The Economist USA - 21.09.2019

(Barré) #1
The EconomistSeptember 21st 2019 Middle East & Africa 53

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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
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