IS THE (OUT)HOUSE OF SAUD ON A MARCH TO A CIVIL WAR?

Mr. J.K. found this very important article from our friends at Zero Hedge and passed it along, and it's worth some very careful consideration. The desert kingdom has certainly been busy lately, ever since President Trump's "triumphal" visit, holding hands on a glowing globe of the world, with misplaced continents, a squeemish looking Saudi king, a big arms deal, and so on. Within mere days of the visit, we saw the sudden severing of diplomatic relations with Qatar over its support of terrorism, which is a bit like the terrorist calling the terrorist a terrorist (or in plainer English, the pot calling the kettle black).

Here's the article:

Saudi Arabia’s March Towards Civil War

Besides noting that Turkey has sent troops to Qatar to offset Saudi pressure, the article zeros in on something in the opening paragraphs that are a geopolitical game-changer:

Has Saudi Arabia's brinkmanship and heavy-handed policies of intervention in the Middle East come back to haunt the desert kingdom?

After decades of playing the role of middle man between foreign states and establishing itself as a regional power, Saudi Arabia's policies of meddling in the affairs of neighbor states and support for terror appear to have finally exacerbated issues in the country which could threaten to plunge it into chaos. Growing anger over attempted austerity cutbacks, economic issues due to the fluctuating price of oil and tell tale signs of royal disagreement over the successor to King Salman bin Abdulaziz Al Saud mean that Saudi adventures abroad are preparing a perfect storm for civil conflict which could lead to further instability in the Middle East. The disruption comes as other states such as Iran and Turkey are positioning themselves as potential competitors to the de facto leader of the Arab world.

I. Saudi Arabia Is Experiencing Increasing Signs Of Instability

Saudi Arabia has experienced a number of issues which contribute to internal destabilization. In April 2017, Bloomberg reported that King Salman was forced to restore bonuses and allowances for state employees, reversing attempts to reform Saudi Arabia's generous austerity programs. The Saudi government insisted that the move was due to "higher than expected revenue" despite the fact that observers were noting in March that Saudi Arabia's foreign reserves were plunging as one third of the Gulf Cooperation Council (GCC) of United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait have seen their credit ratings slashed and have increasingly disagreed on common foreign policy towards Iran.

The kingdom's increasing financial problems are due in part to the falling price of oil. In January 2016, The Independent noted that the dropping value of oil would put Saudi Arabia's man spending programs in jeopardy and that a third of 15 to 24-year-olds in the country are out of work. The Journal of Petroleum Science and Engineering estimates that Saudi Arabia will experience a peak in its oil production by 2028, but this may be an incredible underestimation. The Middle East Eye has noted that experts in the United States who state that Saudi Arabia's net oil exports began to decrease in 2006, continuing to drop annually by 1.4% each year from 2005 to 2015. Citigroup has estimated that the Kingdom may run out of oil to export entirely by 2030. The end of the Kingdom's cash cow is likely to cause problems in a nation that The Atlantic has accused of running itself like a "sophisticated criminal enterprise."

There have been a number of "interpretive positions" about the falling oil prices in the past few months. One interpretation has it that the Saudis, in cahoots with "The Powers That Be," deliberately flooded the market with an oil glut to dismantle the then-booming American fracking industry. Indeed, a few years ago I blogged about the fact that this industry in effect had made the USA energy independent - at least as conventional fuels are concerned - and that the prior "vulnerability" needed to be restored. Then there was the "Russia was the target" version, which had the glut also targeting the always-to-be-mistrusted-they're-behind-everything-Russians, to deprive the Russian energy-based economy of needed revenues. Of course, both are possible at the same time.

For the moment, and not taking into account those persisting rumors of alternative energy sources we hear about from time to time, or this or that breakthrough in the progress toward fusion, I point out something about those stories: none of them ever seem to come from the (out)House of Saud. Its one, and only, valuable contribution to the world is oil, and that, according to the above paragraphs, is declining, along with the revenues from falling prices, while the social commitments and programs do not diminish. (Perhaps this is why they were so quick to agree to that arms deal with Trump, part of which apparently includes the transfer of manufacturing capability... better learn how to make something, and fast.)

Over the long term, this is bad for Riyadh, and good for Bismarck, North Dakota, for Moscow, Tehran, and even for Tokyo and Beijing, because three of the capitals mentioned in this list, have the energy supplies, and the rest have the money to buy it. And this, plus Saudi bluster, is driving a sweeping geopolitical change in the region, and once again, it appears that Washington (and London), are backing the wrong horse.

There's a player here to watch, if my hunch is true: in the long term, Saudi Arabia desperately needs to build things that people need, not just its people, but people everywhere. Chances are, most people don't need to buy an American fighter jet or a German Leopard tank. Trading oil for American aircraft and German tanks is not a long term, stabilizing, economic strategy. For this reason, I suspect, we need to pay attention to how China reacts to the growing instability in the region, for they could approach the Saudis and say "you need to build your own cars and toys, and we can show you." The oil's running out, and with it, the Saudi share in the petro-dollar.

Watch the reminbi in the Middle East... it won't happen over night; it will occur in incremental, slow, patiently Chinese steps, but I suspect it will occur, and the Saudis, probably, will wake up and realize it.

See you on the flip side...

9 thoughts on “IS THE (OUT)HOUSE OF SAUD ON A MARCH TO A CIVIL WAR?”

  1. Russia and Iran selling oil and gas for non-USA dollars are in the sights. So is China for selling everything else for direct currency swaps (no USA dollars). Now what did Qatar do to deserve this somewhat justified treatment? They sold $85 in gas last year to China for non-US dollars. Ooops. Now of course those bad terrorist supporting Qataris will just have to be taught a lesson.

    Qatar knows the gas from the field it shares with Iran isn’t going anywhere without Iran’s permission and Iran doesn’t take US dollars. They’ve seen the writing on the wall. They are being ordered to “back down or else”.

    By the way that gas field under the Persian gulf between Iran and Qatar is massive. Not only is it the largest field in the world it has more recoverable reserves than all the other fields combined. A true game changer if it gets to market in China and Europe.

  2. JPF: “One interpretation has it that the Saudis, in cahoots with TPTB, deliberately flooded the market with an oil glut to dismantle the then-booming American fracking industry. …. Then there was the “Russia was the target” version, which had the glut also targeting the … Russians, to deprive the Russian energy-based economy of needed revenues. Of course, both are possible at the same time.”

    In my view, both are true. The (overseas) PTB would destroy the pesky frackers and the Russkie economy in one shot, followed by a resumption of oil price-gouging. However, there was a pea under the mattress: the Iranians. Following the successful anti-nuclear agreements and the subsequent relaxing of embargoes, the Iranians turned-on their oil spigots. Big time. Suddenly, the oil price-gouging card lay not with the Saudis but with the Iranians. And naturally, the Iranians – having to make up for decades of lack – have just kept the pumps humming. Bummer…

    (I do wonder about the above. Surely, the PTB knew the Iranians would turn-on the oil spigots and keep them open. And the Results. This would imply that they wanted this. Perhaps to take-down the Saudi royal family? Or, was a sub-faction of the PTB going to war with a greater, outer portion – the way the Brit Queen was talking Brexit while the next-down circle was rabidly anti-Brexit? Curious…)

    So, the situation has turned on the Saudis. (And any PTB who took oil futures in the wrong way/time.) The Saudis are caught in the old ‘bread and circuses’ trap. They must keep the population happy, but have diminishing funds to do so. Rome solved this by progressively conquering much of the known world and extracting wealth from ‘outside’. The Saudis? Not so much. So, I could see their growing bluster as an attempt to become Roman without having to go to war For Real.

    Ironically, the Saudis could have done two things with their oil money and been sitting pretty: Massive solar cell (and similar) production & deployment, and massive desalinization-plant production & deployment. Both are what is needed at home and in much of the world. Saudi money could have bought HUGE factories, bypassing the chicken&egg new-industry problems, and Saudi money could have ‘subsidized’ the early pricing to create the demand and get the home-made products out into the world.

    The door is closing on this ‘future’ fairly rapidly, so I hope the royal family gets their heads out of their posteriors ASAP. Imagine a peaceful, literally-green Saudi Arabia with plenty of semi-free power…

  3. The Saudis squandered vast amounts of time and oil revenue on Lord-knows-what and never bothered to build a stable economy. It’s a lesson out of La Fontaine’s fables. And now just look at them, bullying tiny Qatar and wrecking backwards Yemen; all that will end well I’m sure.

    The natural ally in the Middle East has always been Iran but the three-letter boys monumentally botched that one (setting a precedent for overthrows making things much worse that has been sadly repeated across the globe). The French and Germans are happy to sign major deals with them even now, but the Anglo-Zio empire went instead for the Saudis. Oh joy.

  4. marcos toledo

    Persia has been around a long time in fact a good deal of Arab culture is Persian origin. One wonders what the masters of the World plans are for the Arabian peninsula. Has the Saudi state reach it’s expiration date and is to be dump in the dumpster. Will they be put in receivership with Yemen to officiate over the state-kingdom liquidation.

  5. Robert Barricklow

    Just as yesterday’s blog concerned gun control; a worldwide policy decision made by a defacto globalized dictatorship. Austerity’s blog today is another defacto dictate.

  6. johnycomelately

    Saudi Arabia eerily feels like the Baghdad before Mongols came over and destroyed it, this time the Mongols being the Shia.

    An opulent court and a population used to luxuries while the Shia having been getting the raw end of the stick for a long time, looks like payback is going to be a b…tch.

    Israel lost to Hezbollah, the Shias now dominate Iraq, Syria seems like a lost cause and Yemen is a quagmire. Even the Brotherhood has the house of Saud in its sights.

    The US? The only thing worse than being an enemy of the US is being an ally, the mafia has a habit of turning on its own.

    1. You said it Johnny… Being an ally of the USSA is very problematic these days. I’m dismayed at how quickly, since 9/11, under all administrations since then, we’re driving them away.

    2. Robert Barricklow

      Kissinger 1968,
      “It may be dangerous to be an American enemy,
      but to be America’s friend is fatal”.

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