“Absent a war or further attacks on Saudi facilities – both of which remain possibilities – this past week’s events now look like a blip in a longer-term bearish pattern for oil prices and stocks. Energy makes up less than 5% of the S&P 500 index’s market cap, the lowest level in at least 40 years.”
(“What the Saudi Attacks Mean for Energy Investors,” Barron’s, https://www.barrons.com/articles/what-the-saudi-oil-attacks-mean-for-energy-investors-51569012612)
We believe that assuming the Saudi Attack event is a one-off is a mistake. History is replete with examples that support our thinking on this matter. In order to assess future risks, we must now piece together a very complex geopolitical mosaic.
The Barron’s article discusses investment options and strategies. Ours is clear. We want to own an overweight position in US oil and gas exploration and production. We expect the world to be a growing customer, and US is the safest and most contractually reliable source. Trump trade war obstacles are surmountable in the energy sector, and pipeline completions slowly proceed. We’re unabashed energy bulls.
Here are some additional thoughts about how to follow the Middle East news flow while not succumbing to the CNN-Fox political spitting contest. To get the full story, we must look in the weeds. Here goes.
The Saudi Attack: Bullets:
1. The headlines of some of the pieces in the links below are guilty of political posturing or signaling. None should be taken as fully free of bias. But all should be followed and the stories digested to discern inconsistencies, piece together informed judgments and understandings, and thereby better plan scenarios.
2. We believe this latest outbreak is part of an intensifying Middle East war between the Shia alliance, led by Iran, and the Sunni alliance, led by Saudi Arabia. An understanding of this 1000-year Islamic schism is necessary. Readers are advised to study that history.
3. Following the news flow profitably requires multiple sources, and those with a regional presence are more credible than those that “report” from the US through secondary sources. I follow Bloomberg, Reuters, NYTimes, WSJ, and WaPo and receive a good daily summary from Politico. Fox and CNN are sources so distorted by their respective political views as to be unreliable. Bloomberg and Reuters, on the other hand, are top-notch worldwide, with foreign correspondents on the ground in many countries. I also follow many serious geopolitical research services and analysts, along with non-US media. Investment professionals must look widely to understand situations like the Middle East.
Here are some non-US sources to add to your US list:
“Saudi oil attacks: Drones and missiles launched from Iran – US,” https://www.bbc.com/news/world-middle-east-49733558
“Saudi oil attacks: All the latest updates,” https://www.aljazeera.com/news/2019/09/saudi-oil-attacks-latest-updates-190916102800973.html
“UAE joins international coalition to protect oil shipping,” https://gulfnews.com/uae/government/uae-joins-international-coalition-to-protect-oil-shipping-1.1568872692309
“Houthi leader: UAE oil, cities among in our targets,” https://www.middleeastmonitor.com/20190918-houthi-leader-uae-oil-cities-among-in-our-targets/
“IRGC's Soleimani visits Baghdad, tells militias to attack U.S. interests,” https://www.jpost.com/Middle-East/IRGCs-Soleimani-visits-Baghdad-tells-militias-to-attack-US-interests-602107
“Houthi drone attacks in Saudi ‘show new level of sophistication,’” https://www.aljazeera.com/news/2019/05/houthi-drone-attacks-saudi-show-level-sophistication-190515055550113.html
“Al-Jazeera Debate about Drone Strikes on Saudi Oil Fields: Total Failure by US, Saudi Air Defense Systems; Drone Attacks Can Paralyze Saudi Arabia; UAE Still a Potential Target,” https://www.memri.org/tv/jazeera-debate-drone-stikes-abqaiq-khurais-oil-fields-impressive-failure-patriot-systems-uae-vulnerable-infrastructure-paralyze/transcript
“Houthi Military Spokesman Brigadier Yahya Saree threatens the ‘Glass Towers’ of Abu Dhabi and Dubai, adds: We have dozens of targets in the UAE,” https://www.memri.org/tv/houth-military-spokesman-brigadier-yahya-saree-warns-uae-glass-towers-drone-leave-us
Here is a roundup of recent news reported in US sources:
“How Saudi Arabia failed to protect itself from drone and missile attacks,” https://www.cnbc.com/2019/09/20/the-pentagon-will-deploy-us-forces-to-the-middle-east-on-the-heels-of-the-iranian-attack-on-saudi-arabian-oil-facilities.html
“Iran’s Foreign Minister Vows ‘All-Out War’ if U.S. or Saudis Strike,” https://www.nytimes.com/2019/09/19/world/middleeast/iran-us-saudi-arabia-attack.html?searchResultPosition=1
“An Abrupt Move That Stunned Aides: Inside Trump’s Aborted Attack on Iran,” https://www.nytimes.com/2019/09/21/us/politics/trump-iran-decision.html
“UN welcomes Houthi move to halt attacks on Saudi Arabia,” https://www.washingtonpost.com/world/middle_east/un-welcomes-houthi-move-to-halt-attacks-on-saudi-arabia/2019/09/21/d1ba83ee-dc93-11e9-a1a5-162b8a9c9ca2_story.html
“Yemeni Rebels Warn Iran Plans Another Strike Soon,” https://www.wsj.com/articles/yemeni-rebels-warn-iran-plans-another-strike-soon-11569105344?mod=hp_lead_pos1
“Iran says it will destroy any aggressor,” https://www.reuters.com/article/us-saudi-aramco-iran/iran-says-it-will-destroy-any-aggressor-idUSKBN1W603G
“Inside Saudi Arabia's response to a raid on the heart of the oil kingdom,” https://www.reuters.com/article/us-saudi-aramco-attacks-reconstruction-i/inside-saudi-arabias-response-to-a-raid-on-the-heart-of-the-oil-kingdom-idUSKBN1W51CP
“Trump Says ‘No Intention’ to Meet Rouhani at United Nations,” https://www.bloomberg.com/news/articles/2019-09-22/trump-says-no-intention-to-meet-rouhani-at-united-nations?srnd=premium
“Pompeo Says U.S. Is Working on Iran Diplomacy After ‘Act of War,’” https://www.bloomberg.com/news/articles/2019-09-22/pompeo-says-u-s-is-working-on-iran-diplomacy-after-act-of-war
“Trump wants ‘diplomatic solution’ with Iran, Pompeo says,” https://www.politico.com/story/2019/09/22/pompeo-trump-diplomacy-iran-oil-1507273
“U.S., Saudis Look for Iran Link in Weapon Systems,” https://www.wsj.com/articles/u-s-saudis-look-for-iran-link-in-weapon-systems-11569171598
And here is a piece from four analysts at Brookings: “Around the halls: Brookings experts react to the attack on Saudi oil facilities,” https://www.brookings.edu/blog/order-from-chaos/2019/09/17/around-the-halls-brookings-experts-react-to-the-attack-on-saudi-oil-facilities/
Finally, an opinion piece with supporting links from The American Conservative:
“Saudi Arabia is Losing the War in Yemen,” https://www.theamericanconservative.com/articles/saudi-arabia-is-losing-the-war-in-yemen/
David R. Kotok
Chairman of the Board & Chief Investment Officer
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