Fertilizer, Energy and Liebig's Law of the Minimum

The loss of fertilizer shipments coming from the Persian Gulf as a result of the Iran war got me thinking about the chemist Justus von Liebig, a prominent 19th century proponent of the mineral theory of plant nutrition. Liebig is the popularizer of what is now known as Liebig's Law of the Minimum. The law states that the least available essential nutrient limits the growth of plants. This means once a grower runs out of one essential nutrient, adding extra of others will not make up for the lack of the one that is limited.

Liebig's eponymous law is about to assert itself in a big and distressing way in the coming growing season. That's because the Persian Gulf region supplies 36 percent of the world's urea (a form of nitrogen fertilizer), 29 percent of its anhydrous ammonia (another form of nitrogen fertilizer), 26 percent of diammonium phosphate and 13 percent of monoammonium phosphate.

Just to review a little high school biology, nitrogen, phosphorus and potassium are primary nutrients that cannot be obtained from the air or water and must come from the soil. (With regard to nitrogen, legumes such as soybeans are an exception in that they can fix nitrogen from the air for use in the plant.) Adding these primary nutrients to the soil improves the quality and quantity of plant growth. Huge of amounts of two of the three primary nutrients mentioned above are no longer flowing out of the Persian Gulf.

Chinese ag theft, pathogen research only point up dangers of GMO crops and monoculture

I'm shocked, shocked, to find out that the Chinese are stealing America's agricultural technology!

It can hardly come as a surprise that the Chinese government actively encourages and organizes the theft of intellectual property from other nations and their companies, in this case, agricultural technology in the United States. College students are some of the most active players in these thefts as between 250,000 and 300,000 routinely attend U.S. colleges and universities in any given year, most of them studying in scientific and engineering fields.

Not only is the theft of proprietary seeds an issue, but also research on and transportation of plant pathogens. No one has been accused of actively introducing pathogens into America's farm fields so far. But the combined problems of theft and possible biological attacks on crops merely lays bare the bankruptcy of the modern conventional agricultural system.

Will the U. S. curtail oil exports as fuel prices rise?

President Donald Trump may soon feel the need to "blockade" U. S. crude oil exports after those exports hit a record high recently, a trend which, if it continues, will increase the price U. S. consumers pay for gasoline, diesel and other petroleum-related products.

Nations around the world are scrambling to secure oil supplies that have been dramatically reduced by Iran's closing of the Strait of Hormuz to oil tankers of "hostile" countries which include major oil exporters such as Kuwait, Saudi Arabia, and the United Arab Emirates. In addition, the U. S. Navy has placed a blockade on ships from Iranian ports leaving the Strait of Hormuz, though the effectiveness of the blockade is in dispute.

In an April 1 televised address Trump said: "To those countries that can’t get fuel — many of which refused to get involved in the decapitation of Iran, we had to do it ourselves — I have a suggestion. Number one, buy oil from the United States of America; we have plenty. We have so much."

The Iran conflict and our Wile E. Coyote moment

I believe the global financial markets are now in what I would call a Wile E. Coyote moment frequently depicted in the old Warner Bros. animated series called "The Road Runner Show."  In this cartoon series a coyote while pursuing a roadrunner would inevitably end up running off a cliff and be suspended in mid-air until he looked down and hurtled to the bottom.

I say this because in case you didn't notice, last week we had the first public admission that fear is starting to grip monetary officials as a result of the Iran conflict. The United Arab Emirates (UAE) asked the United States government for a currency swap line, essentially a loan in dollars collateralized by the UAE's own currency.

I believe this event could be the leading edge of a financial panic that will ripple through the global financial system in the coming weeks, one that will bring various markets back into alignment with physical reality. That physical reality consists of an ongoing serious energy shortage and badly broken supply chains which are only getting worse as Iran continues to prevent critical energy and chemical supplies from exiting the Strait of Hormuz (except for its own).

Taking a break - no post this week

I am taking a break this week and plan to post again on Sunday, April 26.

Why most economists vastly underestimate the economic damage of the Iran conflict

A priest, an engineer and an economist are stranded on a desert island. The first order of business is to get some food. The priest suggests that they all pray. The practical-minded engineer suggests that the three men make a net to catch some fish. But where will they find the necessary materials? The priest and the engineer turn to the economist and ask him if he has any ideas. The economist replies, "Assume a fish."

This well-worn economist joke summarizes one of the chief flaws in contemporary economic theory. That theory almost completely ignores the role of physical resources, assuming they will always be available in the quantities we need at prices we can afford at the time we need them. When those resources aren't available, that theory begrudgingly accepts that there will be some damage to economic activity, but tends to greatly underestimate the impact. This conceptual flaw explains why economists in most financial institutions and governments and thus investors are not especially alarmed at the loss of energy resources as stock market indices remain not too far from their recent highs.

For a good summary of how contemporary economic theory goes off the rails, Australian economist Steve Keen offers a mercifully brief and comprehensible explanation. Here I will relate one critical part of that explanation. About 5.7 percent of U.S. GDP is devoted to procuring and distributing energy. Most economists will tell you that a 10 percent decline in energy availability would have a small effect on the U.S. economy. They would take the percentage of the economy devoted to energy, in this case 5.7 percent, and multiply it by 10 percent to arrive at a 0.57 percent reduction in economic activity.

Martin Act to the rescue: Insider trading on Trump reversals in the legal crosshairs

Currently unknown investors netted tens of millions of dollars in profit by placing huge trades in the oil futures markets just 15 minutes before President Donald Trump announced he was extending the deadline for strikes on Iran's energy infrastructure by five days to allow for nonexistent "negotiations" (which then turned into an additional 10 days—which meant little since U.S. and Israeli bombing simply continued). Because these investors bet on a fall in oil prices, they made money when the price of oil dropped sharply after the announcement.

The same or other investors traded heavily in stock index futures before the Iran announcement and profited handsomely as stock futures soared. All these investors could end up in legal jeopardy for engaging in insider trading if they were somehow given a heads up about the announcement. Were their trades just coincidental to the announcement? It seems unlikely, but that's the big question an investigation would answer.

Iran to Trump: If you destroy us, you destroy yourself

In the American streaming series "Bosch," the main character, a police detective named Harry Bosch, kills two bad guys in a plane who are trying to kill him. He then goes to the cockpit holding a pistol taken from one of the dead men. The pilot looks at him and says, "You kill me, you kill yourself." Bosch says, "I'm a f--king cop, asshole." The plane lands safely and the pilot is taken into custody.

In this analogy, President Trump is Harry Bosch; the pilot is the Supreme Leader of Iran, Mojtaba Khamenei; and the plane is the world economy. Khamenei can crash the plane, that is, kill the world economy by destroying the oil and gas infrastructure throughout the Persian Gulf so that it would take years to rebuild. Khamenei could go even further and destroy desalination plants in the following countries with noted dependencies on such plants for drinking water: Saudi Arabia (70%), Oman (86%), United Arab Emirates (42%), and Kuwait (90%). Doing this would make these countries largely uninhabitable. It's important to recognize that the Iranian military has demonstrated that it can hit precisely what it wants to hit with missiles and drones and destroy it.

Sticking with the Bosch analogy, it's still possible for Trump to let the plane land and save the world economy from complete destruction. The difference is that the pilot—in this analogy, Iran in the person of its Supreme Leader—must be allowed to go free and live undisturbed. That is what Trump believes he cannot allow because it would be a humiliating loss.

Is the complacency in global financial markets warranted?

Shortly before the war with Iran began, I wrote that the seeming complacency among government officials and financial market participants was based on two assumptions which I argued were unlikely to turn out to be true: 1) President Donald Trump would make a last-minute deal with the Iranians and declare victory and 2) even if Trump didn't make such a deal, the Iranians would not do all the things which they threatened to do if attacked.

Here we are three weeks into the conflict between the United States and Israel and Iran. There was, of course, no last-minute deal and the Iranians have done exactly what they threatened to do. Here is what I reported before the war were Iran's threats:

Those threats include attacking U.S. bases in the region, attacking any country that assists the U.S. and Israeli war effort, attacking U.S. naval vessels, and, most important, closing the Strait of Hormuz through which passes 20 percent of the world's exported oil and liquefied natural gas.

Oil price manipulation, an unrecognized stratagem and an unhinged plan

Governments around the world are desperate to bring down oil prices in the wake of a cutoff of about one-fifth of the world's supply due to the Iran war. Here are some of the moves we've seen so far:

1. The International Energy Agency, a consortium of 32 countries which coordinate energy policy and emergency readiness, called an emergency meeting to discuss release of strategic petroleum reserves to ease prices. The countries agreed to a release of 400 million barrels from reserves held in underground caverns and above ground in storage tanks, the largest release ever of such reserves.
   
   With about 20 million barrels per day no longer available from Persian Gulf exports because of the Iranian closure of the Strait of Hormuz, the narrow passage from the gulf to the open sea, this release represent just 20 days of oil deliveries. But it is unlikely that the daily release of oil will be more than a fraction of the lost barrels given constraints on how fast the reserve can be accessed. So it's not surprising that oil prices actually went up after the announcement.


2. Of course, I would be remiss in not pointing out that Iran's closure of the Strait of Hormuz was the initial manipulation of the world oil price as it vowed to push oil prices to $200 per barrel.