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Saudi Aramco’s enormous oil processing plant at Abqaiq was hit September 14, 2019, in a cruise missile and drone attack credibly attributed to Iran. Simultaneous strikes 150 miles away blasted facilities at the Khurais oil field. The attacks knocked out more than six million barrels per day of Saudi oil and natural gas liquids production, the biggest outage in the modern history of oil. Oil prices jumped accordingly, from $60 to $69 per barrel.
Two weeks later, the urgency had evaporated. As repairs were getting underway, oil prices fell below pre-attack levels. The diplomatic reaction in the United States was equally muted. President Trump suggested that responsibility for dealing with the attacks rested not with Washington, but with the aggrieved party. “That was an attack on Saudi Arabia, and that wasn’t an attack on us,” Trump said on September 16, 2019. “But we would certainly help them.”
The lackluster reactions to the attacks on Saudi Arabia appear symptomatic of a broader decoupling of global oil prices from political risk in the Persian Gulf. Geopolitical risks in the Gulf and wider Middle East have not dissipated. If anything, threats to oil in the region have multiplied as Iran has begun reacting to the Trump administration’s pullout of the Iran nuclear deal. Reimposed US sanctions have all but halted oil exports from Iran, the world’s seventh-largest oil producer, and Tehran has turned to threatening supply from Saudi Arabia, the world’s number one exporter.
However alarming the September attacks were to the Saudis and some of their trading partners—China and Japan, for instance— they failed to raise a hue and cry where it matters, in oil markets or in the White House. Previously, such an assault might have set into motion the Carter Doctrine, which states that US military force might be used to protect American interests in the Gulf. In Saudi Arabia, the unwillingness of its allies to respond set off alarm bells. “An absence of international resolve to take concrete action may embolden the attackers and indeed put the world’s energy security at greater risk,” warned Saudi Aramco CEO Amin Nasser.
Why the complacency? Some is due to the oversupply of oil in global markets. Increasing oil self-sufficiency in the United States is another part of the equation. But other factors matter too. Global oil production has become increasingly diverse and consumption more efficient. Climate change is dampening oil demand growth and leading consumers to seek substitutes for oil-powered internal combustion engines. Oil replacement technologies—electric vehicles and biofuels—are moving into the mainstream. As of April 2019, the coronavirus pandemic had triggered widespread restrictions on travel causing an unprecedented oil demand shock, and it remains to be seen whether or not travel will return to pre-virus levels.
In aggregate, these changes suggest a longterm decline in the strategic importance of petrostates like Saudi Arabia and a drifting apart of the United States and its partner regimes in the Gulf. For producer countries, new tactics and strategies will be needed to recapture strategic interest of global powers, and to cope with the transition away from fossil fuels.
