The four-year conflict between Saudi Arabia and Yemen was already awful, but things just got entirely serious with a successful Yemeni Houthi attack on the heart of the Kingdom's oil fields.
Saudi Arabia’s oil production was cut by half after a swarm of explosive drones struck at the heart of the kingdom’s oil industry and set the world’s biggest crude-processing plant ablaze.
Iran-backed Houthi rebels in Yemen, who have launched several drone attacks on Saudi targets, claimed responsibility.
Saudi Aramco had to cut production by as much as 5 million barrels a day as a precautionary measure after the attack on the Abqaiq plant, according to a person familiar with the matter. Most output will be restored within 48 hours, they said, asking not to be identified before an official announcement.
The biggest attack on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein fired Scud missiles into the kingdom during the first Gulf war, the drone strike highlights the vulnerability of the network of fields, pipeline and ports that supply 10% of the world’s crude oil. A prolonged outage at Abqaiq, where crude from several of the country’s largest oil fields is processed before being shipped to export terminals, would jolt global energy markets.
“Abqaiq is the heart of the system and they just had a heart attack,” said Roger Diwan, a veteran OPEC watcher at consultant IHS Markit. “We just don’t know the severity.”
Facilities at Abqaiq and the nearby Khurais oil field were attacked at 4 a.m. local time, state-run Saudi Press Agency reported, citing an unidentified interior ministry spokesman. It didn’t give further details and no further updates have been released.
“For the oil market if not global economy, Abqaiq is the single most valuable piece of real estate on planet earth,” Bob McNally, head of Rapid Energy Group in Washington.
Aramco, which pumped about 9.8 million barrels a day in August, will be able to keep customers supplied for several weeks by drawing on a global storage network. The Saudis hold millions of barrels in tanks in the kingdom itself, plus three strategic locations around the world: Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.
The International Energy Agency, responsible for managing the oil reserves of the world’s industrialized economies, said they were monitoring the situation, but the world was well-supplied with commercial stockpiles.
A satellite picture from a NASA near real-time imaging system published early on Saturday showed a huge smoke plume extending more than 50 miles over Abqaiq. Four additional plumes to the south-west appear close to the Ghawar oilfield, the world’s largest. While that field wasn’t attacked, its crude is sent to Abqaiq and the smoke could indicate flaring. When a facility stops suddenly, excess oil and natural gas is safely burned in large flaring stacks.
For the Yemeni Houthis to hit the Saudis this hard is a major, major problem. It guarantees that Riyadh will now go all out to wipe them off the face of the Earth. That means going to the Trump regime to get more weapons, which we'll gladly sell to them.
On the other hand, raising the price of oil is exactly what the upcoming stock IPO of Saudi Aramco would need, and this attack is more than capable of putting oil over $100 a barrel for an extended period of time, especially if Aramco has difficulties getting production back on line.
Oh, and American consumers get screwed again. We'll see where oil goes on Sunday and Monday.
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