NO MEANS TO DEAL WITH GLOBAL RECESSION? HOW ABOUT A TURMOIL IN MIDDLE-EAST?

From a price of $147.27 per barrel on July 11, 2008, the price of crude oil tumbled to alarmingly low levels - levels which couldn't be explained based on any rational economic principle. Yes, there is a situation of recession in US, Euro zone, Japan but that situation can not justify a demand contraction happening overnight which should trigger a drop in crude price more than 70% below the July 11 level.

Anyway, in the aftermath of this precipitous fall from the cliff the oil companies worldwide started behaving like pansies - new E&P projects started getting put on hold, especially, projects related to non-conventional crude sources, like oilsands in Canada.

[One wonders what kind of economic model these companies follow that low crude prices prevailing even for a month sends their economic viability haywire. It is well known that economic analyses of such projects are done over the life cycle of the source of oil - the life cycle ranging from 25-40 years. So, it is hard to imagine that the oil companies chicken out just on the basis of one, two or six month period of relative low crude prices.]

More than the oil companies, most of whom have reasonably good balance sheet position, the oil producing countries are hurting more. So much so that even a country like Saudi Arabia was forced to delay the issuance of Request for Bids for their two refinery projects which were slated to go out in Q4 2008.

Iran, Venezuela and Russia are already in bad shape. Venezuela is considering to nationalise some profitable foreign owned mining leases to supplement their national revenue. Russian Rouble has plunged to unprecedented lows. Iran has had to ration their fuel supplies. Well, if these three countries find themselves in trouble it is music to West's ears.

With recession casting a pall of gloom globally, and US, Japan and Europe not knowing what to do to get out of this morass, is a crisis in the Middle-east a welcome event at the moment? Who would gain if there is a turmoil in that region? Will a military conflict, which can potentially become a full blown crisis in the region threatening to cut off oil supplies, be helpful to global economy at this time?

The world's top three GDP regions are struggling to find ways to bring about higher liquidity in the markets so as to increase aggregate demand for goods, housing and so on. So, in such a scenario will these economies not suffer a whammy by having to cope with higher crude oil prices which invariably happens whenever there is a conflict in Middle-east?

But this is exactly what is happening at the moment. Israel is going full blast at Hamas in Gaza, and there are fears that this operation might escalate. Crude prices are nudging their way upwards.

Granted that Israel will have their parliamentary elections in two months and Prime Minister Olmert is allegedly gambling on this military operation to come back in power. But the billion dollar question is: Will Israel ever carry out this kind of an operation and, more importantly, at this point in time without the knowledge and/or acquiescence of their godfather - USA? Hard to digest that they have gone ahead without keeping Washington informed.

Further, US and its lackey (UK) would have immediately figured out the consequential economic ramifications of a potential Middle-east crisis. Yet they would have apparently agreed. Why? Is there some smart Alec who theorised that should there be a disruption of sea lanes (and the trade dependent on it) leading to 'perception' of disruption of goods globally, there can be a rebound in consumer demand triggered by panic buying?

Bear in mind, consumer spending is key to the big economies getting back on track. So, if the consumer spending can be triggered for some reason it is most welcome. And, apart from increased consumer spending there is a potential of arms supply by major powers, like, US, UK and to some extent, Russia. Dollars and Pounds flowing in exchange of arms supply can grease the economic wheels of these countries. Never mind, if Russia also gets some crumbs.

Moreover, rise in crude prices will again restore the projected inflow of money for OPEC countries who will then have funds for their new oil & gas projects which will in turn be good news for vendors, contractors and EPC companies - most of which come from G-7 countries.

So, it may seem that after all a crisis in Middle-east is what the doctor ordered for at this very moment. Is it likely that this is an event which has been engendered in a scripted manner? Will it escalate? Will it suck in Hamas supporters, like, Iran and Syria? And, will this provide an opportune time to Israel (and US) to hit at Iranian nuclear facilities, since Iran is down in dumps economically?

The concern is: Will it be possible for Israel (and its allies) to play this crisis as a scripted event? If the crisis goes out of hand and/or plays outside the script what will happen? Or, are the phantom scriptwriters damn sure that they can control it right till the denouement? By the way, on the flip side, who knows, this event can end up in a whimper too without bringing in the spin-offs for the G-7 visualised so glibly in the foregoing. Let's wait and watch!