Saudi oil output cut in half after drones attack two Saudi Aramco sites

Saudi Arabia’s oil production was cut by half after a swarm of explosive drones struck at the heart of the kingdom’s energy industry and set the world’s biggest crude-processing plant ablaze — an attack blamed on Iran by the top U.S. diplomat.

Iran-backed Houthi rebels in Yemen, who’ve launched several drone attacks on Saudi targets in the past, claimed responsibility for the assault on the kingdom’s Abqaiq plant.

U.S. Secretary of State Michael Pompeo said in a tweet there’s no evidence the attacks came from Yemen and blamed Iran directly, but didn’t offer evidence for that conclusion either. President Donald Trump spoke with Saudi Crown Prince Mohammed Bin Salman by telephone but hasn’t commented directly. Dow Jones reported that Saudi and U.S. officials are investigating the possibility that cruise missiles were launched from Iraq, which is much closer than Yemen.

About 5.7 million barrels per day of output has been suspended, Saudi Aramco said in a statement. “Work is underway to restore production and a progress update will be provided in around 48 hours,” said Amin H. Nasser, Aramco’s president and chief executive officer.

That’s affected about half of Saudi Arabia’s oil production. Gas output was also disrupted, with 2 billion cubic feet in daily output, about half of normal production, stopped by the attack, SPA news agency said, citing the kingdom’s Energy Minister Abdulaziz bin Salman. Operations in Abqaiq and Khurais are halted for now.

The biggest attack on Saudi Arabia’s oil infrastructure since Iraq’s Saddam Hussein fired Scud missiles into the kingdom during the first Gulf War, the drone strike highlights the vulnerability of the network of fields, pipeline and ports that supply 10 per cent of the world’s crude oil. A prolonged outage at Abqaiq, where crude from several of the country’s largest oil fields is processed before being shipped to export terminals, would jolt global energy markets.

“For the oil market, if not the global economy, Abqaiq is the single most valuable piece of real estate on planet earth,” Bob McNally, head of Rapid Energy Group in Washington.

Aramco is working to compensate clients for some of the shortfall from its reserves. Emergency crews have contained the fires, Aramco said.

Trump expressed support for the kingdom’s self-defense during a phone call with Saudi’s Bin Salman after the attack, the White House said.

Saudi Aramco, which pumped about 9.8 million barrels a day in August, will be able to keep customers supplied for several weeks by drawing on a global storage network. The Saudis hold millions of barrels in tanks in the kingdom itself, plus three strategic locations around the world: Rotterdam in the Netherlands, Okinawa in Japan, and Sidi Kerir on the Mediterranean coast of Egypt.

The U.S. Department of Energy said it’s prepared to dip into the Strategic Petroleum Oil Reserves if necessary to offset any market disruption.

The International Energy Agency, responsible for managing the oil reserves of the world’s industrialised economies, said it was monitoring the situation, but the world was well-supplied with commercial stockpiles.

Facilities at Abqaiq and the nearby Khurais oil field were hit at 4 a.m. local time, SPA reported.

A satellite picture from a NASA near real-time imaging system published early on Saturday showed a huge smoke plume extending more than 50 miles over Abqaiq. Four additional plumes to the south-west appear close to the Ghawar oilfield, the world’s largest. While that field wasn’t attacked, its crude is sent to Abqaiq and the smoke could indicate flaring. When a facility stops suddenly, excess oil and natural gas is safely burned in large flaring stacks.​

The attacks were carried out with 10 unmanned aerial vehicles — drones — and came after intelligence cooperation from people inside Saudi Arabia, Yemen’s rebel-run Saba news agency reported, citing Houthi spokesman Yahya Saree.

Saudi Arabia’s oil fields and pipeline have been the target of attacks over the past year, often using drones, with the incidents mostly claimed by Yemeni rebels. Tensions in the Gulf — pitting Saudi Arabia and its allies, including the United Arab Emirates, against regional foe Iran — have highlighted the risk to global oil supply.

Saturday’s attack is the largest and most sophisticated yet. The Houthi forces have used small and medium-sized unmanned aerial vehicles in various roles, according to a United Nations report. Some are loaded with munitions for use as “kamikaze drones” with a range of up to 1,500 kilometers (932 miles).

Yemen’s Houthi rebels have been battling a Saudi-led coalition since 2015, when mainly Gulf forces intervened to restore the rule of President Abd Rabbuh Mansur Hadi and his government after the Houthis captured the capital, Sana’a. The conflict has killed thousands of people and caused one of the world’s worst humanitarian crises.

Red Lines

In recent months, Iran has become increasingly aggressive, regionally and over the issue of oil, attacking and hijacking tankers especially near the Straits of Hormuz. Yet they’ve seemed careful about crossing perceived “red lines” as they protest U.S. sanctions against their own oil.

At the same time, the Trump administration’s own impulses have seemed to vary: Trump has warned Iran against escalation, yet pulled back on a planned retaliatory attack, and fell out with his former National Security Adviser John Bolton, in part because of Bolton’s militancy against Iran.

The attacks come as Aramco, officially known as Saudi Arabian Oil Co., is speeding up preparations for an initial public offering. The energy giant has selected banks for the share sale and may list as soon as November, people familiar with the matter have said.

Khurais is the location of Saudi Arabia’s second-biggest oil field, with a production capacity of 1.45 million barrels a day.

Abqaiq has a crude oil processing capacity of more than 7 million barrels a day, according to the U.S. Energy Information Administration.