Author : John E. Charalambakis
Date : June 15, 2014
How could ISIS, a group of few thousand radical Islamists (a.k.a. Islamic State of Iraq and Al-Sham) be able to gain control of such vital areas and threaten energy, geopolitical, and geoeconomic stability? Are we in the process of seeing the map of the Middle East being redrawn almost one hundred years later, with the establishment of new states (Kurdistan, Palestinian) and in the process creating the base of revaluing assets for collateralization purposes that will allow credit expansion and the sustainment of the inverted credit pyramid, avoiding in the process the collapse of the fiat monetary system?
In the last few days Iraq seems to be on the road to chaos, culminating a shaky and questionable geostrategic and geoeconomic process/policy that started more than eleven years ago. As things are unfolding we cannot consider coincidental the facts that Kurdistan with its energy resources is in the process of splitting from Iraq, and Iran with its vast oil supplies is at the center of the developments (supporting even Iraqi military forces with its own special units) while trying to get out of its Western isolation and sanctions. At the same time a Palestinian unity front is being unfolded while ministers in the Israeli government demand the abandonment of settlements and the recognition of a Palestinian State.
Just a few days ago Iran and Turkey (a NATO member) signed commercial and energy agreements worth $30 billion, despite the huge differences that the two nations have on Syria (with Iran supporting the Assad regime while Turkey is one of its most vocal opponents) and Iraq (with Turkey supporting extra oil exports from the Kurdistan region in opposition to Iraqi government claims that these oil exports are illegal). The Caspian Sea energy resources (where Iran and Azerbaijan are major players), along with the Kurdish ones, are positioned to play a significant role in the shifting strategy of asset-value creation that will allow contracts and instruments’ collateralization and subsequently credit creation. In turn collateral holes could be filled, buying time for a system that over-extended itself using questionable assets as collateral and pushing the world to the edge of collapse.
It’s worth mentioning that in this shifting geostrategic process, the role of other nations (e.g. Saudi Arabia, an archenemy of Iran) that dominated the energy politics over the course of the last forty plus years, will decrease in significance, while sectarian turmoil based on religious and ethnic differences may temporarily exacerbate. Speaking of the latter, it would be helpful to look at the religious and ethnic makeup of the region.
As the focus these days is on Iraq and the Kurdish region, it’s also worth looking at the energy infrastructure there and understanding its vital role in the political and economic developments.
Of course, the ISIS attacks in Iraq could be seen in a greater context of creating a caliphate state where Islamic law will dominate. That state can take areas from Syria and Iraq and be considered as the successor to the old caliphate states that used to exist in Iran, Iraq, and the old Ottoman ages, and which as shown below (shaded area) could control vital energy routes.
In the forthcoming days, the markets may show signs of higher risks pushing investors to safe havens of US Treasuries and the likes, which in turn may help central banks in their pursuit of starting the long process of interest rates normalization.
Our own estimates point that in the foreseeable future the equities markets will still enjoy higher levels than the current ones, while a return to the days of hard assets appreciation might be sooner than later with us.