ISIS creates an oil shock, but why? By TOBIAS VANDERBRUCK for OIL-PRICE.NET, 2014/06/30

Followers of international politics were mostly taken by surprise early this month, when a hitherto unreported rebellion in Iraq suddenly threatened to shake the world's oil markets. Throughout the year, the newspapers of the Western world were focused on Syria, then the Ukraine. No one seemed to have their eye on Iraq. Where did these Iraqi rebels, called ISIS, come from? The truth is, they are the latest tool in the foreign policy of a hidden puppet master.

The Kingdom

Saudi Arabia was pieced together from a series of independent, isolated principalities around the beginning of the 20th century. The founder of the nation, ibn Saud, harnessed a group of fundamentalists, called the Wahhabis to his own cause. They placed their faith in ibn Saud's promises that he would run this new nation along strict Islamic principles. Thus was born, the Kingdom of Saudi Arabia. The Al Saud family, descended from ibn Saud, grew rich when vast amounts of oil were discovered beneath the country. The Americans aided the Saudis to develop their resources, sending investment and expertise to help extract the oil.
The newly sophisticated younger members of the Al Saud family grew tired of the god-fearing backwater that funded their jet-set lifestyle. Following on from their Western education, they preferred yachts, Ferraris and palatial homes anywhere but in Saudi Arabia. The Wahhabis were incensed that the ruling family allowed non-Muslims into the country to exploit their oil. They were disgusted by the shallow pursuits of the newly wealthy elite. When the Wahhabis began an insurrection, the Saudi royal family was caught in a bind. They could not imprison the Wahhabis – they represent about 30 per cent of the country's population. The king ordered members of the family to curb their jet-set behavior. This, however, was a holding operation and soon, the Russians gave the Saudis the diversion they were looking for when they invaded Afghanistan.

Afghanistan

All the Afghan Mujahedin needed to rid their country of the Russians was a few billion in cash, an arms supplier and about 10,000 extra men. Saudi donors were able to supply the money the Mujahedin needed to aid the cause of Islamic freedom fighters. They also laid on free flights to enable Wahhabi youth to go and die for Islam. The Saudi Osama bin Laden was there in Afghanistan to receive, train and arm his countrymen.
Unexpectedly, the policy paid for itself. International conflict causes the oil price to rise, even when that conflict would not directly disrupt the oil supply. The possibility of a confrontation between a Russian-occupied Afghanistan and an American-backed Pakistan was enough to cause panic pricing in the oil market. The Saudis made more from the increased price of oil in one year than they paid out in the entire duration of the Russian-Mujahedin conflict. Saudi Arabia had found a winning formula.

Policy success

Saudi Arabia became vital to American interests. The US needed Saudi oil, and they needed the Saudis to spend their profits buying American made planes and armaments. The Saudi and American governments came to realize that they needed each other. Glossing over America's support for the unwelcome state of Israel, Saudi and American foreign policy in the Middle East began to coordinate. The policy worked well for a while. Repeated consignments of cannon fodder from Saudi Arabia kept Russia tied up in Afghanistan to the point that they could not cause trouble anywhere else. Russia bankrupted itself, withdrew from Afghanistan and the Communist system collapsed, scoring a win for US foreign policy.

Although the majority of Muslims are Sunni and their major shrine is in Mecca in Saudi Arabia, the next largest group is the Shia, whose shrines are in Iraq, but have their major nation in Iran. After the Shia, the Saudi's next biggest pet hate are the Ba'athists. The Ba'ath party is a pan-Arabic socialist movement that aims to topple Arabian monarchies and form republics. This plan does not go down well with the monarchy of Saudi Arabia. The Ba'athists managed to overthrow the monarchies of Syria and Iraq.

The Ba'athist leader of Iraq was Saddam Hussein. The US government liked Hussein because they preferred to deal with secular governments in the Middle East. This policy caused tension between America and its allies in Saudi Arabia. However, when the Saudi's worked out the consequences of America's backing of Hussein, they climbed on board. On the basis of "my enemy's enemy is my friend," the Saudis approved American policy of encouraging Iraq to attack Iran. So Saudi Arabia got its most hated enemy into a war with its second most hated enemy and gained itself another theatre to which it could recycle "freedom fighters" returning from Afghanistan. The price of oil shot up because Saudi Arabia's two main oil producing rivals were too busy bombing each other to fully exploit their reserves.

Rebuilding

The 9/11 attacks provoked the US government to carpet bomb Afghanistan, killing off many of the revolutionaries stationed there. It also got America back into Iraq, where the Saudis wanted the Ba'athist Hussein wiped out. Iran was becoming increasingly isolated and the Saudis had the overthrow of the Ba'athist Assad in Syria on the cards. Oil prices rose to peak levels bringing in Saudi sponsors enough money to fund the war.

The Arab Spring

In 2011 the Saudis began to foster an Egypt-based pressure group called The Muslim Brotherhood. This group became Saudi Arabia's main foreign policy tool and they funded the Brotherhood's takeover of Egypt. The USA and its allies happily aided the Brotherhood with airstrikes, enabling them to take over the governments of Yemen, Tunisia and Libya and cause disruption in Algeria. Oil supplies from Iran still hadn't recovered and disruption in Algeria and Libya knocked out supplies in those countries. Thus, shortages caused the oil price to rise.

Getting Western nations to prevent Iran exporting oil, thus increasing the price of oil further and turning the screws on an enemy of the Kingdom was a godsend for Saudi Arabia without that country having to spend a single penny on an attack. Things were going well for the Saudis and they had the Muslim Brotherhood in position to overthrow Assad in Syria. All they needed were air attacks from the US, Britain and France to repeat the formula that worked so well in Libya.

Syria

Unexpectedly, the British parliament voted down the government's appeal for support for the Syrian "rebels" and the Prime Minister dropped the issue. This undermined resolve among American and French legislators and so the USA refused to support the rebellion in Syria. This infuriated the Saudis, who declared that they would carry on alone with the effort to overthrow Assad. However, for all their talk, they never implemented air strikes with their own air force and Assad still clings to power.

Divergence

Realizing that it had created oil shortages leading to oil price rises that threatened to kill the economic recovery, the US government suddenly forgave Iran. The prospects of oil supplies resuming in Algeria, Libya, Iran and Iraq all within the same year gave analysts a reason to mark down projected Brent Crude prices to $60 a barrel. The Saudis had to act fast to prevent this fall in prices. To achieve this, and to punish the US for their weakness over Syria and Iran, the Saudis turned to Iraq.

Iraq's population is 65 per cent Shia and 35 per cent Sunni. The introduction of democracy lead to the formation of a Shia majority government, led by the Shia Nouri al-Maliki. This caused great dissatisfaction among the Sunni population, who claim that Maliki favors Shia businesses and over-funds Shia regions. The American's compounded this sense of mistreatment by awarding the towns of Mosul, Tikrit and Kirkuk to the Kurdish region. These towns originally had a Kurdish majority. However, as they sat at the heart of Iraq's oil fields, Saddam Hussein had moved much of the Kurdish populations out of these towns and replaced them with Sunnis loyal to him. The Americans ignored the dissatisfaction of the Sunnis, but the Saudis exploited it.

ISIS

The Islamic State of Iraq and the Greater Syria, abbreviated to "ISIS," wants to take over Iraq, Syria and parts of southern Turkey to form a hardline Islamic state. They are particularly harsh towards Shia and Kurds – the two other ethnic groups that occupy Iraq. ISIS was formed by an alliance of Sunni extremist group, including Al Qaeda of Iraq. Unofficially, the group is funded by wealthy donors in Saudi Arabia, Qatar and Kuwait and its aims sound like a Saudi foreign policy wish list.

The Middle East has four major powers – Saudi Arabia, Egypt, Turkey and Iran. Iraq is the swing state in the middle of the group and would enhance the power of whoever controls it. Turkey used to rule the entire region and wouldn't mind getting a big chunk of its empire back, in the form of Iraq. The Shia majority of Iraq is a natural ally of the lonely Shia state of Iran, the Sunnis of Iraq would like their country to become a major player by absorbing Syria and integrating its Sunni population.

There is an obviously recurring pattern between this attempted takeover of oil resources by a militant group and Saudi Arabia's own history. Indeed the Kingdom would benefit immensely without sending a single plane or soldier.

Muslim Insurgencies

Since 2011 the Arabic and African world has seen a series of attempted coups and insurrections all aimed at forcing Islamic law on a particular country and region. In many of these theaters the motivating factor is the existence of oil. The majority Islamic nation of Sudan found it inconvenient that their nation's newly found oil reserves lay beneath Christian-dominated provinces. Their attempts to wipe out this population resulted in international intervention, creating the new Christian (and oil-rich) state of Southern Sudan. Although the Sudanese government backed down on the issue, this is a festering issue and it is likely that Sudan will invade and try to reintegrate Southern Sudan as soon as they attract sufficient funds.

The vast desert state of Mali saw an attempt by the Tuareg people in the north of the country to break away and form a separate state in 2012. This effort was soon hijacked by Muslim insurgents, including the group Al Qaeda in the Islamic Maghreb who overpowered the Tuareg, took over Mali's oil fields and began forming an Islamic state. This resulted in a confused three-way battle between the Tuareg, the Muslim fundamentalists and the Mali government. When French troops moved in and began obliterating terrorists, the fundamentalists fled and moved to Syria, the next country on their hit list.

Oil Prices

Despite the wide range of states battling with Muslim fundamentalists in the world today, few attract the attention of the world's media, and have little impact on world oil prices. Nigeria is an oil producer, but its constant state of conflict, corruption and theft has left its contribution to the world's oil supply largely discounted. Conflicts in other states like Mali and Sudan have little interest for the world and do not interrupt oil flows right now. Only unrest in the Arabic world seems to grab the attention of the market. When speculators see unrest, they engage in panic buying which invariably lifts the price of oil above the actual price that the disruption to supplies would merit, at least initially.

End Game

Saudi Arabia has already crippled Egypt's voice in Middle Eastern politics through the turmoil created by the Muslim Brotherhood. ISIS tempts Turkey and Iran into a war over the bones of Iraq and threatens the independence of a secular Syria. The added oil output of Iraq and Iran is unlikely to emerge this year, reversing the predictions of a Brent Crude price fall to $60 a barrel. As a result, analysts including OIL-PRICE.NET now predict a rise in the index to $120 or $130.

Iraq supplies 3.4 millions barrels a day, or 4% of the world's oil. Most of Iraq's oil production occurs in the Shia south of the country, far from the current theatre of war. OPEC could possibly make up the shortfall if all Iraq's production ceased. However, this puts a lot of power in the hands of the only OPEC member that has enough spare capacity to make up the shortfall – Saudi Arabia.