16 September 2019 — Indian Punchline
Benchmark oil futures jumped as much as US$11.73 a barrel to US$71.95 as market opened in Asia on Sept 16, 2019.
The US President Donald Trump’s tweet Sunday regarding the attack on two Saudi Aramco plants says as follows:
“Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!”
It’s a cleverly-worded tweet with multiple audiences in view. Trump took time to react. And he’s stopped short of blaming Iran. The US lacks hard evidence. Therefore, “verification” is needed and it is Riyadh’s call to estimate “the cause of this attack, and under what terms we would proceed.”
Trump boasted that the US is “locked and loaded” to go to Saudi Arabia’s aid. Yet, only the previous day, when Trump telephoned Saudi Crown Prince Mohammed bin Salman, the latter had “underscored the Kingdom’s willingness and strength to thwart such a terrorist aggression and deal with its consequences.”
In fact, this has become the Saudi refrain — that it is within Saudi capability to handle the crisis. During a phone call from UAE Crown Prince condemning the drone attacks, MbS stressed that “the Kingdom has the ability to confront and deal with this terrorist aggression.” King Salman also told the Emir of Kuwait that “the Kingdom has the ability to confront such terrorist attack and deal with its fallout.”
None of the regional states — Egypt, UAE, Kuwait, Bahrain, Jordan, Turkey, etc. — or any foreign power has blamed Iran for staging the drone attacks on the Saudi Aramco plants. That leaves US states secretary Mike Pompeo as the solitary exception.
Interestingly, MbS received the Russian ambassador Sergei Kozlov for a one-on-one Sunday. No details have been divulged; Saudi readout merely said, but highlighted that “a number of issues of mutual concern to the two friendly countries were discussed.”
Of course, the Russian interest lies in de-escalating regional tensions and Moscow and Tehran are in close touch. President Vladimir Putin is scheduled to meet Iran’s president Hassan Rouhani later today on the sidelines of the trilateral summit in Turkey of the Astana troika. Putin is also due to visit Saudi Arabia in October.
However, it is improbable that Saudis would want US to get involved. The trust deficit is palpable. (The Trump administration has decided to reveal the identity of the Saudi official who allegedly helped the 9/11 terrorists.)
The Saudi confidence in the US’ grit and commitment to stand by Saudi Arabia’s defence when the crunch time comes is shaky. Riyadh’s clout in the Washington Beltway has significantly diminished, especially after the murder of Jamal Khashoggi. The mood in the US Congress is hostile.
Again, there are highly sensitive aspects, which Riyadh would want to handle by itself. The Houthis claim to have had “intelligence and cooperation” from within Saudi Arabia for staging the drone attacks. If so, Houthis have contacts inside Saudi Arabia’s eastern province where the Shi’ite majority is agitating for empowerment and autonomy.
Riyadh will want to dig deep, but by itself without the CIA holding searchlights — since this ultimately concerns the Kingdom’s internal security and unity and the destiny of the royal family.
Saturday’s attacks have shown that Saudi defence is highly vulnerable. Any escalation by the US may lead to military confrontation with Iran and is fraught with the grave danger of the destruction of the Kingdom.
The UAE (and other GCC states) would also be averse to any further escalation. In the recent weeks, both Saudi Arabia and the UAE have made overtures toward Iran aimed tamping down tensions.
Yet another wrinkle is that differences have appeared between the Saudis and Emiratis over Yemen, with the latter projecting power in southern Yemen through proxy militia groups, undercutting the government headed by Mansur Hadi (whom Riyadh mentors.)
Over and above, Aramco’s IPO now hangs by a thread — and the Saudi Crown Prince’s Vision 300 programme to restructure the country’s economy and initiate much-needed reforms loses traction.
Saturday’s events have shown that the roof will come down on the world economy if any regional conflagration erupts leading to destruction of the petrodollar states. Brent Crude jumped 20% higher Sunday night.
If the Saudi outage could last for months, as seems likely, expect the Brent onslaught to continue until the price hits $80, and keeps moving higher. Suffice to say, Iran’s threat that it won’t be the only loser in a military confrontation with the US must be taken very seriously. The IRGC has reiterated this on Sunday.
In sum, the US has run out of options on Iran. If the intention behind Trump’s tweet is to unnerve Tehran and compel it to agree to a meeting between him and Rouhani in New York, that is sheer naivety. Nonetheless, the chances are there that a Trump-Rouhani meeting is likely.
Tehran never misses an opportunity to highlight that: a) it can be a factor of stability in the Persian Gulf; and, b) regional security is best handled by the regional states exclusively, through dialogue.
Rouhani’s first detailed remarks Sunday on these lines are significant. Some sort of contacts between and amongst Saudi Arabia and the UAE and Iran cannot be ruled out.
The bottom line is that the Saudis and Emiratis egged on Trump to take to the path of ‘maximum pressure’ against Iran, but as they look down the abyss today, they don’t like what they’re seeing.
The Houthis have been behind a number of assaults on Saudi pipelines, vessels and other energy infrastructure. A Houthi spokesperson explained, “We promise the Saudi regime that our future operations will expand and be more painful as long as its aggression and siege continue.” The focus should be on winding down the war in Yemen, where it becomes crucial for Riyadh and Abu Dhabi to engage with Tehran.