Rio’s big iron ore bet and why it might pay off

<p>Last Monday we wrote about the passing of a member of the Saudi Royal Family. On Wednesday we wrote about the political tensions in Kuwait […]</p>

Last Monday we wrote about the passing of a member of the Saudi Royal Family. On Wednesday we wrote about the political tensions in Kuwait after the parliament was dismissed.

Over the weekend, two more developments happened in the Middle East which add to the list of tensions. The first is the downing of a Turkish air force jet by Syrian forces.

At this stage it’s unclear how Turkey – a NATO member – will respond but we think it needs to respond in some way to reassert its geopolitical influence. An over-reaction could bring in Iran, which knows very well the current brewing political sensitivities in Saudi Arabia and its gulf neighbors.

Again, we don’t expect an all out disruption to oil markets but we think these events should all be on the watchlist.

The other event over the weekend was the Muslim Brotherhood’s victory in the Egyptian Presidential election. The military has already moved to quarantine the win, dissolving parliament which the Muslim Brotherhood previously held majority.

With the web of issues in the Middle East only likely to intensify, we think the current lull in the oil price could be just that. We are generally bearish on oil prices over the medium term, but we think the Middle East tensions, should they inflate, could create reason for a short term spike.

With Brent rising back above US$90 per barrel over the weekend, a short term bottom may have formed.

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