Iran

Earlier today, we reported that the US military is in the process of repositioning its forces in the area around Libya "to be able to provide flexibility and options." And while we have yet to get an updated US naval map for this week (the last one can be found here), it appears that the USS Enterprise which was previously on its way to the Straits of Hormuz has made a 180 and has now backtracked completely through the Red Sea and is now once again north of the Suez, where it has joined the big deck amphibious warfare ship Kearsarge. This means that the USS Vinson is again left alone to protect the highly combustible gulf region, which now includes both Bahrain and Oman, in addition to Yemen and of course Iran and Saudi, on revolutionary watch. It may be time to send Abraham Lincoln, which in turn is patrolling the South China Sea, back to the Persian Gulf as the possibility of a flashpoint escalation there is far greater than around Indonesia (which however would leave all of Korea and China unguarded). Keep an eye out on CVN 74 and 76 - Stennis and Reagan. If those two start making a move west, then next steps can be extrapolated quite easily.

It appears we may have misspoken earlier when we suggested that today's peak-lunaticism will be that spouting from the mouth of one ex-Goldmanite Bill Dudley. Here is another current Goldmanite (whose recent GSAM P&L track record is in dire need of public dissemination), vying for today's prize. "If I look at the whole region together, then just at Africa in general,
MENA has the combined potential to be a BRIC-like economic group. In
this spirit, and despite all the horrible things happening in some of
these places, this revolution strikes me as being essentially rather
bullish." If it weren't for my horse...

Saudi Arabia continues being on an excess capacity roll. After totally butchering the concepts of apples and oranges, specifically as pertains to light sweet and heavy sour, with the market apparently stupid enough not to know the difference, and somehow promising it can make up for lost Libyan output last week when in reality it is in desperate need to export more oil to balance its budget, the increasingly troubled country now is seen as the natural backstop to Oman disruptions. Reuters reports: "Oil prices turned lower on Monday as reassurances from Saudi Arabia that extra supply needs had been met soothed market fears over the spread of protests to oil-producer Oman. Violent uprisings in OPEC member Libya dramatically reduced exports from North Africa, but Saudi Aramco CEO Khalid al-Falih told reporters on Monday the shortfall had been made up. Falih refused to give exact figures, but an industry source on Friday said the top exporter's output had risen to more than 9 million barrels per day (bpd). This compared with roughly 8.3 million bpd in January, according to a Reuters survey." Of course, whether or not there is any actual hike in production in a country long rumored to be vastly exaggerating its spare capacity, we will only know months from now. In the meantime, Saudi will gladly take the few days of stability sub-$100 WTI grants the world, while it decides how to handle increasingly more beligerent neighbors Yemen, Oman and Bahrain.

As we reported yesterday, Saudi Arabia which following its latest recreation of Helicopter Ben's money parachuting experiment to buy its people's love, suddenly has found itself in a fiscal crunch, has no choice but to increase general oil sales revenues. Which is why as Reuters reports the kingdom, which many speculate may be next to see a spike in protests in early March, has just hiked its oil output by 8% to over 9 million barrels per day. The move, in addition to yesterday's margin hikes by both the CME and ICE, has forced oil prices to decline modestly, bringing some stability to an otherwise extremely jittery market, which would also further exacerbate geopolitical tensions. "The Saudi move follows reassurances from Riyadh earlier in the week that it was prepared to act to prevent shortages as a result of the rebellion in Libya against leader Muammar Gaddafi that has sharply reduced the fellow OPEC producer's 1.3 million bpd of exports." What is unclear is how Iran, an OPEC member, will respond to this unilateral action out of an otherwise "collective" oil cartel. We continue to expect that as a result of a widening political schism between the OPEC member nations, and the ongoing turbulence in Libya, that OPEC will be soon "restructured" materially.

David Rosenberg shares his updated list of the now 6 (formerly 4) drivers of stock performance: "Well, we use to say there were four key drivers: 1. Fundamentals; 2. Fund flows; 3. Technicals; 4. Valuation. Then we introduced another one last week: 5. The Fed’s balance sheet; And now there is a sixth: 6. Corporate earnings surprises. No wonder St. Louis Federal Reserve Bank President Bullard is opting for QE3 — he’s probably long the market!"

As recent developments out of Libya have demonstrated, when geopolitics and oil production mix, the resultant product is quite explosive. And as more protests are sure to spread to other countries in the region (with Saudi of course being the key domino whose potential fall would send crude well over $200), below we present a summary atlas of the key production capacities in both crude and gas, as well as proven reserves of all the countries in the MENA region. At this point, with Libya largely priced in, all attention should once again shift to developments in Bahrain, which contrary to the media black out, have not been put under control even remotely. The rumored fact that Al Jazeera may have allegedly received a "request" from Saudi Arabia to not cover recent events is a different story altogether.

Even as silver performed some unprecedented fireworks today, plunging on what was a margin hike in... crude, the metal continues to trade just below its post-Hunt Brother highs. So for those who still have not decided whether or not to take the plunge and buy into the precious metal (which, granted, was selling at $8.80 three years ago, and has since nearly quadrupled in price), we present the following discussion between Jeff Clark of Casey Research and The Daily Crux, which answers "what you need to know about buying silver today." This comes a week after we first highlighted that the Canadian Mint has sold it last stock in silver and has demand for much more.

It has been a long wait for “peak oilers”. Egypt was a snore, but Libya is a different kettle of fish. Global production peaks in 2015, and after that the sushi hits the fan. Next stop, $300 a barrel?

There are many different kinds of revolution; some more effective than others. Telling the difference between a successful revolution and a failed revolution can be tricky. Often, on the surface, they look exactly the same. The secret is to set aside what we would “like” to see, and be brutally honest about what was actually accomplished in the course of the dissenting action. Has power been fully rescinded by the offending government or regime to the people, or, to yet another corrupt bureaucracy with a slightly different face? Have the puppet strings of corporate globalists been severed from your country, or do they remain strong as ever? Has ANY corrupt official actually been punished for the crimes that led to the insurgency in the first place, or, did they fly off scot-free to their million dollar villas in Ecuador, drinking mojitos in wicker recliners and watching the disaster they created unfold on CNN? Who ultimately benefited from the event?

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.

The Numbers Behind the Middle Eastern and North African Revolts

Is this one of those "who could have possibly seen it coming" moments? As events in Libya overnight spiralled out of control, with dozens if not hundreds killed, the parliament buildng in Tripoli on fire, and output at one of the country's oil fields reported to have been stopped by a workers' strike, BP has said it will soon begin evacuating some of its personnel from the 9th largest producer of oil. And just to complete the total chaos, Iran warships are now going to pass the Suez on Tuesday instead of today, to the full glory of a fully open US stock market. The result: gold over $1,400; silver over $33.50; Crude front month over $93; Brent over $105; etc. Luckily, the US stock market is closed, meaning all this will be "priced in" by tomorrow, and the HFT levitation can resume tomorrow as if today never happened...

As we pointed out earlier, the upcoming week will be quiet on economic and market events. What it, however, will be heavy on is revolutions, riots and the good old ultraviolence. Below is a useful primer from Stratfor for what is becoming an increasingly more complex geopolitical chess game, for the time being confined in the Maghreb, but soon spreading all across the Muslim crescent and soon thereafter into East Asia.

WTI’s premium disappeared about a year ago and in recent days it has been trading at more than a $10/bbl discount to Brent mainly due to rising inventory levels at Cushing OK. Some believe WTI may be undervalued by at least $12.

Refuting reports that the two Iranian warships had passed the Suez Canal into the Mediterranean, Suez Canal officials said that the ships are not to sail through until... tomorrow (when international FX markets are open at half volume mast). Previous reports on Iran's Arabic language state television channel Al Alam TV reported that the ships had passed through the Suez Canal (as, of course, had Debka). Although in reality a 24 hour difference will likely not matter much. The key aspect is that Egypt has indicated that it will not bend to international pressure when it comes to "canal neutrality" rules - something that will likely not inspire confidence in Egypt. As for the warships, we doubt anyone will to take a real defensive posture - after all as we pointed out previously both of these are over 30 years old, and any escalation would be purely symbolic to further mobilize middle eastern forces, based on "provocation" rhetoric. Look for some fireworks in FX trading overnight and tomorrow when already subdued volumes exagerate the impact of any potentially troubling news headline.