Oil & Middle East Chaos:
For US investors, Saudi Arabia is one of the
most important countries in the world. It's the
largest oil exporter, containing somewhere
between 25% and 30% of the known world oil
supply. When Saudi Arabia sneezes, US investment
markets catch pneumonia.
While we cannot be certain, it looks like
a big sneeze is just around the corner. The
exact timing is not predictable, but when it
happens, investors who are in the right oil
investments [see Crude Oil Strips] will profit
enormously. Those who aren't will be seriously
hurt.
Here's the Story
Look at a world map from the last century
and you'll find the Arabian peninsula labeled
Arabia, not Saudi Arabia. This seems a small
point, but it's the key to understanding what's
happening.
Saudi Arabia is a giant desert: a third
the size of the US, but with only 17 million
people. (The US has 258 million.) When I flew
over the "Empty Quarter," I felt as if I were
flying over the surface of the moon. Most of the
Arabian peninsula is so dry and worthless that
until this century, few tribes bothered to draw
the boundaries between their territories.
Until the early Middle Ages, the peninsula
was inhabited only by a few nomadic bands. Then
it was divided into numerous states often at war
with each other. One of these was the Saud
family dynasty, founded in the 1400s.
In the 1500s, the Turks gained control of
the area along the Red Sea called the Hejaz, and
in the 1800s, the British took parts of Hasa and
Oman along the east coast and Aden in the
southwest tip of the Arabian peninsula.
The wars among the tribes continued until
the 1930s when ibn-Saud, backed by the British,
finally conquered the other tribes. He
established the state of Saudi Arabia, roughly
within its present boundaries. Yemen and the
other small states of the Arabian peninsula are
the lands ruled by tribes the Saudis did not
subdue.
When Saudi Arabia finally does slide into chaos,
I will not be surprised to see the price of oil
double in 48 hours. Call this "Scenario #1."
If the crisis includes an invasion by Iraq or
Iran, I will expect oil to triple in 48 hours.
Call this "Scenario #2."
If it includes an invasion by both, I expect oil
to quadruple in 48 hours. Call this "Scenario
#3."
If at the time it happens you have five of the
Crude Oil Strips, purchased at $2,000 each for a
total investment of $10,000*, your possible net
profits could be:
Scenario #1 -- $250,000 based on oil @ $38 per
barrel
Scenario #2 -- $630,000 based on oil @ $57 per
barrel
Scenario #3 -- $1,010,000 based on oil @ $75 per
barrel
* Prices are subject to market moves and are
constantly changing
No guarantees, but I think there is a 70% chance
of something enormous happening in the Persian
Gulf by the end of the decade, and 90% within
five years. In EARLY WARNING REPORT I will
continue keeping you informed.
-- Richard Maybury
The risk of loss in futures and options can be
substantial, therefore only genuine risk funds
should be used. The risk of loss in buying
options on futures can result in the total loss
of the premium paid plus transaction costs. Past
profits are not necessarily indicative of future
profits. This estimate was calculated by
Investors Publishing Services, Inc. (IPS). The
opinions contained herein do not necessarily
reflect the views of any individual or other
organization. Material was gathered from sources
believed to be reliable; however, no guarantee
to its accuracy is made.
Why is the Name Saudi Arabia So Important?
It causes the misleading assumption that
members of the Saudi family are the rightful
owners of the place and the rightful
representatives of the people. It's as if a
Canadian family named Ferguson had conquered
Canada and had the gall to rename it Ferguson
Canada, and everyone in the world including the
USG (US Government) now referred to all
Canadians as Fergusons. It is one of the most
successful hoaxes in history.
The Saudis are dictators who rule the
other tribes with a heavy hand. If they didn't
have all that oil, other cultures would regard
them as just one more group of thugs in the same
league as Qadaffi, Assad and Saddam Hussein.
The key point for our investments is that
the Saudi royal family is roundly hated by their
subjects. The king and his tribe live in great
opulence that provokes much jealously. Everyone
knows the Saudi tribe has no more rightful claim
to the oil money than any other tribe.
The Saudis have two armies so that if one
revolts they can pit the other one against it.
Their primary means of preventing revolts
has been to spread some of the wealth around in
the theory that if the population can be kept in
a kind of welfare stupor like domesticated
cattle, few will have the initiative to revolt.
So far it's worked.
They allow no freedom of speech or press.
Every non-Saudi knows that if he gets caught
saying something unflattering about a member of
the royal family, he could vanish.
It's a big family. Ibn-Saud had 150 wives,
so today a legion of 6,000 Saudi princes occupy
the most important and high-paying jobs and keep
the economy in a chokehold of nepotism.
Political parties are not permitted.
Activists are arrested and tortured, including
electric shock and flogging. Judges are
influenced by the royal family and they can be
overruled by the king.
No one in the Islamic world ever forgets
that the hated Saudi conquerors sit atop 260
billion barrels of oil and they got there with
the help of one of Islam's oldest enemies,
Britain. Worse, the Saudis are trying to stay
there with the help of Britain's ally, the US.
This is a time bomb that will go off. Count on
it. The only question is when.
Now that you know about some of the turmoil
brewing in the Persian Gulf, I suggest that when
you invest in oil companies you make sure they
are well run firms with little debt, lots of oil
or gas in the ground, and little or no holdings
in Chaostan.
I suggest Berry Petroleum (BRY, NYSE), Murphy
Oil (MUR, NYSE) and American Gas Index Fund
(1-800-622-1386).
You will find a list of more than three dozen
investments expected to profit from the turmoil
in Chaostan in the July 1997 EARLY WARNING
REPORT. Subscribe now.
Tensions Are Rising
Despite the carloads of money earned by
all that oil, the Saudis are now managing to
spend it faster than they can make it.
Infrastructure is going without repairs as
contractors wait more than six months to be
paid. Some neighborhoods experience frequent
water cutoffs. Hospital beds are in short
supply. New homes sit empty for lack of
electrical service.
As the Saudi welfare state crumbles, the
influence of Islamic rebels is increasing.
Underground faxes written against the royal
family are widely read and discussed. Popular
music has become openly antiroyal. A line in one
song says, "Kings when they enter a country
despoil it and make the noblest of its people
the lowest."
Middle class Arabs keep mental lists of
the rumored prices of each royal palace.
Jokes depict the king as a witless tyrant.
This is very important. The one weapon no
government can stand against is ridicule. Once
bureaucrats, police and troops are embarrassed
to be a part of the institution, their morale
drops, they quit doing their jobs, and that's
the end of it. (If you really want to fight back
against the Washington power structure, compile
a list of jokes about it and pass it around.)
How Hopeless is the Situation?
Try to imagine: the Saudis have a fourth
of all the oil in the world and a population of
only 17 million - the same as Texas - yet they
are spending the money so fast they're broke.
The royal family's connections with
Britain and the US discredit them even further
since the US-UN arms embargo of the earlier
1990s in the Balkans led to the slaughter of
thousands of Moslems. Said Saudi Arabia's
Al-Yawm newspaper: "The United Nations bears
responsibility for what is happening now in
Bosnia."
The royal family's complete dependence on
the protection of the West was demonstrated in
the Iraq-Kuwait war. When the ground war began
on January 16, 1991, the Saudi troops
immediately abandoned their equipment and fled
to take cover behind US lines. A disgusted
British officer said, "They bugged out."
"If the world has seemed a messy place since the
end of the cold war, it has lately been getting
sharply messier."
THE ECONOMIST, 1/14/95
A Nitroglycerine Combination
As if all those historical and financial
problems were not enough, Saudi Arabia also
contains Mecca and Medina. These are Islam's two
holiest cities. This means the shrines that are
Islam's most sacred are under control of a
regime that is widely perceived as Islam's most
corrupt. A nitro and glycerine combination if
there ever was one. Imagine how Catholics would
feel if the Vatican were conquered and
controlled by Al Capone.
A popular song is titled "Islam vs.
Christianity," and Moslems everywhere wonder
which side the Saudi royal family is really on.
In 1981, President Reagan pledged US
protection for the Saudi regime against all
enemies, internal as well as external. This
means, apparently, that when the Saudi rulers
finally do come under attack by their own
people, their dictatorship will be protected by
US troops. I wonder how many US troops realize
what they've signed on for. Do they remember it
was the Saudis who led the 1973 oil embargo
against the US?
The End of the Saudi Royal Family
We can never be sure about these things,
but the great rebellion in Saudi Arabia may be
near, due to breakthroughs in electronics.
As with all dictatorships, the primary
means the Saudis use to control their people is
to control the information the people receive.
For several years, Saudi police have been
searching out and destroying satellite TV dishes
which receive uncensored news broadcasts from
space. But the dishes are being downsized; some
now are as small as 18" in diameter and can be
hidden anywhere. Also, phone line access to the
Internet is fast becoming universal.
So, I believe the new electronics combined
with the financial crisis means the end of the
Saudi royal family. My guess is that Iran's
secret agents will continue working to foment
revolution, and they'll do it in a way designed
to prevent US intervention. The rebels will
claim to be fighting for a more democratic
Arabia. Once they've succeeded and are in power,
they will request assistance from Iran to
"stabilize" Arabia. This voluntary invitation to
Iran by the new "democratic" government will be
an end run that will deprive the USG of
justification to intervene.
A Puppet of Iran
The new Arabian government will be, in
effect, a puppet of Iran, and Iran will get de
facto ownership of all that oil. If Iran can
also take the small Persian Gulf oil states in
the process, they will end up controlling half
of all the oil in the world.
The USG has little understanding of Saudi
Arabia. As in Iran in the 1970s, US officials
deal with the English-speaking elite and get
only their view of things. When the big
rebellion happens, today's politicians will
probably be as surprised as their predecessors
when the Shah of Iran was overthrown.
Saudi Arabia is the most thoroughly crazy
place I've ever visited. A whole list of
descriptions comes to mind. Weird, balmy,
psychotic, Alice in Wonderland. The only thing
certain is that it cannot last. Saudi Arabia
will go back to being Arabia, and the bloody
transition will cause oil prices to soar. When?
We cannot know, human behavior is difficult to
predict. We can say only that with the financial
problems, the decline of the welfare handouts
and the new advances in electronics, the stage
is now set.
In all the Islamic world, the only tribe
that's despised more than the Saudis is the
Kuwaitis, who also got where they are with the
help of the much hated British and US. I still
believe the forecast that makes the most sense
is this: Iraq and Iran will continue working
secretly to get the US armed forces hopelessly
tangled up in the Balkans and elsewhere. Then
they will foment revolutions in Kuwait and Saudi
Arabia. Iraq will take Kuwait and Iran will take
the rest of the Persian Gulf plus Mecca and
Medina.
Eventually - maybe immediately, maybe
later - Iraqis and Iranians will fight among
themselves for ownership of the whole prize, and
all the Persian Gulf oil fields will go up in
flames as Kuwait's did in 1991.
What to Look For
Generally, when a government gets into the
kind of trouble the Saudis have gotten
themselves into, it will try to buy time by
printing money. A leading indicator to watch is
the value of the Saudi currency, the riyal. It's
reported daily in the WALL STREET JOURNAL and
other major newspapers. If we see the value of
the riyal begin to decline dramatically, I will
take this as a sign the big revolt is near and I
should get more deeply into oil investments [see
Crude Oil Strips].
The exact timing is impossible to predict,
so I keep a certain number of these investments
in my portfolio at all times.
Warn everyone you care about, it looks
like the Great Chaos is about to mushroom. |
