Missile Attack on Saudis Poses Trump’s First Serious Test

For a rare change, global markets seem genuinely concerned about the news. A drone attack by Iran over the weekend knocked out more than half of Saudi Arabia’s refining capacity, amounting to roughly five percent of global supply. Fox and other news outlets underplayed the story initially, putting it beneath the latest sex charges against Kavanaugh. But the Saudi story shot up to the top of the page when index futures began trading Sunday evening and oil prices soared $8 to a high of nearly $63 per barrel. So far, though, traders have gotten it only half-right. Comex gold is up a mere $14 at the moment (see chart above), and S&PS futures are off only 18 points. This suggests that although the threat to the world’s oil supplies is perceived as real, it is not yet considered a full-blown crisis in the trading world.

Shades of Goldfinger?

They’ll wise up soon enough, though, especially if Trump chooses to confront Iran. Until now, the mullahs have confined their attacks to oil tankers bearing the flags of countries unlikely to retaliate. By launching drones (or possibly cruise missiles) on a Saudi facility, they have declared war on a key U.S. ally. Trump has responded by approving the use of America’s emergency oil reserves to dampen any price spike, but it is unclear how he will deal with Iran itself. So far, the President has been all words when handling North Korea, China and Cuba/Venezuela. But none of them has pressed him nearly as aggressively or persistently as Iran. It is one thing for Kim Jong-un to shoot missiles into the air or even over Seoul, but quite another for Khamenei to actually bomb one of the world’s most important oil facilities.

Some are comparing this to Pearl Harbor, but that was a sneak attack. In this case, Iran’s destructiveness follows an entirely predictable pattern of increasingly menacing actions. One shudders to think of what it will mean if Trump, facing the first serious challenge of his presidency, rises to the occasion. As much could be said if he doesn’t. If all-out war results, it wouldn’t be the first time this happened when neither side wanted it. It’s also possible Iran has taken its inspiration from Auric Goldfinger, the James Bond character who nuked Ft. Knox in order to increase the value of his own bullion.  If so, and assuming the mullahs press no further, the strategy could succeed by drastically repricing oil. In the meantime, the mullahs are denying that they had anything to do with the attack — that it was Yemeni Houthis who did it. If the situation were not so grave, their denial would be laughable.