Kuwait

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SocGen Lays It Out: "EU Iran Embargo: Brent $125-150. Straits Of Hormuz Shut: $150-200"





Previously we heard Pimco's thoughts on the matter of an Iranian escalation with "Pimco's 4 "Iran Invasion" Oil Price Scenarios: From $140 To "Doomsday"", now it is the turn of SocGen's Michael Wittner to take a more nuanced approach adapting to the times, with an analysis of what happens under two scenarios - 1) a full blown EU embargo (which contrary to what some may think is coming far sooner than generally expected), and the logical aftermath: 2) a complete closure of the Straits. The forecast is as follows: 1) "Scenario 1: EU enacts a full ban on 0.6 Mb/d of imports of Iranian crude. In this scenario, we would expect Brent crude prices to surge into the $125-150 range." 2) "Scenario 2: Iran shuts down the Straits of Hormuz, disrupting 15 Mb/d of crude flows. In this scenario, we would expect Brent prices to spike into the $150-200 range for a limited time period." The consequences of even just scenario 1 is rather dramatic: while the adverse impact on the US economy will be substantial, it would be the debt-funded wealth transfer out of Europe into Saudi Arabia that would be the most notable aftermath. And if there is one thing an already austere Europe will be crippled by, is the price of a gallon of gas entering the double digits. And then there are the considerations of who benefits from an Iranian supply deterioration: because Europe's loss is someone else's gain. And with 1.5 million of the 2.4 Mb/d in output already going to Asia (China, India, Japan and South Korea) it is pretty clear that China will be more than glad to take away all the production that Europe decides it does not need (which would amount to just 0.8 Mb/d anyway).

 
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"Other Fed Assets" Hits Record $133 Billion, More Than The GDP Of Kuwait





That the Fed's balance has hit another record high (and will do so for at least two more weeks) should come as a surprise to nobody. After all, when something is at a record and grows relentlessly, it is pretty safe to say next week will be another record. That said, there were several curious observations in this week's H.4.1 update. First and foremost is that the "other Fed assets" category just hit an all time high of $132.7 billion. This category, which is now larger than the GDP of Kuwait, is apparently so comprehensible and transparent to the hoards of FOMC precleared journalists, that for the second meeting in a row, nobody feels like asking a question about just what is contained in this asset class. We also hope that nobody attempts a correlation between the Other Fed Assets class and the S&P. Another notable thing is that as we suggested back in January, the amount of MBS prepays continues to drop and has slowed down to a trickle. Elsewhere, the Fed's excess reserves are once again back to chasing Bernanke's expanding asset class, with over $40 billion more in cumulative asset expansion since the start of QE Lite, than excess reserves. Lastly, looking at the Fed's custodial treasury holdings, there was another small decline in USTs held in proxy by the Fed: the first decline in 4 weeks, since the May 25 second biggest historic drop, discussed previously on Zero Hedge. Aside from these, it was smooth sailing for the Fed, where the average maturity of SOMA holdings declined just modestly from 61.6 to 61.5 months.

 
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Third Government Set To Fall In A Week: Kuwait Cabinet Expected To Resign On Thursday "Over Questioning"





Following the fall of the Portuguese and Canadian governments (and don't get us started on Belgium), here comes the latest entrant to the anarchy club. Kuwait's cabinet is expected to resign on Thursday after lawmakers asked to question three ministers, parliamentary sources said on Wednesday. More from Reuters: "The sources said that the cabinet was set to submit its resignation after lawmakers asked to question three ministers who are ruling family members, including the oil exporter's energy minister, who is also the information minister." After all what better way to avoid answering questions in a bona fide "democracy" than to take down the entire government. But this too is bullish: "Ministerial resignations are frequent in Kuwait, which has the most outspoken parliament in the Gulf Arab region." In other words it was priced on. And furthermore, with a globalized corporatocracy long in charge of the world, receiving its lifeblood of endless money and cheap credit, who needs governments anyway.

 
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Tear Gas Fired At Kuwait Demonstrators





Domino #2. If a peaceful protest results in tear gas, one wonders what the napalm content of the response would be if anyone makes any false moves. "Kuwait riot police fired tear gas Friday to break up a small, peaceful demonstration by stateless Arabs who were demanding greater rights in the oil-rich Gulf nation. Besides Kuwait, protests were also expected Friday in Bahrain and Saudi Arabia, while tens of thousands of anti-government demonstrators also took to the streets of the poorest nation in the Arabian Peninsula, Yemen."

 
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A Look At No POMO Friday As Saudi, Yemen, Kuwait And Bahrain Brace For Protests





Newsflow tomorrow is going to be heavy as Saudi, Yemen, Kuwait and Bahrain all prepare for protests. And if today's actions are any harbinger of what to expect, there will be serious unrest, quite possible turning violent even lethal. The wildcard still continues to be Iran, also a hotbed of recent protest, which has so far not made much noise about the crackdown on Shi'ites in the wealthy Saudi kingdom. Reuters summarizes what to look forward to: " Arab uprisings that have spread to the conservative Gulf region face a crucial test this week in Saudi Arabia where activists have made unprecedented calls for mass protests against the kingdom's absolute monarchy. Protests are planned in other Gulf countries such as Yemen, Kuwait and Bahrain on Friday, the region's weekend. The time after Friday prayers has proved to be crucial in popular uprisings that have brought down Tunisian and Egyptian rulers who once seemed invulnerable. More than 32,000 people have backed a Facebook call to hold two demonstrations in the country, the first of them on Friday. Saudi police dispersed a protest by a Shi'ite minority in the OPEC member's oil-producing Eastern province near Bahrain on Thursday with one to four people wounded as shots were heard, witnesses said." Furthermore, as we disclosed earlier, the Fed may have made a major error by not conducting a market stabilizing POMO tomorrow - arguably the day it will be needed more than ever. Those so inclined are urged to put on some fat tails insurance ahead of tomrrow's events which will most certainly result in some very violent swings in either direction.

 
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Oil Breakout Alert - Kuwait, World's Fourth Largest Oil Exporter, Joins Demonstrations Demanding Regime Change





Crude dropped overnight, after the FT joined the BBC in the "False Rumor Spreading Korner", after the Libyan Investment Authority held newspaper said some OPEC members are looking to raise oil output to avoid any supply shortfalls. Too bad that just like every other previous rumor-based attempt to drive oil lower, this one was refuted within minutes by the same OPEC members that were allegedly boosting their capacity (which does not exist in the first place). Perhaps if the FT had read the note sent out at midnight by Goldman's David Greely, which noted that there is virtually no spare OPEC capacity left, they would have known why they should have come up with a more credible rumor: like Gaddafi committing suicide after watching the latest episode of Sheen's Korner. So much for the rumor mill. Now on to facts, where instead we see a development which threatens to send oil surging far higher. Reuters reports that formerly peaceful Kuwait has just joined the ranks of demonstrators, demanding the resignation of the prime minister in a peaceful protest early in the day, with a larger one expected later in the day: "Kuwaitis demonstrating outside parliament for the prime minister's ouster came up with a new symbol of Arab discontent on Tuesday by handing out watermelons. "This is for the parliament's poor performance," one of the small band of protesters shouted as he gave a watermelon to a lawmaker making his way into the parliament. The significance was not spelled out, but in local parlance, a person who has a lack of understanding or holds an unrealistic point of view sometimes is called a watermelon. A potentially larger rally was expected later, inspired by spreading Arab protests that toppled leaders in Tunisia and Egypt before sparking the insurrection in Libya and spreading to other Gulf countries including Bahrain, Oman and Saudi Arabia." Kuwait, for those keeping track, is the 4th largest oil exporter in the world.

 
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