While Russia's clearly protracted war in Ukraine will continue to cause global energy volatility and uncertainty, the market has taken its eye off a number of developments that portend renewed tensions in the Middle East. As we have mentioned previously, Iran's 2019 attack on Saudi energy infrastructure was a test run, and given certain developments in 2022, we see a renewed risk of attack for both Saudi Arabia and the UAE.
The Iran nuclear deal isn't happening. It would be nearly impossible at this point, and widespread protests at home are backing Iran into a violent corner. And while Israel has won what it sees as a victory in the death of the nuclear deal revival, the return of Netanyahu as prime minister means we can expect Israeli intelligence to be planning all manner of covert operations to ensure Iran's nuclear program is idled. That, in turn, will raise tensions in the region and attacks of retribution. The UAE is perhaps a more satisfying target due to its normalization of relations with Israel.
Even as Iran's domestic problems and the failure of the nuclear deal revival create an atmosphere perfect for raising tensions in the Middle East, Russia's war with Ukraine is feeding into it all with Tehran's overt support for Moscow's military operations. While the West provides weapons to Ukraine, Iran provides weapons to Russia. It is a world war in all but name. Naming, however, is important. A spade is only a spade if we call it such.
The big question…
While Russia's clearly protracted war in Ukraine will continue to cause global energy volatility and uncertainty, the market has taken its eye off a number of developments that portend renewed tensions in the Middle East. As we have mentioned previously, Iran's 2019 attack on Saudi energy infrastructure was a test run, and given certain developments in 2022, we see a renewed risk of attack for both Saudi Arabia and the UAE.
The Iran nuclear deal isn't happening. It would be nearly impossible at this point, and widespread protests at home are backing Iran into a violent corner. And while Israel has won what it sees as a victory in the death of the nuclear deal revival, the return of Netanyahu as prime minister means we can expect Israeli intelligence to be planning all manner of covert operations to ensure Iran's nuclear program is idled. That, in turn, will raise tensions in the region and attacks of retribution. The UAE is perhaps a more satisfying target due to its normalization of relations with Israel.
Even as Iran's domestic problems and the failure of the nuclear deal revival create an atmosphere perfect for raising tensions in the Middle East, Russia's war with Ukraine is feeding into it all with Tehran's overt support for Moscow's military operations. While the West provides weapons to Ukraine, Iran provides weapons to Russia. It is a world war in all but name. Naming, however, is important. A spade is only a spade if we call it such.
The big question in 2019 was whether Washington would step up to the plate in the event of an attack on Saudi oil infrastructure. That is very unclear. On the one hand, Washington's relations with the Saudis are at a low point. While they gave in on the murder of Khashoggi, it seems they are less likely to forgive what they see as a political move to support Russia by cutting oil output despite the Biden administration's pleading to do the reverse to bring oil prices down. On the other hand, another bout of oil prices well above $100, which is what would happen if Saudi infrastructure were attacked, would be different this time around than it was in 2019. Now, there is also more impetus to provide support to Saudi Arabia against Iran due to the latter's direct weapons support for Russia. So, things are different now, and while there is no indication that Washington would be prepared to help beyond missile defense systems, the answer to that will be weighed more cautiously.
Most likely, it will depend not on relations with the Saudis; but rather, on the situation on the ground in Iran and what Washington thinks it might gain. Escalation by Iran is clear as the regime grows increasingly desperate amid protests that it has not been able to quash, despite security crackdowns, mass arrests, and executions. The latest execution on January 14th of a British-Iranian dual national was not directly related to protests but was meant as a message to the West. The British citizen was accused of spying for MI6. His execution came amid talk of the UK backing down from support for the nuclear deal with Iran and possibly considering a terrorist designation for the Islamic Revolutionary Guards Corps.
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