Saudi Arabia – Attack on global excess of energy supply

by Henrik Paulitz

The attacks on Saudi Arabia’s oil economy are a classic lesson in terrorism and war: As always, the question of “who” carried out these attacks and “against whom” now war is to be to be waged is brought to the fore. Behind this there are always the same questions: “Who is to blame?” – “Who is evil?” – “Who must be punished?” However, if you want to keep the peace, it is much more important to look into the questions of “what” happens and “why” it happens.

Drone attacks on oil facilities in Saudi Arabia.
(Graphic Keystone-SDA, Source: dpa)

Getting closer to war

Though living in the “information age”, the question „who“ carried out the attack and particularily who in the final analysis is responsible, was hardly ever answered to the public by presenting substantive or “crushing“ evidence. Always a lot of speculation and assertion remains. In this way one rarely gets closer to the truth.
“Who is to blame?” – This is the question that place into the hands of polarisation and destabilisation of societies and the world, because two camps can always argue endlessly about it (“divide et impera”). It is one of the most underestimated but brutal instruments of ideological power, which regularly leads the world to the abyss of “military escalation”.

Preservation of peace

As the current case of attacks on Saudi Arabia’s oil production, which is important for the world economy, shows, in the immediate context of the question of guilt the question of who has to wage war now on whom is discussed very persistently. Conversely, this means that anyone who is really interested in preserving peace should first put aside the question of who is allegedly responsible and therefore has to be sanctioned.

What happens in war?

In my lectures I have been recommanding for years to focus on a completely different question: “What happens in war?”1
– This was based on my books “Anleitung gegen den Krieg” (Guidance against war) and “Kriegsmacht Deutschland?” (Military power Germany?)
Experience has shown that there is a comparatively reliable answer to that question without slipping into speculation or ideology. Let us take the current case: “What has happened? The answer: There was an attack on Saudi Arabia’s oil and energy infrastructure.

Attacks on the energy infrastructure

This is not really surprising: attacks on the civilian (!) energy infrastructure happen very often in wars. This is the result of extensive analysis in “Guidance against war”.

In other words: It is an essential war objective.

The energy infrastructure is also a frequent target of terrorist attacks. Pipelines are attacked on every occasion, as in Saudi Arabia in May 2019.2
Worldwide, energy infrastructure is one of the regular main targets of terrorist and military attacks: oil and gas fields, oil and gas pipelines, refineries, tank farms, oil ports, oil tankers, coal mines, power stations, transformer stations, power lines, etc.

Collapse of oil production

Worldwide attacks on the energy infrastructure often lead to a decline of oil production.
Analyses by the U.S. Energy Information Administration (EIA) show how the Iraq wars and the air raid on Libya in 2011 decimated production and, in particular,  exports of oil and natural gas.3
The current events in Saudi Arabia are noteworthy in so far that a single attack took more than five per cent of world oil production off the market.
The knowledge gained by the simple question “What is happening?” is therefore large. This raises the further question of “why” these attacks on the energy infrastructure occur.

Structural excess supply of crude oil

In the current reporting on the attack in Saudi Arabia, valuable hints are given as to how the world oil market will be influenced by it.
An important starting point is a remark by Klaus-Jürgen Gern of the Kiel Institute for the World Economy in an interview.4 He says: “For years there has been a structural excess supply of crude oil”.
Military attacks on oil fields, pipelines or refineries thus reduce the supply on a “saturated market”. A considerable growth of the global oil market cannot be achieved. Therefore numerous measures aim at limiting the oil production of the suppliers worldwide. If a structural excess supply will not be reduced, there is a risk of price erosion and loss of profits. If, on the other hand, oil production is drastically reduced, prices will go up and may result in substantial profit increases.

Artificial reduction

Against this background, the Organisation of Petroleum Exporting Countries (OPEC) was founded in 1960. The oil cartel, with which non-OPEC countries now also cooperate closely, limits the oil production (production quotas) of its members:
The “artificial reduction” of oil production stabilises the price of oil or drives it up.5
Military attacks on oil production can be seen as a form of artificial reduction of oil supply with potential effects on oil prices.
Indeed, the recent attacks on Saudi Arabia’s oil economy have led to a rise in oil prices.6

War and profit

The 2011 Libyan War showed that attacks on oil production can be very profitable.
In February 2011, the war brought the country’s oil production to a temporary standstill. As a result, the price of oil rose to more than USD 125 per barrel in spring 2011. 2011 became the most expensive oil year of all time; on average, oil was more expensive this year than ever before.
Since Libyan oil is often produced for only one US dollar per barrel, the oil multinationals have been provided with extreme profits for decades at prices between 20 and 60 dollars per barrel. The oil price of more than 125 dollars per barrel, caused by the Libyan war, additionally increased the profit of the corporations while production declined:
“War damage and sabotage put the boot into the Libyan oil industry away,” wrote the “Badische Zeitung” in June 2011, describing the profits for the oil multinationals: “The international oil companies have suffered less from the production losses, since the reduction caused by the crisis has lead to a price increase on the world market, which brings them more money per barrel into their purse. Although the production volume of the French oil giant Total fell in the first quarter due to the Libyan war, profits rose at the same time due to higher prices.”7

Conclusion

If one wants to avoid that the events in the Middle East are even more it tendit into a conflagration than to date, then these military-economic interrelationships should be included in the analyses and considerations.
In order to avoid a new “war on oil profits”, the arrangement of a “World Oil and Peace Conference” could be considered. There one should speak frankly about market structures and profit expectations. Also solutions, how interests of influential actors can be “served” without smashing everything to pieces, could be negotiated.    •

1    It is based on the methodology of “descriptive, economically oriented peace and conflict research” developed by the Bergstrasse Academy
2    "Middle East. Attack on oil pipeline in Saudi Arabia." Deutsche Welle 14 May
3    https://www.eia.gov/
4    "Middle East. Attack on oil pipeline in Saudi Arabia." Deutsche Welle 14 May
5    Conversely, oil prices can also be significantly reduced by increasing oil production.
6    "Saudi Arabia – Oil price rises after drone attacks." Zeit online from 16 September
7    "Libya's oil industry rests." Badische Zeitung from 4 June 2011

Source: Bergstrasse Academy for Resources, Democracy and Peace Research, Analyses & Recommendations, from 18 September

(Translation Current Concerns)