Special Briefing: The Global Oil Industry Is Suddenly in Crisis. America to the Rescue?
WHY YOU SHOULD CARE
After Saudi oil fields take a serious blow, U.S. oil producers may end up benefiting.
This is an OZY Special Briefing, an extension of the Presidential Daily Brief. The Special Briefing tells you what you need to know about an important issue, individual or story that is making news. Each one serves up an interesting selection of facts, opinions, images and videos in order to catch you up and vault you ahead.
WHAT TO KNOW
What happened? An attack over the weekend — which Saudi Arabia said was carried out by drone, though there are some doubts about that — targeted a large oil processing plant and a major oil field in the kingdom. In minutes, it cut global oil supplies by 5 percent and raised some serious geopolitical issues, first when Yemen’s Houthi rebels claimed responsibility and especially when Washington blamed Iran without presenting any proof.
Why does it matter? This has already intensified an extremely tense regional situation, with Saudi Arabia’s livelihood threatened and the possibility of military escalation involving Iran and Yemen becoming very real. On a global scale, it’s also massively disruptive to the oil industry, with crude prices surging by as much as 19 percent — the biggest jump since 1991, when Iraq invaded Kuwait in the lead-up to the Gulf War. President Donald Trump announced yesterday via Twitter that he’s authorizing the use of U.S. strategic petroleum reserves (SPR) to mitigate the crisis. But Saudi’s loss could be America’s gain: U.S. shale producers could step in to save the day and become the real beneficiaries of the situation.
HOW TO THINK ABOUT IT
Boom town. The U.S. imports only about 9 percent of its oil from Saudi Arabia. But many other countries receive more — India and Indonesia are considered particularly dependent on oil imports — and U.S. producers could benefit from that, especially if Saudi oil fields are offline long term or if another attack depresses its capacity further. In the short term, gas prices are predicted to go up stateside by as much as 24 cents per gallon.
Linchpin. After notorious Iran hawk John Bolton was booted from the Trump administration last week, talk arose about Trump and Iranian leader Hassan Rouhani potentially meeting. This attack — and U.S. Secretary of State Mike Pompeo’s subsequent accusation that Iran is the culprit — has thrown a wrench in that possible easing of tensions. Trump tweeted that the U.S. is “locked and loaded” … but is awaiting Saudi guidance.
The deciders. That tweet, which explicitly put Riyadh in the driver’s seat, has raised questions about how much control the U.S. has in the situation. With Trump already appearing to be supporting Saudi Arabia, it’s another thing altogether to be awaiting the Kingdom’s cue. Playing second fiddle to Saudi Arabia is problematic, especially given the country’s dismal record on human rights, its historic spread of extremist Wahhabi thought and its sectarian posture in the Middle East’s Shia-Sunni tensions. Saudi Arabia has asserted that this weekend’s attacks used Iranian weapons but hasn’t directly accused Iran of being behind them.
World police. As recently as this summer, Trump publicly expressed dissatisfaction with the idea of the U.S. as a global enforcer, pointing out that China and Russia don’t police the conduct of other countries. But between his willingness to jump to Saudi Arabia’s defense and a proposed mutual defense pact discussed with Israeli leader Benjamin Netanyahu over the weekend, the U.S. president could see America pulled into exactly such a role in the Middle East — an uneasy contrast with his displeasure over defense agreements, such as that with NATO.
WHAT TO READ
America Has a Huge Stash of Emergency Oil. This Is Why, by Rich Barbieri on CNN Business
“Any oil drawn from the SPR would not give an immediate boost to global supply. It has to be pulled out of storage and then sold into the marketplace of buyers and sellers, a process that could take about two weeks.”
Will the Hard Lessons of the Saudi Oil Attack Be Learned? by Clyde Russell in Reuters
“In recent months the oil market has largely discounted geopolitical risk in the Middle East and chosen to focus on the mounting worries that the U.S.-China trade dispute is tipping the global economy toward recession.”
WHAT TO WATCH
U.S. Blames Iran for Drone Attacks on Saudi Arabia’s Oil
“Houthi rebels claimed the attack, but U.S. Secretary of State Mike Pompeo blamed Iran.”
Watch on The Telegraph on YouTube:
How Will Saudi Arabia Respond to Attacks on Oil Facilities?
“It’s been described as an unprecedented attack on the world’s energy supply.”
Watch on Al Jazeera on YouTube:
WHAT TO SAY AT THE WATERCOOLER
On the rise. Even before the attacks on Saudi oil, the U.S. had been quietly upping its profile as an exporter of crude. In fact, June saw American oil exports top even Saudi Arabia’s for the very first time (though the Kingdom retook the crown for the rest of the summer). And last week, the Trump administration unveiled its plan to open 1.56 million acres of the Arctic National Wildlife Refuge for oil and gas drilling, though environmental review protocols mean it might not happen for years.