Middle East Regional Conflict Expands; Influenced by Iran and Qatar

By the Curmudgeon with Victor Sperandeo

Middle East War Widens and Deepens:

As we previously suggested, the war in the Middle East is expanding rapidly. That presents a huge potential risk and danger for international stability, the global economy and most markets.

“This is already a regional war, no longer limited to Gaza, but already spread to Lebanon, Iraq, Syria and Yemen,” said Hugh Lovatt, a Mideast expert for the European Council on Foreign Relations.

With the U.S. led air strike on nearly 30 sites in Yemen on Thursday and a smaller strike the next day, there is no longer a question of whether there will be a regional conflict. It has already begun. The biggest questions now are the conflict’s intensity and whether it can be contained. Here’s a review of the two significant events this year:

1. On January 2^nd, Deputy Hamas leader Saleh al-Arouri died in a drone strike, widely blamed on Israel, in the Beirut suburb Dahiyeh (a Hezbollah stronghold) in Lebanon. The attack that killed Arouri was the first in Beirut following months of exchanges of fire between Iranian backed Hezbollah and Israel, in response to the war in Gaza. Up till now, these had largely been confined to Lebanon's southern border.

Hezbollah’s leader Hasan Nasrallah described Arouri's death as a "major, dangerous crime about which we cannot be silent. We are not afraid of war. Those who think of going to war with us will regret it. War with us will come at a very high cost," Nasrallah said in a televised address with his photo below:

2. Last week, the U.S. and UK twice attacked the Iran backed Houthi’s [1.] in Yemen. It was in retaliation for the rebel’s indiscriminate attacks on commercial shipping in the Red Sea.

"These strikes are in direct response to unprecedented Houthi attacks against international maritime vessels in the Red Sea — including the use of anti-ship ballistic missiles for the first time in history," President Biden said, adding that he would "not hesitate to direct further measures to protect our people and the free flow of international commerce as necessary."

On Friday, the Houthi movement's Supreme Political Council vowed to continue targeting ships in the strategic waterways, adding that "all American-British interests have become legitimate targets." See Late Update below.

That would result in further escalation. Britain stands prepared to carry out further strikes on Houthi targets if commercial and military vessels continue to come under attack in the Red Sea, UK Foreign Secretary Cameron warned on Saturday.

Note 1. The Houthis are a Yemeni militia group named after their founder, Hussein Badreddin al-Houthi, which was formed in the 1990s as an opposition force to the Yemeni government. They represent the Zaidi branch of “Shia Islam,” in contrast to “Sunni Islam” which dominates most of the Arab world.

In 2011, the Houthis played a major role in sparking the Yemeni Revolution, which was born out of a wave of anti-government protests and uprisings known as the “Arab Spring.” The Houthis were displeased with the newly installed leaders and in 2014 the group took control of Sanaa, Yemen’s capital, prompting an ongoing civil war that has ravaged the country for the last 10 years. Today, the Houthis retain control of Sanaa and large swaths of territory in western Yemen.

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Late Update:

An anti-ship ballistic missile fired by Houthi fighters struck the M/V Gibraltar Eagle - a U.S. owned cargo vessel - off the coast of Yemen on Monday, but the ship and its crew were not seriously harmed, according to the U.S. military’s Central Command.

The UK Maritime Trade Operations, which oversees Mideast waters, said Monday’s attack happened some 110 miles (177 kilometers) miles southeast of Aden. It said the ship’s captain reported that the “port side of vessel hit from above by a missile.”

Importance of Red Sea Shipping to the Global Economy:

The Red Sea serves as a strategic artery in world trade, facilitating the movement of vital goods through the Suez Canal, one of the most trafficked waterways on the planet. Some 30% of the world’s container ships pass through the Red Sea. Hence, the Houthi attacks on commercial shipping vessels leaving and entering the Red Sea around the Bal al-Mandab Strait are a major threat to world trade and the global economy.

Multiple ships have been fired upon when passing through the area since the Houthi attacks started in November. Despite the Houthi’s claim to only target vessels linked to Israel, vessels under multiple flags have found themselves targeted. Many carriers deem the risk too great and paused or rerouted shipments.

Volvo, Tesla, and other carmakers in Europe have suspended production for a few days or more because of interruptions in receiving parts as ships route around the Red Sea and Suez Canal. Maersk halted all Red Sea shipping after a Dec. 31st attack on one of its ships. It has warned its customers to expect significant disruptions and analysts expect higher prices to add to global inflation.

Diverting ships away from the Red Sea (redirected around the Cape of Good Hope in South Africa) is causing delays of up to 40 days, said Lars Jensen, chief executive of Danish maritime consultancy Vespucci Maritime. He said the cancellation of regular services by French shipper CMA CGM through the Red Sea would cause up to $40 million in weekly revenue losses to the Suez Canal authorities. The canal receives around $170 million in weekly transit fees on average.

Egypt has been hit hard economically by the Houthis Red Sea attacks. The Arab country’s main income source is the Suez Canal which has been expanded and widened to accommodate more shipping vessel traffic. As an outcome of Houthi attacks in Red Sea, many ships were re-routed, resulting in a 40% decline in Egypt's Suez Canal shipping revenue.

Iran Holds the Islamic Terrorist Strings:

As we’ve explained in several Curmudgeon geopolitical posts, Iran is the world’s biggest sponsor of Islamic Jihad terrorist groups, like Hamas, Hezbollah, Islamic Jihad and the Houthis. In an interview with Forbes, Richard Goldberg, Senior Advisor at the Foundation for Defense of Democracies said that all of those proxies are controlled by Iran.

1. Hezbollah is Iran’s most powerful proxy. Armed with Iranian weapons and funded by Tehran, Hezbollah has forcefully taken over Lebanon’s political and economic systems, turning the country into an extension of Iran. They also control the Abu Kamal / Al-Qa’im border crossing between Syria and Lebanon.

After the October 7^th Israel attack by Hamas, Hezbollah began a series of strikes from Lebanon, leading Israel to evacuate over 250,000 citizens near the conflict in North Israel. In retaliation, Israel’s air campaign has killed 19 Hezbollah members in Syria in three months, more than twice the rest of 2023 combined, according to a count by Reuters news agency. More than 130 Hezbollah fighters have also been killed by Israel in Lebanon during the same period.

2. It’s well known that Iran has backed the Houthis since the rebels began fighting Yemen's Sunni-majority government in 2004. Iran's money, intelligence, technology, and weapons have helped the Houthis carry out attacks in the Red Sea. Indeed, Iran is promoting more Red Sea attacks as they are arming and financing the chaos.

3. Iran and its Islamic terrorist proxies operate freely in Iraq and Syria. According to the Pentagon’s tally on Thursday, there have been a total of 53 attacks in Iraq and 77 in Syria since Oct. 17^th. The U.S. military has retaliated on fewer than 10 occasions. U.S. officials worry that sooner or later, one of the attacks will kill troops, and then the response would be much more deadly and could spiral out of control.

4. The concept of an “Iran Shia Crescent” may have seemed questionable when King Abdullah II of Jordan coined it in an interview with the Washington Post in December, 2004, but it is very relevant today.

Image Courtesy of Avi Melamed- former Israeli intelligence official and Middle East expert commentator.……………………………………………………………………………………………………….

Will U.S. Attack Iran?

In December, Senator Lindsey Graham urged the Biden administration to attack Iran. "Without Iran there are no Houthis," Graham told Fox News on Wednesday. "The Houthis are completely backed by Iran. I have been saying for six months now...hit Iran. They have oil fields out in the open, they have the Revolutionary Guard headquarters you can see from space. Blow it off the map."

If that did happen, it would greatly escalate worldwide tensions since Russia and China are allies of Iran. Importantly, Iran would surely shut down the Straits of Hormuz, most likely using mines to blow up ships there. We wrote in this Curmudgeon post:

The strait is the only sea passage from the Persian Gulf to the open ocean and is therefore one of the world's most strategically important choke points….A third of the world's liquefied natural gas and almost 25% of total global oil consumption passes through the Strait, making it a highly important strategic location for international trade. It has been so for centuries.

If the strait was closed, WTI crude oil would pop to $150 -200 within a few days. Gold would also rally strongly.

The Behind the Scenes Role of Qatar:

Qatar is envisioned by most as an honest peace broker in Israel’s war in Gaza, but nothing could be further from the truth.

In an October 30^th WSJ op-ed, Meshal bin Hamad Al Thani, Qatar’s Ambassador to the U.S. wrote:

Over the past two decades, our nation has cultivated a reputation for mediating complex disputes. Lasting peace can be achieved only by building trust and understanding. The foundation of our success has been our ability to engage with all sides.

Following the escalation in Gaza, Qatar is in contact with all parties, urging calm. Our international partners such as the U.S. have asked us to mediate to secure the release of more hostages. We have been engaged with Israel, other countries, and Hamas.

How can Qatar be an honest peace broker when it has transferred more than $1.8 billion to Hamas and the two leaders of that Islamic terrorist group live there?

We submit that Qatar is Hamas' most important financial backer and foreign ally. In 2012, Qatar hosted the Hamas party leadership when Hamas head Khaled Meshal relocated from Syria to Qatar. The current head of Hamas, Ismail Haniyeh, has resided in Doha since 2016.

From a November 7^th NY Post article titled, Hamas leaders worth staggering $11B revel in luxury — while Gaza’s people suffer:

The emirate has long welcomed the leaders of the terror group and installed them in its luxury hotels and villas at the same time as it hosts a vast American military presence...Hamas runs an office in Qatar’s capital, Doha, and leaders Ismail Haniyeh, Moussa Abu Marzuk and Khaled Mashal maintain a luxurious lifestyle.

Victor on Qatar:

Qatar has underappreciated economic, religious, and monetary power. The oil rich Arab nation has a $500 billion sovereign wealth fund. With only 400,000 citizens (2.5 million migrants work there) they have the highest per capita GDP in the world.

The Emir (ruler) of Qatar is Sheikh Tamim bin Hamad Al Thani, reigning since 2013. It’s been reported that he was heavily influenced by Iraq’s invasion of Iraq in August 1990 to be friends with everyone to safeguard Qatar and ensure they would not be attacked.

Qatar seems to buy everyone, one way or another. As a result, they have tremendous global influence and impact. For example:

· Al Jazeera Media Network is owned by QMC, the official state broadcaster of the Qatari government. Al Jazeera is second to the BBC in size and influence of any global news media outlet. It has a global audience of over 430 million people, broadcasts in more than 150 countries and territories, and is available in over 430 million homes. Many critics have questioned the independence of Al Jazeera given that the outlet was founded by the Qatari government, receives about 90% of its funding from the Qatar government allowing it to operate at a perpetual financial loss, and is run by Sheik Hamad bin Thamer Al Thani, a member of the Qatari royal house.

· The U.S. has one of its largest Middle East military bases in Qatar.

· Qatar is the main supplier of Natural Gas to the EU.

· Qatar owns more property in London than anyone and heavily influence the city’s economics and politics.

· Quatar owns 10% of Volkswagen and thereby has a say in Germany’s affairs.

· They own 100% of France ‘s PSG (aka Paris Saint-Germain) Football Club which competes in Ligue 1, the top division of French football (which is called soccer in the U.S.).

· Qatar gives billions of dollars to major U.S. universities, like Harvard and Cornell, to influence professors and students.

Perhaps you can now appreciate how this Islamic Arab nation plays everyone and controls important institutions of power. They seem to be able to do whatever they want with no negative results.

Victor’s Market Comments:

On Friday, March Crude Oil closed up +1.35 at $72.79 after hitting $75.28. Normally, these markets rally strongly then fall back after the initial news.

The closing high on Feb Gold is $2093.1 with the yellow metal closing up by +$32.4 on Friday at $2,051.6. Gold was mostly flat on the week but extended its run above the $2,000 level to nearly a month. On Monday, January 15^th, Feb Gold futures were +$7.40 at $2,059.00.

Technically, Gold is on the verge of “breaking out” to the upside. That would normally result in a 20% up move under current geopolitical tensions. Also, central banks have been big buyers of Gold, so the yellow metal is in strong hands.

Next week will be important to watch for an acceleration of the Middle East war, which would cause continued price appreciation in both oil and gold.

Victor’s Conclusions:

As of last week, it looks like the war in the Middle East will continue to gather momentum. If Iran is not stopped from having their proxies launch these guerilla attacks, more chaos will ensue.

As there’s been no serious peace talks, it seems that certain groups and people want war. That is why owning oil (and or oil stocks) and gold as insurance is prudent.

As Curmudgeon readers know, I am a long-term investor in Gold, but do not trade it. That said, I recommend at least a small allocation (5% or more) as a hedge against global chaos which is increasing.

End Quote:

“I am concerned for the security of our great Nation; not so much because of any threat from without, but because of the insidious forces working from within.” by Douglas MacArthur

Douglas MacArthur was one of the few individuals to achieve a 5-star rank, served in World War I, World War II, and the Korean War. A recipient of the Medal of Honor and 17 other medals, he distinguished himself as a talented, brave military commander.

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In our 13^th year of collaboration, Victor and the Curmudgeon wish you the best of luck, good health, and success in 2024. Till next time………….

The Curmudgeon
ajwdct@gmail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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