In this first article of the new year, I’d like to discuss the reasons why the global financial markets began the year in turmoil. The Chinese market fell 7pc on Monday, as did several major stock markets, while the dollar rose against a prevailing backdrop of chaos and uncertainty.
What happened over the weekend to send the moneymen into such a panic? There are specific reasons in China which I won’t discuss here, but why the panic elsewhere?
The key to all this is the Middle East. On Monday morning, the moneymen realised that the status quo in the Middle East is not only changing but could be shattering before their very eyes. On Sunday night, Saudi Arabia cut off diplomatic ties with its sworn enemy Iran. This was in reaction to the sacking of the Saudi embassy in Tehran, itself a reaction to the Saudi’s execution of 47 prisoners, including senior Shia Muslim cleric Nimr al-Nimr.
Why did the Saudis act now and why did the Iranians react?
At its core, the row between Iran and Saudi is an inter-Muslim, sectarian fight. Saudi is a Sunni Muslim country and Iran is a Shia Muslim country. The difference between Sunni and Shia, for argument’s sake, is not unlike the difference between Catholics and Protestants in Christianity – with the Shia being more like Catholics and the Sunni more like Protestants. The most extreme version of the Sunni tradition is called Wahhabism. This is what the Saudis practise. Wahhabis are, again for the sake of comparison, a bit like evangelical fundamentalist Protestants.
Possibly the most important tenet of Wahhabis is that they believe in what they call “the oneness of God”. As a result, association with lesser gods, other gods, mysticism, shrines, temples, saints or holy men amounts to idolatry and must be stamped out.
This puts Wahhabis on a collision course with the other strains of Islam, such as Shias or – even worse in the eyes of the Wahhabis – Sufism.
Over centuries, the dispute has rumbled on in the background but in the modern day, the battle lines for leadership of the two Islamic tribes has been drawn between the big boys – Shia Iran and Sunni Saudi Arabia.
Since 1979 the West has backed Saudi Arabia. But the problem for the Saudis is that Iran is still standing even after years of sanctions, isolation and being regarded as a Pariah. Worse for Saudis, Iran has now been ushered in from the cold. If anyone won the war in Iraq it was Iran because the Baghdad regime is Shia. Finally, and most worryingly for the Saudi monarchy, eastern Saudi Arabia (where most of the oil is found) is populated by an indigenous Shia Muslim minority which is pro-Iranian. These people have been squeezed by Riyadh for years, but they haven’t gone away.
These various developments are undermining the entire Saudi twin strategy in the region, which has always been about (a) keeping Iran isolated internationally and (b) keeping the people quiet at home.
To achieve both these aims the Saudis need (a) unambiguous American support in the region to surround the Iranians and (b) high oil prices to buy off its own population.
Both of these central planks now look shaky and as a result, the consequences of recent Saudi policy are laid bare for everyone to see.
Between 1979 and now, Saudi Arabia, buoyed up by oil revenues and driven by its own extreme Wahhabi doctrine, has been responsible for financing extreme Sunni mosques all around the world, as well as being the major source of private donations to the Mujahideen, Al Qa’ida and now Sunni groups in Syria, including Isil. Don’t forget that most of the 9/11 hijackers were Saudi as was indeed, bin Laden. Meanwhile, on the Shia side, Iran has backed the Shia group, Hezbollah, in Lebanon. Both sides are fighting proxy wars with each other in Yemen and Syria, however an extra difficulty is that in 2015, the fall in the price of oil has led to a race to the bottom for both. But – and this is the crucial but – Iranians, having been isolated and under sanctions for years, have endured hardship and can deal with it. In contrast, the average gilded Saudi doesn’t know what it means to turn off his air con at night. The hardy Iranians are able to deal with adversity; I am not so sure about the average Saudi.
I’m not the only one questioning the resolve of the average Saudi.
This worry about the backbone of the average man on the Riyadh street, when faced with a fall in his living standards driven by a fall in oil prices, is driving Saudi Arabia’s latest neurotic moves in executing prisoners.
The mass executions in Saudi Arabia suggest panic at the highest level of the monarchy. Even by the diabolic standards of Saudi Arabia, these killings are unusual. Most of the 47 prisoners shot and beheaded last week had sat quietly in Saudi jails for a decade. They were a threat to no one.
The decision to kill the prominent Shia cleric Nimr al-Nimr, the spokesman for Shia Muslims in the Eastern Province, seems particularly inflammatory.
Why kill them all now?
It’s impossible to know what’s going on inside the regime, but it’s clear that 2015 has been ‘annus horribilis’ for the Saudi monarchy.
Saudi Arabia finds itself isolated as America cuddles up to Iran. It is also outflanked by the return of Russia to the region, particularly in Syria. The Saudi-backed Army of Conquest – a Sunni militia – in Syria is crumbling under Russian attack. In Yemen, Saudi’s forces are losing out to the Iranian-backed Houthi rebels. And its Turkish ally-of-convenience – a country bonded to Saudi by a millennia-old Turkish dislike for the Persians – is deflected by the rekindling of problems with the Kurds who are beating Isil on the ground in Syria and Iraq.
Geo-politically nothing has gone right for Riyadh.
If all this weren’t bad enough, Saudi Arabia is going bust.
Yes you read right. The IMF reckons that the kingdom’s $700bn in financial reserves will be gone within five years, if oil prices stay low.
All this uncertainly is causing money to flood into the dollar and the US as it is traditionally the safe haven in times of crisis. And believe me, if this regions blows, this will be the crisis to top all crises.
“All this uncertainly is causing money to flood into the dollar” and gold …
Gold up nearly 3% versus the dollar in recent days as dollar, US bond markets and US equities look overvalued … especially versus depressed gold.
Academic research and history shows gold remains the ultimate safe haven and this will be seen again in the coming months. Overnight, Soros warned of new 2008 style crisis.
What is scarce now in Dubai ? Is it a Camel or a Magic Carpet ? When the stampede commences all rationality will be gone to get out quickly .The desert wins once more like a wave of emotion and everyone entrapped ……with their gold.
Irish mothers need to worry.
Good article David. It establishes the broad outline of what is happening in the Persian Gulf. Whenever one reads lists of countries with the world’s largest oil and gas reserves, the significance of the Persian Gulf, taken in it’s entirety, is overlooked. On Wikipedia, say, the ‘List of countries by proven oil reserves’ reads: https://en.wikipedia.org/wiki/List_of_countries_by_proven_oil_reserves 1. Venezuela (mostly not light, sweet crude but tar sands and shale oil, which require too much water and electricity to produce) 2. KSA 3. Canada (also mostly tar sands and shale) 4. Iran 5. Iraq 6. Kuwait 7. UAE 8. Russia 9. Libya 10.… Read more »
Hi David,
Maybe the Americans should unleash your man on the region;
http://timesofindia.indiatimes.com/world/us/Donald-Trumps-1st-TV-ad-says-he-will-cut-Islamic-States-head-take-their-oil/articleshow/50442483.cms
LOL
The amount of oil that Saudi has should have turned it into a world power. But, thanks to careful management by the USA, it hasn’t. US strategy in Saudi was always to pump the place dry while encouraging the Saudis to waste their temporary wealth on shiny imported trinkets instead of using it to build a modern industrial and military powerhouse economy. So, Saudi going bust is not unexpected, it’s just unexpected that it might happen while they still have oil in the ground.
It surely won’t be long before the US decides it can do business easier with Iran than SA. Watch as the Saudis’ mask really slips and they take more desperate measures as their very survival will be threatened.
TiTime to dump the Suads and expose the oil hoax: http://davidstockmanscontracorner.com/enough-already-its-time-to-send-the-despicable-house-of-saud-to-the-dustbin-of-history/
A friend who worked in KSA in the 80s told me that on a drive from Jeddah to Riyadh he asked his driver what some huge fenced areas in the desert were (10’s of miles long) and was told that the Saudi’s had discovered huge reserves of Gold and Bauxite, but weren’t going to mine them until the oil ran out.
Perhaps the demise of KSA might not be as close as imagined.
“Saudi Arabia’s Dangerous Sectarian Game”
http://www.nytimes.com/2016/01/05/opinion/saudi-arabias-dangerous-sectarian-game.html?_r=0
“A New Century for the Middle East”
https://www.project-syndicate.org/commentary/middle-east-sustaining-development-by-jeffrey-d-sachs-2015-12#cOHzWprCTG1Iv4wl.99
“Neoliberal Economics is the Manufacture of Consent for the USuk Empire’s post Peak Cheap Oil geo-political strategic plan for C21st Hegemony”
“Economists are the concubines of politicians,who are the whores of philosophers. Philosophers are the Marines Of The Mind. Music trumps all”
“The ‘oil price rout’ shifts pawns on the Peak Cheap /Shale Oil chessboard. ‘Market Forces’ do not exist, only political strategy matters.”
“We and our ancestors survived on dates and milk and we will return to them again.” King Faisal October 1973
http://www.bbc.com/news/business-35248798
“Wall Street sinks as China turmoil hits global shares”
@adambyrne
Bitcoin going parabolic adam;
http://www.nasdaq.com/article/this-time-bitcoins-price-increase-is-both-logical-and-sustainable-cm562649
all the indexes going off a cliff.
Madder than a bonbon.
@Tonybrogan
Gold miners put in a bottom Tony;
http://seekingalpha.com/article/3746706-the-gold-miners-have-put-in-a-bottom-seriously
@David McWilliams -> FORGET SAUDI
-> THEY ARE SITTING ON GOLD.
=> WHICH THEY WILL MORTGAGE LONG INTO THE FUTURE.
WHAT ABOUT CLOSER TO HOME?
.
.
THE EU GOING THROUGH THE “STAGE 3” OF CULTURAL MARXISM?
GERMANY?
1 MILLION 2015
3 MILLION 2016 PREDICTED
ADD FAMILIES -> 15 MILLION ?
RESEARCH FOR A FUTURE ARTICLE
http://www.express.co.uk/news/world/632735/Germany-sex-attacks-gang-rape-Cologne-New-Years-Eve
http://newobserveronline.com/helsinki-police-prevent-second-cologne/
“THE ECONOMIC AND SOCIAL EFFECT OF MASS INVASIONS?”
COME ON DAVID -> BE A TRAIL BLAZER
Anyone for some country and western music? And there was I thinking it was Dick Cheney who forecasted never ending war. It seems the knew it as far back as Vietnam at least. From the song “I don’t suppose that war will ever end”
https://www.youtube.com/watch?v=MwMPZR3sS2o
“And believe me, if this regions blows, this will be the crisis to top all crises”
I will…certainly, if you can supply the evidence that supports you claim that contraception is the major factor in a lessened birth rate for Ireland as reported in a recent article I just got round to reading .
However without facts to support the claims made in these pieces I will continue to regard them as the genre of entertainment.
What you have failed to mention is the equally if not more crippling financial difficulties that Iran faces and its not rocket science, its simple maths. Iran exports 1 million barrels of crude oil a day at $29/barrel. This translates to $900 Million oil revenue per month. With the current FX rate of one $ to 36000 Rials, Iran’s oil revenue in Rials is 32000 Bn Rials per month, yet the cost of paying the cash for subsidies program alone for the government is 34000 Bn Rials per month. A deficit before even the wages for government employees is paid… Read more »
I’m sanguine about the middle east. All the major players are on board. It’s a fair bet that the US has massive oil reserves, certainly enough to keep the pot boiling for as long as it takes to develop the renewable technologies to replace oil based consumption (mostly transport) They’ve loads of gas too and are investing heavily in renewables. Never underestimate the ability of US business to recognise the main chance even if the government/politicians are making a bags of things. The middle east is already in crisis and yet the ar$e is still falling out of the price… Read more »
If the Fed and ECB are smart they will do all of the following. 1. State that the new target rate of inflation is 1% and that they are adjusting policy forthwith. They are surely capable of coming up with the appropriate reasons without my help. 2. Ban spread betting in the financial markets. 3. Ban CFDs. 4. Ban derivative trading. Have I missed anything? Well yeah sure I’ve left out a lot of detail about timing and phasing etc but I’m sure you get the drift. If you disagree I’m all ears because my education on financial matters is… Read more »
There is a disconnect between the real economy and the financial industry.
The financial has been creating money hand over fist in the last few years.
Why – To boost demand in the real economy.
It hasn’t worked. The Laws of supply and demand no longer apply.
The financial big wigs need to take a serious look outside the box.
In case anybody is interested (ICAII) here is a Wall Street Journal article about the growing US trend towards urban revitalization in which my town San Diego has been a leader. There may be some lessons for Irish cities here. In America sprawl is out and urban infill is in. It may be that American-style redevelopment of inner cities is the answer to overpriced, polluting and corruption-generating greenfield construction around Ireland’s major urban areas. I am sure that many of those commuting to jobs in Galway would gladly swap a 10th story apartment in Salthill for their dreary semi in… Read more »
Hi Adam. Watch the video at the beginning. It gives a fair image of our town. I have been heavily involved in the politics of downtown development for many years and know all the players. I think we did a halfway decent job in San Diego and have been widely copied. Our problem is/was that we ran out of land. We have Tijuana to the south the Pacific Ocean to the west, Marine Camp Pendelton and Orange County to the north and a range of 6,000 foot mountains to the east. Yes they don’t require a command of English anymore… Read more »
Sideshow Bob: Wow! You sure know your urban planning. I would like to talk with you sometime when I get back. Perhaps we can convince Alan Kelly and Paudie Coffey that they don’t need to bend over for the developers every time. As for San Diego and affordable housing, we have a 25% low to moderate income inclusionary rule for a housing project to qualify for redevelopment tax benefits. It is not perfect but it works. The idea is that there is little point in housing only high income professionals without somewhere for their housecleaners and maintenance workers to live.… Read more »
Saudi Arabia is a dictatorship…… But they have oil..so its cool… they fund Isis , supplying arms and fashion advice. Al queda , set up by the C.I.A , is / was / are also funded by Saudi Arabia .But in the nineties and early Noughties , Saudi Arabia owned 37% of U.S debt , so that was okay. The hijackers on 9/11 where mostly Saudi , Mohammad Atta was Egyptian if i remember correctly.[ he was the guy who’s fireproof passport was found in the rumble of the twin towers buy a diligent F.B.I guy ]……but…sure you cant attack… Read more »
Please find below a academic report underlining my opinion on religion…
https://youtu.be/8r-e2NDSTuE
Thank you.
RR6
Chinese market only fell 7% as the government closed the exchange. This has happened more than once. Yesterday it was revealed that the reason Kadaffi was murdered was because he threatened the monetary system by proposing an Islamic gold dinar be used as a pan African currency The disclosure was revealed in Gillian’s emails. Just as I have been telling you for years. Same reason that rid us of Saddam. Never mind the .order of JFK after his idea to issue silver backed treasuries. It’s all about the power to control the money. It gives the power to control the… Read more »
Seems that from Gold Corp to Grez the best place to be is gold and silver.
Most of the rest of the world agree and then the grandparents had land for food. The three Gee’s are followed by some in the US. Gold,Guns,and Grub.
As far as world turmoil is concerned. Follow the money not the religions.
It is all part of the chaos created by the power monger elites to destroy all the stable government and replace with a new world order dictatorship.
Resistance is futile, said the Borg.