What is the significance of the attack on Saudi Arabia's oil infrastructure?
While damage was only minor the concern now is over the message being sent
The reported drone attack on two Saudi oil pumping stations today, following sabotage of four ships off Fujairah on Sunday, is not serious in itself, but it is a warning. Reported damage was only minor, but the pipeline was shut down as a precaution.
Oil prices rose about 1 per cent in response. With exports uninterrupted, and Saudi production anyway well below capacity because of adherence to the Opec+ deal to curb production, the physical impact of these two incidents is insignificant. As repeated attacks in Yemen itself have shown, pipelines can be repaired within a few days, and Saudi Aramco has extensive stocks of spare parts. The concern is more about the message being sent, and the danger this is just the next escalation in the Arabian Gulf confrontation.
Such a mission by drones would indicate considerable sophistication. The two pumping stations are about 200 kilometres apart, about 750 kilometres from the Yemeni border, and are not large targets. As RAND analyst Becca Wasser points out, the Houthi forces have a UAV-X drone with a range of more than 1400 kilometres. Still, instead of going after a larger, closer and more vulnerable target, such as a refinery or oil storage tank, the choice of this pipeline is presumably meant to send a message.
Houthi media reported a drone operation against Saudi installations, but did not specifically identify the pipeline as the target. The incident in Fujairah, damaging four ships, also remains mysterious, with no claims of responsibility nor a clear account of the mode of attack. There is nothing to respond to or retaliate against.
Saudi Arabia's oil export routes are through the Strait of Hormuz and the Red Sea. Iranian military leaders have periodically threatened to block the Strait of Hormuz to others’ oil shipments if their own exports are interrupted. Tightening US sanctions cut Iranian crude and condensate exports to less than 1 million barrels per day in April, from about 2.7 million bpd last June.
Fujairah is strategic as the exit point of the Adcop pipeline from Habshan. With capacity of 1.5 million bpd, it can carry 60 per cent of the UAE’s oil exports. It is also the world’s second-largest ship bunkering (refuelling) port, a major centre for oil storage, and Adnoc is building a 42 million barrel strategic underground reserve there.
Saudi Arabia’s east-west pipeline, running to Yanbu’ on the Red Sea, is also a core piece of its strategy for assuring supply. With a capacity of about 5 million barrels per day, it is being expanded to 6.5 million bpd, and the Muajjiz maritime terminal is being revamped to load 3 million bpd. Allowing for feedstock for four massive refineries in the Yanbu’ area, the expanded Petroline can currently export about 3.6 million bpd, approximately half of current Saudi exports.
Spare production capacity in Saudi Arabia, the UAE and Kuwait is a key part of the US’s strategy for tightening sanctions against Iran. Donald Trump is wary both of being drawn into conflict by uber-hawk John Bolton, and of rising oil prices. The pinprick damage so far has not worried markets, and serious disruption to crude flows would need a much more serious and sustained campaign. So far, these incidents appear to be a warning.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
Updated: May 15, 2019 09:11 AM