Something isn’t right in Saudi Arabia…
There are a lot of unanswered questions behind Mohammed bin Salman’s decision. Salman is the Crown Prince of Saudi Arabia. He has arrested more than 500 Saudi citizens on corruption charges. That includes 11 princes and four government ministers. Despite corruption being a fact of life in Saudi Arabia for a long time.
The New York Times reported last Tuesday:
‘King Salman has never explained where he got the money to buy as much as $28 million in London luxury homes, just as his son, Crown Prince Mohammed, has never said how he was able to plunk down more than $500 million for a 440-foot yacht he spotted one day and decided he had to own.
‘Perhaps the most famous statement on corruption in Saudi Arabia was made by Prince Bandar. In an interview with PBS in 2001, he said: “If you tell me that building this whole country, and spending $350 billion out of $400 billion, that we had misused or got corrupted with $50 billion, I’ll tell you, yes. But I’ll take that anytime.”’
As we said, there are a lot of unanswered questions. Is the purge really about corruption? Or is there more to the story? I believe there’s more to it. Regardless of the outcome, the decision has put a rocket under crude oil prices.
That shouldn’t be a shock.
Oil prices tend to rise when there’s unrest in the Middle East. And it doesn’t matter whether the country in question produces any oil. But when an issue centres on an oil-producing nation, the world wakes up.
Winding back the clock
NBC News reported on Monday:
‘Saudi Arabia’s order for its citizens to evacuate Lebanon is the latest ominous signal in an escalating confrontation between the Middle East’s chief regional rivals, the Kingdom of Saudi Arabia and the Islamic Republic of Iran.
‘The two nations have long fought proxy wars against each other, but many fear that the newly empowered Saudi Crown Prince Mohammed bin Salman is looking to assert Saudi Arabia’s regional dominance at any cost. The conflict heated up last year when Saudi Arabia executed a Shiite cleric and then severed diplomatic ties with Iran.’
Keep in mind that Saudi Arabia executed 47 people. Many of them were al-Qaeda members.
Among those executed was prominent Shiite cleric Nimr al-Nimr. The BBC reported at the time: ‘Sheikh Nimr was a vocal supporter of the mass anti-government protests that erupted in Eastern Province [Saudi Arabia] in 2011, where a Shia majority have long complained of marginalisation.’
Nimr al-Nimr was an influential critic of Saudi Arabia’s Sunni royal family. Unsurprisingly, they wanted to silence him.
The Sheikh’s death sparked wide protests. Reuters reported: ‘Scores of Shi’ite Muslims marched through the Qatif district of Saudi Arabia’s Eastern Province in protest at the execution of cleric Nimr al-Nimra.’
But protests weren’t limited to Saudi Arabia.
Long-time adversary Iran is the heartland of Shiite Islam. Iran was outraged with the beheading. Furious Iranians torched the Saudi embassy in Iran’s capital, Tehran. The next day, Saudi Arabia broke diplomatic relations with Iran. Saudi Arabia then warned it would build a nuclear weapon to confront Iran.
Tensions eventually died down. But, given the ongoing events, the chances of a direct conflict between both countries has increased.
Will oil prices double?
In January 2016, Dr Hossein Askari said that war between Saudi Arabia and Iran could send oil prices to US$250 per barrel. Dr Askari is a professor at The George Washington University. He believes that war between the two countries could lead to supply disruptions. And that this would have a predictable impact on prices. Dr Askari elaborated:
‘If there is a war confronting Iran and Saudi Arabia, oil could overnight go to above $250, but decline [back] down to the $100 level. If they attack each other’s loading facilities, then we could see oil spike to over $500 and stay around there for some time depending on the extent of the damage.’
The targets seem somewhat sensational. But if Saudi Arabia and Iran went to war, crude oil would probably shoot significantly higher. I wouldn’t rule out US$100–200-per-barrel oil. If that happens, having plenty of exposure to oil stocks could be beneficial.
But it might take some time before we see a confrontation. As such, oil prices may have peaked for now.
Either way, when we see a full-blown confrontation, crude oil should boom. That’s why now is the time to start preparing for the worst-case scenario.
Editor, Resource Speculator