The September 14 attack in eastern Saudi Arabia is unprecedented. A drone and missile strike claimed by Houthi rebels of Yemen damaged Saudi Arabia’s processing facility and oil field in Abqaiq and Khurais. The U.S. and Saudi officials claimed the incursion originated outside of Yemen implicating Iran as the main culprit which facilitated the drone offensive. U.S. officials believe the launched attacks came from southwest Iran. Tehran and the Houthis deny that allegation.
The Connection: Houthis of Yemen and Iran
The Houthis, who belong to the Shia sect of Islam, are regarded as part of a network of militias in the Middle East that are sponsored or assisted in some way by Tehran, in a broader struggle between Shia Iran and Sunni Saudi Arabia to dominate the Middle East. The conflict dates back to the Iranian revolution of 1979 bolstered by centuries-old religious discord relating to the legitimate line of succession of the prophet Mohammad. Today, the battles continue through proxy actors in Syria, Iraq, and Yemen, among other countries.
The global financial impact of the attack
Several sources have claimed the explosions caused significant damage. According to Saudi authorities, the attacks suspended about 5 million barrels of oil per day – nearly half the Saudi Kingdom?s estimated the output of 9.7 million barrels and about 6 percent of global production. News of the incident sent oil prices soaring. The cost of a barrel of Brent crude surged by 20% early on Monday to nearly $72 (£58, up from $60 per barrel). That is a considerable jump – the most significant move since the contract was created in the 1980s. It then dropped back to about $66 per barrel after Donald Trump pledged to release some American oil reserves, to make up the shortfall from Saudi Arabia. Though it seems the damage has been contained for the moment, economists believe oil prices could rise higher if military retaliation follows. Related: Inventory Build Sends Oil Prices Lower
American reaction
Though Trump Tweeted the U.S. is “locked and loaded” and ready to respond to whoever carried out Saturday?s attack, hinting at the possibility of a military strike on Iran, consensus is, such offence would carry a significant risk of escalation – a chance that Trump has previously been unwilling to take and now seems to maintain that posture.
Implications of drone and cruise missile warfare
Drones, formally known as Unmanned Aerial Vehicles (UAV), have become progressively more sophisticated in form and ability. States have increasingly been drawn to their features. They are not only less costly to produce as compared to other military equipment, but also useful in their multi-purpose applications. Some serve as long-distance travelling surveillance and intelligence gathering tools, others with the ability to carry weapons of increasingly heavy calibres. Some are designed to simulate missiles to carry-out kamikaze-style strikes against targets. However, its most important feature is that it can do all the above without sacrificing the life of a human pilot.
For purposes of this article, though important, it is not relevant who was responsible for the attack. What is essential and extremely telling is the fact that drones and cruise missiles have been able to by-pass several layers of advanced protective security measures in what appears to be in stealth mode without triggering any warning mechanism and hit their targets with surgical precision causing considerable scale damage. The implication that drones could be so undetectable is likely to have surprised governments and security agencies worldwide. It can be judged that moving forward oil-producing nations, and by extension, any critical infrastructure around the globe, are vulnerable targets. Related: Is This The Next $170 Billion Energy Industry In The US?
It may be possible the attackers had intentionally limited their targets to Abqaib and Khurais to demonstrate the potential consequences of a major confrontation in the region.
The fallout
Drones are touted as the new weapon of choice showcasing flexible, multifarious abilities unusually affordable to nations with limited military budgets. The Abqaiq attack has now proven that, what was formerly a presumption in the drone’s strategic value, is now a definite fact. Drones are not merely tactical weapons but do indeed have strategic political value. The successful attack has proven that facilities protected by ultra-modern, multi-billion-dollar new defence weapons and security systems can be highly vulnerable to relatively less costly UAV and cruise missile attacks in the hands of a determined and well-trained rival.
This will have the effect of shifting the balance of power between nations affecting political behaviour and strategy. Militarily stronger states may feel threatened by unequal competitors – they must carefully consider political risks before making a move. The unfortunate by-product of such a revelation is the potential of rogue non-state actors, insurgents, and terrorists taking advantage of these weapon delivery systems and use them on vulnerable populations.
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The world has indeed entered a new era in warfare
By Global Risk Insights
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The Houthis who come from Yemen, one of the world’s poorest and less developed countries, have also entered history by their mastery of the use of the drones, their ability to evade the most sophisticated radar and anti-missile systems and also their precision. They have in effect made the whole Saudi oil industry on which the global economy depends to a great extent a hostage.
In geopolitical terms, the attacks could be a harbinger of a loosening in the strategic alliance between the United States and Saudi Arabia.
The United States rushed to accuse Iran for the attacks but failed to retaliate against it. As a result, Saudi Arabia not only felt flabbergasted but it may have also reached the conclusion that the United States has been using Iran as a threat to blackmail it for money and also as a lucrative market for its weaponry.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London