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Saudi Oil Attacks Impact on the Global Economy

By Barber Financial Group

September 30, 2019

Saudi Oil Attacks Impact on the Global Economy

If there is one thing retirees hate (and the markets as well), it’s uncertainty! We received a heavy dose of uncertainty on September 14, 2019 at 4:00AM; when an onslaught of more than two dozen Iranian-made drones and low flying cruise missiles crippled Saudi Arabia’s Aramco oil refinery. This intentional attack hit the heart of Saudi Arabia’s largest production plant. The attack also hit the center of the world’s global oil industry and disrupted 5.5% of the world’s energy needs. After spending billions of dollars on defense, the question for Saudi Arabia is; How could the Saudi’s not have prevented an attack like this? Let’s dive deeper into the Saudi oil attacks impact on the global economy.

The Saudis are quick to point out that they have 360 degrees of vulnerability. Also, consider their geographic size as Saudi Arabia is bigger than all of Western Europe. Understanding this helps explain the difficulty the Saudis have in protecting itself from rogue attacks. Saudi Arabia does have U.S. Patriot and Hawk missile systems, but those are not designed to shoot down drones. As far as the source of the attacks? The Saudis point their finger directly at Iran! U.S. Secretary of State Mike Pompeo declared that what Iran did was an act of war.

Read Negative Interest Rates In the US for more info on the global economy and the US.

Saudi Arabian Oil

The Saudi region, by itself, represents about 30% of the world’s oil supply, and this impacts 20% of all global trade passages. All of this accounts for around 4% of the world’s GDP. While by themselves, these numbers at first glance don’t seem to be alarming but imagine what chaos there would be if all three hit at once. It could mean a collapse of the global economy and impact not only Saudi Arabia but all Middle East oil-producing nations. According to Saudi Prince Mohammed bin Salman, oil prices could jump to heights we have never seen in our lifetimes.

Iran seems to be prepared to wage war. In reaction to the Aramco bombing, the United States increased even tougher economic sanctions on Iran. Remember that President Trump pulled out of the failed 2015 Iran nuclear deal that provided Iran with $1.7 billion of taxpayer cash. In a recent statement, Iran’s President Hassan Rouhani stated that Iran would not negotiate until all U.S. sanctions are lifted. Since 2015, the U.S. has provided limited support to Saudi Arabia who has been battling a war against an Iranian backed militia called the Houthi’s who are located in the south part of neighboring Yemen. The United Nation estimates that more than 19,000 civilians have been killed or injured in this conflict, and around 10 million more are starving in what could be called the worst humanitarian crisis in the world.

The Saudi Prince Responds

Saudi Prince Salman in a recent interview on 60 Minutes, said, “they would like to stop the war in Yemen.” Unfortunately, there has been no progress on a peace agreement in over five years. According to Prince Salman, its Iran’s backing of the Houthi’s that has perpetuated this egregious war.

Just this past Monday, September 23, 2019, Britain, France, and Germany joined the U.S. in blaming Iran for the attacks on those critical Saudi oil refineries. Iran’s Ministry of Foreign Affairs, Mohammad Javad Zariff, proclaimed that Yemen rebels were the source of the Saudi destruction. He was further quoted saying, “If Iran was behind the attack there would have been nothing left of that refinery and many others!” Further complicating how the Saudi oil attacks will impact the global economy.

Can America Cover an Oil Shortfall?

According to freightwaves.com, “It is apparent that American drillers are more than capable of covering any oil shortfall.” It was December of 2018 that the United States became a net exporter of oil for the first time in 75 years. This announcement came approximately one year after America became a net exporter of natural gas in 2017. It was 45 years ago that the Arab oil embargo occurred under the idea that the U.S. and other Western nations were being held captive by Middle East oil. Now, thanks to fracking, the United States is truly energy independent and is the world’s top producer of both oil and natural gas.

Saudi Oil Attacks Impact on the Global Economy, What We Know So Far

The Saudi oil attacks had an impact on just about every market in the global economy. Oil prices saw the biggest move with WTI oil futures rising by 15% the day of the attack. That was the most substantial increase since 2008. Stock prices also fell with the Dow Jones, S&P and NASDAQ all finishing lower on the day. As expected, energy stocks had their most significant increase of the year. Furthermore, interest rates on the benchmark 10-year Treasury note fell by the most in three weeks. This came as investors reacted by seeking out the safety of U.S. bonds. Gold, as you might expect, increased by 1%.

So as the world turns, we can only hope that a peaceful resolution to this conflict is in our future. As always, we expect America to stand tall and rely on its purpose and dedication to always be the best we can be.

If you have questions about how global events can impact your retirement, reach out to us by filling out the form below or calling 913-393-1000.

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Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.