Showing posts with label oil price. Show all posts
Showing posts with label oil price. Show all posts

Tuesday, October 13, 2015

Putin's Question, Syria and the future of the Middle East

"Instead of the triumph of democracy and progress, we got violence, poverty and social disaster — and nobody cares a bit about human rights, including the right to life, I cannot help asking those who have forced that situation: Do you realize what you have done?" Vladimir Putin - UN


There is a general consensus in the "West" that Vladimir Putin is a thug: however, in a manner reminiscent of Vito Corleone, he is a thug whose plans and his way of carrying them out make sense. By making sense I mean that it is easy to understand what his goals are and his ways of achieving them. I think it is perfectly evident that for good or for bad, Putin "realizes what he is doing".

Many sour-grape-ish commentators say that Russia is entering a "quagmire" in Syria like the USA did in Vietnam and Iraq. I beg to disagree. Syria's army is nothing like the "client armies" of South Vietnam or Afghanistan. 

Assad's Alawite community, a minority which controls the Syrian army and state, are literally fighting for their lives, because if they lose to the radicals of the Sunni majority, they will, minimally, be ethnically cleansed and quite possibly, (if ISIS stays true to form) be literally "put to the sword"... So given superior (Russian/Iranian) leadership, air-support, equipment, intelligence etc, they can be counted on as a motivated, effective force. They are joined by Hezbollah, the only military force in the world that has ever defeated Israel on the battlefield and by elements of the crack Iranian Revolutionary Guard

I think that given this support, they and their allies should be able to quickly roll back the al-Nusra Front of Al-Qaeda favored by the Arab powers and the ragtag "moderates" that Washington favors... before turning their attention to the ISIS.

What has Putin achieved by this?
  • He has guaranteed the survival of his Mediterranean naval base in Tartus, the only military base that Russia has outside the former Soviet Union.
  • Russia is again the most influential foreign power in Iraq, just as it was in the day of Saddam Hussein.
  • Russia is now the most influential foreign power in Iran.
  • In short, in only a few, relatively inexpensive,  moves, Russia is now again a major player in the Middle East chessboard, just as it was during the height of the Cold War. What does this mean?
  • It means that Russia is now in position to put a lot of pressure on Saudi Arabia.
Why should they want to put pressure on Saudi Arabia?

Chercher le pétrole.
Putin – who, as a former member of the KGB, is a product of the Cold War – is today faced with the same dilemma as his Soviet forebears. The collapse in oil prices, which has been engineered by America’s major allies in the region – Saudi Arabia, the United Arab Emirates, Qatar and Kuwait – is crippling the Russian economy.(my emphasis) The Telegraph
It must be said that the initial reason for lowering oil prices by over-producing was to break the American fracking industry by making it unprofitable... it has had other, perhaps underestimated consequences:
Russia’s currency and economy, already squeezed by Western sanctions, have been sent into virtual free fall by slumping oil prices. The International Monetary Fund predicted in July that Russia’s economy would shrink 3.4% this year, the most of any major emerging market. Wall Street Journal

Chercher le pétrole
Thus, hoist by their own petard, low oil prices are also threatening the stability of the Saudi Monarchy.
The Saudi government has banned official purchases of cars and furniture and slashed travel budgets and infrastructure spending as it faces its gravest fiscal crisis for years because of low oil prices.(...)Saudi Arabia had been hit by the “unfortunate coincidence of a royal succession and a sudden precipitous decline in oil revenue”, Hertog said, adding that the cost of public-sector bonuses, the war in Yemen and aid to regional states such as Egypt had pushed up the estimated break-even oil price to $110 a barrel. The Guardian
To top it off, as you can see below, Saudi Arabia's oil and gas infrastructures are extremely vulnerable to any hostile action coming from Iraq, Iran or Syria, any of which would surely lead to a big jump in the world oil price, which would restart the Russian economy... and probably cause a recession everywhere else.
Saudi Arabia's vulnerable oil infrastructure 
Hat Danil Parker
Russia's pressure seems to be having some effect:
Oil prices are on course for one of the biggest weekly gains in six years as rising geopolitical tensions and signs of slowing output brought buyers back to the market. Financial Times

The greatest danger in all of this, would be that too much austerity and subsequent unrest in Saudi Arabia could easily lead to the fall of the Saudi monarchy, considered by most pious Muslims as a brood of degenerate libertines. This family, and certainly not the people of Saudi Arabia, are the ones who have a "special relationship" with the USA since the days of FDR. Their fall would certainly not lead to any "Arab Spring" with Saudi ladies ripping off their veils and donning miniskirts... quite the contrary. An "Islamic Republic of the Holy Places" would be the natural location for the Caliphate that ISIS dreams of, and if Daesh took over, the "Meccan in the Street", would hardly notice the difference.

Here is a sample of daily life in Saudi Arabia under the rule of our "special friends" there:
A young Saudi Arabian man is facing crucifixion after beheading for attending an anti-government protest in 2012, when he was 17. The Times
Decapitations are routine in Saudi Arabia, America’s closest Arab ally, for crimes including political dissent—and the international press hardly seems to notice. Newsweek
Saudi authorities have already carried out 90 executions since the beginning of 2015, more than the 88 for all of 2014. Forty-one of the ninety people executed since the start of 2015 were sentenced for non-violent drug offenses. Human Rights Watch - MintPress
And unfortunately, oil is not all Saudi Arabia exports:
Saudi Arabia remains perhaps the most prolific sponsor of international Islamist terrorism, allegedly supporting groups as disparate as the Afghanistan Taliban, Al-Quaeda, Lashkar-e-Taiba (LeT) and the Al-Nursa Front. Edward Clifford - Brown Political Review
Sunni clerics are mounting increasingly vociferous calls for Saudi Arabia and the Gulf states to take action on behalf of Syrian rebel groups targeted by Russian air strikes. The pan-Arab Muslim Brotherhood and a group of 55 Saudi clerics this week called for jihad against the Russians in Syria. Saudi Arabia’s highest religious body, the Council of Religious Scholars, has accused Moscow, along with Iran and its Shia Lebanese proxy, Hizbollah, of aiding the regime of Bashar al-Assad “in the killing of the Syrian people and the destruction of their country”. It called on the nation to do all it can to support the “oppressed and mujahideen” of Syria. The growing pressure for action leaves the Saudi ruling family facing a dilemma. Riyadh has long called for Mr Assad’s overthrow and has supported so-called moderate rebels in Syria. But it fears that the clerical calls for action could inflame young Saudis, thousands of whom have traveled to join the fighting in Syria. The Islamist militants Isis have already launched attacks on Saudi Arabia and the government is cracking down on those traveling abroad in an effort to crush the group’s cells in the country. Financial Times
Since America's staunchest allies in the Middle East are Saudi Arabia and Israel, (which unlike Riyadh has about 1,200,000 Russian inhabitants) all of this is rather bad news, to say the least.

Putin certainly went to the heart of the matter with his question, "Do you realize what you have done?".

It is a question I've often asked myself: do Americans really understand what American foreign policy has been doing all these years and its consequences for their prosperity and safety?

Like many of my generation I started wondering if the American  foreign policy establishment realized what it was doing during the war in Vietnam,.. with Pinochet, Iran-Contra, etc to follow.

Just a short list of things, going back some time, with lots left out, that apply to today's situation in the Middle East:

With the help of Saudi Arabian financing, the USA introduced fanatical Wahhabi Islam to Sufi Afghanistan and to nuclear weaponized Pakistan and then literally "invented" Osama Bin Laden. All this was done to bring down a government in Kabul where little girls were allowed/encouraged to go to school and their mothers could even go shopping (without wearing a tent). Then during the First Gulf War the USA stationed pork consuming, American, soldiers in Saudi Arabia, which led to Bin Laden's creating Al Qaeda... Then in the Second Gulf War the USA totally destabilized Iraq leading to the appearance of the ISIS.

I know it's bad form to quote oneself, but only a couple of postings ago I asked:
What is truly impressive, especially in the American case, is that despite being the richest, most powerful country in history, with the most massive military the world has ever seen, with a huge educational establishment boasting the world's most prestigious universities... a country literally overrun with "think tanks", despite all of this, the "indispensable nation" continuously gives the impression of being the Global Village idiot. How to explain this? 
In the case of the Middle East, I like to think it is pure stupidity, because any other explanation leads into the sinister, tinfoil-hat-land's house of mirrors where the great paranoiac conspiracies slither... A very, very, dark and humid, dangerous place, a place where I don't wish to go. DS

Tuesday, January 06, 2015

Why is Saudi Arabia bringing down the price of oil?

Getting directly to the point: why is Saudi Arabia, perhaps the major contributor to the continuing fall of oil prices pumping more and more oil, while losing a huge amount of revenue in the process, apparently "cutting off their nose to spite their face"?

Some say they are doing it to hurt Iran, others to cut investment in fracking...

In my opinion it could be quite simple: the kingdom is in real danger of being destabilized by the Islamic State (ISIS) and the "caliphate's" main financing comes from selling bootleg oil.
Four heavily armed men from Iraq attacked a Saudi Arabia border patrol early Monday(...) The early morning clash(...)was likely to raise fears of jihadist infiltrations in the Saudi kingdom from Iraq and Yemen — another radical Islamist breeding ground that shares a border with Saudi Arabia, which controls access to Islam’s holiest sites. New York Times
This was the oil situation only as far back as September of 2014.

Experts estimate that the Iraqi oil fields under ISIS control may produce 25,000 to 40,000 barrels of oil a day — worth a minimum of $1.2 million in the underground market. Sept. 16, 2014 - New York Times 
And the situation now:
I am unable understand the logic of the Saudi Oil Minister’s statement “Whether oil goes down to $20, $40, $50, $60, it is irrelevant”. Statements like this only gave speculators in the oil futures markets a licence to make a multi-billion dollar killing at the expense of Saudi Arabia, the world’s largest oil producer and owner of 25 per cent of the planet’s crude oil reserves.(...) No energy journalist in the world can ignore Saudi Arabia’s oil policy shifts and I am no exception. Six months ago, every oil executive, bank economist and oil trader I talked to assured me that $100 Brent was Saudi Arabia’s price for two reasons. One, Ali Al Naimi publically said so. Two, the Saudi budget break-even price had risen from $65 to $90 Brent due to the increased social welfare spending. Both these assumptions were flawed.(...) the Saudi Finance Ministry conceded that the crash in oil means a $89 billion revenue loss to Saudi Arabia in 2015. Hellenic Shipping News
Saudi Arabia is the home of Mecca and Medina. No Islamic Caliphate could pretend to represent all Muslims without controlling the two holiest sites of Islam. Obviously conquering Saudi Arabia would have to be ISIS's final goal as it has always has been Al-Qaeda's... and there is wide, popular support for their views in the country.
There is a broad category of Saudis who agree with the extreme interpretations of religion and the call to jihad espoused by Osama bin Laden, and they're also in agreement with Bin Laden's political perspective — accusing the Saudi royals of being puppets of the West, attacking the U.S. for support of Israel and its invasion of Iraq, opposing the U.S. troop presence in the region. There is a significant section of Saudi public opinion that is supportive of Bin Laden. Time

We must not underestimate ISIS, although many think it is a gathering of fanatic madmen. ISIS is a developed model of al-Qaeda and it has extraordinary military and administrative skills. ISIS is also distinguished by its propaganda practices(...) Unfortunately, and although we defeated al-Qaeda in the past, its ideology was not uprooted. This is why a new organization surfaces every time an old organization is eliminated. The ISIS ideology inside the country remains a lot more dangerous than that which lies beyond its borders. Abdulrahman al-Rashed - Al Arabiya
That leads me to believe that the real difference between ISIS and Saudi Arabia is not the people or the culture of the country but merely the Saudi royal family. Here is what I mean:
An Associated Press tally of announcements from the official Saudi Press Agency shows 83 people have been beheaded in Saudi Arabia in 2014(...) The kingdom follows a strict interpretation of Islamic law and applies the death penalty on a number of crimes, such as murder and rape, as well as apostasy and witchcraft. (emphasis mine). New York Times

So the question is, if the Saudi Royal family is all that is standing between Saudi Arabia and ISIS, what shape is the Saudi Royal family in?

Here is the latest:
Saudi Arabia's King Abdullah is suffering from a lung infection and has been breathing with the aid of a tube, Saudi officials have said. The monarch, who is said to be aged about 90, was admitted to hospital on Wednesday for medical checks. King Abdullah, who came to the throne in 2005, has suffered frequent bouts of ill health in recent years. His age and condition has led to increasing focus on the issue of the Saudi royal succession. Crown Prince Salman, who is in his late 70s, is next in line to succeed the king, though questions remain over who will follow. BBC News
A 90 year old man suffering from pneumonia to be succeeded by a Crown Prince in his late 70s... and after that nobody is really sure what comes next.
Sooner or later, of course, the crown will have to move to the next generation. At that point, things may get a little dicey. Under Saudi succession law, the king has to be a male descendant of Abdulaziz, but beyond that, the incumbent king has wide latitude to determine his successor. Given that many of the brothers took after Dad or even exceeded him—King Saud, the second king, had 53 sons—there are now thousands of these descendants, many of whom have senior government positions, and the potential for palace intrigue is high. Slate
For me then it seems logical to think that allowing Saudi Arabia to lose many billions of dollars, which can be made up in the short term by the country's massive cash reserves, is (you should pardon the expression) some reasonable sort of a "Hail Mary pass" to keep ISIS at bay, while sorting out the family quarrels. 

For the Saudi royal family it would be vital to weaken ISIS any way they can short of confronting them directly in the ground fighting in Iraq,  which, given the ideological affinities, is something that might cause serious blowback, in the form of a successful internal rebellion against the royal regime at home. DS