The Big One

This has potential to bring about problems that may last a generation.

What happened?

Drones, and (likely) missiles struck the two largest oil facilities in Saudi Arabia beginning fires that could be seen from satellite imagery. The facilities produce 7 and 2 million barrels of oil per day, respectively. The entire country of China consumes 13 million of barrels oil per day, and imports 9 million barrels per day for reference.

What does this mean?

It means that as of now, the world is losing out on 5% of its daily energy consumption, and 8% of its daily crude oil consumption. This is the big one.

How did this happen?

The early report is that it came from Houthi Rebels who are in a power grab in an ongoing Civil War in Yemen along Saudi Arabia’s southern border. The Houthis are backed by Iran and have been agitating the Saudi oil fields for years. The Saudis have been trying to maintain peace in Yemen and directly put down the Rebels. Early reports pondered the attack originated in Baghdad, but as of now, US intelligence shows the contraband came from Iran. Saudi Arabia has conceded they believe it came from Iran. However, they’ve yet to jump completely on board and agree with US Intelligence. They have asked for more proof.

What happens from here?

That question can be best answered in two parts.

Part one focuses on the loss of oil. The USA is largely insulated from the supply shock because we have 645 million barrels in reserves, as well as the fact that we are the world’s biggest producer of oil. Yes, there will be pain at the pump, but likely short lived. Europe, and especially Asian nations will not fare as well. China, India, and Southeast Asian nations, in particular, are not well positioned to weather this storm if the supply remains offline for many weeks. China recently imposed tariffs on US crude oil imports. In short, if the supply is brought back to full capacity in a week or two, this is likely a short-lived event. But, a longer outage could unravel some economies for a quarter or two and reduce their GDP. The only way the world faces a recession is if another supply shock happens in oil, or another market during this setback.

Part two is the potential military response. Lessons learned from 9-11 and the subsequent never-ending war remain at the front of most politicians minds. No one wants to get back into war, but this cannot be tolerated. Patience is important, and that has been expressed publicly from Beijing to Saudi Arabia to the USA. The early indication is that a coordinated attack likely occurs similar to what Iran did to the Saudis. This likely means a targeted attack on Iranian oil fields.

What does this mean?

The more frightening aspect of the attack is the style. We have seen different types of attacks that have inflicted terror and pain for decades. The majority of them attempt to tally human causalities and hope to bring economic pain and instability. Look back at the hijacking of airplanes in the 70s through 9-11. Think of the vehicle attacks by ISIS in Europe. The suicide bombings in the Middle East. The sieges that took place at resort towns in Southeast Asia and the coast of Africa. All focused on inflicting terror on Westerners in tourist hubs with the secondary focus being a reduction in tourism dollars hurting the economy.

An attack like the one we saw over the weekend was different. It was exclusively designed to meddle in foreign affairs while disrupting the world’s energy supply. The intent was to complicate international relations, and hurt the developed world economically. Attacks like these have been theorized for years. False flags is the first component. Staging an event that appears to have the fingerprints of an adversary in hopes of a nation acting irrational while thinking they’re being rational. The action results in a rapidly growing military conflict. This meddling or collusion is a huge threat. Leaders must remain vigilant but need to stay patient to ensure they avoid a decision that damns them long-term.

Finally, warfare waged technologically that doesn’t focus on the loss of human life, but instead focuses on an economic disruption, is frightening. These events have long been theorized to attack supply chains such as the global energy, or domestically target power grids and water supplies. Well, we have now had our first instance where the attacks hit a home run in the process. Why are we to think the pain stops here? The first hijacking resulted in many more. The first ISIS vehicle attack brought about countless others. The Saudis spend billions to protect their most precious asset, and within minutes the world lost over 5% of the global supply needed to provide energy to all of us. The developed world needs to be put on watch. The UN mentioned and warned of these potential attacks one year ago. This tech is already in the wrong hands. The Western World may have found its new adversary.

 

 

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