David Seaton's Energy Links® Editorial - In Afghanistan, the wars begin when they end  Afghanistan came tragically close this week as Spain lost its first soldier to enemy fire in that country. What until recently had been seen as a model NATO mission appears to be going sour. Certainly those who were quick to declare the invasion and occupation of Afghanistan a victory were speaking too soon. Often imperial British experiences in Afghanistan come to life in today’s headlines. Cristina Lamb who has been covering Afghanistan for the Sunday Times for over 20 years quotes Sir Olaf Caroe, the last British governor of North West Frontier Province. “Unlike other wars, Afghan wars become serious only when they are over”. Lamb quotes Lieutenant-General David Richards, British commander of the Nato-led peacekeeping force. “We need to realize that we could actually fail here, think of the psychological victory for Bin Laden and his ilk if we failed and the Taliban came back.” Obviously of vital importance, isn’t it? But the questions of why Bin Laden was ever allowed to escape from Tora Bora in December of 2001 or why the resources that could have pacified and reconstructed Afghanistan were uselessly diverted to Iraq are never answered.

With opium production back at record levels and the suspiciously re-armed and suspiciously well trained Taliban back on the attack, the Guardian’s Simon Jenkins affirms that today’s British soldier is “dying not to prop up an embattled regime in Kabul, for which they are hopelessly undermanned, but to keep NATO alive in Europe”. Quentin Peel of the Financial Times wrote that failure in Afghanistan “would very possibly spell the end of the Nato alliance, whose reinvention as a peacekeeping and peace-making force far beyond its European limits would be fatally called into question.” If the whole future of NATO really depends on its success in Afghanistan, then there might be some choice office space going for rent on the Boulevard Leopold III in Brussels before long.

Afghanistan is the pivot of South Asia and South Asia, like the Middle East, is on the boil. On the 7th of July, India, recently declared a strategic ally of the US, test-fired a long-range missile capable of carrying a nuclear warhead more than 3,000km. On 11-7 a massive, coordinated, terrorist attack with explosives, similar to the 11-M attack in Madrid, took place in Mumbai. Certainly both the missile test and the train bombs were messages being sent. How many are left in the mailbox?
David Seaton

Oil price rise seen endangering US auto market - Reuters
Already reeling from the consumer flight from SUVs and trucks, U.S. automakers now face the risk that higher oil prices will trigger a sales downturn of the kind that the auto industry has not seen in more than a decade, analysts said on Friday. Oil prices surged to an all-time high of $78.40 a barrel on Friday on fears the conflict between Israel and Hizbollah guerrillas could widen, and some energy market analysts have said oil could touch $100 a barrel. That figure implies future U.S. gasoline prices of $4 a gallon, up from just under $3 on average last week. "If gas settled $4 a gallon, like it has at $3 a gallon, then I think we could anticipate consumers changing their buying habits," said Rebecca Lindland, auto analyst with consulting firm Global Insight. "One of the things they may do is just stay out of the market altogether." U.S. vehicle sales slowed only marginally in the first half of 2006, but consumers defected from gas-guzzling pick-up trucks and SUVs, a trend that has hurt General Motors Corp., Ford Motor Co. and DaimlerChrysler's Chrysler Group. Overall U.S. vehicle sales were trending at near 16.6 million units in the first half of 2006, down from 16.9 million last year but almost directly on track with the pace of sales in 2004. High energy prices combined with a weakening U.S. housing market and rising interest rates will dampen economic growth and consumer confidence, auto industry analysts said. Even if an outright recession is avoided, economic growth of less than 2 percent could tip auto sales into a cyclical downturn, said Bob Schnorbus, chief economist at J.D. Power and Associates. "At $4 per gallon we might not see a recession but we might see growth slowing enough to cause an auto recession or a down cycle," said Schnorbus. "It's certainly a significant threat to the market." Global Insight's Lindland estimates that for every $10 increase in price of crude oil, overall U.S. annual vehicle sales would contract by 200,000 to 400,000 units. "At some point ... it won't be a matter of buying something smaller, it will be a matter of not buying anything at all," said Kevin Tynan, analyst with Argus Research. Part of the problem for the U.S. auto industry, analysts said, is the success that it has had in propping up sales over the past five years through aggressive sales incentives and discounts. "They have fueled unit sales but what they have really done is pull demand forward," said John Novak, an analyst with Morningstar. "So I think there is a significant risk." The slowdown that took hold in 2001 for the U.S. auto industry was far more muted than past downturns for an industry that has been marked by sharp boom-and-bust cycles. U.S. auto sales slipped just 4 percent between 2001 and 2003. By contrast, the last time sales were down for three consecutive years, they fell a combined 20 percent between 1989 and 1991. In the U.S. auto industry's deepest recession, which hit between 1980 and 1982, sales plunged by a full 25 percent from their peak. If there is a cyclical downturn ahead for the industry, analysts said U.S. giants GM and Ford have the most to lose. Both companies have announced plans to cut some 60,000 factory jobs and shutter two dozen plants to adjust to their loss of market share. "They would be expected to bear the brunt of the losses based on their product lineup," Novak said. On the bright side, the U.S. economy and the auto industry have shown surprising resilience so far even though oil prices have risen 27 percent this year, analysts said. Japanese automakers Toyota Motor Corp. and Honda Motor Co. have also seen strong U.S. sales growth, boosted by the fuel-efficiency of their vehicle offerings. U.S. sales for Toyota rose 10 percent in the first half, while Honda gained 7 percent. "If anyone asked me a year ago, I would have said $3 a gallon would have diminished demand but people seem to have adjusted," Novak said.
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Shell, Petroleos Venezuela Agree on Oil Concession - Bloomberg
Royal Dutch/Shell Group, Europe's second-largest oil company, reached agreement with Venezuela's state oil company to explore a heavy oil block in the South American country. A memorandum of understanding may be signed as early as today between the two companies, said a spokesman for Caracas-based Petroleos de Venezuela. Shell may be given a block in the Ayacucho field in the Faja, or heavy oil belt, to explore and certify the reserves, the spokesman said. The companies may release details of the agreement later tonight, said the spokesman. The accord is expected to be signed during a meeting between visiting Shell Chief Executive Officer Jeroen van der Veer and Petroleos de Venezuela President Rafael Ramirez. Petroleos de Venezuela is granting companies such as Shell, Repsol YPF SA, Petroleo Brasileiro SA and OAO Lukoil, blocks in the Faja to explore as a prelude to development. Venezuela's heavy oil-deposits may rival Canada's tar sands as an alternative source of crude to satisfy increasing global demand. Rising oil prices have made the Faja and tar sands more feasible economically. President Hugo Chavez has said that the Faja may hold up to 235 billion barrels of oil. Sean Rooney, Shell's Venezuelan manager, declined comment on a possible agreement. Shell proposed creating a heavy oil joint venture with Petroleos de Venezuela in 2004, using new technology. At that time, Shell officials said the venture would require an investment of between $4 billion and $8 billion. Venezuela stopped development of the Faja in July 2005 to allow for exploration and certification of the area's crude reserves. The certification process, which includes third-party verification, will take up to two years, Petroleos de Venezuela said. The heavy-oil belt has been divided into 27 blocks. Petroleos de Venezuela and its partners are working on geological surveys and exploratory drilling to determine the area's reserves. Blocks will be auctioned when the certification process is finished, Ramirez said last month. Companies that are undertaking the exploration and certification will have an inside track due to the knowledge of the fields, he said. Venezuela has relied on foreign oil companies to help develop its extra-heavy oil reserves in the Faja, a region above the Orinoco River in the eastern states of Monagas and in Anzoategui. Petroleos de Venezuela has four joint ventures with foreign producers to pump crude oil from the Orinoco Belt to the Caribbean coast for export to refineries in the U.S. and other countries. The four produce about 600,000 barrels a day. Partners include Chevron Corp., Total SA, and ConocoPhillips. BP Plc is Europe's largest oil company.
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