With oil prices continuing to surge, the Biden administration has been trying to gain the support of oil-rich nations to roll back oil prices and apply more pressure on Russia in response to its invasion of Ukraine. The US is meeting significant resistance on both fronts from some of its allies in the Middle East. There’s mistrust in places like Riyadh and Abu Dhabi right now regarding the Biden administration’s priorities and intent. To put it in simple terms, there are many people of influence in the Saudi and UAE governments who consider the Biden Administration a fair-weather friend. It goes back to the war in Yemen, which was supported by the Obama and Trump administrations. But as the war became a humanitarian cataclysm, US opinion turned and one of the first acts of the Biden administration was a vow to end the war in Yemen and stop supplying Saudi Arabia with weapons.
Now in March, 2022, the United States wants something from its Middle Eastern allies and some are not very enthusiastic to help out. When President Biden attempted to arrange telephone calls with Saudi Crown Prince Mohammed bin Salman and the UAE’s Sheikh Mohammed bin Zayed Al Nahyan, he was reportedly rebuffed. Naturally, US officials deny this and have tried to put a different spin on the matter. But the fact remains that Washington’s relationship with some of America’s Gulf allies is in need of repair at a critical time. Iran’s missile attack against a US embassy and airbase in Iraq over the weekend certainly showcases the Islamic Republic’s intent to be play the role of agitator in the region. Especially in light of the pause that JCPOA talks have taken due to the war in Ukraine.
China has reinstituted lockdowns in parts of the country amid a widespread surge in COVID-19 cases. Shenzen, China’s own silicon valley, is one city now under lockdown. Businesses have been ordered to suspend production operations and have non-essential employees work from home for a week. Shanghai and Hong Kong are two other major cities in China now dealing with major outbreaks. Case numbers are rising, but remain small compared to outbreaks in other nations back in late 2021 and early 2022 when the Omicron variant swept across the globe. A growing number of the cases in China appear to be of this variant.
The big concern now is additional instability for the global economy on top of what’s transpired from Ukraine. China’s COVID situation now adds more fuel to a fire which threatens to become dangerously bigger in coming weeks. The global economy will not stabilize by summer as some people had hoped.
With international attention focused on Ukraine and Russia, North Korea has taken advantage of the lack of scrutiny to conduct a series of ballistic missile tests so far this year. On 27 February and 5 March, a pair of intercontinental ballistic missile tests were conducted, raising concerns these tests represent a crash effort by the North to resume its nuclear program. Adding to the concern are recent satellite images that show a resumption of activity at North Korea’s nuclear testing site at Punggye-ri. A North Korean nuclear test could be in the cards sometime soon.
In response to the increased missile tests and activity, the US is conducting naval and air exercises in the area. The USS Abraham Lincoln and her battlegroup are in the Yellow Sea running very visible air exercises with land-based USAF aircraft from South Korea. Patriot missile batteries in South Korea are also running increased exercises and preparations in light of the activity up North.
Suez Canal officials claim that low visibility caused by a sandstorm and 40 knot wind are to blame for a massive container ship running aground and blocking traffic in the East-West trade route. MV Ever Given remains grounded as eight Egyptian tug boats continue the effort to dislodge her and unblock that section of the Suez Canal. Meanwhile, merchant vessels and oil tankers are gathering at either end of the canal, waiting patiently for traffic to be permitted through. The incident in the canal has directly affected oil prices, causing 6% rise. Also, this situation will potentially affect oil markets through the coming weeks. In fact, there are growing concerns it will indirectly lead to an average price of $4.00 per gallon of gas in the United States.
Even more significant, the world is seeing first-hand just how vulnerable maritime chokepoints like the Suez are to disruption, whether accidental or otherwise. A significant amount of the world’s commerce passes through the Suez each year. It did not take very long for a disruption in the Suez to cause a chain reaction and ripple effect through world markets. Global supply chains remain susceptible to external events, especially in this later stage of the COVID-19 pandemic. From the Suez Canal to Malacca Strait, the world’s trade routes are dependent on the safe and expeditious transiting of chokepoints and canals. As the past 24 hours have shown, it takes little to render a chokepoint or canal inoperative.
Today has been another travel day for the most part, so I will probably provide more thoughts on this topic tomorrow, as well as an update on the situation in the canal.
Global markets took one on the chin today, both literally and figuratively. A combination of coronavirus panic, and the unexpected oil price deadlock between Russia and Saudi Arabia sent investors reeling, and caused European, Asian, and North American stock indexes to crater. The Dow fell 2014 points, marking its worst day since 2008 as investors fled for safe havens such as precious metals, and US treasuries. Other markets around the world fared no better. European markets tumbled an average of 7 percent, and in Asia the Nikkei dropped more than 5 percent and the Hang Seng Index lost 4.2 percent.
All things considered, some degree of volatility was expected to dominate Monday’s sessions given the coronavirus situation. However, it was the situation in the oil markets that brought on the rout. The oil production standoff between Saudi Arabia and Russia over the weekend took the world by storm and sent oil prices spiraling to some of their lowest levels since the 1991 Persian Gulf War. As it stands right now, Russia and Saudi Arabia’s actions could lead to an oil price war, something that could bring on unforeseen circumstances for oil and stock markets down the line.
The markets could’ve handled one or the other today, either the volatility brought on by coronavirus fears, or the oil collapse. Taking on both and coming out unscathed, however, was not in the cards. It remains to be seen how today’s events will affect global economies. Another day like today would put Wall Street on the verge of a bear market, and could quite possibly cause the juggernaut that is the US economy to begin to lose steam.
Iran’s national oil company has claimed that one of itsoil tankers in the Red Sea has suffered an explosion, and damage. Initially, Iran claimed the cause of the explosion was a missile strike on the vessel but hours later official accounts had rolled back the missile claim. There has been no indication about whether an oil spill has occurred as a result of the damage, if the ship is on fire, or its overall condition. Late this afternoon, Iranian state television reported the ship is returning to Iran. The contradictory reports and lack of facts have only raised more questions about exactly what happened to the tanker, which. News of the explosion boosted oil prices by around 4%.
Iran is conducting an investigation into the incident. “The details of the attack and the instigators are under investigation and will be announced in due course,” Foreign Ministry spokesman Abbas Mousavi said. Given that Iran has been blamed for the recent missile strike on Saudi oil facilities, I wouldn’t be shocked if Iran discovers it was Saudi Arabia that perpetrated the oil tanker attack in retaliation. I’ll be honest, that was the first thought to cross my mind after seeing the headline this morning.
It’s not as if Iran doesn’t have the men, and equipment to attack an oil tanker, theirs or otherwise. The world has seen Iran carry out attacks on tankers in the Persian Gulf this year using limpet mines and explosives planted by IRGC troops, and operatives. The motive for conducting an attack against one of its own ships is certainly present and valid. Tehran would certainly hope an overt attack on an Iranian asset would shift some of the scrutiny away from Iran. You can never put anything past the Iranian government, especially now when it must seem to them as if the walls are closing in. Economic sanctions, US pressure, and Saudi Arabian suspicion are combining to have a decidedly negative effect on the leadership in Tehran.
Two oil tankers were damaged this morning in the Gulf of Oman, victims of suspected attacks, although it is yet unclear who the initiator might’ve been. Distress calls were received from the vessels by US naval forces at 0612 local time, and 0700 local time respectively. The tankers involved in the attacks were the MT Front Altair, a Norwegian-owned vessel flagged in the Marshall Islands and the Kokua Courageous. The second tanker is Japanese-owned, and Panama-flagged. For insurance purposes, many merchant vessels, and oil tankers fly the flags of smaller, obscure nations even though the owners of the ships are usually companies based in larger First World nations. The US destroyer USS Bainbridge responded to the Kokua Courageous distress call and rescued 21 sailors.
These attacks come one month after two oil tankers were attacked off of the United Arab Emirates. That previous attack came as US-Iran tensions in the region were growing. The US has blamed Iran for the attack, but Tehran denied it.
This time around, initial suspicions are again going to be on Iran. Not surprisingly, Iranian government officials were fast in expressing shock over this morning’s attacks and attempting to distance Tehran from events in the Gulf of Oman. Also, coming as no surprise is the effect the attacks are having on oil markets. Crude prices have risen 4.5% in morning trading. The prospect of a possible US-Iran confrontation has shaken energy markets lately.
More updates will come later today, and in the evening.