The Houthi attacks on two key oil facilities in Saudi Arabia not only threatens to hit global oil supply but could derail President Trump’s overtures to Tehran. With U.S. Secretary of State Mike Pompeo tweeting that the attack was from ‘Iran’ not ‘Yemen’, it’s clear that the U.S. neo-con lobby is still set on stymieing and sabotaging any attempt at peace with Tehran. For his part though, the self-proclaimed ‘tough guy’ Trump has, by his standards, been remarkably restrained regarding the attack.
Apart from a phone call to Saudi Arabia’s Crown Prince Mohammed bin Salman offering support for ‘Saudi Arabia’s self-defence’ there has been nothing from his side so far. So, despite the exit of NSA John Bolton, the struggle within the U.S. administration to determine foreign policy towards Iran is likely to continue.
As far as the drone attacks are concerned this should came as no surprise. The Houthis have launched several similar attacks against Saudi Arabia before. What is different this time is the success rate. The shocking ease by which the drones penetrated Saudi missile defences, believed to be one of the most sophisticated in the world, and the strike on Abqaiq – considered to be the ‘nerve centre of the world’s oil’ – shows not just how vulnerable Saudi Arabia but the international world is now to drone attacks from ‘rag-tag’ non-state actors.
Clearly, the spread of sophisticated missiles from developed nations such as the U.S, Israel, Russia and China to such groups means that an overhaul of defence strategies may be in order.
As far as Saudi Arabia is concerned an overhaul of their strategy towards Yemen is now on the cards. Decrying international opposition, the desert kingdom has carried out daily bombings of Yemen in which the UN estimates 90,000 Houthis had been killed since 2015. The drone strikes which struck key Saudi installations – Abqaiq and Khurais – not only impact the world’s oil but are close to the Saudi capital Riyadh. The Saudis have probably realised they do not have as much control of their airspace as they believed they had.
This realisation along with outcries from international organisations and countries may force Saudi Arabia to push back its military campaign and ease sanctions against Yemen. In this, the U.S. could play a role. Since May, the U.S. Congress had been protesting the sale of over $8 billion worth of sale of arms to Saudi Arabia, UAE and Jordan which Trump had vetoed.
The U.S. Congress is likely to raise the matter again and it remains to be seen how President Trump will respond. Certainly, he will not have the same freedom to act as he did before and given that the president will be very sensitive to oil prices as he heads into the 2020 elections, the Saudi Crown Prince may find that Trump may not be as eager to support him on Yemen as in the past.
We now come to the crucial question – oil. How much of the world’s oil will be hit and what will be the impact? No surprises here, the news isn’t good. Described by some experts as the ‘most valuable piece of real estate on Earth for the global economy’, Abqaiq is home to the world’s largest oil processing facility.
According to the U.S. Energy Information Administration it manages 7 million barrels a day. The other area that was hit, Khurais, is the location of Saudi Arabia’s second biggest oil field which produces 1.45 million barrels a day. This is bad news for the world but even worse for Saudi Arabia as the state run company Saudi Aramco had recently announced an IPO where 5 per cent of its shares were to be floated at a $2 trillion valuation, a valuation that could tumble given the recent turn of events.
This will deal a crushing blow to the Crown Prince’s bid to diversify his country away from oil and poses new security threats. Saudi Arabia has thwarted vehicle attacks in the past but never have its oil fields been attacked by air. There is thus a very real danger of international investors and major nations rushing to procure their oil elsewhere. The recent sacking of Saudi Arabia’s oil minister by the Crown Prince won’t help either. Dubbed as the ‘most respected oilman’ in Saudi Arabia and on the world stage his removal is bad enough but the fact that his replacement is a member of the Saudi royal family will make things worse for the kingdom internationally.
Coming to India, the news is grim too. Having officially ended importing oil supplies from Iran, New Delhi had to an extent become more dependent on Saudi Arabia though there are other options. On the business side, it remains to be seen what will happen to the $15 billion deal between Reliance Industries Ltd. and Saudi Aramco that was announced in August this year. As part of the proposed deal, Saudi Aramco had also promised to supply 500,000 barrels per day of crude oil on a long-term basis to RIL’s Jamnagar refinery. Will this be affected?
As of now probably not. Energy experts point out that the desert kingdom has plenty of oil reserves in country and stored in Rotterdam in the Netherlands, Okinawa in Japan and Sidi Kerir on the Mediterranean coast of Egypt. So, in the immediate future there is enough oil for everyone. But with security worries hanging over not just the Kingdom but everyone’s head the uncertainty will certainly impact an already slowing global economy.