mind × the + gap

THE U. S. CELEBRATES ITS INDEPENDENCE DAY TODAY, July 4th. The custom involves the state sponsored fireworks accompanied by songs such as the National Anthem – The Star-Spangled Banner.

[Right: A Ganges-class ship, to which HMS Minden belonged, at war with French Navy in 1806.]

The national anthem, which originally was a poem titled “Defence of Fort McHenry” was written by one Francis Scott Key. Mr. Key, a lawyer by profession, was visiting certain British officials at Royal Navy ships at that time.

The point in case here is that the ship HMS Minden, a Ganges-class ship, aboard which this national anthem is first conceived and written was Made in India. The ship was built by one Mr. Jamshedji Bomanji Wadia, a merchant of Bombay. And by this account of trivia, the Outsourcing relationship, as it were, between the US and India is as old as 1801 when this ship was first built at Bombay dockyard, one of the best ship-building dockyards of the world at the time.

Happy 4th of July!

And, to quote Jefferson’s famous preamble for the Declaration of Independence on this day in 1776:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

On a lighter note, below is Happiness with a ‘y’:

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THERE IS NO PLACE CALLED “KING ABDULLAH ECONOMIC CITY” in the world as of now. But perhaps it wouldn’t be long before we see a spot on Google Earth with such a name having 3 million in population, partly thanks to the sky-rocketing Oil prices.

The crude prices reached a historical record USD 145 per barrel – nearly doubling compared to the previous year. A barrel holds 42 US gallons or about 159 litres of crude oil, making it USD 0.91 for 1 litre – almost double from USD 0.44 per dollar last year. This is the purchasing price of crude oil from the OPEC countries, and is not yet usable. The actual process is much more complicated, but at a very high level, it follows steps like transport it, refine it, process it, transport it again, store it, distribute it and make available at the local gas station. This adds additional costs to the original purchase price of Oil. Traditionally, the total production cost and profit on top with added government taxes becomes the sale price of the product to the end-consumer. However it may not work in that fashion all the time – countries like the US purchase crude at a different (lower) price from the market, and countries like India and China subsidise the product to bring the retail prices within consumable range for the common people. But then, beyond a point no government with the right economic policies would be able to insulate the global economic pressure of the price-rise.

[Above: Doubling of crude oil prices over past 366 days. Source: wtrg.com]

This is the good or “light” crude that is getting costlier. The world at large has the capacity to refine this rather crude product into usable Gasoline, Diesel, etc. Increasingly, many oil-wells have started drawing “heavy” crude for which the Oil companies worldwide have limited refining and processing ability. Oil processing giants like Reliance Petrochemicals is in the process of constructing world’s largest oil refinery in India with a huge capacity of processing both “light” and “heavy” crude, but it would take a couple of years to be fully functional. The so called shortage of light crude might have put the crude prices under pressure, but by no equation it could make the prices go double over the previous year.

Furthermore, if someone argues that the Demand of Oil has grossly and suddenly outpaced the Supply, and that is forcing the Oil prices to rise, you are being taken for a ride. The demand is supposed to be well in sync with the production. It is the supply-chain that has gone for a toss, and by a certain account a suspicious mind might smell a mischief at work.

I suppose it takes only common sense to pose the question: the extra money that I am rather forced to cough up for every litre at the gas station, where does it go after all? It must be ending up into someone’s pocket… There must be somebody who is accumulating a rather handsome capital in this fashion from around the world! And, there are a couple of possibilities:

In a very interesting documentary last month the BBC correspondent visited this once barren site where construction work is going on at a fanatic pace in the deserts of Saudi Arabia. The contractors, such as the Bin Laden Group, are trying to convert the uninhabitable sandy planes into King Abdullah Economic City which is one of the six of its kind – making it one of the largest desert reclamation project in the world.

[Right: The city in Saudi Arabia that consumes a major portion of a billion dollars of revenue every day that the Saudi Arabs acquire by selling oil to the world at a doubled price.]

It is reported that since they have doubled the crude oil prices, nearly USD 1 billion is pumped every day into the building of such cities by the Saudi people; the money that Saudi Arabia, the largest oil producer, acquires by selling crude oil.

[Related post: Oil Money Powering Windmills]
[Go here for the BBC story on the Saudi city and how they make/spend billions a day from rising Oil prices.]
[Go here for details about the controversial oil company Zapata Corporation founded by President George Bush, Sr.]
[Go here for a Bloomberg story on the “world’s largest oil refinery”.]
[Go here for an interesting article titled: Perhaps 60% of today’s Crude Oil Price is Pure Speculation.]