Fiatch

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Via The Oil Drum:

The value of fiat currencies erodes over time, while remaining high quality energy increases in strategic value, even if not recognized in monetary terms.  We have a monumental problem - a system whose claims on the future are higher than its real assets.

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“Venezuela’s oil output slumps under Hugo Chavez” via the Telegraph

To win allies and forge an anti-American front, Mr Chavez sells oil to friendly countries at low prices. Ironically, the only big customer buying Venezuelan oil at the full market price is the United States, which the president routinely denounces as the “Empire”.

“As production falls, the sales to the US become more important,” said Pietro Donatello, an oil analyst from Latin Petroleum in the capital, Caracas. “Only the US is paying the full amount for Venezuelan oil and in cash, the rest are in some kind of barter agreements.”

The state oil company, PDVSA, produced 3.2 million barrels per day in 1998, the year before Mr Chavez won the presidency. After a decade of rising corruption and inefficiency, daily output has now fallen to 2.4 million barrels, according to OPEC figures. About half of this oil is now delivered at a discount to Mr Chavez’s friends around Latin America. The 18 nations in his “Petrocaribe” club, founded in 2005, pay Venezuela only 30 per cent of the market price within 90 days, with rest in instalments spread over 25 years.

The other half - 1.2 million barrels per day - goes to America, Venezuela’s only genuinely paying customer.

Meanwhile, Mr Chavez has given PDVSA countless new tasks. “The new PDVSA is central to the social battle for the advance of our country,” said Rafael Ramirez, the company’s president and the minister for petroleum. “We have worked to convert PDVSA into a key element for the social battle.”

The company now grows food after Mr Chavez’s price controls emptied supermarket shelves of products like milk and eggs. Another branch produces furniture and domestic appliances in an effort to stem the flow of imports. What PDVSA seems unable to do is produce more oil.

All this means that Venezuela has missed much of the benefit from the oil boom and, now that prices are falling, Mr Chavez faces huge financial problems. Nobody is sure at what point his government would be unable to pay its bills, but most sources consulted believe this would probably happen if oil falls to $80 a barrel. Yesterday, oil was trading at $79.80.

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“This is really happening.”  Puff Daddy uses humor to deal with having peaked. (nsfw)

The above audio supplements this story:

“Russian President Dmitri Medvedev says he wants to make Russia a leading global financial center. But a series of state crackdowns on private companies have plunged Russian markets into turmoil and sent foreign investors fleeing…

“Analysts say this amounts to the latest chapter in a Kremlin campaign to impose order upon the commanding heights – strategic sectors – of Russia’s economy, which began with the destruction of the Yukos oil empire and the arrest of its politically disobedient owner, Mikhail Khodorkovsky, five years ago. As usual, opinion is starkly divided over the government’s intentions, with defenders arguing that the goal is to enforce the law in Russia’s unruly business jungle. Critics, pointing to past cases, suggest that when the dust settles, assets formerly held by private interests are likely to be transferred to Kremlin-controlled companies.”

“Kremlin corporate crackdown sends markets tumbling” via the CSM

Jim Rogers on dollars, China, oil, the Fed, etc. July 08