Middle East

If Syria is invaded by the West, then we should be getting ready for a hike in the price of Brent that some say may reach a much as $150 since it will escalate into a regional problem and affect supplies coming out of Iraq.

While Nigel Farage personal view that it is 'probable' that Assad did what the US and British are accusing him of, he notes "it is not absolutely certain," and before we go to war, "we must have absolute proof and certainty." Commenting on the British and US seeming enthusiasm for another Middle Eastern 'war', Farage provides a few minutes of common sense in this brief clip when he notes that Europe remains split - though "moral outrage" at the accusations will likely mean they support the attacks (adding that "moral outrage alone is not enough to warrant attacks."). The UKIP leader then warned that "military intervention in Syria could lead to something far bigger, and even more worrying than we are seeing at the moment." Finally, Farage notes that "whenever we get involved in the Middle East, we tend to make things worse, not better," and as ghastly as the actions being committed are, there is nothing the British (or American) military can do to make things better.

Until now, the loudest and most material opponent to a Syrian invasion by the "liberating" powers was Russia. Moments ago, China joined the anti-western axis. BBC reports: "Russia and China have stepped up their warnings against military intervention in Syria, with Moscow saying any such action would have "catastrophic consequences" for the region." Adding to the picture, Interfax reported moments ago that representatives of Russia and China have withdrawn from a UN Security Council session on Syria. And since both countries have UN veto power, just like back in 2012 when this whole scenario was being replayed, there can be not joint UN resolution.

At a time when we claim to be seeking a permanent solution to the circular situation which exists between Israel and Palestine (Palestinians), it is incongruous to reality that we fail to see what is happening all around the Middle East.  The old United Arab Republic, Syria and Egypt, have over 90 million people divided and fighting, whether in open civil war or through socioeconomic confrontation.  It has less to do with political regimes, and so-called dictatorships such as those of Mubarak and Assad, and more to do with the existing distribution of wealth and power.  And equity may or may not come through dialogue (hopefully) or civil struggle (unfortunately).  

• Merkel Blames SPD’s Schroeder for Letting Greece Into Euro (BBG)
• U.S. Bank Legal Bills Exceed $100 Billion (BBG)
• U.K. to Request U.N. Action to Protect Syrians From Chemical Weapons  (WSJ) - and Russia to veto any decision
• U.N. inspectors in new Syria mission as West prepares to strike (Reuters)
• Emerging-Market Rout Intensifies on Syria Jitters (WSJ)
• Rebels Without a Leader Show Limit to U.S. Role in Syria War (BBG)
• Anger at IRS Powers Tea-Party Comeback (WSJ)
• China has much at risk but no reach in Middle East (Reuters)
• 'London Whale' Penalties Put at $500 Million to $600 Million (WSJ)
• U.S. lawmaker says 'compelling' evidence of Syrian chemical attack (Reuters)

Over the weekend we laid out the textual "short guide to the Middle East", today we provide the graphic (visual) version of the dummies guide to the Middle East. Simple, right?

The increasing likelihood of some form of limited US led military action in Syria is compounding concerns about the stability of the world’s key oil producing region and Barclays warns that it will likely exert upward pressure on prices until the nature of the possible military intervention becomes apparent. But the bigger risk for the oil market is the potential for the Syrian conflict to spread to neighboring producing countries and imperil regional output, as the Syrian conflict is fueling broader sectarian tensions across the entire Middle East and has become something of a proxy war. The problem for global oil prices is that all of this Middle East volatility is taking place against the backdrop of a recent rise in unplanned outages in the oil market outside Syria. In sum, Barclays is concerned that with geopolitical tension and physical outages on the rise, crude oil markets are at an inflection point.

• MILITARY OPERATION AGAINST SYRIA WOULD ONLY WORSEN CONFLICT - DUMA CHAIRMAN
• MOSCOW ALARMED BY SOME COUNTRIES' DELIBERATE ACTIONS TO UNDERMINE PRECONDITIONS FOR POLITICAL-DIPLOMATIC SETTLEMENT OF CONFLICT IN SYRIA - FOREIGN MINISTRY
• LAVROV DISAGREES WITH U.S. ON BLAMING SYRIAN GOVERNMENT FOR CHEMICAL ATTACK IN TELEPHONE CONVERSATION WITH KERRY - RUSSIAN FOREIGN MINISTRY
• RUSSIA BELIEVES EXPERTS' WORK IN SYRIA SHOULD BE SUPPORTED, FACILITATED AS MUCH AS POSSIBLE - FOREIGN MINISTRY

Yesterday the Telegraph's Evans-Pritchard dug up a note that we had posted almost a month ago, relating to the "secret" meeting between Saudi Arabia and Russia, in which Saudi's influential intelligence chief Prince Bandar bin Sultan met with Putin and regaled him with gifts, including a multi-billion arms deal and a promise that Saudi is "ready to help Moscow play a bigger role in the Middle East at a time when the United States is disengaging from the region", if only Putin would agree to give up his alliance with Syria's al-Assad and let Syria take over, ostensibly including control of the country's all important natgas transit infrastructure. What was not emphasized by the Telegraph is that Putin laughed at the proposal and brushed aside the Saudi desperation by simply saying "nyet." However, what neither the Telegraph, nor we three weeks ago, picked up on, is what happened after Putin put Syria in its place. We now know, and it's a doozy.

Syrian President Bachar al-Assad has warned President Obama not to take military action against his country since: “Failure awaits the United States as in all previous wars it has unleashed, starting with Vietnam and up to the present day”.

President Bashar al-Assad stressed that "Syria is a sovereign country that will fight terrorism and will freely build relationships with countries in a way that best serves the interests of the Syrian people." As Syrian TV reports, in an interview with the Russian newspaper of Izvestia, President al-Assad stressed that "the majority of those we are fighting are Takfiris, who adopt the al-Qaeda doctrine, in addition to a small number of outlaws." On the alleged use of chemical weapons, President al-Assad said that the statements by the US administration, the West and other countries were made with disdain and blatant disrespect of their own public opinion, adding that "there isn’t a body in the world, let alone a superpower, that makes an accusation and then goes about collecting evidence to prove its point." Al-Assad stressed that these accusations are completely politicised and come on the back of the advances made by the Syrian Army against the terrorists.

Overnight the emerging market rout continued, with the India Sensex down another 3.18%, the Philippines tumbling 4%, Jakarta down 3.7% and Dubai crashing 7%. A driving factor continues to be the fear over an imminent air campaign launched at Syria, leading both WTI and Brent higher by 1%, and gold finally breaking out above the $1400 tractor beam, and printing at $1412 at last check, a hair away from a 20% bull market from the lows. In other news, the market is once again "surprised" to learn that Summers, who as we have been showing for over three weeks is the frontrunner for the Fed chair, is the frontrunner for the Fed chair according to CNBC. Of course, there is nothing preventing this from being the latest trial balloon (and nothing that suggest Summers will actually be hawkish as conventional wisdom seems to think: the guy basically works for the financial sector) but futures aren't waiting to find out, and US traders are walking in this morning to a red screen with ES down just over 10 point and sliding. Any minute now the great unrotation from stocks into bonds (10 Year was 2.77% at last check) is about to be unleashed. And if Obama actually goes to war (without talking to Congress of course), watch the bottom fall from the market.

Americans Are Sick of War

Remember what the 2012 leaked Stratfor memo said about the focal point of western airborne power? Here it is again: "Syrian air defenses are a lot more robust and are much denser, esp around Damascus and on the borders with Israel, Turkey. THey are most worried about mobile air defenses, particularly the SA-17s that they've been getting recently. It's still a doable mission, it's just not an easy one. The main base they would use is Cyprus, hands down. Brits and FRench would fly out of there. They kept stressing how much is stored at Cyprus and how much recce comes out of there. The group was split on whether Turkey would be involved, but said Turkey would be pretty critical to the mission to base stuff out of there. EVen if Turkey had a poltiical problem with Cyprus, they said there is no way the Brits and the FRench wouldn't use Cyprus as their main air force base." (sic) Well, it has begun. Guardian reports that "Warplanes and military transporters have begun arriving at Britain's Akrotiri airbase on Cyprus, less than 100 miles from the Syrian coast, in a sign of increasing preparations for a military strike against the Assad regime in Syria."

Last week it was the Nasdaq, today it was the Eurex Exchange, which broke down "due to technical issues" shortly after 2 am Eastern and which was offline for over an hour. Further keeping a lid on liquidity and upward momentum is today's UK market holiday which has resulted in a driftless move lower across European stocks, following a red close in the Nikkei225. It only means that the inevitable ramp up in the disconnected from all fundamentals and reality market will have to come only during US trading hours when the NY Fed trading desk steps up its POMO-aided levitation.