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New Attacks On Saudi Oil Infrastructure Renew Fears Of Gulf Instability

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An attack on a Saudi oil tanker by an explosive-laden boat in the port of Jeddah on Monday has renewed concerns over the geopolitical stability of the Persian Gulf and pushed Brent futures above $50 per barrel. In late November, Houthi rebels claimed responsibility for a cruise missile strike on the same port, which badly damaged a Saudi Aramco storage facility. Two days later a tanker was hit in the Saudi oil terminal of Shuqaic. The fingerprints and the tradecraft of the strikes are eerily similar to a slew in 2019 which are believed to have been perpetrated by Iran and its proxies.

The attack comes at a time of rising tensions between Iran and Saudi Arabia, both members of the OPEC cartel. While OPEC as a united force has considerable sway over global oil prices, internal rivalries and national self-interest have seen regular attempts by member states to subvert or escape the cartel’s production regulations. Cash-starved Iran has historically sought ways to bump up oil prices and increase its own exports even amidst mandated supply cuts.

Attacks on Saudi oil assets achieve multiple goals. First, they drive up oil prices while hurting the Kingdom — Iran’s top geopolitical competitor. The attacks also act as “send-off” presents by the Iranian theocratic regime to the departing President Donald Trump, and a threat to President-elect Joe Biden, who promised to return to The Joint Comprehensive Plan of Action (JCPOA), the Iran nuclear deal, that he helped to craft as a senior leader of the Obama Administration. Yet, the Biden Administration policy towards Iran may allow it to increase oil sales and drive oil prices down in 2021 without a quid pro quo on the security front.

Iran’s aggressive security posture in the region clashes with policy efforts to improve their position in the petroleum trade. With plans to roughly double crude oil production in 2021 in response to the economic damage inflicted by American sanctions, Tehran is not willing to offer concessions that would contribute to peace and calm in the Gulf and beyond.

With the economy nosediving amidst the coronavirus pandemic, Iran has seen record inflation and a collapse in the value of the rial. Iran possesses approximately one-tenth of the planet’s oil reserves, and believes the potential easing of sanctions by President-elect Joe Biden could allow them to recapture a share of the market and in doing so rebuild their economy and bankroll its long-term support of terrorism, violent Islamist extremism, and an ambitious nuclear and ballistic missile program.

Currency-strapped Tehran is once again about to clash with OPEC+, which has acted to restrain the oil supply to maintain high prices for sellers, something which Iran has been hesitant to sign onto given its dire economic straits. Should sanctions be lifted, Iran’s decision to increase oil sales could cause harm to the economic wellbeing of its fellow OPEC+ members, sending prices plummeting.

President-Elect Biden has signaled his desire to resume the Obama-era Iranian nuclear treaty abrogated by President Trump in 2018, but re-entry might not be easy: Iran refused to accept preconditions to restart talks, refusing a discussion that necessarily must broaden into regional, military/nuclear weapons/ballistic missiles, anti-terror, and human rights issues. On December 12th, Iran executed dissident journalist Rouhollah Zam, who was likely kidnapped, charging him with the nebulous “corruption on earth” and espionage on behalf of the western powers.

President Trump’s withdrawal from the original nuclear deal and tightening of sanctions has caused considerable harm to the Iranian regime. Overall production has halved to 1.9 million barrels per day, with exports falling more dramatically from 2.6 million barrels daily in 2017 to just 133,000 in 2020.

By far, Iran’s largest customer is China. Iranian Oil Minister Bijan Zangeneh expressed faith in the country’s capacity to expand exports to as high as 2.3 million barrels per day should American sanctions on the energy sector be eased, sufficient to cover roughly one-quarter of the nation’s annual budget.

The relaxing of sanctions and subsequent increase in Iranian exports would throw a wrench into OPEC’s mid-pandemic strategy of production cuts. Iran has been exempt from the cartel’s demanded production cuts to compensate for the economic weight of sanctions. Cessation of those sanctions would allow Iran to recapture a far larger share of the market and send prices plummeting.

Already OPEC has shown frustration and hostility toward fellow member Libya for recently increasing exports. An Iranian resurgence would threaten the financial prosperity of other OPEC+ members, notably American ally Saudi Arabia in what is known as the “prisoner’s dilemma.” The cartel is potentially at its strongest when all members act together, but incentives to cheat are high and often times the rational choice for participants. In May of 2019, Bijan Zangeneh alluded to Saudi hostility toward other oil producers and warned about a potential death knell for OPEC.

Israel represents another strong obstacle to Iranian ambitions. Prime Minister Benjamin Netanyahu has publicly opposed a return to the Obama-era agreement and jointly advocated for “maximum pressure” alongside Secretary of State Mike Pompeo. Netanyahu and Pompeo’s “12 demands” advocate for harsh restrictions including uranium enrichment; more intrusive IAEA inspection regime; the end to the ballistic missile program; and cessation of terrorism sponsorship, including the Lebanese and Iraqi Hezbollah, the Houthis and a slew of other organizations. President-elect Biden has demonstrated a willingness to distance himself from his predecessor’s foreign policy while acknowledging the warranted concerns of a key regional ally.

Recognizing the economic dangers of eased sanctions on Iran and the state’s continued sponsorship of terror organizations, the U.S. should demonstrate a willingness to take a strong stance in renegotiation of JCPOA. The lessons of the failed North Korean negotiations should be kept in mind.

In a renewed JCPOA push, President-elect Biden should not hesitate to end Tehran’s support of terror groups, seek the termination of its missile program, and require U.S.-led no-warning inspections into any of Iran’s nuclear power facilities. Anything less would bolster Iran’s position over those who have proven willing to play ball with the international community.

With assistance from Hayley Arlin

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