Energy security

Saudi Arabia Drone Attack Is a Strike at Oil’s Future

We’re about to find out just how laid back the oil market really is. It has shrugged off sanctions on Iran, exploding tankers and drones getting shot down over the Strait of Hormuz. But this weekend’s strike against Saudi Arabia’s Abqaiq processing facility – perhaps the single most important piece of oil infrastructure on the planet – is of a different order.

Saudi Arabia said the attack affected 5.7 million barrels a day of output, or roughly half their production. The more important issue is how long any disruption lasts. It is unclear whether the strike involved drone-fired weapons or missiles or a combination of them. The Abqaiq facility’s sheer size, covering more than a square mile, makes it hard to imagine that anything but an overwhelming or extraordinarily sophisticated attack could keep it offline for long. But we just don’t know at present. That alone should add some risk premium to oil prices.

The prevailing mood in the markets before Saturday was one of uncertainty weighing on prices, largely related to the swings of the trade war and – with the sudden absence of John Bolton from President Donald Trump’s ear – whether sanctioned Iranian barrels would find their way back to the market. Now we have some old-style geopolitical intrigue pushing the other way.