This week’s attacks on Saudi oil infrastructure caused a spike in crude oil prices, which was on a scale that hasn’t been seen for decades. The considerable damage to output levels has highlighted the vulnerability of the supply from the kingdom. The increased risk to oil supplies is proving to be a major concern for the financial markets.
Crude (NYMEX — CL1!) five-day price chart
Houthi forces have for some time been carrying out attacks within Saudi Arabia. One criticism of the Saudi regime, which is being widely shared this week, is that there appears to have been little management of the risk of these attacks escalating or developing into something more potent. This absence of thought goes some way up the command tree. It is unlikely that the repercussions for senior staff will be made public, but this must surely be an uncomfortable time for high-ranking officers of the military and ministry of the Interior.
The defence systems in place at the Abqaiq facility include American-made Patriot missiles, German-made Skyguard air defence cannons and France’s Shahine mobile anti-aircraft system, which dates from the 1980s. All systems are designed to counter a threat, which is different in nature to low flying, ground skimming drones and cruise missiles. The Patriot missiles, for example, are primarily designed for shooting down high-altitude ballistic missiles and aircraft.
The Patriot, Skygaurd and Shahine defence systems, which were exposed by the recent attack are a mismatch to the current threat and only effective to a limited extent. Their limited effectiveness holds true even when they are dealing with attacks of the type that they are actually designed to face. All military conflict brings with it significant collateral damage and the defensive systems can, at the very best, only hope to provide damage limitation.
Those who point to the considerable military spending by the kingdom would do well to note that the responsibility of defending oil infrastructure actually falls under the Ministry of Interior (MOI) not the military. The MOI has a track record of responding to low-level domestic threats and appears relatively poorly equipped and trained. Dr Jack Watling, a land warfare expert at the Royal United Services Institute, advises Gulf militaries and has experience of working in the region. Speaking with CNBC, he said:
“The Saudis have a lot of sophisticated air defence equipment. Given their general conduct of operations in Yemen, it is highly unlikely that their soldiers know how to use it.”
It’s also worth noting the scale of the task. The oil refineries have been described as a giant Christmas tree. Lit up in an otherwise dark desert plain, the plants are highly visible and cover a large area, which means drones and missiles using relatively simple technology can locate their target.
Drone defences are broken down into two formats, kinetic and electronic. The kinetic systems operate in the same way as the Patriot, Skyguard and Shahine weaponry but are designed to defend attacks for smaller, lower-flying missiles and drones. Weapons such as the US Phalanx, Germany’s MANTIS and Israeli Iron Dome are kinetic systems designed to intercept mortar and artillery shells.
The electronic approach is further broken down into methods labelled as Jamming and Spoofing. Jamming systems transmit a meaningless signal that overpowers the real GPS signal and Spoofing systems transmit a fake signal that overrides at least part of the real GPS signal so that the targeted missile or drone loses track of its real location.
Switching to either or both of these systems would represent an upgrade but will obviously take some time.
Those watching the financial markets and the oil price, in particular, may be wondering what this all means from a trading and investment point of view. Anyone predicting future successful attacks would have to then consider what form of subsequent retaliation might take place? Does the conflict become the first ‘Drone War’ where rival states damage the infrastructure of their rivals? Would any conflict escalate into a conventional war and how many countries from outside the region may be drawn into it?
The first thing to note is that the perpetrators will likely consider the attacks to have been an almost unqualified success. Taking 50% of an enemy’s oil production off-line is some achievement. This can only encourage more attacks.
The second and more intriguing detail is the relatively muted response by Saudi Arabia and its partners, including the USA. Not only has there been an absence of military action, but even rhetoric is in short supply. Evidence from the attacks has been displayed, and fingers have been pointed at Iran, but given the deep loathing between the Saudi and Iranian regimes, the inaction must be frustrating for those wanting to show less restraint.
The delayed response suggests the Saudi infrastructure is incredibly vulnerable. Any escalation of the situation at this time would likely see substantial collateral damage to refineries and pipelines. If there is to be a military response, it would make sense for this to happen after any upgrade to Saudi defences has been put in place.
The question might not be ‘will’ there be a military response to the recent attack, but instead ‘when’ will it be?