World events are keeping investors, commentators and world markets fully engaged after armed drone strikes on Saudi Arabia’s oil processing facilities at Abqaiq and the Khurais oilfield.
The strikes caused massive fires and production outages causing oil prices to spike up to 20% in the immediate aftermath of the attacks before settling circa. $65 per barrel by Friday’s 20th September end-of-week close.
The attacks confirmed the vulnerability of Saudi oil facilities regardless of the Kingdom’s high military expenditure. Saudi military officials held press briefings accusing the Iranians of using sophisticated drone technology to make their attack.
In response to the attacks, the USA has placed further sanctions on the Iranian central bank with US troops and weapons sent to bolster Saudi defences. President Trump so far remains wary of military action against Iran, playing to his stance of avoiding military engagements in the middle east after the lengthy Iraq and Afghanistan commitments of his predecessors.
With noteworthy timing, US President Trump has recently sacked John Bolton, his hawkish national security advisor, with overtures being made on resuming talks with Iran on issues surrounding the troubled nuclear enrichment reduction agreement.
Unsurprisingly, the French-led UN peace negotiations will endure further stress and delay by the attacks exacerbating the region’s fragile and fractious politics. How serious is the situation and could it lead to the outbreak of further regional hostilities over the coming weeks? The reprisals to these calculated attacks shall unfold in the coming weeks-the full outcome may take longer.
Meanwhile, in Turkey, a Russian S-400 missile defence system is being deployed causing the US concern over its NATO ally’s relations with Russia and the likelihood of US F-35 stealth fighter jets’ operational security being compromised. Military sales restrictions have been threatened by the US to its Turkish ally.
Turkey remains pivotal in any resolution in the Syrian conflict with millions of Syrian refugees in Turkey. With Kurdish held territories in eastern Syria and a Turkish military presence in northern Syria where the battle in Idlib province escalates (See March 2019 blog). Syria has Russia and Iran as its military allies with the US backing the Kurdish YPG rebels in Syria which upsets Turkey’s loyalties further complicating a complex-dangerous situation.
The FT reports that as credit conditions are tight and trade tensions with the US remain high. Chinese companies in 2019 have become net sellers of overseas assets to reduce exposure to foreign markets, especially the US, and to reduce debt levels. Chinese companies churning foreign assets, with the encouragement of their government, suggests both the determination of the Xi government to withstand US tariff impositions and pursue its Belt and Road Initiative (BRI) and extend its military influence well beyond its borders.
Chinese BRI built or financed infrastructure projects in many Eurasian countries or by pressing its neighbours over territorial disputes in the South China Sea demonstrates an ascendant hegemon. The US, under a reluctant overseas interventionist administration like President Trump’s, will undoubtedly see its regional influence wane as US presence, whether in foreign policy initiatives or military presence, are reduced or replaced by others notably, China or indeed Russia or Iran.
These power-games highlights that the US-China relationship remains the most important eco-political relationship in the world. It resonates with the Eurasia emergence of China, India, Russia, Turkey, and the EU as the main protagonists with Iran and Saudi in the frame too.
Where does the UK stand while all these international stories develop and unfold?
Unfortunately, the UK remains stuck with Brexit issues- a prorogued parliament by an increasingly desperate prime minster, an opposition unsure which side of the Brexit debate it stands as it chose a neutral stance at the Labour party conference.
The Labour opposition threaten, once in power after a soon-to-be-held election, to ban private schools, nationalize industries and tamper with employment law as an attempt to pander to ever divisive identity politics and the wants of enviro-fascists.
The metropolitan elites, best represented by the Liberal Democrats, wish to reverse the 2016 leave vote, remain in the UK and revoke article 50. It’s a policy at least.
A weaker economy beckons if we do leave especially without a deal. A deal is much preferable to reduce the expected economic deterioration long predicted by economists and central bankers. Nevertheless, if we do remain- let’s not pretend to care too much about democracy or the views of those who disagree with the metropolitan elites.
Notably, the performance of the UK FTSE100 stock market index remains benign in 2019 and within the top of a multi-year range. The US stock market remains expensive in valuation metrics. However, US inflation remains subdued and interest rates have been cut in response to the US-China trade dispute.
The economy chugs on despite all the threats and changes. How long can it last before falling into recession is the question pundits are regularly assessing.
Is the rest of the world really caring any longer about Brexit? I doubt it as there is always something else more important to play for – new world order? New drones, please.
LDC
Further reading-
Financial Times, 2019, “The story of China’s great corporate sell-off,” by D. Weinland, Financial Times Ltd, London UK, 19th September 2019, website accessed 23rd September: https://www.ft.com/content/eaa59fea-da01-11e9-8f9b-77216ebe1f17