The attacks on Saudi oil facilities at Khurais and Abqaiq last month revealed devastating weaknesses of domestic defense and leadership on the Saudi side, fissures within the Saudi-US relationship and an abdication of the US security umbrella. An act of war and an attack on global energy infrastructure has been met with a muted response from global oil markets. But we should not measure the severity of the attacks in oil prices. That is the wrong metric. Oil prices reflect a short-term view based on weakening demand and oversupply; geopolitical risk seems hardly factored in.

Analysts at Standard Chartered find that September was the third consecutive month of year-on-year oil demand decline, the first time since 2009. Over the past 10 years, oil demand has risen in 113 months and fallen in just seven, but five of those seven declines have been in the last eight months. There is evidence of a growing threat to overall global growth, stymied by the US-China trade war and exacerbated by the systematic undermining of American credibility to defend the Persian Gulf region and act as the steward of an open global economy. The muted reaction to the attacks sets a precedent, increasing the risk environment in the Persian Gulf and the Red Sea corridor among allies and partnerships from NATO to Asia. It is very dangerous, as the CEO of Aramco, Amin Nasser, argued that the risk of another attack is increased by failure to respond.

What the attacks mean for the Saudi economy

While the attacks pierced a veneer of stability in the global economy, they also expose the extreme domestic economic vulnerability of the kingdom. Now, perhaps more than ever, the Saudi economy is dependent on oil revenues to fund public spending, and public expenditure is the lifeblood of the Saudi economy. The rise in oil prices in 2018 gave some hope that the government had more cash to spend. The pipeline of planned and underway projects in the kingdom stands at roughly a trillion dollars in value, but absent foreign direct investment, the plans are largely dependent on government spending for completion.