Monday, 13 October 2014

Saudi Arabia is getting scared of ISIS

"The Saudis have manipulated the fall in oil prices to undercut IS and deprive it of funds. They are even offering to sell cheap oil two years in advance. Personally, I doubt if this strategy will work. IS will just cut its price. after all, IS wants cash (ie US dollars) rather than profit.

The second reason the Saudis are prepared to sell oil at cost is to undercut US shale oil. The biggest threat to the Saudi regime is if America becomes self-sufficient in energy. So the regime wants to sell oil BELOW the cost of producing shale oil and gas. How long before they notice in Congress?"

The Saudi Royal Family have a heap of enemies waiting in Saudi Arabia, the Yemen and other Gulf States but you do not hear about them, especially in Saudi Arabia, because they stay silent or end up 'dying in prison' before they get to trial or are 'extradited' to Saudi and beheaded when they do. ISIS would probably have to do little to shift the Saudi Royal Family from Saudi - a loud "BOO!" would probably do it - and the Saudi Royals know it as they can not be sure of the loyalty of the rank and file in the Saudi Forces.

The option George is not considering is this threat of plunging oil prices, is the Saudi Royal Family's way of telling the US to get boots on the ground in Iraq and fast because if the Saudi Royal Family is going down, so is the US economy because cheap oil to China, Japan and India will hit US manufacturing hard and USA's home oil and gas reserves even harder.

Given the problems George Osborne is having already in the North Sea because of his random tax regime, the UK Treasury could also be about to catch a very big cold as its foreign exchange earnings crash, even further, on reducing North Sea oil output and investment.

The smart money, to stave off the loss of foreign exchange, would be on boosting alternate power development in wind and tidal, as it has a relatively short lead time and could boost UK manufacturing if the UK Government was in the slightest bit smart. Further prevention, as this potential oil energy induced, economic storm approaches, includes getting the HVDC connector from John O' Groats to Norway put in place as a UK priority infra-structure project to facilitate energy exports to Europe.

This would require a massive U-Turn by the Tory's in energy strategy. A strategy which is currently predicated on Hinkley Point new nuclear coming on stream by 2020 (unlikely as nuclear builds routinely over run) and has no other fall back except to use fracked gas. This will be in spite of UK popular opposition to the whole concept of fracking on shore as the pollution of water sources, increased geological activity, release of toxic gases and an increased radiation hazard in the recovered water to go with the known toxic chemicals is now scientifically proven across the USA experience.

The obvious plan for Osborne, because he does not have the sense he was born with, is to use the collapse of oil prices as the excuse to frack the buggery out of the UK. Cameron and Miliband will sell hard, to a pliant London media, the idea fracking is the only way the UK 'economy' will survive.

Now if the UK Government had been as smart as the Norwegian Government and created an Oil Fund,  George Osborne would not be cacking in his pants as Saudi Arabia floods the markets with cheap oil and Sterling is pushed to edge of a Wiemar devaluation style collapse which will take the Euro and Dollar with it.

The 'Black Swan' thinkers are clear, Sterling is just one economic disaster from collapse, this oil pricing war could well be it. Watch out for serious investors increasingly shifting their cash out of Sterling and related currencies to hard assets and sitting tight. In the meantime us little people are about to start thinking Tory austerity was easy street, as the arse end of the City of London comes out through the seat of its pants.

It is the USA's call. They either get Turkish Army boots on the ground, their own boots on the ground and get the Kurds armed, what ever the Turkish say, or the Saudi Royal Family is going to pull the plug and we will all go with it.

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