LAS VEGAS (ResourceInvestor.com) -- It was an information-laden day at the annual Las Vegas Hard Assets Investment Conference held by International Investment Conferences. Scores of mining companies, traders and personal investors congregated to hear mining CEOs, newsletter editors and market specialist speak on a variety of topics.
Many speakers spent a good deal of time speaking on the issue of geopolitics in relation to commodity investments. One speech in particular focused solely on the volatile matter.
Craig R. Smith, CEO and Chairman of the Board of Swiss America Trading Corp., and co-author of Black Gold Stranglehold, gave a presentation with special focus on the investment atmosphere in regards to current geopolitical situations with special focus on oil, gold and Iran.
Smith stated throughout the speech that the U.S. in general must “come to grips” with the fact that we are at war, both ideologically and culturally, but also financially.
“Soon we will see a war of resources…not wars fought with tanks and bombs…but on a financial level,” Smith said.
Oil
One driving point reiterated numerously throughout the speech was what Smith called the myth of Peak oil and the reality that oil is in fact abundant, not scarce, and plentiful today and for years to come.
“I can assure you we are not running out of oil,” Smith said.
According to Smith’s numbers, there are 1,350 trillion barrels of proven reserves at available the highest number ever in history.
Smith pointed out that now we drill oil wells in locations where geologists previously thought deposits were impossible by accessing deep abiotic oil by using ultra-deep- well drilling, and he was resolute that explorers and companies will continue to find new oil deposits in the distant and not-so-distant future.
Supporting Smith’s case was the Chevron [NYSE:CVX] oil-find in the gulf last week, possibly the largest resource of its kind found to date.
Oil and the Dollar
According to Smith, the dollar’s downturn and decrease in value over the past several years is an extreme threat, essentially to the energy security of the U.S. Accordingly, Smith, posed the question asking why oil producing countries will want to accept the U.S. dollar for oil, especially in regards to OPEC.
At the moment, global oil demand stands at roughly 85 million barrels per day (bpd). However, Smith said that with the addition of an approximate 10,000 cars on the road per day from China, that number is expected to increase to 90-100 million bpd in the near-future.
Recently, Russian President Vladimir Putin suggested that Russia take payment in euros for oil, rather than dollars. The point being, what happens when OPEC and others decide to stop taking payment in dollars for oil, and demand yaun or euros?
Smith noted that recently, China, sold 2.4% of its American dollar reserves to invest in gold. In 2006, it is not just the U.S. that wants to purchase oil. The massive energy demand coming from China and India at the moment has created new buyers whose demand needs are climbing rapidly.
Smith said that in the U.S., “there is a perception that everything is ok…when in fact it is not.”
Myth of Scarcity
Annually, roughly $35 to $45 billion worth of gold is traded where as upwards of $1 trillion in oil is traded each year.
According to Smith, the general population in general has their facts severely reversed when it comes to the issue of scarcity in oil and gold.
Smith said that oil is primordial, plentiful and abundant. He stated that peak oil theorist and Malthusians have been incorrect in their predictions a number of times in the past, and will continue to do so.
Yet, for gold, the tone of Smith’s presentation was that many investors believe that gold is abundant and plentiful when in fact it is gold that’s scarce, not oil. Each year, companies must dig deeper and farther, and as efforts increase, so will the cost for mining companies, Smith said.
Smith said that it was the “ignorance of people who have chosen to ignore the facts and the science,” relation to the myth of scarcity.
Iran
“Iran will acquire nuclear weapons unless they’re stopped,” Smith said.
Geopolitical threats by Iran have played a large role in spiking oil prices to recent peaks of $78, and the fear premium which the country holds in regards to the nuclear enrichment dispute is rather large as witnessed in previous correlations between oil spikes and Iran non-compliance with the international community.
“Iran is a guarantee of uncertainty, and we can’t take that out of the equation,” he stated.
Conclusion
Whether you believe in peak oil or believe that the black gold of energy is infinite, any reasonable person can agree that the value of the dollar has steadily declined for a number of years now.
Energy demand from India and China is imminent, persistent and will continue to grow in coming years. Smith himself stated that his theories may ruffle a few feathers; however, we must realize that times are rapidly changing and the energy and economic security once realized are no longer living out their golden years.
If one day, OPEC and other oil-rich nations demand “real money for real resources,” the state of the dollar would be in dire despair according to general economic principles.
Smith closed, stating sombrely that investors should be aware of geopolitical events, the myth of scarcity, and the state of the economy to make sound investment decisions.
