The Economist UK - 21.09.2019

The EconomistSeptember 21st 2019 Middle East & Africa 59

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short range means they could reach only

parts of Iran.

If further evidence of Iran’s role comes

to light, Mr Trump may face more pressure

to act. “The strike on Abqaiq is arguably the

most serious attack on energy infrastruc-

ture in the Gulf since Saddam Hussein’s

forces invaded Kuwait in 1990,” says Mi-

chael Singh of the Washington Institute for

Near East Peace Policy, a think-tank.

Mr Trump has a range of options. His

proposed strike in June was aimed at the ra-

dar and missile batteries involved with

shooting down the American drone. This

time he could target facilities from which

the attack on Saudi Arabia was launched—

although drones and cruise missiles tend

to be mobile and easy to launch from aus-

tere sites. Another option would be to tar-

get facilities associated with the irgc.

Attacking their bases and personnel out-

side Iran—whether in Iraq, Syria or Ye-

men—might be considered less escalatory

than striking Iranian soil. A larger show of

force is also possible. In 1988 America re-

sponded to Iranian attacks on shipping in

the Persian Gulf with Operation Praying

Mantis, a major air and naval assault on Ira-

nian ships and platforms.

Quds in

Iran would not sit by. Its conventional

means are limited; its $13bn defence bud-

get is a fifth of Saudi Arabia’s, and one-fifti-

eth that of America’s. But it could target

further missile volleys at ships, bases and

other critical infrastructure throughout

the Gulf. The Quds Force could also mobil-

ise regional allies, from the Houthis in

Yemen to Hizbullah in Lebanon, to attack

Western and Arab interests, which is one

reason that the Pentagon is discouraging

Mr Trump from ordering a military strike.

More subtly, Iran’s accomplished cyber-

forces could disrupt energy, financial and

political networks within the region and

beyond. In 2012 Iranian hackers were

blamed for crippling 30,000 of Saudi

Aramco’s computers in one of the costliest

cyber-attacks ever.

A wild and uncontrolled backlash is un-

likely. In choosing their parry, Iran’s lead-

ers would need to balance between facing

down America by raising the stakes, and

avoiding an all-out war that would threaten

the regime’s survival. Their hope is that Mr

Trump would lose the stomach for a fight

long before matters reached such a stage.

This was always the inexorable end-

point of Mr Trump’s policy of “maximum

pressure”. He and his aides thought they

could pummel Iran into a new deal that

constrained not only its nuclear pro-

gramme but also its foreign policy. Instead

they convinced Iran’s hardliners that the

only way of dealing with America was

through muscular confrontation. Neither

side will find it easy to back away. 7

T

he world’soil markets depend on Sau-

di Aramco, Saudi Arabia’s state-owned

giant. In turn Aramco depends on Abqaiq.

Crude from Saudi Arabia’s legendary oil

fields—Ghawar, Khurais, Shaybah—comes

to Abqaiq to be processed, coursing

through its sprawling network of pipes,

spheroids and stabilisation towers before

being sent to customers around the world.

Last year about half of Saudi Arabia’s pro-

duction flowed through the facility. Little

wonder that the kingdom’s enemies have

long sought to cripple it.

On September 14th they succeeded.

Drone strikes at Abqaiq and the Khurais oil

field knocked out 5.7m barrels per day of

production, a staggering 60% of the king-

dom’s output and 6% of global supply. By

September 17th, however, Abqaiq had re-

sumed processing 2m barrels of oil. Amin

Nasser, Aramco’s chief executive, said that

capacity would be fully restored by the end

of the month and that the attack would not

affect plans to list a portion of Aramco’s

shares in what is expected to be one of the

biggest initial public offerings (ipo) ever.

The price of Brent oil, which had briefly

jumped as much as 20% after the attack,

slumped back to $64, just $1 above its level

a week earlier. Aramco has so far main-

tained exports by drawing down supplies,

but its stocks were already at a 12-year low.

Much depends on whether it can meet its

own timeline for resuming production. Yet

its assurances were greeted sceptically by

some industry veterans. “Does anybody ac-

tually believe that after looking at the satel-

lite imaging photos?” questioned one oil

man. And even if Aramco does resume full

operations quickly, big questions haunt

the company and the oil market.

In the past year oil prices have jumped

and slid, alternately pushed up by con-

cerns that American sanctions on Iran and

Venezuela would curb supply and de-

pressed by fears of slowing economic

growth. In December the Organisation of

Petroleum Exporting Countries (opec),

Russia and other oil producers agreed to re-

duce output by 1.2m barrels a day. Saudi

Arabia has cut more than it promised to,

keeping oil prices from sinking as far as

they might have otherwise. Even so, the

price of Brent crude on September 13th, the

day before the attacks, was about 20% low-

er than it had been in late April.

Faced with such challenges, Saudi Ara-

bia has shaken up its oil hierarchy. A new

oil minister, Prince Abdulaziz bin Salman,

and a new chairman of Aramco, Yasir Oth-

man Al-Rumayyan, assumed their posts in

the past month. But stabilising oil prices

and speeding Aramco’s iponow look hard-

er than ever.

Start with Aramco’s delayed ipo, which

has tantalised investors since it was first

announced in 2016. In April possible inves-

tors drooled over the figures in its first ever

bond prospectus: Aramco’s $111bn net in-

come was almost twice that of Apple’s, the

world’s most profitable public company,

and larger than the earnings of Exxon-

Mobil, Royal Dutch Shell, Chevron, Total

and bpcombined. Some also fretted that its

production is much more dependent on a

single country than its major competitors.

Mr Nasser has sought to downplay such

concerns, insisting that its production was

reliable. But Aramco’s vulnerabilities have

been laid bare and this may be reflected in

the valuation it attracts.

Oil traders are now looking for signs

that Aramco’s customers are seeking oil

elsewhere, says Michael Tran of rbcCapi-

tal Markets, a bank. The biggest uncertain-

ty is whether the conflict in the Gulf will es-

calate and remove millions of barrels of

Saudi production from the market. Were

that to happen it is not immediately clear

what would replace it.

Saudi Aramco tries asserting control

amid chaos

Oil markets

Now what?

Shocked

Sources:IEA;pressreports;BP;TheEconomist *Arab oilembargo

Maximum daily supply loss,barrelsperday,m

0123456

Saudi strikes, September 2019

Iranian Revolution 1978-79

Iraqi invasion of Kuwait 1990-91

Arab-Israeli War* 1973-74

Iran-Iraq war 1980-81

Venezuelan strike 2002-03

War in Iraq 2003

Iraqi oil export suspension 2001

Six Day War 1967

% of daily global oil supply

5.7

8.8

6.5

7.3

6.4

3.4

2.9

2.7

5.4