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  • Writer's pictureOil Patch Press

Dust-Up Brewing in the Middle East

What could the attack on the Saudi production facilities mean for oil and gas professionals, and for landowners who rely on royalty checks?

Every news and opinion broadcast on cable TV and free channels is mulling this question, but instead focusing on Americans. The consumer. Our world Allies. The big, global picture. But what about all of us working in the oil industry, and the land owners who rely on the extra income from it? What are the TV news shows not telling us about what might really be going on here?

After an initial spike up to about $62 bbl, oil has settled back below $60 for the moment.

But that can change with the snap of anyone’s fingers. And very likely will, and I’ll explain. The immediate future of oil prices depends heavily on three important variables.

The first variable: Either Iran is directly behind the attack on the Saudi’s, or another group is behind it wanting to frame Iran for the deed, for whatever reason. If Iran is directly behind the attack, why? If they are behind it, this could be a “the emperor is wearing no clothes” moment. Iran will have done it to intentionally disrupt the oil supply chain to all nations around the world relying on Saudi oil. They would do this to cause those nations to clinch their fists and demand America lift all sanctions on Iran so that all of those now oil-starved nations can buy oil from Iran without penalty. That very likely could be the strongest motive behind this type of attack by Iran.

But if another nation or group actually perpetrated the attack, why? The first alternate group that comes to mind is China. China is looking desperately for any leverage available (or manufactured) to wrestle America into a trade agreement of their liking, not ours. Being allowed to do business with Iran openly without penalty has appealing benefits for them. But China will have miscalculated Trump’s response: instead of flying off the handle and bombing Tehran, Trump did the opposite. He has now dumped on Iran all of the remaining sanctions available to him! These new, heavier sanctions, impose very strong—almost strangling—restrictions on any nation or company that does any business whatsoever with Iran. And that includes China, folks. And Russia. And North Korea.

The second variable: Either Saudi Arabia’s original report that the bombings incapacitated fully 50% of their oil processing capacity was a calculated lie, or their announcement that they have already restored their production flow and sales is a calculated lie. Can’t be both ways. The commodities investors who trade in oil contracts were uncharacteristically quick to accept Saudi’s announcement that “all is well” just a few days after such massive destruction of an important facility in their oil-delivery infrastructure. Hence, the precipitous drop in in oil price, falling back from the $62 peak last Monday.

The third variable: Will Saudi Arabia initiate a military-style counter-attack on Iran? To do so could pull Israel into the fray only because there are many terrorist groups that could use Saudi's counter-attack as cover for all-out military assault on Israel. Katie, bar the door!

It’s most likely we will know the answer to the second variable before we know for absolute certain the outcome in the other two variables. But it can be safely predicted that we will know within the next two weeks the truth behind all of this, or at least enough of the truth for President Trump to make the right decision on how to proceed vis-à-vis America and the Middle East.

President Trump’s decision surrounding this will directly impact oil and gas professionals and landowners relying on royalty checks. In addition to impacting the rest of the world, literally.

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