Is Yemen Turning into Saudi Arabia’s Vietnam?

  • Saudi Arabia lost more than half of crude output via attacks.
  • The Arab league denounced the attacks and compared them to acts of terrorism.
  • The US is blaming Iran for the attacks, due to Iran having an advantage after such attacks.

The Saudi monarchy experienced attacks against their oil production facilities in the last week. Tensions in the Middle East escalated following the drone attacks on the two largest oil facilities in Saudi Arabia. Yemen’s Houthi rebels claimed responsibility for the attacks.

The global economic impact will be felt, since Saudi Arabia lost more than half of their crude output via the attacks. The nation is the number one oil producer in the world, holds 5% of the global oil supply, and cut output by 5.7 million barrels per day. last year, Aramco’s net income was $111.1 billion.

The Saudi Aramco empire took a huge hit. Aramco traces its beginnings to 1933 when a Concession Agreement was signed between Saudi Arabia and the Standard Oil Company of California (SOCAL). A subsidiary company, the California Arabian Standard Oil Company (CASOC), was created to manage the agreement.

The Arab league denounced the attacks and compared them to acts of terrorism.The Arab League is a union of Arab-speaking African and Asian countries. It was created  in Cairo in 1945 to promote the independence, sovereignty, affairs and interests of its 22 member countries and four observers.

All of this raises an interesting question: Saudi Arabia is officially at war with Yemen; So, it is OK to bomb Yemen, but it is not OK for the Houthi’s to retaliate? War is not the answer for either side in this conflict.

Thus far, the US has blamed Iran for the attacks, stating that intelligence shows the missiles starting from inside Iranian territory. Also, it’s assumed that Iran is advantaged by these attacks.

The world seems more concerned over the effects on crude prices and the global economy than in the war between the two sides.

The US will benefit from the rise in crude prices as it will boost many shale projects. Exxon Mobil Corporation is building a shale oil project that its executives boast will allow it to ride out the industry’s notorious boom and bust cycles. The boom cycle appears to be approaching.

Image Source: Arab.org

The Saudi Arabian budget has been experiencing financial strain since 2014, due to the drop in the price of crude. They’ve also experienced two attempts at toppling the kingdom. Saudi Arabia arrested 11 princes who protested the suspension of government payments. The arrests were due to tensions within the Saudi royal family as the kingdom’s young crown prince, Mohammed bin Salman, assumed the domineering role.

The Saudis have been officially in armed conflict with Yemen since 2015 on behalf of a coalition that originally included Bahrain, Kuwait, Qatar, Jordan, Sudan, Pakistan, Morocco and United Emirates. The US and Britain both took the Saudi side in the conflict. Besides the Saudis, none of the other nations are formally participating in the conflict. One interesting supporter of the war in Yemen is Al-Qaeda.

The US is unlikely to enter another war in the Middle East, nor will they send troops to aide Saudi Arabia in Yemen. Any small win for the Saudis in Yemen can be paralleled to the same scenario last century for the US in Vietnam.

Iran does have an advantage and benefits from the attacks on the oil production in Saudi Arabia. At the same time, the ongoing conflict in Yemen is beginning to affect global markets, the geopolitical balance, and stability in the Middle East region.

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Christina Kitova

I spent most of my professional life in finance, insurance risk management litigation.

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