If protesters, now or in the future, are looking to bring additional pressure onto the ruling elites and the security forces, they will have to either coopt some segment of both or target the sources of their power and revenue, including the oil sector. It seems a long fuse has been lit.
Over the last few days, Saudi Crown Prince, Mohammad bin Salman, has arrested or detained individuals
under the charge of corruption. Yet, these efforts are intended to consolidate his power before he becomes
King. Perhaps this consolidation is essential to the successful execution of his Vision 2030, but it does fly in
the face of projecting a transparent, increasingly liberal economy worthy of foreign investment.
King Salman is the last of the Sudairi Seven to rule Saudi Arabia before the next generation (grandsons of King Abdulaziz ibn Saud) takes power. If Crown Prince, Mohammad bin Salman, ascends the throne in the next one to two years, he will rule – absent medical issues or political upheaval – for decades. This will include the period when judgment will be rendered on his Vision 2030 for diversification of the Saudi economy. The oil market’s focus on the Saudi Aramco IPO and its perceived connection to Saudi oil policy should be seen within the context of larger issues related to internal stability.
On Thursday, President Trump will make a speech on Iran in which he is expected to not certify that Iran is in compliance with the Nuclear Deal, as required every 90 days. This will give the Congress 60 days to take up the issue of putting sanctions back in place. At this juncture, a return to the status quo ante “the Deal” is impossible given the positions of the other P5+1 countries. But, Congress may take other steps to turn up the heat on Iran.
The autonomous Kurdish region of Iraq voted for independence last week in a resounding – but non-binding – referendum. Baghdad has dismissed the vote. Turkey and Iran, with large Kurdish populations themselves, have threatened a blockade. Turkey’s threat to shut the Kirkuk-Ceyhan crude oil pipeline puts Kurdistan’s nearly 600,000 b/d of crude exports at risk. Ongoing tensions have already encouraged a temporary run-up in Brent prices, and will keep a small geopolitical premium on the price of crude.
Even as President Trump continues to oppose the Nuclear deal with Iran, we expect him to certify the Nuclear Accord on October 15th (i.e., keep it as is) while increasing pressure on Iran in other ways. But certification comes up every 90 days, so this will be an ongoing issue.
Current tensions between North Korea and the international community, but especially the U.S., South Korea and China are bound to continue and threaten military conflict that could escalate to a previously unthinkable outcome. While oil and gas trade with North Korea is quite small, any threat of military action in the region will impact shipping and lift the price of waterborne goods.
This morning the Trump Administration indicated that U.S. policy towards North Korea is moving from “strategic patience” to “strategic accountability”. That summary of the current situation seems far less bellicose than recent statements by either side. Moreover, U.S. policy is focused on encouraging China to step in more proactively, which gives the impression that U.S. direct action is still arm’s length away. Yet, as discussed below, misperceptions on both sides could quickly lead either side to escalate from statements to action.
In the realm of international relations and U.S. foreign policy, an integrated Europe allied to the U.S. is seen as a plus for concerted action to counteract instability in regions such as the Middle East, North Africa and even the Balkans. The election of independent, centrist, Emmanuel Macron, to the French Presidency over the weekend was a clear victory for Integrated Europe as Macron ran on a pro-Europe platform.
The strategic situation between the United States and North Korea is approaching an inflection point. The
U.S. decision of whether to attack North Korea before it develops an intercontinental strike rides on its belief
in the strength of mutual nuclear deterrence. But, North Korea is seeking to close what they perceive as an
almost seventy-year-old window of vulnerability. The U.S. may decide (with the encouragement of its allies)
to act before that window closes. The possibility of military conflict is growing and will materially impact key
oil consumers, South Korea and Japan, among others.
Iran is the shared target of Saudi and U.S. enmity. Saudi Arabia remains Iran’s regional foe in multiple proxy wars, and the U.S. is poised to add to sanctions against Iran. As rhetoric from all sides intensifies, Iran shows no sign of bending. The potential for more conflict in the region remains high.
Iran is the shared target of Saudi and U.S. enmity. Saudi Arabia remains Iran’s regional foe in multiple proxy wars, and the U.S. is poised to add to sanctions against Iran. As rhetoric from all sides intensifies, Iran shows no sign of bending. The potential for more conflict in the region remains high.