SAUDI SHOWDOWN WITH IRAN NEARS DANGER POINT FOR WORLD OIL MARKETS / THE TELEGRAPH

Saudi showdown with Iran nears danger point for world oil markets

The world's densest network of oil pipelines runs through Saudi Arabia's Shia heartland. It is now the epicentre of a deadly struggle

By Ambrose Evans-Pritchard

Most of Saudi Arabia’s 10.3m barrels a day of oil output passes through the Shia heartland, now seething with fury Photo: Gamma-Rapho

 

 

The Persian Gulf has become a strategic tinderbox.

 

Saudi Arabia’s drastic decision to behead the Shia cleric Nimr al-Nimr marks a point of no return in the bitter Sunni-Shia conflict engulfing the region. It is a dangerous escalation in the Kingdom's struggle with Iran for regional hegemony.
 

Iran’s Revolutionary Guard has vowed swift and harsh revenge, promising to bring down the Saudi dynasty in short order to avenge this “medieval act of savagery”.
 

Brent crude jumped to a three-week high of $38.91 a barrel as traders began to price in the first flickers of political risk. Roughly a fifth of global oil supply passes through the Strait of Hormuz, where tankers would in extremis have to run the gauntlet past Iranian warships.
 

Brent crude jumped to a three-week high of $38.91 a barrel  Photo: AP

Helima Croft, from RBC Capital Markets, said investors have yet to wake up to the full danger.

“If we’d had scenes five years ago of the Saudi embassy in flames in Tehran there would have been a big move in the price, but right now there is so much over-supply and people just seem to think this is all noise. They have yet to get their heads around what can go wrong,” she said.

The risk for the Saudis is that the execution of Sheikh Nimr for what is essentially peaceful political protest ignites a long-simmering revolt by an aggrieved Shia minority, who make up 15pc of the population and are sitting on top of the giant Saudi oil fields in the Eastern Province. There were violent protests in the Sheikh’s home-town of Qatif on Monday, with at least one protestor shot dead by police.

Ali al-Ahmed, director of the Institute for Gulf Affairs in Washington, said Qatif is the nerve-centre of the Saudi petroleum industry, the so-called “Grand Central Station” where 12 pipelines come close together to supply the huge oil terminals at Ras Tanura and Dharan.

These pipelines are close to major roads and towns, making them hard to police against “hit and run” attacks.



Most of Saudi Arabia’s 10.3m barrels a day (b/d) of output passes through the Shia heartland, now seething with fury. While global crude stocks are at record levels, there is no spare capacity outside Saudi Arabia. A disruption lasting more than a few days could cause oil prices to spike violently – possibly to $200 or more – triggering a worldwide economic crisis.

Mr al-Ahmed said the mass executions have set in motion a fateful chain of events that nobody can now control. “It will likely trigger a bloody civil war that won’t end until the Saudi monarchy ceases to exist. This cycle of violence will not spare anyone or anything, including the coveted oil installations,” he said.

Bahrain and Sudan have already followed Saudi Arabia’s move to cut off diplomatic relations with Iran, and the United Arab Emirates has recalled its ambassador. The lines of cleavage are painfully clear in a Middle East already convulsed by four wars, and sliding closer to all-out conflagration.

Iran and Saudi Arabia severed ties from 1989 to 1992 but that was another era, when the US was at the height of its power, and willing to use it after the huge military build-up of the Reagan administration. There was then no civil war in Syria or Yemen.

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The Kingdom is more vulnerable today as it bites the bullet on austerity, slashing subsidies in an assault on the cradle-to grave welfare net. Crumbling oil revenues have forced it to scrap the social contract that has kept a lid on dissent for decades.

While the Saudi regime tried to muddy the waters by beheading Sheikh Nimr along with Sunni al-Qaeda terrorists, his offence was “inciting sectarian strife”. Internal US Wikileaks cables show that the US embassy never regarded him as a terrorist.

He emerged as the spiritual leader of the Arab Spring protests in 2011, and although he taunted the royal family in hot language, he always advocated non-violent resistance.

The US and the EU told Riyadh repeatedly that his execution would be a grave error: the Shia world warned it would be an act of war. The decision to go ahead anyway bears the hallmarks of Mohammad bin Salman, the headstrong 30-year-old deputy crown prince who has amassed all power in the Kingdom and listens to nobody.



The Saudis have a formidable security apparatus, with a force of 30,000 guarding the oil infrastructure. But there is a high risk of infiltration by terrorist groups of various stripes. One suicide bomber caught in a pipeline attack in 2006 turned out to be a close relative of the head of the Wahhabi religious police.
 
Quite apart from the Shia question, an estimated 6,000 Saudis have been recruited by al-Qaeda.

At least 3,000 have fought with Isis, which views the Saudi royal family as “apostate usurpers” and is waging its own terrorist war against the dynasty. An al-Qaeda cell arrested in 2007 was plotting to hijack civilian airliners and crash them into to the oil facilities at Ras Tanura.

Iran tends to operate through proxies. It relied on the Saudi Shia Hezbollah to kill 19 American air force personnel in the Khobar Towers bombing in 1996.

Intelligence experts say Iran is likely to pursue a strategy of attrition, bleeding the Saudis in Yemen, where they are badly over-extended in a bloody stalemate that is costing an alleged $200m a day and risks becoming the Kingdom’s “Vietnam War”.

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Bahraini protester holds up a picture of Shia cleric Sheikh Nimr al-Nimr


Iran has already supplied Yemen’s Shia-oriented Houthi rebels with Scud missiles. Houthi forces have been making increasingly bold forays into Saudi Arabia’s southwest borderlands, another area of Shia loyalties that risks splintering off.

The Iranians certainly have the technical means to inflict massive damage on Saudi infrastructure. James Woolsey, the former head of the US Central Intelligence Agency, said they have developed electromagnetic pulse (EMP) weaponry that can evade normal radar defences and destroy power systems.

They can launch orbiting satellites or low-tech variants floated on balloons launched from freighter vessels. “If they detonate one of these 30km in the atmosphere over a country, they can knock out the electricity grid,” he told The Telegraph.  

General Keith Alexander, the former chief of the US National Security Agency, says Iran has one of the five most sophisticated cyber-warfare teams in the world, as it showed in August 2012 with a taunting virus attack on Saudi state-owned oil giant Aramco. Hackers erased most of the company's emails and documents, leaving an image of a burning American flag on the computer system as their calling card.

The cybersecurity firm Cylance Corp alleged in a report that Iran's cyber warriors have hacked into the email systems of the US Navy, and into critical computer systems in Britain, France and Germany.

A serious attack on Saudi Arabia would be a dangerous gambit for Iran, spelling the certain end to its rapprochement with the West and to its hopes for an end to sanctions.

Yet it cannot be ruled out. There are powerful factions within the Iranian Revolutionary Guard that would welcome any chance to sabotage the nuclear deal. Saudi Arabia has just given them the perfect pretext.