New war is unlikely, but the men in charge are capricious
For decades, any list of global geopolitical risks would have had “attack on Saudi oil facilities ” near the top. Now it has happened.
The good news is that the world is less vulnerable to an oil price shock than it was in the 1970s when the Opec oil embargo created turmoil in the global economy. It is also true that all of the major powers involved — Saudi Arabia, Iran and the US — have strong incentives to avoid an all-out conflict.
The bad news is that the key decision-makers in this drama — US President Donald Trump, Saudi Arabian Crown Prince Mohammed bin Salman and the leadership of Iran — are all headstrong and prone to taking risks.
It is likely that if the US sticks to its claim that Iran was behind the attack, it will stage a military response. If and when that happens, there are no guarantees that the conflict will not escalate. Given that the weekend attacks have already caused a 20% spike in the price of oil, the potential for further mayhem is clear.
The importance of Gulf oil to the wider world has been imprinted on the collective memory of the West ever since Opec imposed an embargo in 1973. It caused oil prices to quadruple, doing serious damage to markets and the world economy. The lesson learnt — that stability of Gulf oil supplies is crucial to the world economy — helped drive the West ’ s ferocious response to Iraq ’ s invasion of Kuwait in 1990.
Almost 30 years after the first Gulf war, Western economies are considerably less vulnerable to disruption of oil supplies. The rise of shale-oil production in the US means American oil imports from Saudi Arabia are now just a third of the level they were in 2003.
But less vulnerable does not mean invulnerable. There is still a global price for oil, and Saudi Arabia remains the world ’ s leading oil exporter. So if Saudi supply is disrupted, consumers and industries will quickly feel the effect.
The vulnerability of Saudi oil facilities to attack has also been demonstrated. If the attack was carried out by drones, as first reported, it is a shocking insight into how open advanced industrial facilities are to assault by cheap and widely available new technologies.
The Saudis also have cause to worry about the safety of their water supplies. The kingdom gets about half of its drinking water from desalination facilities, one of which was targeted in a rocket attack in June 2018.
Awareness of their vulnerability to further attack should make the Saudis wary of escalating the conflict.
The kingdom ’ s social and political stability is also a factor; the ruling family has long fretted about the threat of internal unrest from their large Shia minority.
Despite huge military spending, Saudi Arabia has been unable to prevail in a brutal war in Yemen, which is a much less intimidating proposition than Iran. So while the Saudis have been ardent supporters of the Trump administration ’ s policy of “maximum pressure ” on Iran, they have minimal interest in an actual war.
Iran also has a strong interest in avoiding an all-out conflict, which would expose it to the firepower of its wellarmed Gulf neighbours and, above all, to attack from the US. In recent months, the Iranians have staged an array of provocations, including seizing Western oil tankers in the Gulf. But this kind of Iranian brinkmanship has been interpreted by most Iran watchers in the West as an effort to demonstrate that Tehran is not powerless in the face of sanctions.
BUT LESS VULNERABLE DOES NOT MEAN INVULNERABLE. THERE IS STILL A GLOBAL PRICE FOR OIL
As for Trump, despite his bellicose rhetoric, his most recent actions have shown he is keen to make a diplomatic breakthrough with Iran. One important reason Trump fired John Bolton last week is that his former national security adviser was too hawkish and opposed suggestions that US sanctions on Iran should be eased in the interests of getting talks started.
So all sides have economic and strategic interests to step back from the brink. Unfortunately, all sides have also shown themselves to be erratic, emotional and prone to miscalculation.
Prince Mohammed has demonstrated his own propensity for violent miscalculation through his conduct of the Yemen war and by apparently authorising the gruesome murder of journalist Jamal Khashoggi.
As for the Iranians, if they did authorise an attack on Saudi oil facilities, they have taken an enormous risk, with consequences they cannot control.
Trump ’ s volatility has been amply demonstrated. Ever since his election in 2016, nervous observers have wondered how the president would behave in a real foreign policy crisis. We are about to find out. / © The Financial Times 2019