As Saudi Aramco staff struggled to comprehend the scale of the 3am drone and missile attacks on the state oil company’s crown jewels, some felt it was like doomsday. More than 10 fires raged across the company’s Abqaiq plant, the world’s largest oil processing hub, with huge flames illuminating the night sky as thick black smoke billowed over the desert.
The Khurais oilfield, south-west of Abqaiq, was also hit. The co-ordinated assaults in Saudi Arabia’s oil-rich Eastern Province caused the worst disruption to the kingdom’s oil industry in Aramco’s 86-year history, knocking out half of its daily oil production, equivalent to 5 per cent of global supply.
Riyadh described it as an attack not just on the kingdom, but also on the global energy industry. When energy markets reopened after the strikes, oil prices soared by as much as 20 per cent — the biggest percentage jump since Saddam Hussein’s Iraq invaded Kuwait in 1990.
“I really thought this was the end of the world for us . . . I was speechless, it was numbing,” says an industry official. “This is the powerhouse of the global industry, and ‘puff’! It was like somebody had hit you with a baseball bat.”
Aramco has pledged to restore oil production to its pre-attack levels by the end of the month. But the strikes graphically exposed the vulnerability of the infrastructure of the world’s top oil exporter. And it brought to the fore the Gulf’s worst fears following months of simmering tensions between the US and Iran — an attack at the heart of the region’s crucial oil industry.
Washington blamed Tehran for the strikes, responsibility for which was claimed by Tehran-backed Houthi rebels in Yemen. Mike Pompeo, US secretary of state, described the attacks as an “act of war” after meeting Crown Prince Mohammed bin Salman, Saudi Arabia’s de facto leader, in Jeddah. Once more, the spectre of a broader regional conflict, drawing in Iran and its proxies, and the US and its allies, notably Saudi Arabia and the United Arab Emirates, hangs over the Middle East.
All eyes are now on how President Donald Trump responds. He initially hinted at military action, declaring that the US was “locked and loaded”, but instead ordered more sanctions on Iran. The challenge for Washington is to appear forceful without triggering a broader conflict the protagonists claim not to want.
“The dilemma is how to provide sufficient deterrents to this kind of behaviour and stop Iranian hardliners pushing the envelope further, but [without it] resulting in substantial conflict in the Middle East,” says a European diplomat.
In Iran — where hardliners opposed to President Hassan Rouhani have been strengthened by Mr Trump’s “maximum pressure strategy”, particularly the elite Revolutionary Guard — the regime has been clear it will retaliate if it is attacked. Tehran’s apparent strategy is to rattle its foes and make them fully aware of the costs of aggression towards the republic — in its mind, the best form of defence.
The unknown is just how far the Revolutionary Guard will up the ante.
Tehran denies involvement in the Saudi attacks. But since Mr Trump removed the final waivers on oil sanctions in April and pledged to drive the Islamic republic’s exports to zero, the theocratic state has vowed to “resist”, while warning that it will not suffer alone. After threatening to disrupt oil flows through the Strait of Hormuz, the vital Gulf waterway, Tehran has been blamed for sabotage attacks on tankers, shot down a US spy drone in June and seized a British-flagged vessel.
Those acts were considered calibrated warning shots. The weekend attacks were on an altogether different scale: an audacious assault that spectacularly breached the defences of one of the world’s top three buyers of arms and the US’s most important Arab ally.
US officials have suggested the drones and missiles that struck the Saudi facilities were launched from inside Iran. If true, it would mean Tehran has dispensed with its well-worn tactic of using proxies such as Iraq’s Shia militias to target its foes, a strategy that has offered Tehran plausible deniability in the past.
The stakes have risen just as European diplomatic efforts to de-escalate the stand-off between Washington and Tehran appeared to be gathering momentum ahead of next week’s UN general assembly.
At a G7 meeting last month, Mr Trump indicated he was willing to meet Mr Rouhani, as Emmanuel Macron, France’s president, floated an initiative that would see Iran receive a $15bn credit line to offset some of the losses caused by US sanctions on the republic’s oil exports. Mr Trump’s sacking of John Bolton, his notoriously hawkish national security adviser, fuelled speculation of a potential breakthrough.
Then the missiles and drone barrage struck. Three days later, Ayatollah Ali Khamenei, Iran’s supreme leader, firmly ruled out any talks.
Alistair Burt, a former UK Middle East minister, says the timing and scale of the attacks is puzzling, adding that it could be Iranian hardliners seeking to scupper any attempts at detente.
“If that isn’t an explanation, then someone is taking a really high risk,” he says. “If this is Iran, it flies in the face of what looked to be an opportunity for negotiations. This ratchets up the tensions and possibly tells us more about what is going on in Iran than outside.”
US and Saudi officials say the Iran-aligned Houthis lack the capacity to pull off such an assault — Riyadh says it involved 18 drones and seven cruise missiles launched from the north.
The attack on Tehran’s main regional rival was greeted with schadenfreude in Iran, even by reformists locked in a power struggle with hardliners.
“While Iran denies any role, what happened is a very big deterrent. The proxy forces reminded everyone that . . . no one should think of a war and not even use the rhetoric of war,” says Mohammad-Ali Abtahi, a former Iranian vice-president. “This attack showed Saudi Arabia is the most vulnerable point in the region, which will change many regional calculations for the Saudis.”
Many blame Mr Trump for precipitating the crisis by unilaterally withdrawing the US from the 2015 nuclear accord Iran signed with world powers, against the advice of European allies, and imposing swingeing sanctions on the republic. But for all his rhetoric against Tehran, he is deemed averse to military interventions. After the US drone was shot down in June, he aborted planned strikes on Iran at the last minute.
The U-turn unnerved some in the region who saw it as affirmation of the president’s unpredictability. There were already lingering concerns in the Gulf about the durability of the decades-long compact between the US and its regional allies, in which the oil exporters act as dependable suppliers of the world’s energy while Washington provides a security blanket.
“Contradictory statements from Trump . . . show the weakness of the US position on Iran,” wrote Hamood Abutalib, a columnist for Saudi newspaper Okaz, this week. “The allies of yesterday are no longer what they used to be.”
Mr Trump is expected to raise the attack at the UN, while his team compiles a dossier of evidence to present to the Security Council and attempts to build wider international support to tighten the pressure on Iran.
Dalia Dassa Kaye, an Iran expert at Rand Corporation, a US think-tank, says the attacks have dented the prospect of diplomacy but that co-operation between western allies has also been made more difficult with Mr Trump’s Iran policy lacking global backing.
“In normal times, it would not be a hard sell to gain international support to respond to an attack on global oil supplies,” Ms Dassa Kaye says. “But because we have this context of the US withdrawing from the nuclear agreement and the reinstatement of sanctions . . . which Iran assesses as economic warfare, it’s much more difficult to gain international support.”
For Saudi Arabia, the timing could not be worse. The kingdom has been desperate to move forward after the murder of journalist Jamal Khashoggi triggered a huge global backlash and entice the foreign investment needed to support Prince Mohammed’s grandiose reform plans. The centrepiece of his programme has been his pledge to launch an initial public offering of Aramco, a process that was picking up pace in the weeks before the attacks.
Saudi officials insist the IPO — with Prince Mohammed coveting a $2tn valuation — will move ahead. But people close to Aramco express concerns over the security of its assets. The attacks are a reminder that it is vulnerable in a way other oil majors are not, as its facilities are concentrated in one country in the centre of a volatile region.
A senior Saudi official acknowledges that investors could “sit and wait”. The Financial Times has learnt that the kingdom has put pressure on wealthy families to buy in to the IPO. Saudi Arabia denies this.
Foreign investment in the kingdom is already at years-long lows and the attacks exposed a country that spent nearly $70bn on arms last year. And it is not just oil facilities that are vulnerable — airports and desalination plants have been targeted by the Houthis in retaliation for the Saudi-led campaign in Yemen in recent months.
The kingdom has invested billions of dollars in US-built Patriot anti-missile systems. But “they are not enough to cover the nation and critical infrastructure”, says a defence industry executive familiar with the kingdom.
A Saudi analyst describes the attacks as “a dent in Prince Mohammed’s economic armour”. “People hear all this jingoism ‘we are a superpower’, and now we know these institutions can be hit, which shows all this defence spending is false,” he says. “It’s a body blow; it’s damaging for the establishment.”
Additional reporting by Anjli Raval in Abu Dhabi
Copyright The Financial Times Limited 2019
2019 The Financial Times Ltd. All rights reserved. Please do not copy and paste FT articles and redistribute by email or post to the web.
