What game is the House of Saud playing?

Pepe-EscobarPepe Escobar is the roving correspondent for Asia Times/Hong Kong, an analyst for RT and TomDispatch, and a frequent contributor to websites and radio shows ranging from the US to East Asia.

 

 

Published time: January 16, 2015 12:29

 

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Reuters / Lucy Nicholson

The House of Saud now finds itself in times of extreme trouble. Their risky oil price war may eventually backfire. The succession of King Abdullah may turn into a bloodbath. And the American protector may be musing a change of heart.

Let’s start with oil – and some background. As much as US supply has increased by a couple of million barrels a day, enough oil from Iran, Kirkuk in Iraq, Libya and Syria has gone out of production; and that offsets extra US oil on the market. Essentially, the global economy – at least for the moment – is not searching for more oil because of European stagnation/recession and the relative China slowdown.

Reuters / Todd Korol

Reuters / Todd Korol

Since 2011, Saudi Arabia has been flooding the market to offset the decrease in Iran exports caused by the US economic war, a.k.a. sanctions. Riyadh, moreover, prevented OPEC from reducing country production quotas. The House of Saud believes it can play the waiting game – as fracked oil, mostly American, is inexorably driven out of the market because it is too expensive. After that, the Saudis believe they will regain market share.

In parallel, the House of Saud is obviously enjoying “punishing” Iran and Russia for their support of Bashar Assad in Damascus. Moreover, the House of Saud is absolutely terrified of a nuclear deal essentially between the US and Iran (although that’s still a major “if”) – leading to a long-term détente.

Tehran, though, remains defiant. Russia brushed off the attack because the lower ruble meant state revenues remained unchanged – so there will be no budget deficit. As for oil-thirsty East Asia – including top Saudi customer China – it’s enjoying the bonanza while it lasts.

Oil prices will remain very low for the time being. This week Goldman Sachs lowered their 2015 WTI and Brent Crude forecasts; Brent was slashed from $83.75 a barrel to $50.40, WTI was cut from $73.75 to $47.15 a barrel. Prices per barrel could soon drop as low as $42 and $40.50. But then, there will be an inevitable “U-shaped recovery.”

Nomura bets that oil will be back to $80 a barrel by the end of 2015.

Punish Russia or bust

US President Barack Obama, in this interview, openly admitted that he wanted “disruptions” in the “price of oil” because he figured Russian President Vladimir Putin would have “enormous difficulty managing it.” So that settles the argument about hurting Russia and US-Saudi collusion, after US Secretary of State John Kerry allowed/endorsed King Abdullah in Jeddah to simultaneously raise oil production and embark on a cut price strategy.

Whether Kerry sold out the US shale gas industry out of ignorance or incompetence – probably both – is irrelevant. What matters is if the House of Saud were ordered to back off, they would have to do it in a flash; the ‘Empire of Chaos’ dominates the Persian Gulf vassals, who can’t even breathe without at least an implicit US green light.

What is way more troubling is that the current bunch in Washington does not seem to be defending US national and industrial interests. If humongous trade deficits based on currency rigging were not enough, now virtually the entire US oil industry runs the risk of being destroyed by an oil price racket. Any sane analyst would interpret it as contrary to US national interests.

Anyway, the Riyadh deal was music for the House of Saud’s ears. Their official policy has always been to slash the development of all potential substitutes for oil, including US shale gas. So why not depress oil prices and keep them there long enough to make investments in shale gas a lunatic proposal?

But there’s a huge problem. The House of Saud simply won’t get enough in oil revenues to support their annual budget with oil at below $90 a barrel. So as much as hurting Iran and Russia may be appealing, hurting their own golden pocketbooks is not.

The long-term outlook spells out higher oil prices. Oil may be replaced in many instances; but there isn’t a replacement – yet – for the internal combustion engine. So whatever OPEC is doing, it is actually preserving demand for oil vs. oil substitutes, and maximizing the return on a limited resource. The bottom-line: yes, this is predatory pricing.

Once again, there’s an immense, crucial, complicating vector. We may have the House of Saud and other Persian Gulf producers flooding the market – but its Goldman Sachs, JP Morgan and Citigroup who are doing the shadow, nasty work via leveraged derivative short futures.

Oil prices are such an opaque racket that only major oil trading banks such as Goldman Sachs or Morgan Stanley have some idea who is buying and who is selling oil futures or derivative contracts – what is called “paper oil.” The non-rules of this multi-billion casino spell out “speculative bubble” – with a little help from those friends at the Gulf oil pumps. With oil futures trading and the two major London and New York exchanges monopolizing oil futures contracts, OPEC really does not control oil prices anymore; Wall Street does. This is the big secret. The House of Saud may entertain the illusion they are in control. They’re not.

 

U.S. President Barack Obama

U.S. President Barack Obama – (Reuters / Kevin Lamarque)

That dysfunctional marriage

As if this was not messy enough, the crucial succession of the House of Saud is propelled to the forefront. King Abdullah, 91, was diagnosed with pneumonia, hospitalized in Riyadh on New Year’s Eve, and was breathing with a tube. He may – or may not, this being the secretive House of Saud – have lung cancer. He won’t last long. The fact that he is hailed as a “progressive reformer” tells everything one needs to know about Saudi Arabia. “Freedom of expression”? You must be joking.

So who’ll be next? The first in the line of succession should be Crown Prince Salman, 79, also defense minister. He was governor of Riyadh province for a hefty 48 years. It was this certified falcon who supervised the wealth of private “donations” to the Afghan mujahedeen in the 1980s jihad, in tandem with hardcore Wahhabi preachers. Salman’s sons include the governor of Medina, Prince Faisal. Needless to add, the Salman family controls virtually all of Saudi media.

To get to the Holy Grail Salman must be proven fit. That’s not a given; and on top of it Abdullah, a tough nut to crack, already survived two of his crown princes, Sultan and Nayef. Salman’s prospects look bleak; he has had spinal surgery, a stroke and may be suffering from – how appropriate – dementia.

It also does not bode well that when Salman was promoted to Deputy Defense Minister, soon enough he was shown the door – as he got himself mixed up with Bandar Bush’s atrocious jihadi game in Syria.

Anyway, Salman already has a successor; second Deputy Prime Minister Prince Muqrin, former governor of Medina province and then head of Saudi intelligence. Muqrin is very, very close to Abdullah. Muqrin seems to be the last “capable” son of Ibn Saud; “capable” here is a figure of speech. The real problem though starts when Muqrin becomes Crown Prince. Because then the next in line will be picked from the grandsons of Ibn Saud.

Enter the so-called third generation princes – a pretty nasty bunch. Chief among them is none other than Mitab bin Abdullah, 62, the son of the king; cries of nepotism do proceed. Like a warlord, Mitab controls his own posse in the National Guard. Sources told me Riyadh is awash in rumors that Abdullah and Muqrin have made a deal: Abdullah gets Muqrin to become king, and Muqrin makes Mitab crown prince. Once again, this being the “secretive” House of Saud, the Hollywood mantra applies: no one knows anything.

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Saudi Arabia’s Foreign Minister Prince Saud al-Faisal.(Reuters / Brendan Smialowski)

Abdullah’s sons are all over the place; governor of Mecca, deputy governor of Riyadh, deputy foreign minister, president of the Saudi Red Crescent. Same for Salman’s sons. But then there’s Muhammad bin Nayif, son of the late Crown Prince Nayif, who became Interior Minister in 2012, in charge of ultra-sensitive internal security, as in cracking down on virtually anything. He is the top competitor against Mitab among the third-generation princes.

So forget about family “unity” when such juicy loot as an oil hacienda impersonating a whole country is in play. And yet whoever inherits the loot will have to face the abyss, and the same litany of distress; rising unemployment; abysmal inequality; horrendous sectarian divide; jihadism in all its forms – not least the fake Ibrahim Caliphate in “Syraq”, already threatening to march towards Mecca and Medina; the unspeakably medieval Council of Ulemas (the lashing/amputating/beheading-loving bunch); total dependency on oil; unbounded paranoia towards Iran; and a wobbly relationship with His Masters Voice, the US.

When will they call the cavalry?

And it so happens that the real ‘Masters of the Universe’ in the Washington-New York axis are debating exactly the erosion of this relationship; as in the House of Saud having no one to talk to but the “puppets”, from Bush Two minions to Kerry at most on occasion. This analysis contends that any promises made by Kerry over the House of Saud “cooperation” to damage Russia’s economy really mean nothing.

Rumbles from ‘Masters of the Universe’ territory indicate that the CIA sooner or later might move against the House of Saud. In this case the only way for the House of Saud to secure its survival would be to become friendly with none other than Moscow. This exposes once more the House of Saud’s suicidal present course of trying to hurt Russia’s economy.

As everyone is inexorably an outsider when faced with the totally opaque House of Saud, there’s an analytical current that swears they know what they’re doing. Not necessarily. The House of Saud seems to believe that pleasing US neocons will improve their status in Washington. That simply won’t happen. The neocons remain obsessed about the House of Saud helping Pakistan to develop its nuclear missiles; some of them – once again, that’s open to speculation – might even be deployed inside Saudi Arabia for “defensive purposes” against that mythical Iranian “threat.”

Messy? That doesn’t even begin to describe it. But one thing is certain; whatever game Riyadh thinks it’s playing, they’d better start seriously talking to Moscow. But please, don’t send Bandar Bush on another Russian mission.

Pepe Escobar’s latest book is Empire of Chaos. Follow him on Facebook.

 

Italy loses billions in economic standoff with Russia, opposition leader says

Reuters/Tobias Schwarz

Reuters/Tobias Schwarz

 

RT News

Published time: October 13, 2014 19:53

The EU sanctions imposed on Russia have already cost Italy alone two billion euro due to Moscow’s retaliatory food embargo, the leader of Italian opposition party Matteo Salvini says.

Western sanctions on Russia are a “great foolishness” and the EU agricultural sector has already lost five billion euro, said European Parliament deputy and the leader of the Northern League opposition party Matteo Salvini.

He added that Brussels is only ready to provide 200 million in compensation.

Farmers from many EU states have complained they are bearing the brunt of Russia’s food embargo, having lost access to Russia’s $16 billion food market – about 10 percent of total exports, according to Eurostat.

Italy has been the most outspoken about the consequences of Russia’s ban on certain European food imports, with the country’s Veneto region claiming last week they would take all the necessary steps to protest EU sanctions against Russia. Veneto ranks the second among Italy’s regions in agricultural production, accounting for 160,000 agricultural firms with a total turnover of six billion euro per year.

Matteo Salvini has previously opposed the sanctions against Russia, saying that if Italy dropped the sanctions, the country could return to its previously privileged relationship with Russia.

“I want to be optimistic. I believe some European governments will take the right side and prevent new sanctions,” the politician said.

The opposition leader is now visiting Crimea to discuss the prospect of Russian-Italian economic, cultural and tourism co-operation.

“If an Italian television viewer arrived here, he would be surprised to see no tanks and no armed soldiers,” he told the reporters before meeting Crimea’s leaders.

Who is hit hardest by Russia’s trade ban?

Germany and Poland will lose the most trade with Russia, and neighboring Finland and Baltic states Lithuania and Latvia will lose a bigger proportion of their GDP. Norway will see fish sales to Russia disappear, and US damages would be very limited.

Russia has banned imports of fruit, vegetables, meat, fish and dairy products from the 28 countries of the EU, the US, Canada, Norway, and Australia for one year.

EU trade is heavily dependent on Russian food imports. Last year Russia bought $16 billion worth of food from the bloc, or about 10 percent of total exports, according to Eurostat.

In terms of losses, Germany, Poland and the Netherlands- the top three EU food suppliers to Russia in 2013 – will be hit hardest. Food for Russia makes up around 3.3 percent of total German exports.

French Agriculture Minister Stephane Le Foll said his government is already working together with Germany and Poland to reach a coordinated policy on the new Russian sanction regime.

Last year, Ireland exported €4.5 million worth of cheese to Russia, and not being able to do so this year is a big worry, Simon Coveney, the country’s agriculture minister, said.

Farmers across Europe could face big losses if they aren’t able to find alternative markets for their goods, especially fruit and vegetables.

Some are already demanding their governments provide compensation for lost revenue.

“If there isn’t a sufficient market, prices will go down, and we don’t know if we can cover the costs of production, because it is so expensive,” Jose Emilio Bofi, an orange farmer in Spain, told RT.

EU farmers complain €125mn compensation is just drop in the ocean.

The €125 million in emergency EU support to its food producers may not be enough to cover the damage, as some estimates have it more than a hundred times higher.

On Monday, the European Commission announced €125 million in emergency funding for European farmers hit by the Russian trade ban

Economists at ING estimate the embargo could cost the European Union €6.7 billion ($9 billion) during a year of lost production. The report also sees 130,000 jobs at risk in the trade row between Russia and the West over Ukraine.

The European statistics office, Eurostat, said the ban – which bars meat, dairy, cheese, fruit and vegetables from all 28 EU member states, affects €12 billion ($16 billion) worth of EU exports, or 10 percent of the total.

Hit hardest will be Poland and Norway, both of which export over $1 billion in sanctioned foods to Russia, followed by the Netherlands and Spain, both which have strong trade ties with Russia.

Spain already estimates it will miss out on €337 million in food and agriculture sales due to blocked access to the Russian market. The value of sanctioned food exports to Russia is $792 million, according to Russian Federal Customs data.

In Zaragoza, Spain, fruit growers took to the streets dumping out excess produce and torched an EU flag.

“This price compensation is not enough. Let’s say 20 jobs in our company will be lost. Our salaries will also be affected- then, we will just disappear,” a Spanish fruit farmer told RT.

Exporters may have to further slash prices, which have already fallen 80 percent in the fruit industry, or even throw away perfectly fresh produce that can’t be sent to Russia.

In Greece, farmers feel sanctions are putting their livelihood at stake- being shut out of the Russian market is bad for business. Producers estimate losses over fruit alone will exceed €178 million in the next 12 months.

READ MORE: Russian food ban takes huge bite out of Greek fruit growing industry

“Right now we have no other market to send out produce to, other than the Russian one,” Fotis Kyriazis, President of the Irmini Agricultural Cooperative, told RT.

“I don’t think anyone will compensate us for our losses. Neither Greece nor the EU has the money to compensate us,” Kyriazis said.

The worst-hit countries have already tried to bypass the restrictions by sending goods via Belarus, but were stopped by Russia’s consumer watchdog.

Poland, which before the ban exported 50 percent of its apples to Russia, is feeling the sanctions biting back and is hoping to launch a complaint with the European Commission and World Trade Organization.

“The ban has caused horror among Polish producers of fruits and vegetables. We have to tighten our belts and get production costs back at the very least,” Jacek Izyucki, Trade Branch President of the Agrostar Company in Poland, told RT.

“Obviously some unintelligent political decisions were made and brought harm for all,” Izyucki said.

1farmers

Key food suppliers to Russia

Country Exports to Russia, 2013
(in billion $)
Belarus 2.74
Brazil 2.41
Ukraine 1.99
Germany 1.83
Turkey 1.68
China 1.61
Poland 1.55
USA 1.54
Netherlands 1.42
France 1.42
Italy 1.34
Spain 1.26
Other EU countries 4.88

Source: Data from the International Trade Centre analysed by Reuters

The largest opposition party in Greece is urging its government drop sanctions against Russia, even if the move isn’t supported by other EU states.

In 2013, Denmark supplied Russia with $628 million worth of products which are now banned.

European Agriculture commissioners will set up a task force to address Russia’s sanctions, on Monday.

Border States

Lithuania and Finland, which both share a border with Russia, could be hit hard by the new restrictions.

Now a member of the EU and NATO, Lithuania is still closely linked economically with Russia. Banned exports account for 2.5 percent of the country’s GDP, according to an estimate by Capital Economics.

Vegetable and foodstuffs are among Lithuania’s top five exports.

Finland’s dairy industry stands to lose up to $535 million (€400 million) in the trade spat. The country depends on Russia for 14 percent of its trade.

Both Finland and Lithuania have already contacted Brussels with complaints.

Scandinavian neighbor Norway, a large exporter of fish and seafood to Russia, will lose out to domestic fish companies, which have seen their share prices soar after the introduction of the trade restrictions.

America not bothered

For the US the effect will be very limited, as agricultural exports to Russia are about one tenth of one percent of total US gross domestic product of about $144 billion, according to the US Department of Agriculture.

US food exports to Russia in 2013 amounted to less than 1 percent of the country’s total agricultural exports, the US Department of Agriculture said to RIA Novosti. Conversely, Russian exports to the US and European markets are 13 percent of its GDP. In 2013, the US exported $1.3 billion of food goods to Russia, about a quarter of which were poultry products.

So far the US, EU, Canada, Australia, and Norway haven’t responded to Russia’s retaliatory measures.

What’s in the ban for Russia?

The immediate trade restrictions will create a $9.5 billion gap in Russia’s food market that needs to be filled. Russia is in talks with Latin American countries on how to fill this hole with meat from Brazil and cheese from New Zealand.

Russia is also holding talks with Custom Union members Kazakhstan and Belarus, which it will ask to prevent any transit of Western goods into Russia.

Promising to develop its own industries and protect the economy, Russia will support the new measures at home, and has already allotted $50 billion to farmers.

However, some analysts fear it won’t be enough, and that food prices will rise, further worsening Russia’s inflation problem. Higher inflation will not only hurt those buying groceries, but also Russia’s export sectors- oil, gas, metals, and mining.

Restaurants will have to adapt, as they source nearly 50 percent of their produce from abroad, according to OAO Rosinter Restaurants Holding, which operates 370 restaurants in Moscow, Bloomberg News reported.