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“Shutting Down the Gulf Oil Trade: All Iran Needs to Do to Destroy the World Economy”

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“Shutting Down the Gulf Oil Trade: 
All Iran Needs to Do to Destroy the World Economy”
by Pepe Escobar
“Sooner or later the US “maximum pressure” on Iran would inevitably be met by “maximum counter-pressure”. Sparks are ominously bound to fly. For the past few days, intelligence circles across Eurasia had been prodding Tehran to consider a quite straightforward scenario. There would be no need to shut down the Strait of Hormuz if Quds Force commander, General Qasem Soleimani, the ultimate Pentagon bête noire, explained in detail, on global media, that Washington simply does not have the military capacity to keep the Strait open.
As I previously reported, shutting down the Strait of Hormuz would destroy the American economy by detonating the $1.2 quadrillion derivatives market; and that would collapse the world banking system, crushing the world’s $80 trillion GDP and causing an unprecedented depression.
Soleimani should also state bluntly that Iran may in fact shut down the Strait of Hormuz if the nation is prevented from exporting essential two million barrels of oil a day, mostly to Asia. Exports, which before illegal US sanctions and de facto blockade would normally reach 2.5 million barrels a day, now may be down to only 400,000.
Soleimani’s intervention would align with consistent signs already coming from the IRGC. The Persian Gulf is being described as an imminent “shooting gallery.” Brigadier General Hossein Salami stressed that Iran’s ballistic missiles are capable of hitting “carriers in the sea” with pinpoint precision. The whole northern border of the Persian Gulf, on Iranian territory, is lined up with anti-ship missiles – as I confirmed with IRGC-related sources. “We’ll let you know when it’s closed.”
Then, it happened. Chairman of the Chiefs of Staff of the Iranian Armed Forces, Major General Mohammad Baqeri, went straight to the point; “If the Islamic Republic of Iran were determined to prevent export of oil from the Persian Gulf, that determination would be realized in full and announced in public, in view of the power of the country and its Armed Forces.”
The facts are stark. Tehran simply won’t accept all-out economic war lying down – prevented to export the oil that protects its economic survival. The Strait of Hormuz question has been officially addressed. Now it’s time for the derivatives.
Presenting detailed derivatives analysis plus military analysis to global media would force the media pack, mostly Western, to go to Warren Buffett to see if it is true. And it is true. Soleimani, according to this scenario, should say as much and recommend that the media go talk to Warren Buffett.
The extent of a possible derivatives crisis is an uber-taboo theme for the Washington consensus institutions. According to one of my American banking sources, the most accurate figure – $1.2 quadrillion – comes from a Swiss banker*, off the record. He should know; the Bank of International Settlements (BIS) – the central bank of central banks – is in Basle.
The key point is it doesn’t matter how the Strait of Hormuz is blocked. It could be a false flag. Or it could be because the Iranian government feels it’s going to be attacked and then sinks a cargo ship or two. What matters is the final result; any blocking of the energy flow will lead the price of oil to reach $200 a barrel, $500 or even, according to some Goldman Sachs projections, $1,000.
Another US banking source explains; “The key in the analysis is what is called notional. They are so far out of the money that they are said to mean nothing. But in a crisis the notional can become real. For example, if I buy a call for a million barrels of oil at $300 a barrel, my cost will not be very great as it is thought to be inconceivable that the price will go that high. That is notional. But if the Strait is closed, that can become a stupendous figure.”
BIS will only commit, officially, to indicate the total notional amount outstanding for contracts in derivatives markers is an estimated $542.4 trillion. But this is just an estimate. The banking source adds, “Even here it is the notional that has meaning.  Huge amounts are interest rate derivatives. Most are notional but if oil goes to a thousand dollars a barrel, then this will affect interest rates if 45% of the world’s GDP is oil. This is what is called in business a contingent liability.”
Goldman Sachs has projected a feasible, possible $1,000 a barrel a few weeks after the Strait of Hormuz being shut down. This figure, times 100 million barrels of oil produced per day, leads us to 45% of the $80 trillion global GDP. It’s self-evident the world economy would collapse based on just that alone.
As much as 30% of the world’s oil supply transits the Persian Gulf and the Strait of Hormuz. Wily Persian Gulf traders – who know better – are virtually unanimous; if Tehran was really responsible for the Gulf of Oman tanker incident, oil prices would be going through the roof by now. They aren’t.
Iran’s territorial waters in the Strait of Hormuz amount to 12 nautical miles (22 km). Since 1959, Iran recognizes only non-military naval transit. Since 1972, Oman’s territorial waters in the Strait of Hormuz also amount to 12 nautical miles. At its narrowest, the width of the Strait is 21 nautical miles (39 km). That means, crucially, that half of the Strait of Hormuz is in Iranian territorial waters, and the other half in Oman’s. There are no “international waters”.
And that adds to Tehran now openly saying that Iran may decide to close the Strait of Hormuz publicly – and not by stealth.
Iran’s indirect, asymmetric warfare response to any US adventure will be very painful. Prof. Mohammad Marandi of the University of Tehran once again reconfirmed, “even a limited strike will be met by a major and disproportionate response.” And that means gloves off, big time; anything from really blowing up tankers to, in Marandi’s words, “Saudi and UAE oil facilities in flames”.
Hezbollah will launch tens of thousands of missiles against Israel. As Hezbollah’s secretary-general Hasan Nasrallah has been stressing in his speeches, “war on Iran will not remain within that country’s borders, rather it will mean that the entire [Middle East] region will be set ablaze. All of the American forces and interests in the region will be wiped out, and with them the conspirators, first among them Israel and the Saudi ruling family.”
It’s quite enlightening to pay close attention to what this Israel intel op is saying. The dogs of war though are barking mad. Earlier this week, US Secretary of State Mike Pompeo jetted to CENTCOM in Tampa to discuss “regional security concerns and ongoing operations” with – skeptical – generals, a euphemism for “maxim pressure” eventually leading to war on Iran.
Iranian diplomacy, discreetly, has already informed the EU – and the Swiss – about their ability to crash the entire world economy. But still that was not enough to remove US sanctions.
As it stands in Trumpland, former CIA Mike “We lied, We cheated, We stole” Pompeo – America’s “top diplomat” – is virtually running the Pentagon. “Acting” secretary Shanahan performed self-immolation. Pompeo continues to actively sell the notion the “intelligence community is convinced” Iran is responsible for the Gulf of Oman tanker incident. Washington is ablaze with rumors of an ominous double bill in the near future; Pompeo as head of the Pentagon and Psycho John Bolton as Secretary of State. That would spell out War.
Yet even before sparks start to fly, Iran could declare that the Persian Gulf is in a state of war; declare that the Strait of Hormuz is a war zone; and then ban all “hostile” military and civilian traffic in its half of the Strait. Without firing a single shot, no shipping company on the planet would have oil tankers transiting the Persian Gulf.”
THIS is why Trump called off the strike at the last minute…
* ”95% Stock Market Loss And A Can Too Big To Kick”
by Egon von Greyerz
“Will the average stock portfolio gain 1,900% to make up for the coming 95% fall? This is the unenviable task that investors will be facing in years to come. 
Six weeks ago I wrote about Alfred, a 74 year old man who during his life made a $14 million fortune in stocks by always being invested in the Dow. Alfred never analysed the US or the world economy. Nor did he analyze a single stock. Always being in the market was his secret.
Alfred is not a deep thinker, so he hasn’t thought about how fortunate he has been. During his 74 year life, there has been no major war. Nor have there been any depressions and economic downturns have been minor. He has had a job all his life and has thus never been exposed to unemployment. Alfred, like most investors, has been totally unaware that he has had major assistance from the government which throughout most of his life has expanded credit and printed money.
Alfred has been lucky to be shielded from any major calamities. So have his children and grandchildren. His children are in their forties and have a good education and good jobs. His grandchildren are between 10 and 17 years and have also had a very good life. Thus, three generations have so far had economic prosperity and no wars. This is a unique period in history. To have 3/4 of a century without a major war or economic misery is remarkable.
Just basing the prospects in the next few decades on probabilities, Alfred’s children and grandchildren are unlikely to be facing the same sunny prospects that Alfred has had the privilege to enjoy. Economically, the world has been digging its own grave. Decades of deficit spending, and credit expansion has given Alfred a standard of living and quality of life that his offspring are very unlikely to see.
Global Debt Has Trebled After Only 19 Years In The 2000s: How could that debt ever be repaid? We are only in the 19th year of this century and global debt has already more than trebled from $80 trillion to $250 trillion. Part of this debt has contributed to Alfred’s wealth of $14 million. This incredible debt creation has bolstered asset markets for the benefit of the top 1% in the world with the remaining 99% lumbered with the debt. But they are of course never going to repay it.
When the debt crisis starts, which probably will happen within the next 12 months, there will be more deficits more debts and more money printing. Central banks are going to attempt to inflate the debt away, but they can of course never solve a debt problem with more debt. This time the biggest QE operation in history will have no effect. In 2007-9 the total QE, credit expansion and guarantees were at least $25 trillion. Next time around, it is likely to be in excess of $100 trillion as the $2 quadrillion derivatives blow up when counterparties fail. When the world discovers that central banks are failing with their hyperinflationary money printing bonanza, there will be panic.
Modern Monetary Theory Or Just More Money Theory: So can the coming economic collapse be stopped by MMT (More Money Printing)? Hardly! In 2007-9 the Fed, ECB and other central banks managed to kick the can down the road for a decade which is remarkable bearing in mind how near the system then was to total collapse. But this time the can is just too big and no kicking will dislodge it.
No One Is Prepared For The Coming 95% Fall In Stocks: At some point in the next few years, the biggest asset and debt bubble in history will implode. The debts, which no one can repay, will be worth zero. And all the assets that were artificially inflated by this debt will also implode. There will be very little or no money in circulation since the banking system will fail.
So what will happen to Alfred and his savings that he was planning to leave for the next generations? Well, stocks are likely to decline by 95% in real terms. This might sound like scaremongering and highly incredible. But we must remember that in 1929-32, the Dow lost 90% and it took 25 years for the Dow to regain the 1929 level, and that was with inflation. Today, the situation is exponentially worse, both for the US and the world, whether we look at debt, asset bubbles, currencies or derivatives. Thus a 95% fall in real terms is certainly very likely. This means of course that many stocks will go to zero and most companies that are highly leveraged will not survive.
No investor is prepared for a 95% fall, including Alfred. Poor Alfred, when his $14 million portfolio goes down by 95%, it will be worth a mere $700,000. But still worse, his pension that he has built up over 50 years will most probably be worthless. And don’t think that the government will be able to help Alfred at that point. They obviously can’t since their tax revenues will be minimal. Nor will they have any ability to issue debt of any significance. The credit worthiness of a bankrupt borrower is negative so no one will buy debt instruments that are not worth the paper they are written on, even if they yield in excess of 20% which is likely. Also, virtually nobody will have any money to invest since they have lost it all in the crash. Alfred may not need much money to get by since his house is paid for and his $700,000 portfolio might be sufficient to scrape by with a very frugal lifestyle.
Stocks Must Rise 1,900% To Recover A 95% Fall: So is there any chance for Alfred or his heirs to recover part or all of the original value of the portfolio? Very unlikely, I would say. As the chart below shows, a 95% decline in the value of the portfolio means that the gain from there must be 1,900% to get back to the original value. We must remember that the world will have gone through a massive reset which has decimated the world economy and productive capacity. It has also made debt financing extremely difficult.
Click image for larger size.
Debt Implosion And Erosion Of Productive Capacity: Thus, the world will experience a devastating wealth and debt implosion accompanied by an erosion of productive capacity. Whether this all happens very quickly or over an extended period, only future historians can tell the world.
Whatever governments and central banks try to do to save the world, they will fail this time and the suffering for the world will be tremendous. In addition to financial hardship, we could also see social unrest, civil war and war.
All this sounds extremely alarming and depressing and it clearly is if it comes true. But there are some real advantages too. Firstly, the world could never continue to grow soundly on a foundation of debts and derivatives of $2 quadrillion. Only by eliminating this toxic debt can the world economy recover again. It will be like a massive fire, clearing out all the deadwood and allowing green shoots to come through again.
It Won’t All Be Bad: Another benefit will be that moral and ethical values will return. Rather than ruthlessly chasing false values like the golden calf or the 7 sins like greed, envy, gluttony, wrath etc, the only way to survive the coming period will be virtues like kindness, true love, humility, honour, honesty, integrity and real friendships. Family and close friends will again become the kernel of society and extremely important for spiritual and physical survival.
We must remember that whatever happens it won’t be the end of the world. It will be different and there won’t be the decadence that signifies the end of a major era like we are experiencing now. Life will go on and although many people will suffer severely during the transition, the coming reset will create a better world.
Last Hurrah For Stocks? The events that I describe above will probably start in 2019. We are likely to see the beginning of the stock market collapse this year or possibly early 2020. Fundamentally, markets are guaranteed to implode. Technically we might still see the last hurrah with markets making new highs before they turn down in earnest. So whether they go down from here or see a few months of higher highs is totally irrelevant. The risk is massive and the coming fall will be devastating and extended.”


Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2019/06/shutting-down-gulf-oil-trade-all-iran.html



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