News Middle East16 Sep 2019

Saudi Arabia:Questions abound over impact of drone strikes on oil facilities

16 Sep 2019

Saudi Arabia cut its oil output by half on Saturday after Yemen's Houthi rebels claimed responsibility for a drone attack on two oil facilities in eastern Saudi Arabia.

The hits were made on Abqaiq and Khurais, two key Aramco facilities in eastern Saudi Arabia. In fact, the Abqaiq crude processing plant is the single most important facility in the Saudi oil sector, reported Bloomberg. In 2018 it processed about half of the kingdom’s crude oil production, according to a prospectus published in May for the state oil company’s first international bond.

These attacks resulted in production suspension of 5.7m barrels of crude oil per day, says a statement by Saudi Aramco which operates the facilities. This represents around 5% of the daily global oil supply. The company adds that the fires have been contained.

Oil price spikes are expected to follow and the increase will depend on the extent of the damage and how long it will take to repair.

The latest attacks were made just months after drones, allegedly launched from Iraq by Yemen’s Houthi rebels, targeted pumping stations on the oil pipeline. The damage caused by that earlier attack was minimal, but highlighted the vulnerability of Saudi Arabia’s oil infrastructure.

The Iranian Houthi rebels launched the attacks because of a military campaign led by Saudi Arabia to quash them in Yemen since March 2015.

Implications

Saudi Arabia will probably seek to maintain export levels as much as possible by supplying customers from stockpiles.

The attack will also test stockpiles in oil-consuming countries. Members of the International Energy Agency are required to hold 90 days’ worth of oil imports in emergency stocks and those will be pressed into service if the outage at Abqaiq is prolonged.

Neighbouring countries which, just days ago, were being exhorted to stick to output quotas agreed in December will now pump as much as they can to make up for any losses from Saudi Arabia. The UAE, Kuwait and Iraq will all boost output as much as they are able.

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