Saudi-Iran War Would Create Domino Effect of Global Disaster

Tensions are escalating between two of the biggest powers in the Middle East, Saudi Arabia and Iran. Events appear to be spinning out of control in the Middle East, and the threat of a Saudi-Iranian war is looking increasingly credible, CNBC reports.

An out and out conflict between the two nations would be an unmitigated disaster for the region and the world, make no mistake.

In the latest incident, Houthi rebels’ missile targeting a Saudi airport near Riyadh was intercepted, but a Saudi-led military coalition called the attack a “blatant military aggression by the Iranian regime which may amount to an act of war” and the Saudis reserved the “right to respond”.

The major OPEC oil producers, all abutting the Persian Gulf, export almost 20 percent of the world’s oil supply through the Strait of Hormuz, which connects the Persian Gulf to global markets and  sits pinched between Iran to the north and Oman to the south. Were a war between Saudi Arabia and Iran to erupt, this chokepoint could easily be closed.

Of course, the strait could also be closed as a direct result of military hostilities, for example, by Iran.

The impact of such a closure on the global economy would be severe and immediate. For example, the Suez Crisis of 1957 saw 10 percent of the world’s oil production taken off the market. Within a month, the U.S. and Europe were facing a recession which would last the better part of a year.

In the event of a Saudi-Iranian hostilities lead to a sustained outage of Persian Gulf exports, a severe and prompt global recession will follow similarly.

U.S. imports could fall by 15 percent of total consumption–twice the drop from 1957 to 1973 and sufficient to plunge the U.S. into a deep recession lasting years. But U.S. import dependence has fallen dramatically since the start of the shale revolution. Even as the U.S. coastal regions would suffer from high oil prices, boom times would return to Louisiana, Texas and on up to North Dakota and Canada’s Alberta province.

A loss of 20 percent of the world’s oil supply would push oil prices into the $200 / barrel range. The shale sector would see its glory days.

Those countries without material oil production would suffer the most, notably Europe and East Asia, in particular Japan and South Korea. China’s situation would be as oil imports cover more than three-quarters of total Chinese consumption, and half of China’s imports originate in the Persian Gulf. The closure of the Strait of Hormuz would not only put China into recession, but could create a wider societal and political crisis.

But, as Saudi Arabia-Iran tensions rise, the most immediate victim is Lebanon which is caught in the middle. Lebanon is currently on the front lines of a regional conflict between Saudi Arabia and Iran.

Saudi Arabia ordered all citizens to leave Lebanon after the country’s prime minister mysteriously announced he’s stepping down. There have been reports that Saudi Arabian authorities forced Prime Minister Saad Hariri to quit his job and he’s being held under house arrest, but Secretary of State Rex Tillerson said the United States has been assured that Hariri is not being held against his will.

Iran has enormous influence in Lebanon via Hezbollah, a group the U.S. considers a terrorist organization. Saudi Arabia could now be challenging that influence and fears it could spark a conflict in Lebanon. Some believe that Saudi Arabia has been emboldened by recent support from President Trump, who recently tweeted “great confidence” in the Saudi leadership.

On the other side, the chief of Lebanon’s Hezbollah movement, Hassan Nasrallah, has accused Saudi Arabia of declaring war against Lebanon and keeping Lebanese Prime Minister Saad Hariri against his will in Riyadh.

“The language that Saudi officials are using is a war on Lebanon and not on Hezbollah. Hariri is being held in Saudi Arabia and is not allowed to return to Lebanon,” Nasrallah said in a televised speech on Friday night, describing his resignation as “illegal and unconstitutional” because it happened “under coercion.”

In his first comments since Hariri’s resignation last Saturday, Lebanese President Michel Aoun said the circumstances of Hariri’s sudden resignation need to be clarified.

A final decision on the resignation will be delayed until the Prime Minister’s return and the reasons for his move are revealed, he added, according to Lebanon’s National News Agency.

In a sign of escalating tensions with Beirut, Saudi Arabia, Kuwait and the United Arab Emirates on Thursday advised their citizens against travelling to Lebanon. Some nationals from the three Gulf countries were seen leaving Lebanon before the weekend, an official at Beirut’s Rafik Hariri airport said. Tourism is a main source of income for Lebanon, which has felt the economic fallout of the civil war in neighbouring Syria.