For decades, any list of global geopolitical risks will have had “attack on Saudi oil facilities” near the top. Now it has happened.
The good news is that the world is less vulnerable to an oil price shock than it was in the 1970s, when the Opec oil embargo created turmoil in the global economy. It is also true that all of the major powers involved — Saudi Arabia, Iran and the US — have strong incentives to avoid an all-out conflict.
The bad news, however, is that the key decision makers in this particular drama — Donald Trump, the US president, Mohammed bin Salman, the crown prince of Saudi Arabia, and the leadership of Iran — are all headstrong and prone to taking risks.
It is likely that, if the US sticks to its claim that Iran was behind the attack, it will stage a military response. If and when that happens, there are no guarantees that the conflict will not escalate further. Given that the weekend attacks have already caused a 20 per cent spike in the price of oil, the potential for further mayhem on the markets is clear.
The importance of Gulf oil to the wider world has been imprinted on the collective memory of the west ever since Opec imposed an embargo in 1973. It caused oil prices to quadruple, doing serious damage to markets and the world economy. The lesson learnt — that stability of Gulf oil supplies is crucial to the world economy — helped drive the west’s ferocious response to Iraq’s invasion of Kuwait in 1990.
Almost 30 years after the first Gulf war, western economies are considerably less vulnerable than they were to disruption of oil supplies from the region. The rise of shale-oil production in the US means that American oil imports from Saudi Arabia are now just one-third of the level they were in 2003.
But less vulnerable does not mean invulnerable. There is still a global price for oil; and Saudi Arabia remains the world’s leading oil exporter. So if Saudi supply is disrupted, consumers and industries across the world will quickly feel the impact.
The vulnerability of Saudi oil facilities to attack has also just been demonstrated. If the attack was carried out by drones, as first reported, it is a shocking insight into how open advanced industrial facilities are to assault by cheap and widely available new technologies. The Saudis also have cause to worry about the safety of their water supplies. The kingdom gets around half of its drinking water from desalination facilities, one of which was targeted in a rocket attack last June.
Awareness of their vulnerability to further attack should make the Saudis wary of escalating the conflict. The kingdom’s social and political stability is also a factor; the ruling family has long fretted about the threat of internal unrest from their large Shia minority.
Despite massive military spending, Saudi Arabia has also been unable to prevail in a brutal war in Yemen — which is a much less intimidating proposition than Iran. So while the Saudis have been ardent supporters of the Trump administration’s policy of “maximum pressure” on Iran, they have minimal interest in an actual war.
Iran also has a strong interest in avoiding an all-out conflict, which would expose the country to the firepower of their well-armed Gulf neighbours and, above all, to attack from the US. In recent months, the Iranians have staged an array of provocations including seizing western oil tankers in the Gulf and (probably) encouraging its Houthi allies in Yemen to hit soft targets in Saudi Arabia.
But this kind of Iranian brinkmanship has been interpreted by most western Iran-watchers as an effort to demonstrate that Tehran is not powerless in the face of sanctions. The Iranians were also seen as attempting to gain leverage ahead of a possible resumption of talks with the US.
As for Mr Trump, despite his bellicose rhetoric, the US president’s most recent actions have shown that he is keen to make a diplomatic breakthrough with Iran. One important reason that Mr Trump fired John Bolton last week is that his former national security adviser was too hawkish and opposed suggestions that American sanctions on Iran should be eased in the interests of getting talks started.
So all sides have economic and strategic interests to step back from the brink. Unfortunately, all sides have also shown themselves to be erratic, emotional and prone to miscalculation.
Saudi Arabia’s Prince Mohammed has demonstrated his own propensity for violent miscalculation through his conduct of the Yemen war and by apparently authorising the gruesome murder of the journalist, Jamal Khashoggi. As for the Iranians, if they did indeed authorise an attack on Saudi oil facilities they have taken an enormous risk, with consequences they cannot control.
Mr Trump’s volatility has been amply demonstrated. The US president’s willingness to rip up the Iran nuclear deal — but then sack his most hawkish adviser on Iran — also does not inspire confidence that he knows what he is doing. It also means that the White House is entering what could be the biggest security crisis of the Trump years, with no national security adviser in place.
Ever since Mr Trump’s election in 2016, nervous observers have wondered how the president would behave in a real foreign policy crisis. We are about to find out.