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How to Respond to Iran

With its recent attacks on Saudi oil installations, Iran is directly challenging both America’s dominance in the Persian Gulf and Saudi Arabia’s role as the world’s oil supplier of last resort. And merely tightening US sanctions against Iran will most likely provoke, rather than deter, another Iranian attack.

PRINCETON – Early on the morning of September 14, drones struck two major oil facilities in Saudi Arabia, affecting close to half of the output of the world’s top oil exporter – 5% of the global supply. The attacks – claimed by Yemen’s Houthi rebels, but widely attributed to Iran – amount to a watershed moment for Middle Eastern politics and global energy markets, as they directly challenge both America’s dominance in the Persian Gulf and Saudi Arabia’s role as the world’s oil supplier of last resort.

Iran’s immediate motivation for the attack was the suffocating economic sanctions that US President Donald Trump’s administration has imposed since withdrawing last year from the 2015 nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA). But the current tensions are rooted in regional power dynamics that date back to the US-led invasion of Iraq in 2003. That spectacular failure drove Trump and his predecessor, Barack Obama, to signal an end to nearly eight decades of American hegemony in the Gulf.

The United States is exhausted from its Middle East wars, particularly because its overwhelming military advantage has not translated into enduring political influence. But America’s retreat has left a strategic vacuum, which the region’s most influential actors are vying to fill.

First there is Turkey, which has been extending its military and economic influence into the Persian Gulf region, establishing military bases in Qatar. Far more aggressive, however, is Iran, which makes no secret of its desire to expel the US from the region and topple the Saudi monarchy (the third actor attempting to raise its regional profile).

Over the last few years – and owing largely to US failures – Iran has strengthened its position by expanding its influence in Iraq, Syria, Lebanon, and Yemen via proxy non-state actors, such as the Houthis, and by developing a large and varied arsenal. In Yemen, Iran is attempting to wrest control over the strategically important Bab al-Mandab strait. Its foothold there has also enabled it to challenge Saudi Arabia with drones and ballistic and cruise missiles, much in the way that Hezbollah threatens Israel from Southern Lebanon.

Saudi Arabia, by contrast, remains a status quo power, interested above all in stability – not least to facilitate oil sales. Happy to remain under the US security umbrella, the Saudis have not dedicated much effort to building a strong military, let alone the ability to project force, in recent decades, despite their massive weapons purchases (especially from the US). It is now scrambling to do both, but the process will take a generation to complete.

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In the meantime, Saudi Arabia has limited capacity for checking Iran’s ambitions. Not only does this put the Kingdom at risk of losing its dominant position in the region; it raises the likelihood of more assaults on vulnerable Saudi oil and petrochemical facilities, as well as public utilities. Attacks on desalination plants, for example, would cause water taps to run dry in a matter of days.

An engaged US could help to stave off such developments, but it is far from clear that the Saudis can count on that. Yes, Trump tweeted immediately after the recent attack that the US was “locked and loaded,” waiting to hear from the Saudis “who they believe was the cause of this attack and under what terms we would proceed!”

But there is reason to doubt that Trump would ever follow through on that statement: if a retaliatory strike led to all-out war, his 2020 re-election prospects would plummet. This understanding is probably what emboldened Iran to launch the strikes in the first place.

Iran’s attack served another important purpose: undermining Saudi Arabia’s central position in global oil markets. With some 23% of the world’s proven reserves, Saudi Arabia has developed enough spare production capacity to serve as the market-stabilizing “swing producer.” Iran’s attacks – which knocked out around 5.7 million barrels of Saudi Arabia’s daily production – call into question the Kingdom’s ability to play that role.

Saudi Arabia rushed to reassure the world that it would restore production – a pledge that has so far proved credible – thereby averting a serious economic shock. But the reputational damage has been done; it is now clear that Iran can disrupt oil supplies at will, by attacking ships, pipelines, and major processing and storage facilities.

The Iranian attacks also cast doubt on US claims of energy independence and underscored America’s enduring vulnerability to the price effects of a production disruption in the Gulf. After the strike, Trump had to release supplies from the US strategic petroleum reserve to calm markets.

Of course, the US won’t just do nothing: Trump has already ordered Treasury Secretary Steven Mnuchin to tighten sanctions on Iran. But this is unlikely to have the intended effect. On the contrary, with Iran already crippled by sanctions, it makes another attack on Gulf energy infrastructure practically inevitable.

What is really needed is a proportional retaliatory blow against Iran. Saudi Arabia cannot carry it out without sharply escalating the regional confrontation, but the US could. As long as the US response is limited and proportional, it is unlikely to lead to all-out war. After all, Iran is not suicidal. It has not responded to repeated Israeli attacks on Iranian forces.

The US should also offer Iran some inducements, including limited sanctions relief. In this sense, America’s best option is to take a page from Iran’s own playbook, sending mixed signals to its adversary.

Eventually, the US will have to decide how much force-projection capacity it is willing to maintain in the Gulf. But right now, the top priority must be to respond to Iran’s latest challenge, before another attack takes place.;
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