Oil Prices see Spike after Attack on Saudi Facilities

The Middle East has always had some portion of its territory in turmoil or conflict. During the late 1970s and early 1980s, the U.S. was involved in the hostage crisis in Iran. The Iran-Iraq War was waged during the 1980s and the Gulf War began in 1990. There was a civil war in Yemen in the mid-1990s, a civil war in Lebanon and the Syrian Civil War began in 2011. These are only modern conflicts though. Regional conflicts in the Middle East can be traced back to 1902 and there are dozens that have disrupted the region ever since.

At one time, many of the conflicts had to do with the spread of Communism, while many others were rooted in the conflict between the two major sects of Islam which are practiced across the region. Oil and the control of oil-rich areas have been another source of conflict that has sparked many conflicts in the region.

That was the case recently in Saudi Arabia as the Abqaiq and Khurais oil facilities were the targets of a coordinated drone strike. On September 14, in a pre-dawn attack, 25 drones and missiles were used to badly damage the two facilities.

Although the Saudis were able to put the fires out within three to four hours of the attacks, the resulting damage required Saudi Arabia to shut down half of the country’s oil production. The Abqaiq facility is the largest oil processing facility in the world. The facility has the capability of processing 7 million barrels a day. The Khurais facility has the ability to pump about 1.5 million barrels a day.

The attack took 5.7 million barrels per day of oil production offline.

Iran Appears to be the Instigator

Blame for the attack has focused on Iran or Yemen Houthi rebels. The rebels are thought to be a proxy for Iran, so it would appear that Iran is the source of the attack. Also, after the Saudi’s collected debris from the attack and viewed video, it appears that the drones used were Iranian delta-wing unmanned aerial vehicles.

Iran and Saudi Arabia have been adversaries because Iran is dominated by Shiite-Muslims and the Saudis are Sunnis.

Immediately after the attacks, crude oil prices spiked by 15 percent. The Kingdom of Saudi Arabia assured all concerned that they already had a third of the facilities back online by the Monday after the weekend attacks and they anticipated that they would be back to full production by the end of September. Many experts are skeptical that full production can return so quickly.

The U.S. imports about 10 percent of its petroleum from Saudi Arabia. With the decrease in production capacity, the price will go up until the Saudis can restore production. Some experts believe that the price at the pump could increase by as much as 20 cents a gallon. The U.S. may release oil from the Strategic Petroleum Reserve to ease the impact of the lost production on global energy markets.

For speculators in oil, the attacks will have them reassessing risk and rethinking their strategies.