Terrorist attack in Iran a concern for Saudis, oil markets

Reporting on Saturday’s attack on a military parade in the Iranian city of Ahwaz is missing a significant angle – oil. Ahwaz is the capital of Khuzestan province, where Iran’s major oilfields are. Tehran could well regard the attack in which 29 died, including some children and other civilian spectators, as an attack on its oil infrastructure. It therefore may regard other countries’ oil installations as being a legitimate target for retaliation. The Islamic Revolutionary Guard Corps has vowed revenge against Saudi Arabia and the United Arab Emirates (UAE), as well Israel and the United States.  Today Supreme Leader Ayatollah Ali Khamenei accused Riyadh and Abu Dhabi of financing the “perpetrators” and threatening “harsh punishment.”

Saudi Arabia, along with the UAE, is a regional rival of Iran. Tehran backs proxies in Yemen, Iraq, Syria and Bahrain. All three rivals are major oil producers and exporters — though U.S. policy is to cut Iran’s oil exports to zero, if possible, from November. Together, they account for the majority of exports from the Persian Gulf through the strategic Strait of Hormuz.{mosads}

Last year, Saudi Crown Prince Muhammad bin Salman, the kingdom’s effective leader who usually is known as just MbS, spoke ambiguously of the contest against Iran in a television interview: “We will work so that battle is on their side, inside Iran, not in Saudi Arabia.” But, as I wrote (perhaps presciently) in March for The Hill: “If Saudi Arabia tries to destabilize Iran by promoting insurrection, as MbS has said privately to visiting interlocutors, its own vulnerability may be quickly exposed.”

On Monday, the oil price jumped more than 2 percent to more than $80 per barrel for the benchmark Brent crude, a four-year high attributed to Saudi Arabia’s reluctance to persuade the OPEC cartel to agree to a production increase at the weekend’s oil summit in Algiers. Saudi oil minister Khalid al-Falih disingenuously claimed on Saturday that OPEC is all about production rather than price: “There is plenty of supply to meet any customer that needs it.” In narrow economic terms, that is a sustainable argument — but if there is a major political disruption in the Gulf, that is very different. Coping with production decreases in Venezuela, Mexico and Iran is one thing. Iranian disruption of Saudi production could be catastrophic, and challenging to counter if Tehran’s fingerprints were not obvious.

So far there is confusion about who was actually responsible for the Ahwaz attack. There were four assailants; two reportedly were killed, and two may have been captured. Local Khuzestan separatists — the province is ethnically Arab rather than Persian — have claimed responsibility and also denied it. The Islamic State has issued a video asserting its role, in which case it would be Shia-Sunni religious tensions which would be in play. At this stage, it is probably safer to judge neither claims, nor even denials, as either true or false. Given the Iranian Supreme Leader’s comments, it may also be irrelevant.

The Ahwaz incident brings back memories for me. In December 1978, just weeks before the revolution which overthrew Iran’s shah, I went there for the Financial Times and interviewed the American oil executive who ran the western consortium headquartered there, producing Iran’s oil. I didn’t name him in my Dec. 20 story because, a few days earlier, someone had left a note of his desk, warning, “Remember before New Year you must leave the country.” But I quoted him: “Hell, I have been in this business too long. That sort of thing doesn’t scare me.” On Dec. 27, I wrote another story saying that Paul Grimm, the man I had interviewed, had been “ambushed on the way to work in his car by three gunmen using automatic weapons.”

In January 1979, the shah left the country and, the following month, Ayatollah Khomeini returned home from exile in France.

I am hoping that what happened in Ahwaz a few days ago may be just a blip, memories of which will be lost in the news cycle over the next few days and weeks. But my fear is that things may be spinning out of control. On Wednesday, President Trump is scheduled to chair the United Nations Security Council in New York; he is reported to intend to speak on Iran. On Saturday, a State Department spokesperson condemned the Ahwaz attack as terrorism. What will the President have to say?

Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy.