Saturday
drone attacks on two Saudi Aramco (Arabian oil Company) processing facilities
have triggered unprecedented crisis which is two-fold. Aside the immediate domino
effect on the global financial transactions the ramifications on the geopolitical
front kept the world in a tizzy.
Aramco
the state oil company valued $2 trillion with a net income of $111 billion, the
crowning glory of the Saudi Arabia controls around 18% of World’s oil reserves.
Ever since America’s unilateral withdrawal from the JCPOA (Joint Comprehensive
Plan of Action), Gulf region has been on the edge. Attacks on stranded oil
tankers in ports, seizure of tankers in the international waters, drone attacks
and counter attacks have intensified. A string of escalations has kept the
region on the boil.
But
none of these attacks caused as much havoc as the latest twin strikes on the
Saudi oil processing unit at Abqaiq, the World’s largest facility accounting for
7% of the global oil supply and Khurais which produces 1% global supplies. The
fear of disruption of crude supplies have sent shock waves across World. The
news has been nothing short of a heart ache to oil importing countries. These
facilities which process around 8.5 million barrels of crude per day account
for 5% of global supplies. Following the attacks, the facilities were immediately
closed to assesses the extent of damage.
Houthi
rebels claimed responsibility for the strikes and admitted having used 10
drones. Last month Rebels attacked Saudi oil field Shaybah. Since its normal functioning
remained unaffected, this hardly made any news. The current strikes on the World’s
largest oil processing facility is second attack in succession. While no lives
were lost, the fire was quickly brought under control, but 5 million barrels of
crude supplies were interrupted. A close analysis of Satellite pictures revealed
17 targeted hits and experts opined that these were carried out by relatively
unsophisticated drones.
Going
by the images of damage, US officials argued that attacks were carried from
west-north-west direction and not from Houthis who controlled South-West side. Adding
weight to the US observations, Iraqi intelligence official told Middle East Eye
Network, that strikes were made with Iranian drones from Hashd al-Shaabi bases
in South Iraq in retaliation to Riyadh funded Israeli attacks on Iraqi militia.
Earlier in August, Israel with American support attacked Irani trained troops,
their depots and convoys from the Kurdish Bases controlled by the Syrian
Democratic Forces (SDF) killing one and injuring 23 personnel. In line with these
claims, Kuwait reported spotting a drone aircraft travelling south hovering
over sea and traversing its airspace. But Iraq soon denied usage of its territories
for carrying out attacks on another country and assured strict action against perpetrators.
Exhausted of long-drawn war Iraq recused itself from this geopolitical muddle.
Without
even producing an iota of evidence, US secretary of state, Mike Pompeo pointed
fingers at Iran. He lashed out at Iran, “Tehran is behind nearly 100 attacks
on Saudi Arabia while Rouhani and Zarif pretend to engage in diplomacy….Amid
the calls for de-escalation, Iran has now launched an unprecedented attack on
the World’s energy supply”. These remarks unarguably beefed up the hostilities
in the region and threatened the regional peace and stability. Despite Houthi threats of bringing Saudi to
heels, America believed they lacked the capabilities to unleash precision
attacks and ascribed strikes as handiwork of Iran. While Saudi refrained from
blame game and quietly attacked Yemeni bases, Trump’s upbraided Iran. He tweeted
“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!!!”.
Iran
rejected American accusations and warned America of the safety of its assets
within its missiles range. Post departure of John Bolton, America hinted at dropping
some sanctions to prepare ground for talks. But the allegations and counter allegation
in the wake of strikes in Saudi scuttled scope for potential diplomacy. Meanwhile, Iranian Prime Minister Hassan Rouhani
at a summit in Ankara with Turkish President Erdogan and Russian President
Putin supported Houthi’s right to defend.
Since
March 2015, Saudi-led coalition forces have been carrying air strikes on Houthis.
Armed conflict between the government forces led by Yemeni President Mansour Hadi
and Houthis have pushed Yemen, the poorest nation in the Gulf to the brink to
severe humanitarian crisis. Though Iran and Houthis widely contest, the rebels
are known to be armed, funded and trained by Iran. Historically, Iran and Saudi
have been fighting for regional supremacy and unfortunately Yemen has turned
into a fertile battle ground for the traditional animosities. Indeed, perturbed
by unrelenting Iranian crisis and Western criticism of Yemen’s war the UAE
started pulling out troops. But Saudi with intelligence support from the US is
still flexing its muscles in Yemen.
Providing
much needed reprieve from the heightened concerns of an armed conflict, Saudi
invited international experts and UN officials to participate in investigating the
crimes. Initial reports indicated that Iranian weapons were used in attacks.
Even Trump changed his stance saying, “I’m somebody that would like not to have
war”. Gearing up re-election, unlike his predecessors, Trump keen on
disentangling America from global conflicts retreated from his earlier
belligerent stance.
In
a television address, Iranian Supreme leader Ayatollah Khomeneni stated that Iran
will not hold one on one talks with America. But would consider multilateral
discussions if America returns to pre-2015 condition. As of now the possibility
of immediate of a military conflict is averted and chances of Iran-America
talks are zilch. Trump’s dream of exerting maximum pressure to force Iran into
a tougher deal is foreclosed. Iran which has been engineering numerous overt
and covert attacks in the Persian Gulf has successfully blocked the oil exports
in other nations. While the perpetrator of the devastating strikes is not yet
known, global energy supplies are crippled forcing international community to
take a stock of the brewing internecine wars in the Middle East.
Middle
East has been source of pivotal global energy supplies. Any crisis in the region
is going to have a multitudinous effect on global economy. In so far, conflicts
in Middle East sent the oil prices soaring seven times. Trump’s “locked and
loaded” remarks, raised concerns of an armed conflict. Current crisis comes
at a time, global economies are plagued by slow growth. The markets which opened
on Sunday witnessed an 19.5% surge in oil price quickly recovered after Trump assented
to release strategic reserves. The sharp spike in oil prices has been first of
its kind in past thirty years created panic in global markets. Price of crude
oil stabilised at $71.95 per barrel (as of Monday) against $60 last week. Speculations
are rife that crude oil might cross $100 mark if Saudi oil facilities fail to
resume processing soon.
Acquiescing
Trump’s unilateral sanctions, India has zeroed oil imports from Iran since May.
To tide over any crisis, India eventually diversified its oil imports with Iraq
and Saudi Arabia emerging as its largest oil suppliers. India imports nearly 5
million barrels of oil every day and Saudi accounts for 20% of imports.
A
surge in global oil prices will increase India’s import bill. An increase in
oil price by a dollar raises India’s annual import bill by Rs 10,700 crores.
This in turn will have an impact on the fiscal deficit. Elevated oil prices
will heighten inflationary pressure. Any interruption of oil supplies or massive
increase in price will have a major impact on Indian economy bracing a slowdown.
Allaying India’s fears in the aftermath of strikes Aramco assured India of
reliable oil supply India’s strategic reserves equivalent to imports of 75 days
can cushion against immediate fluctuations in oil supplies. Saudi’s Aramco which
has 20 billion barrels of strategic oil reserves has announced resumption of
production by September end.
The
attacks have come a week after crown prince appointed his brother Prince
Abdulaziz bin Salman replacing an experienced engineer Khalid al-Falih as
energy minister. While financial analysts are still sceptical of Royal clan’s ability
to manage this crisis, the biggest winner in the whole fiasco seems to be
Russia. Apparently, taking a dig at America, Putin asked Saudi to buy its
S-400s Defence Missile System to protect its people and infrastructure from any
kind of attack [As a matter of fact- Saudi inked agreement for purchase of 44Terminal
High Altitude Area Defence (THAAD) Launchers from Lockheed Martin in November
2018]. Unlike Trump whose isolation policy of Iran has earned him the sobriquet
of “disrupter-in-chief” Russia which is now slowly increasing its clout by holding
Syrian peace talks is seeking to mediate between Iran and Saudi Arabia. Also,
as the third largest oil producer Russia is seeking to gain from disruption in
Saudi oil production.
Be
whatever may, drone attacks on oil installations has shifted India’s focus on revving
up counter-drone preparedness.
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