Great Game or Great Friends? The Russia and Saudi Bromance.

Why does Saudi make an enormous effort to sidle up to the Russians? [The Rude Awakening] February 28, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Great Game or Great Friends? The Russia and Saudi Bromance. - Is there enough room at China’s oil table for Russia and Saudi? - Why would Russia and Saudi forge a relationship? - How does Iran fit into this whole thing? [A $557 credit has been applied to your account.]( [Please click here to learn how to claim it.]( — Customer Service, Paradigm Press [Click Here To Learn More]( [Sean Ring] SEAN RING Good morning on this cold, overcast Tuesday morning from Asti. It’s the last day of February today. That means a Monthly Asset Class Report will be ready for you tomorrow morning. In the meantime, I thought I’d throw out a geopolitical piece today, as my good friend and Rude reader Cheltenham Ian wrote me last night. Ian and I have been friends for ten years. In fact, he poached me away from my old training company in 2013 to work for him in Singapore, covering the banks in Asia. I have drunk beer with Ian in more cities than most people I know. We’ve traveled together that often. And if it weren’t for the government-mandated private sector shutdown, that number would be even higher. But it’s been years since we’ve seen each other. So, we’ve had to resort to writing and talking on the phone, rather than beering it up in a good pub. In today’s Rude, I answer Ian’s question more thoroughly than I did in my reply to him for your benefit. What Was the Question? Here’s what Ian wrote: The angle that I don’t think is being written about much … Russia virtually stops selling to Europe directly etc. and starts selling a lot more to India and China at discounts. Builds a new distribution platform (sort of). All good so far. But are the key ME countries - especially Saudis - happy about this? Relaxed? I doubt it. A world in which Russia and Iran basically supply China. Middle East is relaxed at losing out? Not sure. Russia butts into Saudi’s major large-scale growth markets. Leaving Saudi more dependent on shrinking ‘western’ markets – places actively focused on reducing hydrocarbon use (albeit slowly). I can’t believe long term that will be thrilling for the Saudis. They’d probably like to maintain a balanced customer portfolio. It’s probably OK for now … at $80+ per barrel. But the longer-term feels a bit ‘loose cannon’ stuff and must have ripples out into the future? It’s also very interesting that the Middle East is choosing to ‘open up’ to western stuff - at the same time as Russia is choosing to ‘close off’ from the same. Feels like, again at $80, in the short term, not a lot is changing. But longer term my sense is Saudis will be thinking carefully about how they fit into that more binary world? Will it be comfortable for them to compete with Russia for China’s business? I wonder. Let’s get a critical item out of the way first. Why would Saudi sidle up to Russia, to begin with? - Economic benefits: As a major oil exporter, Saudi Arabia has a vested interest in maintaining stable relationships with major oil importers like Russia. The two countries have also discussed potential collaborations in other areas, such as investment, tourism, and nuclear energy. - Diversifying alliances: Saudi Arabia has traditionally been closely aligned with the United States, but recent tensions in the relationship have prompted the kingdom to seek out other partners. Developing closer ties with Russia gives Saudi Arabia more strategic options in a conflict or geopolitical crisis. - Syria conflict: Russia is a critical player in the Syrian conflict, which is of great concern to Saudi Arabia. By engaging with Russia, Saudi Arabia may hope to influence Russia's position on the conflict and potentially find a diplomatic solution. - Balancing against Iran: Saudi Arabia and Russia are regional powers concerned about Iran's influence in the Middle East. By allying with Russia, Saudi Arabia may seek to counterbalance Iran's regional influence. That last one is a big one. So we’ll save that for a bit later. Ian’s got the Russian oil rearrangement right except for one thing: Russia was already selling a shit-ton of oil to China. Here are the 2020 stats on imports to China: [SJN] Source: [( They’re already the biggest two. Do the Saudis love that? Probably not. But what are they going to do? A critical point to remember is this: Russia pipes its oil and gas to China. Saudi ships it. That’s much more time-consuming and expensive. The distance between Saudi Arabia and China is quite large, so transporting oil by sea is the most practical and cost-effective method. The oil is typically loaded onto tanker ships at Saudi Arabian ports, such as Ras Tanura or Yanbu, and transported through the Red Sea and then the Indian Ocean to ports in China, such as Qingdao or Shanghai. The journey can take several weeks, depending on the route and weather conditions. There have been discussions in recent years about the possibility of building a pipeline to transport oil from Saudi Arabia to China. But as of now, there is no such pipeline in operation. Remember, if China can figure out how to grow again, the Russians and Saudis can sell plenty more crude. According to [The Wall Street Journal]( North Africa is also picking up the Russian slack; it’s not just Asia. [SJN] Credit: [WSJ]( [“The Situation Is Getting Worse By The Day”]( That’s what the President of the US Chamber of Commerce just said about the supply chain. If you thought the supply chain issues were over, think again… Things are about to get much, much worse. And everything from your local grocery store to your gas station could be impacted. That’s why I’m urging everyone I can to prepare now… [To see the #1 move to make before this problem gets any worse, click here now.]( [Click Here To Learn More]( Economic Interests Besides Oil As for Saudi becoming more dependent on Western markets, Ian makes a good point by intimating it’s silly, considering The West is hellbent on getting rid of fossil fuels. But that’s what the Saudi/Russian relationship is about. First, they work together to keep oil prices as high as possible. Second, they’re trying to find other ways to trade to diversify their economies. The five main areas of bilateral trade are military equipment, agricultural products, construction materials, chemical products, and tourism. The Iran Issue Obviously, the Middle East isn’t one entity. I imagine the Saudis are far more uncomfortable about China and Russia canoodling Iran into the SCO than Russia selling China oil. That’s a far bigger deal. According to [The Cradle]( Russia and Iran just inked a new defense deal: The news of a potential deal between Iran and Russia to supply Tehran with 24 Sukhoi Su-35 combat aircraft is significant and not a passing event, as tensions between the two states and western nations continue to escalate. If Iran also sends short-range precision-guided ballistic missiles to Russia in conjunction with this agreement, those tensions will further intensify. While there has been no official announcement yet about the deal, Iranian officials have expressed interest in acquiring the Su-30 and Su-35 fighter jets and the fifth-generation Russian Su-57. On 15 January, a member of the Iranian National Security and Foreign Policy Committee, Shahryar Heidari, confirmed that the fighter jets will arrive next March and that Tehran requested other military equipment from Russia, including air defense systems, missile systems, and helicopters. That’s big and certainly not something that would make the Saudis happy. But Iran is the main country on the BRI; by a trick of geography, Saudi isn’t. That’s not fixable. [pub] Credit: [The Cyber Economist]( Wrap Up Russia and Saudi Arabia are building a relationship based on mutual benefits. That’s just how any two countries should do it. But there are complications. However, those complications are nothing to the alternative: being at the mercy of a West that hates fossil fuels and wants nothing more than complete subjugation, if not outright destruction. Have a great day ahead! All the best, [Sean Ring] Sean Ring Editor, Rude Awakening In Case You Missed It… Is This Sucker’s Rally Ending? [Sean Ring] SEAN RING Hello Reader, Happy Monday from soggy Piedmont. I’m thrilled it’s raining because we need to refill our reservoirs forthwith. Our soil is getting dry, which is terrible for planting season. Hopefully, the drought will end soon. But instead of going all climate science today, I’ll head back to the charts and the markets. We’ll keep it short, as it’s a Monday. Before We Start… I read a good piece of analysis by John J. Murphy, one of the writers for stockcharts.com. But Murphy isn’t just any writer. Who’s John J. Murphy? John J. Murphy is a well-known author, technical analyst, and trader in the financial markets. He has authored several technical and intermarket analysis books, including Technical Analysis of the Financial Markets, Intermarket Analysis: Profiting from Global Market Relationships, and The Visual Investor: How to Spot Market Trends. Murphy has over 30 years of experience in the financial industry and has worked for various institutions, including Merrill Lynch, Shearson American Express, and Thomson Reuters. He is also a frequent speaker at conferences and seminars and has taught numerous courses on technical analysis. Murphy is also considered one of the pioneers of intermarket analysis. What’s intermarket analysis? Intermarket analysis is a type of market analysis that studies the relationships between different markets and asset classes to understand better how they interact with each other. The main idea behind intermarket analysis is that different markets are connected and influence each other in numerous ways. For example, the price of crude oil can impact the prices of other commodities, such as gold or silver, and stocks in energy-related industries. Similarly, changes in interest rates can impact the prices of bonds, currencies, and stocks. By analyzing these intermarket relationships, investors gain a broader perspective on the financial markets and identify potential profit opportunities. For example, if an investor notices that the price of crude oil is rising, they may anticipate that the prices of energy-related stocks will also rise. By investing in these stocks, the investor profits from the price increase. Intermarket analysis can also help investors manage risk by identifying potential market correlations. For example, if an investor holds a portfolio of stocks in energy-related industries, they may also hold positions in commodities like crude oil or natural gas. If the price of these commodities declines, it may negatively impact the value of their portfolio. By understanding these intermarket relationships, investors can better manage their risk exposure and potentially avoid losses. Overall, intermarket analysis can provide investors with a more comprehensive understanding of the financial markets and help them identify potential opportunities for profit while managing their risk exposure. I wanted to let you know who’s responsible for most of this analysis and why I trust him! Now, let’s get to what Murphy thinks about the current market. The Dow Like many finance professionals, I don’t pay as much attention to the Dow as I should. Most professionals use SPX, as it’s an index of the 500 largest US companies by market capitalization. The Dow is picked at the whim of The Wall Street Journal editors. Be that as it may, the Dow can still be useful to us. Take the chart below. Ignore the top two panels and focus on the price chart with the red horizontal line through it. That’s what Murphy is looking at right now. [SJN] Credit: [stockcharts.com]( The Dow just couldn’t get back above 34,300. And it tried many days recently. From Murphy himself: The Dow is the first of the major stock indexes to give back all of its 2023 gains. It has also fallen below its 50-day moving average and now appears headed for a test of its December low and 200-day moving average. Next, let’s look at the small caps. The IWM The small caps deserve much credit for holding up the way they have. Mom and Pop have done an excellent job keeping their heads above water during this economic tomfoolery. [SJN] Credit: [stockcharts.com]( With that said, the Russell couldn’t get back above 200, and now looks to be heading south. From Murphy, again: Small-cap stocks also helped lead the recent stock rally. But they too are weakening. Chart 2 shows Russell 2000 iShares (IWM) also backing off from major resistance at their August peak and are now retesting their fourth-quarter highs. Daily momentum indicators in the upper boxes have also turned down. The IWM may be dropping toward a test of its moving average lines. What it does there will help determine if a more important top has been completed. Finally, let’s see what’s going on with the S&P 500. [URGENT: Your $557 Credit Is Now Available.]( I am pleased to announce that you've got an immediate $557.00 credit for our research you can take advantage of… [Please click here immediately to learn how to claim this credit.]( **DISCLAIMER: Please note, this offer is limited to the first 1,000 that take advantage today** [Click Here To Learn More]( The SPX First, Murphy: The daily bars in Chart 3 show the short-term trend for the S&P 500 also weakening along with momentum indicators in the upper boxes. Although the SPX fell well short of its August peak, last week's message showed it having regained half of last year's losses and suggested that was a normal spot to expect some profit-taking. The SPX is approaching an important test of its 50- and 200-day moving averages. But it's also testing a rising support line extending back to its October low (green line). That's another important test of the staying power of the market's four-month rally. If that support doesn't hold, the next support is seen at its late December low. That puts support at 3,800. [SJN] Credit: [stockcharts.com]( Of course, what’s concerning Murphy is the Fed continuing to hike rates. Murphy says: Stocks don't usually do well when the Fed is hiking interest rates to combat rising inflation. Which it's doing now. The big question is how much higher will rates go, and what effect that could have on stocks. If we only knew… Wrap Up We’re heading back down, all other things remaining equal. Most of the moves are Fed-driven, which a technician like John Murphy would have no trouble admitting. The point of technical analysis is first to determine what the market is doing. Only then can you hazard a guess as to where it’s going. Until tomorrow. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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