Oil: A glimpse into the crisis between Houthis and Saudis

If a single asset class were chosen to illustrate the importance of geopolitical relationships in price dynamics, the commodities market would certainly be the ideal contender. And within commodities, it is equally obvious that oil markets are a textbook case for studying the impact of these geopolitical interactions. To fully understand what is happening in the Middle East, here is an overview of the situation on the Saudi borders, following the events that took place mid-September at Aramco's facilities.

The latest major attack on two Saudi Aramco oil sites, in a context of already heightened diplomatic tensions between the Saudi Kingdom and Tehran, has thus awakened old memories as oil prices have established daily variations of nearly 15%, something not seen since the Gulf War in 1991. While the fever has since subsided significantly thanks to a return to normal Saudi production, this calm remains fragile given the intensification of attacks by the Yemeni rebels, the Houthis, on Saudi territory.

 

Attacks on oil installations are not new

 

Before briefly reviewing the considerable number of Houthi attacks in Saudi Arabia, it is worth recalling some background information to better understand the ins and outs of the Yemeni conflict. For the past five years, Yemen has been bogged down in a civil war with a heavy human toll, pitting the Houthi rebels, a Shia organization supported by Iran, against a heterogeneous and divided anti-Houthist camp composed of Loyalists, separatists and other anti-insurgent groups, all militarily supported by an Arab-Sunnite coalition led by Saudi Arabia and the United Arab Emirates. The Houthis control the capital Sana'a and the most densely populated areas in the west of the country, a power that Saudi Arabia takes a dim view of, fearing Iran's influence in the south of the kingdom.

 

The scene set, let us return to the attack on Aramco's oil installations, claimed by the Houthi rebels, which is part of a long list of raids deployed in the form of drones or ballistic missiles on Saudi territory.

 

14/09: The Houthis claimed the attack two Aramco installations, located in Abqaiq and Khurais.

06/09: The Houthis announced that they have fired several ballistic missiles at Najran airport and launched drone attacks on the King Khaled air base.

25/08: Houthis say they attacked Abha airport with drones.

17/08: Houthis attack Aramco's oil installations in Shaybah with drones.

16/08: Houthis say they launched a raid of drones on Abha airport.

13/08: Houthis say they launched a raid of drones on Abha airport.

10/08: Houthis say they launched a raid of drones on Abha airport.

16/07: Houthis attack King Khaled Air Force Base and Djizan Airport with drones.

06/07: Houthis claim drones attacking Djizan and Abha airports.

04/07: Houthis say they launched a raid of drones on Djizan airport.

02/07: Houthis say they launched a raid of drones on Abha airport.

29/06: Houthis claim drones attacking Djizan and Abha airports.

25/06: Houthis claim drones attacking Djizan and Abha airports.

23/06: Houthis claim drones attacking Djizan and Abha airports.

17/06: Houthis say they launched a raid of drones on Abha airport.

15/06/06: Houthis claim to have been attacked by drones at Djizan and Abha airports.

14/06: Houthis say they launched a raid of drones on Abha airport.

12/06: The Houthis fired a cruise missile at Abha airport.

14/05: The Houthis claim to attack two pumping stations near Riyadh.

Graph 1

Attacks claimed by the Houthis on Saudi territory - source: Zonebourse (click to enlarge)

 

In the light of this map, several lessons can be learned. First, while the priority targets for Houthi rebels are military (airports, strategic warehouses and other infrastructure), oil installations are also part of the Yemeni insurgents' plan. Over the past five months, Aramco's infrastructure has been targeted three times.

 

The Saudi position is weakening as the conflict gets bogged down

 

Although most attacks are intercepted by Saudi air defenses, strikes are sometimes successful and affect a large part of Saudi territory. The Houthis are indeed claiming attacks more than a thousand kilometers from their stronghold in Yemen, prompting some observers to suspect that Iran is hiding behind these targeted bombings. Worse still, the situation seems to be slipping away from the Saudi strategists, who have recently suffered one of the worst military setbacks since they began their engagement in Yemen. Thousands" of soldiers were reportedly captured south of Najran, including officers and hundreds of tanks.

Saudi Arabia's position thus tends to weaken as instability in the region increases, prompting Fitch to revise Saudi Arabia's debt rating one notch. The rating agency highlights Riyadh's vulnerability to military threats by stating that "Saudi Arabia is vulnerable to the escalation of geopolitical tensions due to its dominant foreign policy position, including its close alignment with US policy towards Iran and its continued involvement in the war in Yemen".

 

Saudi Arabia promotes the choice of appeasement in full preparation for the Aramco IPO

 

It is in this tense context that Saudi Arabia is preparing the introduction of Saudi Aramco. The Kingdom therefore plays the appeasement card. Mohamed ben Salman, the Crown Prince of Saudi Arabia, reaffirmed his preference for a political rather than a military solution to Iran, while calling on the international community to confront Tehran's actions. For this reason, the specter of an explosion in crude oil prices has been raised, with Ben Salman prophesying a threat to global interests in the event of a military escalation in the Gulf.