What Every Resource Investor Needs to Know about the Middle East

I’ve long argued that a major war will break out by mid-2017.

I just don’t know where it will start…

Ukraine, the South Chinese Sea, and the Middle East all have the potential to be the spark that sets it in motion. Wherever it starts, when this really kicks off, it’s likely to escalate quickly into the first major conflict of the 21st century.

I don’t say this to scare you. And it’s not a topic that I enjoy talking about. But someone has to warn you about the real risks that we’re facing. The loss of life in a major conflict will be devastating. But unfortunately there is nothing you or I can do to stop that.

What you can do is prepare yourself and get your investments, so that if this war escalates as I believe it will, at least your wealth won’t be erased. Now I don’t want to sound distasteful, speaking about the loss of life and the loss of money in one breath. But again, if this war breaks out you won’t be able to prevent the bloodshed. But you can protect your portfolio.

For now, let’s turn to the Middle East.

The Middle Eastern conflict has grown around Syria for some time now. And if you’ve ever wondered why a poor country like Syria matters, at least to the US and Saudi Arabia, I’ll explain.

The Middle East power play

And at the end of the day, the whole mess boils down to politics, power and money. I don’t expect this to shock you.

But to kick things off, let’s start with religion at the very surface level. In doing so, please understand that I take no view on religion. My purpose here is to provide an objective view on the region from an investor’s perspective.

With that said, it’s helpful to know who the main players are. The governments of Iran, Iraq, Syria and Lebanon are controlled by Shi’ite Muslims. While the governments of Saudi Arabia, Qatar, United Arab Emirates and Jordan are ruled by Sunni Muslims.

When it comes to controlling energy, these groups broadly tend to back their own circle. That’s important when you analyse the world’s largest natural gas and condensate field — South Pars and North Dome. It’s shared by both Iran (Shi’ite ruled) and Qatar (Sunni ruled).

Both the Shi’ites and the Sunnis want to build their own gas pipeline networks. You can see this on the map below…

Source: passionforliberty.com

Click to enlarge

The Shi’ites want to use the route Iran-Iraq-Syria-Lebanon-Europe (Islamic pipeline); the Sunnis the Qatar-Saudi Arabia-Iraq-Syria-Turkey-Europe route (Qatar-Turkey pipeline).

But what’s the catch?

Well, both groups need to build a pipe through Syria. And for this reason, Syria represents huge strategic value. If either the Sunni or Shi’ite groups are going to get their gas piped to Europe, they’ll have to go through Syria.

This is where it gets interesting…

The house of cards

Syria has been ruled by the Assad family for decades. There have been tensions between Syria’s and Saudi’s elites for many years. And there is huge tension between Saudi Arabia and Iran. The Saudis — the region’s largest oil producer — feel threatened by Iran’s rising dominance in the region, and they have long sought to replace its government.

For Saudi Arabia to replace Iran’s government with its own ruling party, effectively gaining control over OPEC, it first needs to overthrow the Assad family in Syria. Then it can hopefully build the pipeline with the help of other Sunni groups.

The Shi’ites want Assad to remain in power, so they can build THEIR pipeline with his blessing.

The Middle East conflict essentially boils down to a destructive game of poker.

To make things worse, a lot of powerful outside parties have chips on the table. The US has its chips on the Sunnis’ side (Saudi Arabia). And the Russians and Chinese (although China remains undeclared) are all in on the Shi’ites’ side (Syria).

Now, you may wonder why the US wants to get involved at all.

Thanks to fracking technology, it’s the world’s largest oil producer. It doesn’t need Middle Eastern oil anymore. Adding to this, it’s in the process of building LNG terminals to export its shale gas.

So what interest does the US have in the region?

Aside from US companies operating in Iraq, they’re hoping to help the Sunni cause.


If the Sunni natural gas pipeline reaches Europe, Russia’s geopolitical influence in Europe will be neutralised.

Geopolitical games 101

It’s clear that the US want’s to isolate Russia — it’s the only country (bar China) that really stands up to them. The US doesn’t like, and isn’t used to, being told what to do. So to put Russia in its place, it’s using sanctions and other geopolitical tools. For example, attempting to cut off its lifeblood — oil and gas money.

Russia is by far the biggest supplier of natural gas to Western Europe — where many of America’s closest allies (Germany, France, Italy) are situated.

It’s a massive bargaining chip. Russia could simply switch off the gas, and cause immense economic and political damage to America’s allies. It’s already switched off Ukraine’s gas a number of times.

If Putin does this, it will squeeze Europe’s economy. Capital will flee European markets and head towards the US, pushing the dollar even higher. Europe’s economy is a train wreck and its bond markets are ready to crash. US and European sanctions are poorly conceived — to say the least — and will backfire hard.

If this escalates further, we could see this geopolitical card played out by 2017. But it will have to get a lot worse for this to happen.

In the meantime, the US goal to isolate Russia continues. Obama realises that if Europe can get their gas from the Middle East instead of Russia, Vladimir Putin can no longer threaten to ‘turn off the gas’. Russia’s gas-monopoly trump card ceases to exist.

That’s part of the reason that Russia is noisily protecting its interests in the region.

But this isn’t all…

Russia has just secured a major contract with the Syrian government. It now holds long term exploration and development rights to a large part of Syria’s offshore waters. If Russia can find gas and oil in the region AND have influence over a pipeline to Europe, it has control over all the gas that flows into Europe.

Everyone has a lot on the table in this game of geopolitical chess. And the region is extremely hostile. At the moment, the US is pushing Russia to the edge. If it goes into Syria, it will draw Russia and Iran into conflict. This is coming, whether you like it or not.

I hope I’m wrong about the scale of the coming conflicts. But if I’m not, you have to ask yourself, is your portfolio prepared for a global scale war?

Resource Speculator readers have been receiving strategic advice for months about the hurdles that we’re facing. They will be prepared for the tough times ahead. Indeed, during times of war, the demand for most commodities swells.

You just need to know where, when, and how to invest to maximise your returns. You can see more details here.


Jason Stevenson,
Resources Analyst, Resource Speculator

Join Markets and Money on Google+

Jason Stevenson

Jason Stevenson

Jason Stevenson shares his extensive knowledge of Australia’s mining sector as Markets and Money's dedicated resource analyst. Whether it’s iron ore, gold, copper or lithium, you can rely on Jason to give you in-depth analysis of the biggest and most important sector of our economy. Jason provides in-depth research to Resource Speculator, Australia’s premier resource investment advisory.

Leave a Reply

1 Comment on "What Every Resource Investor Needs to Know about the Middle East"

Notify of
Sort by:   newest | oldest | most voted
Joe Tabone

It’s no secret that China, Russia, likely Iran and other members of the Eurasia block are hoarding gold covertly. I’m sure the war will not just be military, but financial as well if it eventuates, with targeted attacks on currencies and financial markets. Gold will offer protection if they have the dominant holdings. As the old saying goes, he has the gold, has the power.

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au