By Eric Vandenbroeck 16 Sept. 2019

This evening newspapers raised alarming concerns about the potential of rising oil prices... So what happened?

In a matter of minutes on Saturday, two major oil facilities in Saudi Arabia sustained crippling damage from drones, and perhaps cruise missiles as well. With the flow of five per cent of the world’s oil instantly halted, global oil prices have gyrated. As economists calculate the impact on the world economy, and arguments rage over who was responsible, it is worth making sure we understand what this reckless assault is telling us.

This is no longer a local conflict that developed into a proxy war; it is an international struggle for prestige and influence in a country. In fact, many agree that the key to stopping attacks on Saudi Arabia lies In halting the war In Yemen

Much also will depend on whether US intelligence agencies, working with the Saudis, can uncover conclusive evidence pointing to the source of the attack.

Iran dismissed the U.S. allegations on Sunday, calling them “pointless,” while Islamic Revolutionary Guard Corps commanders threatened missile attacks on U.S. military assets in the region. Iran has come under increasing pressure this year as U.S. sanctions on its oil sector have slashed Tehran’s exports from about 2.5 million barrels a day to close to zero, hammering its economy and driving Iran into breaching several terms of the 2015 nuclear accord.

It is difficult to assess what Trump's red line is with Iran; he is averse to foreign entanglements, regarding them as expensive distractions from putting "America First." John Bolton, perhaps his most hawkish adviser on Iran, has just left the White House. The extraordinary diversity of top advisers, in their experience, temperament and ideology makes reading the administration's intentions a hazardous occupation.

The United States' Gulf allies want assurances that America has their back; so far, a summer of escalation, either by Iran or its proxies has not generated a response beyond a tightening of US sanctions.

It's equally a challenge to discern Iran's tactics. The hardliners in the IRGC, more moderate elements in Rouhani's government and the religious leadership are all part of an impenetrable decision-making process. Some analysts wonder whether the IRGC carried out this operation to ensure any chance of dialogue would be quashed; others believe that such a drastic escalation would have required consensus in Tehran.

A military response to the attacks would certainly disrupt and maybe even destroy the painstaking work, led by France, to bring Iran back into compliance with the nuclear deal in return for relief from crippling US sanctions. The French have been proposing a $15 billion line of credit for Tehran, but want Washington's acquiescence. President Trump had appeared sympathetic to the idea, but other Administration officials have resisted it.

Retaliation any greater than a token strike would prod the nuclear deal, the JCPOA, another step closer to collapsing, 16 months after Trump withdrew the United States from the agreement.

So the region is at a dangerous crossroads, where retaliation could quickly breed escalation.

Reason dictates that the Trump administration should not join the Saudi-Iran proxy war, or attack Iran on Riyadh’s behalf.

Instead, Washington should leverage the attacks on Saudi Arabia’s oil infrastructure that have caused unprecedented outage to push for a resolution to the disastrous war in Yemen. Riyadh needs an exit strategy, now.

The blatant nature of this attack by Iran, covered by the fig leaf of supposed Houthi involvement, indicates that Iran indeed has decided Trump will not respond to provocations with an aggressive military attack because of upcoming elections and his desire to avoid embroiling the U.S. in yet another war in the Middle East. We will soon find out whether this will end up to be true.

Saudi Arabia believes it can have its facility back up and running in a matter of weeks, but if it takes more than six weeks to fix the plants and restore production, oil prices could head towards the $85 a barrel mark. So the situation reflects a real test for state-owned oil giant Saudi Aramco.

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