Saudi oil facility attack raises serious concerns

The Houthi rebels of Yemen have taken credit for the attack on the Saudi oil facilities as a matter of strategic revenge.

Update: 2019-09-17 01:46 GMT

Saturday’s attack on Saudi Arabia’s most significant oil facilities, at Khurais and Abqaiq in the eastern part of the country, claimed by Yemen’s Houthi rebels, knocked out five per cent of world oil supplies, raising serious concerns on the shooting up of petroleum prices, and over the stability of one of the world’s most volatile regions.

Riyadh, which can become India’s largest crude supplier after Iranian imports were blocked due to US sanctions on Tehran, assured New Delhi on Monday that there will be no drop in crude supplies to India. This is reassuring. However, it’s not clear if this will be on the same terms as before.

The anxiety arises from the fact that on Monday crude prices surged by 20 per cent, the biggest jump in intra-day trade since Opec was created in the 1980s.
This isn’t good news for the world’s economic health. India has special reasons to worry. The inflation front was benign over the past five years mainly because crude prices stayed more or less steady around $50 a barrel, compared with double that for most of the UPA era.

With nearly every economic indicator showing worrying signs these days, if crude imports come to impose a heavy burden on the balance of payments situation, a surge in inflation may become unavoidable. With across-sector unemployment staring us in the face, this could have huge political implications.

The Houthi rebels of Yemen have taken credit for the attack on the Saudi oil facilities as a matter of strategic revenge. Saudi Arabia, leading a coalition, intervened in Yemen’s civil war politics and has been bombing Yemen, including the capital Sanaa, controlled by the Houthis for several years, relentlessly since 2014.

This has created the world’s biggest human right crisis with some 24 million people on the brink of starvation, and on the list of the dead or the injured. Riyadh’s bombardment has been backed by the United States, Britain and France. The Western powers share Saudi Arabia’s worry that the Houthis enjoy the support of Iran, the implacable foe of Riyadh and Washington. The US straightaway began to accuse Iran of carrying out Saturday’s attacks, with Tehran calling this “deception” on America’s part, presumably hinting that the US was looking for a pretext to attack Iran. All of this raises security and stability concerns which can’t but have deep geopolitical implications, including on energy pricing internationally.

While this may outline the big picture, leading energy sector observers appear deeply anxious about the vulnerability of Saudi Arabia’s oil infrastructure. If the Houthi claim is valid, experts think it may not be drones that carried out the attack, as initially thought, but missiles, since the oil facilities lie about 750 km from Yemen, beyond drone range. Evidently, Saudi anti-missile defences was found wanting. This causes worry about the stability of future oil supplies and pricing.

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