The Real Reason Trump Won’t Attack Iran

50 2019-09-19

Iran is widely assumed to be responsible for last weekend’s bombardment in Saudi Arabia, in which drone and missile attacks struck two critical Saudi oil facilities, cutting the country’s oil production by 5.7 million barrels per day and reducing global oil supplies by 5 percent. If the Trump administration decides to retaliate militarily for these attacks, the ensuing confrontation would likely to be labeled another U.S. oil war in the Middle East.

This would be a serious mischaracterization, however. In this case, oil interests are far more likely to prevent war than provoke it.

A war in the Persian Gulf would profoundly destabilize the global oil system. If the Trump administration strikes Iran, unilaterally or in conjunction with Saudi Arabia, and targets the state’s oil facilities, these attacks will take more resources offline. Although Iran’s oil output has declined significantly since the United States reimposed sanctions in 2018, the country still produces more than 2 million barrels of oil per day and exports about half a million barrels per day of petroleum products and liquefied petroleum gas to a variety of resource consumers. Airstrikes would remove these supplies for the market, while other oil producers are struggling to compensate for the loss of Saudi resources.

Tehran has also threatened to retaliate for U.S. or Saudi military action. If the Iranians targets Saudi oil installations, it could incapacitate additional facilities or interrupt repairs at Saudi Arabia’s Abqaiq and Khurais facilities. The initial attacks on these installations caused far more damage than many industry analyses anticipated, striking core processing facilities, including stabilization towers and storage tanks, with pinpoint accuracy. Even if Tehran was not directly responsible for these attacks, Saudi officials have that the aggressors employed Iranian weapons. If these claims are accurate, Tehran has the capacity to inflict substantial further damage on the Saudi oil industry. Although Saudi Arabia has presumably reinforced its air defense system after this weekend’s attacks, the kingdom’s ability to protect critical oil facilities from drones and low-flying missiles is now uncertain.

Iran could also respond to U.S. and Saudi strikes by attempting to interrupt oil transportation. The Islamic Revolutionary Guard Corps navy has demonstrated its willingness to seize foreign tankers in the Persian Gulf, as it did on Monday and this July. The corps could also disable oil tankers with mines and other explosives, mimicking the attacks that occurred earlier this year.

Finally, Iran could attempt to close the Strait of Hormuz. The state has been threatening to block the waterway for months. And, while Iran’s naval forces may not be able to halt traffic entirely or maintain a closure over the long term, the attempt alone would roil global oil markets. Insurance rates for oil tankers transiting the strait have already increased tenfold between May and September. Any effort to block the waterway would provoke another drastic hike. Oil prices would also soar in response to the heightened geopolitical risk.

An escalating conflict in the Persian Gulf would jeopardize many states’ energy interests. Saudi Arabia would be hit on multiple fronts from an intensified Gulf conflict. Its oil installations would incur additional physical damage, and the state would lose more resource revenue from suspended oil sales. More importantly, state oil company Saudi Aramco’s reputation as a reliable oil supplier would take another severe hit.

Saudi officials have already been scrambling to restore confidence in the national oil company after this weekend’s attacks. Saudi Aramco’s CEO, Amin Nasser, announced on Tuesday that Abqaiq’s output will be restored by the end of the month and that the company’s long-anticipated initial public offering (IPO) will proceed as planned. However, skepticism is rampant, and any additional disruptions will wreak havoc on the company’s valuation, as well as on Saudi leader Mohammed bin Salman’s plans to use IPO proceeds to finance his country’s economic diversification. Fear of further instability limits Riyadh’s room for maneuver. As Robin Mills of Qamar Energy observed, “It will be all but impossible to proceed with the IPO if there are ongoing attacks.”

Conflict escalation in the Persian Gulf would also threaten Chinese and European energy security. Saudi Arabia is currently China’s top oil supplier, providing approximately 17 percent of the state’s crude imports. Chinese consumers also continue to purchase small amounts of Iranian crude, as well as petroleum products, despite U.S. sanctions. European countries have halted purchases from Iran and are less dependent on Saudi oil. However, EU member states still import more than 13 percent of their resources from Gulf oil producers. An intensifying regional conflict would threaten Europeans’ access to these supplies, force them to pay higher prices, and undermine their ongoing diplomatic efforts to return Iranian crude to the global oil market.

Unsurprisingly, Chinese and European officials have adopted a cautious attitude toward the crisis. Although China’s foreign ministry condemned the attack, spokesperson Hua Chunying advised the parties “to avoid taking actions that bring about an escalation in regional tensions.” She also refrained from attributing responsibility for the strikes to a specific actor. German Chancellor Angela Merkel and British Prime Minister Boris Johnson pushed for an international response to the attacks. However, they also emphasized the “importance of avoiding the further escalation of tensions in the region.” Given this reticence, if the United States wants to strike Iran, it will have to go it alone.

The Real Reason Trump Won’t Attack Iran

Starting a war to protect oil markets will only backfire.

Iran is widely assumed to be responsible for last weekend’s bombardment in Saudi Arabia, in which drone and missile attacks struck two critical Saudi oil facilities, cutting the country’s oil production by 5.7 million barrels per day and reducing global oil supplies by 5 percent. If the Trump administration decides to retaliate militarily for these attacks, the ensuing confrontation would likely to be labeled another U.S. oil war in the Middle East.

This would be a serious mischaracterization, however. In this case, oil interests are far more likely to prevent war than provoke it.

A war in the Persian Gulf would profoundly destabilize the global oil system. If the Trump administration strikes Iran, unilaterally or in conjunction with Saudi Arabia, and targets the state’s oil facilities, these attacks will take more resources offline. Although Iran’s oil output has declined significantly since the United States reimposed sanctions in 2018, the country still produces more than 2 million barrels of oil per day and exports about half a million barrels per day of petroleum products and liquefied petroleum gas to a variety of resource consumers.  Airstrikes would remove these supplies for the market, while other oil producers are struggling to compensate for the loss of Saudi resources.

Tehran has also threatened to retaliate for U.S. or Saudi military action. If the Iranians targets Saudi oil installations, it could incapacitate additional facilities or interrupt repairs at Saudi Arabia’s Abqaiq and Khurais facilities. The initial attacks on these installations caused far more damage than many industry analyses anticipated, striking core processing facilities, including stabilization towers and storage tanks, with pinpoint accuracy. Even if Tehran was not directly responsible for these attacks, Saudi officials have that the aggressors employed Iranian weapons. If these claims are accurate, Tehran has the capacity to inflict substantial further damage on the Saudi oil industry. Although Saudi Arabia has presumably reinforced its air defense system after this weekend’s attacks, the kingdom’s ability to protect critical oil facilities from drones and low-flying missiles is now uncertain.

Iran could also respond to U.S. and Saudi strikes by attempting to interrupt oil transportation. The Islamic Revolutionary Guard Corps navy has demonstrated its willingness to seize foreign tankers in the Persian Gulf, as it did on Monday and this July. The corps could also disable oil tankers with mines and other explosives, mimicking the attacks that occurred earlier this year.

Finally, Iran could attempt to close the Strait of Hormuz. The state has been threatening to block the waterway for months. And, while Iran’s naval forces may not be able to halt traffic entirely or maintain a closure over the long term, the attempt alone would roil global oil markets. Insurance rates for oil tankers transiting the strait have already increased tenfold between May and September. Any effort to block the waterway would provoke another drastic hike. Oil prices would also soar in response to the heightened geopolitical risk.

An escalating conflict in the Persian Gulf would jeopardize many states’ energy interests. Saudi Arabia would be hit on multiple fronts from an intensified Gulf conflict. Its oil installations would incur additional physical damage, and the state would lose more resource revenue from suspended oil sales. More importantly, state oil company Saudi Aramco’s reputation as a reliable oil supplier would take another severe hit.

Saudi officials have already been scrambling to restore confidence in the national oil company after this weekend’s attacks. Saudi Aramco’s CEO, Amin Nasser, announced on Tuesday that Abqaiq’s output will be restored by the end of the month and that the company’s long-anticipated initial public offering (IPO) will proceed as planned. However, skepticism is rampant, and any additional disruptions will wreak havoc on the company’s valuation, as well as on Saudi leader Mohammed bin Salman’s plans to use IPO proceeds to finance his country’s economic diversification. Fear of further instability limits Riyadh’s room for maneuver. As Robin Mills of Qamar Energy observed, “It will be all but impossible to proceed with the IPO if there are ongoing attacks.”

Conflict escalation in the Persian Gulf would also threaten Chinese and European energy security. Saudi Arabia is currently China’s top oil supplier, providing approximately 17 percent of the state’s crude imports. Chinese consumers also continue to purchase small amounts of Iranian crude, as well as petroleum products, despite U.S. sanctions. European countries have halted purchases from Iran and are less dependent on Saudi oil. However, EU member states still import more than 13 percent of their resources from Gulf oil producers. An intensifying regional conflict would threaten Europeans’ access to these supplies, force them to pay higher prices, and undermine their ongoing diplomatic efforts to return Iranian crude to the global oil market.

Unsurprisingly, Chinese and European officials have adopted a cautious attitude toward the crisis. Although China’s foreign ministry condemned the attack, spokesperson Hua Chunying advised the parties “to avoid taking actions that bring about an escalation in regional tensions.” She also refrained from attributing responsibility for the strikes to a specific actor. German Chancellor Angela Merkel and British Prime Minister Boris Johnson pushed for an international response to the attacks. However, they also emphasized the “importance of avoiding the further escalation of tensions in the region.” Given this reticence, if the United States wants to strike Iran, it will have to go it alone.

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