Even by Middle Eastern standards the events of the past week have been extraordinary.
Where does one begin?
Perhaps a timeline with the key headlines would help.
But, before we do that, lets establish a few ground rules.
The geopolitical prism through which we must view the Middle East is the great divide between Sunni and Shia, or Saudi Arabia versus Iran.
The financial market prism through which Wall Street views the region is: if you export a lot of oil, we care, and if you don’t, we don’t care less.
The transmission mechanism from turmoil in the region to Wall Street is via the potential impact on the oil price.
Wall Street ignores headlines with the words Yemen and Syria in them, as neither export oil.
Headlines with the words Saudi Arabia get attention for the obvious reason that they are the world’s largest oil exporter.
One quick observation: In thirty years from now we will have no need for such a discussion, as the majority of the world’s cars will be electric vehicles.
This will also mean that America and Britain will not be selling hundreds of billions of dollars of, as Donald Trump so eloquently describes, “beautiful” weapons to Saudi Arabia.
These same “beautiful” weapons of mass destruction are currently being used in the war in Yemen.
25 October -27 October: Jared Kushner, Trump’s son-in-law, makes his third trip to Saudi Arabia and reportedly stayed up to the early hours of the morning talking with Saudi Crown Prince Mohammed bin Salman (MbS) at his desert ranch.
4 November: Lebanon’s Prime Minister Saad Hariri, whilst on a trip to Saudi Arabia, announces his shock resignation on Saudi TV, saying that “Iran’s hands in the region will be cut off.”
Head of the Saudi National Guard, Prince Miteb bin Abdullah, and son of the late King Abdullah is sacked, thereby removing one of the Crown Price’s most powerful rivals.
Houthi forces in Yemen fire a missile at Riyadh.
Late on Saturday, 4 November, mass arrests of members of the royal family, cabinet ministers and high-profile businessmen take place as part of an anti-corruption purge, orchestrated by MbS.
The most high profile of which is multi-billionaire Prince Al-Waleed bin Talal.
You might recall his tweet about Donald Trump.
So, what do we make of all of this?
These three statements help us in joining up the dots.
Shortly after the Lebanese Prime Minister’s extraordinary resignation, Israel’s defence minister, Avigdor Lieberman, issued the following statement via Twitter.
Iran endangers the world.
Saad Hariri has proved that today. Period.
The Saudi Gulf Affairs Minister, Thamer al-Sabhan, issued the following statement.
“We will treat the government of Lebanon as a government who has declared war on us because of the Hezbollah militia.”
And then last, but not least, and just to make sure you get the message, here is the Saudi Foreign Minister, Adel bin Ahmed Al-Jubeir.
“The missile fired at Riyadh was an act of war by Iran.”
And having joined up the dots the picture becomes frighteningly clear.
Having lost their proxy wars, with Iran, in Iraq and Syria, the Saudis now intend to take the battle to Lebanon.
And in so doing they hope to drag Israel into the conflict.
Furthermore, the war in Yemen is not going well for Saudi Arabia, and is rapidly becoming their Vietnam.
Similarly, the humanitarian catastrophe that is unfolding in Yemen is not a good look for the ‘new-look’ modern Saudi Arabia which has even said women can drive by June next year.
As the saying goes, the enemy of my enemy is my friend, and this helps explain the alliance between Israel and Saudi Arabia.
The third, and all-important member of this alliance, is America.
This was the missing piece of the jigsaw puzzle when Obama was President, as he had been elected on a promise to end wars, and not start wars.
Trump’s victory changed all of that.
All three now have Iran in their sights.
Saudi Arabia feels encircled by forces under the influence of its arch nemesis Iran and have decided that it is time to strike back.
Let us hope that senior figures such as US Secretary of State, Rex Tillerson, and his counterparts in Europe can prevail, and help to keep in check the likes of Jared and Mohammed, and prevent the final showdown.
This article is republished from The Pain Report, the weekly investment newsletter of Jonathan Pain, a career investor who lives in Sydney and regularly speaks at events around the world. Pain will be discussing the Middle East in a webinar on Thursday 16th November at 1pm Sydney time.
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