01 July 2017

Qatar's Insurance Policies Against Saudi Invasion

As I concluded in my last post, all of the main players are volatile characters in the Qatar - Saudi rift and things could escalate into a regional war very easily.

The ultimatum given by the four Sunni countries (Saudi Arabia, Yemen, Bahrain and Egypt) will expire on 3 July.

Qatar is digging in and their Minister of Foreign Affairs just announced that it would not give in to these demands.

In response, Saudi Minister of Foreign Affairs Adel al-Jubeir simply reiterated that the 13 demands put forward were non-negotiable and Qatar had no choice but comply with every one of them.

Clearly, something has to give.

Some analysts believe that Crown Prince Muhammad bin Salman (MBS) is planning to invade Qatar and Tillerson's muted response and Trump's idiotic tweets might have been perceived as an April Glaspie moment.

They think that as Saudis are strapped for cash (largely because of MBS' disastrous war in Yemen) grabbing Qatar's natural gas fields would be a perfect way to make things nice again.

I wouldn't put it past Muhammad bin Smirk.

But Qatar has three solid insurance policies against such eventuality. He might still do it but the consequences of such a foolish move would be catastrophic.

The first policy is Iran.

Iran is highly unlikely to accept such a land grab. Sharing their South Pars field with the House of Saud hellbent on destroying them is not a palatable option for them.

Tellingly, the Islamic Republic dropped their initial cautious stance and made their position very clear.
Iranian President Hassan Rouhani told the Qatari emir in a phone call on Sunday that “Tehran will stand by Qatar’s government” and that the “siege of Qatar is not acceptable for us,” said the website of Rouhani’s office. “Iran’s air space, ground and sea will be always be open to Qatar as a … friendly nation,” said Rouhani, adding that “pressure, threats and sanctions” are not the way to resolve the crisis.
They have also been sending 1100 tons of fruits and vegetables daily to Qatar.

Would MBS start a war with Iran?

He would very much like to. In fact, just last May, he threatened to bring the "battle" to Iran.

But the Saudi army is a colossal joke and Saudi Arabia is not capable of defeating Iran. And the Iranian Minister of Defence bluntly reminded them of this fact:
"If the Saudis do anything ignorant, we will leave no area untouched except Mecca and Medina," Iranian Defence Minister Hossein Dehghan was quoted by the semi-official Tasnim news agency as saying.

"They think they can do something because they have an air force," he added in an apparent reference to Yemen, where Saudi warplanes regularly attack Iran-aligned Houthi forces in control of the capital Sanaa.
The second insurance policy for Qatar is the newly enlarged Turkish military presence.

Besides fast-tracking the expansion of the Turkish military base in Qatar, Turkey's bombastic President Tayyip Erdogan took a much firmer stance towards Saudi Arabia than is customary:
“To ask Turkey to pull out its troops from Qatar is firstly disrespectful behaviour towards us,” he said in Istanbul on the first day of a three-day holiday to mark the end of Ramadan. “We don’t need permission from anyone to establish military bases among partners. We endorse and appreciate Qatar’s stance towards the 13 demands. It’s a very, very ugly approach to try to interfere with our agreement.”
Turkish pundits were taken aback by Erdogan's brusque tone given the Saudi financial largess in the past and his deferential posture towards Salman the Senile.

I am not so surprised. Erdogan knows that the Saudis are in a financial tight spot and with a disastrous war in Yemen and a long list of client states, headed by Egypt, they are not going to be able to give Turkey much money.

In fact, after the Trump military deal, they may not have much left for their client states.

Qataris, on the other hand, as Erdogan believes, will pay more, and more often, as they need Turkey's protection.

What about the unpredictable Orange Man, you might ask.

He hates Iran, he is egged on by Netanyahu to destroy them and MBS just gave him 350 billion reason to side with Saudi Arabia against Iran.

Fully cognizant of that last possibility, Qataris signed a third insurance policy with Russia. And it was a brilliant move.

Do you remember Trump advisor Carter Page? Last August, according to former MI6 guy Christopher Steel,  he was in Moscow discussing the sale of 19 percent of oil and gas behemoth Rosneft.

Then Trump got elected and Carter Page was back in Moscow in early December for the announcement of the sale of 19.5 percent of Rosneft for $11.5 billion.

The identity of the buyer was not clear. Reuters headline was "How Russia sold its oil jewel without saying who bought it"

Putin said it was a Singapore investment vehicle made up of Qatar's sovereign wealth fund and Swiss oil and gas trading firm Gleencore and the split was 50-50.

Two interesting bits here.

Glencore contributed only 300 million euros of equity to the deal, less than 3 percent of the purchase price, which it said in a statement on Dec. 10 had bought it an "indirect equity interest" limited to just 0.54 percent of Rosneft.
And second:
Qatar's sovereign wealth fund is Glencore's largest shareholder.
There is one more wrinkle to this story.
Russia's sale of one-fifth of its state-owned oil company to Qatar and commodities giant Glencore PLC last year had an unusual provision: Moscow and Doha agreed Russia would buy a stake back, people familiar with the matter said.

Russian President Vladimir Putin hailed the EUR10.2 billion ($11.5 billion) sale of the PAO Rosneft stake in December as a sign of investor confidence in his country. But the people with knowledge of the deal say it functioned as an emergency loan to help Moscow through a budget squeeze.
Do you know when we became aware of that "buy back clause?"

Two days after the Saudi ultimatum. Google it, you'll see: everyone reported it on 7 June. There is nothing before that. Obviously, someone wanted the world to know this bit of information.

Here is why I thought that the whole thing was a brilliant move.

Qatar and Russia are on the opposite sides of the Syrian conflict. In fact, the whole thing stemmed from their competition over European gas market.

Despite this, when Qatar realized that, due to low oil and gas prices, Russia was financially squeezed and in need of money, they approach them using a Trump advisor to negotiate a deal for Rosneft. Clearly they were aware of the collusion between the Trump campaign and the Kremlin.

Then they waited for 8 November. When Putin's Poodle became POTUS they signed the deal within one month.

While the deal includes the option to buy back shares, it is either a verbal commitment or something enacted in a secret memorandum (which allowed Glencore to deny such a clause existed and Russia to shrug it off).

Now, if Qatar were invaded to become a Saudi province, as Qatar's sovereign wealth fund would be taken over by them, Russia would have the House of Saud as a shareholder in one of their most important companies.

Moreover, Putin's handshake deal with the Emir to buy back those shares would simply vanish.

But most importantly from Qatar's perspective, if Putin had a big incentive to not see Qatar invaded, he would push Trump to stop MBS dreams of invasion.

And now he does.

That is what I call an insurance policy.

However, if despite all that, MBS invades Qatar, that regional war could rapidly escalate into something much bigger and terrifyingly destructive.

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