The attacks on Saudi Arabia’s most important oil facility over the weekend has not only dented its image as a reliable supplier to the needs of global energy demands, it has also raised questions over its ability to maintain its position as the world’s foremost oil exporter, especially given that the US is hot on its heels to take advantage of any decline to Saudi oil production.
The US has been the top producer of oil for a while but with its domestic consumption also topping the global chart, it has lagged behind Saudi Arabia on the supply side. A reverse of this trend has been predicted to arrive in the coming years; however oil analysts are now forecasting that Saudi vulnerability, exposed through Saturday’s drone attack, is likely to precipitate the kingdom’s decline as the largest supplier of crude oil.
“I believe that we have experienced the Pearl Harbour of the oil industry,” said Mehmet Ogutcu, chairman of London Energy Club, following the attack on Abqaiq facility, which is said to processes almost 70 per cent of crude output in the world’s largest oil exporter. While finger pointing over who is ultimately responsible for the attack is set to continue, oil traders are already said to be making the assumption that Saudi Arabia’s enemies in the region are capable of striking deep inside the kingdom, targeting its infrastructure and oilfields.
Analysts describe the oil maker as having “turned on its head” and threatening to alter the perception of Saudi Arabia as a source of plentiful oil.
Ogutcu’s comments comparing the attack – which has been claimed by Yemen’s Houthi group – with Pearl Harbour was one of many sensational remarks made by the analyst during an interview with a Turkish news agency. “The drone attack, removing five percent of the global oil production, will be remembered as a watershed incident in the world oil history,” he continued. “Its impact will be severely felt not only for a few weeks when damaged Saudi oil installations will be repaired and crude supplies will start flowing again business as usual. The impact will be much longer. The world’s largest oil exporter is vulnerable and its air defence system has proven to be ineffective,” he added. His comments are backed up by analysts in the FT that have also argued that the attacks “imperil” Saudi image as reliable oil supplier.
“For oil markets, it is the single worst sudden disruption ever,” Ogutcu went on to say. He explained that both Russia and the US are likely to be the main beneficiaries of any disruption to Saudi oil production. But American plans to double its crude oil exports to nine million barrels per day by 2024, Ogutcu explained, leave it in an ideal position to “topple Saudi Arabia as the world’s top oil exporter sooner than planned.”
Doubts have been raised over Saudi’s ability to fully recover and reclaim lost grounds to other suppliers. The overriding view seems to be that the kingdom is no longer a stable source of oil, which – given its colossal defence budget – has raised further questions over the royals making decisions in Riyadh.
Saudi Arabia has “a great deal of explaining to do” on how its oil assets were attacked, said one former US diplomat. According to Stockholm International Peace Research Institute the country spent an estimated $67.6 billion on arms in 2018, the highest such spending as a proportion of GDP.
“I think the Saudi leadership has a great deal of explaining to do that a country that ranks third in terms of total defense spending … was not able to defend its most critical, and I can’t underscore that enough, its most critical oil facility from these kinds of attacks,” said Gary Grappo, former US ambassador to Oman who also held senior positions at the US embassies across the Middle East including Riyadh.
Other regional experts concurred with the view that the Saudis were somehow complacent. Bob McNally, founder and president of consultancy Rapidan Energy Group, told CNBC that he was “disappointed, but not surprised” by the attack. He said he had expected Riyadh to “raise defences”, especially after Al-Qaeda’s previous attempt to attack its facilities.