This scenario explores the possibility of war between Iran and Saudi Arabia. Beginning in 2018, the re-imposition of sanctions against Iran and Tehran’s consequent rejection of its 2015 commitments to denuclearization results in a secret agreement between Saudi Arabia and Israel to attack Iran, with the tacit support of the United States. Over the course of this short, but significant, war, the Strait of Hormuz is closed, US President Trump is re-elected but chooses not to directly intervene, and China looks to alternative energy partners in light of a continued trade war in with the United States.
Scenario 2: War in the Middle East |
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1. Select a country on the map to display a series of Key Performance Indicators (KPIs) in the right panel.
3. Scroll down to see up to 6 KPIs. Now through the End of 2019Now through end of 2018: European efforts throughout 2018 to keep Iran in the 2015 nuclear agreement are not successful. In summer 2018, Iranian officials from Supreme Leader Ayatollah Ali Khamenei on down vowed to boost the country's uranium enrichment capacity. The moves they have outlined would not violate the 2015 nuclear accord, but would allow Iran to quickly ramp up enrichment if the agreement unravels.
The US’s efforts to cut Iranian oil production are partially successful. European companies are increasingly worried about US sanctions should they invest despite EU legal moves that would theoretically protect them. Most European companies have US investments that they don’t want to put at risk, so European imports of Iranian oil drop to zero, alongside India, Japan, and South Korea with support from Saudi, the UAE, and the US. However, China continues to buy Iranian oil, increasing the 655,000 bpd they were buying before to 700,000 bpd – with transactions denominated in RMB. A total of 1.8 million barrels per day come off the market. Despite US, Russian, and Saudi efforts to increase supply, the price of oil creeps up to $100/barrel by the end of 2018. 2019: Iran renounces the agreement in early 2019. They also are threatening to leave the Nuclear Non-Proliferation Agreement. Before the nuclear agreement was signed in 2015, experts estimated that breakout time would be approximately 9 months. The Obama Administration believed it would be longer—almost a year. A sneak-out scenario in which Tehran uses clandestine or undeclared facilities may make detection difficult, allowing Iran more time to develop nuclear weapons without outside interference. Iran would need much longer to fit a nuclear warhead to a missile; they would also need to test to ensure reliability—all of which would be much harder, if not impossible, to disguise. By end of 2019, the Israelis believe they have proof that Iran has restarted its nuclear weapons program (Israel has already proven very proactive in gathering intelligence on Iranian nuclear projects). Jerusalem and Riyadh, already improving a behind-the-scenes friendship, lobby the Trump Administration to take preemptive military strikes against Iran’s known nuclear facilities. If the West waits too long, they argue, it will be harder to stop. The Trump Administration is divided about striking Iran. If Iran retaliates with a terrorist attack against US interests, the Trump Administration will be blamed, potentially as it begins its reelection campaign. Trump tweets he is not going end up like Carter; media commentators sense he is worried about history repeating itself, with his reelection chances—just like President Carter’s—undermined by possible Iranian retaliation. 2020: A secret Israeli-Saudi-UAE agreement is struck to attack Iran, with the assumption by the three that the US will quietly provide intelligence on Iran’s nuclear infrastructure, which proved to be correct once the operation was underway. Other Arab states aren’t brought into the conspiracy for fear Iran would get a whiff of what was happening. Washington can maintain a certain amount of deniability, although all US assets in the region and the homeland are put on high alert as soon as the three attack Iran. The Trump Administration wants Israel, UAE and Saudi to strike early or wait until after the US presidential elections in early November. In June Saudis and UAE launch missile attacks against a couple of the nuclear targets followed by the Israelis who are more effective in attacking Iranian installations. Initial casualties are surprisingly high because victims have been exposed to chemically toxic substances. The water supply in parts of Iran are also contaminated as the result of a release in radioactivity, worsening Iran’s existing water supply problems. Iran manages to respond with a barrage of conventional missiles, disabling Aramco’s giant oil processing facility at Abqaiq, killing a dozen or so Americans and Europeans and sending markets into a panic - knocking Abqaiq’s production capacity of over 7 million bpd off the market. The Iranians also block the Straits of Hormuz, shutting off nearly all Gulf oil and Qatari LNG shipments, removing 18.5 mbd from the market. The US along with China and the Europeans start releasing their strategic reserves, but total global reserves would only last 220 days. As the fighting—albeit at lower levels—continues, the Trump Administration, worried about spiraling gas prices, decides to clamp down on the export of its oil and gas production. Russia seeks to increase its production and wins a temporary easing of US and European sanctions, allowing it to import much needed technological investment and help. Many other OPEC producers—except for those in the Gulf hurt by the closure of the Hormuz Straits (Saudi Arabia, UAE, Kuwait, Iraq, and nearly all LNG from Qatar)—also pump as much as possible to take advantage of the high prices. However, only 27% of OPEC oil production is not affected by the closure. Also, 85 percent of the crude oil passing the Strait ends up in Asia, suggesting that the closure will not only cause price spikes, but energy security concerns for Asia. Iraq manages to send some oil out through Turkey and UAE—although some of its oil facilities have been hit—through Fujairah. An economically struggling China, suffering from a continued trade war with the US is worried about getting caught in the fighting if it seeks to militarily intervene, which would contradict its historically even-handed position in the Middle East, especially given its ambitions with the Belt and Road Initiative. It calls on the international community to end the fighting, looking particularly to its close partner, Russia, who is actively fostering a stronger energy relationship with China. Meanwhile, Hezbollah and Hamas succeed in perpetrating several devastating terrorist attacks in Haifa and Tel Aviv. Hezbollah takes hostage 20 American and European aid workers in Syria and threatens to kill them in retaliation for US support for the Israeli and Saudi attacks. The US threatens military strikes against Iran, but behind the scenes is seeking others to arrange for the release of the hostages. Moscow—with its ties to all the players in the Middle East—manages to negotiate a release in return for a cessation in any US-Israeli-Saudi attacks on Iran. At the end of 2020, Trump is reelected with a Republican majority in the Senate despite critics who blame the crisis on his giving tacit approval to the Saudi Arabia, UAE and Israel to attack Iran. 2021: There is still no formal ceasefire despite multiple attempts from Europeans, Russians and Chinese. UAE, Kuwait and others in the Gulf ask the US to safeguard the commercial traffic in the Gulf and through the Hormuz, but the US Congress would not allow the Administration to undertake any safeguarding mission, seeing such an operation as too risky. No oil/gas has been shipped through the Straits of Hormuz since mid-2020, taking roughly 18.5 mbd, or 30% of global crude oil exports, and 104 bcm of LNG, making up more than 30 % of global LNG trade, off the market. Finally, in the second half of 2021, Putin and Xi personally conduct negotiations between Iran and the Israelis and Saudis/UAE and a formal ceasefire is agreed. Gulf oil/gas from all the states is beginning to be exported through the Straits of Hormuz but total production from Saudi and Iran is still down from pre-war levels and only 10 mbd is added back to the market from the 18.5 mbd earlier removed. It will take another year before the same level of energy exports can be restored. Global energy demand remains down anyway because of the worldwide recession. The Europeans try to restart talks on a second Iran nuclear agreement, but Tehran is not interested. US intelligence has reports that Iran is quietly trying to rebuild its nuclear infrastructure, although the devastation from Saudi and Israeli attacks plus the loss of oil revenues are a huge obstacle. Note that Iran’s oil revenue for its last financial year before US sanctions hit $50 billion. Hardliners in Iran have gained in public support with moderates being ousted from government. Riyadh is now downplaying past efforts to open up and diversify its economy. Saudi Arabia has sought Pakistan’s help to produce nuclear weapons, despite Washington’s opposition. With the global recession deepening, Washington has quietly warned Saudis and Israelis not to renew their attacks—at least for the moment. |