The Pledge Did Not Cover Riyadh

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BLACKOPS
FINANCE

COVERT FINANCIAL INTELLIGENCE. INTERCEPTED DAILY.

MISSION BRIEF

Updated 0815 ET

The promise had a date on it. It did not have a map. On Saturday an attack claimed by the Houthis hit King Khalid International Airport in Riyadh, and Saudi Arabia says at least twelve people were killed and about three hundred wounded. It was the third attack on the airport in a week and, as Al Jazeera reported it, the deadliest attack on the kingdom in more than a decade.

The General Authority of Civil Aviation listed the dead as four Saudis, two Bangladeshis, and one each from the United States, Jordan, Palestine, Syria, Sudan and Egypt. Secretary of State Marco Rubio said an American was among them. By this morning about 60% of the airport's scheduled flights were expected to be cancelled, as reported.

President Trump called the attack “terrible,” said he would speak with Crown Prince Mohammed bin Salman, and said Washington is weighing whether to join the Saudi-led campaign against the Houthis.

Oil went up. Brent settled on Friday at $104.72. This morning it was near $106, up more than 1% and the highest in more than two weeks. West Texas Intermediate was near $92.89, up about 1.1%, at 7:19 a.m. Eastern. Those are intraday marks.

What the pledge does not cover. Thursday's promise was specific: no American attack on Iran before 3 November. It said nothing about the Houthis, nothing about Saudi Arabia and nothing about the water. Two days later the war moved in exactly those places, and the president is now discussing joining a campaign rather than holding one back. The pledge dated one risk. It did not fence the others, and this morning the price is being set by the ones it left out.

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THE OPERATION

Near-daily strikes at sea, a barrel count that still will not agree, and Aramco looking for another way out

The strait has been under near-daily attack. The International Maritime Organization counted nine ships struck between 1 October and Tuesday, mostly crude tankers, in the Strait of Hormuz or off Oman. Lloyd's List recorded twelve attacks between 28 September and Wednesday, the highest weekly total since the war began, according to its editor-in-chief, Richard Meade. Of the shuttle arrangement now running through the strait he said: “This is not a sustainable new normal, as far as I'm concerned.”

The weekend added to it. Iran's Revolutionary Guard said a crude supertanker struck a naval mine on Saturday night and caught fire after using an unauthorised route with its navigation systems switched off, and warned that any tanker ignoring the strait's “security and rules” would meet the same end. On Sunday afternoon an unidentified projectile hit an outbound tanker, the UK Maritime Trade Operations centre reported. The UAE coastguard rescued twenty-two crew from a burning tanker near its shores; the cause was not identified. US Central Command released footage of a fighter jet bombing the stern of a Panama-flagged cargo ship in the Gulf of Oman to enforce the blockade of Iran's southern ports. Since the blockade was reimposed in mid-July, Central Command says it has disabled four commercial vessels, turned around 135 ships and destroyed ten tankers linked to Iran. This letter attributes no attack to any party beyond what that party itself claims.

Then count the barrels, because the counts still disagree. Kpler data cited by CNBC put average crude transit through the strait at 8.5 million barrels a day in the week to 7 October, roughly 40% below normal. Trading Economics reports Persian Gulf oil exports recovering to 17.5 million barrels a day, about 98% of pre-war levels. Those measure different things – crude crossing the strait against exports from the whole Gulf, part of which can leave by pipeline. Both can be true at once. Neither tells you what crosses tomorrow.

Traffic has held up better than the headlines suggest. There were 143 transits between 28 September and Wednesday, three more than the week before, though tanker and gas carrier transits fell 10.2%. September had 477 transits not linked to Iran, the most since the conflict began. Iran's own crude is at a yearly low, with no crude loadings recorded there in September, according to a Lloyd's List analyst.

Diplomacy is roughly where it was. Iran's foreign ministry says it is reviewing Washington's latest proposal through mediators. A spokesman for parliament's national security committee, Hassan Ghashghavi, said this morning that Qatar had passed on an American response but that Washington's position remained unclear. Saudi Aramco's chief executive, Amin Nasser, said the company is studying new crude export routes and expanding its storage overseas.

Read the Aramco line twice. A company does not redraw its export routes and rent tank space abroad for a disruption it expects to be over. The barrel counts argue about how much is moving this week. That decision is about how long the owner of the barrels thinks this lasts. It is the most forward-looking item in today's letter, and it is not a number at all.

RULES OF ENGAGEMENT

Stocks near a record, a bond market that is shut, and a diesel deal with Moscow

The S&P 500 closed Friday at 7,811.51, up 0.59%. The Dow added 0.83% to 51,655.01 and the Nasdaq composite rose 0.64% to 27,366.17. All three ended the week higher; the Russell 2000, up 0.52% on the day, was the week's only loser. Reported weekly percentages for the S&P range from about 0.95% to about 1.2%, so this letter gives none. The index's last record close was on 6 October, its twenty-eighth of the year. Futures were mixed before this morning's open.

The cash bond market is closed today for Columbus Day, on SIFMA's recommendation, and Japan and Canada are out as well. Stocks trade normal hours. Treasury futures still trade, so a weekend headline can move them with the cash market shut and nothing to settle against until Tuesday. The ten-year's last print on Friday afternoon was 5.248%.

On Friday the president said a call with Vladimir Putin had produced a deal for Russian diesel: more than 300,000 tonnes at once, 500,000 more in November, a million after that and three million more “within a short period of time.” Treasury Secretary Scott Bessent said easing some Russia sanctions was needed to relieve diesel prices, which are above $6 a gallon.

On Sunday six senators – Republicans Susan Collins, Lisa Murkowski, Thom Tillis and John Curtis, and Democrats Jeanne Shaheen and Richard Blumenthal – called on the administration to “immediately reverse course,” saying it had not consulted Congress as the law requires. “The United States should not provide Putin with a financial lifeline while Russia continues to kill Ukrainian civilians,” they wrote. Tillis said on NBC there is a legitimate case that the president would not be following the law. Senator John Barrasso defended the arrangement on CBS as “another point of leverage.” A 2022 law bans Russian energy imports.

The reserves are thinner than the deal. IEA members agreed on 7 October to speed up the releases pledged in March and to put diesel first; the agency's governing board meets on 15 October, and its executive director, Fatih Birol, has asked members that have finished their pledges to consider more. Member governments hold about 1.1 billion barrels of public emergency stocks, down from above 1.2 billion in March. The US Strategic Petroleum Reserve is near 284 million barrels, its lowest since 1982, and is expected to fall to about 243 million once the last pledged barrels are delivered.

Isaias is finished as a storm. It came ashore near Destin, Florida at 01:30 UTC on 10 October as a Category 2 with 105 mph winds, having peaked at 120 mph, and went post-tropical hours later over southern Alabama. Four deaths have been confirmed. At the peak, 71.5% of Gulf oil production and 58.8% of gas production were shut in and 129 platforms evacuated, on the federal offshore regulator's figures as reported. Two refineries went offline, together about 2.5% of US capacity. This letter has found no figure for how much has since come back.

Gold was near $4,172 this morning, down about 0.5%, after touching a one-week high. The dollar index was near 102.42, up 0.21%, and around its highest in eighteen months. Both intraday. Money markets price about an 83% chance of no change at the 27-28 October Fed meeting and about an 86% chance of a hike by December, as reported – a firmer December than the 69% to 81% range this letter printed on Friday.

The week is front-loaded and the bond market starts it a day late. The big banks report on Tuesday. September consumer prices arrive on Wednesday, 14 October at 8:30 a.m., with producer prices on Thursday. The IEA board meets on 15 October. Israel votes on 27 October, the Fed decides on 28 October, and the pledge not to strike Iran runs out on 3 November. Today the cash bond market cannot answer any of the weekend's news; on Tuesday it absorbs all of it in one session. Nothing has been announced about American participation in the campaign against the Houthis, and the strait has not reopened.

END OF TRANSMISSION.

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