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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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Oil Markets On Edge As Iranian Elections Loom

A major threat is brewing for international oil and commodity markets in the coming months. There has been an increase in the amount of drone and missile attacks on Saudi oil and transportation infrastructure in the last couple of years, and now it seems that threat is evolving. The Saudi ministry of defense stated that an explosive-laden boat was intercepted off the Red Sea port of Yanbu, one of Saudi Arabia’s main oil export ports. The media is still waiting on further details to emerge from Saudi Arabia, but maritime security sources stated that it would likely have involved an attack on another vessel in the area. The Houthis and other rebel groups have already been involved already in several major anti-ship attacks, but this would be the first time a remote-controlled drone boat attack has been seen. As Turki Al Maliki, Saudi defense spokesman, stated “the booby-trapped boat was dealt with and destroyed according to the rules of engagement.” The Saudi response, as always, was very clear, calm, and factual. Security firm Dryad Global, however, claimed that several unconfirmed reports indicated that the drone-vessel was targeting Saudi national shipping company Bahri’s oil tanker NCC Dammam. Bahri’s CEO, Abdullah Aldubaikhi, has denied the reports. Still, several other security companies, such as maritime specialists Neptune P2P Group and British maritime security group Ambry both claimed that smoke was seen coming from a vessel in the area. According to United Kingdom Maritime Trade Operations (UKMTO), an incident approximately 2 nautical miles from Yanbu was reported and investigations are ongoing.

Early reports not only linked the Yemeni Houthis to the attack but also suggested a possible link with Iran. The ongoing JCPOA discussions in Vienna, rising tensions between Israel and Iran, and the possibility of discussions between Saudi Arabia and Turkey could all be considered incentives for this attack. A possible security discussion between Iran and Saudi Arabia, as has been reported by several Arab media sources, could also be a reason for increased aggression from the Houthis. Hardliners in Tehran will be eager to derail any thaw in relations between Iran and the U.S. or Saudi Arabia. At the same time, increased activity is expected from Iranian proxies in the run-up to the upcoming presidential elections on June 18. A new strongman is expected to be elected may want to demonstrate their influence before elections. Related: Get Ready For Big Oil’s Most Important Earnings Season Ever

The security threats to Saudi Arabia are part of broader regional developments. An expansion of Houthi or other Iranian proxy capabilities in the Red Sea area would be a direct threat to international markets. As the Suez Canal blockade has shown, when the area is blocked, the global economy is hit hard. Potential remote-controlled attack vessels represent a serious new threat in the region. Container vessels and VLCCs have been targeted before in the Red Sea, but this is a new form of attack that has the potential to be effective.

There has been an increase in Iranian-linked maritime attacks of late. At the beginning of April, U.S. and Iranian warships came close to a full confrontation in the Persian Gulf. Vessels of the IRGC Navy appear to be upping the ante even further, showing drone footage of a perceived fly-over of a U.S. carrier in the Gulf. These broader attacks could threaten maritime trade not only in and around the Red Sea but also around the Horn of Africa or in the Indian Ocean. Most of these activities are linked to the IRGC, which reports directly to Iran’s Supreme Leader Ayatollah Ali Khamenei. The recent increase in aggression from Iran and its proxies suggests that Iranian president Hassan Rouhani and his Minister of Foreign Affairs Zarif are losing influence by the day.

By Cyril Widdershoven for Oilprice.com

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  • Mamdouh Salameh on April 28 2021 said:
    It is most probable that supporters of the Islamic Revolutionary Guard Corps (IRGC) are going to win the Iranian elections. Moreover, a new hard-line government will signal to the United States that Iran isn’t that keen on having the sanctions lifted at any price.

    Iran will neither negotiate with the United States before the sanctions are lifted first nor will it be ready to renegotiate the nuclear deal which will certainly try to impose limitations on its nuclear and ballistic missile development programmes. From the United States’ point of view, renegotiating the deal means Iran’s relinquishing its nuclear and ballistic missile development programmes which Iran will never do.

    Iran’s Supreme leader, Ayatollah Ali Khamenei insisted that Iran will only start complying with its obligations under the nuclear deal after the United States fully lifts all the sanctions on the Islamic Republic in action and not in words or on paper, and once Iran verifies the sanction relief.

    We may never see a lifting of US sanctions on Iran even by 2023. The reason is that the positions of the United States and Iran are so far apart that it will be almost impossible to reconcile them.

    Moreover, American negotiators may have to contend with the possibility that with the success it has so far achieved in evading the sanctions, Iran may accept the continuation of sanctions as a small price to pay for ejecting US military presence from Iraq, Syria and eventually the whole Gulf region thus winning a spectacular geopolitical victory over the United States.

    The geopolitical balance in the Gulf region is already tilting towards Iran as judged by the continued attacks by the Houthis, Iran’s allies in Yemen, on Saudi oil infrastructure and installations, the reported harassing of US Navy ships by the IRGC Navy and also the reported talks between Saudi Arabia and Iran to de-escalate tension between them and reach some sort of a rapprochement.

    The IRGC and its allies will intensify their activities against Saudi Arabia and elsewhere in the Gulf either to derail any negotiations with the United States or to get a deal on their own terms. Either way, they will show the world who is in control in Iran

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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