Indium is also used in LED circuits to create blue and white light and in the semiconductor industry. A relatively small amount of indium is also recovered from certain copper ores. Like gallium, there are no indium mines. Its production depends on the rate of production of zinc and to a much smaller extent, copper.

Zinc ores are also the source of most of the world's germanium, a metal with applications in advanced semiconductors, in optics (because of its high index of refraction), in fluorescent lighting and in equipment for detecting radiation. And, of course, you guessed it; there are no germanium mines.

These three byproduct metals also share another thing in common: The dominant supplier of these critical metals to the world is China. China controls 98 percent of the production of gallium, 70 percent of the production of indium and about 60 percent of germanium production. Import dependence is therefore high for most countries that use these metals in their industries. The United States for example imports 100 percent of its gallium and indium. And, the country imports about 50 percent of its germanium needs. For the record, indium and germanium have more than doubled in price since 2016.

Some supply of these metals is obtained through recycling. But this does not appear to provide much of the world's supply. The United States and other countries are now trying to incentivize new domestic mines for many key metals. That may at some point have an indirect effect on the domestic production of the three byproduct metals mentioned above. But, so far, the focus has been on rare earth elements used for high-powered magnets, not on zinc and aluminum mines.

Perhaps more concerning is that the entire electronics industry is dependent on these metals in their current technology. It's possible that new technologies could be developed that don't require these metals. But that could take a long time, and the capital already invested in manufacturing products that use these metals is vast. Companies are going to be reluctant to abandon that investment anytime soon.

The thing about metals is that they are elements and unless you have access to the energy and pressure of something akin to the Sun, it's very hard to turn cheaper more plentiful elements into scarce ones. While we know how to transmute elements, we still don't know how to turn lead into gold at a profit. That means we'll have to do with (or do without) our current supplies which are becoming ever more precarious as China continues to dominate production of many high-tech metals and has shown that it will limit exports when the country feels it is in its interests.

Proposed East Texas water pipeline and the growing thirst for distant water

noreply@blogger.com (Kurt Cobb) — Sun, 30 Nov 2025 13:42:00 +0000

One of the ways you can claim rights to water sources is to own land next to them or over them. It seems intuitive that you should be able to dip into a river running along your property to get a drink for yourself and possibly your livestock or water for your plants and possibly your farm fields. That works so long as you don't hog too much of the river flow and your downstream neighbors can do the same as you are doing. In practice there are so many humans today demanding so much water that the amounts each person or enterprise can withdraw are usually regulated by agreement or law.

The same goes for groundwater since aquifers rarely span just one person's property and can be very large, for example, the Ogallala aquifer which lies below 122 million acres of the U.S. Great Plains.

What is not so intuitive is that water rights can belong to people far from the water itself and that the rights to that water can be traded like any commodity. That's what residents of the Neches Trinity Valleys Groundwater Conservation District in the middle of East Texas discussed recently and quite heatedly in a public meeting of district officials.

In this community in and around Jacksonville, Texas, about two hours east of Dallas, the residents were discussing permits sought by entities controlled by Dallas-based hedge fund manager Kyle Bass. Bass's plan is to withdraw about 15 billion gallons annually from the aquifer underneath the district using two properties owned by Bass, one 4,300 acres and another 7,200 acres. Texas's so-called rule-of-capture water rights allow anyone owning land over an aquifer to withdraw water from it even when this affects other landowners. (For a primer on the range of water rights in the United States, read more here.)

For now Bass's plan has been stymied by adverse court rulings that may limit or even prohibit what he proposes to do. But with huge amounts of money at stake, Bass will almost certainly appeal. Meanwhile, farmers and ranchers who make up most of those affected worry that their water supplies will be adversely affected and thereby undermine their livelihoods.

The difficult truth for Texas farmers and ranchers is that water under their lands is increasingly seen as a source for the state's growing metropolises. Grist reports that the 140-mile Vista Pipeline already moves 16 billion gallons of water per year to San Antonio from the same aquifer Bass wants to tap. The Carizzo-Wilcox aquifer runs on an angle to the southwest from East Texas to the Rio Grande. The withdrawals have adversely affected water flows from wells near where the pipeline pumps its water supply. Nearby, Austin is adding to an increasing network of pipes bringing water pumped from adjacent counties.

A logical response might be to say that people should move to where the water is rather than the other way around. But as Marc Reisner, author of the classic study of water in the American West, Cadillac Desert, observed: "Water moves uphill toward money." Reisner was, of course, referring to water that is moved up and over the Tehachapi Mountains on its way to southern California. But the point is really metaphorical and can be easily generalized.

Grand schemes have been proposed to bring Mississippi River water and water from the Pacific Northwest to the American West. Neither appears to be practical from an engineering standpoint and would be politically explosive. The timelines for completion of such projects, if they were feasible, would run in the decades.

For America's water-starved areas that leaves conservation and ever more rapid exploitation of nearby, but dwindling water resources. The farmers and ranchers are right to be worried about their water supplies. The question is, will those living in the cities seeking that water make the connection between those water resources and the ability to find what they want at reasonable prices at the grocery store—and to visit the verdant rural landscapes when they want to take trip in the countryside?

Taking a break - no post this week

noreply@blogger.com (Kurt Cobb) — Sun, 23 Nov 2025 13:01:00 +0000

I am taking a break this week and plan to post again on Sunday, November 30.

Tehran contemplates "evacuation" as many cities across the globe face water dilemmas

noreply@blogger.com (Kurt Cobb) — Sun, 16 Nov 2025 12:26:00 +0000

I've put the word "evacuation" in the title of this piece in quotes because it's not clear where Tehran's 9.8 million people or some significant number of them would evacuate to as water supplies run dangerously low. Iranian President Massoud Pezeshkian has been criticized for saying out loud how bad the situation is: "If it does not rain in Tehran by December, we should ration water; if it still does not rain, we must empty Tehran."

Doubtless Iranian water authorities will force severe restrictions on Tehran's residents if the rains—which have been 82 percent below the long term averages for the past year—do not come. And there is almost certainly room to conserve. But the relentless heat (and thus increased evaporation from reservoirs) and lack of rain are not something that can be put down to water system mismanagement unless (as you should) you count not understanding and reacting to climate change as a failure of management.

Back in 2018 Cape Town, South Africa was facing a severe water shortage for lack of rain during which the city began making announcements of a specific date which it called "Zero Day" when water would have to be shut off to most of the city. Dramatic conservation which drove water consumption down 30 percent and the return of seasonal rains saved the city (for now).

Wherever water is in short supply in urban areas, the subject of overuse becomes a hot topic. But, agriculture and thermoelectric (mostly coal and natural gas) power generation are typically the largest users taking 43 percent and 42.5 percent, respectively, of total water withdrawals in the United States, for example, from 2010 through 2020, according the U.S. Geological Survey. What may be surprising to most people is that what's called "public supply," the water that comes out of taps of homes and businesses, amounts to just 14.5 percent of consumption. When water gets short, squeezing "public supply" may be useful but far less important than addressing agricultural and power generation use over the long run.

Situations similar to what happened in Cape Town and what is happening in Tehran are now increasingly repeating themselves across the globe. Here's a recent headline: "13 U.S. Cities Facing Alarming Water Shortages That Are Being Ignored." Those cities include ones you might expect such as Phoenix, Las Vegas and Los Angeles and ones you probably wouldn't such as Salt Lake City, Denver and Atlanta. In some cases dwindling supply looms large as, for example, the shrinking Colorado River which supplies Phoenix with much of its water. In others it's rapid development which is increasingly taxing supply such as in Colorado Springs. In truth, both dwindling supply and rapid development play a role in water difficulties in most cases.

Here's another headline: "25 Countries, Housing One-Quarter of the Population, Face Extremely High Water Stress." The five most water-stressed countries not surprisingly are in or near the Middle East: Bahrain, Cyprus, Kuwait, Lebanon, Oman and Qatar. Some not so likely candidates for the extremely stressed category include Chile, Belgium and Greece. The World Resources Institute which wrote the study linked above defines water stress as follows: "Water stress, the ratio of water demand to renewable supply, measures the competition over local water resources. The smaller the gap between supply and demand, the more vulnerable a place is to water shortages."

Nearly everywhere climate change is challenging water managers who are often dealing with systems built in the last century and before that have been expanded willy-nilly without climate change in mind. If Tehran does start to empty out due to water shortages sometime next year, it will be a stark reminder that the systems we built pre-climate change are dangerously ill-adapted to the new and increasingly hostile climate.

Washington denials and AI bailouts

noreply@blogger.com (Kurt Cobb) — Sun, 09 Nov 2025 13:34:00 +0000

There's an old adage in Washington: Don't believe anything until it is officially denied. Now that the Trump administration's so-called artificial intelligence (AI) czar David Sacks has gone on record stating that "[t]here will be no federal bailout for AI," we can begin speculating about what form that bailout might take.

It turns out that the chief financial officer of AI behemoth OpenAI has already put forth an idea regarding the form of such a bailout. Sarah Friar told The Wall Street Journal in a recorded interview that the industry would need federal guarantees in order to make the necessary investments to ensure American leadership in AI development and deployment. Friar later "clarified" her comments in a LinkedIn post after the pushback from Sacks saying that she had "muddied" her point by using the word "backstop" and that she really meant that AI leadership will require "government playing their part." That sounds like the government should still do more or less what she said in the The Wall Street Journal interview.

Now maybe you are wondering why the hottest industry on the planet that is flush with hundreds of billions of dollars from investors needs a federal bailout. It's revealing that AI expert and commentator Gary Marcus predicted 10 months ago that the AI industry would go seeking a government bailout to make up for overspending, bad business decisions and huge future commitments that the industry is unlikely to be able to meet. For example, in a recent podcast hosted by an outside investor in OpenAI, the company's CEO, Sam Altman, got tetchy when asked how a company with only $13 billion in annual revenues that is running losses will somehow fulfill $1.4 trillion in spending commitments over the next few years. Altman did NOT actually answer the question.

So what possible justification could the AI industry dream up for government subsidies, loan guarantees or other handouts? For years one of the best ways to get Washington's attention is to say the equivalent of "China bad. Must beat China." So that's what Altman is telling reporters. But that doesn't explain why OpenAI instead of other companies should be the target of federal largesse. In what appears to be damage control, Altman wrote on his X account that OpenAI is not asking for direct federal assistance and then later outlines how the government can give it indirect assistance by building a lot of data centers of its own (that can then presumably be leased to the AI industry so the industry doesn't have to make the investment itself).

Maybe I'm wrong and what we are seeing is NOT the preliminary jockeying by the AI industry and the U.S. government regarding what sort of subsidy or bailout will be provided to the industry. Lest you think that the industry has so far moved forward without government handouts, the AP noted that subsidies are offered by more than 30 state governments to attract data centers. Not everyone is happy with having data centers in their communities. And, those data centers have also sent electricity rates skyward as consumers and data centers compete for electricity and utilities seek additional funds to build the capacity necessary to power those data centers. Effectively, current electricity customers are subsidizing the AI data center build-out by paying for new generating capacity and lines to feed energy to those data centers.

The larger problem with AI is that it appears to have several limitations in its current form that will prevent it from taking over much of the work already done by humans and preclude it from being incorporated into critical systems (because it makes too many mistakes). All the grandiose claims made by AI boosters are dispatched with actual facts in this very long piece by AI critic Ed Zitron.

I am increasingly thinking of AI as a boondoggle. A boondoggle, according to Dictionary.com, is "a wasteful and worthless project undertaken for political, corporate, or personal gain." So far, the AI industry mostly fits this definition. But there is a more expansive definition which I borrow from Dmitri Orlov, author of Reinventing Collapse: A contemporary boondoggle must not only be wasteful, it should, if possible, also create additional problems that can only be addressed by yet more boondoggles—such as the need for vast new electric generation capacity that will be unnecessary if AI turns out to be far less useful than advertised. AI boosters say that AI is going to have a big impact on society. I couldn't agree more except not quite in the way these boosters think.

U.S.-China trade dispute resolution leaves China with huge leverage over global electronics industry

noreply@blogger.com (Kurt Cobb) — Sun, 02 Nov 2025 11:45:00 +0000

Back in 2019 the United States had a dust-up with China regarding trade and tariffs and as part of its response China threatened to reduce export of rare earth elements (REEs) essential for many civilian and military electronics. The Chinese then as now held a dominant position in the mining and processing of these metals. China did not carry through on its threat and by early 2020 both nations signed an agreement that deescalated the trade war.

Fast forward to today and we have China and the United States deescalating a trade dispute far broader in its scope with both sides reducing tariffs and China agreeing to drop its restrictions on exporting REEs to the United States. But none of this alters China's stranglehold on REEs production and mining. And China's return to exporting these strategic metals means its dominant position in that market gives it continuing power over key electronic industries worldwide that are dependent on Chinese supplies. China currently controls 69 percent of the REEs mine production and almost 90 percent of the processing of these elements.

To guard against ongoing dependence on Chinese supplies, the Trump administration has provided capital for a facility that will produce high-strength magnets made from REEs for delivery to the U.S. military by becoming part owner of the only operating REEs mine in the United States. The U.S. Department of Defense (DOD) will guarantee prices that are almost twice the current world price for such magnets for 10 years. This move was followed by a DOD award to U.S. company developing facilities to increase production of scandium, niobium, and titanium, the first of which is an REE. Investors believe there are more investments to come in other companies by the U.S. government.

The price guarantee offered by the Trump administration is crucial because with the return of China to the REEs market prices are likely to stay low by historical standards. China's low-cost mines and processing have allowed it to dominate the market and so historically low prices allow China to keep other countries with high-cost deposits from developing them. And that's what's missing from the Trump administration strategy. It only focuses on the needs of the military. The broader U.S. consumer and business electronics industries remain dependent on Chinese supplies, supplies that could be upended at any time.

Of course, the same is true for the entire global electronics industry unless non-China producers can come up with a coordinated strategy—which will almost certainly involve price guarantees over long periods in order to break the Chinese near monopoly on REEs. And this would require the governments of the countries in which these non-China producers operate to engage in the kind of industrial policy that they are not used to and that their neoliberal devotion to free markets tells them not to engage in.

But in a world of increasing resource nationalism governments that don't secure supplies of critical materials for their industries will likely find themselves at the mercy of those who embrace resource nationalism. This trend also runs counter to globalization and suggests that more of the value added to raw materials will be added closer to where those materials are sourced.

How did U.S. 'energy dominance' turn into rising domestic natural gas prices?

noreply@blogger.com (Kurt Cobb) — Sun, 26 Oct 2025 11:57:00 +0000

The noticeable upward tilt in graphs of the U.S. natural gas price since April 2024 is likely a hint of things to come for U.S. consumers of energy. That's because record amounts of U.S. natural gas are now being sent abroad in the form of liquefied natural gas (LNG). And much more export capacity is planned. The U.S. Energy Information Administration forecasts that U.S. LNG export capacity will double by 2029. That's all gas that cannot be delivered to American users.

I have written about these trends (see here, here, here and here) and predicted they would mean considerably higher heating and electricity costs for Americans and much higher costs for American-based chemical manufacturers; for industries that rely on natural gas for process heat in the manufacture of steel and other metals, concrete, and glass; and for farmers who use natural gas to dry crops.

There's been a lot of talk about U.S. "energy dominance" by which the current administration means policies that maximize production, maximize exports, and yet somehow "reduce energy costs" at the same time. It's the "reduce energy costs" part that is now running into trouble.

A central cause of rising U.S. natural gas consumption (and ultimately prices) is the vast expansion of natural gas-fired power plants by American utility companies. From 2001 through 2024 electricity generated by natural gas has almost tripled while coal-generated electricity has declined dramatically and nuclear and hydroelectric generation have plateaued. Renewables (not including hydroelectric) grew 10-fold in that period, now nearly matching nuclear in percentage terms, nuclear at 18 percent and renewables at 17 percent. But, today natural gas is by far the leading fuel for electricity generation in the United States providing 43 percent of the country's electricity.

Cheap natural gas provided by the so-called "shale revolution" in the United States that began in the late 2000s has also prompted considerable expansion of the chemical industry which uses natural gas to make agricultural chemicals (especially fertilizers), methanol, and chemicals such as ethylene and propylene used to produce plastics.

And, of course, Americans continue to use copious amounts of natural gas to heat their homes and businesses.

All that rising consumption spells trouble for American consumers when it comes to energy costs. The natural gas industry has been telling the public that domestic natural gas production will continue to rise dramatically through mid-century. But independent analysis based on the actual performance of gas wells suggests that production will plateau and then decline in the not-too-distant future. That would produce a double squeeze on natural gas supplies as LNG exports continue rise in the face of falling domestic natural gas production leaving less for U.S. natural gas consumers.

When the natural gas industry sold the story of endless abundance in order to get the U.S. Department of Energy to allow expansion of natural gas exports, it knew that such a move would increasingly link U.S. domestic prices to the much higher global prices. In fairness, the industry was simply asking for what had been granted to almost all other American industries, namely, the right to sell products to the highest bidders no matter where they may be.

In an age of increasing focus on the importance of domestic production of strategic resources, the U.S. government may yet come to regret its decision to commit so much of America's natural gas resources to other countries. Will there come a day when the anger of American consumers over high energy costs due to rising natural gas prices causes the government to force LNG exporters to abrogate their export contracts and keep that gas in America for consumption by American households and American businesses? The clock is now ticking.