Publisher’s Note

The Attack on Saudi Oil Facilities –What Can We Learn to Cope with Risks?
By Kazumasa Kusaka
In September 2019, JEF held its third Global Risk symposium
under the heading “Brexit, North Korea, Iran and the IndoPacific” at the International House of Japan in Tokyo, withexperts from the United Kingdom, South Korea, the European
Union and the United States. JEF had started study groups on
global risks with representatives from industry, government andacademia to try to achieve a less segmented and more holistic
approach. Can sound judgments be made in the business world if
business people have little knowledge of geopolitical risks, or in
the security world if security experts do not understandeconomics? Based on our study group discussions, JEF began toorganize annual public symposiums on these themes.
Here, I would like to discuss the recent attack on Saudi oil
facilities from the perspective of risk analysis. First, there werecases which changed accepted perceptions irreversibly and led toa new set of actions, such as the First Oil Crisis of 1973 and the9/11 terrorist attacks in 2001. Further back, there was the Sputnik
launch and the US defeat in the Vietnam War. Now there is thepotential Cold War between the US and China. The common
element is being unprepared for the shake-up. Especially if theevent emerges from a player or country that has been
underestimated, those impacted who may have been
overconfident in their control of the game or their invincibility
experience the shock of a threat to their economy, society orsecurity.
What had happened after the First Oil Crisis? Previously, the“Seven Sisters” corporations had controlled oil prices, but now
the power to manipulate prices moved to OPEC. The shockcaught OECD countries off guard, and oil-consuming countries
then formed the International Energy Agency (IEA) to cope withOPEC. IEA cooperation had three policy objectives: oil stock
piling, energy conservation and development of alternative
energy sources. The oil shock also led to the creation of G5
policy coordination to deal with double-digit inflation and highunemployment.
Three decades after that, we experienced 9/11. The fightagainst terrorism has continued, and the world has divided into
long-lasting conflict between the US and its “coalition of thewilling” and terrorism-sponsoring countries and their friends.
Turning then to the Saudi attack, we can assume first that it was
aimed at damaging the economy and energy supplies. With thenews that more than half of Saudi production capacity wasdestroyed, the market responded with a surge of 20% to $65 perbarrel. Compared with the rise from $3 to $12 in the 1970s, thishttps://www.jef.or.jp/journal/

one was a contained reaction against the loss of 5.7 million
barrels, or 5% of global supply. Why so? In the 1970s, we had notbeen prepared, but now the IEA has a 90-day stockpile and amutual assistance program. Oil producers have become morediversified, and alternative energy sources have been developed
and come from various regions. Moreover, the emergence of theUS as the world’s largest oil and gas producer has reduced Saudi
Arabia’s role as dependable guardian or swing supplier to fill thedemand-supply gap.
Secondly, we can look at the defense technology anddeployment aspect. The drone attack on Saudi Arabia took out aknown weak spot in the oil supply chain with a cheap, low-tech,easy-to-acquire weapon that billions of dollars’ worth of air
defenses was powerless to stop. The obvious question then iswhether we had not expected drone attacks. Some experts had
warned about them. More importantly, drones have not been
unfamiliar technology, but rather a major tool in US
counterterrorism policies since 2002. But discussions had focusedon questions of effectiveness for the user, without considerationof strategic contexts from the viewpoint of defense.
Harvard Professor Clayton Christensen has argued that big
established organizations which often develop innovativetechnology in-house delay its introduction to the market. The
reason is that, if introduced to the market and deployed, theproduct would destroy a successful existing business line. So
internally, established organizations kill the new product whilesome outsiders dare successfully to introduce such products
embodying innovative technology. The drone fits this picture.
Underestimating asymmetric rival players can delay decisions
even further. Attacks by drone certainly affect thinking on defense
strategy, and could trigger more disruptive attacks if any
expanded military conflicts develop.
The fact that drones and missiles of multinational origin tend to
be deployed in areas of conflict together with technical advisersdispatched by equipment supplier countries, as in the case ofUkraine, makes the situation opaque. Common sense tells us thatmutually-assured destruction should serve as a deterrent, butpolitical will as well as wisdom are also necessary.

Kazumasa Kusaka is chairman and CEO of the Japan Economic Foundation(JEF), as well as being a professor of public policy at the University of Tokyo. He
previously served as special advisor to the prime minister on global warming
after having been vice minister for international affairs at the Ministry ofEconomy, Trade and Industry.
Japan SPOTLIGHT • November / December 20191