HSBC and Citibank aided firm at center of international bribery scandal

Huffington Post reports: No business can operate without bankers — not even the bribery business.

British financial giant HSBC and American bailout kingpin Citibank processed transactions, managed money and vouched for Unaoil, a once-obscure firm that is now at the center of a massive international corruption scandal. Police raided Unaoil’s Monaco offices and interviewed its executives on Thursday, a day after The Huffington Post and Fairfax Media first exposed the company’s practices. Law enforcement agencies in at least four nations are involved in a wide-ranging probe of the company and its partners.

Halliburton, KBR and other corporate conglomerates relied on Unaoil to deliver them lucrative contracts with corrupt regimes in oil-rich nations. But without the help of banks like HSBC and Citibank, none of Unaoil’s operations would have been possible. [Continue reading…]

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Global investigation launched on bribery and corruption in the oil industry

Fairfax Media and the Huffington Post report: he FBI, US Department of Justice and anti-corruption police in Britain and Australia have launched a joint investigation into revelations of a massive global bribery racket in the oil industry.

The news comes as Fairfax Media and The Huffington Post can reveal that US giant Halliburton and its former subsidiary Kellogg, Brown & Root are embroiled in the Unaoil bribes-for-contracts scandal through their operations in former Soviet states.

The biggest leak of confidential files in the history of the oil industry also unveils rampant corruption inside Italian oil giant Eni in many of the countries in which the firm has been contracted by national governments to manage their oilfields.

Texas firm National Oilwell Varco, Singapore conglomerate Keppel, Norway’s Aker Kvaerner and giant Turkish joint venture GATE are also implicated. Information from hundreds of thousands of emails to Unaoil’s chief executive, Cyrus Ahsani, show individual executives and managers from Halliburton and Kellogg Brown & Root (KBR), which split in 2007, knew or suspected that Unaoil was acting corruptly to win contracts in Kazakhstan.

Managers from Eni, Spanish Firm Tecnicas Reunidas, French firm Technip, drilling giant MI-SWACO and Rolls-Royce not only actively supported bribery but were offered, or pocketed, their own kickbacks. And US defence giant Honeywell and Australian firm Leighton Offshore agreed to hide bribes inside fraudulent contracts in Iraq. [Continue reading…]

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Leaks reveal industrial scale bribery operation involving major U.S., European and Asian companies

oil-industry

Fairfax Media and The Huffington Post report: A massive leak of confidential documents has for the first time exposed the true extent of corruption within the oil industry, implicating dozens of leading companies, bureaucrats and politicians in a sophisticated global web of bribery and graft.

After a six-month investigation across two continents, Fairfax Media and The Huffington Post can reveal that billions of dollars of government contracts were awarded as the direct result of bribes paid on behalf of firms including British icon Rolls-Royce, US giant Halliburton, Australia’s Leighton Holdings and Korean heavyweights Samsung and Hyundai.

The investigation centres on a Monaco company called Unaoil, run by the jet-setting Ahsani clan. Following a coded ad in a French newspaper, a series of clandestine meetings and midnight phone calls led to our reporters obtaining hundreds of thousands of the Ahsanis’ leaked emails and documents.

The trove reveals how they rub shoulders with royalty, party in style, mock anti-corruption agencies and operate a secret network of fixers and middlemen throughout the world’s oil producing nations.

Corruption in oil production – one of the world’s richest industries and one that touches us all through our reliance on petrol – fuels inequality, robs people of their basic needs and causes social unrest in some of the world’s poorest countries. It was among the factors that prompted the Arab Spring.

Fairfax Media and The Huffington Post today reveal how Unaoil carved up portions of the Middle East oil industry for the benefit of western companies between 2002 and 2012. [Continue reading…]

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How Saudi Arabia turned its greatest weapon on itself

Andrew Scott Cooper writes: For the past half-century, the world economy has been held hostage by just one country: the Kingdom of Saudi Arabia. Vast petroleum reserves and untapped production allowed the kingdom to play an outsize role as swing producer, filling or draining the global system at will.

The 1973-74 oil embargo was the first demonstration that the House of Saud was willing to weaponize the oil markets. In October 1973, a coalition of Arab states led by Saudi Arabia abruptly halted oil shipments in retaliation for America’s support of Israel during the Yom Kippur War. The price of a barrel of oil quickly quadrupled; the resulting shock to the oil-dependent economies of the West led to a sharp rise in the cost of living, mass unemployment and growing social discontent.

“If I was the president,” Secretary of State Henry Kissinger fumed to his deputy Brent Scowcroft, “I would tell the Arabs to shove their oil.” But the president, Richard M. Nixon, was in no position to dictate to the Saudis.

In the West, we have largely forgotten the lessons of 1974, partly because our economies have changed and are less vulnerable, but mainly because we are not the Saudis’ principal target. Predictions that global oil production would eventually peak, ensuring prices stayed permanently high, never materialized. Today’s oil crises are determined less by the floating price of crude than by crude regional politics. The oil wars of the 21st century are underway. [Continue reading…]

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Michael Klare: A take-no-prisoners world of oil

It’s evident that we’re still on a planet where oil rules. The question increasingly is: What exactly does it rule over? After all, every barrel of oil that’s burned contributes to a fast-approaching future in which the weather grows hotter and more extreme, droughts and wildfires spread, sea levels rise precipitously, ice continues to melt away in the globe’s coldest reaches, and… well, you know that story well enough by now. In the meantime, Planet Earth has a glut of oil on hand and that, it turns out, doesn’t mean — not for the major oil companies nor even for the major oil states — that the good times are getting ready to roll.

Of all the powers struggling with that oil glut and the plunging energy prices that have gone with it, none may be more worth watching than Saudi Arabia. While exporting its own extremists and its extreme brand of Islam from Afghanistan to Syria, and lending a decades-long hand to the destabilization of the Greater Middle East, that kingdom has itself been a paragon of stability. Nothing, however, lasts forever, and so keeping an eye on the Saudis is a must. That’s especially so since the latest version of the royal family has also made what might be called the American mistake (with the backing of the Obama administration, no less) and for the first time plunged the Saudi military directly into a typically unwinnable if brutal war in neighboring Yemen. Combine the destabilizing and blowback effects of wars that won’t end, including the Syrian one, and of oil prices that refuse to rise significantly and, despite the kingdom’s copious money reserves, you have a formula for potential domestic unrest. Already the royals are cutting their domestic subsidies to their own population, pulling billions of dollars in aid out of Lebanon, and exploring a possible $10 billion bank loan.

As TomDispatch’s invaluable energy expert Michael Klare suggests today, when oil prices began plummeting in 2015, the Saudis launched an “oil war of attrition,” imagining that others would be devastated by it (as OPEC partners Nigeria and Venezuela already have been) but that the royals themselves would emerge triumphant.  Should the unimaginable happen, however, and should the kingdom itself begin to come unglued in a Greater Middle East that is increasingly the definition of chaos — watch out. Tom Engelhardt

Energy wars of attrition
The irony of oil abundance
By Michael T. Klare

Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.

The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity.  The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations.

[Read more…]

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Putin’s reward for doing a deal with OPEC overshadowed by risks

Bloomberg reports: Neither a recession nor a collapse in revenue has yet been enough to convince Russian President Vladimir Putin that it’s time to join with OPEC and cut oil output to boost prices. His reasons may be pragmatic rather than political.

Russia’s Energy Minister Alexander Novak and his Saudi Arabian, Venezuelan and Qatari counterparts agreed to freeze output at January levels on Tuesday. The world’s second-largest crude producer faces numerous obstacles to any deal that would actually cut production, even if Putin decides it’s in the national interest. Reducing the flow of crude might damage Russia’s fields and pipelines, require expensive new storage tanks or simply take too long.

In Siberia, Russia’s main oil province, winter temperatures can go below minus 40 degrees Celsius (minus 40 Fahrenheit). That’s a challenge for anyone thinking of turning off the taps.

The oil and gas that flows from wells always contains water, so once pumping stops, pipes may freeze, Mikhail Pshenitsyn, who has worked for more than 10 years in the Russian oil industry, said by e-mail. The problem goes away in summer, but there’s still the risk of a long-term reduction in output because a halted reservoir can become polluted with salts and residues, he said.

Production from a shut-in well might never be restored in full, Maxim Nechaev, director for Russia at consulting firm IHS Inc., said by phone. [Continue reading…]

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Oil nations feel the strain of  OPEC’s continuing price war

The Telegraph reports: Oil is arguably Saudi Arabia’s best weapon against both Russia and Iran. Although the kingdom’s finances are under severe strain from the collapse in export revenues it can still fall back on its $655bn (£423bn) of foreign assets while Russia and Iran will feel the impact of another year of weak oil prices more acutely.

After a year of carnage in the oil industry, it is now clear that it will take more time for Al-Naimi’s strategy of allowing weaker prices to do the job of totally shutting down higher cost producers.

A 60pc slump in oil prices since last November has caused havoc but the main target of Opec ‘s campaign, shale oil in the US, has so far proved to be remarkably resilient.

Hardest hit have been the high cost producers in areas such as the North Sea where prices below $50 per barrel have placed the entire offshore industry at risk.

Energy consultant Wood Mackenzie now fears that 140 fields in the waters off north-east Scotland, where oil has been pumped since the 1970s, could be closed down over the next five years if oil prices remain so low. [Continue reading…]

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The crude reality of declining crude oil prices

Hisham Melhem writes: The crashing price of oil, which dominated the world of energy in the last six months, and promises to stay with us for much of 2015, has brought cheers to American consumers and tears to the oil tsars of Russia, Iran and Venezuela in particular. If the price of oil remains in the neighborhood of $60 per barrel (bbl) for much of this year, the economic impact on Russia, Iran, Venezuela and maybe Iraq, Algeria, Nigeria and Libya could be ruinous. The sharp decline in oil revenues could force both Russia and Iran to review and maybe reduce their financial and material support for the Assad regime in Syria. Some optimists speculated that the crude reality brought about by the changing energy landscape may force Iran to show more flexibility in its nuclear negotiations with the P 5 + 1 in return for a quicker process of sanction relief. The precipitous fall in the price of oil has forced governments all over the world as well as the international financial institutions to review their investments and risk assessments for 2015 and beyond.

The foreign currency reserves that Saudi Arabia, the United Arab Emirates and Kuwait have accumulated will help them navigate the turbulent markets in the immediate future, but even these economies will be forced to adjust their balance payments and maybe cut back on subsidies and social programs, in the absence of a market “correction” that would restore the price range that prevailed in the last 5 years. A sustained low price of oil could lead a country like Venezuela to default on its debts, a severe contraction in the Russian economy, and dramatic and unprecedented consequences on the Iranian economy, which is – like Russia’s economy- already teetering because of painful international sanctions. In Iraq, Libya and Yemen, very low oil prices could plunge these countries deeper into violence. So far, the three largest economies in the world; the United States, China and Japan (two major importers of oil) have benefitted from the decline of oil prices. However, if the current low price prevails for some time, this could impact those American companies that have invested large resources in the production of shale oil in States like Texas and North Dakota, who incur higher production costs.

The story of energy, specifically the production of oil and gas in the last 20 years has been one of wild transient fluctuations in global oil prices. Prices swung from a record high of $145 bbl in July 2008 to a precipitous low of $30 bbl in December of the same year in the wake of the financial crisis. The price of oil completely collapsed in 1998 to an incredible low of $10 in the middle of the Asian economic crisis. Last June, the price of Brent crude hovered around $115, by January 2, benchmark Brent has plummeted to $57.11 bbl. But for all the turmoil in the energy markets in the last few decades, most analysts kept saying that the “fundamentals” of the market i.e. energy prices will continue to rise, that the market will remain susceptible to the production levels of the Organization of the Petroleum Exporting Countries (OPEC) and other major producers notably Russia, and that we are not likely to see a radical change in this supply model any time soon. But a “made in America” revolution may be changing some of the old energy assumptions. [Continue reading…]

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Venezuela, Iran, and Russia hit hard by plunging oil prices

Following OPEC’s decision not to cut oil production, Daniel Yergin writes: No country clamored more loudly for OPEC production cuts than Venezuela. Once an oil powerhouse, Venezuela depends on oil revenues for up to 65% of government spending. But its production has fallen by a third since 2000. Owing to gross mismanagement, Venezuela’s economy is already in chaos, its political system in crisis and unrest is mounting. And Venezuela would be the No. 1 loser if the Keystone XL pipeline is built, as production from Canadian oil sands would displace Venezuelan heavy oil from its largest single market, the U.S. Gulf Coast refineries.

Iran also clamored loudly for a production cut. High prices earlier this year give Tehran some budget cushion, but the government has little leeway for the next fiscal year. Iran depends on oil for half of its budget, and the country is already suffering from sanctions, which have cut its oil exports almost in half. Lower prices will prolong Iran’s recession.

A few days ago President Vladimir Putin said that Russia, the world’s largest oil producer and not a member of OPEC, is preparing for lower, even “catastrophic” oil prices. Oil provides over 40% of the Russian budget, but Mr. Putin has built up foreign exchange reserves worth a few hundred billion dollars, in part to cope with an oil-price collapse. Still, in an economy that is heavily dependent on imports of food and consumer goods, the falling value of the ruble means rising prices for imports, in effect slashing the incomes of consumers. Combined with the effect of sanctions from the Ukraine crisis, this means Russia is headed for recession. [Continue reading…]

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OPEC said to consider sparing Iraq, Iran and Libya from oil cuts

Bloomberg reports: OPEC is considering exemptions for three nations from any potential oil-production cuts, two people with knowledge of the proposal said. Saudi Arabia’s oil minister said he doesn’t anticipate a difficult meeting when the group meets on Nov. 27 to decide its response to slumping crude.

Iraq, Iran and Libya wouldn’t have to reduce supplies should the Organization of Petroleum Exporting Countries agree to cut output at its gathering in Vienna, according to the people, who asked not to be identified in line with their national policies. Ali Al-Naimi, Saudi Arabia’s oil minister, told reporters in the Austrian capital yesterday that it’s not the first time the oil market has been oversupplied.

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America’s diminishing dependence on Middle East oil will be short-lived

The New York Times reports: The boom in oil from shale formations in recent years has generated a lot of discussion that the United States could eventually return to energy self-sufficiency, but according to a report released Tuesday by the International Energy Agency, production of such oil in the United States and worldwide will provide only a temporary respite from reliance on the Middle East.

The agency’s annual World Energy Outlook, released in London, said the world oil picture was being remade by oil from shale, known as light tight oil, along with new sources like Canadian oil sands, deepwater production off Brazil and the liquids that are produced with new supplies of natural gas.

“But, by the mid-2020s, non-OPEC production starts to fall back and countries from the Middle East provide most of the increase in global supply,” the report said. A high market price for oil will help stimulate drilling for light tight oil, the report said, but the resource is finite, and the low-cost suppliers are in the Middle East.

“There is a huge growth in light tight oil, that it will peak around 2020, and then it will plateau,” said Maria van der Hoeven, executive director of the International Energy Agency. The agency was founded in response to the Arab oil embargo of 1973-74, by oil-importing nations.

The agency’s assessment of world supplies is consistent with an estimate by the United States Energy Department’s Energy Information Administration, which forecasts higher levels of American oil production from shale to continue until the late teens, and then slow rapidly.

“We expect the Middle East will come back and be a very important producer and exporter of oil, just because there are huge resources of low-cost light oil,” Ms. van der Hoeven said. “Light tight oil is not low-cost oil.” [Continue reading…]

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How the NSA and GCHQ spied on OPEC

Der Spiegel reports: America’s NSA and Britain’s GCHQ are both spying on the OPEC oil cartel, documents from whistleblower Edward Snowden reveal. The security of the global energy supply is one of the most important issues for the intelligence agencies.

Documents disclosed by whistleblower Edward Snowden reveal that both America’s National Security Agency (NSA) and Britain’s Government Communications Headquarters (GCHQ) have infiltrated the computer network of the the Organization of the Petroleum Exporting Countries (OPEC).

In January 2008, the NSA department in charge of energy issues reported it had accomplished its mission. Intelligence information about individual petroleum-exporting countries had existed before then, but now the NSA had managed, for the first time, to infiltrate OPEC in its entirety.

OPEC, founded in 1960, has its headquarters in a box-like building in Vienna. Its main objective is to control the global oil market, and to keep prices high. The 12 member states include Saudi Arabia, Venezuela, Iran and Iraq.

When the NSA used the Internet to infiltrate OPEC’s computers, its analysts discovered an internal study in the OPEC Research Division. It stated that OPEC officials were trying to cast the blame for high oil prices on speculators. A look at files in the OPEC legal department revealed how the organization was preparing itself for an antitrust suit in the United States. And a review of the section reserved for the OPEC secretary general documented that the Saudis were using underhanded tactics, even within the organization. According to the NSA analysts, Riyadh had tried to keep an increase in oil production a secret for as long as possible. [Continue reading…]

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Iran threatens to close Strait of Hormuz if West imposes oil sanctions

The New York Times reports: Iran issued a blunt warning on Tuesday that it would block the Strait of Hormuz, the world’s most important oil transit point, if Western powers attempt to impose an embargo on Iranian petroleum exports in their campaign to isolate the country over its suspect nuclear energy program.

The warning, issued by Vice President Mohammad Reza Rahimi, came as Iran’s naval forces were in the midst of a 10-day war games exercise in a vast area of the Arabian Sea and Gulf of Oman. The Strait of Hormuz, a narrow passage that connects the Gulf of Oman to the Persian Gulf, is the route for one third of the world’s oil-tanker traffic.

“If Iran oil is banned not a single drop of oil will pass through Hormuz Strait,” Mr. Rahimi was quoted as saying by the official Islamic Republic News Agency at a conference in Tehran.

“We are not interested in any hostility,” he was quoted as saying. “Our motto is friendship and brotherhood, but Westerners are not willing to abandon their plots.”

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The U.S., oil and the Middle East uprisings

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OPEC rulers pay their subjects $1 trillion to keep quiet

Bloomberg reports:

Saudi Arabia will spend $43 billion on its poorer citizens and religious institutions. Kuwaitis are getting free food for a year. Civil servants in Algeria received a 34 percent pay rise. Desert cities in the United Arab Emirates may soon enjoy uninterrupted electricity.

Organization of Petroleum Exporting Countries members are poised to earn an unprecedented $1 trillion this year, according to the U.S. Energy Department, as the group’s benchmark oil measure exceeded $100 a barrel for the longest period ever. They are promising to plow record amounts into public and social programs after pro-democracy movements overthrew rulers in Tunisia, Egypt and Libya and spread to Yemen and Syria.

Unlike past booms, when Abu Dhabi bought English soccer club Manchester City and Qatar acquired a stake in luxury carmaker Porsche SE, Gulf nations pledged $150 billion in additional spending this year on their citizens. They will need to keep U.S. benchmark West Texas Intermediate crude oil at more than $80 a barrel to afford their promises, according to Bank of America Corp.

“A sharp increase in spending to accommodate social pressures has averted potential disquiet over governance in most countries, though in the longer-term economic reforms will be needed to buoy private-sector growth and job creation,” Jean- Michel Saliba, a London-based economist at Bank of America, said in an e-mail Sept. 8. “Without the social spending, Gulf protests would possibly move the nations toward constitutional monarchy.”

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