Attacks on Saudi oil infrastructure increase in Q1: SPGCI Oil Security Sentinel
Saudi Arabia has said it is no longer responsible for any shortages in oil supply because of attacks on its facilities. An S&P Global Commodity Insights analysis of missile and drone strikes on the kingdom’s infrastructure in the first quarter of 2022 suggests Riyadh’s warning is more than just scaremongering.
The three months ending March 31 saw 13 attacks directed at the kingdom and its oil producing allies in the Gulf, up from nine reported incidents in the same period last year, according to the latest update of S&P Global Oil Security Sentinel.
A deeper analysis shows Saudi bore the brunt of attacks on the Gulf region’s oil and energy infrastructure, accounting for 70% of all incidents, with 38% resulting in hits on targeted facilities such as storage, refineries and shipping, the research shows. However, oil flows from the Middle East region — which accounts for about a third of global seaborne supply — have been unaffected by the increase in attacks since the beginning of the year.
Energy and oil supply security issues have been brought into even sharper focus since Russia’s invasion of Ukraine raised concerns over potential disruptions and shrinking global spare capacity. However, Gulf states led by Saudi now economically aligned with Russia through the OPEC+ oil production pact have rebuffed pleas from the US and Western consumer nations to increase output and ease crude prices now above $100/b.
The Platts Dated Brent/Dubai assessed by S&P Global Commodity Insights — a key barometer of risk in the market — touched a 20-month high of $6.72/b on March 24 as attacks on regional infrastructure surged and markets continued to react to the impact of sanctions hitting Russian oil supply.
Saudi Aramco has historically tried to maintain a 2 million b/d spare capacity buffer, which it has previously used on request to help maintain global market stability during supply shocks such as the Gulf War in the early 1990s, or the US invasion of Iraq in 2003. Houthi militants have repeatedly targeted the kingdom’s energy infrastructure since Riyadh launched a military campaign in Yemen against the Iran-backed Houthis.
Attacks on Saudi that have be tracked and reported by S&P Global since 2017 account for 61% of the total 78 security incidents targeting Gulf energy infrastructure. The recent uptick in activity culminated on March 25 with multiple attacks on sites near Ras Tanura and Jeddah, where some Aramco petroleum product storage tanks were set ablaze by a drone attack.
The UAE — Saudi’s main ally in its war in Yemen as part of the Arab Coalition — has also found itself increasingly targeted by militants in 2022. Attacks on energy infrastructure in Abu Dhabi accounted for almost a quarter of all incidents recorded in the Oil Security Sentinel in the first three months of the year.
“With the UAE also a recent target of Houthi attacks, we believe supply risks to the two world’s two most crucial swing producers — home to 95% of the world’s 1.6 million b/d of spare capacity by June — remain understated,” said Paul Sheldon, chief geopolitical advisor at S&P Global Commodity Insights.
The increase in attacks on oil infrastructure in the first quarter has also coincided with a renewed push by the US to agree a deal with Iran to ease nuclear sanctions. S&P Global estimates a deal to ease sanctions could add 900,000 b/d of crude to the market by September, compared with the first quarter.
“Regardless of the fate of nuclear talks, Iran-related geopolitical supply risks will overhang oil markets,” added Sheldon. “The Iran-backed Houthis in Yemen conducted a flurry of recent attacks on Saudi Arabia, culminating with a large fire at a Jeddah fuel depot on March 25. Earlier, a March 20 drone attack on the Yasref refinery caused the Foreign Ministry to indicate that Saudi Arabia cannot bear responsibility for stabilizing oil markets if its infrastructure remains under constant assault.”