The price of crude oil has surged in New York by 33% since clocking a 2017 low below $44.00 a barrel in late June this year and is at its highest level since July 2015. Brent Crude scaled a two-and-half year high of $64.65 on Tuesday last week and was last at $63.65. This is an explosive and exponential price move any which way you care to cut it. In an era of lashings of surplus oil, the crude oil markets had priced ‘’geopolitical’’ risk at close to zero. Since late June, the markets have been re-pricing ‘’geopolitical’’ risk, and, in particular, events in the Kingdom of Saudi Arabia [still the largest single supplier of crude oil to global markets] have led the re-price.
The then 30-year-old crown prince of Saudi Arabia Mohamed bin Salman MBS, who is expected to ascend to the throne as early as this week, arrived on the scene and immediately launched an unwinnable war in Yemen. President Assad, with his Russian, Iranian and Lebanese allies, resisted the regime changers in Syria. IS, which was a Sunni and Saudi blade, has been eviscerated. Iraq, which was once firmly in the Saudi camp, is now aligned with Iran completely. Qatar is lost (see the intercept article which refers to a plan headlined “Control the yield curve, decide the future” a plan to construct the ‘’Big Short’’ on Qatar - The crown prince of Abu Dhabi should have spoken to me because I could have told them how to do it).
Saudi Arabia and its allies UAE, Bahrain, Kuwait are caught in an ever tightening Shia pincer. The paranoia in the palaces in Saudi Arabia is real and existential. And what is also clear is that Bibi Netanyahu, MBS [the crown prince of Abu Dhabi], Jared Kushner and a Trump carte blanche have all leveraged this existential paranoia to effect not a state capture but a kingdom capture. The Guptas were a precursor for this particular capture.
The existential paranoia in the head of 32-year-old wannabe King is evidenced in this comment about Iran in May this year, “How can I communicate with them while they prepare for the arrival of al-Mahdi al-Montazar?”
Last week after being coached into the early hours by Ivanka Trump’s husband, Jared Kushner, MBS launched his night of the long knives, which, according to the veteran Journalist Robert Fisk, and I quote:
‘’When Saad Hariri’s jet touched down at Riyadh on the evening of 3 November, the first thing he saw was a group of Saudi policemen surrounding the plane. When they came aboard, they confiscated his mobile phone and those of his bodyguards. Thus was Lebanon’s prime minister silenced’’ Hours later, MBS’s newly minted Anti-Corruption commission detained 11 House of Saud princes, four current ministers and dozens of former princes/cabinet secretaries – all charged with corruption. Bank accounts were frozen [We could witness a massive $1 trillion dollar disgorge right here], private jets grounded. The high-profile Princely crew is jailed at the Riyadh Ritz-Carlton and the gates are now shut, the phone line is perpetually busy and you can’t book a room until Feb. 1. Fisk concludes ‘’Put bluntly, he is clawing down all his rivals.’’
In all the history books I have read, its probably wisest to operate on one front not two and certainly not three. The desperate impulse to act is also up against a four- year deadline. The speed of decline in FX reserves produces a 48 month shelf-life.
This week-end, the Baghdad Post is reporting the Kingdom has mobilised its F-15 fighter jet fleet ito launch a military operation against Hezbollah in Lebanon.
Geopolitical risk is biting back hard. I predict the spot crude oil market re-price has further to run and will lift Brent crude over $70.00 a barrel.
This is an unprecedented moment in the history of the Kingdom and the most perilous moment for the House of Saud that I can recall. Taking on Iran looks like will the straw that breaks the camel’s back.
Aly-Khan is a financial analyst