Bousso: Cheap drones are a weak point for the global economy.

Drones are cheap, mass-produced and have revolutionized modern warfare. They expose critical energy infrastructures as the Achilles heel of modern economies. Unmanned aircraft are able to evade air defences on the battlefields in Ukraine, Russia, and the Middle East. This makes oil refineries and power stations as well as export terminals and pipelines prime targets. The energy industry is affected by the implications. Swarms of drones, which cost a few hundred dollars up to several thousand dollars each, can threaten facilities that have taken decades and billions to build. This will dramatically shift the balance of power between attackers and defenders.

Iran is a clear example of this new reality. Since the 'conflict between the U.S., Israel and Iran began on February 28, Tehran has used drones repeatedly to disrupt shipping in the Strait of Hormuz. Before the war, the narrow waterway was responsible for around a fifth (or more) of the world's oil and gas supply. The attacks have thrown into question a long-held belief that the Strait could not be closed without a strong naval presence. Gulf producers have been forced to re-evaluate long-standing plans for reducing their dependence on Hormuz. Governments across the Gulf are scrambling for thousands of kilometers of pipelines that will allow crude oil and natural gas to bypass the Strait.

Every kilometer of pipeline, pumping stations or power substations creates a new target for drone attacks that are becoming more sophisticated. Iran has already targeted dozens of refineries and liquefied gas (LNG), power stations, and LNG plants in the region. It also proved that it could quickly manufacture new drones even during wartime.

Ironically, energy security measures could create new vulnerabilities. And the danger extends well beyond the Middle East.

UKRAINIAN SWARMS

The destructive power of drones has never been more evident than in Ukraine. Kyiv launched a swarm of long-range drones in recent months against fuel depots, refineries and energy facilities deep within Russia. This disrupted fuel supplies, and showed that strategic infrastructure could be struck far from the front lines.

Ukraine is also building a massive domestic drone industry. Ukraine produces hundreds of thousands low-cost drones each month. This shows how quickly the technology has become commoditised.

The proliferation of drones, which are cheap and easy to use, is forcing governments to rethink their national defense. NATO members have announced that they will invest $40 billion over the next 5 years in counter-drone capability and train 5 times more drone operators by 2027. The technologies being developed include advanced radars, communications-jamming systems, interceptor drones, directed-energy weapons such as lasers, and specialised missile systems designed to destroy unmanned aircraft before they ?reach their targets.

NATO stated that drones had fundamentally changed the nature of modern warfare, and have become a decisive force on the battlefield. Effective defence depends on the ability of quickly detecting, identifying, and neutralising drones.

EXPAND ON YOUR OWN RISK

The wars in Ukraine, Iran and other countries have revealed the vulnerability of vital infrastructures around the globe. This includes energy facilities, telecommunications systems, transport systems and electricity grids.

In recent years, European authorities have reported an increase in the number of suspected Russian sabotages and hybrid attacks against offshore energy installations and rail networks. In the Middle East, the need for effective countermeasures has become more urgent because Iran could threaten to cut off Gulf producers' revenues by closing down the Strait of Hormuz. In order to counteract this, it is important to establish or expand alternative routes. Saudi Arabia considers expanding its crude oil pipeline, which connects the eastern oilfields of the kingdom with the Red Sea Coast. This would bypass the strait. During the Iran War, the East-West Pipeline proved to be a lifesaver, allowing Saudi Arabia continue exporting over 4 million barrels despite the disruption. This is more than half its pre-war levels. United Arab Emirates has also expanded the pipeline that connects its oilfields with the port of Fujairah, outside the strait. Iraq and Kuwait have explored similar projects.

This infrastructure can reduce the risk of a single strategic point being targeted, but it also creates an extensive network that is harder to defend. Energy companies now consider the risks of drone attacks, as well as other unconventional warfare methods when deciding where to build and protect their assets. Some companies may decide to purchase their own drone defense systems, now that they know that their assets could be targeted.

ECHOES FROM WORLD WAR I Drone technology has fundamentally changed the balance of the battlefield because traditional air-defence system are often ill suited to counter small low-flying planes and are, importantly,?exponentially expensive than the drones that they are trying stop.

This dynamic has echoes from World War One when barbed wire, machine guns and artillery shook up centuries of military doctrine that relied on mass infantry assaults. A handful of soldiers with machine guns were able to slay hundreds of attackers who crossed open terrain. It was a bloody war of trenches and years on the Western Front.

Only after the armies had developed new technologies, notably combat aircraft and tanks, were they able to finally break through?the impasse. As governments and military forces develop more effective countermeasures, the current drone threat is likely to play out in a similar way. For now, however, the economic and tactical equations favor the attacker.

This leaves one of the most important industries in the world facing a difficult reality: a relatively inexpensive technology can threaten installations worth billions. Drones will continue exposing the vulnerable underbelly to global economies until this imbalance is corrected.

You like this column? Check out Open Interest, your new essential source for global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.

(source: Reuters)