Saudi Sabre-Rattling Intensifies to Raise Oil Price
Bin Salman keeps pressuring oil markets with Lebanese aggression
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It seems every day brings us closer to world war. The turmoil in Saudi Arabia is now morphing into outward aggression towards Lebanon and Iran.
The Arab League is meeting to discuss Iran. The Saudis are putting their air force on alert. The propaganda war is in full-swing. And Israel is increasing its bellicosity against both Syria and Lebanon.
If you’ve been following my previous work (here and here) you know that I don’t believe a word of this leads to war. The Saudis and their now-exposed allies, Israel, are making noises and, in some cases, continuing to act aggressively. But they both are in no position to do anything more substantial without the say-so from the United States and/or Russia.
Over the weekend Presidents Trump and Putin met in Vietnam, however briefly, and issued statements that made it clear that despite Deep State opposition they are of similar minds when it comes to open war.
They don’t want it.
Israel trying to sell the Amman Agreement signed over the weekend by Putin and Trump as creating an “Iran-free zone” near the Golan Heights is your proof on this. Israel, by all accounts have been nothing but instigators in that part of Syria, taking every opportunity to attack its sovereign neighbor with impunity on a near-weekly basis.
And their trying to sell this to its people as proof of its influence on the talks speaks volumes of how weak the government’s position is.
As we approach the Sochi summit where the political process for post-war Syria will begin, it will become more obvious that Israel will be on its own if it continues to act aggressively.
The Amman Agreement is a step in the direction away from further warfare.
So, if it’s not leading to war then what is this all about then?
Purge or Putsch?
There are two schools of thought on Mohammed bin Salman, and like Alexander Mercouris, I believe he is the worst admixture of both of them.
Views on Muhammad bin Salman vary between those which see in him a genuine reformer who understands that Saudi Arabia urgently needs to change in order to avoid eventual collapse, and those which see in him a gambler and would-be dictator intent on centralizing power in Saudi Arabia in his own person.
These two theories are not mutually exclusive. It is possible that Muhammad bin Salman is both: someone who aims to become Saudi Arabia’s dictator in order to carry out the reforms which he believes Saudi Arabia needs to survive, and which he presumably also believes cannot be carried out in any other way.
So, for the time being he is looking at the situation trying to push this situation as far as it can go to achieve his goals. Israeli Prime Minister Benjamin Netanyahu still believes he has the backing of the U.S. government and is taking advantage of the chaos bin Salman has created to lash out and secure his political future, which, as I pointed out above, is tenuous at best.
And that means threatening the regional stability with overt war to goose oil prices.
The news this morning that an emergency meeting of the Arab League to discuss the ‘Iran situation’ and putting the Saudi air force on high alert is just more of the same. So far, however, oil prices refuse to move.
It may be normalcy bias on their part, but this time I think it’s a pretty good call.
Trump, for his part, is not beyond allowing the chaos to work to his advantage. Notice how everyone is focused on Saudi Arabia and not on the small details in Syria?
Why we will not likely see overt war here is simple. The new Saudi crown prince has been exposed as a petty gangster in his detainment and forcible resignation of the Lebanese Prime Minister, Saad Hariri.
The goal was, obviously, to push the Lebanese government into chaos and provoke a violent response from Hezbollah. It didn’t work. In fact, the opposite happened, quite predictably. Regime change operations this ham-fisted will always be met with domestic resistance.
Hezbollah Leader Nassam Hazrallah’s statements in the wake of Hariri’s resignation was forceful but measured. And the lack of violence from Hezbollah forces speaks volumes and throws the spotlight back on bin Salman and his thuggery.
Bin Salman tried a similarly shocking move with Qatar earlier in the year, forcing the other Gulf Cooperation Council members to financially and physically blockade Qatar under the pretense of their support for terrorists.
By not taking the bait Hezbollah is telling oil traders the Saudis will have to work much harder to get the results they need. Either way Russia, with its superior cost structure and economy, can work with whatever happens in oil.
Putin’s New Groove
So, don’t think that Putin is behind this supporting the Saudis to gin up a $20 move in oil. The media here in the U.S. will be given those talking points in 3… 2... 1. In fact, Putin, I’m sure wants the Saudis a little desperate and oil’s current price is a little too rich for that.
$63 Brent Crude is great for the Russian economy. It is better, however, for both the Saudis and the U.S. as a new report from UBS tells us U.S. GDP growth this year is mostly from higher oil prices bringing renewed drilling activity.
The Saudis need $65-70 per barrel to stabilize their budget. The U.S. needs higher prices to sustain growth. Meanwhile Russia’s economy is diversifying away from oil and its link to the U.S. dollar. So, don’t expect much more than this.
Because while the Saudis need higher oil prices, they can’t create a proxy war to do so anymore. They have to do it themselves and that would be catastrophic for them.
What’s more likely is that the price tops out here and falls back into towards $55 per barrel Brent Crude.
Putin has been steadily cutting economic and defensive arms deals with everyone in the region to promote peace and stability. And, slowly but surely, those deals are building the framework towards exactly that end.
Now, the ball is in Trump’s court to get Israel and Saudi Arabia to sign off on it, officially, and realize that they no appear to or in reality control the price of oil.
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