If there is one geopolitical event that can be relied on to push up the price of crude oil, it’s the prospect of war in the Middle East. Saudi Arabia’s Crown Prince Mohammad bin Salman is beating the drum, and may spark the real thing.
Having had only soft success with efforts to push up crude oil prices by tamping down production with his country’s OPEC cartel partners, and fresh off a palace coup, Saudi Arabia’s tempestuous young regent is showing every sign of “clearing the decks for war,” veteran foreign correspondent Jonathan Manthorpe writes in iPolitics.
Since taking full control of the kingdom, bin Salman has rounded up scores of potential rivals, frozen their finances, and taken over the one security service he did not previously control.
Sunni Saudi Arabia has picked a series of proxy fights in its regional rivalry with Shiite Iran, Manthorpe notes. Earlier this year, it declared a blockade of Qatar for its perceived flirtations with Iran, and has characterized rocket attacks from the territory of Yemen—which Riyadh has been bombing—as an Iranian “act of war”. In similar terms, the Saudi government declared “war” on Lebanon, which it cast as controlled by Hezbollah—in turn controlled by Iran.
Things got even weirder when Lebanon’s Prime Minister Saad Hariri, speaking in a shaky voice from Saudi Arabia, resigned his office and then promptly disappeared. Hezbollah’s leader in Lebanon, Hassan Nasrallah, accused the Saudis of “essentially kidnapping Mr. Hariri,” contending as well that “Saudis asked Israel to attack Lebanon”. Saudi Arabia warned its citizens to leave Lebanon.
Even proxy conflict between Iran and Saudi Arabia threatens to close the Strait of Hormuz, which carries 20% of the world’s oil supply. Yemen’s involvement could also close the Bab El-Mandab strait between that country and Africa; about 4% of the world’s oil takes that route to the Suez Canal and Europe.
The mere threat of a possible conflict sent oil futures to their highest level in two years, Bloomberg reports. “Disruptions in exporting countries such as Libya, Nigeria, and Venezuela in past months hadn’t fazed investors enough to trigger strong rallies, but Saudi Arabia and Iran? That’s another story,” the outlet writes. Hedge funds have led the bull charge.
“Most of the political risk has been smaller-scale,” energy and economy strategist Michael Lynch told Bloomberg. “But when you start talking Saudi Arabia and Iran, that gets people’s animal spirits flowing.”
The greater risk is that a Saudi-provoked proxy war could easily spin out of control, with the high-profile backing of the United States under Donald Trump. Trump made his first foreign visit to Riyadh, and his son-in-law and personal envoy Jared Kirchner is reported to maintain close contact with its ruling circles.
A similar thing happened toward the beginning of the last century, ending in a war that took 40 million lives before its guns finally fell silent 99 years ago this past weekend. Many accounts describe the European powers of the early 20th century as having essentially stumbled into a war that none of them really wanted.
And historian Sir Max Hastings sees ominous parallels today.
“I think I was the first writer to make the comparison between the personality of Trump and that of Kaiser Wilhelm—who ruled Germany in 1914,” Hastings told Bloomberg. “Both [were] narcissists, both natural posturers. Kaiser Wilhelm in 1914 did not want a big war. But he made the colossal mistake of believing that he could have a small war without triggering a big one.”
Hastings added that it’s “easy to see similarities between the posturing of the Kaiser and some of the posturings” of Donald Trump. “That does not mean we are on the path to war—I do not believe in inevitability—but we must recognize these risks.”
That, and factor them into the forward price of oil, apparently.