Daily Memo: Saudi Attack Update, Interest Rates Spike, Russia and North Korea

What's geopolitically important today.

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Update on Saudi attacks. U.S. officials, speaking to various media outlets, have said that U.S. intelligence has confirmed that the missiles and drones that hit Saudi oil facilities last weekend were launched from southern Iran, and that Saudi air defenses failed to intercept them because the defenses were pointed south, toward Yemen. Saudi Arabia has only partly corroborated the intelligence, saying that the weapons were indeed launched from southern Iran but that they avoided Saudi radar because they were flying too low. Reactions from Europe have been mixed. French President Emmanuel Macron said there was no compelling evidence yet showing that the missiles came from Iran, whereas British Prime Minister Boris Johnson has already called for a joint response to the attack. In the Middle East, Kuwait’s foreign minister has placed the country’s armed forces on high alert. U.S. Secretary of State Mike Pompeo traveled to Saudi Arabia yesterday to discuss the attacks and he will be in the United Arab Emirates today to meet with Crown Prince Sheikh Mohammed bin Zayed Al Nahyan.

Meanwhile, U.S. President Donald Trump said on Twitter that he doesn’t believe the U.S. will need to release any of its oil reserves to make up for Saudi supplies that are temporarily offline. He also announced on Wednesday that the U.S. would introduce new sanctions on Iran. For its part, Aramco has said it’s planning to push ahead with its initial public offering, anticipating that it will sell 1 percent of the company’s equity this year and another 1 percent next year. The company also said it was confident it could meet the October demand of all its Asian customers, who account for roughly 70 percent of Saudi oil exports. Aramco also said, however, that its deliveries to PetroChina will likely be delayed by 10 days. Still, Saudi Arabia’s oil minister has claimed that oil production is back to full capacity and will reach 11 million barrels per day by the end of September.

The Fed intervenes. The U.S. Federal Reserve injected $53 billion into money markets to counterbalance a rapid spike in short-term interest rates for overnight repurchase agreements, or repos. Overnight repo markets were the straw that broke the camel’s back in the 2008 crisis, shutting off critical short-term interbank funding that ultimately led to the collapse of Lehman Brothers. Late Monday, overnight repo rates hit 5 percent and climbed further to 7 percent by Tuesday, a significant increase from last week’s rate of about 2.3 percent.

North Korea and Russia. Russia has arrested more than 80 North Korean fishermen on two boats in the Sea of Japan, after one boat allegedly attacked a Russian patrol. Russia claimed that the North Korean boats were poaching in Russian territorial waters. The move is unusual, given that Russia has generally supported North Korea in its ongoing dispute with the United States over its nuclear program.

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