Weekend June 15, 2014
The Middle East Wars Ramp Up
All the golfing world’s eyes are on Phil Mickelson, as well as the Department of Justice but that’s another story. Phil lacks just a U S Open win to complete his grand slam, joining Sarazen, Hogan, Nicklaus, Player, and Woods.
Meanwhile the San Antonio Spurs have become the poster boys for what an NBA team Should Be, rather than the ‘out on probation’ roster that so many display. As of Thursday, the Spurs are 2-1 over the Heat, with Spurs emblem clothing selling briskly at all outlets.
Meanwhile in Brazil, that erstwhile permanent ‘country of the future,’ the World Cup kicks off today with Brazil facing Croatia. A scant three host nations have won the Cup in the past forty years, where’s Pele when you need him, eh?
The reports form Iraq and Syria however are not so cheery. The International Organization of Migration estimates 500,000 people have fled the city of Mosul. That’s a considerable exodus of a city of 1.8 million. For perspective, imagine 68,000 fleeing Midland-Odessa and you get the idea. Few in Mosul are concerned with the fortunes of Phil or Brazil.
What’s going on and how does all this affect the oil price? Let’s take a look. The Islamic State of Iraq and al Sham group is anything but a ragtag militia group’ as it is portrayed in some of the media. Indeed this is a group with a written plan of action, bolstered by captured US Weapons meant for Iraq.
ISIS is fighting both Jabhat al-Nusra JN as well as various rebels and local tribal groups in Syria. The focus of this fighting is the oil fields located around Deir ez-Zour. ISIS represents the Sunni branch of Islam while JN represents the Shiite group. ISIS is attempting to control the area stretching from these Eastern Syrian oil fields right to the outskirts of Baghdad.
The best information as I write Thursday June 12 is that ISIS has taken Mosul, and has now occupied Bajii and Tikrit. Recall that US Marines took Tikrit from Sadam Hussein in April, 2003. What a difference ten years can make.
The upshot is that a serious Civil War continues to rage in Syria. Iraq for practical purposes is under siege. Some of the major cities are more occupied than under attack. Taking Shiite controlled Baghdad will be more difficult. But with reports that the Iraqi Army has simply abandoned its posts even before fighting has begun, maybe not.
Which brings us to the price of oil. The Organization of Petroleum Exporting Countries OPEC would have you believe that, well, here it is from the OPEC website. OPEC is is a permanent intergovernmental organization of 12 oil-exporting developing nations that coordinates and unifies the petroleum policies of its Member Countries. To paraphrase Ned Pepper replying to Rooster Cogburn, that’s big talk, considering the range since Year 1999 from $12 to $145 to $35 and now to $100, more or less. Hmm, when was it just right, eh Goldilocks?
The problem is that the majority of the twelve have no exports other than oil. The result is that most are exceeding their quotas for which there is no enforcement mechanism anyway. Now with Syria, Libya, and Iraq all in chaos, about 3.5 million barrels a day is out of production. While that helps support price, technology continues to bring more oil on line world-wide.
Major oil companies are now cutting spending. Many are selling leases in the Eagle Ford and Permian. The return on capital has not been adequate to continue leasing, drilling, and producing. While that might also support prices, this is clearly a delicate game.
Indeed the oil fields are in play. And the rebel forces like ISIS will certainly start selling oil again as soon as possible. And, again, with so many ‘exporting countries’ have nothing else to export, and technology producing more oil every day, one has to wonder about price.
In World War II, families hung maps of Europe and the Pacific to follow the war. One might consider doing that again, but substituting Baghdad and Damascus for Berlin and Tokyo.
The Sunni Shiite War for the Middle East, and its oil, moves into a higher gear. Hmm, will Phil win his elusive Grand Slam?
Contact Dennis Elam PhD CPA at dennislelam@gmail.com
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