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Saudi Arabia vs Iran: possible consequences of the “battle” between the oil “giants”.

30 May 04:32 AM

The current situation in the Middle East keeps worsening while the center of the “thunderstorm” is moving towards the Persian Gulf, which is rich in crude oil. There is a possibility of confrontation between the world’s 2 oil giants: Saudi Arabia, the world’s largest oil producer and exporter, and Iran, Saudi Arabia’s ideological and political opponent and the 2^nd largest producer of oil. If something like this happens, nobody will dare predict the future of the energy market and even the entire global economy.

 

What is the new pretext for the tensions in the Persian Gulf?

 

·         This time it is about Bahrain, a small island kingdom.

·         For 2 centuries Bahrain has been ruled by the Sunnite royal family Al-Halifa. The problem is that 75% of the population belongs to Shiites. In other words, the power belongs to the religious minority.

·         Bahrain’s Shiites and Sunnites have been opposing each other for the last 30 years. The Shiites are supported by Iran while the Sunnites enjoy Saudi Arabia’s support (Saudi Arabia is the USA’s ally).

·         The situation is aggravated by the presence of the U.S. Navy's Fifth Fleet, which doesn’t interfere but supports the existing political regime.

·         In Feb 2011 the citizens of Manama, the country’s capital, started mass unrest, involving mainly Shiites. However, as opposed to the revolts in Egypt, Tunis and Libya, the Western powers do not seem to support the rebels. According to the Arab Association of Traders and Investors under Masterforex-V Academy, the US and its allies need “democracy” only if it favors their interests instead of contradicting them.

·         In order to support the ally, Saudi Arabia brought its troops in Bahrain. Teheran in its turn considered this step as a pretext to do the same. Thus the 2 regional powers found themselves on the verge of a major conflict, which may really make the entire global oil market collapse.

·         As the result of the worsening crisis, and a possible military conflict, the global economy may suffer greatly. According to the World Bank it is Iran and Saudi Arabia that are some of the major oil exporters and the economic locomotives of the entire Middle East.

 

Will Kuwait become another hot spot in the region?

 

Apart from Bahrain, Kuwait may become another hot spot in the area, the experts from the Arab Association of Traders and Investors say. The possible reasons are:

·         Fairly brave actions and tough stand of the small Kuwait, which has recently been trying to compete with the 2 “heavyweights” (SA and Iran).  Kuwait’s territory is rich in crude oil as well. That is why in the past it was the object of Iraq’s military assault. 22 years ago Kuwait was intervened and ruined by Saddam Hussein’s army. There were a number of reasons for that but contemporary analysts and political scientists pretend to not remember them.

-          Kuwait wanted Iraq to pay its debts lent during the Iran-Iraq war. Saddam was hypersensitive about the claims as he thought that Iraq had fought against the Shiite Iran while defending the entire Arab and Sunnite world (including Kuwait) and consequently considered those claims unfair. Even Saudi Arabia forgave Iraq’s debt understanding the situation. But Kuwait was continuously claiming its money back with interest rates. So Hussein decided to punish its neighbor.

-          Not so long before the assault Kuwait exceeded its oil production quota introduced by the OPEC, thus affecting Iraq’s standing in the oil market. So that was the last straw that broke the Iraqi camel’s back.

-          In 1990 Hussein couldn’t expect that the USA would take the Kuwait’s side. He thought that the USA was grateful to him for the continuous struggle with Iran. So, that was the dictator’s biggest mistake ever.

·         Today Kuwait behaves in the similar way. Even though it irritates mainly Iran, the Shiite government of Iraq becomes increasingly displeased with Kuwait as well.

·         Moreover, Kuwait moved its insignificant navy to Bahrain’s coast in order to support Saudi Arabia’s intervention.

·         Simultaneously the Kuwaiti authorities started an active diplomatic campaign against Iran, deporting the Iranian diplomats from the country and blaming Iran for interfering in the internal affairs of Kuwait.

·         Moreover, Kuwait and its Sunnite allies (Saudi Arabia, and the UAE) stand for oil price cuts. Iran and Iraq don’t oppose it.

·         Most OPEC members, including Kuwait, are now exceeding their quotas (under the US pressure) in effort to compensate the deficit of oil export as the result of the military campaign in Libya. However, Iran is not one of them: its production volume remains the same but the price is higher.

·         Numerous countries of the Persian Gulf have already blamed Teheran for fomenting troubles in the region, urging it to stop its spying activity.

 

The OPEC is a “battlefield”

 

Iran and Saudi Arabia still confront within the OPEC. The next summit is to take place on June 8^th 2011. According to the Arab Association of Traders and Investors under Masterforex-V Academy, the summit is expected to spring a couple of surprises because:

1.       This time the president of Iran Mahmud Ahmadinejad will be the Iranian leader and the temporary head of 2 ministries (oil and energy).

2.       His presence is believed to enliven the forum. Saudi Arabia would like to show the world that the OPEC itself is the factor ensuring the stability of the entire global oil market. However, the forthcoming “speech battles” between Saudi Arabia and Iran well may put a damper on this assumption.

3.       If the Iranian president uses the OPEC rostrum to blame the USA (the probability is high) it may damage the OPEC’s image.

4.       In the meantime the EIA urges the OPEC to do its best to stabilize oil prices otherwise all the 28 members of the OECD will be determined to act.

5.       According to the EIA from May till August the global economy will need more oil to prevent further tensions in the market.

6.       Iran is against any increase in volume production as well as against any price reduction because numerous economic sanctions against the country make oil export the only source of income for Iran.

7.       Saudi Arabia tries to persuade investors that the OPEC controls the market situation while being afraid that Ahmadinejad’s speech may initiate an increase in crude oil prices.

8.       Besides Saudi Arabia strives to show the world that it plays the key role in the OPEC. The global oil market is monitoring the situation in the country, being afraid of another revolution in the Arab World.

9.       In other words the OPEC doesn’t need any further tension in the Arab countries belonging to the OPEC. However, they are unlikely to avoid it.

10.   These days the world’s major investment banks are getting ready for the continuation of the crude oil uptrend. This seems inevitable as the market keeps seeing new threats while the supplies are insufficient.

 

What is happening to the global prices on crude oil? According to the Department of studying Masterforex-V trading system , in early May the price stopped around the 38,2% support (96,57). At this point the market is probably developing a bearish wave A. The further succession of events will be clarified by the “MF moment of truth” pattern (a bullish wave following the current bearish one): a break above the high (114,78) will indicate the formation of a strong bullish wave c(C ); if the price comes out of the MF sloping channel and forms a bearish FZR, the bullish ABC pattern will be over while the price will initiate a downward wave of the senior timeframe.