Part 2. Libya: What happens post-Khalifa Haftar?

In Part 1, I discussed what is happening in Libya. The short answer is that the commander of the LNA in the east, Khalifa Haftar, is suffering from health problems, which came to light on Tuesday, April 10th.

This blog post looks at what may happen post-Haftar.

Al Jazeera on April 16th did some interesting analysis of the situation should Haftar lose power.

Outcome 1: Another tribe in the east called Awaqir might try to gain control of the GNA. It happens to be the largest tribe in the area.

Outcome 2:  The GNA might try to consolidate its power across both the east and the west.

Outcome 3: Haftar has the support of Egypt. They would want to replace him with someone favorable to them.

Reuters on April 18th reported:

A car bomb hit the convoy of the chief of staff of the eastern Libyan military outside Benghazi on Wednesday, killing one person and wounding at least two other people, though he himself survived, security and military officials said.

I'd highlight that within one week of Haftar's hospitalization, there were already attempts to gain power in the region.

The New York Times reported on the situation on April 19th and provided some interesting tidbits about the politics in the region.

Although General Hifter styles himself as a military virtuoso who forged Libya’s only disciplined army, in practice his Libyan National Army is a loose coalition of militias headed by strong-willed commanders. Now, every day that he is absent from Benghazi, speculation grows that his coalition could crack as rival commanders turn on each other.

For several years France openly sided with General Hifter, to the detriment of the United Nations-backed unity government in Tripoli, in an effort to project French power while forming alliances with local forces fighting Islamist extremism. More recently, Paris has taken a more evenhanded approach.

Like Al Jazeera, The New York Times discusses the fact that Haftar (they spell his name Hifter) was able to keep a number of militias together as the LNA. If he should fall out of power, will these militias really stick together?

It is also interesting to read about France's position in Libya. They also were part of the coalition that sent missiles into Syria. And France took the lead in dealing with the situation that arose last year with the Lebanon Prime Minister.

CNBC also discussed the situation on April 18th.

For rival forces waiting for the news on Haftar, this may be their window, and the country could witness a rush to target oil infrastructure and disrupt operations in the event of his death. Eurasia Group estimates this would lead to a decline in average production in Libya from 1.1 million bpd in 2018 to roughly 900,000 "in the most benign scenarios."

Being a business cable station, CNBC focuses the situation on oil. A decline of 200,000 bpd is rather significant considering that production cuts by OPEC/Russia are at 163% of goals and world stockpiles might decline by 1.3 million barrels per day under the current situation. Libya production declines would just cause that decline to gain strength.

My opinion (assuming that Haftar is at a minimum going to have far less power than he had before April 10th, Tuesday) is the 200,000 bpd is the likely outcome in the short-term. Yes, I could see infighting, but oil brings in money and so it creates strange bed fellows. It is likely that the various factions in the East will agree to keep the operations going though disagreements will erupt, which will result in the production decline. These disagreements will revolve around how much money each faction gets. They'll likely want more than they currently get, which if the disarray last long enough will slowly make the declines in production worse as not enough money will be spent on capital expenditures.

Part 1. Libya: What's going on with Khalifa Haftar - the Situation?

Libya is basically divided into two main factions: in the east you have the Libyan National Army (LNA), which is ruled by Khalifa Haftar who has the support of Egypt. To the west, in Tripoli, you have the U.N. backed government, known as the Government of National Accord (GNA). Then you have a bunch of factions such as ISIS and loyalists to Gaddafi scattered across the country.

Now one of those factions is perhaps on the verge of chaos. The LNA may have lost their commander, Khalifa Haftar. The question is his health. He is in either excellent health or just ill or in poor health or dead. What we do know is that he is in France and not Libya.

Part 2: Oil Prices to Rise in 2nd Half 2018?

Part 1 of this blog dealt with potential supply issues for the 2nd half of 2018. Let's start this blog post off by looking at a suggestion that the world should drive down oil prices due to international issues.

I was flipping the channels and came across CNN on Saturday morning (4/14). Former CIA Director Woolsey was on. He was specifically talking about Syria and Russia, but oil came up in the conversation. Here's what he had to say on the topic:

I don't know if it's the plan, but I know what I think would have a much larger effect on the approach toward complying with the U.N. resolutions and the rest for Iran and for Syria and for Russia, which is to work hard on lowering the price of oil down into, say, the 40s instead of up in the 60s and 70s. Once you can do that, and I think there are good ways to do it, you have a Russia and a Syria that are about as sad as national governments get because that's all they have to sell and you drive the price down by a third of -- you have a not particularly assertive Russia and Syria I think and Iran in front of you.

Part 1: Oil Prices to Rise in 2nd Half 2018?

Are oil prices set to rise in the 2nd half of 2018?

Via Bloomberg, oil inventories are set to decline (via an OPEC report):

First: OPEC members production dropped by 201,400 barrels per day (bpd) in March 2018 versus February 2018.

Second: Venezuela is producing 480,000 bpd below their quota. Ouch.

Iraq: Kurds, ISIS, Mosul

What's going on in Iraq since the fall of ISIS in Mosul?

ISIS

Via Reuters, ISIS is still hanging around the border of Iraq and Syria. Here's an interesting quote from the article:

An expert close to the Baghdad government told Reuters last week that Iraq may carry out special forces operations against Islamic State militants in Syria.

At this point, a number of foreign armies are in Syria: Iran, Russia, Turkey and the United States. And now Iraq might head on in. President Trump did say recently he wanted to pull out of Syria; however, there is still a lot of occupation going on in that country.

MOSUL

The Atlantic looks at the aftermath of the battle for Mosul via civilian casualties. Here's a quote:

In December 2017, the Associated Press estimated that 9,000 to 11,000 civilians had died in the battle—an estimate nearly 10 times higher than what had been officially reported. At least a third of those deaths, the AP found, came as a result of coalition or Iraqi bombardments. In a separate investigation, NPR reported that the city morgue had recorded the names of 4,865 individuals on death certificates, dating between October 2016 and July 2017, and estimated that more than 5,000 civilians had been killed.

The article appears to put the high number of civilian deaths on two issues.

First, better trained Iraqi forces were more careful about civilian deaths, but their troop levels were hit by heavy casualties. Then those with less training were sent in and they didn't care about civilians as much. What isn't mentioned, and I have to wonder, was there also an issue of Shiite vs. Sunni -- Shiite being the troops and Sunni being the civilians?

Second, Presidents Obama and Trump expanded who could make the call on military strikes.

I do wonder on the other hand: if the fighting was more strategic, how much longer would ISIS have held on to Mosul territory and would we now instead be talking about the mass starvation that took place?

Kurds

It would seem that the Kurds and the Iraqi government are building towards better relations. If one recalls, the Kurds held an independence vote. The Iraqi military (with help from Iran) took back control of Kirkuk from the Kurds. Now we have this via Reuters:

The 2018 budget, passed in parliament earlier this month despite a boycott by Kurdish lawmakers, calls for the 17 percent of total revenue allocated to the Kurds to be cut in line with the region’s share of Iraq’s population, which is disputed.

The New York Times also has an article about this détente. There's this quote:

In an interview outside his home village on Tuesday, Masoud Barzani, the former president of the Iraqi Kurdish region and still a central political figure, struck his own note of conciliation and hailed this week’s agreement as a “breakthrough.”

Why would Iraq allocate revenue to the Kurds after all the issues with the independence vote and Kirkuk? Is this being driven by the United States? Iran? Is the Kurdish political party PUK now in power -- which I suspect is more pro-Iraq/Iran? I'll have to dig into this in the future.

Venezuela: China Involvement

In Venezuela, the United States is often blamed for all the ill that happens in that country. This has happened for years from Hugo Chavez to Nicolas Maduro.

At what point will Venezuela start blaming China? This article at the Center for Strategic & International Studies looks at the growing influence of China in Venezuela. Here are some interesting facts from the article:

First: China currently owns $23 billion worth of Venezuela's foreign debt, making it the country's biggest creditor. Not the US, China.

Second: China has lent the Venezuelan energy industry $55 billion.

Tesla: Some Amusing/Positive News

Tesla has take a lot of PR hits lately, but there is some amusing/positive news out there.

Elon Musk sure hasn't lost his sense of humor through all this. Via Marketwatch, he posted a series of April Fools' Day jokes on Twitter. Perhaps the best one: Tesla Goes Bankrupt Palo Alto, California, April 1, 2018 -- Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt you can't believe it.

This Bloomberg article has some negative notes, but also has this positive take where customers are still hyped about their Teslas:

From the looks of social media posts by customers who took delivery of their Model 3 over the holiday weekend, Tesla still maintains an army of true believers who are staying put in line for their car. “Two years ago to the day, I put down a deposit on a car I’d never even seen before,” Amanda Bell, a software developer in Nashville, wrote Saturday on Twitter. “Today, I picked up my dream car.”

And Wired puts the recent bolts recall into context.

The truly troubling problems are the really big ones, like the Takata recall, in which tens of millions of cars were equipped with airbags that could malfunction and fire shrapnel into the people they were meant to protect when they deployed. A few years ago, General Motors had to recall nearly 30 million cars around the world because of a faulty ignition switch, which could turn off while driving and deactivate the airbags.

Based on what I've read, I agree with Wired, the bolts issue seems to be getting way too much hype.

Tesla: Hype Colliding with Reality?

Tesla has been making news recently and for all the wrong reasons. This has impacted their stock price which hit a 52-week high of $389.61(per Yahoo Finance) last year, but over the last few weeks has slammed lower and as of end of day trading Thursday (29 March 2018) was at $266.13.

Now, of course, people have been betting against Tesla for awhile. As per Bloomberg (13 December 2017), James Chanos has been betting against Tesla for more than a year. From the article, it seems to date back to at least September 2016. (Let's be honest, the stock was trading around $200 at the time.) The money quote is: Tesla "is headed for a brick wall."

Here are some other quotes from the article:

When Tesla was in the process of merging with SolarCity Corp. in September 2016, he said the combined company would be a “walking insolvency.”

Chanos said he also believes that Tesla is behind when it comes to self-driving vehicle technology.

Sweden: A New York Times article

A month ago, I wrote two blog posts on Sweden. I posted articles from Mother Jones, Reuters, The Local (a Swedish site) and The Times (UK). Here's an article from the New York Times (3 March 2018) and some of the major points are:

1. Gang violence is moving outside of the poorer parts of Sweden.

2. Weapons are entering Sweden via the Oresund Bridge, which links Denmark and Sweden (specifically the city of Malmo). In my previous blog posts, I mentioned that Malmo is the focus of the violence.

Pension Problems: Santa Cruz, CA

I was scanning through Pension Tsunami and came across a couple articles on Santa Cruz and their pension problems. I happened to spend a couple months up in Santa Cruz and so have an interest in the area. I decided to read the articles.

First up is the Sacramental Bee that uses the word "clobbered" in the headlines. As with many cities, health and retirement costs are a growing part of the budget. The article mentions that as a percent of general fund salary it has grown from 28% in 2004 to an estimated 58% in 2020. That's a touch above a double.

To me, the following is the killer quote:

With operating costs, particularly for pensions, continuing to outpace revenues, even during a generally upbeat economy, city officials projected budget deficits growing to more than $20 million a year by 2021.

Libya Update: March 2018

The last time I posted on Libya was back in January. I figured it was time to see what is going on in that country. Reuters has an article up about Sabha, what they call a southern city. Honestly, when I looked up the city on the map, it appears to be more in the middle of the country versus the south of the country. Based on Wikipedia, the city has a population of 130,000. Fighting has occurred in the city between forces loyal (Sixth Division) to the Libyan National Army (LNA) and the Tebu ethnic group.

A reminder is that the LNA is the government in Eastern Libya. There is also the Government of National Accord (GNA), which is the internationally recognized government in Tripoli.

South East and East Asia Oil Decline

Though oil production is expected to increase in the US due to shale production, other areas of the world are expected to see declining oil production. I happened to come across this Rystad Energy report projects that oil product will decline by 20% between 2017 - 2025. (This 20% decline includes oil and gas.) The report mentions that production has been declining since 2015. From 2017 to 2025, production is expected to decline from 13.1 million boe/d to 10.4 million boe/d.

What's driving this decline in production? Well, lack of discovery. The report mentions that in 2012, over 1 billion boe reserves were discovered. In 2017, the figure dropped to 300 million boe. This is driven by a lack of spending, which has dropped from $160 billion in 2013 to $101 billion in 2015-2016.

This forecasted decline got me interested so I did some research. Oil Price had a post from Aug 2016 that discussed how the oil majors were leaving the area.

BP: Oil Outlook 2040

BP recently came out with their 2040 energy report. For the purposes of this blog, I'm most interested in their oil outlook. From what I can tell from the data, their forecast is that oil demand will peak between 2035 - 2040. The reason for the range is that their oil consumption is forecasted in 10 year increments so they're not providing yearly forecasts from 2030 to 2040.

For example, 2030 is at 4,864 million tonne of oil equivalent (toe). All energy sources is at 16,317 toe.

In 2040, oil declines to 4,836 (toe). All energy sources increase to 17,983.

So obviously sometime between 2030 to 2040, oil consumption declines.

Venezuela: Oil Industry Employees

In recent posts, I've made reference to Venezuelan oil industry employees.

I quoted an article that stated a former mechanic made more money busking in Colombia versus working in Venezuela.

I mentioned another article that said 10,000 left their jobs in one week.

Well, Bloomberg recently had an article digging into this topic even more. Here are some of the points:

1. One reason why oil production is dropping in Venezuela is hunger. The oil industry is physically demanding. With hyper-inflation, employees aren't able to afford food. Without enough calories and a balanced diet, employees just can't do their work.  To describe the situation, the article uses words like "passing out," "weak," "fainted," and "fatigued."

2. The article doesn't mention anything about 10,000 people leaving in one week, but it does mention numbers like 500 leaving over 12 months or 10 people resigning in a month. What is one interesting sentence is the following: There are 263 plant operators remaining and 180 vacancies at the Puerto La Cruz refinery, he said. That's 40% of positions unfilled. I have to think that at that level, there are plenty of necessary duties that aren't being done and therefore the refinery is becoming less and less productive.

3. An interesting quote is: Those who quit without notice risk losing their pensions, as bureaucrats refuse to process paperwork . . . In one human resources office, a sign advertised a limit of five resignations a day.

My thought on that: in a world of hyper-inflation, would the risk of losing your pension really be a reason not to leave? I don't know how much those pensions are worth, but I have to believe that one could probably live better in another country -- like I've mentioned, a person was able to make more money busking in Colombia versus working in Venezuela. I mean, generally, don't pensions provide you with less money than what you used to make working? Of course, this is Venezuela versus the US. But if you are starving on your current salary, wouldn't it be even worse on a pension?

Venezuela: Oil Production at near 30 Year Lows

It isn't news that Venezuela is in economic chaos. People are fleeing the country. And now oil production is near a 30 year low. Per CNN:

The country's oil output in January fell to its lowest level in nearly 30 years, not including a brief oil strike in 2003, according to S&P Global Platts. A monthly OPEC report published Monday revealed Venezuela pumped 1.6 million barrels of oil per day last month. Production in January was down 20% from a year ago.

The article also points out that 95% of all Venezuelan exports is oil.