Belmont Club

Two Conflicts

Despite the administration’s attempts to make nice to Iran, the press has reported that a total of two US ships were intercepted by the Iranian navy in the Gulf.  Only one ship, the Maersk Tigris, a Marshall Islands-flagged vessel, was taken into custody.  Media reports suggested the actions were in retaliation for the turn-back of an Iranian convoy to Yemen a few days ago.

Iran’s seizure of the Maersk Tigris is the second time in a week it has harassed transiting vessels under U.S. protection in the Strait of Hormuz.

A senior defense official at the Pentagon said that on Friday, the Maersk Kensington, a U.S.-flagged cargo vessel, was intercepted by four Iranian Revolutionary Guard Corps Navy patrol craft.

“In the incident, the [Iranian] patrol craft at one point encircled the Maersk Kensington, and eventually followed the ship as it continued on its course. The [Iranian] units eventually withdrew from the area,” the official said.

Iran’s harassment of ships in the Strait follows its attempt last week to send a convoy of vessels to Yemen, which was eventually turned away after the arrival of the U.S. aircraft carrier USS Theodore Roosevelt.

The incident with the Kensington, however, differs from Tuesday’s seizure of the Maersk Tigris, a Marshall Islands-flagged vessel. The Marshall Islands is a protectorate of the U.S., and dependent upon the U.S. for its defense and security.

The other possible motive for the naval action is Tehran’s desire to retaliate for Saudi airstrikes which blew up a Yemeni runway which an Iranian plane was about to land on. “CAIRO/ADEN (Reuters) – Jets from a Saudi-led alliance destroyed the runway of Yemen’s Sanaa airport on Tuesday to prevent an Iranian plane from landing there, Saudi Arabia said, as fighting across the country killed at least 30 people.”

The tit-for-that comes as a political shakeup is under way in Saudi Arabia. According to the New York Times “King Salman of Saudi Arabia issued a series of surprise royal decrees early Wednesday, shaking up the line of princes slated to succeed him to the throne, replacing a number of ministers and further enhancing the power of his own line.” Salman also replaced the top internal security and foreign affairs officials.

In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line.

He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdom’s foreign policy for nearly four decades.

This reshuffle follows the announcement that 93 persons were arrested in connection with a plot to attack the US embassy in Riyadh.  “The timing of the alleged attack coincides with a U.S. decision to halt all consular services for a week starting March 15 at the Embassy and diplomatic missions in Jiddah and Dhahran. The list of targets recalls a wave of attacks launched by Al Qaeda inside the kingdom from 2004 to 2007 … and threatened the stability of one of the world’s most important oil-producing nations.”

The kinetic war in the Middle East is still rumbles on, with America in the crosshairs of everyone. Yet the New York Times reports that Secretary of State John Kerry, nothing dismayed,  met with his Iranian counterpart in his persistent attempts to be everybody’s friend.  Kerry “defended Saudi Arabia’s handling of the [Yemeni] crisis, saying the Saudis had been prepared to engage in political talks until the Houthis pressed their offensive.” In a world seemingly on fire, the Obama administration seems surrealy unconcerned. Kerry said only yesterday that America intended to set “set an example for the world” in fighting climate change, calling the issue is a US foreign policy priority.

However, the Iranians were grimmer less charitable toward the Saudis.

In Tehran, Gen. Mohammad Ali Jafari, head of the 150,000-strong Islamic Revolutionary Guards Corps, said that the Saudi airstrikes were “shameless.” He asserted that the Saudi leadership was on the verge of collapse and would be toppled soon, “God willing.”

But the war also has an economic dimension, one in which Kerry’s laid back attitude makes more sense. Riyadh has been trying to drown Tehran in a flood of cheap oil which is keeping the prices down. Because it’s production costs are low the Kingdom can increase revenue by pumping more at price levels no one in the region can match.

Saudi Arabia has a response to the global surplus of oil: Raise output to near-record levels and then pump even more.

The world’s biggest oil exporter, having abandoned last year its role of keeping global markets in balance, now has incentive to maximize output and undermine rival producers by using its reserve capacity, according to Citigroup Inc. and UBS AG. Just meeting its own domestic demand this summer will require a lot more fuel, others estimate.

While Iran appears confident that the Obama administration will soon let it sell more on the world market, it is less happy about the price. “Iranian Oil Minister Bijan Namdar Zanganeh said Iran expects members of the Organization of Petroleum Exporting Countries (OPEC) to prepare the ground for its extra oil production when the sanctions are lifted from the country. Zanganeh made the statement in a meeting with Venezuelan Oil and Mining Minister Asdrubal Chavez in Tehran.” It needs higher prices to make it worth their while.

Fellow OPEC members keep calling on Saudi Arabia to reverse course and curtail supplies. The organization’s 12 members will next meet in Vienna on June 5. OPEC should trim “at least 5 percent” from its output target of 30 million barrels a day, Iranian Oil Minister Bijan Namdar Zanganeh said on April 14. Venezuelan Oil Minister Asdrubal Chavez, whose predecessor Rafael Ramirez tried to broker a production cut between OPEC and non-members, visited Saudi Arabia this week.

Iran, suffering from both the collapse in crude prices and international sanctions on its exports, needs an oil price roughly double current levels to cover government spending this year, the International Monetary Fund estimates. Brent crude futures rose 16 cents to $65.01 a barrel on the London-based ICE Futures Europe exchange at 1:06 p.m. New York time Friday. The contract has lost 43 percent since June.

No one appears to be able to threaten Saudi oil dominance except the Americans. One of the biggest levers of the administration is American oil technology — whose breakthroughs precipitated the production crisis in the first place and remain the main targets of Saudi efforts to strangle competitors in the cradle. They are proving harder to beat down than Iran and are the elephants in the room.

Fortunately for OPEC, American crude cannot be exported.  But its effect has been enormous. “US stockpiles are at an all time high. The U.S. has almost 500 million barrels of crude oil in storage. That’s by far the most oil in storage since record-keeping began in 1982.  Supplies have grown because of surging domestic production and restrictions on most crude exports.”

American potential remains a kind of threat-in-being. If the Saudi production should falter and the price inch up, it will unleash an possibly bigger torrent from the “fracklog”, a stockpile of uncompleted wells that may go online if the prices trigger production.  Ultimately the Saudis lack the oil power to cripple America.

Companies have already drilled thousands of wells and are waiting for prices to recover before they start pumping. That could quickly flood the market with fresh supplies, capping the rally.

The three top-producing shale fields have more than 3,400 drilled but uncompleted wells, according to Bloomberg Intelligence. In oil-producing regions nationwide, there are more than 4,000.

Tehran, however, is another matter. The Saudis have long been aware of the damage it can inflict on the Iranian economy. “In November 2006, Nawaf Obaid, a Saudi security consultant connected to Prince Turki al-Faisal, then Saudi Arabia’s ambassador to Washington, wrote an op-ed in the Washington Post noting that if “[i]f Saudi Arabia boosted production and cut the price of oil in half … it would be devastating to Iran … [and] limit Tehran’s ability to continue funneling hundreds of millions each year to Shiite militias in Iraq and elsewhere.”

Two years later, at the height of the global financial crisis, the Saudis acted: They flooded the market, and within six months, oil prices had fallen from their record high of $147 per barrel to just $33. Thus, Iranian President Mahmoud Ahmadinejad began 2009, an election year, struggling with the sudden collapse in government oil revenues and forced to slash popular subsidies and social programs. The election’s contested outcome was accompanied by economic contraction and the worst political violence in Iran since the fall of the shah.

In a manner of speaking it was American technology which destabilized the Middle Eastern status quo. That is something which may make the liberals in the administration feel guilty. This awesome power of American innovation lies at the root of both Obama’s apparent willingness to give Iran, as Max Boot puts it, “whatever it wants” and his embarrassment at its possession.

“Climate change” may be Kerry’s code word for the process of managing the potential American oil power. Climate change means leaving oil in the ground.  It means not pulling the rug out from under Russia and the Middle East.  In the eyes of liberals, the competence of the West is an unfair advantage, a destabilizing factor in and of itself.  To achieve peace, America’s strength and destabilizing potential must first of all be contained.

Obama told Tom Friedman, “we are powerful enough to be able to test these propositions without putting ourselves at risk. And that’s the thing … people don’t seem to understand.” He added, ‘they cannot fight us’.   Mongo needs to be chained up, or he’ll wreck the party because he doesn’t know his own strength.  If left alone, this destructive being will ensconce himself in some Man-chair and run the show, ruining the world with micro-aggressions.

In a way Obama’s right. Iran cannot fight America. But on a personal level the Iranians can always beat him, though he’s not too worried about that.  Yet the danger is that like some wastrel, he’ll live off capital for too long.  Never having earned his own geopolitical money, he may have raised incompetence to the level of virtue, which is convenient when you have a surplus of the former and a deficit of the latter.


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