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Saudi Shuts Down Half Its Oil Output After Drone Strikes

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Saturday’s attack on a critical Saudi oil facility will almost certainly rock the world energy market in the short term, but it also carries disturbing long-term implications.

Ever since the dual 1970s oil crises, energy security officials have fretted about a deliberate strike on one of the critical choke points of energy production and transport. Sea lanes such as the Strait of Hormuz usually feature in such speculation. The facility in question at Abqaiq is perhaps more critical and vulnerable. The Wall Street Journal reported that five million barrels a day of output, or some 5% of world supply, would be taken offline as a result.

To illustrate the importance of Abqaiq in the oil market’s consciousness, an unsuccessful terrorist attack in 2006 using explosive-laden vehicles sent oil prices more than $2.00 a barrel higher. Saudi Arabia is known to spend billions of dollars annually protecting ports, pipelines and processing facilities, and it is the only major oil producer to maintain some spare output. Yet the nature of the attack, which used drones launched by Iranian-supported Houthi fighters from neighboring Yemen, shows that protecting such facilities may be far more difficult today.

There are countries that even today see their output ebb and flow as a result of militant activity, most notably Nigeria and Libya. Others, such as Venezuela, are in chronic decline due to political turmoil. Such news affects the oil price at the margin but is hardly shocking.

Deliberate attacks by actual military forces have been far rarer, with the exception of the 1980s “Tanker War” involving Iraq, Iran and the vessels of other regional producers such as Kuwait. When Saddam Hussein’s Iraqi forces invaded Kuwait in 1990, removing its production from the market and putting Saudi Arabia’s massive crude output under threat, prices more than doubled over two months.

Yet Saturday’s attack could be more significant than that. Technology from drones to cyberattacks are available to groups like the Houthis, possibly with support from Saudi Arabia’s regional rival Iran. That major energy producer, facing sanctions but still shipping some oil, has both a political and financial incentive to weaken Saudi Arabia. The fact that the actions ostensibly were taken by a nonstate actor, though, limits the response that the U.S. or Saudi Arabia can take. Attempting to further punish Iran is a double-edged sword, given that pinching its main source of revenue, also oil, would further inflame prices.

While the outage may not last long given redundancies in Saudi oil infrastructure, the attack may build in a premium to oil prices that has long been absent due to complacency. Indeed, traders may now need to factor in new risks that threaten to take not hundreds of thousands but millions of barrels off the market at a time. U.S. shale production may have upended the world energy market with nimble output, but the market’s reaction time is several months, not days or weeks, and nowhere near enough to replace several million barrels.

After the smoke clears and markets calm down, the technological sophistication and audacity of Saturday’s attack will linger over the energy market.


24 Comments on "Saudi Shuts Down Half Its Oil Output After Drone Strikes"

  1. Richard Guenette on Sat, 14th Sep 2019 7:11 pm 

    The monarchs who ruled the KSA should be executed for treason, war crimes, crimes against humanity and genocide.

  2. makati1 on Sat, 14th Sep 2019 7:25 pm 

    Blow-back is a bitch isn’t it KSA? The US will soon see similar. Be patient Amerika!

  3. Stupid juanpaultard socks on Sat, 14th Sep 2019 7:46 pm 

    Richard Guenette said The monarchs who ruled the KSA should be executed…
    Richard Guenette said Our only home (Earth) is becoming a very nightmari…

  4. Chrome Mags on Sat, 14th Sep 2019 7:47 pm 

    Sounds like those drone strikes on Saudi oil infrastructure are getting more destructive.

    Wouldn’t it be weird if at some not too distant future the whole world was embroiled in drone strikes. The wealth divide having gone too far, the less fortunate, yet still very capable, engage in launching drone strikes against super wealthy targets.

  5. Stupid Davy Sock on Sat, 14th Sep 2019 8:14 pm 

    Stupid juanpaultard socks on Sat, 14th Sep 2019 7:46 pm

  6. twocats on Sun, 15th Sep 2019 12:11 am 

    theory 1: Bolton couldn’t get it done from the inside, time to step it up from the outside. The neocons are through wasting time trying to “convince” trump. time to false flag the hell out of SA.

    theory 2: drones are cheap to design, manufacture and deploy. Just point them with GPS coordinates and launch. SCUD type missiles as well. in most simulations in a war against Iran, the US loses.

  7. Chrome Mags on Sun, 15th Sep 2019 1:34 am

    That’s a news report showing the explosions at the Saudi oil fields from the drone attacks. Yemeni Houthi are claiming responsibility for the attacks and that is in the video.

    Hopefully this will put to rest Trump & Pompeo’s insistence that it was an attack by Iran.

  8. Pat on Sun, 15th Sep 2019 3:19 am 

    “Blow-back is a bitch isn’t it KSA? The US will soon see similar. Be patient Amerika!” Oil shortages in 2020, oil to hit new highs. Prepare.

  9. q on Sun, 15th Sep 2019 4:04 am 

    Maybe the terrorists finally understand that attacks on civilian targets are pointless, the leaders in overcrowded world do not care at all. The attacks on key infrastructure are far more effective. Good luck in protecting it everywhere against drones.

  10. Sys1 on Sun, 15th Sep 2019 4:20 am 

    Iran is behind the attack. It’s a retaliation from embargo decreted by USA and applyed by many, KSA included.
    What will happen next? I suspect USA will engage in a war with Iran to secure KSA. This will of course secure nothing but peak oil senecca cliff…
    This is a major event.

  11. q on Sun, 15th Sep 2019 5:24 am 

    I doubt Iran is behind it, false flag is more probable. And if the USA engages in a war with Iran to secure KSA, the result will be opposite.

  12. Cloggie on Sun, 15th Sep 2019 5:32 am 

    The Houthis admitted they were behind it. Perhaps they got a little logistical help from their Iranian friends, just like the Donbass rebels got covert support from their Russian geopolitical friends.

    Hell, even a few English amateurs can bring down Heathrow airport for days with a stupid 100$ drone.

    Whoever did it, they got a lot of geopolitical bang for very few bucks.

    Who loves this?

    – Putin and his oil that will be very much in European and Chinese demand.
    – European renewable energy industry and potent green movement.
    – Russia-oriented European populists.
    – Iran.

    Who hates this?

    – China
    – KSA
    – Israel
    – USA
    – Poland

  13. joe on Sun, 15th Sep 2019 6:58 am 

    No doubt the damage is worse than they will admit (sign of the times). Maybe allowing Houthi children to eat food might stop the war. Starving a nation into submission hardly give them incentives to agree to terms. My guess is that you haven’t seen the last of these things

  14. Cloggie on Sun, 15th Sep 2019 7:06 am 

    Pompeo blames Iran without providing evidence:

    Interesting detail Houthi statement:

    “However, one element of the Houthi statement on the attacks did thank “co-operation with the honourable people inside the kingdom“.

    The distance from the nearest point on the Yemen border to the closest target, the Khurais oilfield, is about 770km, well beyond the range of the normal Houthi attack drone, the Qatef-1.”

    Who could that be?

    Shia map Middle East:

    The Abqaiq refinery is in the middle of Shia territory.


  15. Cloggie on Sun, 15th Sep 2019 7:12 am

    “The Washington Post newspaper said the US government believed that 15 buildings at Abqaiq had been damaged on the west-northwest sides, not the southern sides facing Yemen.”

    This would exclude Iran as well, giving additional credibility to the “inside job” hypothesis.

  16. Cloggie on Sun, 15th Sep 2019 8:51 am 

    Can only agree with CNN for a change:

    “Attack on Saudi oil field a game-changer in Gulf confrontation”

    Unlike Pompeo, CNN exercises restraint in blaming some party without evidence.

    Nevertheless, speculating is always interesting:

    “A source with knowledge of the incident told CNN National Security Analyst Peter Bergen late Saturday that preliminary indications were the drones/missiles “did not originate from Yemen and likely originated from Iraq.” A second source in the Gulf region told CNN that while there was no proof yet, the indications were that the attack originated in southern Iraq.”

  17. Cloggie on Sun, 15th Sep 2019 8:54 am 

    Still find this the most credible explanation:

    “The Houthis themselves have suggested, without providing any evidence, that they had help from inside the kingdom for these latest attacks. Their spokesman Yahya Saree said the operation followed “an accurate intelligence operation and advance monitoring and cooperation of honorable people inside the kingdom.”
    Analysts take that to mean elements of the restive Shia population in Saudi Arabia’s Eastern Province. Abqaiq lies between the predominantly Shia area of Qatif and Ahsa, which has a substantial minority Shia population. But they caution that it’s in the Houthis’ interests to try to stir internal tensions and it seems far-fetched that local people could have assisted such an attack.”

  18. Cloggie on Sun, 15th Sep 2019 9:02 am 

    Oil experts expect rapid price increase of $15-20:

    Oilprice over $100 in 30 days is absolutely possibly. Currently WTI $55

    Putin loves it. Trump cannot afford to start another hopeless unwinnable war in the ME, one year before the election circus starts again. A war that would drive Europe irreversibly in the arms of “deeply European” Russia (Macron).

  19. Davy on Sun, 15th Sep 2019 9:03 am 

    We can be sure the Shia’s in Yemen, KSA and Iran are naturally in on this. The Houthis are a dream child of the Iranians. They mirrored the Iranian agenda and before the war it was Iranian inspiration that made them an extremist force. That said the War on Yemen is a crime against humanity IMO. IOW KSA and its allies deserve what is coming. This includes the US for its part in all this. Maybe the neocons and the extremist neoliberals will wake up to the consequences of bad policy.

  20. Davy on Sun, 15th Sep 2019 9:10 am 

    The Iranians are just doing what the West did with ISIS by arming an extremist group to carry on a proxy war plain and simple. This will not end well and anyone who thought otherwise will be disappointed. Iran is backed into a corner with its economy in shambles from sanctions. It is ready to cause pain to the West. Houthis is a perfect group for this and the Arabian desert a perfect place to move small groups around to unleash mayhem.

  21. Davy on Sun, 15th Sep 2019 9:20 am 

    “Oilprice over $100 in 30 days is absolutely possibly. Currently WTI $55”

    There is plenty of oil in storage and the global economy is in a manufacturing and export recession that might morph into a general global recession in 1H2020. If prices go near $100 they will likely be under pressure to stay there. Much depends on if this conflict escalates. Israel is itching for it. I would not have put it past the Israelis doing this as a false flag and or assisting the Houthis like a ME 911.

  22. joe on Sun, 15th Sep 2019 10:23 am 

    This, and Brexit! Thats all I need. Anyone notice how this happened just when MBS was getting back into polite society after chpping up one of his own citizens in Turkey and he wanted to start selling shares in Aramco. Kinda puts things in perspective re investment grade nations……

  23. Harquebus on Sun, 15th Sep 2019 2:10 pm 

    It could be that this event is the straw that breaks the econmic camel’s back.
    Without cheap and abundant energy, global debts can not be repaid.

  24. anon on Mon, 16th Sep 2019 2:15 am 

    saudi oil fields are overworked and in increasingly precarious condition. They know this. They know this for years. They would even think of selling/IPOing aramco if they didnt know its days were numbered. How, though, to save face while cutting back production, both to give the fields a needed rest and to reduce the pressure to continue producing and performing as before, in a manner that does not imperil the narrative about SA still swimming on an ocean of cheap oil? stage an attack that causes minimal damage, blame it on anyone convenient, and you’re home free.

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