Last week, I warned that Russia has become the country with the ability to push the Middle East into a major war. In particular, Russia cannot and will not tolerate Saudi Arabia artificially depressing the price of oil indefinitely. Low oil prices have been very damaging for Russia’s economy. Zero Hedge today reported this morning:
Down over 5%, Russia’s RTS Index has plunged to its weakest level since Dec 2014 and the peak of its existential crisis mid-Ukraine/currency-crisis/oil-collapse. This is Russia’s biggest one-day drop since April 2015. The Ruble continues to tumble (despite CNH strength) as oil pushes to new cycle lows…
Even though the US shale oil market has also been hit badly by the drop in oil prices, Moscow see’s Saudi Arabia’s actions as a direct attack on Russia for backing Syria’s President Assad against Saudi Arabia’s wishes. I have never met Prime Minister Putin in person, but I am willing to bet he is not a man that takes threats lightly or is going to cower to Saudi Arabia. Putin cares deeply about Russia and his people, but he also cares about his profit margins like any good businessman. As such, he must take action to engineer a return of oil prices to a sustainable level. Putin is a professional and will exhaust diplomatic means; however, if they should fail and Russia is pushed into a corner, Russia will undertake covert actions to engineer the price rebound and I can’t say I blame them at all.
If the price depression continues, Moscow will act in a way that precipitates a rapid rebound of oil prices. Further, the US is not likely to try and stop any Russian initiatives because the very influential oil industry is also being battered by the low prices and would welcome the rapid rebound. In fact, elements within the US could beat Russia to it for the same financial reason. Either way, if the price of crude oil stagnates at $30 a barrel or continues to drop to our beyond the $20 benchmark, the Russian economy will not be tolerate the price point. The lower the price goes, the more exigent the need for intervention. This means the chances of Russian intervention goes up while their timeline for action decreases.
Why should you care? Well, as I addressed last week, in “Russia sets chessboard for major Middle East war and transition to global dominance with one apocalyptic move,” the most likely way for Russia to get a rapid price increase is by destabilizing the region and covertly precipitating a war. Not only would oil prices rise, but Russia would gain significant market share and geopolitical leverage. That is all good for Russia. However, it would be a political, military, and economic disaster for the US. If for example, Saudi Arabia had much of its oil infrastructure destroyed in a war with Iran, it would spell the end of the Petro-Dollar. If you don’t know about the Petro-Dollar alliance, you need to educate yourself. In short, it would spell the financial ruin of the US and effectively put an end to the quality of life American’s enjoy today for a generation. So, if you like having a home, a car, and food on the table, you better pay attention to what is playing out in the Middle East in real-time. Knowing how strategically dangerous the Great Game being played is, you should take the potential for major war very serious. By that I mean you should actively be in the process of diversifying your assets, holding cash and precious metals on hand (not in the bank), looking at overseas property and opening overseas bank account, and obtaining a second passport for locations in the Southern Hemisphere. Oh, and stay out of the military. If we can’t beat the Taliban what idiot would have faith American leadership could successfully wage a war against a much larger and capable threat?
By Guiles Hendrik
January 11, 2016