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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Who Is Behind Iran-Backed Houthi Threats To Attack Saudi Arabia?

  • Yemen's Houthis have threatened to strike Saudi Arabia if it continues to allow U.S. warplanes to use its territory for strikes against the rebel group.
  • One of the main questions is why Iran would allow the Houthis to attack Saudi Arabia at this moment in time.
  • Having brokered the stunning relationship resumption agreement between Saudi Arabia and Iran, China cemented the control it had over critical oil transit routes.

The Iranian-backed Houthis will attack Saudi Arabia if it continues to allow U.S. warplanes to use its territory for military strikes against the Yemeni rebel group. Having taken control of the Yemeni capital of Sanaa in 2014, the Houthis are now building up their military presence for a push on the country’s principal oil and gas region of Marib. The group has also been stepping up its attacks on oil ships passing through the key transit routes in and around the Red Sea, including the crucial chokepoint of the Bab-el-Mandeb Strait. This 16-mile width waterway flows between the west coast of Yemen on the one side, and the east coasts initially of Djibouti and Eritrea on the other, before it joins the Red Sea. The last time the Houthis launched major coordinated attacks against the Saudi Arabian mainland - on 14 September 2019 against the Abqaiq oil processing facility and Khurais oil field - Saudi Arabia’s oil production was halved, causing the biggest intra-day jump in U.S. dollar terms since 1988. There are two key questions now for the oil markets. First, why would Iran allow the Houthis to make such threats, when only a year or so ago it agreed a landmark relationship resumption deal with Saudi Arabia? And second, will the attacks go ahead?

Iran is in many crucial respects beholden to the wishes of its own two key sponsors – Russia and China – but it remains the case that it would need to be in favour of such attacks on Saudi Arabia for it to allow the Houthis to make such threats. The key reason behind Iran’s tacit support for this aggression is that it has seen in recent weeks a lowering of tension surrounding the still ongoing Israel-Hamas War – far from the escalation into broader conflict across the Middle East that would almost certainly draw the U.S. military back in scale in the region. Only with significant U.S. forces back on the ground in several Islamic countries – the most notable of all being Saudi Arabia, home to the two holy cities of Islam (Mecca and Medina) – could Iran spearhead the wider Islamic Revolution aimed at supplanting the Judeo-Christian order in the West, as has been its core objective since the 1979 Islamic Revolution, as analysed in full in my new book on the new global oil market order. The most recent spark for this broad-based Islamic revolution was to have been the Iranian-sponsored attacks by Hamas on key U.S. ally Israel on 7 October 2023. The beauty of this idea from Iran’s perspective was that not only would it bring an escalation in U.S. military presence back into the Middle East but also it might result in the end of the state of Israel during the wider regional conflict to come. With the final removal of all U.S. presence from the region an the state of Israel eradicated, Iran could take its place as the leading defender of Islam, uniquely able then to spread its own Shia version of the religion around the world. Related: Against All Odds American Oil Soars Under Biden

To accomplish all this, though, it needs the money and military and political support of Russia and China, with which Iran has broad, deep, and long-running cooperation agreements, as also individually analysed in my new book on the new global oil market order. In China’s case, tacit support for the threats of the Iranian-backed Houthis against Saudi Arabia will not have been as easy to give as it would for Russia. Politically, Beijing has been working on its own special relationship with Saudi Crown Prince Mohammed bin Salman since it stepped in with an offer to buy the entire 5 percent stake of Saudi Aramco in 2016 that was due to be sold in an initial public offering, as also detailed in the book. It is this close relationship that enabled China to broker the relationship resumption deal between Saudi Arabia (the key Sunni Islam country in the world) and Iran (the key Shia one) on 10 March 2023. Economically, China has as much to lose from rising oil prices as anyone else. The economies of the West remain its key export bloc, with the U.S. still accounting for over 16 percent of China’s export revenues on its own. According to a senior source in the European Union’s (E.U.) energy security complex spoken to exclusively by OilPrice.com recently, economic damage to China would dangerously increase if the Brent oil price remained over US$90-95 pb for more than one quarter of a year.

However, perhaps outweighing these two factors is that China does not want to lose effective control over the key oil transit routes of the Middle East. Having brokered the stunning relationship resumption agreement between Saudi Arabia and Iran, China cemented the control it had over these critical oil transit routes. Its 25-year deal with Iran gave Beijing influence over the Strait of Hormuz, through which around 30 percent of the world’s oil travels. The same deal also gave China a hold over the Bab el-Mandeb Strait (controlled on the Yemen side by the Iran-backed Houthis), and on the other side by Djibouti and Eritrea (both of which owe money to Beijing as part of ‘Belt and Road Initiative’-related loans made to them).

“Although Xi [Jinping] does not feel the time is right for a confrontation with the U.S., he does want China to stay relevant to what’s going on there [in the events adjunct to the Israel-Hamas War] and having a role in this Red Sea problem achieves that,” the E.U. energy security complex exclusively told OilPrice.com. A danger sign for China in this context flashed red when the U.S. created ‘Operation Prosperity Guardian’ to guard against future Houthi attacks on oil shipping in the Red Sea region. This came shortly after the U.S. Department of Defense stated that the initiative was being launched under the umbrella of the Combined Maritime Forces and the leadership of its Task Force 153. The Force comprises only countries allied to the U.S., including the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles, and Spain. “The fear for China is that this U.S. presence may never leave the region and may be expanded in the future,” added the E.U. source.

The same fear is held by Russia, which is not only why, according to the source, it fully backs the idea of Houthi attacks on Saudi Arabia, but also why last week saw it deploy its own fleet of warships around the Bab el-Mandeb Strait and Red Sea. Additionally, Moscow will see a budget bonanza on any increases in oil prices resulting from attacks on Saudi Arabia. This would allow Russia to sell its own oil at much higher prices, despite the various caps and discounts put into place following its invasion of Ukraine. As also analysed in my new book on the new global oil market order, it earned nearly US$100 billion from oil and gas exports during the first 100 days of the war in Ukraine. Overall, revenues from the higher post-invasion oil and gas prices were much greater than the cost for Russia of continuing to fight the war. However, as prices started to weaken again, Russia’s finances and its ability to secure an outright military victory have been reduced. Moreover, as reintegrating Ukraine back into Russia (as the first part of re-establishing the full former glory of the Russian Empire) is President Vladimir Putin’s core priority, any escalation of conflict in the Middle East is seen as beneficial in diverting U.S. focus away from the European military theatre.

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on April 01 2024 said:
    If the reports that the Houthis have threatened to attack Saudi Arabia for allowing American planes to use its territory for strikes against them are true, then There is a simpler explanation than the far-fetched one offered by the author.

    While Iran won’t allow the Houthis to attack Saudi Arabia in view of the warming relations w between them, it can’t stop the Houthis recovering the oil and gas region of Marib from the Saudi-supported Yemeni opposition forces.

    Therefore, it is possible that Houthis intend to attack the Saudis if they try to stop them recovering Marib using as a pretext the Saudis allowing US planes using their territory to attack them.

    After all, US planes could fly over the international waters of the Red Sea to attack Yemen .

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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