Welcome to the geopolitical edition of Oil Markets Daily!
In a move seen by some as non-material, we view the latest positive discussion between Saudi Arabia's Deputy Crown Prince Mohammed bin Salman and President Trump as the start of a potential shift in geopolitics for the Middle East.
Saudi Arabia has been a long-time ally of the US, but the relationship between the Saudis and the US deteriorated during Obama's administration. The lackluster welcoming gesture demonstrated by the Saudis during Obama's visit last year was one of many signs that the Saudis did not find the Iran Nuclear Deal in July 2015 to be one that was aligned with its vision.
During President Trump's campaign, he called the Iran Nuclear Deal as one of the biggest disasters in the history of foreign policy making. He has since vowed to take a harsher stance on Iran, but has not given in detail exactly what he plans to do.
In our view, the Iran Nuclear Deal is just a delay mechanism. The Iranians will eventually create a nuclear bomb after 10 years once it's allowed to install centrifuges again, and the deal is not a game changer in our opinion. As a matter of fact, geopolitical tensions in 10 years will likely be far worse than they are even today given that electric cars and renewable energy will likely take steeper market share away from hydrocarbons, and as a result, conflicts over oil market share and other religious differences will further escalate tensions between the Saudis and Iran.
Geopolitical analysts that have followed the conflict between Saudi and Iran point to the eventuality that if the world powers do not stop Iran from obtaining nuclear bombs, then it's highly likely that Saudi Arabia will obtain the bombs by acquiring them through Pakistan. Having two nuclear armed countries that are bitter rivals only separated by the Persian Gulf is not a stable geopolitical environment to have.
The Bush and Obama administration understood the issues and potential risks with Iran obtaining a nuclear bomb. Tactics like Olympic Games, and Nitro Zeus were used to stop Iran by destroying centrifuges, but after the Iranians found out about the viruses, the attacks were stopped and Iran's centrifuges started to grow exponentially.
The inevitability of this outcome and the uncertainty future geopolitical tensions bring in the future will likely force the Trump administration to work closely with Saudi Arabia and its Middle East allies to defuse the situation. Although Iran has said that it's currently performing under the IEAE standards, it's still not certain what eventually happens after the deal is concluded in 10 years. These concerns were pushing the Saudis and the Israelis to move in a separate direction until Trump became president. We think the stance on Iran will be much tougher going forward, and this will likely impact Iran's recent growth, oil production, and geopolitical ambitions negatively. We view the recent positive meeting between the Saudi Prince and President Trump as a turning point in geopolitical collaboration towards Iran.
Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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