There is only one thing that can save oil prices in 2016: Saudi Arabia at war…

While this seems politically insane, and highly unlikely, particularly from a western perspective – a forced disruption to Saudi oil production, due to war, is the only way crude prices can recover this year. And there are two countries baiting the Saudis to come and fight right now…

Oil Price Wars leading Saudi Arabia to War?

Russia and Iran (who are backing the Assad regime) are already at war with Saudi-backed rebels in Syria, and they’re starting to dominate against this proxy army. In the town of Aleppo, Syria, Saudi, and once western-backed, rebels (now a cocktail of quasi-terrorists, ISIS and bakers turned gunmen) are pleading for assistance and air support to stop the Russians…

ran1If Aleppo is regained by Assad (thanks to Putin’s support), it will prove a turning point in the war and set the stage for escalation in the region. The Washington Post reported Wednesday that if Aleppo falls, it would mark “perhaps the greatest victory for Assad since the 2011 rebellion against his rule first began.”

A complex chess game is being played out in the Middle East. Russia and Iran have decidedly turned the tide in favor of Assad’s Syrian government forces in recent months, while Saudi-backed rebels lose ground and await delegates to reconvene ‘peace talks’ in Germany.


Extremism and billion dollar deficits leading Iran and Saudi Arabia to war

The US is letting Saudi Arabia do its own dirty work this time in the Middle East, and Russia and Iran couldn’t be happier. The ancient Saudi Sunni-majority and Iran Shiite-majority hatred reignited last month following the Saudi execution of a Shiite cleric (read our report Using Oil as a Weapon for more details). In retaliation, the Saudi embassy in Tehran was set ablaze, and what little diplomatic ties remained between the two countries were immediately severed.

Now, all over the Middle East, countries are taking sides as extremist Sunnis and Shiites square off to battle wherever the sword is being taken up. And it appears Iran has more friends…

In a tell-tale sign that the Kingdom is losing influence in the region, many of Saudi Arabia’s allies have opted to keep trade open with Iran despite requests to sever ties. Most importantly, Russia is firmly in Iran’s camp – as the two have been at odds with the Saudis and the United States for years. Although the Saudis have historically been able to rely upon the US for security support, that doesn’t appear the case with Obama in the White House. So, as Russia and Iran become more emboldened with each victory in Syria, Saudi Arabia, Israel and Turkey are fearing they will soon have to take matters into their own hands.

Russia Courts Middle East Allies

On February 8th, while Russian air strikes continued in Syria, Vladimir Putin was gifting the King of Bahrain, a majority-Shiite country, a rare, best of breed four-year-old stallion named Khadzhibek. The Gulf Nations are known for their love of horses and RT News reported in respect to the King, that:

“In May, he even skipped a meeting with US President Barack Obama in order to join Queen Elizabeth II at a horse show in the UK.”

image source: RT


While this lack of reverence for Obama from Middle Eastern leaders is common nowadays, Putin’s meeting, and gift of an invaluable stallion, is symbolic and a direct challenge to Saudi Arabia, which Bahrain supported in January by severing diplomatic ties with Iran shortly after the burning of the Saudi embassy. The visit by Putin highlights a strengthening union in a geopolitically tense region. Putin is becoming the regions premiere deal-maker.

The escalation in the Middle East and military involvement of Russia (who is leading bombing campaigns in Syria everyday) and Iran, which has boots on the ground in Syria, tell only half the story. The wayward diplomacy of the United States has achieved little to date as the war in Syria represents the worst humanitarian crisis of our generation – killing or displacing more than 11 million people to date, according to MercyCorps.

Why then, has the United States taken a back seat? What does it have to gain by allowing Assad, a supposed violent dictator, and his regime, to achieve victory over the rebels (a.k.a. Saudi Arabia’s proxy army)? Saudi Arabia’s behavior at OPEC meetings over the past 18 months has caused irrecoverable damage to the North American energy sector.

Consider this fact: By late January Exxon Mobil and Chevron alone had given up $95 billion in market value since the summer. Check out the below chart featuring 24 Fortune 500 companies that have cumulatively lost hundreds of billions in market value over the past 6 months:


This is what financial war looks like. Never mind the oil worker in rural Texas or South Dakota who lost his $150,000 annual salary, or the tragic fact that suicide rates in Alberta were up 30% in the first half of 2015. Those stock losses are hitting North American investors and banks from coast to coast, and it’s directly related to Saudi Arabia’s unwillingness to cut production in its bid to bankrupt Iran, and its other competitors in the Middle East and abroad.

Russia and Iran to Prevent a Lost Decade for oil

Russia and Iran both fear another lost decade in respect to oil prices. With Iran’s sanctions lifted, the country was expecting to begin exporting an additional 500,000 barrels of oil per day. Meanwhile, Russia has increased oil production to a post-Soviet high in January and is pumping more than 10 million barrels per day currently. We wrote about the contention surrounding this issue in a December Weekly Volume titled Why Oil Will Go Down Further (when oil still traded in the mid-to-high $30s).

The Saudis flooded the market with cheap oil in the mid-80s, crushing Russia’s economy and initiating an oil bear market that lasted nearly 5 years. Russia and Iran are dependent on revenues from oil and cannot afford another half-decade or longer of weak prices. Saudi Arabia has been bleeding cash and running deficits in hopes of bankrupting its rivals, or worse, sparking civil unrest.


Is Iran Preparing for War against Saudi Arabia?

Forget about Iran vs. U.S. From a geopolitical standpoint, Iran’s (and Russia’s) main target is Saudi Arabia. In March of 2015, numerous reports highlighted the mass production of long-range anti-ship cruise missiles by Iran.

The Iranian Navy flexed its naval clout during the three-day ‘Great Prophet 9 Maneuver’ held one year ago in the Persian Gulf.

image source: Press TV



Note: Iran fired 400 rounds of 107-millimeter rockets into a huge model US aircraft carrier during its ‘Great Prophet 9 Maneuver’ in February 2015.

How’s that for propaganda?

RT reported that Defense Minister Brigadier General Hossein Dehqan stated at the time:

“God willing, the Defense Ministry’s new missiles with much more advanced capabilities will be delivered to the Armed Forces next year.”


Is it possible Iran has a plan to control vessel traffic out of the Persian Gulf? Certainly something to consider as tensions between Iran and Saudi Arabia escalate and Obama continues to take a Chamberlain-esque stance on conflict intervention.

Saudi Arabia has a pipeline on its western shore, but it could never export the equivalent amount of oil leaving the Gulf by ship each day. Without the free flow of ships, Saudi Arabia’s economy would crumble… this could be Iran’s opening if it were to be so bold.


Saudi Arabia Brought it Upon Themselves

Iran’s Oil Minister has been pleading with Saudi Arabia to negotiate as Iran prepares to produce an additional 500,000 barrels per day now that sanctions have been lifted. The minister recently commented in regards to the Saudis that, “If there were a strong political will, the price of oil would have been balanced within one single week,” as reported by the Islamic Republic News Agency.

While Saudi Arabia is not running an oil embargo — which has led to war throughout history — the Kingdom is attempting to price out its competitors.

Over one year ago, in January of 2015, we published a Weekly Volume titled The Orchestrator of Oil’s Collapse in which we described, in detail, Saudi Arabia’s motives to crush the price of oil and its economic competitors. Unfortunately, one year later, many of our predictions have come true…

*Click here to read the report in case you missed it.

On January 10th, our report titled Using Oil as a Weapon further explored the rising tensions between Saudi Arabia and Iran. Knowing where things stand in the Middle East Sunni vs. Shiite conflict could be the difference between predicting which way oil prices head. Below is a short excerpt:

“While their hate for one another goes back further than any of us have lived, hostilities between the two nations reignited years ago when the Iranians formed a quasi-coalition (mainly with Venezuela) to lessen OPEC oil trade in U.S. dollars. Saudi Arabia, likely from direct U.S. orders, stopped that movement dead in its tracks. After a recent OPEC meeting, their new economic fight became evident. Both nations publicly, via global media outlets, defiantly scolded each other while refusing to cut production.”

Lastly, we wrote that:

“Geopolitical tensions are all around us; and when they snap, trillions of dollars can be lost globally.”

Click here to read Using Oil as a Weapon.


Christopher Harmer, an analyst with the Institute for the Study of War, said Washington had falsely assumed there was no military solution to the Syria crisis.

Harmer’s comments were reported by Tru News:

“The Assad regime has no interest in a political solution,” he said. “The Russians have no interest in a political solution. Iran has no interest in a political solution. Hezbollah has no interest in a political solution.”

Lastly, in regards to the attempts by the U.N. and western powers to reach a ceasefire, one Western diplomat told Reuters that:

“It’ll be easy to get a ceasefire soon because the opposition will all be dead. That’s a very effective ceasefire.”


There are many instances throughout history where maps were redrawn because western powers didn’t want to get their hands dirty. While it might not be the US’ place to intervene in Syria, the region has been engulfed in chaos and Iran and Russia are taking the lead.

The global economic demand fundamentals which would support a rising price of oil are non-existent in 2016. Some form of war, be it military or economic (in the form of an oil embargo), with Saudi Arabia, is in the making. And it is being led by Iran and Russia, two of the largest oil producers in the world that are becoming increasingly desperate to get their oil to new markets.


All the best with your investments,

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