Category Archives: Petroleum

Arab Revolutions, California, Iran, Jihadis, Petroleum, Russia, Syria, Turkey

The Strange Turkish Russian Iranian Syrian Oil and Pistachio Deals with DAESH…….

Shuwaikh-school1 Hiking Sharqeya-Baneen-15

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When news seeped out about ISIS/DAESH selling and exporting oil over a year ago, I suspected a Turkish connection, even though Western and Saudi/Qatari media claimed there were deals between ISIS and the Assad regime. After all, the weapons, volunteers, and possibly much of the money for the Jihadis in Syria flowed through the long Turkish border. And ISIS/DAESH controls areas along the border.  And there have been credible reports of cooperation between Turkish military and intelligence and the Jihadists in Syria. These days, when a terrorist or accomplices escape from a European country, they head for Turkey: that is the trailhead to lands controlled by ISIS.
Now the Russians have come out and said it openly, with claims of documentation. Iranian media have also carried and seemed to support the Russia claim.
The Turks could not be original, so what did they do? A day or two later they made their own claim of Russian-ISIS oil deals. I didn’t know Russian needed Syrian or Iraqi oil.
Wait, there is more. To make matters more entertaining, there are now reports on the social media of Turkish claims that Iranians also made oil deals with ISIS/DAESH. Tit-for-tat, since the Iranians seemed to support the earlier Russian claims. I didn’t know that the Iranians also needed Syrian or Iraqi oil. I had thought they spent the past few years trying to sell more of their own oil, not buy foreign oil from their Wahhabi enemies.
What next? Turkish claims of Iranian deals to buy Aleppo pistachios from ISIS? Iranian claims of Saudi oil deals with ISIS? Qatari claims that the Bahrain regime imports some of its nasty interrogators from ISIS? Oh, wait……….
Cheers
Mohammed Haider Ghuloum

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Economics, GCC, IMF, Latin America, OPEC, Petroleum, Saudi Arabia, Uncategorized, Weapons deals

Sad Economic Dances: From Tango Argentino to Saudi Arabian Ardha………

Shuwaikh-school1 Hiking Sharqeya-Baneen-15

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“من حفر حفرة لأخيه وقع فيها :Whoever digs a hole for his brother, he himself shall fall into it” An Arabic saying against treachery, based on a Hadith quote from the Prophet.

” Saudi Arabia, the world’s largest oil producer, needs to sell oil at around $106 to balance its budget, according to IMF estimates. The kingdom barely has enough fiscal buffers to survive five years of $50 oil, the IMF said. That’s why Saudi Arabia is moving fast to preserve cash. The kingdom not only raised $4 billion by selling bonds earlier this year, but its central bank has yanked up to $70 billion from asset management firms like BlackRock (BLK) over the past six months. After years of huge surpluses, Saudi Arabia’s current account deficit is projected to soar to 20% of gross domestic product this year, Capital Economics estimates. Saudi Arabia’s war chest of cash is still humungous at nearly $700 billion, but it’s shrinking fast…………”

“Argentina evokes images of tango, soccer, gauchos…and an awful economy — one of the world’s worst. Its economy is projected to show little or negative growth this year. Argentina is still indebted to American hedge funds, affectionately known as “vultures” in the country. And it remains the poster child of nations that default on their loans. But there’s new optimism in Argentina, mainly driven by presidential elections coming later this year…………….”

In Argentina, the ruling party could win another term in run-off elections. But the Tango Argentino goes on.

Now to Saudi Arabia, where the princes like to force their Western visitors to mimic the native all-male Ardha dance for the cameras. From George W Bush to Prince Chuck of England they have all pretended t enjoy this dance. Only the Frenchmen, Sarkozy and Hollande, could not bring themselves to pretend that they want anything to do with it.

There is a great Arabic saying from the Hadith that ” من حفر حفرة لأخيه وقع فيها   whoever digs a hole for his brother, he himself shall fall into it“.

As I have opined recently, the Saudi princes had bought the fantasy that they can “control” crude oil markets. They thought they could engineer limited lower prices for political strategic goals. To punish the mullahs in Iran, Putin in Russia, and the North American shale industry. It worked well beyond their expectations, to the extent that Saudi Arabia faces economic disaster in a few years.  They probably never dreamed that prices will collapse to less than $50 (apparently the Saudis need oil prices to hover around $100/barrel).  Other Gulf GCC states can live with much lower oil prices than $100, but not the Saudis.

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If you look at the IMF chart, you’ll notice that the most corrupt most repressive of the Persian Gulf states require a higher price for crude oil to break even. These are the two countries to the right. Of course that could be just a coincidence, some may say “there is no correlation”.

However, the princes are fine. They take their cut first, from oil production and from huge military and civilian contracts. They keep on sucking the resources of the country and its people. Whatever reduction in their loot results from reduced oil prices they make up with commissions and kickbacks on even larger weapons contracts with the West.

Hopefully their reckless policies do not doom the economies of the other Gulf states.
Cheers
Mohammed Haider Ghuloum

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Arabian Peninsula, Economics, Petroleum, Saudi Arabia, Yemen

All the New King’s Men: Betting the Farm on Military and Economic Adventures……..

Shuwaikh-school1 RattleSnakeRidge Sharqeya-Baneen-15

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“But Saudi Arabia and the other Sunni Arab states should not be so singularly obsessed with the danger posed by Shi’ite-led Iran. These states have other internal problems and economic worries to deal with, especially bulging youth populations and the lack of avenues for political expression. The House of Saud is facing a challenge from the militant group Islamic State, which carried out a suicide bombing last week that killed at least 21 worshippers at a Shi’ite mosque in the kingdom’s Eastern Province. The Saudi regime must also cope with the long-term consequences of declining revenue due to lower oil prices………….”

Saudi Arabia has taken a couple of big gambles in recent months. The ruling family has taken some questionable advice on how to slam its regional opponents and rivals, mainly Iran and Iraq, and tighten its alliance on the Arab side of the Persian Gulf. Both are extremely risky:

  • The Saudis have uncharacteristically allowed oil prices to plunge, thus aiming new economic blows at an Iranian regime that is already enduring a tough Western economic blockade. Along the way they also aimed a few left hooks to Mr. Putin’s Russia, a major supporter of Syria and Iran. (Unlike the Western powers, Mr. Putin has not yet threatened to put ‘boots on the ground’ in Syria or to keep a military option on the legendary table).
    The Saudis also struck at the very-cost-sensitive American and Canadian shale oil industry, now a major rival in the market.
  • In addition to “lowering” oil revenues, the kingdom has also started to bet high in a regional poker game. It started an expensive bombing war against the poorest Arab country, Yemen (now mostly controlled by Houthis and the Army). A costly and intensive bombing war that has shown no results in more than two months except destruction of Yemen’s fragile infrastructure. And plant cluster bombs across that country.
  • In addition to the high cost of bribing the rulers of Sudan and Jordan and Morocco and Senegal to join their Yemen military adventure.
  • The new King also immediately raised salaries of all military and security employees and granted every public servant (most working Saudis) and student a two-month extra salary bonus.
  • The total cost of all that is almost certain to exceed one hundred billion dollars: by how much depends on the duration and intensity of their new war. And how much the newly promoted princes (MBN, MBS, XYZ…..) skim off the military expenditures and other major contracts. Meanwhile oil revenues are down, creating a risky imbalance and a drainage on foreign reserves.
  • Contrary to what the Saudis expected, the Houthis and their army allies have expanded their territory since the air campaign in Yemen started. They have now started to attack inside the Saudi home territory, with a surprising degree of ease and impunity. Which is leading to more Saudi casualties, probably an unexpected consequence.

What makes all this riskier is that the new King Salman, in an un-Solomonic move, has started immediately to turn his country’s budget, which is essentially the ruling family budget, into a large deficit. In the process he is depleting his country’s foreign reserves.

The cash bonuses paid out are already eaten up by the inevitable higher prices. So far the war on Yemen looks set to drag on unsuccessfully, all the munitions and cluster bombs need to be replaced. The newly-promoted young princes try to get even richer while they can. Then they will all be back to the starting point……….

Their foreign reserves are still high. Maybe they can withstand it for a sustained period, maybe, but for how long and at what rate of depletion……..


Cheers
Mohammed Haider Ghuloum                          Follow ArabiaDeserta on Twitter
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Economics, Iran, OPEC, Petroleum, Saudi Arabia, U.S. Foreign Policy

Oil Weapon Redux: Saudi Oil Policy vs. Iranian Regional Policy vs. Ebola vs. Obama Sanctions……..

_9OJik4N_normal Sharqeya-Baneen-15    DennyCreek2

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There is new speculation about the ‘oil weapon’ in Arab media, in independent Arab media that is not owned by the Saudi or UAE or Qatari princes and potentates. This speculation has now also spilled into some Western media outlets. It claims that the Saudis, the usual crude oil ‘swing producers‘ of OPEC, are not playing their usual role these days. And they attribute this to regional strategic reasons.
The speculation is that the Saudis want to apply some economic pressure on their Iranian rivals (and perhaps on the Russians as well). Not the kind of direct crude type of economic pressure in the form of the blockades used by the Obama administration, but a more genteel ‘market’ type of pressure. If oil prices are low enough, this theory seems to go, then the Iranians will feel the economic pinch and reduce their support for Al Assad in Syria, Hezbollah in Lebanon, and perhaps reduce their involvement in Iraq and other places.
The idea is not new: it was expressed by the Saudis after they lost out in Iraq a few years ago. At the time, some minion at the Saudi Embassy in Washington opined in American media (the Washington Post?) that his country can drown the market in oil and hurt the Iranians. I wrote then (presciently?) that this may be a delusion, that the Saudis themselves cannot afford very low oil prices, given population growth and emerging political pressures at home.
The reduction in oil prices also coincided with the initial Ebola panic which impacted the travel outlook and hence the demand for fuel.

As if responding to this policy, or speculation about it, the Iranians have just announced a huge offer of weapons for the Lebanese military (which is secular but represents the sectarian and confessional divisions within that country). They seem to be in a race with the Saudis (who earlier announced a conditional $3-4 billion of French weapons) and the Americans to arm the (so far multi-sectarian) Lebanese military.

Cheers
MHG 

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Economics, OPEC, Petroleum, Sanctions, U.S. Foreign Policy

Remember When the Oil Weapon Was Blackmail and Evil?……….

_9OJik4N_normal Sharqeya-Baneen-15    DennyCreek2

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“Now time has abruptly run out. The Arabs, who control nearly 60% of the world’s proven deposits, are slowing down the flow. Through this strategy of squeeze, they hope to pressure the industrial nations into forcing Israel to make peace on terms favorable to the Arabs. Moreover, they are steadily intensifying their oil shakedown. Originally they planned to reduce production by at least 5% each month. Later they embargoed all oil shipments to the U.S. and The Netherlands, in punishment for their support of Israel. Last week, showing new unity and clout, ten Arab countries announced that production for November will be slashed a minimum of 25% below the September total of 20.5 million bbl. per day. Though there has been promising progress toward a lasting settlement in the Middle East, the Arabs vow that they will continue their cutbacks and embargoes until Israel withdraws behind its 1967 borders………….”

That was during the Yom Kippur War of October 1973. The Arabs, at least the regimes and media, still claim that war was won. Initially the first round of the “Ramadan War” was won, but the military tide had turned decisively before the ceasefire that was engineered by the Nixon administration. But official celebrations and/or commemorations are held in Egypt every year on this occasion, sometime twice a year: once in October and again during the Islamic Hijri month of Ramadan (usually the two don’t coincide, although they did in 1973).
That Arab oil embargo of 1973 was widely denounced as blackmail and evil in Europe and North America. Looking back, the Arabs got a bum rap on that one: it is not the act of blackmail itself, but who does it that makes the difference. Something must have happened since then. Now it is the Western powers that impose oil and gas embargoes: against Russia, Iran, Syria, Iraq (in the past) and others who do not comply. Countries that break any Western embargo or blockade are punished, and embargoed themselves. And it is not blackmail anymore: it is cool now. It is considered as part of a wise clever strategy to “shake down” other countries, just as the Arabs were perceived as “shaking down” the West in 1973. The only difference is that the Western powers have the upper hand now, economically speaking. The shoe is on the other foot. Speaking of change………..
Not all blackmails, or shakedowns, are equal.
Cheers
Mohammed Haider Ghuloum

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Caliphate, Jihadis, Petroleum, Syria, Turkey, U.S. Foreign Policy

ISIS Oil: About the Erdogan Trail………….

_9OJik4N_normal Sharqeya-Baneen-15    DennyCreek2

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“U.S.-led coalition warplanes bombed oil installations and other facilities in territory controlled by Islamic State militants in eastern Syria on Friday, taking aim for a second consecutive day at a key source of financing that has swelled the extremist group’s coffers, activists said. The strikes hit two oil areas in Deir el-Zour province a day after the United States and its Arab allies pummeled a dozen makeshift oil producing facilities in the same area near Syria’s border with Iraq. The raids aim to cripple one of the militants’ primary sources of cash — black market oil sales that the U.S. says generate up to $2 million a day…………”

It is well to hit the oil wells they have occupied in Syria (and Iraq). But there is a cheaper more efficient way to throttle their oil revenues: a bomb-less way. How do they sell the oil? To whom do they sell the oil? More important: by which route is that oil shipped?

That last question, the route, is the gorilla in the war room. Dealing with it requires some neighborly cooperation from one particular country.There is no sea outlet for the oil since the terrorists don’t control any ports or even any coastal regions. Their only route seems to be through NATO member Turkey. Across the border into Turkey and into the markets. Get Mr. Erdogan to shut the ISIS oil route, if he can. Get him to be less vague, less vague and tentative, about his ties to the Jihadis in Syria (and by extension in Iraq). 

Unless there is another route I am not aware of through which the Caliphate petroleum is shipped.

Then there is that other money route, the one we know that leads “north” into Syria and Iraq.

Cheers
Mohammed Haider Ghuloum

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Iraq, Jihadis, OPEC, Petroleum, Syria

The IS Caliphate and Kurdistan, Jihadist Enclave Facing Two Fronts………

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“Russia is asking the U.N. Security Council to condemn the illegal sale of Syrian oil by terrorist groups and encourage all countries to take “necessary measures” to prevent it. A draft presidential statement circulated to council members and obtained Monday by The Associated Press expresses “grave concern” at the seizure of oilfields in Syria by the Islamic State of Iraq and the Levant or ISIL and Jabhat al-Nusra and stresses that any export or import of crude oil without authorization of a sovereign state is illegal………….”

“Militants, who declared an Islamic caliphate in the Middle East, now claimed to have seized Syria’s largest oilfield. Fighters of the Islamic State, previously known as Islamic State in Iraq and the Levant (Isis), said they took over the al-Omar oil field in the eastern Deir al-Zour province from rival rebel groups. Video footage uploaded online showed armed Islamic State jihadist standing in front of the entrance of the field as the group’s flag flew over a sign reading “Euphrates Oil Company – al-Omar field…………….”

The Wahhabi Jihadists are nowhere near Iraq’s major oil fields, but they have grabbed some Syrian oil fields. Apparently there is worry that they will soon start shipping Syrian oil to buyers. There is a precedent for this: already foreign buyers are eager to buy oil controlled by Kurdish separatists in Iraqi Kurdistan. The Turks and among those mentioned in reports. Already Benyamin Netanyahu, sensing a future opportunity, has blessed the Kurdish ‘enterprise’ when he opined (without being asked) that they should be able to go independent. Netanyahu, who is not known to observe international legal niceties anymore than his neighbors, would not accept the same independent ‘fate’ for Palestinians.

Would an Islamic State be in the future of OPEC? Fortunately not: the Jihadists may harass the vast border region between Syria and Iraq for a few more years, but they may have reached their peak during the last week of June 2014. From now on, it may be the period of pushback in both Iraq and Syria. The hairy ones are likely to get squeezed on two fronts now, with their ‘realm’ getting smaller. If the tribes turn against them, they may be fighting on three fronts. That would be an untenable situation if their suppliers and enablers in Turkey and some Arab states tighten the squeeze on the flow of supplies and fighters. Even the mighty Wehrmacht could not withstand a multi-front war for long.

Cheers

Mohammed Haider Ghuloum

[email protected]