“The point is, high oil price isn’t such a bad thing for the US shale industry. Hydraulic fracturing, or fracking, opened up more natural gas for production in the US, but the technology added costs. Shale oil costs more than conventional oil to extract, ranging from a cost-per-barrel of production from as low as $40 to over $90 a barrel. Now, Saudi Arabia can produce at under $10 per barrel, while worldwide costs range from $30 to $40 a barrel.”
The geopolitical faultlines of the drone attack on the Saudi Aramco plants on Saturday [14 September] are surfacing. These are early days but three broad trends have appeared. One, Saudi investigators have begun pointing finger at Iran, which is certain to exacerbate regional tensions. Two, the all-important US response to the event is unfolding on multiple templates, each interconnected but intrinsic at the same time in relations to US interests. Three, the extreme volatility in the world oil market and its likely impact on the world economy makes this an international issue.
The Saudi Foreign Ministry statement on Monday is notable for its affirmation that the “weapons used in the attack were Iranian weapons. Investigations are still ongoing to determine the source of the attack”; that the primary target of this attack is global energy supplies; that “this attack is in line with the previous attacks against Saudi Aramco pumping stations using Iranian weapons”; that Riyadh “will invite UN and International experts to view the situation on the ground and to participate in the investigations”; and, fifthly, that Saudi Arabia has the “capability and resolve to defend its land and people, and to forcefully respond to these aggressions.”
Riyadh’s lingering dilemma is that it is yet to substantiate Iran’s culpability and is looking for the proverbial needle in the haystack. The keenness to involve the UN in the investigations suggests that Saudis are reasonably confident of a definitive conclusion that helps isolate Iran completely in the world arena.
The Saudi Foreign Ministry statement is based on the initial finding by the investigators that “all operational evidences and indication as well as the weapons used… are Iranian weapons.” Importantly, the Joint Coalition Forces Command in Riyadh has alleged that “the terrorist attack was not launched from Yemeni territory as the Houthi militias claimed, whereas these militias are mere tools to implement the agenda of the Iranian Revolutionary Guards and its terrorist regime.”
It implies that the Saudi authorities have much more materials than they are willing to disclose. There is also a pointed reference to the Iranian Revolutionary Guards Corps.
On Monday, the US Defence Secretary Mark Esper telephoned the Saudi Crown Prince Mohammed bin Salman (MbS). The Saudi press release said Esper “affirmed his country’s full support for the Kingdom” and conveyed that Washington is “currently studying all possible options in addressing the attacks.” Esper commended the Saudi role in the US efforts to “confront he Iranian danger which threatens the maritime navigation.” But neither Esper or MbS accused Iran.
It is against the above backdrop that President Trump waded into the topic on Monday at a press conference in the White House. (Trump spoke in the presence of the visiting Crown Prince of Bahrain.) The transcript is here. The main takeaways are as follows:
One, the US is inclined toward an estimation that Iran is responsible for Saturday’s attacks. But the Saudi investigation hasn’t yet come up with definitive evidence. The US does not propose to attack Iran.
Two, Saudi Arabia is a key ally, but the US cannot underwrite Saudi defence. While it can offer protection to Saudi Arabia, Riyadh will have to bankroll the effort. Top US officials will be traveling to Riyadh “at some point” for consultations.
Clearly, the Saudis “are going to have a lot of involvement in this if we [US] decide to do something. They’ll be very much involved, and that includes payment. And they understand that fully.”
Plainly put, “Saudis want very much for us to protect them, but I say, well, we have to work. That was an attack on Saudi Arabia, and that wasn’t an attack on us. But we would certainly help them… we will work something out with them. But they also know that – you know, I’m not looking to get into new conflict, but sometimes you have to.”
Four, Trump has an eye on Tehran, too. A meeting between Trump and Iranian President Hassan Rouhani in New York during the UNGA is not to be expected but the scope for diplomacy has not been “exhausted”. The Iranians want to make a deal “but they’d like to do it on certain terms and conditions, and we won’t do that. But at some point, it will work out, in my opinion.”
Depending on the actual finding by Saudi investigators, the US may toughen its stance toward Iran, but that depends on what Riyadh comes up with. “There’s plenty of time. You know, there’s no rush. We’ll all be here a long time. There’s no rush.”
The stunning thing is, Trump claims he is in no tearing hurry. Significantly, while addressing a group of seminary students in Tehran on Tuesday, Iran’s Supreme Leader Ali Khamenei seemed to acknowledge Trump’s remarks the previous day.
In a relatively conciliatory tone, Khamenei said: “If the US retracts its words, repents and returns to the nuclear accord that it has violated, it can then take part in sessions of other signatories to the deal and hold talks with Iran… Otherwise, no talks at any level will be held between Iranian and American authorities, neither in New York nor elsewhere.”
Equally, Trump admitted that he isn’t unduly perturbed about cascading oil price.
Separately, in a tweet Monday, Trump noted: “Because we have done so well with Energy over the last few years (thank you, Mr President!), we are a net Energy Exporter, & now the Number One Energy Producer in the World. We don’t need Middle Eastern Oil & Gas, & in fact have very few tankers there, but will help our Allies!”
The point is, high oil price isn’t such a bad thing for the US shale industry. Hydraulic fracturing, or fracking, opened up more natural gas for production in the US, but the technology added costs. Shale oil costs more than conventional oil to extract, ranging from a cost-per-barrel of production from as low as $40 to over $90 a barrel.
Now, Saudi Arabia can produce at under $10 per barrel, while worldwide costs range from $30 to $40 a barrel. The US shale industry becomes a wild card in the Saudi Aramco calculus. •
* M. K. Bhadrakumar has worked for about three decades as a career diplomat in the service of the Indian Foreign Ministry. He has served as ambassador to the former Soviet Union, Pakistan, Iran, Afghanistan, South Korea, Sri Lanka, Germany and Turkey. His texts mainly deal with Indian foreign policy and events in the Middle East, Eurasia, Central Asia, South Asia and Pacific Asia. His blog is called “Indian Punchline”.
Source: indianpunchline.com from 17 September 2019
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