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Imagine waking up to see this incredible headline on the front page of the Wall Street Journal…
“Legendary Investor Warren Buffett Arrested on Corruption Charges.”
You’d think it’s a prank. You wouldn’t believe it. Warren Buffett. An icon of capitalism… America’s friendly, honest, and wealthy grandfather. The man top CEOs look to for advice on how to do things the right way. He can’t be in jail, can he? But eventually, you see the story is for real… and every media outlet talks about it night and day. Warren Buffett has been arrested.
Right now, the equivalent of this made-up situation is taking place – for real – in Saudi Arabia. Billionaire Prince Alwaleed bin Talal, a man most people consider to be the best businessman and investor in all the Middle East, was among a large group of high-profile Saudi citizens that were arrested last weekend. The arrests are the centerpiece of an “anti-corruption” purge in the Kingdom of Oil.
Prince Alwaleed bin Talal
Alwaleed is a very smart, flamboyant Saudi investor. He owns large stakes in major American businesses like Citigroup and Twitter. Forbes says he’s worth over $15 billion. You could say he’s the Warren Buffett of the Middle East, but with even more celebrity star power in his home country than Buffett has in his. Alwaleed is also the nephew of the current Saudi king. This makes his arrest also like if Donald Trump’s nephew was tossed in jail.
I know most Americans don’t care much about what happens in Saudi Arabia. But the incredible situation taking shape right now in one of the world’s top 3 oil producers will directly affect your 401(k) and the U.S. economy. You’d be smart to know what’s going on.
Here’s how I see it…
A New Era in the Kingdom of Oil is Underway
For better or worse, I’ve become an armchair expert on Saudi Arabian politics. The kingdom is one of the world’s top three oil producers. It shuffles among the top three spots with Russia and the U.S. So, any oil and gas investor worth his salt must know what’s going on in Saudi Arabia. Seemingly-small decisions made there can create massive swings in oil and gas prices.
In early 2016, I wrote a research piece on Saudi Arabia. In addition to covering the potential IPO of its massive state-owned oil company Aramco, I discussed the rise of a dynamic new power in the House of. This new power’s name is Crown Prince Mohammed Bin Salman (MBS).
President Trump with Crown Prince Mohammed Bin Salman in 2017
He’s the youngest son of current Saudi king, King Salman. MBS is part of a force I described in my New York Times bestseller, The Colder War. In the book, I stated how young Saudis would take power from the old generation and create a whole new direction for the country (see the sub-chapter entitled, Shaky House of Saud).
At the time of my research piece, MBS was just 30 years old… yet had already accumulated enormous power and responsibility. He was soon to be named next in line to be king by his father.
The naming of MBS to be next in line to become king in June 2017 was a huge shock in the country. Arab culture places huge importance on age and experience. I’m sure many “old school” Saudi royals believe that MBS is too young to have such power. He hasn’t “paid his dues” in their eyes. Since his father, the current king, is 80+ years old and reportedly has major health problems, one of the world’s largest oil-producing countries could soon have a young man at the helm.
The Saudi masses will see MBS as exactly the right man to lead the kingdom into the next generation. He is smart, aggressive, and most importantly, willing to do what the people view as the right step, which is stamp out corruption.
Just before the Arab Spring (which toppled some large Middle Eastern governments) broke out in 2011, I travelled through many Arab nations on different business trips. Whether I was in Kuwait, Iraq, UAE, Egypt or Syria, I found that across the board, “regular people” – cab drivers, hotel workers, etc. – all had a negative view of the Saudi royal family. They don’t like how the royals live lavishly while average people struggle to keep food on the table. I wrote about this situation in detail, and just 45 days later, the Arab Spring happened.
What MBS is Doing Right Now in Saudi Arabia is Brilliant.
First, he is consolidating his own power by eliminating the people he believes would be a threat to it. He’s eliminating threats under the veil of stamping out corruption within the kingdom. It’s a power play that has worked for thousands of years. When people threaten your political power, accuse them of corruption and jail them. Threat removed. (Let’s hope Trump doesn’t read this).
Secondly, MBS will take the tens of billions of dollars that have been earned via “corruption” and direct them back towards the state. I expect a lot of that money will be directed into social programs that benefit regular Saudi citizens. MBS is playing “Robin Hood,” taking from royals who have abused their power and giving to the people.
And, the whole time, MBS will have the full support of the United States for two main reasons.
The first is that MBS will take on Iran for the U.S. in the region. This is something Donald Trump wants and needs. In MBS, President Trump has a bold, powerful leader who will do it. On a side note, Trump wouldn’t mind a war in the Middle East. It would be good for defense contractors that supported the Republicans. It would also create inflation in the global economy, something politicians would love to see. Moderate inflation helps create an illusion of growth and prosperity.
Secondly, the U.S. understands that the Chinese will invest in Saudi Aramco’s IPO (or perhaps even Pre-IPO). The Chinese currency will rise in importance relative to the U.S. dollar. MBS is positioning himself to leverage the U.S. against the Chinese to advance his own agenda. Both will be willing participants in his game so they can advance their own agendas. Great move, MBS.
In my original article on the Saudi Aramco IPO, I stated how a potential “youth vs. age” power struggle in Saudi Arabia could have major consequences:
As King Salman’s health deteriorates, a youth vs. age struggle could develop and a 1964-style coup could be in the air. Which has ramifications. The political fragility within the Kingdom may be a significant threat to the internal stability of Saudi Arabia, the Middle East, and the Saudis’ allies as the country enters treacherous ground going forward.
This scenario I laid out is becoming real. MBS is making a bold move to consolidate this power. I believe this will major effects on the global oil markets. It is the oil-covered black swan I’ve been waiting for. Also, a serious war with Iran looks to be in the horizon, which will also be bullish for the price of oil.
This matters to all investors. It matters to anyone who consumes oil. The price of oil has not only bottomed, it is going to go higher.
The best way to bet on MBS furthering his agenda – and upsetting the established order of the Middle East – is to invest in oil-rich North American shale plays where there is existing infrastructure and the paybacks are less than 12 months per well.
The best technology is now being applied in the liquid-rich North American plays. Oil companies are drilling wells that are comparable to the best wells in Kuwait, Iraq, and Saudi Arabia. Why take the political risk when the same results are right here at home?
For my money, right now, I am focused on the low-hanging fruit… the easy money is right here in our North American backyard.
More importantly, the oil being produced in North America is needed in North America. So, the “low cost” foreign oil is now comparable to domestically produced oil from low-cost liquid-rich wells. Without any of the delivery risk that comes from depending on the Middle East.
Prince Mohammed Bin Salman (MBS) has made the global oil markets much more interesting, and I want to thank him for that. I was starting to get bored with the oil markets, and the game is now back on. Because MBS is so young and has just made his boldest move to consolidate power, I have a feeling we are in for a long and exciting chapter in the story of oil.
Fortune favors the bold, and I wish Prince Mohammed Bin Salman the best in his executing the rest of his plans. Things are about to get interesting.
Ps. One of my biggest personal holdings is a liquid rich oil play that’s in the “next great shale field”. Shares are up 25% in less than a month and moving on higher volume. The great news is that the land owned by this company is selling for an 80%+ discount to similar properties around the world. This junior stock is poised to soar hundreds of percent as the world catches on to this story.
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