Date: 05/03/2021
Author: Kent Moors, Ph.D.
The recent blockage of the Suez Canal by a wedged cargo vessel indicated yet again that access to throughput shipping lanes is a primary global concern. Crude oil prices immediately began an upward move as a result. Well, further problems are brewing in the region. And these new wrinkles are likely to add another level of uncertainty to the geopolitical mix.
Not that the current situations in the area are showing any indication of cooling down any. At the far tip of the Red Sea entrance to the Suez, new indications signal that Houthi rebels there are establishing alliances with rebels across the Bab El Mandeb in the Horn of Africa.
The Bab El Mandeb is the waterway connecting the Gulf of Aden with the southernmost part of the Red Sea. It is a lynchpin in sea traffic north. And while it does not immediately affect large oil consignments directly it does begin to put pressure on a main Saudi crude export facility further down the Red Sea coast at Yanbu. Some 5 million barrels a day flow through the country’s largest pipeline (the East-West Petroline) to that port daily.
The problem in northeast Africa is accentuated by a rising tide of Yemeni refugees to the Horn, especially Djibouti and Somalia. Most of them are simply trying to escape the siege at the primary main port of Aden, the last holdout against the Houthi now dependent upon airlifted supplies from the Saudi air force. But in that human stream are also revolutionaries intent on spreading the area of conflict.
However, the unrest is also moving elsewhere into hotspots that could quickly both extend and deepen the battlefield.
Disturbing information is emerging about the eastern province of Saudi Arabia. The northeastern segment of the eastern province has primary Saudi oil production. It is also the only Shiite majority area of Saudi Arabia. When the 1979 Shiite revolution occurred in Iran across the Persian Gulf, this eastern portion of Saudi Arabia also erupted. It required the use of the army to put it down. King Salman (the father of the controversial heir apparent Mohammed bin Salman) considers Tehran to be directly fomenting unrest in the region, forming a pincer action of domestic instability in the east and Yemen to the south.
The problems also extend once again to Bahrain. In 2013, this tiny country provided the only example of Sunni versus Shiite violence. Bahrain has a Shiite majority population and a Sunni minority governing family. An island sticking out into the Persian Gulf, it is connected to that vital eastern Saudi oil province by a causeway…and is just north of major U.S. operational bases in Qatar.
When the unrest emerged in Bahrain, Riyadh did not wait for developments. It sent the army and police over the causeway to occupy the capital city of Manama. Iran is once again fanning the flames here to pressure Saudi Arabia. Shiite opposition has been increasing to feature a rising wave of protests.
There is also a personal note here testifying to the unraveling situation in Bahrain. I was to provide a featured keynote address before a conference in Manama. My appearance has been cancelled; the Bahraini government cited security concerns; a conclusion seconded by the U.S. Dept. of State.
But and even more disturbing (and novel) trouble center extends the Sunni-Shiite conflict into the Caspian Basin with more direct implications for both crude oil and natural gas exports. It now threatens to include Azerbaijan. Should signs of instability emerge here, energy market prices could be impacted quickly.
As veteran readers of CIB well know, I am in Baku frequently for a variety of project, consulting and policy purposes. While this is a Shiite majority population, it has not been prone to sectarian unrest. That is now changing as we move toward Majlis (Parliament) elections.
The opposition to President Ilham Aliyev is growing as are the more punitive responses from the government. Under the guise of human rights concerns, some of the political opposition is moving closer to Shiite sectarian movements headed by radical imams of some public impact.
Azeri oil is a mainstay of Caspian exports, most via Russia to international markets. But the volatility in oil prices have hampered Aliyev’s ability to stem inflation, offset unemployment, or use the State Oil Fund (SOFAR) to meet social needs. The view of everybody there with whom I work is that this could get nasty and fast.
Azerbaijani natural gas is relied upon by the main new pipeline initiatives out of the Caspian to Europe in any concerted move to lessen European reliance on Russian exports. Azerbaijan also used to be the northwestern province of Iran. Any combination of a reinvigorated Iranian movement with Azeri Shiites would fundamentally change the entire Caspian region and export potential.
This would in classic knock-on fashion put greater pressure on Kazakhstan on the northeastern border of the Caspian Sea. The Kazakh oil/gas production picture has been languishing due to prices and unrest is slowly building. This is not currently a Sunni-Shiite problem (nor is likely to become so in more than a few localized Kazakh areas). But it is steadily developing into a domino situation, nonetheless.
As the sectarian problem expands into more Middle East-North Africa (MENA) and Caspian areas, the impact on oil reliability prospects will increase as well.
Being able to meet the geopolitical wild card remains a main element in navigating through energy investments. This is likely to add volatile pressure on oil prices throughout the summer, as oil prices move up and down, reflecting the flow of MENA geopolitical events.
This is an installment of Classified Intelligence Brief, your guide to what’s really happening behind the headlines… and how to profit from it. Dr. Kent Moors served the United States for 30 years as one of the most highly decorated intelligence operatives alive today (including THREE Presidential commendations).
After moving through the inner circles of royalty, oligarchs, billionaires, and the uber-rich, he discovered some of the most important secrets regarding finance, geo-politics, and business. As a result, he built one of the most impressive rolodexes in the world. His insights and network of contacts took him from a Vietnam veteran to becoming one of the globe’s most sought after consultants, with clients including six of the largest energy companies and the United States government.
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