Aramco attacks: Fuelling the fire
Fingers are being pointed at Iran for the drone attack on two major Saudi Arabian oil facilities set ablaze on September 14. While the sabre rattling picks up the tempo, and despite reassurances by the Kingdom of Saudi Arabia (KSA) that strategic oil reserves will be deployed to stabilise the market, price of oil has shot up in the global markets.
The Abqaiq facility is a vital oil processing center and the attack has directly affected gas production that has gone down by 50 percent. The drone attack has struck a major blow to KSA and going by what has been reported in international media, we are looking at production cut of 5.7 million barrels per day (bpd) of Saudi crude output, which accounts for over five percent of the world's supply.
KSA has stated that output would be restored in the near term, but as pointed out in a recent article printed in The Financial Times, "the size of the loss will still send shockwaves through energy markets and the scale of the attacks will raise fears that the kingdom's energy infrastructure is vulnerable to increasingly sophisticated attacks by Iran-aligned Houthi rebels."
Fingers are already being pointed at Iran, both by KSA and the US, which brings us to the question as to why would Iran attack the facility, especially in light of the fact that one of the hawkish elements in the Trump administration, John Bolton had recently parted ways with President Trump. That move was a signal that perhaps, the political mercury in an already tense Middle East, could perhaps be going down.
Of course, with the attack, and Secretary Mike Pompeo blaming Iran over the weekend and the president stating in one recent tweet: "[We] are locked and loaded depending on verification, but are waiting to hear from the Kingdom [of Saudi Arabia] as to who they believe was the cause of this attack and what terms we would proceed!" this is an indication of US resolve to perhaps seek a military solution.
While all that is going on, the oil market is reacting negatively to the incident. According to S&P Global Platts, Saudi Arabia has reportedly approached Iraq's State Oil Marketing Organisation (SOMO) to buy Iraqi crude oil to fill the shortfall left by the attack. KSA has been utilising its vast crude inventories to offset some of the lost production and also to meet customers' demand. Both SOMO and Aramco remain tightlipped on the issue of the probable import of about 10 million barrels of 'Basrah Light' crude for October and November.
We understand that KSA has crude stocks of nearly 180 million barrels (according to official data), which is enough to cover 28 days of exports (at 6.88 million bpd). With the Abqaiq facility currently processing about 2 million bpd (down from 4.9 million bpd), one can understand why KSA is looking around for alternative sources of crude.
The hype around the attack should be taken with a pinch of salt. It is not going to bring about a massive increase in prices globally that is reminiscent of the oil crisis in '73, unless war breaks out. We should be more concerned about the repercussions and the retaliation of such an attack and where that will lead the region in terms of peace and security.
Only now are players in the Middle East and their allies in the western hemisphere beginning to comprehend the consequences of applying "maximum pressure" on Iran. Iranian oil production has all but stopped and with it, has strengthened the hardline factions within the Iranian establishment. The seemingly endless and atrocious war against Yemen has dragged on for years without any end in sight (or clear policy direction for that matter), causing a severe humanitarian crisis and resulting in dogged opposition from the Houthis, which have retaliated with missile attacks on the KSA.
Iran has been forced to endure severely economic pressure, but it has demonstrated that it holds significant sway over other players in the region, which can and has caused problems for Saudi Arabia in the past.
The hurried departure from the P5+1+European Union and Iran nuclear deal (also known as the JCPOA) was perhaps not the best foreign policy ploy by the US. As pointed out in a recent article printed on September 19 in The Hindu, "Tehran waited for a year, perhaps hoping that the remaining signatories, including the EU, Russia and China, would fix the deal. But they remained more or less spectators when the U.S. continued to squeeze Iran's economy with sanctions. By May this year, the U.S. had effectively cut off Iran's oil industry, critical for its economy, from the global economy." Iran upped the ante by restarting uranium enrichment and began to apply pressure on foreign tankers passing through the Strait of Hormuz.
The US calling off a strike on Iran after the shooting down of one of its drones did little to help matters. These sabre rattling tactics and tit-for-tat strikes and counter strikes will not bring peace, nor will it calm down oil markets. Iran has been responding to pressure from the West for decades and the nuclear deal that was reached after painstaking negotiations between it and the West was thrown out the window on a whim by an administration in the false hope that Iran could be cowered through a feat of arms instead of a negotiated settlement.
Today, hardliners on both sides are increasingly calling the shots. Despite all the bluster, is the US ready for a new war, especially against an adversary that can call upon its many allies in the region to conduct asymmetrical warfare on its behalf? Would the West be willing to commit ground troops in yet another Iraq-like venture, at a time when it is trying to extricate its forces from Afghanistan?
The Syrian conflict lasted nearly a decade and it has created major problems in terms of refugees and global jihad—what will an all-out conflict with Iran entail? It is impossible to predict an outcome at this stage, because we are in uncharted territory. However, what is clear as day light is that Iran will not go down without a fight and if tomorrow, the Gulf region ignites into a ball of flames, the blame will squarely fall on the shoulders of the US administration and its shortsightedness when it comes to conducting foreign policy in perhaps, the most critical of regions.
Syed Mansur Hashim is Assistant Editor, The Daily Star.