US blames Iran for attacks on Saudi oil plants
https://www.ft.com/content/b14d9322-d6bb-11e9-8f9b-77216ebe1f17
The White House said Tehran was behind the assault. “Amid all the calls for de-escalation, Iran has now launched an unprecedented attack on the world’s energy supply,” US secretary of state Mike Pompeo tweeted.
“There is no evidence the attacks came from Yemen. We call on all nations to publicly and unequivocally condemn Iran’s attacks. The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.” Pictures and video posted on social media showed large fires at Khurais, which lies more than 500km from the Yemen border.
Saudi energy minister Prince Abdulaziz bin Salman said early estimates showed that the attack caused a suspension of crude oil supplies of 5.7m barrels or more than 50 per cent of daily production. But he added that part of the loss of supplies to customers would be offset from inventories. He also said gas production had gone down by 50 per cent as a result of the attack.
“This terrorist attack is an extension of recent attacks that targeted oil and civilian infrastructures and pumping stations and oil tankers in the Arabian Gulf,” the prince said. “These attacks do not only target the kingdom’s vital installations but also international oil supplies and threaten their security.”
Saudi Aramco chief executive Amin Nassir said that the company had extinguished the fire, which left no injuries, and was working on restoring production levels.
Saudi Arabia supplies more than 10 per cent of global crude and is the world’s largest exporter of oil. The loss of more than 5m barrels a day would be the equivalent of 5 per cent of global oil supply.
While Saudi Arabia has said it expects output to be restored in the near future, the size of the loss will still send shockwaves though global energy markets and the scale of the attacks will raise fears that the kingdom’s energy infrastructure is vulnerable to increasingly sophisticated attacks by Iran-aligned Houthi rebels.
One source briefed by the Saudi Arabian energy ministry said part of the shutdown of output was precautionary and should be restored quickly.
The International Energy Agency, which coordinates global emergency oil stock releases, said: “The IEA is monitoring the situation in Saudi Arabia closely. We are in contact with Saudi authorities as well as major producer and consumer nations. For now, markets are well supplied with ample commercial stocks.”
Analysts warned that the size of the loss could trigger a sharp rise in oil prices when markets reopen after the weekend, potentially spreading fears to the wider economy.
A spokesperson for the US Department of Energy said: “The secretary [of Energy] has been briefed on today’s drone attack in Saudi Arabia and
stands ready to deploy resources from the Strategic Petroleum Oil Reserves (SPRO) if necessary to offset any disruptions to oil markets as a result of this act of aggression. The Secretary has also directed DOE leadership to work with the International Energy Agency on potential available options for collective global action if needed.”
While global oil consumers hold emergency oil stocks in reserve, and Saudi Arabia may be able to mitigate some of the loss from its own oil stocks or spare production capacity, the scale of the loss has the potential to reverberate through global markets.
“Today’s attack on the Abqaiq processing facility constitutes a paramount oil bullish, equity bearish, and global growth negative risk,” said Bob McNally of the Rapidan consultancy, who previously advised the White House under George W Bush.
“Such a brazen attack by an Iranian proxy on the crown jewel of the Kingdom of Saudi Arabia’s energy system will raise the overall geopolitical risk premium.
“Due to its complexity, size, and customised components, repairing Abqaiq could take months, depending on the extent of the damage, though workarounds can offset some of the loss.”
Saudi Aramco has been fast-tracking plans to launch an initial public offering as soon as later this year as part of the kingdom’s economic reform efforts. Security of supplies and management of Saudi barrels by the company are of utmost concern to potential investors.