Belmont Club

The Kingdom Loses Its Magic

For decades Saudi Arabia evoked images of wealth: sheiks shopping in London, princely yachts anchored on the Riviera, and bottomless donations to politicians in Washington.  Now the reality is changing.  The KSA is losing a foreign war, facing internal unrest, and nearing actual bankruptcy.  Tim Worstall says in Forbes that unless oil prices rise substantially in the next two years the kingdom will go under. Broke. Oil revenues are down and look to stay down due to the fracking revolution.

The traditional Saudi tactic of flooding the market with cheap oil to destroy competitors doesn’t work because “a fracking well just isn’t a high capital cost operation. … We’re down to single digit millions to drill one these days, the vast majority of the return comes in the first couple of years. … And as AEP points out, the costs of this are dropping all the time.” The kingdom wasted its resources on this outmoded tactic and is now going bust.  Michael Rubin argues in Newsweek that America might have to help out Saudi Arabia, otherwise the Saudis might become unstable and vulnerable to terrorism.

The Kingdom gambled by keeping prices artificially low over the past few years, calculating that they could undercut Iran’s financial health while also collapsing the shale industry not only in the United States but also in China.

They did not count on President Barack Obama and Secretary of State John Kerry effectively rescuing the Islamic Republic of Iran from the economic precipice or getting bogged down in a costly war in Yemen with no easy exit strategy.

To make matters worse, Saudi Arabia is embroiled in a war in Yemen against Iran that it looks to be losing without the help of the United States.  Following the destruction of an emirates fast logistic ship by a cruise missile, US Navy vessels San Antonio, Ponce and Mason have come under attack in the Red Sea. The Obama administration has gone out of its way to avoid mentioning that Iran probably supplied the missiles or supported them.  Bret Stephens writes in the Wall Street Journal that “the White House doesn’t want Americans to notice, but the tide of war is not receding in the Middle East. The Navy this week became part of the hot war in Yemen, with a U.S. warship launching missiles against radar targets after American vessels were fired on this week.”

But there’s more to this story because the Houthis are one of Iran’s regional proxy armies. They are fighting to control Yemen against a Saudi-led coalition that is trying to restore the former Sunni Arab government in Sana’a. The U.S. has been quietly backing the Saudis with intelligence and arms, though the Saudi coalition has been fighting to a draw with the Houthis, who are supplied by Iran. The cruise missiles used against the USS Mason are also used by Hezbollah, another Iran proxy army.

Don’t expect the White House to acknowledge this because the ironies here are something to behold. Mr. Obama is backing the Saudis in Yemen in part to reassure them of U.S. support after the U.S.-Iran nuclear deal that the Saudis opposed. Mr. Obama’s Iran deal was supposed to moderate Iran’s regional ambitions, so Mr. Obama could play a mediating role between Tehran and Riyadh. But the nuclear deal has emboldened Iran, and fortified it with more money, so now the U.S. is being drawn into what amounts to a proxy war against Iran.

The lid can only stay on temporarily. After the elections the cat will be allowed to come out of the bag. Admiral James Stavridis, former Supreme Allied Commander at NATO said on a radio interview that there was going “to be a maritime confrontation and if it doesn’t happen immediately, I’ll bet you a dollar it’s going to be happening after the presidential election, whoever is elected.”

Obama may be forced in a very public way to take sides in the Islamic sectarian civil war between Iran and Saudi Arabia.  It is a war he hoped to avoid and tried to avoid by playing both sides only to be enmeshed in its plots.

Beyond Yemen the Saudis are engaged by proxy for the battle for Aleppo in Syria.  They are losing to Iran there also.  US officials now believe it is too late to keep the combined forces of Assad, Putin and Iran from destroying what are essentially Saudi-backed units in the doomed city.  About all that can be done is to airdrop supplies to them and prolong the agony, a la Dien Bien Phu 1954 or Stalingrad 1942.

“You can imagine things like the United States basically saying, ‘We’re going to do airdrops of humanitarian relief supplies from an airplane, and we’re going to tell you when it’s coming, and we’re sort of going to, you know, put the onus on you not to shoot it down.'”

Peter Rough argues in Foreign Policy that Obama made the fatal mistake of trusting Putin. When the Russian moved aggressively he tried to buy him off. “In effect, the United States and its allies offered Putin Crimea and a rump Syria in return for peace. Sensing weakness, the Russian president pocketed both offers and promptly violated the agreements, most egregiously in Syria,” Rough wrote.  But rather than keeping to the deal the Kremlin reneged on the administration.  Obama woke up in a ditch, with Putin wearing what looked like his watch, clothes and shoes, making a call on a phone which very much resembled his former one.

Over the past year, Putin has focused on re-imposing Assad’s control over so-called vital Syria, stretching from Damascus to Aleppo. In the process, he has transformed the strategic landscape of the Middle East for the worse. In Latakia, Putin has established bases that include game-changing strategic weapons. In close coordination with Iran and Hezbollah, Russia has secured the Damascus to Latakia corridor, including from Homs up to the north Hama plains, and squeezed the opposition around Damascus. Now, the alliance is besieging Aleppo, Syria’s largest city, under the motto: surrender or starve.

The pressure on Saudi Arabia continues to mount.  Even as the USS Mason was being attacked Iranian-backed Houthis struck the Saudi King Fahd airbase, near Mecca with a ballistic missile.  It drives home the point that the holiest place in Islam is now literally under the guns of Tehran.  This leaves the Obama administration (and whatever succeeds it) with a harsh choice.  Keep the Saudis afloat or cut them loose?  As Bret Stephens wrote in the Wall Street Journal.

Pulling support from the Saudis now would be seen as one more betrayal of a longtime ally. Iran’s leaders would take it as a sign that they can move even more aggressively against the House of Saud. If you think the Middle East is a mess now, imagine what it would look like with Sunni jihadists competing against radical Shiites for control of the Kingdom and its oil fields.

The good times for the Kingdom are over. The battle for Saudi Arabia — and the Middle East — may be about to begin, with Obama on both sides. In the process the forces which produced 9/11 and perhaps the occupation of the American embassy in Iran may be destroyed or rise to greater power depending on the result. The supreme irony will be that the process will have been set in motion, not by Washington’s smartest diplomats, but by dirt encrusted drillers in Oklahama, Texas and the Dakotas.   By an accident of technology and business they started a landslide.  Fracking will indeed have proved to be destructive, just not in the way the Greens thought it would be.

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