Seven thousand miles from New York City, in a country about the size of Spain, a brutal civil war is raging that could change global markets for many years to come.
In September, the rebels forces invaded the capital of that country.
In February, they took control of its parliament.
Last week, backed by tanks and heavy machine guns, they pushed deeper into the country’s largest port city.
And now, the United Nations has declared that the country is on the verge of collapse and chaos.
Yet, most investors seem to believe that all these events — in the far-away nation of Yemen — are of little consequence. They buy and sell stocks as usual. They go about their business as if nothing has changed.
In their minds, the Yemen civil war is just another, passing conflict among the many that pop up suddenly in the headlines, only to fade into the background with equal speed.
Today, I will show you exactly why they’re misguided and why you should not be among them …
Most investors think the Yemen conflict
is recent or short-lived.
The conflict actually started 860 years before Columbus discovered America and 1,369 years before terrorists attacked the United States on 9/11.
It traces its roots to the death of the Prophet Muhammad in the year 632 … when a major dispute arose over his succession as the caliph of the Islamic world … when the ruling caliph killed a man considered by many to be the rightful heir … and when the Muslim world was split into two rival groups, Sunni and Shia.
That’s when the war now raging in Yemen truly began. And that’s why it’s bound to get a lot worse.
Most investors think this new war
is strictly about Yemen.
Bloody Sunni-Shia wars are also raging in Iraq and Syria, killing hundreds of thousands and displacing millions.
Shia minorities have sought to rise in revolt — or have been put down with vengeance — in Lebanon, Bahrain, Kuwait and Pakistan.
And now, in the wake of the Sunni-Shia war in Yemen, the two most powerful countries in the Muslim world — Saudi Arabia (Sunni) and Iran (Shia) could be on the brink of an all-out war.
Just in these countries involved in Sunni-Shia conflicts, 380 million people are living today. And in the Muslim world as a whole, over 1.6 billion are potentially affected. That’s more than the population of China or India. And it’s roughly double the total population of the United States and the European Union, combined.
Most investors also assume the United States is,
or should be, on the “right” side of this war.
They don’t realize that, even if there were such a thing as a “right” or “wrong” side in this 14-century-old blood feud, the fact remains that, under President Obama’s leadership, the United States and its allies are fighting on both sides.
In Syria, the U.S. has inadvertently wound up on the Shia side, bombing Sunnis. And, although that was not the intent, the U.S. is giving every strategic advantage to Shia President Bashar al-Assad.
The same man who is directly supported by Iran and Russia …
The same man who is General Secretary of the Ba’ath Party, the party closely associated with Saddam Hussein’s banned Ba’ath party in Iraq …
And the same man who’s commander-in-chief of the Syrian Armed Forces, which have routinely used chemical weapons against their own people.
In Iraq, the United States is also on the Shia side. But in this case it is deliberate. The U.S. directly or indirectly supports …
The Iran-backed Shia government …
The Iran-backed Shia militias, who killed thousands of Americans in years past and even …
The Iranian generals themselves, who are on the ground right now, directing some of the most crucial battles of the entire Iraq war.
On the all-important Arabian Peninsula (including Yemen), the United States is on the Sunni side.
|While the U.S. fights on the same side as Shia forces in Iraq and Syria, it also supports the bombing of Shia forces in Yemen, some of the results of which can be seen in the above photo.|
The U.S. has forever been a major supplier of arms to the Sunni-dominated armed forces on the peninsula, especially those of Saudi Arabia, Qatar, Oman, Bahrain, and Kuwait.
The U.S. has (until now) forever been behind the Sunni government of Saudi Arabia in many of its proxy wars against Iran all across the region.
The U.S. has fully backed the Sunni-led government of Yemen, which has just crumbled to the Shia rebels.
And right now, the U.S. is providing full-scale logistic support to the 10-nation Sunni military alliance that’s bombing those Shia rebels, while the alliance amasses troops for a major land invasion.
Most investors also assume
the United States has a plan.
The fact is, the United States has no plan and is continually changing sides.
Right now, it’s not changing sides in a relatively small country like Yemen. Nor is it changing sides in a further-away conflict like Libya or even in a pivotal nation like Iraq.
(It has already done that a couple of times in each of those countries!)
|In the brutal 8-year wars between Sunni Iraq and Shia Iran, the United States always supported Iraq and its leader, Saddam Hussein. But after 2003, the U.S. radically switched sides, destroying Saddam and supporting a series of Shia leaders who replaced him in power.|
Where the United States is changing sides right now is in the most important Sunni-Shia conflict of all — Saudi Arabia vs. Iran.
Like I said, until now, the U.S. was firmly and unambiguously on the Saudi (Sunni) side against Iran (Shia).
Like I said, the head of the Saudi royal family, considered the de-facto leader of the Sunni Arab world, could almost always count on the United States in his conflicts against Iran throughout the Middle East and North Africa.
But now, in the process of negotiating a nuclear pact with Iran, the United States and its allies are again shifting the balance in their allegiance — toward the Iranian side.
Does the Obama administration deny this? Yes.
Is their denial valid? Maybe. Partially.
But the message they’re sending — and the perception throughout the Sunni Muslim world — is unmistakable:
The Sunni leaders of the Muslim world see that the United States is
inadvertently behind the Iran-backed Shia forces in Syria … deliberately behind the Iran-backed Shia forces in Iraq … and now aggressively behind a nuclear pact with Shia Iran itself.
So if you were the Sunni King of Sunni Saudi Arabia, what would you think?
And more importantly, as you lose America’s full-fledged support, what would you do to push back the Shia forces around the world?
Needless to say, you would jump into action.
You would form a military alliance with the Sunni-led countries of the Muslim world — not just in the Middle East, but also in North Africa … not just with Arab countries, but also with non-Arab Muslim countries like Pakistan and Indonesia.
|New Saudi king; major new anti-Shia actions.|
You would quickly step up your military and financial support to other powerful Sunni forces in the region, especially those in Syria and Iraq, even if those forces are aligned with al-Qaeda.
And you would squash the Shia rebels now about to take over all of Yemen with everything you’ve got.
Sound far-fetched? Perhaps.
But that’s exactly what the new Saudi Arabia King, Salman bin Abdulaziz Al Saud, is already doing:
He has already formed a new military alliance with at least ten Sunni-led countries all over the world. He has already stepped up support for a coalition of Sunni extremists in Syria, including those affiliated with al-Qaeda. And much more!
Most investors think this conflict has
little to do with U.S. investments.
It has everything to do with U.S. investments.
First of all, it impacts oil. Countries involved in the Sunni-Shia conflict control 555 billion barrels of oil. That’s nearly four-tenths of the world’s total oil reserves.
Among those, the two countries with the largest reserves of all are precisely the two countries that are facing off most directly in the Sunni-Shia conflict — Sunni Saudi Arabia with 268 billion barrels of oil reserves and Shia Iran with 158 billion.
Clearly, any escalation in the hostilities between the two countries would be a game changer for global oil markets.
It would impact oil production, oil shipping, and, of course ultra-sensitive oil prices.
Second, if oil prices rise, that, in turn, would be a game changer for global stock markets. Energy stocks, already bouncing off their bottoms, would be among the biggest winners. Airline stocks — frontline beneficiaries of recent energy-price plunges — would be among the biggest losers.
Third, the global outlook would change for deflation vs. inflation … zero interest-rate policy vs. central bank rate hikes … bullish bond markets to bearish bond markets … and more.
Later, interest rates could then impact earnings, real estate, and the strategy of every investor that weighs risk and reward.
I am not predicting that all these changes will happen. Nor am I saying you should suddenly change your investment strategy because of them.
But whatever you do, don’t underestimate the impact of what’s happening in Yemen and what could happen next in the millennial Sunni-Shia conflict.
Do everything you can to become fully informed about this epic battle. And our Money and Markets team will do our part to help keep you informed.
Good luck and God bless!