ISIS Attacks Saudi Arabia

• ISIS has launched its first direct attack upon Saudi Arabia.

 

• Massive military preparations indicate that the Saudi government thinks a large-scale ISIS attack on their nation is imminent.

 

• Such an attack could end Saudi Arabia’s strategy of selling oil at low prices to undermine the price of U.S. shale oil.

 

• S. shale oil producers and Canadian oil sands producers would profit if ISIS succeeded in destroying Saudi oil fields.

 

• Political realities in the United States make the deployment of U.S. ground troops to defend Saudi Arabia even from ISIS highly unlikely.

The war in the Middle East has spread to Saudi Arabia; multiple news sources are reporting that ISIS (Islamic State of Iraq and Syria) forces attacked and successfully overran a Saudi border outpost.

A well-known Saudi dissident blogger called Califphate101 put out this tweet on Wednesday:

“a dozens of #Islamicstate fighters just entered Saudi lands from a crossing near Rafha and thy vanished without a trace inside #Saudi Arabia”

Saudi Arabia is very vulnerable to ISIS attacks. Newsweek reported that the oil-rich Kingdom is constructing its version of the Great Wall of China: a 600-mile-long barrier consisting of a ditch and a triple-layered steel fence with 40 watchtowers. There will also be 38 communication towers, 32 military-response stations and 240 armed rapid response vehicles to patrol the wall. High-tech sensors that can detect intruders have also been installed.

It is hard to see how this barrier would keep out an enemy like ISIS. Considering the ease with which illegal immigrants penetrate America’s southern border and with which the Communists infiltrated South Vietnam during the Vietnam War, it would be easy for small squads of fighters to sneak through the barrier. If it wanted to move large numbers of men and vehicles through the barrier, all ISIS would have to do to is drive up to the wall with a bulldozer and punch a hole through it.

Why ISIS Wants Saudi Arabia to Burn

Once through the wall, it would not be that hard for ISIS fighters to sabotage or burn oil fields or refineries. All it would take would be a few mortar rounds to put an oil refinery out of operation. Wrecking a pipeline or an oil well would be even easier—fighters could use a few pounds of explosives to blow one up or simply drive a bulldozer into one.

ISIS has a strong incentive to attack Saudi Arabia’s oil infrastructure because one of its main sources of revenue is stolen oil. An unidentified U.S. intelligence agency reported that ISIS was making $3 million a day from oil sales in September, RT reported. If ISIS can drive up the cost of oil, it makes more money from the crude it steals.

The Saudis would need to deploy tens of thousands of soldiers and hundreds of vehicles to protect their oil infrastructure. It is unclear if they have such military forces available or any allies willing to dispatch them.

This development could shift the balance of power in the Middle East. It will put pressure on President Obama to support Syrian despot Bashar al-Assad, who is fighting ISIS. It could also drive Saudi Arabia to reach out to Iran and Israel for help.

Why ISIS Could Be Good for America and Canada

Strangely enough, the United States and Canada and some U.S. oil companies might benefit if ISIS attacks Saudi Arabia and destroys its oil fields. Bloomberg reported that Saudi Arabia has been following a very calculated and deliberate strategy of discounting oil in an attempt to make it unprofitable to produce oil in the United States. The Saudis were selling their oil at a price 10¢ below their Omani and Dubai competitors in November.

The idea behind the Saudi strategy is to get oil prices down below $45 a barrel, a price at which it would simply cost too much to drill in the United States. As of Dec. 26, 2014, that strategy seemed to be working. Bloomberg reported that drillers had idled 93 rigs in the three months leading up to Dec. 26 and were planning to shut down 200 more.

If ISIS succeeds in infiltrating Saudi Arabia and starts blowing up or torching oil fields, as observers like Colonel John Robb predict they could, the natural beneficiaries will be companies with large holdings of oil in the United States and Canada.

A logical beneficiary will be Chesapeake Energy (NYSE: CHK), which produced 102 million barrels of oil a day in the third quarter of 2014. All of Chesapeake’s holdings are right here in the USA in Texas, Oklahoma, Wyoming, Ohio, Louisiana and Pennsylvania. Another company that could benefit from a burning Saudi Arabia is Exxon-Mobil (NYSE: XOM), which is positing itself to “become a shale giant,” according to Seeking Alpha contributor Sahara Investment Group.

Another potential beneficiary is Warren Buffett favorite Suncor Energy (NYSE: SU). Suncor holds one of the largest positions in the oil sands in the Canadian province of Alberta. The oil sands are the third largest proven crude oil reserve in the world after Venezuela and Saudi Arabia. They’re also located in one of the most peaceful and politically stable nations on Earth: Canada.

Why Some Americans Would Like to See Saudi Arabia Burn

Obviously it is too early to tell if ISIS is capable of attacking Saudi Arabia. After all, for all its success, ISIS has never fought a real army on the battlefield. Saudi Arabia is not Iraq or Syria, and it has the backing of great powers like the U.S. and China.

Saudi Arabia could be in a far more vulnerable position than we think because it relies heavily on the United States for defense. Saudi Arabia’s traditional military strategy is for the King to pick up the phone and call the White House to ask for the Marines. Now that the USA has achieved energy independence, deploying American troops to fight ISIS would be politically unpopular.

A ground war against ISIS would be a tough sell politically because there are now powerful economic interests in the United States that would stand to gain if Saudi Arabia burns. Such a war would be hard to promote to unemployed oil field workers in North Dakota and laid off rig operators in Texas.

It could also lead to some very strange political alliances; we could see the Koch Brothers and the peace movement working together to oppose the war. The Koch Brothers are major conservative political donors, and their company Koch Industries is a major operator of pipelines and refineries in North America.

The bottom line is that Saudi Arabia might be on its own this time. If ISIS attacks, the Marines might not come and the oil fields could burn. If that happens, North American oil producers will be a very good investment.

 

 

Disclosure: The author is long on Chesapeake Energy (NYSE: CHK).