Saudi attack threat to global oil industry

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Saudi attack threat to global oil industry - Edoman - 09-19-2019

Saudi attack threat to global oil industry

by Emeka Ugwuanyi

September 19, 2019

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The attack on two major oil facilities in Saudi Arabia may be a pointer to an emerging trend that may adversely upset global energy security, if not swiftly checked. There are speculations that the incident may be a cross-border attack which may be seen from the prism of terrorism. EMEKA UGWUANYI looks at the incident.

The global oil and gas industry was taken aback with the report of attacks on two major oil facilities by drones in the early hours of last Saturday in Saudi Arabia.

Saudi Arabian local news network – Al Arabiya – had reported that two oil processing centres in Abqaiq and Khurais were attcked before dawn on Saturday, noting that the Saudi Interior Ministry reported fires at the two centres, which were later put off.

According to reports, Yemen’s Houthi rebels, funded for years by Iran, claimed responsibility for the bombing while another report claimed the missiles or drones were launched from Iraq. However, a Houthi spokesman, Brig.-Gen. Yahya Sare’e, reportedly said the group’s forces “carried out a massive offensive operation of 10 drones targeting Abqaiq and Khurais refineries but he did not specifically say that they launched the drones from Yemen. Houthi movement is an Islamic political and armed organisation that seeks greater autonomy for Houthi majority regions in Yemen.

Yemen’s state-controlled press claims Houthi rebels have been trained in Iranian-run camps.

Reacting to the Saudi oil facilities attack, the United States President Donald Trump had said the US is “locked and loaded” and ready to respond to attacks on petroleum processing facilities in Saudi Arabia, as US officials said the evidence pointed to Iranian involvement.

The US President did not mention Iran, but wrote on Twitter that he had “reason to believe that we know the culprit” behind the series of attacks on the Abqaiq facility, which is the world’s largest petroleum processing plant. The attacks disrupted more than half of the kingdom’s oil output and will affect global supplies.

Trump tweeted: “(We) are locked and loaded depending on verification, but are waiting to hear from the Kingdom (of Saudi Arabia) as to who they believe was the cause of this attack and under what terms we would proceed!”

The US government has produced satellite photos showing what officials said were at least 19 points of impact on Saturday at the two Saudi energy facilities, including damage at the heart of the kingdom’s crucial oil processing plant at Abqaiq. Officials told US media the photos showed impacts consistent with the attacks coming from the direction of Iran or Iraq, rather than from Yemen to the south. Iraq denied that its territory was used for an attack on the kingdom. US officials said a strike from there would be a violation of Iraq’s sovereignty.

The US officials said additional devices, which apparently didn’t reach their targets, were recovered northwest of the facilities and were being jointly analysed by Saudi and American intelligence. The officials, who spoke on condition of anonymity, did not address whether the weapons could have been fired from Yemen, then taken a round-about path, but did not explicitly rule it out. As a result of the attack oil price rose by almost $12 a barrel to $71.95 on Monday.

In reaction to Trump’s comment, a senior commander from Iran’s Revolutionary Guards warned that the Islamic republic was ready for “full-fledged” war. “Everybody should know that all American bases and their aircraft carriers in a distance of up to 2,000km around Iran are within the range of our missiles,” the head of the Revolutionary Guards Corps’ aerospace force, Amirali Hajizadeh, was quoted as saying by the semi-official Tasnim news agency.

However, Saudi de facto ruler Crown Prince Mohammed bin Salman has said the kingdom was “willing and able” to respond to this “terrorist aggression.”

Reports say Saudi Arabia’s oilfields and pipelines have been targeted by rebels over the past year but never on such a scale and causing such disruption. Analysts warned that global supplies of oil are likely to suffer a “major jolt” following the attack. Aramco said the attacks would cut output by 5.7 million barrels daily, more than five per cent of global crude supply.

Although Aramco’s Chief Executive Officer, Amin Nasser, said work was underway to restore production and that it would take weeks to return to full production capacity at the damaged facilities.

Looking beyond Saudi attack

According to industry analysts, the attack on Saudi oil facilities should be a concern to the global energy industry. They noted that oil producing countries should not jubilate over the increase in crude price necessitated by the attacks as there would be energy crisis should such attack be carried out on two more major oil producers simultaneously. To them, the sudden rise in crude price, especially if caused by incidents such as the Saudi attacks, will have long-term negative impact on the global economy. Therefore, there should be collective concerted efforts to prevent such attacks in all oil producing country.

“If this incident is not tackled frontally to prevent future occurrence not just in Saudi but in all oil producing country through a collective effort, the perpetrators may extend it to other oil producing country and that will have damaging ripple effect. Every effort must be made to stop terrorist attack in any form on oil facilities. Oil is central to efficient global activities, therefore, besides astronomic rise in price, attacks on oil facilities especially cross-border attacks that target large facilities have to be nipped in the bud.

“Remember that Saudi Arabia used to have the world’s largest oil reserves before it was overtaken by Venezuela in 2011. Currently, Venezuela is in crisis and most of this reserves are shut-in. Venezuela as at 2011 had reserves of more than 300 billion of proven reserves. Saudi Arabia’s reserves were 269 billion barrels as January of 2016. Also Iran and Iraq are among the world’s top oil reserves holders with 158 billion barrels and 143 billion barrels as at 2016.

“In terms of daily production, according to statistics from the Energy Information Administration (EIA) at the end of last year, Saudi Arabia’s daily oil production was 12,419,000 barrels. Although United States’ daily output was more at 17,886,000 barrels per day, its consumption was more at 19.88 million barrels daily. Therefore, any major attack on one more big producers will create a major supply gap.”