Saudi Arabia’s fiscal breakeven oil price is rising fast. What will the kingdom do about it?

An offshore drilling platform stands in shallow waters at the Manifa offshore oilfield, operated by Saudi Aramco, in Manifa, Saudi Arabia, on Wednesday, Oct. 3, 2018.

Simon Dawson | Bloomberg | Getty Images

Saudi Arabia has a superpower. Not only is it the largest exporter of crude oil in the world; its production costs for oil projects are also the lowest in the world, at around just $10 per barrel. When around 75% of your fiscal revenue comes from oil, that’s a big deal.

And for a time, its fiscal breakeven oil price — what it needed a barrel of crude to cost in order to balance its government budget — was fairly comfortable, too.

That’s changing as the kingdom embarks on huge spending projects as part of Vision 2030, which aims to modernize its economy and diversify its revenue sources away from oil. With each passing year, that projected fiscal breakeven oil price gets higher, and the kingdom’s deficit widens.

In May of 2023 the International Monetary Fund forecast the kingdom’s breakeven oil price at $80.90 per barrel, which moved it back into a fiscal deficit following its first surplus in nearly a decade. To be sure, the fiscal breakeven isn’t the price at which Saudi Arabia makes a profit on crude but the average oil price it needs to balance the books.

The IMF’s latest forecast, in April, put that breakeven figure at $96.20 for 2024; a roughly 19% increase on the year before, and about 32% higher than the current price of a barrel of Brent crude, which is trading at around $73 as of Wednesday afternoon.

Riyadh, Saudi Arabia.

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“At least until 2030, Saudi will have massive budgetary needs due to the need to demonstrate some significant outcome in key Vision 2030 projects and to prepare for and host big sporting and cultural events” like the World Cup 2034 and Expo 2030, said Li-Chen Sim, a non-resident scholar at the Washington-based Middle East Institute.

“All this amidst expected growth in oil supply from the U.S., Guyana, Brazil, Canada, and even the UAE and possible anemic oil consumption growth in China, the Kingdom’s largest oil customer, means that the Kingdom’s fiscal breakeven price is likely to rise perhaps to around $100.”

All that, she adds, does not include the domestic spending requirements of the kingdom’s mammoth sovereign wealth fund, the Public Investment Fund, which is behind multi-trillion dollar megaprojects like NEOM. A Bloomberg forecast cited by Nomura Asset Management put this year’s breakeven price, including PIF spending, at $112 per barrel.

“Saudi Arabia is wealthy and government spending has climbed rapidly over the past decade but it has fiscal parameters within which it must operate just like every other country,” a Nomura report on Arabian markets published Sept. 2 read.

Important economic indicators “like oil production and prices, are now flashing warning signs,” it added. “A global slowdown amid supply uncertainties may hamper prospects for hydrocarbon economies.”

Saudi Arabia’s economy swung dramatically from a budget surplus of $27.68 billion in 2022 to a deficit of $21.6 billion in 2023 as it ramped up public spending and decreased oil production due to its OPEC+ supply cut agreement. Its government forecasts a deficit (meaning the total amount of money spent will be more than the money received) of $21.1 billion for 2024, projecting revenue at $312.5 billion and expenditures at $333.5 billion.

Does the breakeven oil price actually matter?

But wait — fiscal breakeven prices are not always as important as people think they are, some economists and market analysts argue. And for Saudi Arabia, a range of options exist to manage deficits and less-than-ideal oil prices.

“The reality is that countries run deficits all the time, and therefore the idea Saudi Arabia needs $112 oil, or whatever the number is, to me doesn’t provide a true representation of what’s going on,” one energy analyst who focuses on the kingdom told CNBC.

“For Saudi Arabia, they have a lot of capacity to take on more debt if they wanted to … it’s not an issue for them to run a small deficit,” the analyst said, speaking anonymously due to professional restrictions on speaking to the press.

The kingdom also has robust foreign currency reserves, which grew to a 20-month high of $452.8 billion in July, and has been successfully issuing bonds, tapping debt markets for $12 billion so far this year. Oil revenue should increase in 2025 when the OPEC+ production cuts, the majority of which were taken by Saudi Arabia, expire, according to energy analysts.

“From that perspective, they’re also starting from a relatively strong position,” the source said.

Saudi Arabia’s public debt has grown from around 3% of its GDP in the 2010s to 24% today — that’s a massive increment, Sim said. But by international standards, it’s still low. Average public debt in EU countries, for instance, averages 82%. In the U.S. in 2023, that figure was 123%.

Watch CNBC's interview with Saudi Arabia's assistant minister of investment

Its relatively low debt level and high credit rating makes it easier for Saudi Arabia to take on more debt as it needs to. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams. While the country’s economy has contracted for the last consecutive four quarters, non-oil economic activity grew 4.4% in the second quarter year-on-year, up 3.4% from the prior quarter.

“The good news is that the economy is progressing along its diversification track and has already absorbed large reductions in subsidies and higher VAT while generating a huge number of jobs,” the Nomura report said.

While the kingdom “still lacks the quantum of foreign direct investments desired,” it wrote, “the newly approved investment law should bring it closer to achieving its goal of building a substantially bigger non-oil sector.”

Risks remain, however — primarily if oil demand continues to be soft in major consuming countries and crude supply in non-OPEC+ countries continue to grow, Sim said. And those risks are entirely out of Saudi Arabia’s control.

“With regard to the first point, the biggest danger is a possible tit-for-tat tariff war between China and the US or Europe,” Sim said. This “could result in slower global economic growth and hence a reduced demand for oil.”

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The Hindu Morning Digest, June 24, 2024

Students raise slogans during a protest over the alleged irregularities in NEET 2024 results.
| Photo Credit: –

48% of 1,563 candidates skip NEET-UG re-exam

Of the 1,563 candidates eligible to appear for the re-exam of the undergraduate National Eligibility-cum-Entrance Test (NEET-UG), only 813 (approximately 52%) took it on Sunday. Another 750 candidates (approximately 48%) remained absent. The three-and-a-half hour long exam was conducted across seven centres in the States of Chhattisgarh, Gujarat, Haryana, Meghalaya, and the Union Territory of Chandigarh. 

Centre’s high-level panel on exam reforms likely to meet on June 24

The Union education ministry’s high-level panel for suggesting exam reforms and reviewing functioning of the National Testing Agency will meet on June 23, sources said. Amid a row over irregularities in competitive exams, the ministry on Saturday notified a seven-member panel headed by former Indian Space Research Organisation (ISRO) chief K. Radhakrishnan to ensure transparent, smooth and fair conduct of examinations through the National Testing Agency (NTA).

Kallakurichi hooch tragedy: Suspected main supplier of methanol held in Chennai

The police on Sunday arrested Sivakumar, 30, suspected to be one of the main suppliers of methanol to the sellers of illicit liquor, even as the death toll in the hooch tragedy in Kallakurichirose to 56. A central investigation unit of the Enforcement wing of the Tamil Nadu police nabbed Sivakumar, who was hiding in his sister’s house at Sulapallam in Chennai, in the early hours of Sunday.

Delhi excise case: Arvind Kejriwal moves SC against HC’s interim stay on bail order in ED case

Delhi Chief Minister Arvind Kejriwal urgently approached the Supreme Court on June 23 against the Delhi High Court’s suspension of bail granted to him by a trial court in the excise policy case .Mr. Kejriwal’s lawyers said the petition would be mentioned orally for early hearing on June 24 before a Vacation Bench of the Supreme Court.

Union Tribal Affairs Minister promises to look into Great Nicobar clearances

The Union Tribal Affairs Ministry will be looking into the forest clearance paperwork of the ₹72,000-crore infrastructure project on Great Nicobar Island that the National Democratic Alliance (NDA) government has been pushing for, and accordingly determine next steps, Tribal Affairs Minister Jual Oram has said. In an exclusive interaction with The Hindu last week, he outlined his intent to give special attention to forest and land rights of tribal communities during his term. 

Militant killed close to LoC in Uri sector, says Army

One militant was killed in an ongoing anti-militancy operation in north Kashmir’s Baramulla on June 23. “One terrorist has been killed in the ongoing anti-infiltration operation that was launched on June 22 in the Uri Sector. Operations are continuing,” an Army spokesman said. 

Saudi says 1,301 deaths during hajj, mostly unregistered pilgrims

Saudi Arabia said Sunday that more than 1,300 faithful died during the hajj pilgrimage which took place during intense heat, and that most of the deceased did not have official permits. “Regrettably, the number of mortalities reached 1,301, with 83 percent being unauthorised to perform hajj and having walked long distances under direct sunlight, without adequate shelter or comfort,” the official Saudi Press Agency reported.

Sri Lankan president reiterates support for separate state of Palestine

President Ranil Wickremesinghe on June 23 reiterated Sri Lanka’s unwavering support for a separate Palestinian state to be established “within five years.” The president also said that despite the country’s current bankrupt economy, generous public contributions collected a million dollars in response to his government’s Gaza Children’s Fund that was donated.

Russia approves draft logistics agreement to be signed with India

After being held up for several years, the India-Russia mutual logistics agreement is ready for conclusion, with Russia approving the draft agreement over the past week. The agreement will simplify military-to-military exchanges for exercises, training, port calls and Humanitarian Assistance and Disaster Relief (HADR) efforts. It is similar to a series of such agreements that India has signed with a number of countries, beginning with the United States in 2016.

Former Israeli Ambassador says India may be ‘returning the favour’ with military supplies for Israel

Former Israeli Ambassador to India, Daniel Carmon, speaking with the leading Israeli publication Ynetnews, has said that India might be supplying weapons to Israel as a sign of gratitude for Israeli assistance during the Kargil war of 1999. The seasoned diplomat’s comments came in the backdrop of speculation that India has supplied drones and artillery shells to Israel as the latter ran short of the items with its war against the Hamas continuing for more than eight months.

Albania player Mirlind Daku banned by UEFA for two Euro 2024 games after nationalist chants

Albania player Mirlind Daku was banned on Sunday for two games after leading fans in nationalist chants at the European Championship, that UEFA said brought soccer into disrepute .Daku took a megaphone after Albania’s 2-2 draw with Croatia on Wednesday in Hamburg and joined in chanting slogans against Serbia and North Macedonia.

T20 World Cup 2024: Near perfect India could play party poopers to under pressure Australia

India will be out to derail Australia’s T20 World Cup campaign when they take on their shocked and under-pressure opponents in their final Super 8 game in Saint Lucia on June 24. A third straight win for India will not only make them the group toppers and send them to the semifinals, it will also substantially threaten Australia’s chances of progressing through to the semifinals following the unexpected loss to Afghanistan in Saint Vincent on Saturday night.

Euro 2024: Croatia faces Italy in crunch survival clash

Group B was dubbed Euro 2024’s ‘Group of Death’ but while Spain soared through with a game to spare, heavyweights Italy and Croatia meet on June 24 fighting to stay in the competition. Both sides were outclassed by Spain, and while reigning champions Italy edged Albania 2-1, Croatia could only draw 2-2 with the minnows.

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History beckons in Saudi Arabia, as boxing finally finds out who really is the heavyweight champion

It’s the biggest fight in a generation.

The first undisputed heavyweight boxing title fight in the four-belt era.

Tyson Fury and Oleksandr Usyk will meet in boxing’s new home, Riyadh, as the Saudi Arabian takeover of pugilism at the highest, showbiziest level, continues.

And this time the Saudi money has talked again, as the two recognised heavyweight champions signed on the dotted line to create a super fight of the likes rarely seen since the 90s.

Both men are undefeated with multiple accomplishments in the ring, but victory in the desert on Saturday night will propel both into the realms of sporting immortality.

But at the end of the night, only one man can hold up one of the biggest prizes in sport.

Usyk on the verge of immortality

Usyk can already, justifiably call himself one of boxing’s greats.

The former undisputed cruiserweight champion that moved up in weight to dethrone and outclass a British boxing legend. Twice.

The figurehead and inspiration for a country at war.

He won his first world cruiserweight crown, the WBO title, in his 10th professional bout, in the backyard of Polish fighter Krzysztof Głowacki.

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‘Iran is in for the long haul’ with oil tanker hijacks, expert says, as U.S. considers more sanctions

Iranian soldiers take part in an annual military drill in the coast of the Gulf of Oman and near the strategic Strait of Hormuz.

Anadolu | Anadolu | Getty Images

The containership MSC Aries seized by Iran over the weekend marked at least the sixth vessel hijacked by Iran and its proxies in response to the Israel-Gaza war, and it’s adding to the challenges to longstanding freedom of navigation principles that maritime shipping relies on.

Before this weekend’s tanker seizure, the last vessel Iran hijacked was the St. Nikolas on January 1. According to U.S. Naval Forces Central Command, that brought the total number of vessels being held to five, and over 90 crew members hostage. Previous to that, the Iranian-backed Houthis hijacked The Galaxy Leader on November 19.

The latest development has shipping and energy experts bracing for a long-term timeline of uncertainty.

“Iran is in this for the long haul,” said Samir Madani, co-founder of Tankertrackers.com, an independent online service that tracks and reports crude oil shipments in several geographical and geopolitical points of interest.

The MSC Aries was identified by Iran as having a link to Israel. The containership has a carrying capacity of 15,000-TEUs (twenty-foot equivalent containers). MSC leases the Aries from Gortal Shipping, an affiliate of Zodiac Maritime, which is partly owned by Israeli businessman Eyal Ofer.

MSC declined to comment directly to CNBC.

In a statement released by MSC on Wednesday, it said the crew members were safe and discussions with Iranian authorities were underway to secure their earliest release and to have the cargo discharged.

Madani said he does not expect a quick release. “They will hold the MSC Aries for a long period. Iran has been holding some tankers for about a year, if not longer now,” he said.

According to Tankertracker information, Madani said the vessel is being held in the Khuran Straits, not too far from three other tankers Iran hijacked: the Advantage Sweet, Niovi, and St. Nikolas.

A Planet Labs satellite image of the location of the MSC Aries and other tankers recently hijacked by Iran.

Planet Labs PBC

As the U.S. considers more sanctions against Iran in response to its recent attack on Israel, Iran has been using the hijacked ships as a means of sanctions retaliation.

“Iran has already seized the Kuwaiti oil that was onboard the Advantage Sweet and has been loaded onto their VLCC supertanker the Navarz. Iran chose to do this as a way to compensate for sanctions,” Madani said.

While the Niovi was empty at the time of the seizure, the St. Nikolas is filled with a million barrels of Iraqi oil.

Treasury Secretary Janet Yellen said on Tuesday that the government may do more to prevent Iran’s ability to export oil despite U.S. sanctions. China’s purchases of Iranian oil in recent years have allowed Iran to keep a positive trade balance.

According to the U.S. Energy Information Agency, China, the world’s largest importer of crude oil, imported 11.3 million barrels per day of crude oil in 2023, 10% more than in 2022. Iran ranked second in oil exports to China behind Russia. Customs data indicates that China imported 54% more crude oil (1.1 million b/d) from Malaysia in 2023 than in 2022, with industry analysts speculating that much of the oil shipped from Iran to China was relabeled as originating from countries such as Malaysia, the United Arab Emirates, and Oman to avoid U.S. sanctions.

The markets continues to assess the risk of further escalation in the military tensions between Israel and Iran, which could lead to a disruption in the Strait of Hormuz, through which about 30% of the world’s seaborne oil passes, according to JPMorgan. On Tuesday, oil edged higher amid talk of sanctions.

An Iranian blockade would supercharge oil prices, but the risk is low given that the strait has never been closed off despite many threats by Tehran to do so over the past four decades, according to JPMorgan.

“They can’t close the Strait of Hormuz, but they can do significant damage to energy infrastructure, to vessels in the region,” RBC’s head of global commodity strategy and Middle East and North Africa research, Helima Croft, told CNBC on Monday, referring to Iran’s capabilities.

“While I can’t imagine Iran would want to fill up their anchorage with vessels, they want to keep the waters in a constant state of chaos,” Madani said. But with a closure, he said, “They would shoot themselves in the foot since their biggest client is China.”

Andy Lipow, president of Lipow Oil Associates, says the closure of the Strait of Hormuz would result in a spike of Brent crude oil prices to the $120 to $130 range. “This would strain ties with China and India who purchase a significant amount of Persian Gulf oil to meet much of their energy demand.”

Lipow also said Iran might be reluctant to shut the waterway for fear of antagonizing Saudi Arabia, Kuwait and Iraq, who depend on the strait being open for most of their oil exports. The bigger immediate fear in the oil market, he said, is that the attack by Iran on Israeli territory leading to a counterattack by Israel on Iran damaging oil-producing and exporting facilities.

Kevin Book, managing director of ClearView Energy Partners, says the markets need to keep an eye on sanctions from both the US and UN potentially.

In a note to clients, ClearView highlighted that the House of Representatives added several Iran sanctions bills to its calendar for consideration this week, under suspension rules, including new sanctions on Iranian oil exports to China. Book said the House was considering 11 bills in all in response to Iran’s attack on Israel.

“We think most if not all bills could garner (notionally) veto-proof bipartisan support,” the note said. “Passage requires a two-thirds majority of all members present and voting.”

Israel has also asked the U.N. to reinstate multilateral sanctions lifted by the Iran nuclear deal, but for this to happen, France, Germany and the U.K., parties to the nuclear deal, would have to agree. “There are many risks unfolding. The forest is on fire,” Book said.

Sen. Dean Sullivan talks impact of Iran's strikes on Israel and what it means for crude oil prices

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The oasis city, at the centre of MBS’s plan to transform the Saudi kingdom

“I bought my grandmother a gold necklace from my first salary and she changed her mind about me working alongside men.” 

Ghiwa (name changed), a tourist guide in Madina province of Saudi Arabia, adjusts her niqab as she answers a casually asked question about working women.

Saudi Crown Prince Mohammad Bin Salman, or MBS as he’s popularly known, seems to have used Ghiwa’s household tactic on a national level to herald an era of change in his country. The conservatives are bristling at his Vision 2030 for it breaks to shackles of traditional attitudes and performative religiosity.

In Al-Ula, a northwestern city in the Madina province, one can barely hear the muezzin’s call for prayers. This oasis city, once an important market along the historical incense route, sits at the centre of MBS’s ambitious plan to steer Saudi Arabia away from dependence on oil and pilgrimage and match the beat of modernity. Interestingly, Al-Ula is considered a cursed city in the Islamic worldview as its residents fell for idolatry and are thought to be punished by God for the same. MBS may have cheekily played on this reputation while setting up the Royal Commission for Al-Ula which seeks to capitalise on the wealth of archaeological wonders in and around the city.

“Traditionalists say that a Muslim should avoid staying, eating, or drinking in Al-Ula. Hell, yeah!” Samir (name changed), a Pakistani-American tourist at the most expensive luxury resort in Al-Ula bursts out laughing. His wife and children are frolicking in the pool. Ever since it opened its doors for tourism, Saudi Arabia has been seeing a growing number of tourists who wish to explore the country beyond the pilgrimage sites.

Idea of nationalism

This interest in touring the country sits with its newly-forged idea of nationalism which is not essentially linked with religion. Mohammad (name changed), a photographer from Riyadh says, “Change is good for our country. Saudi Arabia has been late in stepping along the course of time. But we are getting there”. He proudly shares how his sisters were better at driving cars than many of his friends. “If a woman drives, she can handle household chores independently.” Empowerment starts with convenience.

Saudi Arabia has been at pains to project a new image of friendliness towards the ‘other’, be it the Abraham Accords, easing of the visa norms, opening up the country for popular sport and entertainment events, or opening the first liquor store in Riyadh after seven decades. The Saudi establishment and regular people are recognising the benefits of being welcoming towards the ‘other’ for it results in economic and geopolitical gains. Young Saudi Arabians are participating in this transformation process for the sake of individual liberties as well as in the name of nationalism.

“I want to travel the world but I have a to-do list for my country. As a teacher, I am responsible for preparing the next generation to be capable of taking Saudi Arabia to the next level of development,” says Ahmad (name changed), a young English teacher in the Madina province. He also shared how girls were performing much better than boys in academics. In the modernisation drive, young women are offered scholarships to study and train abroad to prepare them for the times ahead.

There is some obvious resistance. “Sometimes tourists say they don’t want a woman as their guide. We tell them to cancel their tour in that case. There are no refunds,” winks Asra (name changed), a tourist guide in Al-Ula. She wore her ID card proudly over her abaya. Only her eyes and thumbs (for touchscreens of her phone and other gadgets) were uncovered. “My choice of attire is informed by tradition and not so much by religion,” she adds.

Archaeological bounty

Al-Ula’s archaeological bounty could have been a cultural landmine of sorts given the implications of Aramaic inscriptions on the perception of the Koran. The authorities concerned are treading with caution while wresting power over the culture and society from the religious establishment. From the cursed city, Al-Ula is pacing towards becoming another Istanbul—a confluence of civilisations. 

In the wake of the falling oil prices almost a decade ago, the seeds of top-down nationalist mobilisation were sown during the reign of King Abdullah. The desert is now showing signs of this crop. It is to be remembered, however, that top-down socio-cultural changes have not always worked as desired in Saudi Arabia. Like, in the case of the Sahwa (Islamic Resurgence) mobilisation in the 1970s and 80s, the religious leaders later began to challenge their political benefactors on issues of foreign policy.

The Saudi Arabian middle-ground approach in its regional foreign policy has worked well for it so far. The heat of the current Israel-Palestine conflict, too, has spared it. Under the almost unchallenged leadership of MBS, Saudi Arabian people are being encouraged to examine their uniqueness in the strife-torn WANA region. While countries like Jordan, Iraq, Yemen, Egypt, Syria, and Libya are strewn with devastated, often bombed out, historical sites, Saudi Arabia is preparing to stun the world with its antiquities of Al-Ula, Hegra, Tayma, and other sites still under excavation and exploration.

The resurrection of MBS’s grandfather King Abdulaziz, who founded the third Saudi Arabian state and ruled the country from 1932 to 1953, in the form of the naming of airports and roads after him is significant. Just like the older king didn’t rely on oil for nation-building, MBS wants to signal to the world that Saudi Arabia is relevant even without being a significant source of fossil fuel. His ‘green’ approach is gaining support in the young Saudi Arabian population. 

Opportunities for Indian

A Saudi Arabian spring is all fine but what is in it for India?

To begin with, Indian migrant workers in Saudi Arabia can expect better working conditions. In a renewed social contract, everyone—citizens, immigrants, tourists—is beginning to be seen as an important stakeholder. Nadim (name changed), a South Asian immigrant employed in the hospitality industry says, “I’ve seen Saudi Arabia changing in the last five years. Earlier, we couldn’t even look our Saudi Arabian colleagues in the eye. There was a very strict hierarchy at work here. It is not so anymore. Labour courts have been reformed”. According to Eliyas (name changed), a schoolteacher in Madina province, however, attitudes cannot change drastically. “We grew up seeing Indians mostly as labourers. It will take time for us to accept them as tourists and patrons.” 

Indian educators and artists have enormous opportunities in Saudi Arabia because of the government’s urgency to overhaul the education system. India seeks to benefit from Saudi Arabian nationalism which aims to prepare people for a diversified economy. While it is ‘Saudi First,’ the country welcomes regional and far-neighbourhood synergies in the space of culture, technology, security et al. The ongoing first-ever India-Saudi Arabia joint military exercise in Rajasthan, Sada Tasneeq, is one of the examples of the growing partnership between the two countries. 

While Saudi Arabia will look at India to send tourists in addition to the regular Haj pilgrims, India can leverage its position for its counter-terrorism initiatives. Bilateral investments in the space of infrastructure and service sectors for India and Saudi Arabia respectively also have great growth potential.

“We want our country to be on top in all fields,” a front office employee in Jeddah shares. India can benefit from this Saudi Arabia aspiration. 

(Nishtha Gautam is a Delhi-based writer and entrepreneur.)

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Saudi deal: Will Spain forgive Rafael Nadal for breaking its heart?

Before he was a world champion, Rafael Nadal was known as a “good person”. Accepting the offer to become Saudi Arabia’s tennis ambassador has shattered the ideal many in the country had of the player.

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“Is it clear now who Rafa Nadal is?”

It’s a question that fans of the tennis star have been asking on social media, after the announcement that Spain’s favourite sporting son has inked a deal to become a ‘tennis ambassador’ for Saudi Arabia. 

Nadal signed an agreement with the oil-rich Arab country to “promote the development of the sport”, but more than his actions, it was the statement he made that left Spaniards speechless: “Wherever you look, you can see growth and progress here”.

“Money buys everything?” supporters asked at first, criticising the lack of human rights in the Gulf State. Now the debate has moved on from social networks to office corridors, cafeterias and Whatsapp groups.

“I read the news at night and thought I was so tired I must have misread it, but the next day I saw it was true. The first thing I thought was: why did he sell himself? He’s got a lot of money and he’s won everything, he didn’t need it,” Jaime, from Madrid, whose idol has always been Nadal, told Euronews.

“It was such a hard blow that we could start counting the years from this moment: the first year since Rafa was sold,” he adds.

Newspapers have also been filled with letters lamenting Nadal’s decision. “I don’t understand the need to sell out like this, but I don’t blame him either: when it comes to large sums of money, dignity and honour disappear,” wrote Pablo Erskine from Alcorcón in El País.

“Is it really worth sacrificing principles for a few million more?”

Gonzalo discussed this with his colleagues during a coffee break at the bank he works for in London. “It’s hard to be objective because for me Nadal is God, but it’s clear that this is not the best thing he could have done”.

There are those who wonder why Spain’s most popular sports star has made this decision and there are those who defend their idol even in the biggest controversies.

“I don’t know if the agreement is good for his image, but I think he is doing it for the development of tennis and his academy, not for the money. I still believe in Nadal’s values and principles,” says Jorge, a Spaniard living in Germany who says he has never missed a single Nadal match.

Tempted by petrodollars

Rafa Nadal is not the first, nor will he be the last sportsman to work for Saudi Arabia, which is why the Spanish reaction may come as a surprise. All the more so after keeping quiet when other athletes signed contracts with the Arab country.

Another Spaniard, Jon Rham, joined Saudi Arabia’s government-funded golf league with a contract estimated to be worth more than $500 million.

Beyond the country’s borders, Portugal’s Cristiano Ronaldo is set to pocket €200 million for promoting Saudi Arabia’s bid to host the 2030 World Cup, according to media reports. 

Very little information has emerged about Nadal’s deal with the Saudis, let alone the amount of money involved. All that has been made public is that it is “a long-term commitment to help grow the sport and inspire a new generation of tennis players in Saudi Arabia”.

The statement from the Saudi Tennis Federation also said that a new Rafa Nadal Academy would be opened in the country and that the player would spend some time there.

Nadal’s reputation as a role model

To understand the stir caused by Nadal’s Saudi deal it is necessary to understand his relationship with Spain. There are many who call him “Spain’s son” or “the model man”.

But how is it that (almost) all Spaniards like Nadal?

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His head of communications, Benito Pérez-Barbadillo, gave the answer to the Diario de Cádiz newspaper two years ago.

“Rafa is the way people see him. He is a very normal guy and a very good person. I think Rafa is so popular because he is very authentic, without any double standards and he is not an artificial person,” he said.

The tennis player has always been seen as the boy from Manacor, a town on the island of Mallorca, who does not boast about his victories or have an eccentric attitude. A humble and generous champion who fights defeats with more work and discipline.

In 2017, in an interview with El País newspaper, Nadal said that in terms of managing his wealth, “maybe it would be better to go to another country with more favourable conditions, but where I am happy is in Spain, with my family and friends. In another country I would have twice as much money, but I would be half as happy. Money doesn’t buy happiness.”

Before he was a world champion, Rafa Nadal was known as a “good person”. Accepting the Saudi offer has shattered the ideal that many in the country had of the great tennis player.

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What is Saudi Arabia after?

Since 2021, the country is estimated to have invested $6.3 billion in sports deals, although the figure is likely to be much higher, but the lack of transparency makes it difficult to know the total.

The authoritarian regime invests millions of dollars in sports to project an image of modernity.

“It is trying to promote the image of an open and developed country according to Western standards, but it is still a country that is accused of not respecting human rights,” David Hernández, professor of international relations at the Complutense University of Madrid, told Euronews.

The use of petrodollars serves Crown Prince Mohammed bin Salman’s strategy, his “Vision 2030”, launched eight years ago with the intention of diversifying the Saudi economy away from its dependence on oil.

The prince claimed that sport had contributed to a 1% increase in his country’s GDP and hoped to see further growth in the sector.

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“The Saudis have realised that the international energy markets are changing, more and more renewable energy is being promoted, and so they are trying to transform their economy,” he added.

Hernández believes that Saudi Arabia is trying to achieve several goals. The first is a show of strength by signing big stars, demonstrating that it has the capacity and resources to organise whatever it wants.

The second is to send a message that it is a country that is present and open to contact with other cultures. And the final objective is to become a media powerhouse in the world.

“It is a similar model to the World Cup in Qatar. When it was organised, there were many accusations about the lack of respect for human rights and workers’ conditions, but in the end, with the World Cup, people only talked about football,” says the expert.

“The Saudi regime wants to project the image it wants the world to see of its country. It is a very studied and calculated image.”

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Airstrikes are unlikely to deter the Houthis

Jamie Dettmer is opinion editor at POLITICO Europe.

TEL AVIV — In a preemptive bid to warn off Iran and its proxies in the wake of Hamas’ October attacks on southern Israel, United States President Joe Biden had succinctly said: “Don’t.” But his clipped admonition continues to fall on deaf ears.

As Shakespeare’s rueful King Claudius notes, “when sorrows come, they come not single spies but in battalions.” And while exasperated Western powers now try to halt escalation in the Middle East, it is the Iran-directed battalions that are bringing them sorrows.

Raising the stakes at every turn, Tehran is carefully calibrating the aggression of its partners — Hezbollah in Lebanon, Shiite militias in Iraq and Syria, and the Houthis in the Red Sea —ratcheting up to save Hamas from being destroyed by a vengeful Israel. And out of all this needling, it is the Houthis’ more then two dozen attacks in the Red Sea that crossed the line for Western powers — enough to goad the U.S. and the United Kingdom into switching from a defensive posture to launching strikes on dozens of Houthi targets.

As far as Washington and London are concerned, Western retaliation is meant to give teeth to Biden’s October warning, conveying a clear message to Iran: Stop. But why would it?

Privately, the U.S. has reinforced its warning through diplomatic channels. And U.K. Defense Minister Grant Shapps underscored the message publicly, saying the West is “running out of patience,” and the Iranian regime must tell the Houthis and its regional proxies to “cease and desist.”

Nonetheless, it’s highly questionable whether Tehran will heed this advice. There’s nothing in the regime’s DNA to suggest it would back off. Plus, there would be no pain for Iran at the end of it all — the Houthis would be on the receiving end. In fact, Iran has every reason to persist, as it can’t afford to leave Hamas in the lurch. To do so would undermine the confidence of other Iran-backed groups, weakening its disruptive clout in the region.

Also, from Iran’s perspective, its needling strategy of fatiguing and frightening Western powers with the prospect of escalation is working. The specter of a broadening war in the Middle East is terrifying for Washington and European governments, which are beset by other problems. Better for them to press Israel to halt its military campaign in Gaza and preserve the power of Hamas — that’s what Tehran is trying to engineer.

And Iranian mullahs have every reason to think this wager will pay off. Ukraine is becoming a cautionary tale; Western resolve seems to be waning; and the U.S. Congress is mired in partisan squabbling, delaying a crucial aid package for Ukraine — one the Europeans won’t be able to make good on.

So, whose patience will run out first — the West or Iran and its proxies?

Wearing down the Houthis would be no mean feat for the U.S. and the U.K. In 2015, after the resilient Houthis had seized the Yemeni capital of Sana’a, Saudi Arabia thought it could quickly dislodge them with a bombing campaign in northern Yemen. But nearly a decade on, Riyadh is trying to extricate itself, ready to walk away if the Houthis just leave them alone.

The United Arab Emirates was more successful in the country’s south, putting boots on the ground and training local militias in places where the Houthis were already unpopular. But the U.S. and the U.K. aren’t proposing to follow the UAE model — they’ll be following the Saudi one, albeit with the much more limited goal of getting the Houthis to stop harassing commercial traffic in the Red Sea.

Moreover, Western faith in the efficacy of bombing campaigns — especially fitful ones — has proven misplaced before. Bombing campaigns failed to bring Iraq’s Saddam Hussein to heel on their own. And Iran-aligned militias in Iraq and Syria have shrugged off Western airstrikes, seeing them as badges of honor — much like the Houthis, who, ironically, were removed from the U.S. terror list by Biden in 2021. They seem to be relishing their moment in the big leagues.

War-tested, battle-hardened and agile, the Houthis are well-equipped thanks to Iran, and they can expect military replenishment from Tehran. They also have a firm grip on their territory. Like Hamas, the Houthis aren’t bothered by the death and destruction they may bring down on their people, making them particularly difficult to cajole into anything. And if the U.S. is to force the pace, it may well be dragged in deeper, as the only way to stop Iran replenishing the Houthis would be to mount a naval blockade of Yemen.

Few seasoned analysts think the Houthis will cave easily. Tom Sharpe, a former Royal Navy captain and specialist anti-air warfare officer, said he’d suggest “just walk[ing] away.”

“Make going round the Cape the new normal,” he wrote last week, albeit acknowledging he’d expect his advice to be overruled due to the global economic implications. But degrading the Houthis enough to make the Red Sea safe again, he noted, would be “difficult to do without risking a wider regional conflict in which the U.S., U.K. and friends would be seen as fighting on the Israeli side.”

And that is half the problem. Now ensnared in the raging conflict, in the eyes of many in the region, Western powers are seen as enabling the death and destruction being visited on Gaza. And as the civilian death toll in the Palestinian enclave mounts, Israel’s Western supporters are increasingly being criticized for not doing enough to restrain the country, which is determined to ensure Hamas can never repeat what it did on October 7.

Admittedly, Israel is combating a merciless foe that is heedless of the Gazan deaths caused by its actions. The more Palestinians killed, the greater the international outrage Hamas can foment, presenting itself as victim rather than aggressor. But Israel has arguably fallen into Hamas’ trap, with the mounting deaths and burgeoning humanitarian crisis now impacting opinion in the region and more widely.

A recent poll conducted for the Washington Institute for Near East Policy found that 96 percent of the broader Arab world believe Arab nations should now sever ties with Israel. And in Britain, Foreign Secretary David Cameron told a parliamentary panel he feared Israel has “taken action that might be in breach of international law.”

Meanwhile, in addition to issuing warnings to Iran, Hezbollah, and others in the Axis of Resistance to stay out of it, Biden has also cautioned Israeli leaders about wrath — urging the Israeli war Cabinet not to “repeat mistakes” made by the U.S. after 9/11.

However, according to a poll by the Israel Democracy Institute, 75 percent of Jewish Israelis think the country should ignore U.S. demands to shift to a phase of war with reduced heavy bombing in populous areas, and 57 percent support opening a second front in the north and taking the fight to Hezbollah. Additionally, Gallup has found Israelis have lost faith in a two-state solution, with 65 percent of Jewish Israelis opposing an independent Palestinian state.

So, it looks as though Israel is in no mood to relent — and doesn’t believe it can afford to.



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Post-war Gaza: ‘The Palestinian Authority is not in a position to govern in Gaza’

The Israeli government recently laid out its plans for the future governance of Gaza once its war with Hamas is over. The proposal released on January 4 made clear that the Islamist movement would no longer control the besieged Palestinian enclave. However, there was also little provision for the return of the Palestinian Authority.

After three months of war between Israel and Hamas, Israel laid out a plan on January 4 for the “day after” in Gaza for the first time since the conflict began.

The proposal, although lacking in details, outlined a sort of roadmap for Gaza’s future governance – a key concern of Israel’s ally, the United States.

It has already met with sharp criticism. For some, it was too superficial. For others, like army spokesperson Daniel Hagari, the proposal revealed the state’s secret plans to its “enemies”.

Presented by Israeli Defence Minister Yoav Gallant on the eve of a visit by US Secretary of State Antony Blinken, the proposal hinges on Israel achieving its main military objective – destroying Hamas in the Gaza Strip. 

“Hamas will not govern Gaza and Israel will not govern Gaza’s civilians. Gaza residents are Palestinian, therefore Palestinian bodies will be in charge, with the condition that there will be no hostile actions or threats against the State of Israel,” said Gallant in a statement. “The entity controlling the territory will build on the capabilities of the existing administrative mechanism (civil committees) in Gaza – local non-hostile actors,” the Israeli defence minister added.

“It is very important that at long last a very senior political figure in Israel is outlining a political plan for the future. I know he was criticised by the army spokesperson, who said that it is too early to reveal our secret plans. I don’t agree with [Daniel Hagari],” explained David Shimoni, a former member of Israel’s intelligence services and a member of Commanders for Israel’s Security (CIS),  a thinktank bringing together 400 former members of the security forces, the army and Israeli intelligence.

“It sounds very good to me that first of all, Israel will not be governing Gaza. Second, that Hamas will not be governing Gaza. That is, of course, the main goal of this war.”

Read moreIsrael’s ‘refuseniks’: ‘I will never justify what Israel is doing in Gaza’

‘The Palestinian Authority stands no chance’

The Israeli government’s plan is simple on paper, but difficult to implement, as many Palestinians support Hamas. According to a poll carried out between November 22 and December 2 by the Palestinian Centre for Policy and Survey Research (PSR), 42% of the population of Gaza support Hamas, compared with 38% at the start of the war.

The Islamist movement is especially gaining traction in the occupied West Bank: 44% of residents today say they support the party, compared to 12% in September. The rise in support for Hamas may also be explained by the growing unpopularity of Palestinian Authority President Mahmoud Abbas.

Nearly 90% of respondents wanted Abbas to resign, representing an increase of 10 points compared to three months ago. In the occupied West Bank alone, 92% called for the resignation of Abbas, whose administration is widely seen as corrupt, autocratic and ineffective.

Putting the Palestinian Authority in a position of governance in Gaza therefore seems unrealistic.

“The Palestinian Authority as we know it does not have the power and the influence to enter Gaza. They are weak, they are corrupt, and they do not enjoy the support of most of the Palestinian population,” said Shimoni. “They have been a big disappointment to the Palestinians. They are not delivering, they are not solving the [daily] problems of Palestinians. We heard the Americans speak of a rejuvenated Palestinian Authority [. . .] hopefully that is something that will happen. But for the time being, [with] the way the Palestinian Authority looks now, they have no chance.”

At the end of his visit to the occupied West Bank on January 10, Blinken nevertheless said President Abbas was prepared to move forward. “We talked as well about the importance of reforming the Palestinian Authority, Palestinian governance so that it can effectively take responsibility for Gaza – so that Gaza and the West Bank can be reunited under a Palestinian leadership,” he added.

In 2007, Hamas ousted the Palestinian Authority from Gaza following violent clashes with Fatah, the party founded by Yasser Arafat. Hamas seized power in the enclave after also winning legislative elections a year earlier. Described as a “coup d’état” by Abbas, Hamas’s takeover led to the strengthening of Israel’s blockade on Gaza. No elections have been held in Gaza or the occupied West Bank since.

“The Israeli government […] had multiple chances to strengthen the Palestinian Authority and place them within Gaza”, said Nimrod Dweck, CEO and co-founder of Darkenu, an Israeli grassroots movement. “Even the Shalit deal, [the Israeli soldier held hostage by Hamas for five years, editor’s note] – instead of doing the deal with Hamas, [Israeli Prime Minister Binyamin Netanyahu] could have done it with Abbas. He did not do it, and he preferred bringing the money directly to Hamas, instead facilitating it through a different organisation. [He thought] he could manage Hamas with force and money. This is Netanyahu’s responsibility,” said Dweck.

Calls for the return of Israeli settlers

After the shock of the October 7 attacks, Israeli society is looking for security guarantees. Gallant’s plan stipulates that Israel will reserve the right to operate inside the Gaza Strip as often as necessary. In concrete terms, this means the army could intervene the way it currently does in the occupied West Bank. The borders would be controlled, which implies that the two-decade long blockade of the enclave would continue. Nothing would be allowed in or out without being carefully inspected.

The army will soon tell the inhabitants of the towns, farms and kibbutzim surrounding Gaza that there is no danger and that they can return home, said Shimoni. The Israeli army has eliminated many of Hamas’s fighters and destroyed much of their equipment. The chief of staff and the defence minister have said: “When you go home, you will see the IDF all over the place.” They are trying to give the impression that things will be safe, even if we do not eliminate Hezbollah’s capabilities [in the north], he added.

Gallant ruled out the option of resettling Israeli civilians in the Gaza Strip in his plan, to the dismay of the extreme right of the Israeli government. Far-right National Security Minister Itamar Ben-Gvir has repeatedly called for the return of Israeli settlers to the territory after the war and for a “solution to encourage the emigration” of Gaza’s Palestinian population.

His words echoed those of the far-right Finance Minister Bezalel Smotrich. “We need to encourage immigration from this region. If there were 100,000 to 200,000 Arabs in the Gaza Strip and not two million, the discussion about the aftermath [of the war] would be completely different,” said Smotrich in late December, in an interview with Israeli army radio. “They want to leave. They have lived in a ghetto for 75 years and are in need.”

Reassuring Arab allies in the region

These comments are “very problematic” for Dweck. Although the Israeli government has ruled out the option of resettling Gaza, certain politicians continue to raise it every day.”

“What will Likud do to tell it’s partners to stop [speaking about repopulating Gaza]?” said Dweck. It also goes beyond rhetoric, he noted. “They organised a convention and hundreds of families have already signed up to repopulate Gaza,” he said.

“The organisers were the same people who organise illegal settlements in the West Bank. […] The problem with them is that they only see their messianic interests and not the interest of Israel,” said Dweck. This will only antagonise our moderate allies in the Middle East, like Egypt, Jordan and Saudi Arabia, with whom we were going to sign agreements, he added.

Saudi Arabia was moving towards normalising relations with Israel when October 7 took place. Yet in an interview with BBC Radio on January 9, Prince Khalid bin Bandar al-Saud, Saudi Arabia’s ambassador to the United Kingdom, said that talks would resume at the end of the war on condition that an “independent State of Palestine” was created. 

More than thirty years after the Oslo Accords, sealed by the historic handshake between Yitzhak Rabin and Yasser Arafat, this prospect seems more distant than ever. The creation of a Palestinian state appears to be the only solution for achieving lasting peace in the Middle East, said Mohammad Shtayyeh, prime minister of the Palestinian Authority, when interviewed by the Financial Times.

For him, any possible agreement must include “a political solution for the whole of Palestine”. Gaza’s future cannot be discussed without taking into consideration the occupied West Bank, where Israeli military operations have increased since the start of the war. In short, the region is a ticking time bomb. “There’s an international consensus on the two-state solution,” said Shtayyeh. “The question is: what are they going to do to preserve the two-state solution at a time when Netanyahu is systematically destroying [it].

This article has been translated from the original in French

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The Middle East is on fire: What you need to know about the Red Sea crisis

On October 7, Hamas fighters launched a bloody attack against Israel, using paragliders, speedboats and underground tunnels to carry out an offensive that killed almost 1,200 people and saw hundreds more taken back to the Gaza Strip as prisoners. 

Almost three months on, Israel’s massive military retaliation is reverberating around the region, with explosions in Lebanon and rebels from Yemen attacking shipping in the Red Sea. Meanwhile, Western countries are pumping military aid into Israel while deploying fleets to protect commercial shipping — risking confrontation with the Iranian navy.

That’s in line with a grim prediction made last year by Iranian Foreign Minister Hossein Amirabdollahian, who said that Israel’s counteroffensive in Gaza meant an “expansion of the scope of the war has become inevitable,” and that further escalation across the Middle East should be expected. 

What’s happening?

The Israel Defense Forces are still fighting fierce battles for control of the Gaza Strip in what officials say is a mission to destroy Hamas. Troops have already occupied much of the north of the 365-square-kilometer territory, home to around 2.3 million Palestinians, and are now fighting fierce battles in the south.

Entire neighborhoods of densely-populated Gaza City have been levelled by intense Israeli shelling, rocket attacks and air strikes, rendering them uninhabitable. Although independent observers have been largely shut out, the Hamas-controlled Health Ministry claims more than 22,300 people have been killed, while the U.N. says 1.9 million people have been displaced.

On a visit to the front lines, Israeli Defence Minister Yoav Gallant warned that his country is in the fight for the long haul. “The feeling that we will stop soon is incorrect. Without a clear victory, we will not be able to live in the Middle East,” he said.

As the Gaza ground war intensifies, Hamas and its allies are increasingly looking to take the conflict to a far broader arena in order to put pressure on Israel.

According to Seth Frantzman, a regional analyst with the Jerusalem Post and adjunct fellow at the Foundation for Defense of Democracies, “Iran is certainly making a play here in terms of trying to isolate Israel [and] the U.S. and weaken U.S. influence, also showing that Israel doesn’t have the deterrence capabilities that it may have had in the past or at least thought it had.”

Northern front

On Tuesday a blast ripped through an office in Dahieh, a southern suburb of the Lebanese capital, Beirut — 130 kilometers from the border with Israel. Hamas confirmed that one of its most senior leaders, Saleh al-Arouri, was killed in the strike. 

Government officials in Jerusalem have refused to confirm Israeli forces were behind the killing, while simultaneously presenting it as a “surgical strike against the Hamas leadership” and insisting it was not an attack against Lebanon itself, despite a warning from Lebanese caretaker Prime Minister Najib Mikati that the incident risked dragging his country into a wider regional war. 

Tensions between Israel and Lebanon have spiked in recent weeks, with fighters loyal to Hezbollah, the Shia Islamist militant group that controls the south of the country, firing hundreds of rockets across the frontier. Along with Hamas, Hezbollah is part of the Iranian-led “Axis of Resistance” that aims to destroy the state of Israel.

In a statement released on Tuesday, Iran’s foreign ministry said the death of al-Arouri, the most senior Hamas official confirmed to have died since October 7, will only embolden resistance against Israel, not only in the Palestinian territories but also in the wider Middle East.

“We’re talking about the death of a senior Hamas leader, not from Hezbollah or the [Iranian] Revolutionary Guards. Is it Iran who’s going to respond? Hezbollah? Hamas with rockets? Or will there be no response, with the various players waiting for the next assassination?” asked Héloïse Fayet, a researcher at the French Institute for International Relations.

In a much-anticipated speech on Wednesday evening, Hezbollah leader Hassan Nasrallah condemned the killing but did not announce a military response.

Red Sea boils over

For months now, sailors navigating the narrow Bab- el-Mandeb Strait that links Europe to Asia have faced a growing threat of drone strikes, missile attacks and even hijackings by Iran-backed Houthi militants operating off the coast of Yemen.

The Houthi movement, a Shia militant group supported by Iran in the Yemeni civil war against Saudi Arabia and its local allies, insists it is only targeting shipping with links to Israel in a bid to pressure it to end the war in Gaza. However, the busy trade route from the Suez Canal through the Red Sea has seen dozens of commercial vessels targeted or delayed, forcing Western nations to intervene.

Over the weekend, the U.S. Navy said it had intercepted two anti-ship missiles and sunk three boats carrying Houthi fighters in what it said was a hijacking attempt against the Maersk Hangzhou, a container ship. Danish shipping giant Maersk said Tuesday that it would “pause all transits through the Red Sea until further notice,” following a number of other cargo liners; energy giant BP is also suspending travel through the region.

On Wednesday the Houthis targeted a CMA CGM Tage container ship bound for Israel, according to the group’s military spokesperson Yahya Sarea. “Any U.S. attack will not pass without a response or punishment,” he added. 

“The sensible decision is one that the vast majority of shippers I think are now coming to, [which] is to transit through round the Cape of Good Hope,” said Marco Forgione, director general at the Institute of Export & International Trade. “But that in itself is not without heavy impact, it’s up to two weeks additional sailing time, adds over £1 million to the journey, and there are risks, particularly in West Africa, of piracy as well.” 

However, John Stawpert, a senior manager at the International Chamber of Shipping, noted that while “there has been disruption” and an “understandable nervousness about transiting these routes … trade is continuing to flow.”

“A major contributory factor to that has been the presence of military assets committed to defending shipping from these attacks,” he said. 

The impacts of the disruption, especially price hikes hitting consumers, will be seen “in the next couple of weeks,” according to Forgione. Oil and gas markets also risk taking a hit — the price of benchmark Brent crude rose by 3 percent to $78.22 a barrel on Wednesday. Almost 10 percent of the world’s oil and 7 percent of its gas flows through the Red Sea.

Western response

On Wednesday evening, the U.S., Australia, Bahrain, Belgium, Canada, Denmark, Germany, Italy, Japan, the Netherlands, New Zealand, and the United Kingdom issued an ultimatum calling the Houthi attacks “illegal, unacceptable, and profoundly destabilizing,” but with only vague threats of action.

“We call for the immediate end of these illegal attacks and release of unlawfully detained vessels and crews. The Houthis will bear the responsibility of the consequences should they continue to threaten lives, the global economy, and free flow of commerce in the region’s critical waterways,” the statement said.

Despite the tepid language, the U.S. has already struck back at militants from Iranian-backed groups such as Kataeb Hezbollah in Iraq and Syria after they carried out drone attacks that injured U.S. personnel.

The assumption in London is that airstrikes against the Houthis — if it came to that — would be U.S.-led with the U.K. as a partner. Other nations might also chip in.

Two French officials said Paris is not considering air strikes. The country’s position is to stick to self-defense, and that hasn’t changed, one of them said. French Armed Forces Minister Sébastien Lecornu confirmed that assessment, saying on Tuesday that “we’re continuing to act in self-defense.” 

“Would France, which is so proud of its third way and its position as a balancing power, be prepared to join an American-British coalition?” asked Fayet, the think tank researcher.

Iran looms large

Iran’s efforts to leverage its proxies in a below-the-radar battle against both Israel and the West appear to be well underway, and the conflict has already scuppered a long-awaited security deal between Israel and Saudi Arabia.

“Since 1979, Iran has been conducting asymmetrical proxy terrorism where they try to advance their foreign policy objectives while displacing the consequences, the counterpunches, onto someone else — usually Arabs,” said Bradley Bowman, senior director of Washington’s Center on Military and Political Power. “An increasingly effective regional security architecture, of the kind the U.S. and Saudi Arabia are trying to build, is a nightmare for Iran which, like a bully on the playground, wants to keep all the other kids divided and distracted.”

Despite Iran’s fiery rhetoric, it has stopped short of declaring all-out war on its enemies or inflicting massive casualties on Western forces in the region — which experts say reflects the fact it would be outgunned in a conventional conflict.

“Neither Iran nor the U.S. nor Israel is ready for that big war,” said Alex Vatanka, director of the Middle East Institute’s Iran program. “Israel is a nuclear state, Iran is a nuclear threshold state — and the U.S. speaks for itself on this front.”

Israel might be betting on a long fight in Gaza, but Iran is trying to make the conflict a global one, he added. “Nobody wants a war, so both sides have been gambling on the long term, hoping to kill the other guy through a thousand cuts.”

Emilio Casalicchio contributed reporting.



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How Houthi rebels are threatening global trade nexus on Red Sea

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The U.S. is mustering an international armada to deter Iranian-backed Houthi militias from Yemen from attacking shipping in the Red Sea, one of the world’s most important waterways for global trade, including energy cargos.

The Houthis’ drone and missile attacks are ostensibly a response to the war between Israel and Hamas, but fears are growing that the broader world economy could be disrupted as commercial vessels are forced to reroute.

On Tuesday, U.S. Secretary of Defense Lloyd Austin held a videoconference with 43 countries, the EU and NATO, telling them that “attacks had already impacted the global economy and would continue to threaten commercial shipping if the international community did not come together to address the issue collectively.”

Earlier this week, the U.S. announced an international security effort dubbed Operation Prosperity Guardian that listed the U.K., Bahrain, Canada, France, Italy, the Netherlands, Norway, the Seychelles and Spain as participants. Madrid, however, said it wouldn’t take part. 

The Houthis were quick to respond. 

“Even if America succeeds in mobilizing the entire world, our military operations will not stop unless the genocide crimes in Gaza stop and allow food, medicine, and fuel to enter its besieged population, no matter the sacrifices it costs us,” said Mohammed Al-Bukaiti, a member of the Ansar Allah political bureau, in a post on X

Here’s what you need to know about the Red Sea crisis.

1. Who are the Houthis and why are they attacking ships?

International observers have put the blame for the hijackings, missiles and drone attacks on Houthi rebels in Yemen, who have stepped up their attacks since the Israel-Hamas war started. The Shi’ite Islamist group is part of the so-called “axis of resistance” against Israel and is armed by Tehran. Almost certainly due to Iranian support with ballistics, the Houthis have directly targeted Israel since the beginning of the war, firing missiles and drones up the Red Sea toward the resort of Eilat.

The Houthis have been embroiled in Yemen’s long-running civil war and have been locked in combat with an intervention force in the country led by Sunni Saudi Arabia. The Houthis have claimed several major strikes against high-value energy installations in Saudi Arabia over the past years, but many international observers have identified some of their bigger claims as implausible, seeing the Houthis as a smokescreen for direct Iranian action against its arch enemy Riyadh.

After first firing drones and cruise missiles at Israel, the rebels are now targeting commercial vessels it deems linked to Israel. The Houthis have launched about 100 drone and ballistic missile attacks against 10 commercial vessels, the U.S. Department of Defense said on Tuesday

As a result, some of the world’s largest shipping companies, including Italian-Swiss MSC, Danish giant Maersk and France’s CMA CGM, were forced to reroute to avoid being targeted. BP also paused shipping through the Red Sea. 

2. Why is the Red Sea so important?

The Bab el-Mandeb (Gate of Lamentation) strait between Djibouti and Yemen where the Houthis have been attacking vessels marks the southern entrance to the Red Sea, which connects to the Suez Canal and is a crucial link between Europe and Asia. 

Estimate are that 12 to 15 percent passes of global trade takes this route, representing 30 percent of global container traffic. Some 7 percent to 10 percent of the world’s oil and 8 percent of liquefied natural gas are also shipped through the same waterway. 

Now that the strait is closed, “alternatives require additional cost, additional delay, and don’t sit with the integrated supply chain that already exists,” said Marco Forgione, director general with the Institute of Export and International Trade.

Diverting ships around Africa adds up to two weeks to journey times, creating additional cost and congestion at ports.

3. What is the West doing about it?

Over the weekend, the American destroyer USS Carney and U.K. destroyer HMS Diamond shot down over a dozen drones. Earlier this month, the French FREMM multi-mission frigate Languedoc also intercepted three drones, including with Aster 15 surface-to-air missiles. 

Now, Washington is seeking to lead an international operation to ramp up efforts against the Iran-backed group, under the umbrella of the Combined Maritime Forces and its Task Force 153. 

“It’s a reinsurance operation for commercial ships,” said Héloïse Fayet, a researcher at the French Institute for International Relations (IFRI), adding it’s still unclear whether the operation is about escorting commercial vessels or pooling air defense capabilities to fight against drones and ballistic missiles. 

4. Who is taking part?

On Tuesday, the U.K. announced HMS Diamond would be deployed as part of the U.S.-led operation.

After a video meeting between Austin and Italian Defense Minister Guido Crosetto, Italy also agreed to join and said it would deploy the Virginio Fasan frigate, a 144-meter military vessel equipped with Aster 30 and 15 long-range missiles. The ship was scheduled to begin patrolling the Red Sea as part of the European anti-piracy Atalanta operation by February but is now expected to transit the Suez Canal on December 24.

France didn’t explicitly say whether Paris was in or out, but French Armed Forces Minister Sébastien Lecornu told lawmakers on Tuesday that the U.S. initiative is “interesting” because it allows intelligence sharing.

“France already has a strong presence in the region,” he added, referring to the EU’s Atalanta and Agénor operations.  

However, Spain — despite being listed as a participant by Washington — said it will only take part if NATO or the EU decide to do so, and not “unilaterally,” according to El País, citing the government.

5. Who isn’t?

Lecornu insisted regional powers such as Saudi Arabia should be included in the coalition and said he would address the issue with his Saudi counterpart, Prince Khalid bin Salman Al Saud, in a meeting in Paris on Tuesday evening. 

According to Bradley Bowman, senior director of the Center on Military and Political Power at Washington’s Foundation for Defense of Democracies, a number of Middle Eastern allies appear reluctant to take part.

“Where’s Egypt? Where is Saudi Arabia? Where is the United Arab Emirates?” he asked, warning that via its Houthi allies Iran is seeking to divide the West and its regional allies and worsen tensions around the Israel-Hamas war.

China also has a base in Djibouti where it has warships, although it isn’t in the coalition.

6. What do the Red Sea attacks mean for global trade?

While a fully-fledged economic crisis is not on the horizon yet, what’s happening in the Red Sea could lead to price increases.

“The situation is concerning in every aspect — particularly in terms of energy, oil and gas,” said Fotios Katsoulas, lead tanker analyst at S&P Global Market Intelligence.

“Demand for [maritime] fuel is already expected to increase up to 5 percent,” he said, and “higher fuel prices, higher costs for shipping, higher insurance premiums” ultimately mean higher costs for consumers. “There are even vessels already in the Red Sea that are considering passing back through the Suez Canal to the Mediterranean, even if they’d have to pay half a million dollars to do so.”

John Stawpert, a senior manager at the International Chamber of Shipping, said that while “there will be an impact in terms of the price of commodities at your supermarket checkout” and there may be an impact on oil prices, “there is still shipping that is transiting the Red Sea.” 

This is not “a total disruption” comparable to the days-long blockage of the canal in 2021 by the Ever Given container ship, he argued. 

Forgione, however, said he was “concerned that we may end up with a de facto blockade of the Suez Canal, because the Houthi rebels have a very clear agenda.”

7. Why are drones so hard to fight?

The way the Houthis operate raises challenges for Western naval forces, as they’re fending off cheap drones with ultra-expensive equipment. 

Aster 15 surface-to-air missiles — the ones fired by the French Languedoc frigate — are estimated to cost more than €1 million each while Iran-made Shahed-type drones, likely used by the Houthis, cost barely $20,000. 

“When you kill a Shahed with an Aster, it’s really the Shahed that has killed the Aster,” France’s chief of defense staff, General Thierry Burkhard, said at a conference in Paris earlier this month. 

However, if the Shahed hits a commercial vessel or a warship, the cost would be a lot higher.

“The advantage of forming a coalition is that we can share the threats that could befall boats,” IFRI’s Fayet said. “There’s an awareness now that [the Houthis] are a real threat, and that they’re able to maintain the effort over time.”  

With reporting by Laura Kayali, Antonia Zimmermann, Gabriel Gavin, Tommaso Lecca, Joshua Posaner and Geoffrey Smith.



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