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Oil Traders Are Largely Unfazed By Drone Attack On Saudi Pipeline

Oil prices jumped on Tuesday morning (about 1.5% by 11:30 am) after the Saudi oil minister reported that armed drones attacked two pump stations on Aramco’s East West Pipeline in Saudi Arabia.

Fires caused by the attack were contained, and at least one of the pump stations suffered minor damage, according to a press release from Saudi Aramco. As a result, the pipeline has been shut temporarily. This pipeline is 1,200 km long and carries about 5 million barrels of oil per day from oil fields in eastern Saudi Arabia to the Red Sea port city of Yanbu on Saudi Arabia’s west coast. The East West pipeline is a key part of Saudi Arabia’s oil infrastructure, because it allows tankers from Saudi Arabia heading to European or American destinations to bypass two difficult waterways—the Strait of Hormuz and the Bab el Mandeb strait. Iran has threatened to close the Strait of Hormuz, and Saudi ships have suffered damage from Iranian-backed Houthi forces in Yemen while transiting the Bab el Mandeb into the Red Sea. Aramco plans to expand the capacity of the East West pipeline in coming years.

Houthi forces in Yemen have claimed responsibility for the attack, though there is no corroborating evidence yet. The attack occurred about 435 miles away from the Saudi border with Yemen.

It is not yet clear how long the pipeline will be out of commission. Aramco says there will be no disruptions to oil production or exports. TankerTrackers.com reports that Aramco currently has millions of barrels in storage at the SUMED pipeline in Egypt and at the Yanbu port itself which could easily compensate for any problems with the East West pipeline for several weeks.

Though the attack comes amidst rising tensions between Iran and the U.S., oil markets aren’t panicking.

If it is found that the Houthis did execute this attack there are some greater implications:

1. Saudi Arabia must wonder why after 3 years of fighting it hasn’t been able to neutralize such threats from Yemen. Houthis forces have regularly shot missiles and rockets at Saudi targets, including Riyadh, but the precision of an attack on a pump station should cause concern.
2. Saudi Arabia has made major investments in its defense systems and its air force, but if these systems weren’t able to identify and destroy an invading drone the military will have to consider how to best prevent future attacks of this nature.
3. On the other hand, the attack was largely ineffective. It is expected that the pipeline will be back up shortly and the attack did not disrupt the oil supply from Saudi Arabia.
Source: Forbes

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