Making money off the new 30 Year Middle East War between Shia and Sunni
(Author's note: here’s a sequel to the other article I wrote on investments and conflict:)
I’ll be going to Erbil, Kurdistan, to check on some our company’s investments. I’ve gotten my GoRuck pack, my desert boots, and of course my iPad with the Bloomberg app installed — baller. Our investments include but are not limited to ShaMaran, Hunt Oil, HKN Energy, and a few others.
Now, in this on-going conflict we should give the readers of WSO some perspective given the region is like a great, big, long brown porcupine for investors (a porcupine because the region bristles with quite exceptional difficulties). Fundamentally, the market should exploit the market inefficiency of the United States having supported a weak-Shia government in Iraq, while supporting Sunni rebels against a Shia (Alawite) government in Syria. End result, chaos... but with chaos comes the possibility of large returns!
Background... if you know it skip the recommendations:
When I was growing up, in the early 1990s, there was a war called the First Gulf War (Operation Desert Shield and Operation Desert Storm). You could say Iraq had a rage quit after losing the Iraq-Iran War that was, and has been, the only war between Middle Eastern combatants to have casualties on par with any European conflict — to put it another way, we made a ton of money as oil prices spiked and we held deposits elsewhere with high NPVs, with lots of willing investors. So they decided to invade Kuwait, go figure. That led to lots of conflict and a great time for oil companies.
Fast forward to 2003, America was engaged playing hide and go seek with Osama bin Laden on the Afghan-Pakistan border. Additionally, about one SF Group (out of 7) was deployed in Afghanistan at the time. Some SOT-As were doing a lot, some were doing fuck’all and we got tired, bored, and so went after Iraq.
When we did the "Thunder Run" to Bagdad in just 3 weeks with the 3rd Infantry Division leading the way, all in all, energy prices rose, making other investments like gold a more attractive opportunity given its promise of safety (take a look at a gold chart and you'll see it surged starting then). This was fast becoming a great golden era for Marc Rich-type commodities investments.
Fast forward to 2010, America was pulling out of Iraq and a number of multi-nationals were beginning to make investments in Iraqi Infrastructure. SINOPEC, the Chinese national oil company, bought up 2 of the 3 major fields, the pipeline, and a few other things near Basra. Other American companies made prospects and exploration offers in Northeast Iraq, north of Bagdad, along with beginning to prospect in Kurdish oil finds near Kirkuk.
Fast forward again to 2014, the Iranian economy, next door, hasn’t grown at all with all the turmoil it’s been going through. Egypt, its cotton and wheat exports are crumbling. In Turkey, once considered safe and even a possible triple rated (AAA) asset, is now seen as the next domino to fall, and Syria (once one of the largest oil exporters in the region) no longer has its oil is actually not going to Europe but to the hands of terrorists who are smuggling it out.
So, how do we make a buck off of this?
Well, given Baiji oilfield is now gone and the Iraqis can no longer ship their oil by land to Jordan, one way are indirect investments in American gold and oil prospects with high CAPEX and will be considered worthwhile given its safety (Novagold and Electrum Group, under Thomas Kaplan, would be one example).
Another, like in Kurdistan, could be companies like ShaMaran which will soon have added oil fields in Kirkuk to its portfolio (given the Kurds will soon annex that region) means it's even more valuable than before. Additionally, higher oil prices for companies that can deliver means better earnings, especially for those smaller oil companies like Hunt or HKN.
It's likely Kurdish oil will begin flowing to Israel via Turkey -- fantastic news again for investors in Kurdistan that a country is willing to jump the gun and sell its resources to the only non-Muslim consistent consumers of energy in the region.
Another play would be to continue shorting Turkish bonds and the Turkish economy. I’d argue that you should have done this a while before, but if you’re new to the game there’s no reason not to start now.
Lastly, we have the equities Given this will be a long war we can expect military-related companies like BAE Systems, Lockheed Martin, or even Russian arms companies, to make a killing come the next fiscal year. We can imagine many more countries seeing this insecurity and saying they need more anti-tank missiles to blow up possible insurgents.
From my current understanding, the Kurds have picked up the Kirkuk oil field due to the fact that al-Maliki's government is watching their troops flee ISIS. The US provided only token support with 300 "advisors", which is pushing the Iraqi government into the open arms of the Ayatollah. The Quds Force is on the ground already in Iraq and I have no doubt that Iran will prop up the Shia government of Iraq by whatever means necessary. And when the dust settles and ISIS has been exterminated, there is no way in hell that the Kurds are going to get away with that land grab.
Well, from my contacts the Kurds choose to takeover Kirkuk and go further. They announced it's apart of their governante, the KRG, and even appointed a new governor for it.
As for Iran, yes they're sending the Quds force but they sent them during the "Surge" in 06-07 and were pretty easily defeated. There's two parts of the Quds force... the "quiet professional" side that wages "unconventional warfare", assassinates leaders, bombs the enemy with IEDs, etc. That's going to be difficult to do, given it would require infiltrating ISIS-controlled areas.
The other areas are the Quds force hit squads and mentoring teams, they include famous commanders and are Qasem Soleimani's prodigal sons (http://www.liveleak.com/view?i=0c4_1400198249 is a nice video eaxmple). In Syria, with Hezbollah and Syrian troops, they led from the front and took over town after town and thwarted the enemy advance.
In Iraq, this again would be difficult. ISIS is better placed, oddly, then the Iraqis are when it comes to force concentrated, they have besieged Bagdad, and given the Iraqis have no real air force and thus no CAG, the Quds force is basically relegated to frontal assaults on well-entrenched ISIS positions.
So, I don't think much of the Quds force at this point... at least until ISIS really start taking over large, Shia, dominated areas.
I conjecture that ISIS doesn't really want Shia-areas (beyond Bagdad) and really won't drive south. This would provoke direct war with Iran and would strain their supply lines. They want Northern and Central to create their caliphate, get an economic base, and grow from there (organically, if you're speaking in M&A terms).
I think you're right about the Shi'a areas. I think Isis will try their luck, but right now they've been winning in Iraq due to a lack of an organized and sizable force to oppose them...the Shi'a militias and organization were and remain the best organized fighting force in Iraq... and can probably mobilize far more effectively than the Iraqi military if we were to be totally honest (and Iran of course plays a big part in this organization and support as you mentioned...less so in direct fighting power).
ISIS' activities in Iraq are more about convenience and less resistance ... it's proven for them much easier to just take over large swathes of Iraq instead of focusing entirely on Syria where their gaining ground is much more difficult. Once those barriers rise in the Shi'a areas and their momentum is slowed we'll probably see a large pushback by the Shi'a, especially if, as looks likely, the Americans and Iranians will tacitly work together on this one, as this directly challenges the pre-existing Shi'a dominance in the country and is too destabilizing of a threat for either party to let lie... this is just my best guess ofc.
I also agree with your general bullish Kurdistan sentiment... given their performance in Syria and even in Iraq post '03 (keeping the war away as best they could, great organization and discipline, etc.) and their economic plans, it's the most sensible place for money to flow at this point.
To me it seemed obvious even before the Iraq War that the country would be divided if Saddam were removed. I doubt the Bush administration weren't aware of this when they decided to go to war.
The question I'm struggling with is: Other than the obvious reason that many politicians with interests in the oil and defense industries gained during the war, what was the economic benefit for the US? I can think of several reasons off the top of my head (e.g. Isreal has seen its regional power increase, region is destabilized and more easily manipulated), but what do you believe are the primary reasons behind these actions?
Man, you sound like you're with Code Pink. This topic is about how to make money off of this mess -- not how to save lives.
lmfao don't get defensive bud, you misunderstood what I'm getting at. Not sure what Code Pink is, you're likely more familiar with them than I, but I truly don't lose sleep with the lives lost in the war. You sounded like you had some knowledge on the subject and so I was wondering why you think the US foreign policy was to remove Saddam knowing that the region would become destabilized. Understanding the macro economic reasoning behind major players like the US is an important part of "making money off this mess".
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