Aramco Attacks Escalates US-IRAN Tension

The recent drone attacks on the world’s largest crude facilities of Abqaiq and Khurais near Dammam, which is operated by the Saudi oil giant ARAMCO has led to escalation of existing US-Iran tensions in Gulf. This has instigated the biggest spike in global oil prices since the Gulf war of 1991. Yemen based’ Ansar Allah’ (Houthi) forces claimed responsibility for the attacks in which no injuries were reported and warned Saudi Arabia that the Houthi attacks in the Kingdom would be broadened further. This is not the first attack aimed at Saudi oil facilities, last month, Saudi Arabia’s other major oil field Shaybah was also targeted in a drone attack by the Houthis.

Saudi Crown Prince Mohammad bin Salman (MBS) termed the incident as a terrorist attack and said Saudi Arabia is willing and able to confront this act of aggression. In the wake of the high impact attacks, Riyadh shut down its oil pipeline that carries 0.2 million barrels per day (bpd) of Arab Light crude from Saudi Aramco to Bahrain Petroleum Company. Nevertheless, it is still pushing ahead to list the ARAMCO’s Initial Public Offering (IPO) of 1 per cent of its total valuation i.e. US$ 2 trillion as per the fixed schedule. In addition, Saudi Arabia is to join Australia, Bahrain and the United Kingdom in a US-led coalition to secure the Middle East's waterways. Saudi council of ministers said that the attack has threatened freedom of shipping and has affected the stability of the global economic growth. Riyadh invited international entities including the UN for investigating the drone attacks and affirmed the use of Iranian weapons in the attack.

There has been worldwide denunciation of these attacks. However, the strongest response came from the United States, which has a robust alliance with the Saudis in the region. President Trump has accused Iran and showed his intent for military attack saying the US is “locked and loaded” for responding to the attack. Washington has increased intelligence sharing with Saudi Arabia.

US Secretary of State Mike Pompeo is expected visit Saudi Arabia and UAE to discuss the attack and coordinate efforts to counter Iranian aggression in the region. Iran has denied the allegations vehemently and expressed its readiness for war and claimed that disaster can be averted if the US accepts the Iran nuclear deal of April 2015. Iranian President Hassan Rouhani said that the Houthis attacked the Saudi oil facilities to warn Riyadh to end its long-running war in Yemen. Iranian Foreign minister Javad Zarif mentioned that the US is turning from a policy of ‘maximum pressure to that of maximum deceit’. The attacks has the potential to jeopardize global energy security.

As an impact of the attacks on Abqaiq, Saudi Arabia’s oil production has gone down by fifty per cent and it has suffered the highest loss of 5.7 million bpd since 1950. Five per cent of the total global oil supply has been knocked out and the oil prices have gone up by 15 per cent. In a bid to calm down oil supply fears, Saudi Arabia has been assuring its Asian buyers that it will meet their October demand. While ARAMCO is firing up its inactive offshore oil fields to absorb the shock, Riyadh assured India that it will honour its supply contracts despite the production cuts.

Saudi Arabia is the second-largest exporter of crude oil to India; however the recent attacks have led India to look for alternative sources for oil including Russia and Iran. As much as India is concerned, both the developments are of great concern. On the one hand, escalating US-Iran tension in India’s extended neighbourhood is not favourable; on the other, rising oil prices may have severe consequence for the global economy.

India also has one of the largest expatriate populations living in the Gulf region, whose safety is also of prime concern to New Delhi. All parties therefore should tread carefully and avoid any further escalation of the crisis.

Script: Dr. Lakshmi Priya, Research Analyst IDSA