March 31, 2015

Iran, Yemen, key to second quarter #oil prices

A few bits of disturbance in the Middle East may keep prices pushed higher, namely, the ongoing tussles with ISIS in the northern, Kurdish part of Iraq and the Houthi-backed insurgency/civil war in Yemen. And, continued sanctions on Iran, if a nuclear enrichment control deal falls through, as looks more and more likely after its Sunday night volte-face on outsourcing enrichment outside its borders, could do the same, especially with Iranian backing for the Houthis.

(Update, April 2: It appears "movement" has happened on Iran nuclear talks. That's probably worth a $1/bbl cut right there. At a minimum, sanctions against Iran won't get any stiffer. And, if progress continues in advance of the June 30 final deadline, the P5+1 might slightly relax, at least, some of the sanctions. And, as Chris Tomlinson notes, Iran-Saudi Arabia tussles could lead the Saudis to pump even more.)

However, I expect ISIS to get no stronger in the next three months, and eventually fade again, to something like an ongoing low-grade abscess at the top of the Fertile Crescent, something that needs gauze, antibiotics and maybe occasional lancing, but no more than that. On the other hand, Egypt and Saudi Arabia are at loggerheads on Syria and President Bashar Assad, which has ISIS implications.

Assuming the Saudi Arabian air force can actually fight (and not have a bunch of pilots turn fundamentalist and desert, or bomb the Grand Mosque in Mecca, or something else), the Houthi insurgency will be contained, and eventually shoved back, for the old, militaristic but non-fundamentalist authoritarians to return to power in Sana'a.

So far, the Saudis have been swift and forceful enough to cause Iran to start blustering, which in turn has CNN fearing greater escalation.

Sorry, folks in Atlanta, but Tehran ain't that dumb. They may try to run more supplies to the Houthis (and likely fail) but that will be about it. Given their nuclear stubbornness, they don't want to provide an excuse for the Saudis, especially if guided by US or Israeli intelligence, to attack their nuclear facilities, even if some of them are fairly well "hardened." CNN may be right, though, that Yemen breaks into pieces. (I can't see a third Houthi state surviving, though. Rather, it would be the old Yemen and the old PDR Yemen or similar, in terms of territory if not necessarily in terms of types of government, i.e., North Yemen and South Yemen.)

Per that, then, and per my like to Sunday's Iranian punking, Dear Leader, aka President Obama, needs to be realistic about what we can and can't control in the Middle East, and the costs in terms of military and other engagement (and steadiness of mindset) on the more easily controllable versus the more difficult.

Meanwhile, what effect will this have, or not have?

Stay tuned for my second quarter predictions later today. And feel free to vote in the poll at right.

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