Iran

While the majority of the world was in a sleepy mood courtesy of closed core capital markets, events in Syria were anything but. From Reuters: "Syrian security forces killed almost 90 protesters on Friday, rights activists said, the bloodiest day in a month of escalating pro-democracy demonstrations against the rule of President Bashar al-Assad." Yet while many are quick to dismiss "yet another MENA revolution", Emad Mostaque, MENA strategist at UK's Religare Capital Markets begs to differ. "The market implications of a breakdown in Syria would be profound, but likely not be felt immediately as it doesn’t tick the boxes for proximity (such as Bahrain) or oil production (such as Libya). Iran’s influence would be curtailed, as would support for Hezbollah and Hamas." But the mittelspiel does not end there, and will likely have even greater consequences on Israel: "A third intifada between Israel and Palestine is already likely following a series of rather unpleasant attacks from both sides and a Syrian breakdown would heighten the chances of an Israeli attack on Lebanon, particularly given the success thus far of their new Iron Dome anti-ballistic system (even stops mortars)... A conflict like this would raise the chances of a follow up attack on Iranian nuclear facilities, particularly if Hezbollah’s retaliatory rocket capabilities were neutered." So it appears that the old bogeyman from the summer of 2010, Iran's nuclear power - the source of so much Stuxnet (of unknown origin( consternation, is about to come back front and center all over again. And when one factors in the ubiquitous presence of CIA operatives (flipflops on the ground) in the region (always disclosed well after the fact) one wonders just how staged this latest "revolution" truly is.

Following two revolutions, one civil war, a massive earthquake, a tsunami and a nuclear catastrophe, the world now appears to be a oblivious to geopolitical news of any nature. And yet geopolitics continue to matter. The latest example comes from Bahrain where The National reports that "there is no state of emergency in Bahrain, the nation's foreign minister said yesterday, but rather a "national safety situation" due to interference from Iran." Well, with Saudi troops and the US 5th fleet solidly still landed in the kingdom, it appears that this is nothing but another preemption of a Wag the Dog type scenario. "Khalid bin Ahmed al Khalifa told reporters on the sidelines of an anti-piracy conference in Dubai that the Gulf Peninsula Shield Force was needed to counter Iran's effect on his country." And just in case it was unclear how much of a "threat" Iran is, he added: "We have never seen a sustained campaign from Iran on Bahrain and the Gulf like we've seen in the last two months." Naturally, Iran was delighted to be blamed for what is a crackdown by the Bahrain government against its own people: "Meanwhile, Iran's foreign ministry has said the allegations of interference in Bahrain, where Shiites form the majority, targeted "Muslim unity", according to the state television website." In the meantime Brent continues trading at a price, and will continue trading at a price, that continues to take out several percentage points from US and European GDP. But this is so obvious it will take Hatzius at least a few more weeks before he downgrades his full year outlook.

While it will not come as a major surprise to most, according to senior BOE individuals and Wikileaks, Iran, as well as Qatar and Jordan have been actively purchasing gold well over the amount reported to and by the IMF, in an accelerated attempt to diversify their holdings away from the US dollar. "Iran has bought large amounts of gold in the international market, according to a senior Bank of England official, in a sign of how growing political pressure has driven Tehran to reduce its exposure to the US dollar. Andrew Bailey, head of banking at the Bank of England, told an American official that the central bank had observed “significant moves by Iran to purchase gold”, according to a US diplomatic cable obtained by WikiLeaks and seen by the Financial Times." The reason for Tehran's scramble into gold: "an attempt by Iran to protect its reserves from risk of seizure”. The misrepresentation of Iran's holdings could be so vast that Iran could possibly be one of the largest holders of goldin the world. "Market observers believe Tehran has been one of the biggest buyers of bullion over the past decade after China, Russia and India, and is among the 20 largest holders of gold reserves... with an alleged 300 tons, big enough to challenge the UK at 310 tons, and more than Spain! " As a reminder according to the WGC, Iran is not even disclosed as an official holder of gold. Also, Iran is not the only one: "Cables obtained by WikiLeaks cite Jordan’s prime minister as saying the central bank was “instructed to increase its holdings” of gold, and a Qatar Investment Authority official as saying the QIA was interested in buying gold and silver." Which means that there is far more marginal demand by countries supposedly friendly to the dollar, as many more than previously expected are actively dumping linen and buying bullion. What all this means for the future price of gold, especially with geopolitical tension in the region,  and QE3 imminent, is rather self-evident.

According to the BBC, the Gulf Cooperation Council has just gotten involved with the UAE pledging 24 aircraft and Qatar - 4 to 6. It is still unclear if Saudi Arabia will now lead a two front war following its invasion of Bahrain last week. Additionally, Al Jazeera reports that the Libyan authorities had detained one of its reporting teams several days ago when working in west Libya. The channel said, in a report on its website, that the team included two correspondents, one Tunisian and another Mauritanian, and two cameramen, one Norwegian and one British. But most troubling is that per Gaddafi's earlier address to the people he would start arming the civilian population to defend Libya. From Reuters: "Libyan leader Muammar Gaddafi said on Saturday he will arm civilians to defend Libya from what he called "colonial, crusader" aggression by Western forces that have launched air strikes against him. "It is now necessary to open the stores and arm all the masses with all types of weapons to defend the independence, unity and honour of Libya," Gaddafi said in a speech broadcast on state television hours after the strikes began. "We call on the peoples and citizens of the Arab and Islamic nations, Latin America, Asia and Africa to stand by the heroic Libyan people to confront this aggression, which will only increase the Libyan people's strength, firmness and unity," he said." Whether that means that UN forces will treat every civilian as a possible enemy combatants will be seen upon the land incursion which should commence within a few days. Unclear if Xe will be involved this time.

The situation in Bahrain is going from bad to dire. Earlier, thousands of protesters marched to the Saudi embassy in the Bahraini capital, angry at the intervention of Gulf Arab forces. 1000 Saudi troops had rolled into the country at the request of Bahrain's Sunni rulers. As Reuters reports, and as Zero Hedge discussed extensively before, the troop movement could signify Saudi concern that any concessions in Bahrain might inspire the Kingdom's own Shi'ite minority. Earlier on Tuesday, the Bahrain King declared martial law as his government struggled to stop the protests. The three month state of emergency hands power over to Bahrain's security forces, which is dominated by the Sunni Muslim elite. Injured were taken to hospital as violence continued in the small Gulf island. "We came out of the tunnel and they started shooting at us and I got injured here, in the back." An opposition politician said one man was killed and several wounded in clashes with police in the Shi'ite area of Sitra. But the biggest news, that which caused crude to just jump by a dollar, is that the Iran President has called the actions by the Bahrain government "unjustifiable and irreparable." And if or rather when Iran gets involved on the basis of a religious escalation, watch out for global stagflation.

From Reuters: U.S. OFFICIAL EINHORN SAYS BELIEVES IRAN SEEKS TO REACH THRESHHOLD OF NUCLEAR WEAPONS CAPABILITY

If indeed this is the first step of a forced provocation (shocking "weapons of mass destruction" discoveries coming?) we can't wait to hear how much more excess capacity Saudi Arabia can suddenly find and come to market with. It may however be slightly troubled to replace lost Russian output too: Reuters now reports that crude products exports blocked in thick ice at Russian Baltic ports according to St Peterburg Port Authority.

Bad news for crude bears all around today.

No missing tank rumors were disseminated in the copy and pasting of this latest Reuters blurb on what is happening in Iran now. Incidentally, if the reports from Bahrain are even remotely true, it is all downhill from here as the religious aspect of the food revolutions comes out front and center. "Iran's security forces have been deployed to the streets on Tuesday ahead of a planed opposition rally calling for lifting house arrests imposed on opposition leaders, an opposition website reported. "A large number of security forces have been stationed at main streets and some squares of Tehran since noon to prevent gathering of opposition supporters," said the Sahamnews website. It is unclear if any Bloomberg reports were beaten with broomsticks as a result of this latest crackdown on demonstrations.

Despite indications that the US would attempt to forcefully box the Iranian warships in the Red Sea, first observed here, this strategy, if that was indeed the plan, has failed, and according to Egypt's state-run MENA agency, the Suez crossing for one (very old) Iranian frigate and one (very old) supply ship has commenced. Bloomberg reports: "The ships entered the canal early today after the approval of Egypt’s Defense Ministry, the state-run Middle East News Agency cited Ahmed El Manakhly, head of traffic at the Suez Canal Authority, as saying. The crossing usually takes 10 to 12 hours, El Manakhly said." Israel is, needless to say, unhappy: "Israeli Foreign Ministry spokesman Yigal Palmor today said that Israel would consider the presence of the warships sailing through the canal to the Mediterranean Sea “a provocation” that should be “dealt with by the international community.” Palmor said he was citing previous comments by Foreign Minister Avigdor Lieberman." Yet with tensions already on edge, the possibility that this latest war of words escalates into anything more is quite remote.

While last week the focus of US naval deployment in the Middle East emphasized securing the Suez Canal in the midst of the Egyptian revolution, this week the developing story is the passage of two Iranian warships through this very canal. Not surprisingly, two US naval groups - an aircraft carrier and a big-deck amphibious warfare ship - are now situated at either end of the Red Sea, where the Iranian flotilla is supposedly located. Will the US presence be enough to prevent escalation? Since we believe that Iran has few alternatives to pulling a "wag the dog" scenario with increasing domestic protests, and an increasingly more troubled ruling class, perhaps the increased US presence in the area is geared more toward dissuading a preemptive engagement by Israel. Regardless, expect posturing to increase as Iran is now stuck in a position from which it can only lose face if it does not at least pursue the symbolic passage of the Suez canal. What happens after is unclear.

Are these (1) spontaneous protests in the Arab world (2) creations of American intelligence services or (3) the start of a world-wide unfolding of unrest?

After nothing happened last night, following Egypt's statement that it had not received a request to allow Iranian warships through the canal, PressTV has just announced that an Iran Navy official says the 2 warships are in fact on their way to the Canal and will pass shortly. Per Reuters, "the Iran state TV says Egypt sees nothing wrong with passage of Iranian warships through Suez Canal." The vessels in question are the Alvand frigate and the Kharg, a supply vessel.

Tensions in the Middle East is once again heating up. Following earlier reports that Israel would not take too kindly to Iranian warships passing through the Suez Canal, the WSJ now reports that Iran has likely resumed nuclear-research work. "A new classified US intelligence assessment concludes that, even as Iran enriches more uranium, there is an increasingly heated debate within its regime over whether to move towards building nuclear weapons, suggesting international economic sanctions may be sowing serious divisions." Does this mean it is time for a new revision and more lethal version of Stuxnet to be released? How much of this report is based on fabricated data is unknown, although judging by how well it worked last time around there was a full scale US incursion, we will likely find out soon enough (or eventually). As to whether Israel is actually willing to take the risk and actually initiate a military offensive against Iran, and, indirectly, against Egypt's military coup government, we will likely find out tonight when the ships are actually expected to cross the canal.

Blink and you will miss the latest revolution. Algeria riots yesterday, Bahrain earlier today, and Iran now. Per AP: "Clashes between Iranian police and tens of thousands of protesters wrecked central Tehran on Monday as security forces beat and fired tear gas at opposition supporters hoping to evoke Egypt's recent popular uprising. The opposition called for a demonstration Monday in solidarity with Egypt's popular revolt that a few days earlier forced the president there to resign after nearly 30 years in office. The rally is the first major show of strength for Iran's cowed opposition in more than a year. Police used tear gas against the protesters in central Tehran's Enghelab, or Revolution, square and in Imam Hossein square, as well as in other nearby main streets. Demonstrators responded by setting garbage cans on fire to protect themselves from the stinging white clouds." And a quick refresher in Geopolitics 101: Iran has lots of oil...and, supposedly, nukes (assuming Norton anti-virus has a Stuxnet patch).

To all freedom loving Arab brothers and sisters...

It appears that gold isn't really a currency... until it is. The Economic Times reports that India is attempting to ensure steady crude oil supplies from Iran. In doing so it is doing everything it can to pay Iran in a way that avoid loopholes associated with recent US sanctions. And the stunner: "India could settle crude oil import transaction using gold in the short term, while efforts to resolve the deadlock continue." But does Iran realize they can't possibly eat all that gold? Or that The Fed has no way of diluting to oblivion? Or that, unlike the dollar, it is currently not involved in a global race to bottom in which every central bank will have no choice but to print ever more of its linen-infused currencies? Something tells us that the answer to all three is yes.