Reflecting in Kissinger's Bar
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Reflecting in Kissinger’s Bar

by | published November 20th, 2019

I am writing this column while in hiatus from a meeting here in Paris.

Among my sessions this week is an initial round of negotiations with representatives of Petrovietnam (PVN), the Vietnamese state oil company. The issue here is pending U.S. support for Hanoi’s claims against Beijing in the ongoing South China Sea crisis.

How much has changed.

The last time I was involved with Vietnam (some 48 years ago), I was there in a counterintelligence capacity. And we were at war.

Now, it is in the interest of Washington to provide assistance to Vietnam. But to do so in the current environment – one in which commercial interests are involved – policymakers on both sides are required to operate through “private intermediaries.”

Of course, the Vietnamese company is controlled by a government ministry, and so is “private” in name only. In my case, I represent no Western enterprise per se (although the results of the process may prove of advantage to two U.S. majors), but given my previous intelligence experience, I have renewable security clearances.

That requirement limits the number of U.S. individuals who can serve in this capacity. This should not be a representative of company interests per se.

After all, as far as the U.S. Departments of State and Commerce are concerned, this is a policy, not a profit matter.

Here’s what I mean…

Where Modern U.S.-Vietnamese Relations Began

I have served in such a capacity on several previous occasions where U.S. policy interests have intersected with ongoing trade matters.

This time though, the focus is on a rapidly escalating situation centered about Chinese attempts to control both offshore oil and natural gas production, as well as the ability to transport in an area where seven countries claim contested waters.

The next step is my acceptance of a formal appointment agreed to by both sides, followed by my return to Vietnam for additional negotiations. In advance of any further substantive discussions, I may earn more particulars this evening when I dine at the Vietnamese Embassy. The other participants will include a member of the Central Committee from Hanoi (the embassy here currently has no ambassador).

To the extent that they can be discussed, I will fill you in on more details as they become available. Additionally, I will have more to say about my other upcoming Paris sessions with international bankers gathering at BNP Paribas and colleagues at the International Energy Agency (IEA).

But back to the Vietnamese meetings. I decided to call the meeting for a hallowed location on the ground floor of our hotel.

This is the hotel, The Peninsula Paris:

One can say without much embellishment that modern U.S.-Vietnam relations began here, in what these days is now a bar.

During previous meetings in Paris back in 2016, I wrote about this watering hole in detail in an Oil & Energy Investor column, “The View from ‘Kissinger’s Bar.”

The situation at that time was as follows:

“New York may be the financial center of the world, and London still has the reputation of being the place to finance oil projects. But if you want to gauge the genuine pulse of the financial world’s view on all matters surrounding oil, come to Paris.

The “City of Lights” is host to the International Energy Agency (IEA), along with major global banking interests that bankroll a number of worldwide energy projects, and the offices of principal OPEC-related financing funds.

As Napoleon once put it, “Secrets travel fast in Paris.” But not nearly as fast as informed opinions.

That’s why I’m in Paris right now, discussing energy matters with my European colleagues. And what they’re telling me is very surprising. The opinion here on OPEC’s current negotiations on capping oil production is unanimous.

And it can be summed up in just two words…

“Calculated Indifference”

I’m writing this to you from what may be the most famous watering hole in recent history. Located on the ground floor of The Peninsula, our hotel in Paris, this room is now called “Le Bar Kl├ęber.”

But many of us simply refer to it as “Kissinger’s Bar,” because 43 years ago, this is where Henry Kissinger signed the Paris Peace Accord ending the Vietnam War.

Dr. Moors in “Kissinger’s Bar,” Paris

Back then, it was a salon, not a bar. Still, leave it to an American Secretary of State to pick this as a location for peace negotiations. For those who lived through the period, this bar has become one of the must-see “political pilgrimage” sites in Paris.

Centrally located between the Arc de Triomphe and the Eiffel Tower, the bar is nestled in the city’s affluent 16th Arrondissement. That makes it easy to get to for anyone who wants to be seen in this trendy district of Paris… and makes it a very convenient place to discuss a range of contemporary issues, including OPEC’s attempt to agree on an oil production cap.

The mood here in Paris on that topic wasn’t what I expected…

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OPEC’s Oil Deal is Far From Complete

The prevailing informed opinion in Europe today reflects what I have been saying here in Oil & Energy Investor. It’s encapsulated perfectly in American essayist and longtime Parisian resident Gertrude Stein’s comment on her birthplace (Oakland, CA): “There’s no there there.”

That’s the position on OPEC’s oil freeze held by every energy commentator I know here in Paris. And their refrain is also the same.

OPEC may have announced an “agreement” to cap oil production during meetings in Algiers, expressing an intention to announce the final plan at their next regular meeting in Vienna (November 30). Moscow even expressed support (for the idea, at least), and the markets moved through a brief cycle of price increases as a result.

Yet the results of meetings just held in Istanbul reveal the real situation. The consensus that could justify the market’s optimism just isn’t there.

You see, just as I predicted when the Algiers “breakthrough” was announced, OPEC provided at best an outline of a deal. The cartel still had to discuss brass tacks with other main non-cartel producers well before the OPEC summit in Vienna at the end of next November.

That means negotiating with Russia.

Well, the World Energy Congress met in Istanbul earlier this week and provided an opportunity for more informal meetings between OPEC and Russia. Yet when all was said the talks resulted in additional problems, not a resolution…

Iraq and Iran Could Still Scuttle the Oil Deal

To begin with, cracks are once again forming within OPEC itself on how a production cap should be worked out. As I noted last week, any cap requires that monthly production quotas be reintroduced for OPEC members. But Iran and Iraq, while part of OPEC, have not had quotas for years.

So their production will, in effect, come at the expense of other OPEC countries.

More disquieting, sources confirm that neither Tehran nor Baghdad actually participated in the sidebar conversations held in Istanbul. And several others – notably the OPEC countries most vulnerable to the present low oil prices, including Venezuela, Libya, Algeria, and Ecuador – are expressing growing frustration over the Saudi-led initiative to cap oil production.

The result has been predictable. OPEC nations are once again ramping up production in a desperate zero-sum game to wrestle market share at each other’s expense.

Meanwhile, Saudi-Russian talks haven’t even begun in earnest yet, but already the Russians are growing annoyed…

The Saudis are Sending Mixed Messages to Russia

As I discussed last week, the Saudis have cut the price of their oil exports to Asia for the second time in six weeks. Their main goal here is to grab Asian market share from Russian exports. So it’s no wonder the Kremlin regards this latest Saudi move as another provocation.

In response, Moscow has increased its own export volume, with Minenergo (the Russian Energy Ministry) declaring it will not be misled again. Russia had supported the earlier production cap initiative advanced at a special April meeting in Doha, only to be stymied by a late Saudi decision not to move forward.

Technically, the Saudis had then declared that there could be no deal without Iran’s agreement. But as Tehran was not even present at Doha, the Saudi declaration was tantamount to pulling the rug out from under any possible accord.

The prevailing opinion among the market savvy folks here in Paris points toward yet another opportunity to stabilize oil prices running a risk of capsizing.

Getting everyone together, it seems, is one thing, but getting them to agree is quite another. 43 years ago, Kissinger faced the same problem, right here in this bar.”

Sincerely,

Kent

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