08/27/10 Pittsburgh, Pennsylvania – With oil sitting comfortably at $73 a barrel this morning, we cast a nervous eye toward the Middle East…where three little-noted developments are setting the stage for a return to triple-digit prices. Maybe very soon.
1) On the surface, this looks like a pretty routine Iraq story: An ambush there yesterday killed six members of a Sunni militia known as the “Awakening Councils.”
But the background the media didn’t supply makes this much more interesting – and ominous. See, the Awakening Councils are Sunni Muslims the US government paid off in 2007 so they’d stop shooting at US troops.
This was part of Gen. David Petraeus’ “surge” strategy: He promised the militiamen that in return, they’d get a seat at the table in Iraq’s new government, dominated by Shia Muslims. Problem is, Petraeus never got the Shia to buy into this.
What’s more, Iraq’s new Shia leaders have close ties to Shia-dominated Iran; in fact, several of them lived there in exile during Saddam Hussein’s rule. Our eyes perked up a bit at the location of the attack yesterday – within spitting distance of the border.
We don’t want to jump to conclusions about who’s to blame for this attack. Still, we take note because Iraq is the first of three flashpoints Byron King has identified in what he sees as a “New War” shaping up between Sunnis and Shia in the Middle East.
We might be willing to chalk this up to coincidence, except that…
2) It’s looking more and more as if the United States and Iran are waging a proxy war in Yemen. Again, this is something the mainstream media ignores: The news we get from Yemen is all about al-Qaida sympathizers like the guy who tried to blow up the jet flying into Detroit last Christmas.
But Yemen’s Sunni-led government is also waging war against Shia rebels in the north, who say they’re victims of discrimination. The fighting has displaced 350,000 people in the last six years.
There’s word this morning of a truce, but truces have broken down before. That may be because, according to hawks in both Israel and the United States, Iran gives aid to its fellow Shia in Yemen. Iran “controls bodies that function as a state within a state, in Lebanon, Yemen, the Palestinian Authority, and other places,” according to Israel’s deputy foreign minister Danny Ayalon.
Get the picture? The United States is backing the Sunni government in Yemen, and Iran may be backing the Shia rebels. That’s why it looks like a proxy war. And it just so happens Yemen is the second of those three flash points Byron King is alerting us to. Should it blow up, he sees this Sunni-Shia war sending oil well past the record $147 set in July 2008.
3) We’re a bit late on this news, but we see President Obama has just sweetened an arms deal his predecessor cut with Saudi Arabia…throwing in 130 attack helicopters, to bring the total value of the package to $60 billion over 10 years. That’s the biggest US arms sale overseas ever.
The Pentagon makes it pretty plain: Part of the rationale for this deal is to “deter Iran.” Why? Because Sunni-ruled Saudi Arabia is home to restive Shia who happen to live on top of the country’s most productive oil fields.
Thus, the White house seeks “to beef up the militaries of Arab allies as a counterweight to Iran,” explains The Wall Street Journal. “Saudi Arabia, home to the birthplace of Islam, claims leadership of the Sunni world, making it a rival of Iran, which is predominantly Shia.”
And Saudi Arabia is the third and final flash point Byron identifies in the “New War” between Sunnis and Shia. Or rather, a new phase to a very old war that’s been raging for 1,300 years.
In this context, Iran’s nuclear program is something of a sideshow. “Even if the go-ahead to build a nuke never comes from Iran’s top cleric” says Byron, “the more immediate danger is a wildfire of Shia-Sunni unrest…starting in Iran’s new hotbeds of Shia support…and spreading across the rest of the Sunni-run oil states…with the richest oil fields in the world’s richest oil nation as the final battleground.”
Byron’s worst-case scenario: Oil at $220 a barrel, and gasoline close to $8 a gallon.
Dave Gonigam
for The Daily Reckoning
Byron King
Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
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Last time people the media spoke about a drastic rally in Oil, Oil started a severe crash… It seems we’re there again.
On the long term it might be possible to see OIL above $100, but I don’t think that happen in 2010. And the theories of Oil above $200 are just that…pure theories.
1. By far most of the time the Sunni and Shia get along okay. The invaders of Iraq did their best to foment a sectarian war in 2005/6 because they needed to divide-and-rule.
2. Iran’s main ally in the region is Syria, which has a secular government. The Hamas in Gaza are Sunni, but they’re still backed by Iran. Just one look at a Hezbollah street rally would show you that the Lebanese Shiite “fundamentalists” do not share the same social mores as the Iranian mullahs. All these alliances are power-political rather than religious.
3. Arab Shiites aren’t Persians. Their Arab nationalism also counts.
4. Saudi Arabia’s problem isn’t sectarian. The Saudis’ problem is that common people are starting to want a meaningful say in how they’re governed, and in how their non-renewable national resources get managed.
Add to that a ship sunk in the Straights of Hormuz and you are talking $350 easily!!
Price hike all over the globe is quite alarming. Increased oil prices lead to an over all increase in prices of almost all the commodities.