Syrian war, oil prices and the Paris attacks By STEVE AUSTIN for OIL-PRICE.NET, 2015/12/02

In our last article we predicted that thousands of hardened ISIS fighters, blending among refugees, would march into Europe undetected. We also advised our readers that this would spread distrust between European powers and borders would go back up in an attempt to stem the invasion, at the cost of slowing down European economies. We were right on all counts.

On November 13th 2015, ISIS terrorists committed multiple suicide attacks in Paris, which formed the deadliest terrorist atrocity on French soil since WW2. They caused France to close borders and declare a state of emergency.

There is a strange connection between these tragic events and the politics of petroleum. On the one hand, Saudi-funded fundamentalism has, within a few decades, balkanized Europe into a net supplier of jihadi fighters. On the other hand, a proxy war in Syria over a gas pipeline created the refugee crisis. These are both dire issues which few governments dare to face effectively, yet these issues will shape our world for centuries to come.

France's Terrorist Hotbeds

As of November 2015 both the French and German governments estimate that between 5,000 and 6,000 Western Europeans jihadis have joined the ranks of ISIS in Syria. Of these, almost half came from France and are mostly second or third-generation immigrants of Algerian descent. This makes France the largest supplier of Western jihadis. According to France's DGSE secret service 250 have returned so far, some giving TV and radio interviews about their experiences in ISIS. This media blitz occurs while they await mild prison sentences and still collect welfare benefits. Meanwhile, more than 300 candidates are considering joining ISIS and this figure is climbing.

Although this "Salafist" radicalization is sometimes abusively portrayed as recent, it is a multi-generational trend spanning nearly four decades and is a consequence of the European powers' oil policies.

Most European countries have no oil reserves. Shortly after the 1973 oil crisis they attempted to tie long-term partnerships with the Gulf States. As a result, oil from Saudi Arabia and Qatar still flows reliably into Europe in exchange for currency, weapons technology, and a few Saudi-funded mosques. For example, around that time Belgium signed a 99-year lease with Saudi Arabia to build the Great Mosque of Brussels, just a short distance from the Molenbeek suburbs, today considered Europe's most volatile terror hotbed. In Spain, Madrid is home to the largest Mosque in Europe, also built by Saudi Arabia. Saudi-trained conservative imams took the helms of these mosques and indoctrinated generations of followers with wahhabi and salafist rhetoric. They called on the Muslims of Europe to split away from the native European society they deem incompatible and seize power. Hence political Islam had set foot in Europe.

Despite protests and warnings from conservatives, leftist European politicians not only tolerated this rhetoric, they even embraced it. They interpret it as a sort of "class struggle" in phase with their own ideology. As years went by and the Muslim population increased, Europe's socialist parties began to court the Islamic vote more assiduously under the guise of multiculturalism and tolerance. It paid off for some leftist parties who got elected repeatedly, buying votes at the cost of massive low-cost housing projects and welfare benefits targeted preferentially towards citizens of foreign descent.

Unfortunately, these policies created immense low-cost housing neighborhoods, which soon tuned into a state within a state, following the salafist rethoric of self-segregation. Today some of these no-go zones are Islamist enclaves operating under near-Shariah law with no police presence. They are disconnected from the rest of France's society, but nonetheless welcome free housing and medical services, utilities and generous welfare benefits in exchange for votes. The pattern is similar in Belgium, Holland, the United Kingdom, Sweden, and Germany. Why change something that works?

The perpetrators of the Paris terror attacks were all raised and radicalized in France and Belgium. However, France's socialist President Hollande was quick to point the finger elsewhere at ISIS and Syria, drawing the media's attention away from his government's accountability. This allowed Hollande to bolster state expenditure and deficits despite EU budget rules, while pledging to welcome 30,000 new Syrian refugees - new voters for the 2017 elections paid for by taxpayers. In reality, France's home-grown terrorism problem is the result of decades of complacency by Hollande's own party towards Saudi-funded political Islam - an unreasonable price for crude oil and weapons export.

France's commercial and cultural exchanges with Saudi Arabia are supervised by a dedicated workgroup within the French government (Groupe d'amitie France-Arabie Saoudite) headed by politician Olivier Dassault, heir to aerospace conglomerate Dassault Defense Systems. In July 2015, France signed a record $12 billion contract with Saudi Arabia to sell helicopters, build two nuclear reactors and export advanced weapons systems to the Kingdom - though any "cultural" part in the agreement flowing back from the Kingdom was not disclosed to the public. Given the Kingdom's recent offer to build 200 new mosques for Syrian refugees in Germany, the $12 billion cheque to France most certainly came with strings attached, the consequences of which the average Joe - or Pierre as it may be - will endure. From the looks of it, the hands of France's ruling class are tied and it is unlikely they will stand up to Saudi Arabia.

Police raids following the attacks uncovered heavy weaponry in known hotbeds, a tell-tale sign that regular law enforcement cannot keep track of terrorist activities in normal times. The Paris attacks went undetected by the DGSE secret services simply because the number of aspiring jihadis has reached a critical mass which now exceeds the service's capacity. It takes on average 20 agents to monitor a suspected terrorist, more if he is aware of being monitored. The 5,000-strong DGSE has repeatedly warned that it cannot effectively monitor homegrown jihadis because of their sheer numbers. Unfortunately, going forward, Paris-style attacks are the new normal.

Syria's Civil War

As we explained in our last article, the Syrian Civil War stems from a disagreement between the Saudis and Russia over the route for a new gas pipeline ducting Gulf gas to the lucrative European markets. Russia, whose only Mediterranean base is located in Tartus, Syria, supports Assad's initiative of a gas pipeline from Iran through Iraq and Syria (the Iran-Iraq-Syria pipeline). But Saudi Arabia's hardline Sunni Muslims wants to overthrow Syria's Assad, who is a Shia Muslim, for religious reasons. They want to run a 100 per cent Sunni-controlled pipeline from Qatar through Syria and Turkey (the Qatar-Turkey pipeline), into Europe. As a result of this disagreement a proxy war is taking place in Syria between the aforementioned powers. Meanwhile displaced Syrian refugees are flooding into Europe with jihadis in their midst.

Originally, Europeans were strongly in favor of deposing Assad for so-called "humanitarian reasons". Their humanitarian concerns for Assad's repressive regime veil the truth - Europe resents depending on Russia for 40 per cent of its gas. Russian President Putin annexed Crimea and maintained a belligerent stance, pushing Europe to favor the pipeline proposal of Qatar and Saudi Arabia. The Saudi plan to duct natural gas all the way to Europe through Syria and Turkey came with a catch - Assad would have to be toppled. The US supported the initiative as Russia's only Mediterranean naval base would disappear with Assad. Thus, the Western world had itself a new plan that would bring peace and prosperity to the region. That is after the "initial shakeout" necessary to oust Assad.

The "initial shakeout" didn't go as planned. Russia-backed Assad proved far more resilient than anticipated. But more importantly, western-backed Islamic militias committed such barbaric acts of terror they even made Assad, and Russia, look good in comparison. An emboldened ISIS gradually took over several of the region's oil fields to fund its operations to the tune of $50 million per month by smuggling oil into Turkey. The routes and means were well established during the previous oil embargo on Iraq and so are the financial networks that profit from it in Turkey. Today, crude oil illegally smuggled by ISIS into Turkey accounts for a fairly significant 3.5 per cent of Turkey's total oil imports. Turkey's NATO allies are starting to question her true allegiance and motivation to fight ISIS, as does Turkey's downing of a Russian jet while it was tracking an oil convoy headed for Turkey. Turkey's allegiance has become so questionable that Texas governor Rick Perry suggested that Turkey be dismissed from NATO.

Turkish Delight

Syria's history particularly draws Turkey's attention. For centuries most of the Middle East, including the area now known as Syria, was part of the Ottoman Empire. That Empire was ruled from the Turkish city of Istanbul by a dynasty of autocratic Sultans, called the Ottoman family. As well as ruling over most of the Middle East, the Sultan held the hereditary position of Caliph. This was the leadership of all the Sunni Muslims in the world - a Muslim Pope.

The Ottoman Empire was an ally of the German Empire during the First World War. When they lost that war, the British and French governments took their revenge by splitting off all of the empire's provinces and creating colonies for themselves. Those colonies evolved into independent countries and today they are Syria, Lebanon, Israel, Iraq, Kuwait, Jordan, Saudi Arabia, Egypt, Libya, and Tunisia. The rump of the empire was left independent and in turmoil. In 1922 the army overthrew the Ottoman sultan and declared a republic, changing the Empire's name to Turkey.

The leaders of ISIS want to form their own homeland by uniting Iraq, Syria and the Lebanon into one country. They will then spread out over all the former territories of the Ottoman Empire to recreate it. They also want to recreate the Caliphate. Although their aims are an homage to the Ottomans, they don't intend to invite the family back. They like the romantic notion of days gone by, specifically because those enchanting eras give glamour to dictatorship and repression. ISIS wants to wind back to the good old days when whoever was in charge could have anyone they wanted whipped or killed without the meddling of politics, courts, rights or democracy. They want the luxury of autocracy for themselves, not for some hapless descendant of the last Sultan.

All of this plays well for Turkey. ISIS admires their northern neighbors and they don't include that country in their plans. The ISIS vision of an empire is the Ottoman Empire, without Turkey.

Trade Not Aid

Although the Turks are members of NATO and allies of the United States, they have their own agenda, which often flies contrary to the policies of America. For one thing, they have a troublesome separatist movement in the Kurds.

Kurdistan has never been an independent country and today it covers an area of Western Iran, Northern Iraq and Syria, and about a third of Turkey's territory. The overriding obsession of every Turkish government is to prevent the loss of that area which would occur with the creation of Kurdistan. Rather than give the Kurds concessions and try to befriend them, the Turks choose to repress, imprison and cull the Kurds by any means possible.

America, France and Britain love the Kurds. One of the justifications for toppling Sadam Hussein in Iraq was his mass murder of the Kurds through gassing. The Kurds fought fiercely alongside the Western armies and the allies rewarded them by giving them total autonomy in their homeland in Northern Iraq, right along the border with Turkey which hosts significant crude oil and natural gas proven reserves in Iraq. This infuriated the Turkish government, as an oil-rich Kurdistan could rise militarily and stand up to Turkey.

US trained and armed Kurds are the only force that has had any luck in defeating ISIS in Northern Syria. The Kurds held two area of borderland and were successfully driving ISIS back into the interior of the country. ISIS had one stretch of the border area with Turkey and used that as a checkpoint to trade with their much-admired neighbor.

ISIS's early successes in Northern Iraq saw them seize oil fields and refineries. Rather than destroy these monuments to Western occupation, they took over them and cranked up production. However, as they are designated as a terrorist organization, they don't have access to oil trading markets to sell their black gold. So, who on earth would buy oil from terrorists? Turkey.

The befriending of ISIS has worked very well for Turkey. They get a cheap source of oil, pouring $50 million a month into ISIS's coffers. On top of that, they know that one of the main ways their terrorist friends will use that money is to buy back weaponry to kill as many Kurdish independence fighters as possible.

Things were going great for Turkey, until the American-backed and armed Kurds started to gear up for their final push to squeeze ISIS out of the border area, thus uniting Kurdish control of the entire southern border of Turkey. The Turkish government declared that it had enough of the terrible atrocities occurring in Syria. They joined the war in the name of freedom, and bombed the Kurds to smithereens. This helped ISIS regain control of Northern Syria, and kept the cheap oil flowing to Turkey. America did nothing.

Brothers in Arms

Turkey and Saudi Arabia are the two biggest Sunni countries in the Middle East. Turkey lies to the north of the region, and Saudi Arabia lies to the south, deep in the Arabian Peninsula. Industrialized Turkey produces weapons while Saudi Arabia buys technology and arms from the West and both are smuggling some of those weapons to various Syrian rebel groups, including Al-Qaeda affiliates and unofficially ISIS. However, the economies of the two countries are very different.

As a non-oil producing industrialized nation depending on Russia for 60% of its gas imports, Turkey's economy is strengthened by falling oil price, and having a plentiful supply of under-priced contraband oil on its southern border is just making life a lot easier for the people of Turkey. Saudi Arabia doesn't have a value-added economy but rely on oil production. The fall in oil prices, which are now approaching $40 per barrel due to Saudi non-respect of OPEC quotas, doesn't bode well for the Kingdom's finances.

Historically Saudi Arabia was formed by a desert prince, who allied himself with religious fundamentalist warriors, the wahhabis, and took over the peninsula. This formed the Kingdom named after that prince.

However, there was a price to pay for this alliance and Saud had to enforce a strict religious code, lest the wahhabis turned on him. Saud had to remain pious, lest the Wahabis turned on him. That "pious" religious code means banning music, repressing women, strict observance of the hours of prayer, and lots and lots of public beheadings. King Saud lived to a ripe old age and since his death, the rule of the Kingdom has passed sideways along the family tree of Saud's sons. The present king of Saudi Arabia is a son of the first monarch.

Since then Saudi rulers have mostly remained pious - with the exception of a some of the 15,000 Saudi princes and their tabloid-worthy lifestyles once abroad - in appearance at least. While at home, royals have used oil revenue to pacify their restless subjects with lavish spending. The most aggressive subjects are "encouraged" to go see the world rather than upset the status-quo within the Kingdom. It is no coincidence that Osama Bin Laden, a Saudi, had to take his revolution to Afghanistan and today, scores of Saudi youths follow in his footsteps by joining ISIS.

But, building Mosques and filling planes with fighters for Allah costs money. Although Saudi oil costs as little as $10 per barrel to pull out of the ground, the government needs a breakeven price of $95 per barrel in order to keep funding trouble abroad while keeping peace at home. Given today's low oil prices, Saudi Arabia is spending $10 billion a month of its savings to keep the country afloat. According to the IMF, it will take 5 years of their current levels of deficit to send the country bankrupt.

Slippery Slope

Five years of deficit funding seems manageable. Five years is a long time, anything can happen. However, five years may be a generous estimate. Countries find financing gets harder when they get down towards the bottom of the cookie jar. Without large reserves, international lenders get jumpy and interest rates rise sharply. The country will start to face inflation and the government policy of subsidizing the prices of essential goods will become even more expensive, thus escalating the depletion of reserves. It may only take three years to drive the Kingdom bankrupt if the government doesn't reign in their spending and a costly ongoing war with Yemen doesn't help.

If the Saudi Arabian government takes the necessary action to cut their budget and reduce the annual deficit, they may not last five years: cutting military spending against Yemen, heavily armed by Iran, is not an option. Cutting entitlements used to pacify ultra-conservative wahhabis would be suicidal. So transitioning Saudi Arabia into more of a value-added, sustainable economy seems the best option, however this meets cultural opposition.

As of 2015, a mere 4 per cent of Saudis work in the private sector. As a whole, the Saudi private sector is 87 per cent staffed by foreigner workers. Since the oil price crashed, the Saudi government has attempted to force the private sector to hire more Saudi nationals to reduce the state cost of unemployment. But as one CEO puts it: it is "a serious battle trying to get those that they hire to actually do anything". Working for a living is simply not culturally accepted in the Islamic state. This cultural attitude explains why astonishingly, Saudi Arabia is a net importer of gasoline: it imports 25 per cent of its gas and 20 per cent of its diesel. In other words Saudis produce oil easily (by inviting in foreign companies with their own highly trained staff) but they don't "add value" by refining it. Refining crude oil may seem like such a low-hanging fruit for us westerners, yet the effort involved puts is out of reach of Saudis.

To make things worse, the army of the Kingdom is mired in an unwinnable war in the country's southern neighbor, Yemen. Granted, the Saudi army is one of the best equipped in the world. The government's back-scratching with Western powers resulted in the Saudis buying an enormous amount of weaponry to keep the GDP of their allies buoyant. However this stands in contrast with the effectiveness of its service members. Commanders traditionally hold their positions because they are Saudi Royals, not necessarily because they are competent in military matters. On the ground, as many members of the western military who part-took in joint training with the Saudi armed forces have anecdotally reported, Saudi discipline is mediocre, to put it mildly. And as everyone knows, the plural of anecdote is data. Should ISIS head south and Iran-backed Yemen head north, most Saudi soldiers may simply run for the hills.

My Enemy's Enemy

The Saudi obsession with getting at Syria has drawn the attention of Western media to the Kingdom's private funding of terrorists and lost it friends. By contrast, Iran seems more reasonable and easier to deal with. The standoff between the US and Russia, picking sides in the Syrian conflict is melting away, as the US and its allies abandon Saudi Arabia and realize that shoring up President Assad is preferable to absorbing millions of Muslims in Europe.

Moreover, Europe needs a new source of gas to prevent Vladimir Putin throttling the newly liberated countries of Eastern Europe through his gas blackmail policy. However, through all of the planning and lobbying for permission to build one or other pipeline through Syria, there is one obvious outcome that everyone seems to have overlooked. Why not build both and let them compete?

The Sunni/Shia religious war presages further blackmail down the line. If only the Sunni pipeline gets built, the Sunni Muslim governments of the Middle East will be able to blackmail Europe to do its bidding by turning off supplies. If only the Shia pipeline gets built, Iran can blackmail Europe, in fact you can bet that Vladimir Putin has already organized a coordinated "pricing" strategy with the Iranians.

It is in Europe's interests to have three piped gas suppliers - Russia, Qatar, and Iran. That way, no single force can manipulate Europe's energy needs for political gain. Although Russia and Iran might team up, the prospects of the Sunnis in the south forming a cartel with the other two suppliers are slim. The United States has little direct commercial or political interest in any of the possible outcomes of the pipeline projects, aside for pleasing "allies" Saudi Arabia and Turkey. It is just committed to keeping Europe free, and so a powerful Putin incurs military expense for America.

Plan B

The Saudis don't have a Plan B, but Iran does, and it is implementing it now. They are playing their capitulation into a diplomatic triumph and winning friends away from Saudi Arabia. As the West and Russia cease to undermine Syria's efforts to survive, those exported wahhabi insurgents will return home to Saudi Arabia with an axe to grind and a surplus of arms.

The Iranian gas pipeline will be built through Syria. With the trouble in Syria over, the Americans will take less interest in the Kurds. Turkey can go back to quietly stamping on the prospects of an independent Kurdistan, and would probably be willing to see the final leg of the gas pipeline pass through their territory, thus removing the need for an underwater segment and reducing its cost while upping their geostrategic significance.

With Saudi Arabia in turmoil, its ability to project influence on the world will erode itself. Without its oil output, oil prices will rise again. Without its exported petrodollars, ISIS will melt away. Turkey may grow to become the chief Sunni Muslim nation in the world - a position it held when it was the seat of the Caliphate.