It is too early to know the full details of what actually took place at the Abqaiq oil facility in eastern Saudi Arabia, but early reports indicate that an attempted attack was foiled by Saudi security forces on February 24, 2006. The news caused oil prices to jump more than $2 a barrel.
The reaction of the oil market—that is all too aware of geopolitical, security, and economic risks—is expected. The attack comes amidst continuing instability in Iraq, the uncertainty regarding the Iranian nuclear issue, and the ongoing violence and supply disruption in Nigeria.
Saudi Arabia is the world’s largest oil producer and exporter. It holds 25% of the world’s proven oil reserves (261 billion barrels), produces 12.5% of the world’s oil production (9.0-9.5 million barrels a day), and exports 16% of world’s total exports (7.5 million barrels a day). Furthermore, the Kingdom has the largest surplus oil production capacity (approximately 1.1-1.8 million barrels a day.
The stability of the global oil market depends not only on the Kingdom’s capacity to meet shortages in oil supply, but also in its ability to reassure the market. In the past, Saudi Arabia has played the role of “swing producer” to meet shortages in supply. Now, the attention is focused on the Kingdom’s ability to meet global oil demand and protect its key oil facilities.
In the case of Abqaiq, even if some of the facilities were destroyed, Saudi Aramco has claimed that it has backup and redundant facilities to produce at near capacity. The same fears about Saudi energy security arose after the May 2004 attack in Yanbu. During that incident, the Saudi security forces were also able to suppress the attack. The terrorists were quickly killed and the facilities in Yanbu were not in danger. That, however, did not stop speculation about Saudi energy security.
The Impact of the Abqaiq Attack on Saudi Energy Security
Reply With Quote
Bookmarks