On the Virtues of Humiliating Obama

Just a quick little post as we wait for the State of the Union, entertaining the question: why would Iran seize 10 American Sailors only hours before the President was scheduled to give his final state of the Union address.

The most obvious single answer is: in order to humiliate President Obama.

“What”, one may ask, “Does Iran gain by humiliating Obama?”

The answer is manifold, but there are three obvious benefits to Iran;

First: Iran has an audience for this action that is far larger then either the Iranian or American public. Iran is engaged in a ‘Game of Thrones’, so to speak, with other Islamic actors for the ascendancy in the Islamic world. That is, other state and near state actors, such as Saudi Arabia and ISIS, advance claims that they are the inheritors of Islamic leadership, the heirs of Mohammed, so to speak.

Osama bin Ladin famously stated that ‘people that see a weak horse and a strong horse will instinctively be drawn to the strong horse.’ By showing that they are able to seize American servicemen with impunity, and then having the President of the United States put on a mask of good humor, the Iranian regime not only shows Obama to be weak, but themselves to be strong. In this game, humiliating Obama is a relatively low-risk way for Iran to demonstrate that they can bend the ‘great Satan’ to their will.

Second: As I mentioned above, there is a larger audience for this action, specifically Saudi Arabia and the Gulf Arab states. The Gulf Arabs, led by the Saudis, are engaged in a regional conflict for control of the Middle East and the Persian Gulf. The Saudis are, let’s say, not generally considered to be a serious military thread to Iran. Saudi Arabia instead must rely on the good will and military umbrella of the United States.

By humiliating Obama Iran sends a clear message to the Saudis and other Gulf Arabs that the United States which they rely on for protection may, in fact, be a paper tiger.

Third: Finally, Obama’s hope for a ‘Legacy’ rest entirely on the behavior of Iran in the following year and the years to come. This humiliation reminds Obama that it is Iran, not him, that holds the whip hand when it comes to how Obama will be perceived in the future. It cannot be forgotten that Iran is on the threshold of a 100+ billion dollar payoff; if Iran feels they want to have extra insurance, they can reliably estimate that Obama is the kind of man that will be moved to compliance, as opposed to defiance.

That alone should tell the neutral observer everything they need to know about Obama’s reputation on the world stage: Iran believes that seizing American Servicemen makes it more likely, rather then less likely, that they will receive 150 billion dollars from the United States.

Postscript: Iran apparently aired footage of their ‘arrest’ of the American Sailors (what, don’t ‘partners in peace’ do that?);

Oh, and just as a reminder,

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OPEC’s Petrokrieg

For the last several months OPEC, led by Saudi Arabia,  has been waging a silent and yet very noticeable war. The contradiction is resolved by realizing that while almost everyone has noticed the precipitous drop in oil prices (and concomitant drop in consumer gasoline prices), many people have mistaken what is going on.

Crude oil prices have slumped from a high of about $110 at the start of July of last year to, as I write this, around $50 per barrel. Since the end of July of last year oil prices have dropped more then 50%, a trend that really became precipitious in August 2014. Now there are lots of possible explanations for this,but my explanation asks: what of consequence happened in July of last year?

Oh, yeah, that…

Obama indicates extension to Iran nuclear talks as deadline looms, July 16 2014, theGuardian.com,

Nations agree to 4-month extension of Iranian nuclear negotiations, July 21, 2014, CNN.com.

Since the initial extension to November there has been a further, 7 month extension into next year. Snap goes the dragon…

Source: Nasdaq.com

Let’s be clear, this is not an accident of factors, this is a deliberate course of action undertaken by OPEC. From Bloomberg (emphasis mine);

The United Arab Emirates has no plans to reduce output no matter how low prices drop, according to Yousef Al Otaiba, the nation’s ambassador to the U.S. Representatives from Saudi Arabia, Kuwait and the U.A.E. stressed a dozen times in the past six weeks that OPEC won’t curb output to halt the rout.

This is not a painless war on the side of OPEC: at $50 per barrel, every single OPEC state is below their breakeven point (breakeven is the price needed for these oil driven economies to fuel themselves).

Consider this table, from Citi Research’s data compiled and posted at MarketWatch;

Country 2014 fiscal breakeven oil price 2015 fiscal breakeven oil price
Libya* 317 184
Venezuela* 161 151
Yemen 160 145
Algeria* 132 131
Iran 131 131
Bahrain 125 127
Russia 105 107
Saudi Arabia* 98 103
Oman 99 103
Iraq* 111 101
UAE* 79 77
Quatar* 55 60
Kuwait* 54 54
*OPEC member
Source: MEES, IMF, Citi Research

At current prices, no one among the oil producing states can sustain their production.

If we consider the current oil production by OPEC as a weapon (as I do here), then it is a weapon masterfully deployed: flooding the market as OPEC is doing would normally be understood to be a classic market manipulation strategy; dumping. This practice of undercutting competitors (even if you have to absorb losses) was one of the anti-trust charges brought against Standard Oil when it was broken up. But today the deployment of the OPEC oil bomb is something that bolsters the poll numbers of the President of the United States! Quite clever that: even if we credit Obama’s understanding of the situation, he can do nothing without the risk of tanking his (cheap gas buoyed) domestic approval numbers.

Unfortunately for everyone, Iran is not so limited in their ability to respond to the Saudi backed attempt to bankrupt their nation;

The surge in Yemen this week by Shiite Muslim militants represents what some national security insiders are calling a “huge victory” for Iran, just as the Obama administration faces criticism for being too lenient in nuclear talks with the Islamic republic and appears — at least tacitly — to be coordinating with Tehran against Sunni terrorists in Iraq.

Amal Mudallali, Mideast analyst with the Woodrow Wilson International Center for Scholars writes in Foreign Affairs last October;

If the Houthis secured Bab Al Mandab and the sea in Al Hudaydah governorate, another strategic waterway, they would control the traffic from the Suez Canal and the Persian Gulf, a sobering prospect for those worried about increased Iranian influence in the region.

Iran and its proxy forces are coming close to controlling access to all sea traffic around the Arabian peninsula except for the Suez canal. This would force all sea traffic from the Isreali port of Elat, the Jordanian port of Aqabah (which is Jordan’s only sea access) as well as the entirety of Saudi Arabia’s western coast to use the Suez canal.

Bab el-Mandeb/Bab Al Mandab at the southern end of the Red Sea.

As Charles Krauthammer notes, Iran and it’s proxies are on the march all across the Arab middle east. Only a few days ago an Israeli air strike killed an Iranian general and his Hezbollah companions on the Golan Heights,  as Iran attempts to militarize the Syria-Israel border.

It’s important to remember that the conflict between Iran and Saudi Arabia isn’t simply an issue of regional rivals, but something far deeper and more explosive. Iran represents a powerful rival to the Saudi paramountcy in Islam itself, as Iran is the stronghold of the Shia branch of Islam. Sunni and Shia Islam have been in conflict since nearly the beginning of Islam itself, splitting as a result of the Battle of Karbala in 680 CE (and no, they apparently feel 14 centuries is not too long to hold a grudge). “Of the total Muslim population, 10-13% are Shia Muslims and 87-90% are Sunni Muslims” (source), so the threat of the Iranian bomb represents not only a triumph of one side over the other in this ancient war, but a triumph of the minority side. Add to that the racial and ethnic considerations that the Persian Iranians are seeking dominion over an Arab Middle East, and the ancient (but still fiercely remembered) domination of Arab Islam under the Turkish Ottoman empire… well, let’s just say that hatreds run deep in the Middle East.

To be sure, there are targets other then Iran in OPEC’s sights: the US domestic oil industry is being hammered (emphasis mine);

The financial debacle that has befallen Russia as the price of Brent crude dropped 50 percent in the last four months has overshadowed the one that potentially awaits the U.S. shale industry in 2015. It’s time to heed it, because Saudi Arabia and other major Middle Eastern oil producers are unlikely to blink and cut output, and the price is now approaching a level where U.S. production will begin shutting down.

From “America’s Going to Lose the Oil Price War“, January 12, 2015. “With crude prices sinking, oil industry layoffs are on the way“, January 20, 2015: the domestic US oil industry is shedding thousands, ultimately probably tens of thousands, of jobs.

Of course, all of this is aided by our political elites, who can reliably be counted on to be short-sighted: “Will cheap oil kill Keystone?” asks Politico, as politicians respond to OPEC’s price manipulations. “Keystone Foes Energized as Price Pinches Oil Sands Allure” (Oct 27, 2014), and in early January CBS news asks why the Senate is voting on KeystoneXL when “oil prices have tumbled down in the past three months.” I would ask if the media or our politicians have ever heard the adage “dig your well before you’re thirsty”, but… well, more successful writers than I have mused on the failings of our media-industrial complex.