The Economics of Oil in the Last Hour

By Jamari Mohtar

July 8, 2018

 

Someone brought to my attention an article from an investment advisory newsletter, the Palm Beach Daily, with a heading of The Third “Oil Shock” Is Coming, dated July 1.

It was written by Nick Giambruno, the Editor of Crisis Investing, another newsletter that has a sharing arrangement with the Palm Beach Daily, analogous to the shared, distributed network of the blockchain.

I read it with trepidation because I could see its relation to the prophecies of the Last Hour in Islamic Eschatology.

However, the article at first didn’t grab my immediate attention until a few days later due to four reasons:

  • Time consuming research

Writing a comment piece about oil and gas (O&G) requires the knowledge of some technical “mumbo jumbo” jargons that will consume a lot of my time in research in order to “laymanise” these jargons so that readers of my blog can follow and understand what I’m talking about and where I’m coming from.

To do this, I must have an excellent understanding of these jargons first before I can laymanise them, for otherwise, I would be confusing my readers with my confused article, arising from my confused mind due to the lack of a robust research.

Fortunately, Giambruno wrote in an easy manner, free from jargons although he did not define what oil shock means other than implicitly assuming it has to do only with a hefty escalation of oil prices.

The 2014’s plummeting of oil prices can also be considered as an oil shock if a steep dive in price is included in the definition.

  • Boring topic

O&G is a boring topic although oil and gas are important lubricants of life and the economy, not to mention your car too. But I have a strong feeling even after I have laymanised these technical stuff for the benefit of the lay readers, the subject will still remain boring to most species of humankind.

The exception are those unsung heroes and heroines in the O&G sector who work very hard to “lubricate” our life such that we can enjoy the smoothness, roundness, conveniences, comforts and luxuries of modern living, for otherwise we would still remain a modern caveman like Mr Flintstone driving a Flintstone-branded car.

  • Blockchain Technology (DLT)

My inclination now is more in writing on the more exciting development in the field of disruptive blockchain technology otherwise known as distributed ledger technology (DLT) that will enhance innovation, and how to manage the concomitant challenges DLT will definitely cause in displacing people and resources en masse, once the innovation that it has unleashed become mainstream one day, which according to experts will slowly, gradually and surely take place in the next three to five years.

Some experts are already talking about the potent combination of frontier technologies like the blockchain, artificial intelligence (AI), augmented reality (AR) and the Internet of Things (IoT) that will massively disrupt in the very near future existing technologies by changing the whole landscape of the way we do things today in the most positive, productive, cost-effective and efficient manner.

What an exercise in contradiction – disruptive, yet positive and productive.

These seem to have made other disruptive frontier technologies that had made their appearance relatively much earlier such as 3-D Printing, unmanned sector like drones, and automation rather obsolete before they can even settled comfortably as mainstream technologies, unless they reinvent themselves by combining with at least one of the four technologies above by capitalising on interoperability – the ability of the core component of these technologies to “talk” to each other.

More on this in my future post, in sya Allah.

Already, the emergence of cryptocurrencies and blockchain technology have created two nascent disciplines called Tokenomics and Cryptonomics that have been ignored by the majority of universities worldwide because they are clueless on what blockchain in essence is all about.

Worse is their misconception that blockchain is nothing more than merely hypes concerning the hated, volatile and “fraudulent” cryptocurrencies (read Bitcoin), which dare to replace fiat monies as legal tender, exempt themselves from regulation, and give themselves the unilateral privilege of anonymity (all misconceptions of course!).

The exceptions are very few such as the Said Business School of the Oxford University, which had just organised a short course on the Oxford Blockchain Strategy Programme for professionals, entrepreneurs, founders of start-up companies and regulators from all over the world in February to June.

  • Aggressive selling

The biasness against financial advisory newsletters in general which I suffer, from time to time, because of their aggressive stance in selling their investment ideas and strategies for a hefty subscription rate by lauding how correct and accurate their recommendations were in making tonnes of money for you, had you only followed their recommendations.

At the same time, they tend to keep a low profile on the subject of their bold, specific predictions / recommendations that had gone off the mark, which may have burnt the pocket of their subscribers who followed their investment advice.

But if you try hard enough, you may find some gems in these financial advisory sector such as the Florida-based Palm Beach Daily, and the Crisis Investing newsletters which would precede their recommendations / predictions with solid research and excellent analysis of the geo-political and socio-economic happenings that occur behind the scenes as a backdrop for their investment recommendations and predictions.

Gist of the article

The year 1973 saw Israel at war with Egypt and Syria – the Yom Kippur War. In reaction to US support for Israel, the Organization of the Petroleum Exporting Countries (OPEC) placed an oil embargo on the US and several other countries, and cut oil production.

The result – the first oil shock, which saw oil prices quadrupling from US$3 per barrel to US$12.

The second oil shock in 1980 featured the Iraq-Iran War, which arose in the aftermath of the 1979 Iranian Revolution – one of the bloodiest conflicts of the past 50 years.

The result – oil prices went up more than double because Iraq and Iran were (and still are) two of the biggest oil exporters in the world. No surprise then that the war rocked global energy markets.

There was also another, less dramatic price spike in the early 1990s after the invasion of Kuwait by Iraq, triggering the first Gulf War where oil prices shot up over 70%.

Since then, there was talk of a third oil shock but it never materialised. Never materialised because obviously when Nick Giambruno talked about oil shock, he is limiting it to just a spiking of oil prices, and in this context he is right.

Giambruno’s scenario of a third oil shock, which he predicts will be “even worse than” the previous ones is hinged on the Middle East where wars there are often catastrophic for global oil supplies.

Two geopolitical camps exist there: the US and its allies, like Israel and Saudi Arabia on the one side; and Russia and its allies, like Iran and Syria on the other.

The most significant military conflict on the geopolitical chessboard today is the bloody conflict in Syria that is entering its seventh year.

While on the one side, the US through its proxies, has been trying to overthrow Syria’s leader Bashar al-Assad, Russia and Iran, on the other side of the divide, have massively fortified the Assad regime who is still firmly in charge.

Since the demise of Saddam Hussain, the regional balance of power is favouring Iran. The US, Israel and Saudi Arabia find that unacceptable. According to Giambruno, at this point, war is the only thing that could reverse the trend. Of course, that does not mean he is cheering for war.

The first salvo in the current geopolitical chessboard opens with Israel’s recent move in launching its biggest military strike on Syria since the 1973 Yom Kippur War. This attack, and other recent ones, killed dozens of Syrian and Iranian soldiers.

On this basis alone, many people think the focal point of the Middle East’s next regional war will move to Iran, and with these Israel’s attacks, they also think that the war has already started.

There have been numerous, unambiguous signs that the US has Iran in its radars.

To begin with, President Donald Trump has recently filled up major vacancies in his Administration with war hawks. In April, he made John Bolton his National Security Advisor and Mike Pompeo his Secretary of State. Both have been eager to bomb Iran for years.

In early May, Rudy Giuliani, one of Trump’s lawyers and a long-time political ally, announced that Trump is “committed to regime change” in Iran.

A few days later, President Trump pulled out of the 2015 Iran nuclear deal. He also re-imposed economic sanctions on Iran.

A war between Iran and Israel (and its US-led allies) would wreak havoc on the oil market. That’s because Iran holds a very powerful card, as it could effectively shut down the Strait of Hormuz, the narrow channel connecting the Persian Gulf to global markets. It is the only sea route from the Persian Gulf to the open ocean.

That translates into roughly 35% of the world’s oil traded by sea. With nearly US$2 billion worth of oil passing through the Strait of Hormuz every day, it’s the most critical oil choke point in the world.

In the event of an all-out war, Iran would quickly shut down the Strait of Hormuz. It has made this blatantly clear.

Credible studies have shown that – in a best-case scenario for the US Navy – Iran could seal off the Strait with sea mines and asymmetrical warfare techniques for at least a month before the US could reopen it. The Pentagon itself has admitted as much.

If and when a war with Iran happens—even if there’s only a whiff of it happening—investors should expect the third and most dramatic oil shock, says Giambruno.

Connecting the dots

Based on authentic Ahadith, there are many prophecies on the signs of the impending Last Hour before this cataclysmic event itself happens. Analysing these Ahadith, Muslim scholars have classified them into minor and major signs.

The thinking behind this analysis is the Last Hour will not come until all the major signs have made their appearance, and in turn, the major signs will not come until all the minor signs have made their debut.

Analysis (a form of ijtihad) is required because the nature of prophecies is such that they are not precise or exact in details, for otherwise they would no longer be a prophecy. Hence, the Ahadith on the events preceding the Last Hour are, more often than not, allegorical (mutasyabihah) with respect to details and chronology.

Muslim scholars are in agreement on there being about 60 to 100 minor signs of the Last Hour before the emergence of the major signs, and they believe that all the minor signs have made their appearances.

The Hadith narrated by Imam Muslim below captures the essence of the 10 major signs of the Last Hour.

Allah’s Messenger (may peace be upon him, s.a.w) came to us all of a sudden as we were (busy in a discussion). He said: What do you discuss about? They (the Companions) said. We are discussing about the Last Hour. Thereupon he said: It will not come until you see ten signs before and (in this connection) he made a mention of the (1) smoke, (2) Dajjal, (3) the beast, (4) the rising of the sun from the west, (5) the descent of Jesus son of Mary (Allah be pleased with him, alaihi salam), (6) the Gog and Magog, and land-slidings in three places, (7) one in the east, (8) one in the west and (9) one in Arabia at the end of which (10) fire would burn forth from the Yemen, and would drive people to the place of their assembly.

But there are a few portents of the Last Hour mentioned in some Ahadith that could neither be classified as minor nor major signs. These include the coming of the Great War (Malhama) and the coming of Imam Mahadi contemporaneously with the coming of the Dajjal and the descent of Prophet Jesus son of Mary (as).

For lack of a better term, I would call these the intermediate signs that bridge the gap between the minor and major signs.

Let’s analyse another Hadith of Imam Muslim:

Allah’s Messenger (s.a.w) said, “The Hour will not be established (1) till two big groups fight each other whereupon there will be a great number of casualties on both sides and they will be following one and the same religious doctrine, (2) till about thirty Dajjals (liars) appear, and each one of them will claim that he is Allah’s Messengers, (3) till the religious knowledge is taken away (by the death of religious scholars) (4) earthquakes will increase in number (5) time will pass quickly, (6) afflictions will appear, (7) Al-Harj, (i.e., killing) will increase, (8) till wealth will be in abundance – so abundant that a wealthy person will worry lest nobody should accept his Zakat, and whenever he will present it to someone, that person (to whom it will be offered) will say, ‘I am not in need of it, (9) till the people compete with one another in constructing high buildings, (10) till a man when passing by a grave of someone will say, ‘Would that I were in his place (11) and till the sun rises from the West. So when the sun will rise and the people will see it (rising from the West) they will all believe (embrace Islam) but that will be the time when: (As Allah said,) ‘No good will it do to a soul to believe then, if it believed not before, nor earned good (by deeds of righteousness) through its Faith’ (6.158). And the Hour will be established while (12) two men spreading a garment in front of them but they will not be able to sell it, nor fold it up; and the Hour will be established when (13) a man has milked his she-camel and has taken away the milk but he will not be able to drink it; and the Hour will be established before (14) a man repairing a tank (for his livestock) is able to water (his animals) in it; and the Hour will be established (15) when a person has raised a morsel (of food) to his mouth but will not be able to eat it.”

In the above Hadith, Events 1-11 are all portents preceding the Last Hour (keyword: The Hour will not be established) while Events 12-15 are portents occurring just before the Trumpet is blown by Angel Israfil (keyword: The Hour will be established).

Since in this article, my purpose is to connect the dots between oil and the Last Hour, Event 1 fits the bill. In this regard, the coming third oil shock predicted by Giambruno arising from the unhappiness of US, Israel and Saudi Arabia over the issue of the regional balance of power favouring Iran, can be seen as the lead-up to the coming Great War (Malhama), just as the war in Syria is the lead-up too.

It does not take rocket science to read the US strategy in this regard. The stalemate in the war in Syria has forced Trump to go for a two-pronged strategy – on the offensive with Iran and seeking “détente” with North Korea.

With these two “nuclear-capable” nations being taken care of through this two-pronged strategy, the US can then singularly focused its attention on Syria by taking on Assad and the Russians in Syria.

Some Muslims scholars opine that the 1980 Iran-Iraq war is already a fulfillment on this prophecy of Event 1. This is incorrect. It’s actually a fulfillment of another prophecy (another intermediate sign):

Abu Huraira reported Allah’s Messenger (s.a.w) as saying: The Last Hour would not come before the Euphrates uncovers a mountain of gold, for which people would fight. Ninety-nine out of each one hundred would die but every man amongst them would say that perhaps he would be the one who would be saved (and thus possess this gold).Muslim

Abdullah b. Harith b. Naufal reported: I was standing along with Ubayy b. Kaab and he said: The opinions of the people differ in regard to the achievement of worldly ends. I said: Yes, of course. Thereupon he said: I heard Allah’s Messenger (s.a.w) as saying: The Euphrates would soon uncover a mountain of gold and when the people would hear of it they would flock towards it but the people who would possess that (treasure) (would say): If we allow these persons to take out of it they would take away the whole of it. So they would fight and ninety-nine out of one hundred would be killed. – Muslim

The idea of gold underneath a river (Euphrates) is an allegory of black gold i.e. oil. The above Hadith can also be considered as a precursor to the Malhama just like the current war in Syria, and the impending attack on Iran by the US as predicted by Giambruno.

Also note that in Event 1, two big groups were mentioned, whereas in the River Euphrates prophecy, there was no mention of big groups, which means the combatants were limited to just the two warring sides which was the case in the Iran-Iraq war.

Also mentioned in Event 1 is the fact that the combatants will be of the same religious doctrines. The Syrian crisis initially started with just two groups – the Assad government and the Syrian Mujahidins (both of the same religious faith). Later, the devilish ISIS joined the fray (still of the same faith).

In a matter of a few years, this tripartite war became a bigger group with the participation of US, Russia, Israel, Iran and Saudi Arabia in the war. Sources say US Special Forces and Russian elite paratroopers are already on the grounds in Syria, taking part in the war.

US, Russia and Israel can be considered as of the same “doctrine”, as they subscribe to the ideology of secularism – a doctrine which is either against or neutral to religion having an active say in the public domain of life.

The old Soviet Union is an example of the former (against religion) while the US, Israel and Russia (the successor of the Soviet Union), are examples of the latter (neutral to religion).

Based on some Ahadith, the venue of the Malhama is however, not in Syria or Iran but in another country.

Stay tune on this in my future post!

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The curious case of Donald Trump: Is polling a useless predictor of outcome?

By Jamari Mohtar | Nov 10, 2016

The reliability of political polling to predict the outcome of an election is put into question when despite and in spite of most polls predicting Hillary Clinton as the favourite to win, albeit in a close fight because all polls are within their margin of error, Donald Trump against all odds clinched the trophy of the presidency.

Before we come to the conclusion that polls are a useless predictor of outcome, let’s hear some quotable quotes on statistics:

“There are lies, damned lies and statistics.” Mark Twain

 “It is the mark of a truly intelligent person to be moved by statistics.”  George Bernard Shaw

 “Smoking is one of the leading causes of statistics.”  Fletcher Knebel

I like most the quote by Fletcher Knebel because it hinted at arriving at something with no concrete substance as the aim of statistics, and to wit, we are all indeed “smoked” by the polls that said Hillary Clinton has a 90% chance of winning the presidency on the eve of Election Day.

Ignoring historical precedent at one’s own peril

 There are more than one ways to predict the outcome of presidential election other than polls.

A few hours before the results of some exit polls were announced on Election Day, I told friends through one of my WhatsApp groups that Hillary Clinton might not be elected as President, if we go by historical precedent.

Since term limit was imposed in 1947 – curbing presidential term to no more than two terms (eight years) – there has never been an instance where a Democratic presidential nominee won an election after eight years of incumbency by a Democratic president.

That is why Clinton lost after eight years of a Democrat Obama; Al Gore too (2000 election) after eight years of a Democrat Bill Clinton; and finally Hubert Humphrey (1968) after eight years of Democrats John Kennedy and Lyndon Johnson.

Whereas Donald Trump has a greater chance to win because there is one instance of history in which a Republican nominee won the election after eight years of incumbency of a Republican presidency. Who was he? None other than the one term President HW Bush who won in the 1988 election after eight years of Republican Ronald Reagan.

I am an ardent fan of history (and of ‘isteri’ too) although I’m aware that students pooh-pooh the study of history, one reason being it does not make you fabulously wealthy as compared to the study of law or medicine although I have come across poor lawyers and poor medical doctors. But as the outcome of the recent US presidential election, the Brexit vote and in fact most significant global events – even significant event at the personal level – have shown, one ignores history at one’s own peril.

This peril of ignoring history is famously encapsulated in the adage that history has a tendency to repeat itself. Even the natural phenomena of life have a habit of repeating themselves such as the repetition in the observable change in the days following the nights, of being healthy followed by being sick, of birth and death, and the boom and bust of the economic/business cycles.

Nonetheless, I’m not that naïve to believe that historical precedent is the only thing that matters. My view of history is as follows:

History seldom moves in a linear fashion. And that is why we don’t see new changes or new things everyday. Instead it moves in gradual non-linear twists and turns, giving us glimpses of an approaching historically repeating event in the making, where we feel things on the surface are the same as of yesteryears, yet with some qualitative differences in their essence. Once we get to feel this sensation of the same yet different, there will be many more non-linear twists and turns for years, before the full force of the repetition occurs.

At times history does not repeat itself at all but propels forward with a quantum leap as if in a three dimensional setting that demolishes every known assumptions with the onset of new inventions and discoveries or simply paradigm shift, heralding the emergence of a brave new world instead of the repeated old world. This then becomes a new normal and ultimately a status quo normal when it keeps repeating time and again before another quantum leap occurs.

Statistical disinformation or the fallibility of statistics

Now, let’s come to the crunch. Are political polls really useless as a prediction of outcome? One cannot blame those who say they are when the example of the Brexit vote is still fresh in our mind. Despite the narrowing of margin in polls as voting drew near in June, the majority of the polls were still predicting the Remain in EU would win, albeit with a small margin.

And last year in Askenazi Israel, despite exit polls had forecast a dead heat, Bibi Netanyahu’s right-wing Likud Party still won a surprise victory over its main rival, the centre-left Zionist Union.

But if you understand statistics in the context of the probability theory, you’ll be humbled enough to know that a poll which said that Hillary Clinton has a 90% chance of winning the election does not mean it’s a sure 100% win and that the 10% chance of Clinton losing is something that can take place in the realm of reality. In this sense, there is really no big deal in blaming polls for the different outcome than what was expected, as long as the different outcome is not a regular feature of the US election polls.

The last time the polls were dead wrong was in 1948 when Harry Truman was predicted to have lost the election, with one newspaper having circulated an early edition the day after election, which showed Thomas Dewey to be the winner as its page one lead story. The editors had had a hell of time in withdrawing that early edition.

Hence, the utility of polls as a predictive tool lies not so much in its accurate predictive power of the outcome ALL THE TIME, but rather a prediction that is dead accurate MOST OF THE TIME – giving credence to the notion of the working in the real world of the principle of an exception to the rule.

We can’t even predict with dead accuracy what’s going to happen to us in the next few hours, and yet we don’t want to eat humble pie in accepting that our prediction – the prediction of mere mortals – might go wrong when it comes to election polls. That is indeed arrogance of the highest order!

Of course there is nothing wrong in doing a sort of post mortem to get the answer on why and where did the polls go wrong, especially after the humble pie has been eaten. The least that this will result is in the lessons learnt to ensure that there will be a less frequent occurrence of the principle of exception to the rule, which it is meant to be for otherwise we would be living in a world of chaos. And then He who is in Heaven will smile approvingly at our action to learn from past mistakes and to minimize the exceptions!

And that is why I’m deeply moved when an intelligent and scholarly man says, “It is the mark of a truly intelligent person to be moved by statistics.” (Ahem, ahem…)

A ‘new’ normal?

 So what went wrong? I’m in no position to tell what went wrong scientifically though I took statistics at the undergraduate level but didn’t do well in that subject (actually within a certain margin of error, I did well in the exam, hehe). Based on news reports in the US, it is not so much statistical error that is at fault but systematic error.

Statistical error has to do with the methodology the pollsters used which will lead to among others, the questions of the representativeness of the sample (sampling error), the sample size so chosen (size error) and the degree of freedom assumed which will impact the level of confidence in prediction.

Experts have all been unanimous that the statistical errors were all within the threshold of acceptability statistically. Remember that statistics is not a science that is about 100% accuracy all the time and if you perceived it as such and refused to accept the existence of acceptable statistical errors, you (the layman) are exhibiting arrogance of the highest order.

So it is the systematic error that is in question which in layman term can be phrased this way: “Yes, the sampling method was right, the sample size was right but what are the questions that you asked the voters? Is it leading questions such that the result of the poll is what you (the pollster) want to hear rather than asking objective questions that beget objective answers?

The systematic error could also be explained in the way the final consumers of the poll (not the pollsters themselves but the media and Clinton’s campaign staff who commissioned the pollsters) spin the pollsters’ analysis in accordance with their own agenda of supporting Hillary at all cost whether consciously or not.

In this regard, Trump actually made sense when he alleged during campaigning that the election was rigged but he was far off the mark when he said that these people (the pollsters) were interviewing each other rather than random voters.

Perhaps he gave this stupid reason out of desperation because the analysis of his own pollsters had shown him that he had a good chance of winning in the battleground swing states.

But instead of seeing all these in term of polling errors, I’m of the view that the 2016 US election is a watershed election because it sees the emergence of a new normal as exemplified in Trump getting away unscathed for:

  • Not showing his tax returns;
  • Speaking outrageously against women, the Blacks, Latinos, Muslims, China and Mexico, etc;
  • Mimicking the gestures of the handicaps and his opponents; and
  • ‘Brawling’ with his fellow Republicans including Speaker Ryan

Seeing the above as a new normal also implied that perhaps the Muslims and others too should ultimately judge him based on the policies that he will finally implement as a President, rather than based on his speeches during the heat of the moment when campaigning.

The fact is for about three months after winning the election he is not the President of the USA, Obama is. President elect Trump will be just as lame-duck as the real President during these three months until his inauguration in late January, and due to this, it does not make sense to be emotional about him during this period.

So how do we predict the outcome of a Trump presidency under this new normal scenario? Is there any historical precedent? There is, actually.

When Nikita Khrushchev succeeded Josef Stalin as the Soviet leader in 1954, his outrageous behavior at the UN Assembly in 1960 by repeated banging of his shoe in protest at a speech by the Philippine delegate, Lorenzo Sumulong, had made him a Soviet leader with a relatively brief reign as compared to his predecessors who ruled until their deaths.

So in light of a new normal and a historical precedent, the relevant question to ask about Trump in relation to predicting the outcome of his presidency is not so much whether he will be a one term president; rather the question is will he serve the full duration of his first term?

Only time will tell whether the latter outcome will see the light of day! So far since winning the election, Trump’s actions and sayings are presidential.