The Saudi Oil Crisis Explained5 min read

What Happened?

On September 15th just before dawn, 10 drones loaded with nearly 20 missiles were dispatched, targeting the Abqaiq oil-processing plant and the Khurais oil field in Saudi Arabia’s Eastern Province. Much of this oil production plant’s facilities were destroyed and as a result, shut down half of Saudi Arabia’s oil production. As the largest exporter of crude oil, this cut the global oil supply by 5%. The ensuing panic triggered the highest oil price shock since the 1990s.

Who is to Blame?

Immediately following the attack, fingers were pointed at Iran. This would not be the first time Iran and Saudi Arabia have been in conflict. These two powerful nations have been locked in a decades long conflict for dominance over the region, with major ideological and religious differences only adding fuel to the fire. After the attack, a group of Houthi rebels in Yemen came forward, claiming responsibility. However, Saudi Arabia, the United States, and most of the Western world remain unconvinced. For starters, US satellite imagery shows the missiles trajectory coming from the north (where Iraq and Iran are) rather than the south (where the Houthi controlled regions of Yemen are). Another area of suspicion is the level of sophistication of the attack. The Houthi have attacked Saudi Arabian territory before, with short-range ballistics, however there is serious doubt about the ability of these rebels to launch such a precise and successful attack on one of Saudi Arabia’s most important oil facilities. Iran, of course, denies all involvement.

International Reactions

Where oil is involved, the United States is usually close behind. President Trump issued a statement saying that the US is “locked and loaded” in preparation to defend Saudi Arabia. The Trump Administration has had a long record of tensions with Iran, however some found this aggressive rhetoric puzzling despite those relations. The United States does not have an official alliance with Saudi Arabia and therefore is not required to take actions to defend it. Ironically, a facet of Trump’s campaign was getting the US out of wars in the Middle East, not needlessly starting new ones. However, President Trump has taken an aggressive stance on many issues, and failed to follow through with it, so the likelihood of imminent war with Iran is low. Though military action is impossible without the approval of the House, President Trump has increased sanctions on Iran. The countries economy is already buckling under the strains of the previous sanctions, especially the restrictions on the oil sector. There are few sectors of the economy left to hit, though the Trump Administration will surely find a way to impose more sanctions. In response to the attack, the Trump Administration has also deployed hundreds of troops to help guard the Saudi Arabia as an attempt to further discourage Iranian aggression. This measure was taken as a defensive position, however many are worried that if Iran decides to attack, this could embroil the United States in another conflict abroad.

How Will This Affect the Government of Saudi Arabia?

The current government consists of the ruling royal family. The Prince of Saudi Arabia Mohammad Bin Salman Al Saud is preparing to take over the throne. The government of Saudi Arabia is an absolute monarchy with no separate legislative body. The citizens have little freedoms and corruption is rampant. Saudi Arabia was not spared during the sweep of the Arab Spring. Protests took place and were placated with the promise of new money for housing, job security, and financial criminals were pardoned. There were no political reforms offered. The promise of economic prosperity was enough to satiate the people. However, the state can not promise economic prosperity forever. As part of his preparation for his ascension to the throne, Prince Mohammad Bin Salman has introduced new initiatives to diversify the nation’s economy and move away from oil dependency. However, as well intentioned as these initiatives are, they are having negative consequences on the economic growth of Saudi Arabia. Citizens are no longer spending as much as they used to, with the cost of living going up and subsidies on electric and water going down. The efforts to improve the non-oil sectors of the economy have not yielded results and Saudi Arabia remains tied to oil. With the country currently running at half its normal oil production rate, it is using oil from its reserves to meet demand. However, due to the pre-negotiated prices of the oil, Saudi Arabia is not benefiting from the sale of this oil. The country runs on oil wealth, and whatever excess oil wealth the government has is put back into the economy. Saudi Arabian government spending is what keeps the country developing and expanding. However, with the country’s economy in a downturn even before the attacks, and the repairs draining the government’s spending money, will there be enough money left over to invest in the citizens of Saudi Arabia? If not, and the citizens start to feel the economic pressure, what will stop them from rising up in protest? The royal family has historically based their legitimacy on religion, but after the Arab Spring protests and the economic promises made, their rule now depends on their ability to provide for their people. If the economic situation continues this trend into a downward spiral, will the people of Saudi Arabia again rise up to demand their freedoms?

Citations

Jones, Rory. “Attacks on Oil Facilities Threaten Fragile Saudi Economy.” The Wall Street Journal, Dow Jones & Company, 25 Sept. 2019, https://www.wsj.com/articles/attacks-on-oil-facilities-threaten-fragile-saudi-economy-11569427859.

Marcus, Jonathan. “Why Saudi Arabia and Iran Are Bitter Rivals.” BBC News, BBC, 16 Sept. 2019, https://www.bbc.com/news/world-middle-east-42008809.“Politics of Saudi Arabia.” Wikipedia, Wikimedia Foundation, 23 Sept. 2019, https://en.wikipedia.org/wiki/Politics_of_Saudi_Arabia.

Rawat, Mukesh. “Explained: Saudi Aramco Oil Facility Attacked; What Makes Drone Attacks so Dangerous.” India Today, 18 Sept. 2019, https://www.indiatoday.in/world/story/saudi-arabia-aramco-oil-facility-attacked-what-makes-drone-attacks-so-dangerous-1600169-2019-09-17.Stratfor Worldview.

“Explained: Why Did Iran Attack Saudi Arabia’s Oil Industry?” The National Interest, The Center for the National Interest, 21 Sept. 2019, https://nationalinterest.org/blog/buzz/explained-why-did-iran-attack-saudi-arabias-oil-industry-82296.

Ward, Alex. “The Week in US-Saudi Arabia-Iran Tensions, Explained.” Vox, Vox, 20 Sept. 2019, https://www.vox.com/world/2019/9/20/20873672/trump-saudi-arabia-iran-oil-missile-drone.

1 thought on “The Saudi Oil Crisis Explained<span class="wtr-time-wrap after-title"><span class="wtr-time-number">5</span> min read</span>”

  1. Samantha, I like your post. Like you said, it will be very interesting to see how the Saudi people respond to the economic downfall occurring. Given the current protests taking place in Egypt, it would not be surprising for Saudi Arabian people to follow suit with protests of their own. That being said, I think the Saudi Arabian government will not struggle to remain in power should their citizens protest. Even though the Saudi Arabian government had already been experiencing economic difficulties prior to the attacks, they could cast blame on the fact that they just had half of their oil production destroyed. Although most citizens might not be sympathetic towards the reasoning of the economic downfall, in this instance, I think most would be willing to accept that it was beyond their government’s control. Additionally, having experienced the Arab Spring and successfully navigating their way through protests without losing power, the Saudi Arabians should once again be able to prevent a regime change. The most likely course of action would be to concede more powers to their citizens, much like they had done during the Arab Spring. If the Saudi government is able to remain in power, then the question becomes how can they overcome the economic fallout?

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