Daesh will set the global agenda next year…
More than the Fed or the state of the Chinese economy.
And it’s now odds-on that an appreciably higher than consensus forecast oil price will result.
Putin is using the Daesh card to engineer a higher oil price, get sanctions lifted, and create with Iran a powerful defensive presence in the middle-east.
He needs an oil price of at least $100 for reasons of national security and to help reverse economic contraction, especially as the much touted multi-billion dollar deals with China over pipelines and bi-lateral barters are running into delays and a very hard-nosed Chinese approach.
The strategy seems to be to terrorise the coalition into a kind of 2016 version of the 1943 Tehran agreement when the US, Russia and Britain agreed to bury their differences and put as much of their wood as possible behind a single arrow to defeat the Nazis.
This at least is the rising talk in Moscow circles as reported this morning in a fascinating BBC Today bulletin from Russia.
To achieve this the Russians will have to feed credible intel and technical detail about Daesh into the media to set alarm bells ringing even louder in Washington, London, Paris and Riyadh way beyond the very live threat of further Paris style attacks, with or without ‘dirty bombs’ or synthetic anthrax.
The Russians have been asking, for instance, how Daesh can integrate US equipment into ops that usually involves weeks or even months of training. And again, how this Syrac mini-oil Caliphate, which is extending rapidly to Libya, can keep producing $50 million worth of oil a month selling at a reported $10 a barrel without foreign help.
Now factor Saudi Arabia into the equation.
It is well understood in Riyadh that Daesh like Bin Laden before it is out to topple the House of Saud and ‘liberate’ Mecca and Medina.
The House of Saud under King Salman, but mostly under his son Mohammed bin Salman, nicknamed ‘reckless’, is looking increasingly wobbly, and the current regime would almost certainly not survive another twelve months of oil at current levels.
The Saudis feel very vulnerable, given the US pivot to Iran, which it sees as leaving it in the lurch, and in the wake the Yemen debacle and the decidedly mixed result of the deliberate oil oversupply policy aimed primarily at kicking the US shale producers out of the market.
Some young princes are reportedly getting rattled with a regime that seems lost and incompetent, and which faces the landscape of a very young and increasingly restive population without nearly enough jobs with a fiscal deficit running at $100-$150bn according to the IMF, and it was widely reported in global media a few weeks ago that a senior prince has called for regime change.
The House of Saud has successfully bought off its hard core Wahhabi clerics since the late 1970s by sticking with a savage implementation of Sharia law and by funding Madrasahs across the world where the young in, e.g., Pakistan are brainwashed to become prospective jihadis, while managing to keep the lid on such jihadi activities in Saudi Arabia itself.
But for how much longer can it keep the lid down given the ‘success’ of Daesh as far as Saudi’s hard core Wahhabis see it, and a largely jobless and motiveless army of young Saudi male virgins? Research has shown that ‘male virgins’ make up a sizeable number of Daesh recruits.
Putin’s right hand man Igor Sechin, and the chief honcho of Rosneft, has been talking turkey with ‘reckless’ Mohammed bin Salman, and others, for several months about a bi-lateral deal between Russia and Saudi Arabia to cut oil production by 10%: now even more feasible with the vacuum created by the recent Opec shambles.
The Saudis, lacking US cover and impressed by Putin’s activities in Syria, see stronger links with Russia are their only way of having any purchase, however minimal, with Iran.
So net in a fiendishly complex situation with lots of moving parts it is odds on that a Russian deal with Saudi Arabia, courtesy mainly of Daesh, will have a currently unexpected impact on the oil price in 2016.