Global oil prices jolted after the September 14 attack on Saudi oil facilities, reigniting geopolitical tensions with Iran that could threaten the global economy.
Eighteen explosive-laden drones slammed into facilities in Abqaiq, and three of seven cruise missiles struck Khurais, an attack the Saudi economy was ill-prepared to handle. The Houthi rebel movement in neighbouring Yemen claimed responsibility, however, officials in the United States and Saudi Arabia accused the Iranian Government, which denied any involvement.
The consequences of these events have rippled through the Western world, as oil prices spiked up to US$72 (AUD$107.41), with half of Saudi Arabian oil capabilities coming to a halt.
While President Trump is known for espousing isolationist tendencies, the American response caused different interpretations with regards to American positioning in the Middle East.
While campaigning on a platform of no “intervention and chaos” in Syria, Trump proceeded with airstrikes in Somalia and Afghanistan and committed 1,800 troops to Saudi Arabia. The lacklustre response by the Trump Administration to Iranian strikes on Saudi oil facilities signifies the growing trend of Trump’s unwillingness to commit United States’ resources to defend allies in the region.
Analysts have indicated Trump’s tarry response in refusing to sign off military action against Iran, albeit delivering a fiery exchange on Twitter, prompted Saudi Arabia to seek its own resolution. While Iran has made it clear there will be no bilateral talks between the United States and Iran until all sanctions are lifted, Iran’s appeal to Saudi Arabia adopted an ameliorating tone, “We are each other’s neighbours, not America.” While it is unlikely that bilateral relations between the United States and Saudi Arabia will significantly change, recent events relating to the murder of Jamal Khashoggi, ongoing war in Yemen and the legacy of 9/11 looms in the American conscience, which may become the impetus for a re-examination of the relationship.
Pakistani and Iraqi officials have revealed the request made by Saudi crown prince Salman, to facilitate private discussions with Iran to de-escalate the situation. This was welcomed by Iran amid growing revelations that private talks between the two geopolitical rivals have been initiated – a promising sign that the region desperately yearns.
However, the prospects remain bleak as tensions and distrust between the two countries are intense, with the worst humanitarian disaster perpetuated by both regimes in Yemen. Saudi’s willingness to negotiate with Iran indirectly occurred due to the failure of the United States to exert leadership in the region. While this can be indicative of the beginning of a new direction in the Middle East, some have sought to contextualise the situation.
The absence of John Bolton, Trump’s hawkish anti-Iran former adviser and uncertainty surrounding Israeli Prime Minister Netanyahu’s political future, offers an alternative explanation to US reluctance to move against Iran. Nonetheless, talks between Iran and Saudi Arabia are a blatant departure from crown prince Salman’s initial rhetoric, likening Iranian leadership to the Nazi regime, which offers a glimpse of hope.
The increase in global oil prices following the attack on Saudi’s oil facilities highlights the volatility of Middle Eastern economies. The diversification of the economy remains at the forefront of Saudi prince Salman’s agenda and neighbouring Arab countries are taking note.
Youth unemployment in the Middle Eastern region remains one of the highest in the world, reaching over 30 per cent in 2017, the impetus for civil unrest and mass protest, epitomised in the proportion of youth during the Arab Spring. In order the address youth unemployment, the World Bank encourages the development of SMEs, which play a central role in mitigating youth unemployment. But this requires reform in the financial sector which lacks a coherent regulatory framework.
Failure to address economic concerns risks civil unrest as thousands have taken to the streets of Cairo demanding the fall of the Sisi regime, citing deteriorating economic conditions. There has been a five per cent increase in the number of Egyptians living below the poverty line since 2015, with a sixty per cent rise in inflation and stagnant income levels.
Far from being unique to Egypt, unrest is raveling throughout the Middle East as large demonstrations have erupted in Lebanon due to corruption in the economy halting growth.
Lebanon is ranked among the highest nations in Transparency International’s corruption index, recently vindicated by Saad Hariri’s recent scandal in which the Lebanese Prime Minister transferred $16 million to a playboy model in 2013, as the Lebanese government attempts to unblock $11 billion in international aid for economic reforms.
The recent attacks on Saudi Arabia spiked global oil prices and increased concerns of far-reaching economic consequences. Recent revelations of indirect talks between the two archrivals denote positive signs of a diplomatic resolution, amid a vacuum opened by the United States’ reluctance to authorise military action against Iran.
The broader implications of the Saudi oil attack illustrate the importance of diversifying Middle Eastern economies, which are predicated too heavily on oil industries. Not only will this address rising unemployment and improve living standards for ordinary citizens, but a strong, diversified economy ensures stability in a region constantly engrossed in civil unrest.
Ibrahim Taha is the Middle East and North African Fellow for Young Australians in International Affairs.