Table of Contents:
Iran’s Return Handshake: Editorial Board, WSJ, Sept. 16, 2019
Why the Saudi Oil Attack is a ‘Big Deal’ that Could be a ‘Game Changer’ in Stock Markets and Crude Prices: Mark Decambre, Market Watch, Sept. 16, 2019
The Middle East’s Shifting Energy Politics: Conversation Between Neil Quilliam and Gitika Bhardwaj, Chatham House, Feb. 2019
Russia Capitalizes On America’s Thinly Stretched Middle East Focus: Simon Watkins, OilPrice.com, Sept. 16, 2019
Since President Trump withdrew from the 2015 Iran nuclear deal, the Islamic Republic has tested U.S. resolve with military escalation across the Middle East. Likely Iranian involvement in attacks on Saudi oil production over the weekend marks a new phase in this destabilizing campaign, and it’s no coincidence this happened as Mr. Trump is considering a softer approach to Tehran.
Saudi Arabia reduced daily oil production by about 5.7 million barrels after strikes against facilities in the country’s east on Saturday. Iran-backed Houthi rebels claimed credit, though Secretary of State Mike Pompeo tweeted that Iran was responsible and there was “no evidence the attacks came from Yemen.” Iran denies this, but it usually uses proxies to avoid a direct confrontation and there are no other plausible culprits.
This is more than a local dispute between two regional powers. The attacks have caused a roughly 5% reduction in global daily oil production. The Saudis have promised to dip into reserves to offset the losses, but oil prices could rise and harm an already fragile global economy if the Kingdom isn’t able to restore production fast enough.
American shale oil production can take up some of the slack but that would take time. Long-term damage to oil supplies would increase the pressure on the U.S. to ease sanctions on Iranian oil exports, which Mr. Trump has been considering.
The attack continues what is already a hot proxy war between Iran and Saudi Arabia, an important U.S. ally. The extent of the damage raises doubts about how well the Saudis can defend against future drone assaults. Saudi intelligence and air defenses don’t seem up to the job. Saudi revenues would be hurt by a reduction in oil output, and uncertainty will complicate an initial public offering of the country’s national oil company, Aramco.
Even if the Houthis didn’t carry out this attack, Iran is backing their war against an Arab coalition in Yemen. The Houthis have become increasingly aggressive in attacking sites in Saudi Arabia and oil tankers in the Red Sea. If the Saudis cede Yemen to the Houthis, Iran will have won another proxy war, this one on the Arabian peninsula. The Saudis are far from ideal allies, but U.S. Senators who want to end U.S. support for Riyadh should consider the alternative of Iranian regional dominance.
The White House says Mr. Trump spoke with Saudi Crown Prince Mohammed bin Salman and pledged U.S. support. But the White House should be contemplating more than words.
The Iranians are probing Mr. Trump as much as the Saudis. They are testing his resolve to carry out his “maximum pressure” campaign, and they sense weakness. Iran shot down an American drone this summer, and Mr. Trump rejected advice for a military response. Qassem Soleimani, commander of Iran’s overseas Quds Force, has historically interpreted such restraint as a signal that he’s winning and can safely escalate. … [To read the full article, click the following LINK – Ed.]
An intensifying Middle East conflict is threatening to throw the world’s energy market into disarray after weekend drone attacks destroyed parts of Saudi Aramco’s Abqaiq plant — one of the world’s largest processors of oil — and a separate nearby oil field.
On Saturday, the drone attacks, directed at Saudi Arabian oil facilities that account for nearly 10 million barrels of crude-oil production, resulted in massive plumes of black smoke emanating from the oil field, and a shutdown that could lead to about 50% of its production being at least temporarily thrown offline.
Prominent crude-oil strategist Phil Flynn at Price Futures Group told MarketWatch on Sunday that the drone strike was a “big deal” that could result in a major spike in crude-oil prices, because of the potential disruption to global supplies.
This isn’t the first such strike in the region, but this most recent attack highlights the vulnerability of Arabian Peninsula’s oil production and the far-reaching implications of political clashes in the Middle East on the rest of the world. Here’s what investors need to know about the weekend drone strikes and the implications for global markets:
Ten automated, aerial, combat drones launched an attack on Saudi Aramco’s Abqaiq plant in Buqyaq and the Khurais oil field on Saturday at 3:31 a.m. and 3:42 a.m. local time, according to Gulf News. Saudi Aramco describes Abqaiq as “the largest crude oil stabilization plant in the world,” and the Khurais is considered Saudi Arabia’s second-largest oil field.
The attacks are believed to be part of a continuing conflict between Yemen’s Houthi rebels and Saudi Arabia, which harks back to a 2014 takeover of Yemen’s largest city, San’a, by the Houthis. Saudi-led coalitions have launched military campaigns to stem the Houthis’ expansion.
Over the years, Saudi-led airstrikes have killed Yemeni civilians, while the Houthis have used drones and missiles to attack Saudi Arabia and have also targeted vessels in the Red Sea. Saturday’s drone attack is being described as the biggest on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein in 1990s fired missiles into the kingdom during the first Gulf War.
On Saturday, Secretary of State Mike Pompeo blamed Iran for the Saudi attacks. However, he also said there was no evidence that the weekend’s drone strike came from Yemen. “We call on all nations to publicly and unequivocally condemn Iran’s attacks. The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression,” Pompeo said on Twitter. … [To read the full article, click the following LINK – Ed.]
What role does energy play today in the shifting geopolitics of the Middle East particularly in the ongoing conflicts in Syria and Libya?
Interestingly, energy doesn’t play much of a role in Syria because the country is not an important energy player. There is some public speculation that Syria sits on a large energy resource base, both onshore and offshore, but I think those expectations are misplaced.
It’s commonplace to think of the Iraqi invasion of Kuwait in 1990 and the subsequent US-led coalition to liberate Kuwait as being predicated on ‘freeing up the oil’. Similarly, the war in Iraq in 2003 has been characterized – mischaracterized in my opinion – as a ‘grab for oil’. But Kuwait and Iraq sit on significant energy resource bases – Syria simply doesn’t.
What we’re seeing in Syria is a geopolitical competition between the regional players – Saudi Arabia, Turkey, Iran and Qatar – and then more widely Russia, the US and China. Syria really has become a battleground for regional and international players but the game is more about influence on the ground rather than energy.
Interestingly, China’s coming into this situation slowly because it’s more about the strategic location of Syria sitting atop the Arab world and being situated alongside the Mediterranean Sea, which gives it access to Europe. So it’s more about Syria’s strategic importance rather than its energy supplies for China as well.
Libya is different. It does sit on considerable oil reserves and can comfortably produce 1.8 million barrels per day (mbd) during peace time. In fact, it has the capacity to increase production somewhere in the region of 2.5 mbd. But the country is far from reaching those levels and has not done so since the early 1970s. However, there is direct competition for Libya’s resources between Russia, Turkey and China, though all are engaged in differing ways in Libya’s energy scene.
The real competition is between competing local militias on the ground, which seek control over oil resources as a means of securing political power. Militias, such as those aligned with Khalifa Haftar’s self-styled Libya National Army, which controls access over many oil assets in the east of the country, are backed by external powers such as the United Arab Emirates.
European powers, such as Italy and France, are also intimately involved in the political process and both countries have national energy champions with stakes in the success of Libya’s oil sector.
The ongoing blockade of Qatar by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt has seen the oil and gas-rich nation withdraw from the Organization of Petroleum Exporting Countries (OPEC). How significant of a role has energy played in the regional crisis?
The roots of the crisis have been more based on how Saudi Arabia and the United Arab Emirates, on the one hand, and Qatar, on the other hand, have two competing visions for how the region should be. One is focused on – we can call it the anti-Muslim Brotherhood axis if you like – which sees an alignment of countries which are secular in their outward policies, autocratic, authoritarian and see a strong role for the military in their political development. This alignment of states includes Saudi Arabia, the United Arab Emirates, Egypt, arguably Haftar in Libya as well as Russia – a string of strongmen. … [To read the full article, click the following LINK – Ed.]
A sliver of news from Iraq passed almost unnoticed by global media last week: Stroytransgaz has signed a preliminary contract with the oil ministry in Baghdad for oil and gas exploration in Anbar province. The fact that it was barely reported is entirely unsurprising as Stroytransgaz is an almost unknown Russian oil and gas company – except by the U.S. whose Office of Foreign Assets Control extensively sanctioned it in 2014 – and Anbar is almost a wasteland as far as Iraq’s oil and gas sector development goes. However, this tiny announcement is a manifestation of Russia’s key strategy – alongside China – to hijack much of the Middle East whilst U.S. attention is still diverted on Iran.
In terms purely of its oil and gas potential, Block 17 would not be anywhere near the top of anyone’s list of desirable development prospects, with preliminary studies having shown that it has at most 4 billion barrels of oil equivalent of gas, or may be 2 billion, or may be a lot less than that – no one knows for sure. Additionally, any gas (or oil) that there may be in the block is spread somewhere over 12,000 square kilometres of barren rocky land or desert. Worse still is that this generally lawless wasteland is punctuated by perennially quarrelsome and warring tribal communities, who even Islamic State avoided where possible or recruited as frontline operatives to cause chaos to U.S. troops in and around Ramadi, Haditha, and Falluja.
So, what on earth is going on? “You need to look at where it is – right in the middle of nowhere anyone would want to go, especially the Americans – but right in the centre of it is what the U.S. military used to call ‘the spine’ of Islamic State where the Euphrates flows westwards into Syria and eastwards into the Persian Gulf, extremely close to the border with Iran,” a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com. “Along the spine running from east to west are the historical ultra-nationalist and ultra-anti-West cities of Falluja, Ramadi, Hit and Haditha, and then we’re into Syria, and a short hop to the key strategic ports of Syria – Banias and Tartus that also happen to be extremely important to the Russians,” he added. “So, what you’re looking at there is the absolute clear sign that the Iran-Iraq-Syria oil and gas pipelines system is now going ahead, which it is, it was agreed last July just after the U.S. pulled out of the JCPOA [Joint Comprehensive Plan of Action],” he underlined.
The motivation for Iran is that Iran had it reconfirmed last May that it cannot trust the U.S., given the apparent capriciousness of its political figures. “Iran didn’t truly believe that any new [U.S.] president would revoke all of the work done by a previous one on the JCPOA, no matter what the personal animosity involved, until it happened but when it did it decided it wasn’t going to take any more chances, hence the new route, which will by-pass the Strait of Hormuz, and can run straight into southern Europe, or anywhere else for that matter,” the source told OilPrice.com.
A similar motivation pertains to Iraq allowing the pipeline to go through it. Not only is this distrust a product of the two invasions by the U.S. in 1991 and 2003, and subsequent occupation, which Iraq sees simply as opportunism designed to gain control of its oil and gas resources, but it is also a reflection of the uncertainty over how the U.S. intends to handle the Kurds in northern Iraq. … [To read the full article, click the following LINK – Ed.]
For Further Reference:
Ben Hubbard, Palko Karasz and Stanley Reed, NYT, Sept. 14, 2019 — Drone attacks claimed by Yemen’s Houthi rebels struck two key oil installations inside Saudi Arabia on Saturday, damaging facilities that process the vast majority of the country’s crude output and raising the risk of a disruption in world oil supplies.
Dion Nissenbaum, Summer Said in Dubai and Jared Malsin, WSJ, Sept. 16, 2019 — U.S. intelligence indicates Iran was the staging ground for a debilitating attack on Saudi Arabia’s oil industry, people familiar with the matter said, as Washington and the kingdom weighed how to respond and oil prices soared.
Owen Daugherty, The Hill, Sept. 16, 2019 –– President Trump said on Monday that the United States does not need oil and gas from the Middle East as prices spike after drone attacks on Saudi sites.
Robert Burns, Times of Israel, Sept. 17, 2019 — US President Donald Trump said Monday it “looks” like Iran was behind an explosive attack Saturday on Saudi Arabian oil facilities. But he stressed that military retaliation was not yet on the table in response to the strike against a key US Mideast ally.