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We Live In A New World And The Saudis Are The First To Get It

by Raul Ilargi Meijer via The Automatic Earth blog

There are many things I don’t understand these days, and some are undoubtedly due to the limits of my brain power. But at the same time some are not. I’m the kind of person who can no longer believe that anyone would get excited over a 5% American GDP growth number. Not even with any other details thrown in, just simply a print like that. It’s so completely out of left field and out of proportion that you would think by now at least a few more people understand what’s really going on.

And Tyler Durden breaks it down well enough in Here Is The Reason For The “Surge” In Q3 GDP (delayed health-care spending stats make up for 2/3 of the 5%), but still. I would have hoped that more Americans had clued in to the nonsense that has been behind such numbers for many years now. The US has been buying whatever growth politicians can squeeze out of the data and their manipulation, for many years. The entire world has.

The 5% stat is portrayed as being due to increased consumer spending. But most of that is health-care related. And economies don’t grow because people increase spending on not being sick and/or miserable. That’s just an accounting trick. The economy doesn’t get better if we all drive our cars into a tree, even if GDP numbers would say otherwise.

All the MSM headlines about consumer confidence and comfort and all that, it doesn’t square with the 43 million US citizens condemned to living on food stamps. I remember Halloween spending (I know, that’s Q4) was down an atrocious -11%, but the Q3 GDP print was +5%? Why would anyone volunteer to believe that? Do they all feel so bad any sliver of ‘good news’ helps? Are we really that desperate?

We already saw the other day that Texas is ramming its way right into a recession, and North Dakota is not far behind (training to be a driller is not great career choice going forward), and T. Boone Pickens of all people confirmed today at CNBC what we already knew: the number of oil rigs in the US is about to do a Wile E. cliff act. And oil prices fall because global demand is down, as much as because supply is up. A crucial point that few seem to grasp; the Saudis do though. Good for US GDP, you say?

What I see more than anything in the 5% print is a set-up for a Fed rate hike, through a variation on the completion backward principle, i.e. have the message fit the purpose, set up a narrative that makes it make total sense for Yellen to hike that rate. And Wall Street banks (that’s not just the American ones) will be ready to reap the rewards of the ensuing chaos.

And I also don’t understand why nobody seems to understand what Saudi Arabia and OPEC have consistently been saying for ever now. They’re not going to cut their oil production. Not going to happen. The Saudis, probably more than anyone, are the guys who know what demand is really like out there (they see it and track it on a daily basis), and that’s why they’ll let oil drop as far as it will go. There’s no other way out anymore, no use calling a bottom anywhere.

In the two largest markets, US demand is down through far less miles driven for a number of years now, while domestic supply is way up; at the same time, real Chinese demand is way below what anybody projects, and oil is just one of many industries that have set their – corporate – strategies to fit expected China growth numbers that never materialized. Just you watch what other – industrial – commodities fields are going to do and show in 2015. Or simply look at prices for iron ore, copper etc. today.

OPEC Leader Vows Not To Cut Oil Output Even If Price Hits $20

In an unusually frank interview, Ali al-Naimi, the Saudi oil minister, tore up OPEC’s traditional strategy of keeping prices high by limiting oil output and replaced it with a new policy of defending the cartel’s market share at all costs. “It is not in the interest of OPEC producers to cut their production, whatever the price is,” he told the Middle East Economic Survey. “Whether it goes down to $20, $40, $50, $60, it is irrelevant.” He said the world may never see $100 a barrel oil again.

The comments, from a man who is often described as the most influential figure in the energy industry, marked the first time that Mr Naimi has explained the strategy shift in detail. They represent a “fundamental change” in OPEC policy that is more far-reaching than any seen since the 1970s, said Jamie Webster, oil analyst at IHS Energy. “We have entered a scary time for the oil market and for the next several years we are going to be dealing with a lot of volatility,” he said. “Just about everything will be touched by this.”

Saudi Arabia is desperate alright, but not nearly as much as most other producers: they have seen this coming, they’ve been tracking it hour by hour, and then made their move. And they have some room to move yet. Many other producers don’t. Not inside OPEC, and certainly not outside of it. Russia should be relatively okay, they’re smart enough to see these things coming too, and adapt accordingly. Many other nations don’t and haven’t, perhaps simply because they have no room left. Anatole Kaletsky makes quite a bit of sense at Reuters:

The Reason Oil Could Drop As Low As $20 Per Barrel

… the global oil market will move toward normal competitive conditions in which prices are set by the marginal production costs, rather than Saudi or OPEC monopoly power. This may seem like a far-fetched scenario, but it is more or less how the oil market worked for two decades from 1986 to 2004.

Whichever outcome finally puts a floor under prices, we can be confident that the process will take a long time to unfold. It is inconceivable that just a few months of falling prices will be enough time for the Saudis to either break the Iranian-Russian axis or reverse the growth of shale oil production in the United States. It is equally inconceivable that the oil market could quickly transition from OPEC domination to a normal competitive one.

The many bullish oil investors who still expect prices to rebound quickly to their pre-slump trading range are likely to be disappointed. The best that oil bulls can hope for is that a new, and substantially lower, trading range may be established as the multi-year battles over Middle East dominance and oil-market share play out. The key question is whether the present price of around $55 will prove closer to the floor or the ceiling of this new range. [..]

… the demarcation line between the monopolistic and competitive regimes at a little below $50 a barrel seems a reasonable estimate of where one boundary of the new long-term trading range might end up. But will $50 be a floor or a ceiling for the oil price in the years ahead?

There are several reasons to expect a new trading range as low as $20 to $50, as in the period from 1986 to 2004. Technological and environmental pressures are reducing long-term oil demand and threatening to turn much of the high-cost oil outside the Middle East into a “stranded asset” similar to the earth’s vast unwanted coal reserves. [..]

The U.S. shale revolution is perhaps the strongest argument for a return to competitive pricing instead of the OPEC-dominated monopoly regimes of 1974-85 and 2005-14. Although shale oil is relatively costly, production can be turned on and off much more easily – and cheaply – than from conventional oilfields. This means that shale prospectors should now be the “swing producers” in global oil markets instead of the Saudis.

In a truly competitive market, the Saudis and other low-cost producers would always be pumping at maximum output, while shale shuts off when demand is weak and ramps up when demand is strong. This competitive logic suggests that marginal costs of U.S. shale oil, generally estimated at $40 to $50, should in the future be a ceiling for global oil prices, not a floor.

As Kaletsky also suggests, there is the option of a return to an OPEC monopoly and much higher prices, but I personally don’t see that. It would need to mean a return to prolific global economic growth numbers, and I simply can’t see where that would come from.

Meanwhile, there’s the issue of ‘anti-Putin’ sanctions hurting western companies, with an asset swap between Gazprom and German chemical giant BASF that went south, and a failed deal between Morgan Stanley and Rosneft as just two examples, and that leads me to think pressure to lift or ease these sanctions will rise considerably in 2015. Why Angela Merkel is so set on punishing her (former?) friend Putin, I don’t know, but I can’t see how she can ignore domestic corporate pressure to wind down much longer. Russia is part of the global economic system, and excluding it – on flimsy charges to boot – is damaging for Germany and the rest of Europe.

Finally, still on the topic of oil and gas, Wolf Richter provides another excellent analysis and breakdown of US shale.

First Oil, Now US Natural Gas Plunges off the Chart

It’s showing up everywhere. Take Samson Resources. As is typical in that space, there is a Wall Street angle to it. One of the largest closely-held exploration and production companies, Samson was acquired for $7.2 billion in 2011 by private-equity firms KKR, Itochu Corp., Crestview Partners, and NGP Energy Capital Management. They ponied up $4.1 billion. For the rest of the acquisition costs, they loaded up the company with $3.6 billion in new debt. In addition to the interest expense on this debt, Samson is paying “management fees” to these PE firms, starting at $20 million per year and increasing by 5% every year.

KKR is famous for leading the largest LBO in history in 2007 at the cusp of the Financial Crisis. The buyout of a Texas utility, now called Energy Future Holdings Corp., was a bet that NG prices would rise forevermore, thus giving the coal-focused utility a leg up. But NG prices soon collapsed. And in April 2014, the company filed for bankruptcy. Now KKR is stuck with Samson. Being focused on NG, the company is another bet that NG prices would rise forevermore. But in 2011, they went on to collapse further. In 2014 through September, the company lost $471 million, the Wall Street Journal reported, bringing the total loss since acquisition to over $3 billion. This is what happens when the cost of production exceeds the price of NG for years.

Samson has used up almost all of its available credit. In order to stay afloat a while longer, it is selling off a good part of its oil-and-gas fields in Oklahoma, North Dakota, Wyoming, and Colorado. It’s shedding workers. Production will decline with the asset sales – the reverse of what investors in its bonds had been promised. Samson’s junk bonds have been eviscerated. In early August, the $2.25 billion of 9.75% bonds due in 2020 still traded at 103.5 cents on the dollar. By December 1, they were down to 56 cents on the dollar. Now they trade for 43.5 cents on the dollar. They’d plunged 58% in four months.

The collapse of oil and gas prices hasn’t rubbed off on the enthusiasm that PE firms portray in order to attract new money from pension funds and the like. “We see this as a real opportunity,” explained KKR co-founder Henry Kravis at a conference in November. KKR, Apollo Global Management, Carlyle, Warburg Pincus, Blackstone and many other PE firms traipsed all over the oil patch, buying or investing in E&P companies, stripping out whatever equity was in them, and loading them up with piles of what was not long ago very cheap junk bonds and even more toxic leveraged loans.This is how Wall Street fired up the fracking boom.

PE firms gathered over $100 billion in their energy funds since 2011. The nine publicly traded E&P companies that represent the largest holdings have cost PE firms at least $12.7 billion, the Wall Street Journal figured. This doesn’t include their losses on the smaller holdings. Nor does it include losses from companies like Samson that are not publicly traded. And it doesn’t include losses pocketed by bondholders and leveraged loan holders or all the millions of stockholders out there.

Undeterred, Blackstone is raising its second energy-focused fund; it has a $4.5 billion target, Bloomberg reported. The plunge in oil and gas prices “has not created a lot of difficulties for us,” CEO Schwarzman explained at a conference on December 10. KKR’s Kravis said at the same conference that he welcomed the collapse as an opportunity. Carlyle co-CEO Rubenstein expected the next 5 to 10 years to be “one of the greatest times” to invest in the oil patch.

The problem? “If you have an asset you already own, it’s probably going to go down in value,” Rubenstein admitted. But if you’ve got money to invest, in Carlyle’s case about $7 billion, “it’s a great time to buy.” They all agree: opportunities will be bountiful for those folks who refused to believe the hype about fracking over the past few years and who haven’t sunk their money into energy companies. Or those who got out in time.

We live in a new world, and the Saudis are either the only or the first ones to understand that. Because they are so early to notice, and adapt, I would expect them to come out relatively well. But I would fear for many of the others. And that includes a real fear of pretty extreme reactions, and violence, in quite a few oil-producing nations that have kept a lid on their potential domestic unrest to date. It would also include a lot of ugliness in the US shale patch, with a great loss of jobs (something it will have in common with North Sea oil, among others), but perhaps even more with profound mayhem for many investors in US energy. And then we’re right back to your pension plans.

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ISIL attacked Saudi Arabia

11.11.2014 Author: Viktor Titov

Saudi Arabia has recently witnessed the aggression that should have happened sooner or later due to its short-sighted policy in Syria, Iraq and Iran. As an old saying goes: “If you dig a hole for others, you’re sure to fall in it yourself.”

A few days ago the Saudi town of Dalva, situated in the oil-rich Eastern Province, suffered an attack of a group of armed Sunni terrorists, which resulted in seven civilian deaths. Most of the attackers were citizens of the Kingdom. The promt response of the local security forces allowed the servicemen to detain 20 members of an underground terrorist group, consisting mainly of those who had previously fought under the black banner of ISIL in Iraq and Syria. Law enforcement agencies of Saudi Arabia have managed to capture the head of the armed group, his name is kept secret. The only information that has become available to journalists is that this commander has recently returned from Syria where he was fighting against the pro-Assad forces.

Riyadh is now facing a harsh dilemma: on the one hand, the House of Saud is actively oppressing its Shia citizens, on the pretext of their disloyalty and their alleged attempts to undermine the national security of the kingdom due to the “evil Iranian influence.” On the other – Sunni terrorists, that Saudi Arabia is fighting today alongside with its closest ally – the US, have assaulted Shia civilians on the Saudi soil, and those were virtually enjoying the same rights as the rest of the population, including the right for protection. It is now official: Saudi citizens motivated by religious hatred are commiting manslaughter of their fellow citizens.

The only question is how Riyadh may react when the Sunni terrorists that it had trained and funded will unleash a wave of terror against the Shia population of KSA? A similar course of events has already taken place in the neighboring Bahrain back in 2011, but Saudi regular troops were fast to cross the border in an attempt to prevent the violence from spreading.

It is no coincidence that the events in the city of Dalva are completely ignored by the international media. Should this fact become widely known then the Saudi authorities will be forced to recognize the threat ISIL poses to Saudi Arabia along with acknowledging the underlying instability of Saudi society that can endanger the ruling Wahhabi regime.

Now that the Shia population of the Eastern Province is buzzing with discontent, the House of Saud has found itself in a tight corner. Should the authorities fail to prosecute the terrorists a violent unrest of the Shia population, similar the one that shook Saudi Arabia in 2011 -2012, in the wake of the above mentioned events in Bahrain, will be quick to follow. But if the terrorists are to be punished to the fullest extent of the Sharia law, then the Wahhabis and Salafis will accuse the royal family of “betrayal” of the Sunnis. This course of events will end no better, with a massive wave of violent terror attacks, carried out by ISIL militants all across Saudi Arabia. Now that ISIL thugs have faced harsh resistance in Syria and Iraq, they will be eager to move south to start a “sacred struggle against the corrupt pro-American reign of Al Saud family“. As for the Iraqi Shia population, they can only welcome this U-turn in their ongoing struggle against Islamists. Moreover, it is possible that the indignation of the Saudi Shia population of the Eastern Province will find some form of support in Tehran and Baghdad. This means that the fate of the kingdom’s territorial integrity will be put to the test. The nightmares of the Saudi ruling family seems to be coming true — Saudi Arabia can be split into several parts, which had been joined together to create the kingdom back in 1929. This trend can be accelerated by the fact that a couple of weeks ago the Shia Houthis rebels seized power in Yemen, on the south-western borders of the KSA.

When Riyadh joined the US “anti-terrorist” coalition back in October, along with a number of NATO and GCC countries, political predicted the imminent revenge of ISIL.

So the events of November 4 may only be the first steps. On top of all, Saudi authorities have yielded to the US demands of dumping oil prices in an attempt to undermine Russia’s economy. This led to the narrowing scope of social initiatives being implemented in the Kingdom, since money became scarce in the royal treasury.

By agreeing to support the US global ambitions, the House of Saud has clearly shot itself in the foot. Especially now, when Washington has displayed its willingness to sign an agreement on Iran’s nuclear program in two weeks time. This step will force Saudi Arabia to kiss it oil monopoly goodbye along with the role of the main strategic partner of the US in the region. At this point Riyadh couldn’t care less about the US military adventures in Iraq and Syria, it going to try to save its skin

It is clear that the coming days will put the Al-Saud dynasty’s survival skills to the test. Should the KSA authorities fail to keep the situation in the Eastern Province under control — the Kingdom is doomed. With each passing day the Shiite arc becomes more apparent on the political horizon of the Middle East, just like the US miscalculations.

As soon as Washington is trying to project its influence in the region, the Arab regimes are beginning to crumble and fall apart. One can recall the revolutions in Egypt, Libya, Yemen, along with the civil wars in Syria and Iraq to illustrate this statement.

It is now safe to say that Obama has screwed everything up again by putting its strategic partner in danger. It seems that the defeat in the US midterm elections was a failure all right, yet he never stops to surprise his followers. And it is unlikely that the Republicans will be fascinated by the sight of Saudi Arabia going down in flames.

Viktor Titov, Ph.D in Historical Sciences and political commentator on the Middle East, exclusively for the online magazine New Eastern Outlook

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Why Oil Is Plunging: The Other Part Of The “Secret Deal” Between The US And Saudi Arabia

10/11/2014
by Tyler Durden

Two weeks ago, we revealed one part of the “Secret Deal” between the US and Saudi Arabia: namely what the US ‘brought to the table’ as part of its grand alliance strategy in the middle east, which proudly revealed Saudi Arabia to be “aligned” with the US against ISIS, when in reality John Kerry was merely doing Saudi Arabia’s will when the WSJ reported that “the process gave the Saudis leverage to extract a fresh U.S. commitment to beef up training for rebels fighting Mr. Assad, whose demise the Saudis still see as a top priority.”

What was not clear is what was the other part: what did the Saudis bring to the table, or said otherwise, how exactly it was that Saudi Arabia would compensate the US for bombing the Assad infrastructure until the hated Syrian leader was toppled, creating a power vacuum in his wake that would allow Syria, Qatar, Jordan and/or Turkey to divide the spoils of war as they saw fit.

A glimpse of the answer was provided earlier in the article “The Oil Weapon: A New Way To Wage War“, because at the end of the day it is always about oil, and leverage.

The full answer comes courtesy of Anadolu Agency, which explains not only the big picture involving Saudi Arabia and its biggest asset, oil, but also the latest fracturing of OPEC at the behest of Saudi Arabia…

… which however is merely using “the oil weapon” to target the old slash new Cold War foe #1: Vladimir Putin.

To wit:

Saudi Arabia to pressure Russia, Iran with price of oil

Saudi Arabia will force the price of oil down, in an effort to put political pressure on Iran and Russia, according to the President of Saudi Arabia Oil Policies and Strategic Expectations Center.

Saudi Arabia plans to sell oil cheap for political reasons, one analyst says.

To pressure Iran to limit its nuclear program, and to change Russia’s position on Syria, Riyadh will sell oil below the average spot price at $50 to $60 per barrel in the Asian markets and North America, says Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center. The marked decrease in the price of oil in the last three months, to $92 from $115 per barrel, was caused by Saudi Arabia, according to Abanmy. 

With oil demand declining, the ostensible reason for the price drop is to attract new clients, Abanmy said, but the real reason is political. Saudi Arabia wants to get Iran to limit its nuclear energy expansion, and to make Russia change its position of support for the Assad Regime in Syria. Both countries depend heavily on petroleum exports for revenue, and a lower oil price means less money coming in, Abanmy pointed out. The Gulf states will be less affected by the price drop, he added.

The Organization of the Petroleum Exporting Countries, which is the technical arbiter of the price of oil for Saudi Arabia and the 11 other countries that make up the group, won’t be able to affect Saudi Arabia’s decision, Abanmy maintained.

The organization’s decisions are only recommendations and are not binding for the member oil producing countries, he explained.

Today’s Brent closing price: $90. Russia’s oil price budget for the period 2015-2017? $100. Which means much more “forced Brent liquidation” is in the cards in the coming weeks as America’s suddenly once again very strategic ally, Saudi Arabia, does everything in its power to break Putin.

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Anti-Obama Global Uprising

( Another worthy piece analyzing Obama’s world-wide collapse. – JW )

President Obama finds himself in the unenviable position of battling US Congress on a variety of issues while simultaneously having to confront 35 US allies and foreign leaders outraged over his policies whether on Syria and Iran or on the NSA eavesdropping on their personal and private conversations.

There is a silent anti-Obama uprising taking place around the world thanks to his lack of leadership and to the inexperience of the advisers around him.

In the case of the often-reserved Saudi Arabia, the chastising was particularly harsh given the patience the Kingdom exercised in its attempts to resolve the Syrian tragedy using US help, to no avail. Thanks to the incompetency of the team Obama, Syria is now the favorite global destination for Sunni and Shia Islamist pilgrims sporting suicide vests and specialized sniper rifles to kill pregnant women and children.

Recent US polls show Mr. Obama hitting new lows in popularity as his domestic agenda unravels on Obamacare (Wonder if Gallup or Rasmussen are able to conduct a global poll on Obama’s popularity). Mass cancellations by insurance companies against the self-insured (Usually small business owners) is shaking things up for the White House and no amount of spin will pay the difference millions of Americans will have to assume as they begin their journey towards carrying the burden of the biggest welfare state system ever engineered by the far-left. Senators Ted Cruz and Mike Lee look better by the day for their marathon filibuster to defund Obamacare.

It took five years of severe drought, but no umbrella will protect Mr. Obama from the cats and dogs raining on him and the people around him today.

While Mr. Obama feigns ignorance on the NSA eavesdropping (As he did with all the other scandals), the storm brewing overseas is gathering momentum. For sure, the 35 foreign leaders are exchanging opinions and ideas, as I write this, on what it would take to send the right message to the US and it is a question of time before many band together to confront the White House as one voice. It is a political bonanza they are not about to miss even though many spy as much against the US and many have sat on the sidelines when it comes to Syria.

Is the White House aware of this global anti-Obama uprising? Apparently not.

Wednesday night, the Israeli Air Force allegedly bombed two sites in Latakya and Damascus to interrupt the delivery of Russian-made SA-8 mobile missile batteries to Hezbollah. To add insult to injury, a US official leaked the information to the press by claiming the Obama Administration did not want to appear having condoned the operations during sensitive talks with Iran.

I really must be experiencing a re-run of Get Smart.

Has that official leaking the information lost his/her mind? Does he/she not know that with such public explanation the Iranians will seek certain guarantees against other attacks before they proceed with negotiations? Maybe the White House is praying for the Iranians to demand these guarantees that would compel this President to freeze Israeli capabilities from protecting its citizenry under the guise of its peace-loving initiative with a mass murderer like Khamenei. I am telling you, Maxwell Smart really works at the White House today.

On the other hand, this US not-so-smart official who leaked the information just fell in his/her own trap. Possibly, Israel may have figured a way to sabotage the US-Iranian talks the country knows it could only lead to disastrous results by making it a habit to hit the Assad regime every few days or so. Of course, I am not saying this is probable because the Israeli leadership is too wise to let the Iranians create a wedge between them and the US.

Too much elitism in the crowd surrounding Mr. Obama is fogging their perception of what is coming down the pike. Instead of looking at themselves in the mirror, they are doubling down on an agenda already causing an uprising against the policies of Mr. Obama on a worldwide scale.

Maybe First Lady Michelle Obama’s invitation to Prince George’s first birthday celebration will have to be lost in Her Majesty’s mail for this crowd to realize how unpopular the Obama Administration has become.

Nothing like banality to shock their nervous system.

via Anti-Obama Global Uprising | Farid Ghadry | Ops & Blogs | The Times of Israel.

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Saudi Arabia in diplomatic shift away from old ally US

A bitter diplomatic row between US and Saudi Arabia has burst into the open in a development that could threaten one of the Middle East’s core alliances and Washington’s leadership in the region

BST 22 Oct 2013
By Peter Foster, in Washington, Ruth Sherlock in Beirut and Alex Spillius

The public rupture saw the head of Saudi intelligence declare that the kingdom was “scaling back” co-operation with the CIA over arming and training Syrian rebels and seeking alternate weapons suppliers to the United States.

The unprecedented rebuke by Prince Bandar Bin Sultan al-Saud came after Saudi Arabia stunned diplomats by rejecting a prized seat on the UN Security Council.

The decision to reject the seat, Prince Bandar reportedly told diplomats, was intended as “a message for the US” about Saudi frustration with the Obama administration’s long-running failure to arm rebels in Syria and the rising prospect of a nuclear deal that would favour Riyadh’s arch-foe, Iran.

John Kerry, the US Secretary of State, yesterday confirmed that he had been forced to defend US policy at lengthy meetings with Prince Saud Al-Faisal, the Saudi foreign minister, in Paris.

Mr Kerry said Mr Obama agreed to the meetings, held on the sidelines of a gathering to discuss the progress of the Middle East peace talks.

He described a “very frank conversation” that covered “every one of these things” – Egypt, Middle East Peace, Iran and Syria.

“I explained exactly where the US is coming from and will continue to consult with our Saudi friends as we always have in the past,” said Mr Kerry.

On Iran, Saudi Arabian alarm was such that he felt obliged to “reaffirm President Obama’s commitment that he will not allow Iran to have a nuclear weapon”.

Referring to Washington’s decision to back down from missile strikes against the Damascus regime, Mr Kerry admitted that “the Saudis were obviously disappointed the strikes didn’t take place, and have questions about some other things that may be happening in the region”.

But he added that “the United States and Saudi Arabia will continue to be the close and important friends and allies that we have been”.

Analysts and diplomats in Washington were divided over whether the row, first reported in the Wall Street Journal, presented a serious threat of divorce or was merely a ‘marital tiff’ in an 80-year relationship founded on the mutual interests of Saudi Arabian oil and the US ability to provide security guarantees.

Michael Doran, a Middle East expert with the Brookings Institution who served on the National Security Council during the George W Bush administration, said relations were at an all-time low.

‘I’ve worked in this field for a long time, and I’ve studied the history. I know of no analogous period. I’ve never seen so many disagreements on so many key fronts all at once. And I’ve never seen such a willingness on the part of the Saudis to publicly express their frustration,” he said.

“Iran is the number one issue — the only issue for Saudi policy makers.

When you add up the whole Middle Eastern map — Syria, Iraq, Iran — it looks to the Saudis as if the US is throwing Sunni allies under the bus by trying to cut a deal with Iran and its allies.”

Saudi frustration with Mr Obama’s failure to carry out air strikes last month appears to have boiled over amid fears that the US is backing a peace deal, with Russian and Iranian support, that would leave much of the infrastructure of the Assad regime in place.

“The reason the Saudis are furious is because of the deal between Russia and the US, and Iran and the US,” Dr Kamal Labwani, a member of the opposition Coalition who has recently left Syria, told The Telegraph.

“The deal for Geneva, they believe, is that they will change Bashar, but keep the base of the regime active: they feel it will be Iran-led change – that Iran will get the bigger share of the pie in Syria in terms of deciding who leads next”.

Senior European diplomats in Washington told The Telegraph yesterday they were still trying to assess whether the Saudi move represented a real shift in relations or was part of a factional struggle in which Prince Bandar was seeking to influence the top decision-maker king Abdullah bin Abdulaziz al Saud.

Noting that Saudi Arabia had already been “tricky” over Syria, the diplomat said their remained an assumption that the core US-Saudi Relationship would remain intact. “If they are going to beat their own path, that would be more worrying, but it’s really too early to tell,” the source said.

Frederic Wehrey, a senior Middle East expert, with the Carnegie Endowment for International Peace, also judged that ructions with Saudi Arabia were more likely a reflection of domestic political tensions.

“I take a long view of these things. These developments are unsettling, but they’re not catastrophic. The Saudis need us more than we need them,” he said. “This could be a power-play by [Prince] Bandar. When states are consumed with domestic facitonal struggles they tend to behave erratically.”

Those who are sanguine about a possible split and talk of Riyadh seeking alternate weapons suppliers point to a Pentagon announcement last week of plans to sell Saudi Arabia and the United Arab Emirates $10.8 billion (£6.7bn] worth of missiles and advanced munitions, including “bunker-buster” bombs.

However, other analysts like Mr Doran argue that America’s ability to influence events in the Middle East has already been fundamentally undermined by the tensions between Riyadh and Washington.

He pointed to Saudi Arabia’s decision to give billions of dollars to the Egyptian military leadership last July, which fatally undercut American calls for restraint that had been backed by the threat of removing financial support to the regime.

“The gumming up of US-Saudi relations causes a cumulative but significant lack of influence by the United States in the Middle East,” concluded Mr Doran, “That influence can only be achieved by a coalition which we don’t have because we’re racing after enemies and dispensing with the interests of our allies.”

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