Saudi Arabia - joining the dots
A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy
AIM - Assets In Market
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Iran negotiations - is the end nigh?
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Yemen: The Islamic Chessboard?
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Acquisition Criteria
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Valuation Series
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Monday, 30 March 2015
Yemen: The Islamic Chessboard
Saturday, 28 March 2015
Tullow in the middle
Monday, 23 March 2015
Iran negotiations: the US conundrum
The intensifying rift between President Obama and Congress poses a risk that could derail the Iranian nuclear talks.
Wednesday, 18 March 2015
Afren - A Shakespearen Tragedy
This series chronicles the rise and fall of Afren, our flawed hero, with a share price high of 170p at the beginning of 2014 which falls to 5p at its demise.
Iran framework agreement - Kerry makes the rounds with the P5+1 and Gulf States
Tuesday, 10 March 2015
Iran negotiation: an untimely letter
On 9 March 2015, Republican senators issued an open letter to Iran that essentially warned the latter any deal entered into with President Obama would be considered an "executive agreement" that would require Congress ratification and more importantly, could be revoked by the next president.
The message it clearly sends out is that the US could back out of any agreed nuclear deal, raising serious doubts on whether the US will keep up its side of any bargain, including the lifting of sanctions. The letter was drafted by freshman Republican Senator Tom Cotton and signed by 46 other Republican senators. The timing of the letter is a major blow to the framework agreement which is due to be made by the end of March.
Hilary Clinton has denounced the letter saying that "these senators were trying to be helpful to the Iranians or
harmful to the commander-in-chief in the midst of high-stakes international diplomacy", while John Kerry called it "absolutely calculated...and unthought-out". Even Iran's foreign minister, Mohammad Javad Zarif, found the move by the select Republicans distasteful.
Cotton defended the letter and said that Obama is "negotiating a deal that is going to put Iran on a path to a
bomb". This in itself is a weak argument as the lack of action by the international community could also see Iran ramping up its enrichment programme and further developing nuclear capabilities. Whilst Iran could argue in future that any slight slip up by the US as reneging on an agreement, it is likely that this would be one of a myriad of excuses that they could use.
It is also worth scrutinising the letter further.
- The letter suggests that a "mere executive agreement" holds little sway in terms of power, yet it is worth remembering that the withdrawal of US forces from Iraq was by such executive agreement and not a treaty.
- It is also untrue to say that "future Congresses could modify the terms of the agreement at any time" - Congress cannot renegotiate such an agreement, but can pass legislation to contradict it and therefore nullify its terms.
- Also, the claim that the next president "could revoke the agreement" neglects the fact that the agreement will become binding international law through a UN Security Council resolution.
The letter muddies the water at a bad time (or a good time as some may say) as the negotiations intensify over the next few weeks. Although the damage to the negotiations and to President Obama's authority can be contained, it further chips away at the delicate pillars which have supported the efforts of the P5+1 which have progressed the discussions with Iran to the point they are at today.
Saturday, 7 March 2015
Saudi Arabia - joining the dots: Part 6 - Emergency meeting
Part 6 - Emergency meeting
OPEC's traditional strategy has been to cut production to maintain prices, but recent behaviour of the cartel or at least that of its largest member (and swing producer) shows a marked deviation from the strategy.
Saudi Arabia has been a key driver of the protect market share strategy, convincing other OPEC members that a period of low prices would cut US supply and therefore restore the supply-demand dynamics of the market. However, Al-Naimi's stance of keeping to this strategy "even if prices hit USD20 a barrel" (December 2014) has scared the other OPEC members, who do not have the deep pockets to keep their countries afloat.
Nine months into the oil price decline, many of the members are feeling the pressure with fiscal reserves running low. Saudi Arabia and its Gulf neighbours are the exception with their vast monetary reserves, but with large social spending programmes, these countries are now running deficits and chipping away at those reserves.
Discussions between the various OPEC members on the next course of action are ongoing with the next meeting scheduled for June 2015. However, in February 2015, Ms Alison-Madueke, president of OPEC said in an interview with the FT that if the oil price "slips any further, it is highly likely that I will have to call an extraordinary meeting of OPEC in the next six weeks or so". Extraordinary meetings have to be agreed upon by all 12 members.