Wednesday, 20 January 2016

The Iran deal and the stock market

Stocks Slump After Saudis Threaten Nukes Against "Nefarious" Iran

19 January, 2016

Earlier this month, a black swan landed in the Mid-East when Saudi Arabia executed prominent Shiite cleric Nimr al-Nimr along with 46 other “terrorists.”

Most of those executed were not Shiites but that didn’t matter. Al-Nimr was a key voice among Saudi Arabia’s dissident Shiite minority and his death reverberated across the Shiite community, sparking mass protests from Bahrain to Pakistan.
Al-Nimr was executed on a Saturday. By Sunday evening the Saudi embassy in Tehran was ransacked and burned and Riyadh had cut diplomatic ties with Iran. The other Gulf monarchies followed suit and by the end of the following week, the stage was set for widespread sectarian strife.

As we wrote in the aftermath of al-Nimr’s execution, the ordeal couldn’t have come at a worse time for the Obama administration. With the countdown to Implementation Day for the nuclear deal under two weeks, the last thing The White House needed was to be thrust into the middle of a dispute between a traditional ally (the Saudis) and a new “friend” (the Iranians).

The Sunni world (not to mention the Israelis) already feared that the lifting of international sanctions against Iran and the attendant cash windfall would strengthen Tehran just as the Ayatollah looks to preserve and expand the so-called Shiite crescent by consolidating his influence in Iraq and bolstering the Assad government in Syria. The money, some critics say, will invariably be channeled to Hezbollah and Iran’s Shiite militias which effectively function as Iraq’s only effective security force. Additionally, the nuclear deal’s opponents wonder if Iran will plow its newfound wealth into the country’s famous ballistic missile program, which is alive and well as demonstrated by the test-firing of the Emad in October.

And so, with the Saudis already wary of America’s rapprochement with the Iranians and with Riyadh struggling to come to terms with how its staunch ally in Washington could seriously ponder taking steps to effectively wire Iran $100 billion while freeing up an extra $2 billion per month in oil revenue, the Sunni and Shiite powers nearly came to blows on the eve of the Nuclear Deal’s implementation.

The Saudis, like the Israelis, believe that the Obama administration's claims regarding Iran's nuclear ambitions and capabilities are largely dubious. "Even after the signing of the nuclear agreement, Iran has not abandoned its aspirations to acquire nuclear weapons," Israeli PM Benjamin Netanyahu said, in a statement following the accord's implementation on Saturday.

On Tuesday, we got the first sign that Obama's counterintuitive nightmare is set to come true as Saudi Arabia indicated it will pursue a nuclear weapon if Riyadh believes the Iranians are up to anything "nefarious." 

"Saudi Foreign Minister says his country will not rule out seeking nuclear weapon if Iran gets one," Reuters reported this afternoon, citing an interview with Adel bin Ahmed Al-Jubeir. "The lifting of Iran sanctions will have a negative impact if Iran uses proceeds for 'nefarious activities,'" Al-Jubeir continued, before adding that U.S. involvement is key to regional and world stability.

While it's not entirely clear what "nefarious activities" Al-Jubeir was referring to, pretty much anything Tehran does is viewed as "nefarious" by Riyadh, which means you can expect plenty more nuclear sabre rattling in the near future as Obama looks on at the Mid-East nuclear arms race he inadvertently set in motion.
Today, nuclear war is apparently bad for stocks:

We close with an excerpt from a New York Times op-ed penned by Al-Jubeir:

While Iran claims its top foreign policy priority is friendship, its behavior shows the opposite is true. Iran is the single-most-belligerent-actor in the region, and its actions display both a commitment to regional hegemony and a deeply held view that conciliatory gestures signal weakness either on Iran’s part or on the part of its adversaries.
Saudi Arabia will not allow Iran to undermine our security or the security of our allies. We will push back against attempts to do so.

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