The latter again made clear that the ongoing discussion on global oil markets, Peak Oil or the impact of renewables, is not recognizing the current state of energy supply security yet. As long as hydrocarbons are the leading provider of energy, fuels and petrochemicals, in the world, oil and gas infrastructure is a primary target for terrorist, cyber crime and state actors.
Growing optimism about a possible breakthrough in the US-Iran confrontation, caused by unrealistic assessments of the removal of US hawk Bolton and a possible meeting between US president Trump and his Iranian counterpart Rouhani, have shown to be a mirage. No such changes in reality are imminent, after the drone or cruise missile attack on the Saudi gas oil separation plant (GOSP) at Abqaiq caused Saudi Arabia’s oil production to plummet by around 5.7 million bpd this weekend. The shutdown of Aramco’s Abqaiq facility not only shocked the global oil and gas market but also removed any discussions with regards the so-called “Crying Wolf” approach of Washington and its Arab allies. Without any doubt, Iranian hardliners are the main culprits behind the attack on Abqaiq, by some considered to be the heart of the global oil market. The level of destruction is still unclear, but the market has been hit by a major heart attack, currently being assessed by specialists. Possible by-passes are already been put in place, bringing back around 40% of the capacity of Abqaiq, if reports by Saudi officials are right. Price hikes have already hitting the market, showing oil prices up by 19%, but maybe decreasing slightly at the end of the day. Still, the market is in shock, as the Wolf has shed its Sheep Clothes.
The facts on the ground are however worrying, to say the least. The use of drones (Houthis) or cruise missiles to hit Saudi’s most pivotal part of its energy infrastructure is not only an act of war, but also should wake up the global energy sector to new threats available to a wide range of culprits. Until now, most attention has been given to the real and imminent cyber security threat, which has shown its ugly face in the US, EU, Ukraine and MENA already before. The shutdown of critical energy infrastructure or financial centers have caused immense damage, but did not yet lead to a potential war scenario. The use of drones by Houthis and others has been worrying but until now only resulted in short-term and minimal damage. Even the attacks on Saudi oil pipelines the last months did not cause fear that the global energy system is under threat. Oil pipelines or oil storage facilities are critical but can be rebuilt very quick. This weekend’s attack on Abqaiq however pushed the threat levels into outer space. To remove the main production of OPEC’s largest oil producer with a low-technology capability is very worrying. The latter, taking into account if it were Houthi drones launched in Yemen. The threat become even much higher if a proxy force is willing and capable to use cruise missiles to hit another country’s main infrastructure. Kuwaiti and US reports showing evidence that Abqaiq has been hit by missiles fired from the south of Iraq will increase threat levels to a point of no-return. No proxy at present in the Middle East has these capabilities inhouse without the support of Iran and its allies. Hezbollah, Hamas and the Houthis have been able to build up their own missile capabilities with support and technology from Iran. At the same time, Iranian proxies in Iraq are also capable of launching missiles, such as cruise missiles. The latter Iraqi militias are fully under control of Iran’s hardline IRGC forces.
Accusations made by Washington and several Arab sources that the Abqaiq attack was launched from the south of Iraq are being supported by a growing list of evidence. First analysis of the damage being done to Abqaiq, as shown on pictures provided, show also a very high level of coordination and technology, not currently supporting a drone attack but heading towards missiles (coming from Iraq looking at the angle). The “Crying Wolf” issue however constrains these assessments, as some are looking at the evidence based on that it is being used to support military action of the Washington Administration or Riyadh. This is however not the case, as a military conflict with Iran will put the Arab countries in the frontline.
Without any other options left, Saudi Arabia, UAE, Bahrain and others will feel the direct reaction of Iran if military action is taken. Tehran has shown that its deck of cards is stronger at present, and that it is willing to use every joker it has up its sleeve. The Abqaiq attack, and let’s not forget that at the same time a major Saudi oil field was also under fire, should be seen as a blunt show of force by Tehran’s IRGC forces that they are not willing to back down at all. Statements by Trump, saying that the US 'locked and loaded' after Saudi Arabia attack, are most probably liked in certain Arab circles, but should not be seen as a green light for action. Trump’s tweet also included the statement that “[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 under what terms we would proceed!” The latter acknowledges the fact that a blunt answer to Iran’s aggressive move and act of war still needs to be assessed on its outcome. Until now the Iraqi option is seen as most likely, leaving some room for negotiations still. However, if Iranian involvement, such as the IRGC leadership, in the action is proven, all cards are on the table without days. The conflict is heating up, as a senior commander from IRGC warned that the Islamic republic was ready for “full-fledged” war. The latter Iranian bluntly stated that Iranian missile capability has all American bases and their aircraft carriers in a distance of up to 2,000km around Iran in range.
US and Arab military strategists will currently be looking at their possible options towards Iran and its proxies. A strike on Iran is definitely still on the table. US president Trump will have tasked the commanders at Central Command to prepare plans. One possibility will be a strike on a drone base. Another would be a limited attack on Iranian oil facilities, like the 1988 strikes by the U.S. Navy on Iranian offshore oil rigs and naval vessels. Both will be considered to be limited and proportional. It also could be feasible in light of the fears and anxiety in the Arab world.
If however Iran is clearly involved in the Abqaiq attack, other actions will be discussed too. Analysts have already been warning since long to take action against the Iranian cruise missile specter. Iran has been using technology and hardware from Russian companies such as Novator, the Russian company that made the 9M729 missile. Jane’s Defense Weekly reported already in 2010 of the capabilities of this system, which could hide inside a standard shipping container. A full scale war, involving US and/or Arab military entering Iran is at present not feasible, as the build-up in the region is far from capable.
Still, the first couple of days all plans and discussions will be hiding behind a fog of disinformation, rumors and possible fake news. Saudi Arabia is confronted by a “fait a compli” that it can’t ignore. However, at the same time, the Kingdom is set to put in place the highly expected Aramco IPO implementation. The latter’s impact is now under severe threat, as investors will be very wary to take a stake in Aramco as long as its assets are being bombed to smithereens. As money makes the world spinning round, and is blamed to cause wars, this time money could be the only issue that pushes Saudi Arabia and its allies to refrain from pushing the Gulf into a new regional war. Still, Iran is pushing hard to make it impossible for Arab leaders to keep their anger at bay. Any (un)wanted new escalation caused by Iranian forces or proxies could be the leading to a war.