Readings From TIS group - Yemen - phase 2 ..MIDEAST WAR- PHASE 1 OVER/PHASE 2 READY TO BEGIN
The civil war occurring in Yemen is moving into the next phase, which is foreign intervention. Saudi Arabia has launched airstrikes in Yemen as part of the GCC’s response to a request for help from the legitimate government of Yemen. It is worth noting that the Houthis, which are backed by Iran, have reneged on every agreement they have made.
They placed the legitimate President, Prime Minister and legislature under house arrest. They took over the security services, invaded and captured the capital city, Sanaa, and have expanded their control of the country toward Aden, which rests near the crucial Red Sea oil routes. As they move westward, I would expect Saudi involvement to intensify as the Saudis cannot risk the Houthi rebellion spreading to their oilfields, oil transit routes or to the Shia population in the eastern provinces. According to the EIA, 3.8 million barrels of oil moves down the Red Sea every day, the 4th largest shipping chokepoint in the world.
There is little if any premium in the oil price for an interruption of those supplies which pass by the Bab el-Mandeb every day. Everyone watches the Persian Gulf and oil routes around the Straits of Hormuz. It is the Red Sea routes which should be focused on. The Iranian foreign ministry weighed in by stating that the Saudi strikes are a “very dangerous development” and contradict international law, (1) The state run Fars agency cited Alaeddin Boroujerdi, head of Iran’s parliamentary national security and foreign policy committee as suggesting the attacks will haunt Saudi Arabia as the war won’t be contained in one area. (2) The new King of Saudi Arabia is far less friendly to Tehran than King Abdullah was, so getting to the negotiating table will be much harder than it might have been 12 months ago.
The worst is yet to come in Yemen. I think there will be ground invasions by the Saudi’s and Egyptians and perhaps even help form the U.S. in terms of radar, logistics and tanker planes. Saudi Arabia needs to secure the Red Sea routes and its southern border or the next phase in the Sunni/Shia war will be attacks on the Saudi homeland from bases in Yemen. Brent oil has not priced what I am describing. On the charts, there is resistance at $63, then a gap up around $78. In the Unconventional Allocation, I am adding a 5% position to crude oil with cash being reduced by 5%.
buy/sell/hedge accordingly
stay frosty and GLTA