Market Monitor

Saudi Arabia energy infrastructure attacks – how will the US respond?

The key uncertainty following the recent strike against the Khurais and Abqaiq facilities – the heart of Saudi Arabia’s oil industry and a vital spoke in the world’s energy infrastructure – is how the US and its regional partners will respond. Washington has placed the blame for the attack on Iran, adopting the usual hardline position that Tehran needs to be punished for this and other aggressive acts, while both left and right-wing libertarians assert that this is a local problem the US should not get involved in. Among the mainstream foreign policy thinkers, a consensus appears to be emerging that in order to save US leadership in the global economic and geostrategic arena something must be done to rebuild its credibility and bargaining power, but in novel ways.

 

Latest attacks expose many constraints facing US in formulating response

The argument that the US must seek a new approach to dealing with Iran has arisen because of the many hurdles it now faces domestically and abroad.

Most of the limitations are viewed as self-imposed, created by the current US administration and its key partner in the region Saudi Arabia. The war in Yemen, which the kingdom claimed would last three weeks, has become a long and brutal conflict, exerting a heavy toll on Riyadh’s coffers and its international credibility, and lost it the support of the US Congress.

Rather than be cautioned by the foreign policy failures of previous administrations in the region, the current US leadership doubled down by imposing harsh sanctions against the Islamic Republic without considering that Tehran was unlikely to take this sitting down. Iran’s response – to relax the sanctions upon it by increasing pressure on the US, through its regional allies or through the international community – has exposed the holes in US thinking and tied its hands. Beyond the Gulf, the US has alienated most traditional allies and global “competitors” such as China and isolated itself on the international stage.

Other constraints are more traditional and affect every administration in Washington. Since World War II, the US has played the leading role in guarding the sea lanes and the world trading system, particularly the supply of oil, and it has protected its allies from foreign incursions which threatened those strategic assets. If the US is seen as having failed to protect such a key component of the global energy infrastructure then its credibility as a global stabilizing force could be undermined – and if it doesn’t deter more attacks, the world economic system, with oil at its heart, runs the risk of becoming structurally destabilized.

The call for reasserting its strategic position has also come up against a more short-term fear, particularly within the current administration, that if the US were to take a hardline military approach to Iran, it would engulf the US in another major Middle East war, crash the world economy, which is already in a delicate way, and jeopardize the reelection of President Donald Trump.

 

Will Washington seek global cooperation on Iran, military action or a combination of the two?

In light of these constraints a consensus appears to be emerging in Washington that a traditional military response to Iran would be imprudent and impractical. There is some novel thinking emerging on the center right that talking with Tehran is the only way forward. However, others argue that Iran has backed the US into a corner by exploiting its constraints and would have the upper hand in negotiations. To rebalance its position, they argue that the US must pursue a mixed program of rallying the international community against Iran while taking the battle against Iranian assets in the same way – in other words by engaging in asymmetrical warfare.

However, given its track record over the last three years, there are serious doubts that the US administration has the ability to achieve either approach. Even in the wake of the recent attacks, Trump has said he would consider meeting President Hassan Rouhani at the upcoming UN assembly, but he will not be given that opportunity by the Iranians, possibly because they view it as a photo opportunity for Trump. Tehran has said consistently that it will not negotiate until the US lifts sanctions.

Creating an international consensus would require the leadership to soften or even abandon its “America First” position. The US has some leverage over the world by promising restraint in its response to Iran, which would prevent a global economic crisis, but in order to foster cooperation it would have to concede to demands from other countries, especially the Chinese in trade negotiations. Russia would be more than happy to “broker” peace in the Gulf and further enhance its regional influence. The Europeans are occupied with internal challenges or their own trade negotiations with the US, despite some recent initiatives by France.

That leaves the other part of the program – asymmetrical warfare. The US military and intelligence community can pursue such a program, and to a certain extent one has already been deployed in Syria and Iraq. This sort of warfare could be taken to Iran itself, similar to what happened with the Stuxnet virus in 2010. However, this route would likely lead to more “towers” blowing up in the middle of the night on both sides of the Gulf, resulting in more instability and uncertain gains.

 

Latest attacks could undercut Tehran’s position amid concerns of Iranian overreach

While US strategists face myriad challenges in deciding upon a way forward, Tehran too must consider that its resistance program also has limits. Out of desperation and careful planning, Iran has made gains, but the US has also shown that it can leave regions in chaos. More and more a status quo state looking for stability to protect its fragile gains, chaos is not something the Islamic Republic relishes. Plus, the attack on Abqaiq has raised concerns of Iranian overreach everywhere, particularly in Asia. Going from pinprick attacks on certain tankers in the Gulf to taking out 5.7m bpd of crude supply is globally dangerous.

 

Fareed Mohamedi is an international political economist specialising in the geopolitics of energy and energy markets with a special emphasis on the economic development of petrostates and their foreign relations. He has led research teams in several specialised energy consultancies and two national oil companies. He has worked as a macro-economist with economic research institutes in Washington DC, a bond rating agency in New York City and the finance ministry of Bahrain. Fareed is currently Managing Director of SIA-Energy International, the global division of SIA-Energy based in Beijing.

 


Featured Image © Shutterstock.com

 

 

Order a bespoke report

I’d like to order a bespoke report. Please send me more information.