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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Saudi Arabia and Iran Spar Over Pipeline Attack Claims

On 1 March, Iran’s state-owned Press TV carried a sensational story of “an explosion in Saudi Arabian city of Awamiyah in the east of the kingdom which destroyed the pipelines feeding one of the most important oil hubs in the world.”

According to the story, “Oil prices have soared to their highest level in the past ten months.”

The Press TV report referred to a fire on a pipeline linking Saudi Arabia’s largest refinery in Abqaiq to its major oil port in Ras Tanura in the Persian Gulf.

According to the Iranian Press TV media report, the attack caused oil prices worldwide to soar; “Brent North Sea crude is trading at nearly $127 per barrel while West Texas Intermediate is trading above $109 a barrel. Meanwhile, light, sweet crude for April delivery soared to as high as $110.55 a barrel after it settled for Thursday at $108.84 a barrel on the New York Mercantile Exchange, up $1.77 from Wednesday's closing level. Brent crude on the ICE Futures Europe exchange also rose to $128.40 a barrel.”
The post-attack oil prices reached levels not seen since July 2008, when the burgeoning global economic crisis sent oil spiraling to record peaks of $147.70 a barrel.

Not so, said the Saudi Arabian state-run media. The day after the Press TV report appeared Saudi Arabian Interior Ministry spokesman Prince Mansour Al-Turki told Reuters, “There were no acts of sabotage in the Kingdom yesterday." Following this reassurance, prices declined somewhat.

So, what’s the truth of the matter?

It would seem that it lies midway between Riyadh and Tehran, whose relationship might most kindly be described as “frosty.”

U.S. and Israel continue increasing pressure on Iran to end its civilian nuclear energy program, which both nations assert in fact masks a covert nuclear weapons program has been strongly denied by Tehran, which insists its civilian nuclear energy program remains exactly that.

Ramping up the confrontation, three months ago Iran’s Navy staged ten days of its  Velayat 90 naval exercises, covering an area in the Arabian Sea stretching from east of the Strait of Hormuz entrance to the Persian Gulf to the Gulf of Aden.

The exercises increased concerns about Iranian intentions in Kuwait, Iraq, the UAE and Saudi Arabia, all of which heavily depend on free maritime passage through the Strait of Hormuz, where approximately 40 percent of the world’s oil exports transit each day.

Washington has also increased its pressure on Iran’s major Asian importers India, China, Taiwan, Japan and South Korea to abide by news sanctions proposed by the U.S. to abandon Iranian oil exports to increase pressure on Tehran over its nuclear policies, with Saudi Arabia discreetly signaling that it could make up any shortfalls.

Not that Saudi Arabia is particularly fond of Iran’s theocratic Shia government, established in the wake of the overthrow of the Shah’s regime in February 1979. Saudi Arabia’s eastern provinces, where the bulk of the Kingdom’s oil reserves are, are mostly Shia Islamic adherents, a group heavily discriminated against by the austere Sunni Saudi monarchy. Accordingly, Riyadh for more than two decades has regarded indigenous protests as primarily fomented and encouraged by Iran.

In a major Wikileaks diplomatic revelation that severely embarrassed the Saudi monarchy, in April 2008 the Saudi ambassador to Washington, Adel al-Jubeir regarding Iran, urged General David Petraeus, at the time commanding U.S. forces in Iraq, to "Cut off the head of the snake," while Saudi King Abdullah reportedly "frequently exhorted the U.S. to attack Iran to put an end to its nuclear weapons program."

But, back to pipeline attacks.

Two years before King Abdullah advised Washington, on 24 February 2006, al Qaida units in Saudi Arabia attacked the Abqaiq refinery in a six-hour gun battle.

They were acting on pronouncements from Osama bin Laden, who on 16 December 2004 released an audiotape commenting about attacking regional oil installations, telling his audience, "Targeting America in Iraq in terms of economy and losses in life is a golden and unique opportunity. Do not waste it only to regret it later. One of the most important reasons that led our enemies to control our land is the theft of our oil. Do everything you can to stop the biggest plundering operation in history—the plundering of the resources of the present and future generations in collusion with the agents and the aliens.. ..Be active and prevent them from reaching the oil, and mount your operations accordingly, particularly in Iraq and the Gulf, for this is their fate."

Oil prices subsequently rose more than $2 a barrel in the aftermath of the Abqaiq assault.

Saudi Arabia subsequently and promptly brutally suppressed al Qaida militants in the Kingdom but the fact remains that Saudi oil facilities, given their extent, are largely indefensible.

So, is the Press TV report accurate? Make up your own mind – but it certainly rattled the markets for more than a few moments, and given the rising tensions in the Persian Gulf, may be only the harbinger of things to come. Bin Laden may be gone, but his ideology certainly isn’t, nor Saudi mistreatment of its citizens in its oil-rich provinces.

Nor the threat across the Persian Gulf.

Blow out Iran’s more than 4 million barrel per day exports, whether through sanctions or military attack, what next?

Do the math.

Given the market’s previous reactions to uncertainty in the Persian Gulf, then Israeli Prime Minister Binyamin Netanhayu’s current visit to Washington D.C. for discussions with President Obama, to press on Iranian nuclear issue is hardly likely to quell market concerns about the future.

By. John C.K. Daly of Oilprice.com




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