Drone attack on Saudi Arabia is a ‘turning point’ for the world’s fuel supplies
Crude oil prices jumped by 10 per cent on Monday following drone attacks on a refinery and an oil field in Saudi Arabia.
The blasts disrupted the supply of some 5.7million barrels per day, or 5 per cent of global supply, with experts warning that petrol prices could rise by up to 24 cents per gallon in the US and four pence per litre in the UK as a result.
But there are fears that Monday’s price increases are only the tip of the iceberg as security analysts said using drones to penetrate security around the world’s largest refinery marks a ‘turning point’ for the security of the world’s fuel supply.
The jump in Brent crude – up to $66 per barrel – marked its biggest intra-day percentage gain since Iraq invaded Kuwait in 1991, sparking the Gulf War.
The 5.7 million barrels a day outage is also the worst single disruption in oil market history, surpassing the loss of Iranian oil output in 1979 during the Islamic Revolution.
Smoke rises from the Abqaiq oil refinery in Saudi Arabia, the world’s largest, after it was attacked by drones on Saturday – knocking out 5 per cent of global oil supplies
Experts have warned that using relatively low-tech drones to penetrate security around the refinery is a ‘turning point’ for the world’s fuel supplies (pictured, the refinery burning)
Analysts said they expect to see repeat attacks on oil processing facilities, as crude prices soared across the globe on Monday
Donald Trump tweeted Sunday that America is ‘locked and loaded’ for a confrontation after Secretary of State Mike Pompeo pointed the finger of blame at Iran
The threat of all-out war in the region could push prices higher still, after President Donald Trump tweeted that the US was ‘locked and loaded’ as Secretary of State Mike Pompeo pointed the finger of blame at Iran.
Tehran has denied any involvement attacks, calling accusations to the contrary ‘unacceptable’ and ‘baseless’. Iran-backed Houthi rebels, which operate out of Yemen, have officially claimed responsibility.
Benchmark Brent crude gained nearly 20 per cent in the first moments of trading Monday before settling down to 10 per cent higher.
A barrel of Brent traded up $6 to $66.28. US benchmark West Texas crude was up around 9 per cent.
Analysts said Brent could hit $100 if Riyadh fails to quickly bring back supply, with sources warning that a return to full capacity could take ‘weeks not days’.
Rystad Energy, a fuel industry consultancy, said the attacks ‘turned the market on its head’ over the weekend, and had altered the perception of widely-available oil supplies in the wake of the shale boom in the US.
Meanwhile RBC Capital markets warned the attacks have ‘pushed the region ever closer to military confrontation’ and that oil markets are set for a ‘recalibration’.
The US said it is poised to release its oil reserves to cover any short-fall, but experts still warned that gas prices will be hit, with those on the West Coast worst affected.
Tom Kloza, an analyst at the Oil Price Information Service, said rises of up to 24 cents per gallon could be seen if the disruption drags out.
He told USA Today: ‘The question is, does the increase continue to grow and gain steam through the next few months or does Aramco make crude available through some other means?’
Experts have warned that prices for crude oil could spike to $100 per barrel, which would translate to an increase of 24 cents per gallon or 4 pence per litre at the pumps
This images above provided on Sunday by the US government and DigitalGlobe show damage to the infrastructure at Saudi Aramco’s Abaqaiq oil processing facility in Buqyaq, Saudi Arabia
A pre-strike overview of Saudi Aramco’s Abaqaiq oil processing facility is pictured
This image shows damage to the infrastructure at Saudi Aramco’s Khurais oil field
A pre-strike overview at Saudi Aramco’s Khurais oil field is seen released by the US government
Many details of the attack are currently unclear, but the Houthis claim it was carried out using drones flown from Yemen.
The Shia rebel group has previously used drones to attack pipelines, but has never succeeded in significantly disrupting world oil supply before.
If their claims turn out to be true, then experts warned Bloomberg that such attacks will become much more common in the future.
Milena Rodban, an independent risk consultant based in Washington, told the outlet: ‘The bottom line is that we are likely to see many more of these sorts of attacks, and in particular, coordinated attacks on multiple targets are likely, possibly in tandem with a cyber attack component.’
Jeffrey Price, a security consultant and professor at Metropolitan State University of Denver, said that using drones ‘enables attacks that previously weren’t able to be conducted with that level of stealth and detachment from the attacker.’
That concern was echoed by South Korea on Monday, which issued a statement saying: ‘The attacks this time posed a serious threat to key international energy infrastructure, and we express concern that they undermine the energy security of the entire world and stability in the region.
‘We condemn any similar acts.’
Trump was rumoured to be meeting Iranian President Hassan Rouhani (pictured) on the sidelines of a future UN summit, though he has since rubbished the suggestion
A military spokesperson for these Yemeni rebels, who are locked into a bloody civil war, claimed responsibility for the strike on Saudi Arabia ‘s state-owned oil giant Aramco
A satellite image provided by NASA Worldview shows fires following a drone attack on two major oil installations in eastern Saudi Arabia
South Korea is among Asian nations which are set to be hit hardest by the disruption, as most of Saudi Arabia’s oil is exported there.
America used to be among the nations with the largest imports, but increased production thanks to shale gas has seen it cut its orders.
The bomb attacks ramped up tensions around the Persian Gulf once again, just as the spectre of conflict between the US and Iran was beginning to fade away after a summer that saw attacks on oil tankers and an American drone shot down.
President Trump tweeted Sunday that America is ‘locked and loaded’ while Iran said it was ‘ready for full-fledged war’.
Beijing, which is also among the largest importers of Saudi oil, urged restraint on Monday, saying: ‘We oppose all actions that enlarge or intensify conflict.’
China has close economic, diplomatic and energy relations with both Riyadh and Tehran and has long had to tread carefully in its ties with both. Saudi Arabia is China’s top oil supplier year to date.
Saudi Arabia’s King Salman visited Beijing in 2017, and Saudi Crown Prince Mohammed bin Salman came to China earlier this year.
Iranian Foreign Minister Mohammad Javad Zarif met the Chinese government’s top diplomat, State Councillor Wang Yi, in Beijing late last month.
Mike Pompeo has accused Tehran of launching the attack and said that the US would ensure ‘Iran is held accountable for its aggression.’
Iraqi Prime Minister Adel Abdul Mahdi confirmed that his office had received a call from Pompeo on Monday, amid fears the attack could also have come from Iraq.
Dominic Raab, the UK Foreign Secretary, said the attack ‘was a wanton violation of international law’ but refused to be drawn on who was behind it.
‘In terms of who is responsible, the picture is not entirely clear,’ Raab said. ‘I want to have a very clear picture which we will be having shortly.
‘This was a very serious attack on Saudi Arabia and the oil installations and it has implications for global oil markets and supply,’ Raab said.
‘It’s a very serious, an outrageous act, and we need to have a clear and as united as possible international response to it.’