How will geo-political unrest in the Middle East affect Cayman's Energy Security?

Will the battle for Iraq become Saudi war on Iran?

Be careful what you wish for could have been, and perhaps should have been, Washington’s advice to Saudi Arabia and other Gulf states which have been supporting Sunni jihadists against Bashar al-Assad’s regime in Damascus.

The warning is even more appropriate today as the bloodthirsty fighters of the Islamic State of Iraq and al-Sham (ISIS) sweep through northwest Iraq, prompting hundreds of thousands of their Sunni coreligionists to flee and creating panic in Iraq’s Shiite heartland around Baghdad, whose population senses, correctly, that it will be shown no mercy if the ISIS motorcades are not stopped.

The outbreak of civil war in Iraq has oil traders nervous. Crude oil trading on the NYMEX Thursday gained more than $2 per barrel and has so far continued its climb Friday morning, going as high as $107.68 for WTI and Brent Crude to $113.02.

Such a setback for Iraqi Prime Minister Nouri al-Maliki has been the dream of Saudi Arabia’s King Abdullah for years. He has regarded Maliki as little more than an Iranian stooge, refusing to send an ambassador to Baghdad and instead encouraging his fellow rulers of the Gulf Cooperation Council (GCC) — Kuwait, Bahrain, Qatar, the United Arab Emirates, and Oman — to take a similar standoff-ish approach. Although vulnerable to al Qaeda-types at home, these countries (particularly Kuwait and Qatar) have often turned a blind eye to their citizens funding radical groups like Jabhat al-Nusra, one of the most active Islamist groups opposed to Bashar al-Assad in Syria.

Iran’s President Hassan Rouhani commented on June 12 on the latest crisis in Iraq, making it clear that Iran will intervene at the appropriate time to combat terror. According to a transcript of the speech released by the Islamic Republic News Agency, he said, "The Islamic Republic of Iran will not tolerate this violence and we will not tolerate this terror and as we stated at the UN, we will fight and combat violence, extremism and terrorism in the region and the world."

Currently on vacation in Morocco, King Abdullah has so far been silent on these developments. At 90-plus years old, he has shown no wish to join the Twitter generation, but the developments on the ground could well prompt him to cut short his stay and return home. He has no doubt realized that — with his policy of delivering a strategic setback to Iran by orchestrating the overthrow of Bashar al-Assad in Damascus showing little sign of any imminent success — events in Iraq offer a new opportunity.

This perspective may well confuse many observers. In recent weeks, there has been a flurry of reports of an emerging — albeit reluctant – diplomatic rapprochement between the Saudi-led GCC and Iran, bolstered by the apparently drunken visit to Tehran by the emir of Kuwait, and visits by trade delegations and commerce ministers in one direction or the other. This is despite evidence supporting the contrary view, including Saudi Arabia’s first public display of Chinese missiles capable of hitting Tehran and the UAE’s announcement of the introduction of military conscription for the country’s youth.

The merit, if such a word can be used, of the carnage in Iraq is that at least it offers clarity. There are tribal overlays and rival national identities at play, but the dominant tension is the religious difference between majority Sunni and minority Shiite Islam. This region-wide phenomenon is taken to extremes by the likes of ISIS, which also likely sees its action in Iraq as countering Maliki’s support for Assad.

ISIS is a ruthless killing machine, taking Sunni contempt for Shiites to its logical, and bloody, extreme. The Saudi monarch may be more careful to avoid direct religious insults than many other of his brethren, but contempt for Shiites no doubt underpinned his Wikileaked comment about "cutting off the head of the snake," meaning the clerical regime in Tehran. (Prejudice is an equal opportunity avocation in the Middle East: Iraqi government officials have been known to ask Iraqis whether they are Sunni or Shiite before deciding how to treat them.)

Despite the attempts of many, especially in Washington, to write him off, King Abdullah remains feisty, though helped occasionally by gasps of oxygen — as when President Barack Obama met him in March and photos emerged of breathing tubes inserted in his nostrils. When Sheikh Mohammed bin Zayed, the crown prince of Abu Dhabi — and, after his elder brother’s recent stroke, the effective ruler of the UAE — visited King Abdullah on June 4, the Saudi monarch was shown gesticulating with both hands. The subject under discussion was not revealed, but since Zayed was on his way to Cairo it was probably the election success of Egypt’s new president, Abdel Fattah el-Sisi, considered a stabilizing force by Riyadh and Abu Dhabi. Of course, Sisi gets extra points for being anti-Muslim Brotherhood, a group whose Islamist credentials are at odds with the inherited privileges of Arab monarchies. For the moment, Abdullah, Zayed, and Sisi are the three main leaders of the Arab world. Indeed, the future path of the Arab countries could well depend on these men (and whomever succeeds King Abdullah).

For those confused by the divisions in the Arab world and who find the metric of "the enemy of my enemy is my friend" to be of limited utility, it is important to note that the Sunni/Shiite divide coincides, at least approximately, with the division between the Arab and Persian worlds. In geopolitical terms, Iraq is at the nexus of these worlds — majority Shiite but ethnically Arab. There is an additional and often confusing dimension, although one that’s historically central to Saudi policy: A willingness to support radical Sunnis abroad while containing their activities at home. Hence Riyadh’s arms-length support for Osama bin Laden when he was leading jihadists in Soviet-controlled Afghanistan, and tolerance for jihadists in Chechnya, Bosnia, and Syria. More

One of the reasons that I have been lobbying and submitting reports on the need for an energy policy and the need for alternative energy to the Cayman Islands Government for the last seven years is because of the possibility of geo-political instability triggering conflict in the Middle East.

This may have come to pass. As you will have read above the insurgency has moved out of Syria and into Iraq. Civil war appears to have broken out, with Iraq's most senior Shia cleric has issued a call to arms after Sunni-led insurgents seized more towns. The call by a representative of Grand Ayatollah Ali al-Sistani came as the militants widened their grip in the north and east, having seized Mosul and Tikrit and threatened to march south, towards Baghdad.

The question is whether Saudi Arabia will offer help to the ISIS insurgents. Currently on vacation in Morocco, King Abdullah has so far been silent on these developments, but the developments on the ground could well prompt him to cut short his stay and return home. The Washington Institute for Near East Policy asserted that the Saudi military parade on April 29 marked a message to both Iran and the United States. Institute fellow Simon Henderson said this marked the first time Riyad displayed its Chinese-origin CSS-2 ballistic missile, designed to contain a nuclear warhead. King Abdullah has no doubt realized that — with his policy of delivering a strategic setback to Iran by orchestrating the overthrow of Bashar al-Assad in Damascus showing little sign of any imminent success — events in Iraq offer a new opportunity. Saudi Arabia's defense budget according to Deloitt, stands at $16 billion dollars.

Iran’s President Hassan Rouhani commented on June 12 on the latest crisis in Iraq, making it clear that Iran will intervene at the appropriate time to combat terror. According to a transcript of the speech released by the Islamic Republic News Agency, he said, "The Islamic Republic of Iran will not tolerate this violence and we will not tolerate this terror and as we stated at the UN, we will fight and combat violence, extremism and terrorism in the region and the world."

Given that Iraq is OPEC's second largest producer and that Brent Crude is already at a nine month high, the possibility is that oil prices could rapidly escalate to $150 per barrel is high.

What effect would this have on the Cayman Islands you may ask. If we have civil war in Iraq, which already appears to be the case, and if the ISIS takes Baghdad and continues south to the oil rich areas we could see $150 per barrel oil. However, if conflict spreads further afield in the region, which conceivably could see the Straights of Hormus closed, we could see oil at $300 per barrel. Editor.

 

 

© 2014

Blood for Oil

There is a close relationship between petroleum and war. James A. Paul, Executive Director of the Global Policy Forum, has described this relationship very clearly in the following words:

“Modern warfare particularly depends on oil, because virtually all weapons systems rely on oil-based fuel - tanks, trucks, armored vehicles, self-propelled artillery pieces, airplanes, and naval ships. For this reason, the governments and general staffs of powerful nations seek to ensure a steady supply of oil during wartime, to fuel oil-hungry military forces in far-flung operational theaters.”

“Just as governments like the US and UK need oil companies to secure fuel for their global war-making capacity, so the oil companies need their governments to secure control over global oilfields and transportation routes. It is no accident, then, that the world’s largest oil companies are located in the world’s most powerful countries.”

“Almost all of the world’s oil-producing countries have suffered abusive, corrupt and undemocratic governments and an absence of durable development. Indonesia, Saudi Arabia, Libya, Iraq, Iran, Angola, Colombia, Venezuela, Kuwait, Mexico, Algeria - these and many other oil producers have a sad record, which includes dictatorships installed from abroad, bloody coups engineered by foreign intelligence services, militariization of government and intolerant right-wing nationalism.”

Iraq, in particular, has been the scene of a number of wars motivated by the West’s thirst for oil. During World War I, 1914-1918, the British captured the area (then known as Mesopotamia) from the Ottoman Empire after four years of bloody fighting. Although Lord Curzon denied that the British conquest of Mesopotamia was motivated by oil, there is ample evidence that British policy was indeed motivated by a desire for control of the region’s petroleum. For example, Curzon’s Cabnet colleague Sir Maurice Hankey stated in a private letter that oil was “a first-class war aim”. Furthermore, British forces continued to fight after the signing of the Murdos Armistice. In this way, they seized Mosul, the capital of a major oil-producing region, thus frustrating the plans of the French, who had been promised the area earlier in the secret Sykes-Picot Agreement.

Lord Curzon was well aware of the military importance of oil, and following the end of the First World War he remarked: “The Allied cause has floated to victory on a wave of oil”. More

 

Energy expert says world's oil production has peaked

Every year in August there is a weeklong event, the Oil & Gas Conference. It’s in Denver and draws an international audience. By most accounts EnerCom is the best on the schedule.

This year 121 companies were scheduled to make presentations. If I were allowed to hear only one presentation, and attend one breakout session, I’d choose Core Labs — hands down.

“The maximum yearly oil production of the planet is taking place now!” That came from the CEO of a Netherlands-based company that has 70 offices in 50 countries worldwide. Their business is analyzing drilling results for all major companies and hundreds of smaller firms in the global energy-finding industry.

The company, Core Labs (NYSE: CLB $121), has a unique view of the big picture that few, if any, others could envision. As a byproduct of their normal business activities, CLB accumulates data about the current status of all major oil and gas basins on the planet. Annual revenues are $1 billion.

While an exploration company is drilling, CLB evaluates the rock samples and evaluates the potential of finding oil and gas below. After an oil or gas field is producing, CLB helps the well operators to extract the maximum amount of hydrocarbons from the reservoir. Information that extensive about all the major energy basins in 50 countries is a unique collection of data.

Never very bashful in the breakout session, CEO Dave Demshur readily offered his thoughts about the big energy picture. When queried about predictions of increased oil availability he took the under in most cases. Basically he looks for flat, or lower, future oil generation from Mexico, Iraq, Iran, North Sea, Russia, and the shocker Saudi Arabia. More