By Justice Litle
Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy. The world is looking: Vice–President-Elect Joe Biden

Just a few weeks ago, Vice–President-elect Joe Biden (back when he was plain old Senator Joe Biden) promised the world that Barack Obama will be “tested” by America’s enemies.

“Remember I said it standing here,” Biden told his Seattle audience, “if you don’t remember anything else I said. Watch, we're going to have an international crisis, a generated crisis, to test the mettle of [Barack Obama]. And he's going to have to make some really tough — I don't know what the decision's gonna be, but I promise you it will occur. As a student of history and having served with seven presidents, I guarantee you it's going to happen.”

Say it ain’t so, Joe...

Russia: “I’m Your Huckleberry”

With no time to waste, it seems Mr. Biden’s words have already come true. Within 24 hours of Obama’s historic victory, Russia elected to stir the pot. As the Financial Times reports,

Russia’s president Dmitry Medvedev on Wednesday became the first world leader to throw down a gauntlet to U.S. president-elect Barack Obama, declaring that the Kremlin would station missiles in the tiny Russian enclave of Kaliningrad, which borders Poland, in response to U.S. plans for an anti-missile system in Eastern Europe.

Your humble editor is a big fan of old spaghetti westerns – Clint Eastwood westerns in particular. The Good, the Bad & the Ugly... The Outlaw Josey Wales... Unforgiven... and so on.

But one of the best westerns ever, in part for its cheek and cheesiness, has to be Tombstone, with Kurt Russell, Val Kilmer, Bill Paxton, and a few other notables.

One of Tombstone’s best lines is when Doc Holliday (Val Kilmer) tells Johnny Ringo, “I’m your huckleberry.” Meaning, “I’m the man you want to fight.”

In acting so swiftly to station missiles on the Poland border, Russia is in effect saying to the U.S. President-elect: “I’m your huckleberry. Let’s see what you’re going to do.”

What’s more, this plan does not feel like something Medvedev could have cooked up all by himself. To the contrary, it has Vladimir Putin’s fingerprints all over it.

So is it really a further surprise, then, to hear the Russian newspaper Vedomosti predict that Putin could retake his post as Russia’s president (with the current occupant stepping aside) sometime in 2009?

I have no idea how President Obama will respond to a newly-hostile Russia. My guess is that he will prove much less the “dove” than some expect... that the pragmatic Chicago operator in him could find the means to take a very hard line.

Dove or hawk, we’ll get a chance to find out either way...

A few weeks ago we noted in these pages that “falling oil is a geopolitical time bomb.” That notion holds true as ever, I believe. We just can’t be sure when or in what fashion the bomb will go off.

OPEC Still a Factor

Meanwhile, the Saudis aren’t exactly sitting on their duffs. Crude oil prices saw a ten percent jump earlier this week on news of the Kingdom’s production cuts.

There is open question as to just how effective OPEC really is. Some believe there is so much “cheating” going on that changes in the official quotas amount to little more than hot air. And with budgets getting tighter, the Saudis are one of the rare OPEC producers with enough “swing” capacity to really make a difference in day-to-day crude supply.

With that said, though, the long-term trend for oil prices remains up, not down... and that means greater concentration of power for OPEC. The IEA (International Energy Agency) is expected to release its “World Energy Outlook,” an annual report of sorts detailing the state of energy production around the globe, very shortly.

In that report (according to those who have seen advance copies), the IEA will release a forecast of $200 per barrel oil by 2030. The IEA expects a tripling of OPEC’s revenue in the coming years, from $700 billion in 2007 to more than $2 trillion down the road.

The IEA further notes “a real risk that underinvestment... will cause an oil supply crunch,” and that we will see “persistently higher levels of consumer spending on oil.” No surprises there.

Direction, Not Destination

How much stock should we put in a forecast for oil’s price more than 20 years out? Not much, obviously. I have no idea where the price of oil will be in 2030. (If they were honest, the IEA would admit they don’t either.)

But there is still value in this type of forecasting, because rigorous analysis of the data helps uncover the likely direction of the long-term trend.

We may not know how high or how fast oil’s price will rise in future... but we do know that the long-run direction for energy prices is still UP — not down — in spite of the recent price implosion.

The credit crunch and ensuing panic have put global growth projections on hold for a time — but it is only a pause, not a halt. Nor has the reality changed that all the “easy” oil is gone... that remaining oil supplies are getting ever harder to find... and that the NOCs (national oil companies) are increasingly hoarding the spoils for themselves, forcing the western oil majors to pursue ever tougher and riskier projects.

(Eventually) Back in Black

As far as the global economy goes, the worst case scenario for 2009 is one in which the powers that be screw things up so badly that we wind up with Great Depression 2.0.

Barring that tragic outcome — and it’s a pretty low-probability scenario I might add — a real problem we will face is lack of preparedness when demand trends come back on line.

As outlined in our explanation of why the commodity supercycle isn’t dead, a lack of capital spending now will likely lead to even bigger production bottlenecks in future.

And so, in short, I believe that while the price of oil got “crunched” along with everything else — the dollar’s sharp rise playing a role too — energy prices will bounce back with even more velocity and vigor when global growth returns.

And when that happens, we’ll have the same problems to deal with that were temporarily back-burnered by the credit crisis… and as a result, natural gas will play an expanding role.

Jumpin’ Jack Flash It’s A...

When we talk about oil and gas, we typically forget about the “gas” part. This is largely due to the varying roles that the major fossil fuels play. Oil is the big dog because we use it for transport. Coal is king because we use it for heat and electricity.

Natural gas has many uses too, but it’s a less critical piece of the energy puzzle in comparison to its bigger, dirtier fossil fuel brethren.

Oil and gas have big troubles though. The trouble with oil is that we are running out of it (or the easy stuff at any rate). The trouble with coal is that we hate it. America and China have more coal than they know what to do with, but coal is viewed as public enemy number one from an environmental standpoint.

The reality of rising demand is that oil and coal won’t go away — but alternatives will become all the more important. We’ll keep burning all the oil we can, and on a global basis, we’ll see new coal plants firing up every week for the next twenty to thirty years.

But natural gas still has room to be a much bigger part of the mix because coal is so undesirable as a primary electricity source, and the available oil just won’t be enough.

Natural gas is hard to transport across oceans now. But it will become much easier to transport as more LNG (liquid natural gas) facilities get built. In the same vein, it’s not very common these days to think of natural gas as a “transport” fuel... that is to say, something you put in your gas tank. But that mindset will change too, as Western countries move towards the mutually supportive goals of cleaner energy sources and less oil dependence at the same time.

We are nearing the stage, for example, when electric cars become truly viable on a mass scale. Technology, political will, public sentiment, and investor capital are all finally converging on this idea simultaneously.

When we see it really take off, chances are many of these next-gen cars could draw their electricity from natural gas-fired power plants. That’s just one quick example of how natural gas, the cleanest and least offensive of the major fossil fuels, can grab a march on oil and coal. There are plenty more.

Rumblings of GOPEC

As one might expect, the world’s major oil exporters tend to be the world’s natural gas powerhouses too. Last time I checked, Russia held an estimated 25% of the world’s known gas reserves.
  Continued...