UKRAINE - The Unfolding Financial Battle

GLOBAL RISK - World Economic Forum

The Hydraulic Fracturing of Saudi Arabia... 03-23-14 L Todd Wood via ZH

Since the early twentieth century, Saudi Arabia has enjoyed a close relationship with the United States. From the development of the Saudi oil fields,to the First Gulf War, this relationship has been an uneasy cooperation—each side received something out of the alliance while nervously watching the other.  So recently we have the first open break between the two powers culminating in the Saudi’s refusing a seat on the U.N Security Council due to anger with U.S. Middle Eastern policies. 

Saudi Arabia holds the world’s second largest oil reserves and the sixth largest natural gas fields.  In addition to being located in the most volatile part of the world, these energy assets make the country a strategic interest for any global power. 

The discovery of vast hydrocarbon reserves in the United States and the ability to harvest them through hydraulic fracturing techniques has radically altered the relationship between the two countries.  Ironically, even though the Obama administration has reduced drilling on Federal lands in the US and attempted to curtail hydrocarbon use overall, it is fracking which has allowed the United States to nearly gain energy independence, become a net energy exporter again, and reduced the need to buy oil from the Middle East.  This shift in the balance of power with the Saudis has made the Kingdom extremely nervous. 

American policy adds to the Saudi’s concerns.  The Saudi oil fields, located in the eastern part of the country, are the home to the country’s Shia minority.  As the guardians of the holy Muslim sites, the royal family walks a fine line between satisfying the Sunni Ulema, fighting terrorism, and keeping the Shia population in check.  Hence, their concern with America’s recent overtures to Iran. 

The Obama administration has been Hell bent to secure a deal with the Shia Islamist state regarding its development of nuclear weapons.  Now that the deal is in place, the Iranians are openly taunting the West with shouts of victory rather than assuring the world they have no intent to join the nuclear club.   John Kerry and his Dept of State have been either naive, weak, or both when it comes to negotiating with the mullahs.  The Saudis, along with the Israelis and other Gulf states, cannot tolerate a nuclear armed Iran.  There are rumors that Saudi Arabia has paid Pakistan for the development of its own nuclear deterrent and is one month away from operational capability if they saw fit. 

In addition, the Kingdom is furious with U.S. refusal to arm Sunni rebels fighting the Iranian backed Syrian regime.  The uneasy trust between the U.S. and Saudi Arabia has been broken.  This opens up the playing field for other global powers such a China or Russia to make inroads where the U.S. once enjoyed hegemony.  It also opens up the world to a possible nuclear arms race in the Middle East.  In fact, this is already happening in Egypt, another broken U.S. relationship, who just closed a major arms deal with Russia in a slap in the face to the Obama Administration’s decision to cut military aid.  China would like nothing better than to gain access to a secure source of Saudi oil and strategic American built bases as well.

There have been calls from many quarters for the U.S. to mend fences with Iran in order to prevent a conflict and counter the Sunni influence in the region.  It seems obvious that for this to happen, Iran needs to show real progress in addressing the world’s fear that they intend on acquiring the bomb and have plans to use this threat to destroy Israel and/or the interests of the United States.    But alas, this will probably not happen with the current Iranian government.

It is foolish for America to offend and promote distrust with another ally in a long list of broken long-standing relationships.  These include Poland, United Kingdom, Israel, Egypt, etc.  One wonders whether the results of American diplomacy  stems from extreme incompetence or is evidence of a much darker agenda

GLOBAL PETRODOLLAR - EU Energy Dependency Stands Out

RESERVE CURRENCY - Yuan as A Third 'Balancing" Reserve Currency

Russia Returns Favor, Sees Chinese Yuan As World Reserve Currency 03-24-14 Zero Hedge

Following China's unwillingness to vote against Russia at the UN and yesterday's news that China will sue Ukraine for $3bn loan repayment, it seems Russia is returning the favor.

Speaking at the Chinese Economic Development Forum, ITAR-TASS reports, the Chief Economist of Russia's largest bank stated that "China's Yuan may become the third reserve currency in the in the future."

Managing Director and Chief Economist of investment company Sberbank Yevgeny Gavrilenkov said at the 15th governmental Chinese economic development forum in the Chinese capital on Sunday (via ITAR-TASS):

"China’s yuan (renminbi) may become a third reserve currency in the world in the future"

"This forecast can be made on figures of domestic economic growth. Probably the country will keep high GDP growth rate and the GDP volume will increase to around 14-16 trillion U.S. dollars for a brief period of time, the indicators comparable to the European Union and the United States.

Meanwhile, Chinese securities are more attractive for the countries that have a surplus in economy, particularly the Middle East states; and China will obviously follow the path of securing the country’s assets,"

The forum which opened in the Chinese capital on March 22 discusses a broad range of issues of economic reforms and China’s stronger role as the second largest world economy. First Deputy Prime Minister of the Chinese State Council Zhang Gaoli, Managing Director of the International Monetary Fund Christine Lagarde and top managers of major world corporations participate in the forum as honorary guests.

Of course, as we noted previously, nothing lasts forever...

and with Friday's "Petrodollar Alert" perhaps things are moving faster than many assumed.

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