US blames Iran for attacks on Saudi oil plants Drone attacks on processing facilities cut kingdom’s oil output by more than half

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Smoke is seen following a fire at an Aramco factory in Abqaiq, Saudi Arabia, September 14, 2019 in this picture obtained from social media. VIDEOS OBTAINED BY REUTERS/via REUTERS ATTENTION EDITORS - THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. MANDATORY CREDIT. NO RESALES. NO ARCHIVES.
Smoke billows from an Aramco factory in Abqaiq, Saudi Arabia © VIDEOS OBTAINED BY REUTERS

US blames Iran for attacks on Saudi oil plants Drone attacks on processing facilities cut kingdom’s oil output by more than half Smoke billows from an Aramco factory in Abqaiq, Saudi Arabia © VIDEOS OBTAINED BY REUTERS Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Save David Sheppard and Anjli Raval in London, Simeon Kerr in Dubai and Ahmed Al Omran in Riyadh SEPTEMBER 14, 2019Print this page341 The US blamed Iran for attacks that set two major Saudi Arabian oil facilities ablaze on Saturday, hitting more than half of crude oil supplies from the world’s largest exporter.

Houthi rebels in Yemen claimed responsibility for the attacks on Abqaiq, a vital oil processing centre south-west of Saudi Aramco’s headquarters in Dhahran, and the Khurais oilfield. The strikes occurred in the early hours of Saturday morning, marking the most successful strike to date on Saudi energy facilities by the Iranian-backed rebels. 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. 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 Bob McNally, Rapidan 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. Oil prices slipped this week after John Bolton, a noted Iran hawk, left his role as National Security Adviser to the White House and as US president Donald Trump had indicated he was willing to talk with Iran, which wants sanctions removed. Mr Trump spoke to Crown Prince Mohammed bin Salman by phone to offer US support to the kingdom, and said the such attacks had a negative impact on the American and global economies, according to the state news agency.

Prince Mohammed said the kingdom “has the resolve and capability to confront this terrorist attack and deal with it,” the readout said. Helima Croft at RBC Capital Markets said the Houthi attacks showed that risks to oil supplies remained heightened in the region. “It shows that despite the dismissal of Bolton and president Trump’s flirtation with talks, the risk of a dangerous escalation remains ever present,” Ms Croft said. “I think the [oil] market does not appreciate the severity of the risk.

Aramco has really invested in beefing up security but these groups only have to be lucky once.” Recommended Andrew England A deadly twist in Yemen’s calamitous civil war The four-years war between a Saudi-led coalition and Houthi rebels in Yemen has been described by the UN as the world’s worst man-made humanitarian crisis. It has brought the Saudis into near conflict with regional rival Iran.

There has been a surge in attacks on Saudi oil infrastructure and tankers in the Gulf over the summer. The US and Saudi Arabia have blamed Iran and its proxies. Tehran has denied responsibility. In August Houthi rebels launched a drone attack on the Shaybah oilfield and in May claimed responsibility for the pipeline attack, which like Saturday’s attacks happened far from the border. But US officials later said they believed it originated in southern Iraq, where Iranian-aligned militias are active. Houthi rebels said Saturday’s attacks involved 10 drones.

“We promise the Saudi regime to expand our operations in future and to be more painful as long as its aggression and siege continues,” a military spokesman said, Tension in the Gulf has increased since the US withdrew from the 2015 nuclear accord with Iran and began tightening sanctions in a bid to squeeze the Islamic republic’s oil exports. additional reporting by Kiran Stacey in Washington

Source:Financial Times