The West Asian Crisis and Oil Price Expectations – Diligent IAS 03/10/2019 – Posted in: RSTV

WEST ASIA CRISIS

 

In News:

  • Drone strikes targeted Saudi Arabia’s facilities that reduced its all production by 5.7% million barrels a day.

 

West Asia is once again gripped by tensions between the two big powers of the region Iran and Saudi Arabia. Recent drone strikes targeted Saudi Arabia’s facilities that reduced its production by 5.7% million barrels a day. While this has risen few years of an escalation in the armed conflict in the region.

 

The situation has created huge challenges for not only India but other all big importers like Korea, Japan, and China. Crude oil has not only become expensive but supplies for Indian refineries have also become uncertain. Even as prediction, Saudi Arabia is expected to take several weeks to return to normal. India has stepped up to efforts to limit the damage. The government has spoken to several supplier countries to ensure additional supplies. As the 3rd largest consumer of oil in the world, India tends to loose from the tension between Saudi Arabia and Iran.

 

Tensions in the Middle East are escalating with the USA saying it backs Saudi Arabia’s right to defend itself. In the wake of the last attack, countries oil industry which it describes it as ‘Act of War.’ The Saudi’s on their part displayed missiles and a drone at a media conference claiming it was irrefutable evidence of Iran’s involvement in the attack. However Iran continues to deny involvement in the attack and warned that it will retaliate immediately if it is targeted.

 

Ten drones attacked the world’s largest oil processing facility in Saudi Arabia destroying two oil plants in the kingdom that accounts for 5% of daily global oil supply. This triggered the deepest petroleum market price search in 30 years and stocked fears for the global economy. The drone strikes have also escalated tensions in the region between US and Iran.

 

  • The attack on two Saudi Arabia’s oil facilities knocked out over half of the country’s production.
  • The attack cut 5.7 million barrels per day of Saudi Crude output which accounts for over 5% of the world’s supply and 50% for Saudi supply
  • The attack also constrained Saudi Arabia’s ability to use more than 2 million BPD of oil production capacity it held for emergencies
  • For years Saudi Arabia has been the only major oil-producing country that has kept significant spare capacity that it could start up quickly to compensate for any deficiency supply caused by war or any natural disaster
  • As the Global markets opened this Monday, the international benchmark Brent crude jumped nearly 20% to almost 72 dollars per barrel; the highest ever surge in the past 30 years
  • Experts have predicted that oil prices could keep rising if Saudi Arabia fails to repair the damage quickly
  • Aramco has said it would restore its lost production by the end of this month and brings its output capacity back to 12 million barrels per day by the end of November
  • However, this means that Saudi Arabia will have no spare capacity for at least the next two and a half months and therefore no way to absorb any further shocks
  • As a result, the International Energy Agency which coordinates energy policies of industrialised nations has advised all of its members to keep the equivalence of 90 days of net oil import in storage.

 

While oil prices continue to fluctuate since shock flange, a cap on Saudi’s oil exports for a few weeks could disrupt India’s oil requirements.

 

Saudi Arabia is India’s second-largest supplier of crude oil and cooking gas as the country import almost 80% of its total consumption of 211.6 million tonnes of oil from Saudi Arabia. The Saudi oil crisis pushed India’s petrol and diesel prices to its high level since this year’s budget. However, oil minister Dharmendra Pradhan said India is keeping a close watch over the development and added that India’s oil supply will not be disrupted due to the strikes. Economists have also warned that the global economy could suffer as more expensive oil means higher transport costs leading to lower consumer’s pending. The drone strikes have also escalated tensions in the region across the world while Iran bagged to do the rebels in Yemen claimed responsibility for the attack. The US has accused Iran of playing a key role.

 

Saudi Arabia and Iran, the two powerful neighbours have been looked in the struggle for decades. Relations between both nations have been stained over several geopolitical issues such as the interpretations of Islam, aspirations for the leadership of the Islamic world oil export policy and relations with the United States and other western countries.

 

Tensions between Saudi Arabia and Iran have had a long history. Both have been rivals for centuries. Recent events have only served to intensify that conflict. As the two Muslim neighbouring countries Iran and Saudi Arabia occupy an important position in the Middle Eastern region. Both countries are logged in the fair struggles for regional dominance. Iran is largely Shea Muslim while Saudi Arabia sees itself as the leading Sunni Muslim power.

 

Historically Saudi Arabia is home to the birthplace of Islam and as such the leader of the Muslim world. But this was challenged in 1979 by the Islamic revolution in Iran that created a new form of state in the region. One that had an explicit goal of exporting this model beyond its own borders.

 

In the past 15 years, the differences between Saudi Arabia and Iran have been sharpened by a series of events. Tensions deepen in the 1980s when Saudi Arabia supported Iraq dictator Saddam Husain in the Iraq-Iran War. According to the British researcher after the 1919 one gulf war that significantly weekend Iraq, Saudi Arabia and Iran became the two main regional powers. The US-led invasions of Iraq in 2003 made Saudi Arabia nervous. The fall of Saddam Husain cleared the way for the rise of Iraq’s majority Sheaites who were kept on the margins by Husain’s Sunni led regime. Iraq’s new government strongly reflected the new Shea’s powers during the act of spring in 2011 Saudi Arabia and Iran flex their muscles often backing opponents in countries unrest. Both countries also formed alliances with countries that shared their version of Islam. Iran and Saudi Arabia exploited these evils to expand their influence notably in Seria, Bahrain, and Yemen.

 

Iran and Saudi Arabia are not fighting directly but they are engaged in a variety of proxy wars around the region. Apart from this, the 2015 nuclear deal between Iran and six world powers was strongly opposed by Riyadh that feared an end to Iran’s international isolation. As a result, Saudi Arabia has sort closer ties with Israel, a major enemy of Iran. In 2016, things took a turn when Saudi Arabia executed a popular Shea itclaric.

 

Iranians rioted in Tehran and attacked the Saudi embassy leading to the suspension of diplomatic relations. Tensions escalated further with the recent Missile attacks that Riyadh claims initiated by Iran. Also, the Saudi Arabia’s leadership increasingly sees Iran as an existential threat. Its crown prince has signaled the intention of his country whatever the action is necessary and wherever necessarily to confront Tehran’s raising influence. These latest attacks on Saudi Arabia oil installations seems to however suggest that Iran is also changing its strategy to target its vulnerability.

 

As a matter of policy, India has used its non-aligned credentials on the world stage to refrain from taking size in any national and international, or regional conflict. India has sought to maintain good relations with both Iran and Saudi Arabia by being a passive player in the region. India is also keen on the resolution on the Iran and Saudi Arabia conflict for various reasons. One of them is impact on the conflict on the millions of expiated Indians who are living in the region and who will directly get affected in the case of war between the two countries. Also, India risks encoring a huge financial loss amounting to billions of dollars in the area of oil and gas supplies. And, finally India’s own stakes in both countries that could suffer as a result of the conflict. Bilateral relations between the countries are getting stronger with India’s rise as an emerging power in the international system.

 

 

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