Related Articles
Forward article link
Share PDF with colleagues

Iran seeks to read Trump's mind

The devastating attacks on Saudi Arabia's oil sector have left the kingdom and its allies dazed

Saudi Arabia's oil production has been halved by Sunday's drone attack on its key processing facility at Abqaiq. But the real target is Donald Trump, and the Achilles heel of his Iran policy—his desire for low gasoline prices.

Until the weekend, the White House had been celebrating the success of its reintroduction of Iran sanctions in May: Tehran's hydrocarbons exports have been savaged, its military threat in the Gulf contained, and the oil price had stayed low.

Sunday's strikes on the Aramco-run oil-processing plant and nearby Khurais oil field changed all that. On Monday, Brent prices saw a 20pc spike, the biggest one-day jump since 1991, as analysts digested the loss of 5pc of total world oil production.

Saudi Arabia has seen production cut, at a stroke, from 9.8mn bl/d to about 4.1mn bl/d, and a paucity of accurate information on the damage has left uncertainty about when output will be restored. Saudi Arabia has released stockpiles and the Trump administration may do the same with its strategic oil reserve, but both are stopgaps. Repairs may take weeks and this uncertainty, along with fears of more attacks, has seen investment bank Goldman Sachs predict oil prices could surge to $75/bl.

Iran has denied involvement in the attacks, which are claimed by Yemen's Houthis rebels, although they are allied with Tehran and the drones used—the rebels say 20 were despatched—are made in Iran.

5pc — world oil production affected

Assuming Iran approved the attack (or perhaps carried it out through a unit of the Islamic Revolutionary Guard Corp) it looks like it has understood Trump's playbook and is playing it back at him. Trump's foreign policy default is to inflict pain first, and only later offer a deal.

As with North Korea and Venezuela, so with Iran-Trump has inflicted the pain, but has yet to produce a deal. But such was the success of sanctions in crippling Iran's oil and gas output that last week he felt comfortable enough to fire hawkish national security advisor John Bolton and intimate he is ready to meet Iranian president Hassan Rouhani at the UN General Assembly later this month.

With these attacks, Tehran looks to be signalling that any deal will not be only on Trump's terms. Given an election year is approaching, Trump does not want to be blamed for rising prices at the petrol pumps and/or any slump into recession.

Failed defence system

Not the least surprising thing about the attack is that Saudi air defences failed to stop it. US and Saudi AWACS surveillance planes should have been able to spot the slow-moving drones as they traversed hundreds of miles of desert. Saudi Arabia's US-made F-15s and Eurofighters are much faster than drones, while its Patriot missile batteries have in other theatres downed ballistic missiles, a far tougher target than a drone. Yet these measures failed.

This is all the more extraordinary because Abqaiq—hit multiple times triggering fires visible from space—is the key to Saudi Arabia's oil infrastructure, as the world's largest oil stabilisation plant. Weeks ago, former UN National Security Council member Bob McNally opined that a strike on Abqaiq "would be akin to a massive heart attack for the oil market".

Riyadh, and Washington, have limited options, at least until they can fix the gaping holes in their air defence. Saudi Arabia has been controversially bombing Yemen's Houthi rebels for four years, unable to break the stalemate, and has no obvious means of upping the military ante there. Its 'nuclear option' of striking an Iranian oil plant carries the risk of a Gulf military escalation. And with Iran's oil industry already starved of customers, Tehran has less to lose in tit-for-tat strikes than Riyadh.

Source: Petroleum Economist
Also in this section
Libyan production languishes under ‘illegal blockade’
4 August 2020
National Oil Corporation reports its lowest production since the blockade started in January as external forces gear up for clash over Sirte basin oilfields
Turkey’s ambitions have imperial echoes
4 August 2020
Facing the challenge of a domestic economic crisis, President Recep Tayyip Erdogan hopes that successful military interventions in the surrounding region will foster nationalist solidarity
Bolivian election delay further dampens gas investment appetite
31 July 2020
The Andean country’s natural gas sector will be a casualty of a second vote being pushed back yet again