Attack on Saudi oil facility means new headache for Biden

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When is a failed Iran-instigated attack on Saudi Arabian oil facilities a problem? Answer: When a new administration in Washington is trying to shift away from the Middle East and reduce reliance on oil.

More succinctly, but in jargon, when the market is tight.

In 2019, Iranian missiles and drones hit the Saudi oil processing plant at Abqaiq, where crude is initially cleaned so that it can be loaded onto tankers. The shockingly accurate attack temporarily halved Saudi exports. Yesterday’s attack on the oil infrastructure around the coastal city of Dammam apparently hit only one oil storage tank. The nearby oil export terminal, which handles 15 percent of world supplies, was unscathed.

Of course, as last time, Iran’s fingerprints of responsibility are a little blurred. The Houthi forces that control Yemen have claimed they did it, but truthfulness is not their strong suit. It should become clearer within the next day or so.

The standard oil market reaction in these circumstances is for prices to rise, at least initially. Today, the price has gone above $70. Whereas in 2019 prices quickly slipped back, this time any recovery, at least for consumers, is likely to be slower. American shale oil is no longer quickly available to calm market sentiment. And the Saudis only last week said they were staying with a 1 million b/d production cut, imposed to keep prices high and boost their revenues.

For the Biden White House, yesterday’s attack is likely to prove a real pain. The Iranian attack occurred just as another couple of B-52 strategic bombers were making a well-publicized, round-trip flight to the Gulf, supposedly to deter Iranian aggression. The willingness to confront Iran is reduced because of the administration’s desire to engage in nuclear talks. And higher oil prices mean more revenues for Tehran’s reduced but still significant exports. A record volume  reportedly is going to China.

The better-read officials may well be recalling the response of a British prime minister to a question about what his most troubling problem was. Harold Macmillan, who served from 1957 to 1963, replied: “Events, dear boy, events.” (It sounds less patronizing in English-English.)

Of course, events already have interfered with Iran policy, as evidenced with last week’s air strike on Shia fighters in Syria, a response to attacks on U.S. forces in Iraq. As the Pentagon well knows, “No plan survives contact with the enemy” — attributed to a Prussian military commander in the 1800s.

But it is one thing for the Middle East to continue to be a source of headaches for Washington; it is another when the price of gas rises at the pumps. Eventually oil production, including American shale, should kick in and ease the situation. But this also coincides with the appearance of a post-COVID recovery in the world economy that will have the reverse effect.

What is there to be done? An obvious answer is to ask the Saudis to end their production cutback. But the person with whom the White House needs to speak on that is the de facto ruler, Crown Prince Mohammed bin Salman, known as MbS. Oh dear, this is the person President Biden does not deal with because of a range of issues, including the murder of dissident journalist Jamal Khashoggi.

 

The opinion expressed do not necessarily reflect those of ITC
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