Complex Made Simple

Attacks on regional energy powers could lead to war and oil to skyrocket

Are we looking at a potential armed conflict in the region with severe energy crises as a consequence?

A possible (oil price) spike to $90 seems within reach Donald Trump: “It’s going to be a bad problem for Iran if something happens" The Strait of Hormuz is a key chokepoint that Iranian officials have threatened to block if America attacks

The tension in the Gulf region is reaching a climax following a series of attacks on energy assets and US mobilization of troops, ships and arsenal to thwart any potential threats to US interests and regional allies.

Saudi, the latest casualty  

Reuters reported that oil prices rose over 1% on Tuesday after top exporter Saudi Arabia said explosive-laden drones launched by a Yemeni-armed movement aligned to Iran had attacked facilities belonging to state oil company Aramco. 

“Saudi Arabia said armed drones had struck two oil pumping stations in the kingdom on Tuesday in what it called a “cowardly” act of terrorism two days after Saudi oil tankers were sabotaged off the coast of the United Arab Emirates,” Reuters reports.

“U.S. national security agencies said they believe proxies sympathetic to or working for Iran may have been responsible for the tanker attacks…Iranian officials denied responsibility.”

The Economist said the damage was limited, but that the Houthis rebels in Yemen claimed responsibility and threatened more such attacks.

Houthi military spokesperson claims responsibility for drone attack on oil facilities in Saudi Arabia- Reuters

The Associated Press reported that Saudi officials said the attack occurred at two sites on the country's east-west pipeline, which traverses the middle of the country. The attack involved several drones launched from inside Saudi.

Oil price impact of a proxy war

Proxy wars and sanctions could create the perfect storm for oil. A possible spike to $90 seems within reach, according to OilPrice.com.

"Proxy wars in several countries in the Middle East could have a detrimental effect on global oil and gas markets. Any disruption to oil and gas flows cannot be countered by increased OPEC output or even U.S. shale oil. The market may seem well supplied, and inventories are still at relatively high levels, but this reality could soon change," the site said.

Tankers in the Gulf got hit

According to the Economist, On May 12th, four oil tankers were struck by a “sabotage attack” off Fujairah, part of the UAE.

“Emirati, Saudi and American officials claim that four ships—two Saudi, one Emirati and the other Norwegian—had 1.5-metre to 3-metre holes blown in their hull, near the waterline. Unnamed American officials were quoted fingering Iran or its proxies as the likely culprit,” reported the Economist.

Saudi energy minister Al-Falih said the attacks on the two Saudi tankers happened at 6 a.m. Sunday.

“The attack didn’t lead to any casualties or oil spill,” though he acknowledged it affected “the security of oil supplies to consumers all over the world.”

According to the National Post, a U.S. official in Washington, without offering any evidence, told the AP that an American military team’s initial assessment indicated Iran or Iranian allies used explosives to blow holes in the ships and that Emirati officials had requested a team of U.S. military investigators to aid them in their investigation.

Asked at the White House about the incident, President Donald Trump responded: “It’s going to be a bad problem for Iran if something happens.”

Battlegrounds being drawn at the Strait of Hormuz

 Reuters said Tehran has been embroiled in an escalating war of words with the United States over stricter U.S. sanctions, which have cut its oil exports and tightened global supply.

“A fifth of global oil consumption passes through the Strait of Hormuz from Middle East crude producers to global markets,” said Reuters.

The Economist reported that US National Security Adviser had lobbied hard for the invasion of Iraq under George W. Bush and in as a private citizen argued that America should bomb Iran to set back its nuclear program.

“He appears to be on the warpath once again,” said the Economist.

 Strait of Hormuz

The Economist added that Bolton announced on May 5th that America had dispatched an aircraft-carrier strike group and bombers to the Persian Gulf in response to undisclosed intelligence that Iran and its proxies were planning attacks on American forces (or its allies) in the region.

The US is sending up to 120,000 troops to the Middle East if Iran attacks or restarts work on nuclear weapons, according to the New York Times.

The Strait of Hormuz is a key chokepoint that Iranian officials have threatened to block if America attacks.

“The pumping stations hit in Saudi Arabia are part of the “east-west pipeline”, which moves crude from eastern oil fields to western ports. Both pipelines are meant to help producers bypass the Strait of Hormuz,” said The Economist.

The National Post reports that the US is deploying an aircraft carrier, the USS Abraham Lincoln, and B-52 bombers to the Persian Gulf to counter alleged, still-unspecified threats from Tehran.

“Tensions have risen since Trump withdrew America from the 2015 nuclear deal between Iran and world powers, and restored U.S. sanctions that have pushed Iran’s economy into crisis,” said the National Post.