Oil Prices Drop As Saudi Eyes Non-Military Solution To Iran Crisis

Oil prices fell more than one percent on Monday after Saudi Arabia’s de facto leader said war with Iran would destroy the world economy and hinted instead at a non-military solution.

Washington, Riyadh, Berlin, London and Paris blame Iran for attacks that damaged the Saudi oil sector on September 14 and forced the world’s largest crude exporter to sharply reduce production.

Elsewhere Monday, stock markets diverged as traders tracked the latest twists and turns regarding the US-China trade war. The dollar was mixed against main rivals.

“In terms of geopolitical concerns, common sense is prevailing for now in Saudi Arabia,” noted analyst Naeem Aslam at traders ThinkMarkets, in reference to the comments by Saudi Arabia’s crown prince in an interview with CBS show “60 minutes” broadcast over the weekend.

Mohammed bin Salman said war would be catastrophic for global growth.

‘Unimaginably high’

“Oil supplies will be disrupted and oil prices will jump to unimaginably high numbers that we haven’t seen in our lifetimes,” the prince said.

“The region represents about 30 percent of the world’s energy supplies, about 20 percent of global trade passages, about four percent of the world GDP. Imagine all of these three things stop,” he said.

“This means a total collapse of the global economy, and not just Saudi Arabia or the Middle East countries.”

Iran’s oil minister meanwhile on Sunday ordered his country’s energy sector to be on high alert to the threat of “physical and cyber” attacks.

Bijan Namdar Zanganeh said “it is necessary for all companies and installations of the oil industry to be on full alert against physical and cyber threats”, in a statement published on the oil ministry’s Shana website.

Tehran has denied any link to the Saudi strikes, which were claimed by Huthi rebels in Yemen. Iran supports the rebels against a Saudi-led coalition that has been fighting the Huthis since 2015.

“Oil has been amazing everyone over the last couple of weeks, having surged on the back of the attack on the Saudi oil facilities before reversing the entirety of these gains, despite the country temporarily losing half its output,” Craig Erlam, senior market analyst at Oanda trading group, said Monday.

“Traders are clearly not particularly concerned about risk premiums in oil… Instead, the focus again seems to be shifting back to the demand dynamics and the risk of further downgrades as the global economic slowdown takes hold,” he added.

US-China trade war

Elsewhere Monday, investors digested reports in US media that President Donald Trump is mulling severe new restrictions on investment in China.

Shanghai and Tokyo stock markets slumped the day before a week-long patriotic holiday begins in China, despite assurances from the US Treasury that there were no plans to stop Chinese companies from listing on US exchanges.

On Tuesday the Asian giant celebrates 70 years since the founding of communist China, with markets closed from October 1 to 7, while planned pro-democracy protests in Hong Kong threaten to disrupt festivities.

Shanghai closed down 0.9 percent as some investors took profits, with uncertainty fuelled by fears of an escalation in the US-China trade war that has raged for more than a year.

“The Sino-US trade negotiations have been full of twists and turns,” said Zhang Gang, an analyst with Central China Securities.

“You don’t know what remarks Trump would make in the next seven days, or what variables there will be from the US side. So (investors) have set themselves in a low-key, waiting position.”

Key figures around 1100 GMT

Brent North Sea crude: DOWN 1.3 percent at $61.12 per barrel

West Texas Intermediate: DOWN 1.0 percent at $55.34 per barrel

London – FTSE 100: DOWN 0.3 percent at 7,406.37 points

Frankfurt – DAX 30: DOWN 0.1 percent at 12,368.83

Paris – CAC 40: FLAT at 5,639.56

EURO STOXX 50: FLAT at 3,546.40

Hong Kong – Hang Seng: UP 0.5 percent at 26,092.27 (close)

Shanghai – Composite: DOWN 0.9 percent at 2,905.19 (close)

Tokyo – Nikkei 225: DOWN 0.6 percent at 21,755.84 (close)

London – FTSE 100: UP 0.1 percent at 7,433.79

New York – Dow: DOWN 0.3 percent at 26,820.25 (Friday’s close)

Euro/dollar: DOWN at $1.0920 from $1.0941 at 2030 GMT

Pound/dollar: UP at $1.2302 from $1.2293

Euro/pound: DOWN at 88.80 pence from 89.01 pence

Dollar/yen: DOWN at 107.93 yen from 107.95

AFP

US Announces Deployment Of 200 Troops, Missiles To Saudi Arabia

 

The United States announced Thursday the deployment of 200 troops as well as Patriot missiles to Saudi Arabia to help the country’s defense in the wake of last month’s attacks on oil installations blamed on Iran.

The Defense Department said the deployment would involve one battery of the surface-to-air missiles, along with four Sentinel radars used for air and missile defense systems.

In addition, two more Patriot batteries and one THAAD ballistic missile interception system are being readied in case a decision is made to also supply them to the Saudis, Pentagon spokesman Jonathan Hoffman said.

“This deployment will augment the kingdom’s air and missile defense of critical military and civilian infrastructure,” he said.

It comes “in light of recent attacks on the Kingdom of Saudi Arabia,” he said.

“It is important to note these steps are a demonstration of our commitment to regional partners, and the security and stability in the Middle East,” he added.

“Other countries have called out Iranian misadventures in the region, and we look for them to contribute assets in an international effort to reinforce Saudi Arabia’s defense.”

The US has pointed to Iran being behind the combination drone and cruise missile attacks on September 14 which heavily damaged two Saudi oil installations, forcing the key oil supplier to slash output.

Iran has denied responsibility, and President Hassan Rouhani on Thursday challenged the US and others to provide evidence to back up their accusations

AFP

Saudi Oil Attacks An Iranian ‘Act Of War’, Says Pompeo

 

 

US Secretary of State Mike Pompeo denounced strikes on Saudi Arabia’s oil infrastructure as an “act of war” on Wednesday, as Riyadh unveiled new evidence it said showed the assault was “unquestionably” sponsored by arch-foe Iran.

The comments raise the risk of a wider conflict in the tinderbox Gulf region after the weekend strikes on the heart of the kingdom’s oil industry knocked out half its production, rattling energy markets.

“This was an Iranian attack,” Pompeo told reporters on his plane before landing in the western city of Jeddah, calling it “an act of war”.

“This is an attack of a scale we’ve just not seen before.”

His comment came as Saudi Arabia displayed what it said were fragments of 25 drones and cruise missiles fired at two facilities in the country’s east, engulfing them in flames.

“The attack was launched from the north and unquestionably sponsored by Iran,” defence ministry spokesman Turki al-Maliki said.

READ ALSO: Two Killed As Spanish Military Plane Crashes

Tehran-linked Huthi rebels in the kingdom’s southern neighbour Yemen have claimed responsibility, but both Washington and Riyadh have ruled that out.

“We are working to know the exact launch point,” Maliki said.

But he would not be drawn on whether Saudi officials believed Iran would ultimately be found to be the culprit.

Pompeo said there was no evidence for media reports the attacks had been launched from Iraq — caught between its two main sponsors, Tehran and Washington.

Diplomats at the United Nations said experts were expected in the kingdom to lead an international inquiry.

Pompeo met Saudi Crown Prince Mohammed bin Salman in Jeddah to discuss a response to the strike, which took out six percent of global supplies.

Meanwhile, the Huthis threatened to hit “dozens of targets” in the United Arab Emirates, part of a Saudi-led coalition against the rebels.

‘We don’t want war’

A US official, speaking on condition of anonymity, told AFP the administration has concluded the attack involved cruise missiles from Iran, and said evidence would be presented at the UN General Assembly next week.

Vice President Mike Pence reiterated President Donald Trump’s comments that “we don’t want war with anybody, but the United States is prepared.”

Trump, who has already re-imposed sanctions that have crippled Iran’s economy, promised on Wednesday to “substantially increase” the measures, winning quick praise from Riyadh.

He said details would be given within 48 hours.

Iran’s Foreign Minister Mohammad Javad Zarif, himself under US sanctions since July 31, described the measures as “illegal” and “inhuman”.

Trump’s move was an “admission that (the) US is DELIBERATELY targeting ordinary citizens,” he said on Twitter.

The apparent hardening of the US position came as Iran’s supreme leader Ayatollah Ali Khamenei ruled out negotiations with Washington “at any level”.

That appeared to nix hopes for a dramatic meeting between Trump and his Iranian counterpart Hassan Rouhani at the United Nations next week.

Late Wednesday, the United States still had not issued Rouhani and his delegation with visas to attend the meeting in New York, Iranian state media said.

Maliki said Saturday’s attack did not originate from Yemen, where Saudi Arabia is locked in a prolonged conflict with the Huthis, “despite Iran’s efforts to make it appear so”.

He said the strike was beyond the capabilities of the militia — who have however mounted dozens of smaller attacks on Saudi territory.

“The precision impact of the cruise missile” indicated advanced capabilities beyond those of the Huthis, he added.

Oil prices rocked

Observers say the Saudi experience in Yemen, where despite their vast firepower they have failed to subdue the ragtag but highly motivated militia, has made Riyadh circumspect about wading into another conflict.

“I certainly hope we’re not” going to have a war, Riyadh’s ambassador to London Prince Khalid bin Bandar told the BBC.

“We are trying not to react too quickly because the last thing we need is more conflict in the region.”

Iran has backed Huthi claims of being behind the attack, and Rouhani said Wednesday it was a rebel “warning” about a possible wider war in response to the Saudi-led intervention in Yemen.

State media said Tehran had written to Washington through the Swiss embassy on Monday, denying any role in attacks on Saudi installations and warning it would respond to any action against it.

Trump’s administration is considering responses including a cyber attack or a physical strike on Iranian oil infrastructure or its Revolutionary Guards, NBC News reported, citing unnamed US officials.

Oil prices have see-sawed since the attacks, with record gains Monday followed by a tumble Tuesday as the Saudi assurances on supplies soothed the markets.

Germany Extends Saudi Arms Exports Ban

German Chancellor Angela Merkel/ AFP

 

Germany has extended a weapons export embargo against Saudi Arabia for six months until the end of March 2020, a government spokesman said Wednesday.

Besides a halt in deliveries during the period, no new weapons contracts would be approved, the spokesman added about the embargo, which was imposed last October over the murder of Saudi journalist Jamal Khashoggi.

AFP

Saudi To Announce Oil Attacks Findings As US Weighs Retaliation

A picture taken on September 15, 2019 shows an Aramco oil facility near al-Khurj area, just south of the Saudi capital Riyadh. Saudi Arabia raced today to restart operations at oil plants hit by drone attacks which slashed its production by half, as Iran dismissed US claims it was behind the assault.

Saudi Arabia said it will unveil the results later Wednesday of its probe into attacks on key oil installations, as US Secretary of State Mike Pompeo heads to the kingdom to discuss possible retaliation.

Riyadh, which is bogged down in a five-year war against Tehran-aligned rebels in neighbouring Yemen, has said that the weapons used were Iranian-made but has not directly blamed its arch-rival.

However, the Saudi defence ministry said its spokesman would present evidence from the site of the weekend attacks that halved Saudi oil production, sending global energy markets into a tailspin.

He “will announce the final results of the investigation and present material evidence and Iranian weapons proving the Iranian regime’s involvement in the terrorist attack,” the ministry said.

Late Tuesday, Energy Minister Prince Abdulaziz bin Salman said international investigators, including from the UN, were joining the probe, having announced that output would return to normal by the end of the month.

The kingdom wants “proof based on professionalism and internationally recognised standards,” he said.

The Saudis will present the evidence ahead of Pompeo’s arrival.

The US chief diplomat is set to meet with de facto Saudi ruler Crown Prince Mohammed bin Salman to discuss how to respond to the strikes, which the US says originated in Iran.

“As the president said, we don’t want war with anybody, but the United States is prepared,” Vice President Mike Pence said in a speech in Washington on Tuesday.

“We’re locked and loaded and we’re ready to defend our interests and allies in the region, make no mistake about it,” he said, echoing President Donald Trump’s words on Sunday.

A US official, speaking on condition of anonymity, told AFP that the Trump administration has concluded that last weekend’s attack involved cruise missiles from Iran and that evidence would be presented at the UN General Assembly next week.

Prefer not to meet

The apparent hardening of the US position came as Iran’s supreme leader Ayatollah Ali Khamenei ruled out negotiations with Washington “at any level”.

This appeared to nix remaining hopes for a dramatic meeting between Trump and Iranian President Hassan Rouhani at the United Nations next week.

Speaking to reporters on Air Force One over California, Trump said he too had cooled on what had always seemed to be a diplomatic longshot.

“I never rule anything out, but I prefer not meeting him,” Trump said.

Yemen’s Huthi rebels claimed responsibility for Saturday’s oil installation attacks, which took out six percent of global supplies.

But a senior US administration official cast doubt on that claim, saying that while the Huthis said they used 10 drones, one Saudi oil facility was hit “at least 17 times,” and another twice by “precision-guided munitions.”

Additionally, neither the type of drone “nor the cruise missiles employed in the attack can reach the facilities from Yemen. It’s not possible,” the official said.

The Huthis are at war with Saudi-backed forces in Yemen, turning the impoverished nation into a proxy battlefield for Tehran and Riyadh.

Observers say the torrid experience in Yemen, where despite their vast firepower, the Saudis have failed to subdue the ragtag but highly motivated militia, has made Riyadh circumspect about wading into another conflict.

“I certainly hope we’re not (going to have another war),” Riyadh’s ambassador to London Prince Khalid Bin Bandar told the BBC in an interview.

“Almost certainly it’s Iranian-backed, but we are trying not to react too quickly because the last thing we need is more conflict in the region,” he said.

Iran has stuck with its account that the Huthi rebels are responsible, with Rouhani saying Wednesday that they carried out the strike as a “warning” about a possible wider war in response to the Saudi intervention in Yemen.

Support for war?

The increasingly complex conflict dovetails with the Trump administration’s attempt to curb Iranian power through a “maximum pressure” campaign of crippling economic sanctions.

Trump began that campaign after unilaterally pulling out of a 2015 international deal meant to reward Iran for allowing restrictions on its nuclear industry.

The new stage of the long-running US-Iranian standoff has raised speculation over whether it will lead to conflict.

Trump called off a retaliatory missile attack on Iran in June after the Iranians shot down a spy drone.

He said he did not want to kill what generals told him could be up to 150 people.

Trump’s administration is considering responses to the latest attack, including a cyber attack or a physical strike on Iranian oil infrastructure or its Revolutionary Guards, NBC News reported, citing unnamed US officials.

Oil prices have see-sawed since the attacks, with record gains Monday followed by a tumble Tuesday as the Saudi assurances on supply soothed the markets.

AFP

UK, Germany Urge ‘Collective Response’ To Saudi Attacks

A picture taken on September 15, 2019 shows an Aramco oil facility near al-Khurj area, just south of the Saudi capital Riyadh. Saudi Arabia raced today to restart operations at oil plants hit by drone attacks which slashed its production by half, as Iran dismissed US claims it was behind the assault.

 

Britain and Germany on Tuesday urged the international community to forge a “collective response” to the drone attacks on Saudi Arabia’s oil installations, which US officials have blamed on Iran.

British Prime Minister Boris Johnson and German Chancellor Angela Merkel discussed the attacks during a telephone conversation, agreeing on “the need to work together, alongside international partners, to agree a collective response,” according to Downing Street.

The weekend strikes on Abqaiq — the world’s largest processing plant — and the Khurais oilfield have knocked out 5.7 million barrels per day (bpd), or six percent of global production, sending prices soaring.

Washington has blamed Tehran, and President Donald Trump has said that the United States is ready to help Saudi Arabia, but will wait for a “definitive” determination on who was responsible.

Johnson and Merkel stressed the “importance of avoiding the further escalation of tensions in the region”.

The weekend attacks have spiked tensions and prompted concerns about an escalation. Conflict in the Gulf region could put a large portion of global energy supplies at risk.

AFP

Half Of Lost Saudi Oil To Remain ‘Offline’ For A Month – Report

A picture taken on September 15, 2019, shows an Aramco oil facility near al-Khurj area, just south of the Saudi capital Riyadh. PHOTO: FAYEZ NURELDINE / AFP

Around three million barrels per day of Saudi oil will remain offline for a month, about half the production halted by the weekend’s devastating attacks on key crude facilities, S&P Platts said Tuesday.

The report came as oil prices dipped slightly following record gains Monday as uncertainty prevailed on global markets over when the OPEC kingpin will be able to restore lost production.

Strikes on Abqaiq — the world’s largest processing plant — and the Khurais oilfield that the US has blamed on Iran have knocked out 5.7 million barrels per day (bpd), or six percent of global production.

“At this point, it looks likely that around 3.0 million bpd of Saudi Arabian crude supply will be offline for at least a month,” S&P Global Platts said in a report.

Saudi Energy Minister Prince Abdulaziz bin Salman is scheduled late Tuesday to hold his first press conference since the attacks, with the expectation that he will give an update on efforts to restore lost production.

Riyadh pumps some 9.9 million bpd of which around 7.0 million bpd are exported, mostly to Asian markets.

“Saudi Arabia will likely say that they can fully supply their customers, although as time goes on this may be challenging. Any indication of delays or supply tightness will lead to further price increases in the weeks/months ahead,” S&P said.

The threat of a prolonged supply outage from Saudi Arabia highlights the lack of spare production capacity in the market, estimated at 2.3 million bpd, most of it held by Riyadh, the energy news provider said.

Reports said Monday the kingdom was likely to restore up to 40 percent of the lost production immediately, but experts had conflicting views on how long it will take to bring production back to pre-strike levels.

The crisis revived fears of a conflict in the tinderbox Gulf region and raised questions about the security of crude fields in the world’s top exporter as well as for other producers.

London-based Capital Economics said global crude stocks, estimated at around 6.1 billion barrels, should be able to compensate for the lost output.

It said that if Saudi Arabia manages to restore full production by next week, oil prices would quickly come down to around $60 a barrel.

But if it takes months and tensions persist, Brent crude prices could hit $85 a barrel, it said.

Brent was trading above $68 per barrel on Tuesday, easing slightly after surging by 20 percent at its peak on Monday — the biggest gain since the 1991 Gulf War.

Yemen’s Iran-aligned Huthi rebels claimed responsibility for the weekend attacks but the United States put the blame on Tehran.

AFP

Buhari Decries Attacks On Saudi Oil Refinery Plants, Assures Of Nigerian Solidarity

 

President Muhammadu Buhari says the Federal Republic of Nigeria stands in solidarity with the Kingdom of Saudi Arabia, following drone attacks yesterday on the refinery plants at Khurais and Abqaiq.

In a statement by his special media aide, Mr Garba Shehu, the President said similar attacks on oil facilities have been recorded in Nigeria but that the perpetrators did not succeed in their plot to undermine the government of the day.

He said those who carried out the attack in Saudi Arabia will also not be able to undermine the government, adding that they will be brought to justice.

READ ALSO: Xenophobia: Buhari Pledges ‘Solidified’ Nigeria-South Africa Ties As Ramaphosa Apologises

“We in Nigeria once experienced attacks on our own oil facilities. Those who sought, by doing so, to undermine governments of the day did not succeed then – nor at any time.

“The identities of those who sent the drones to attack the Saudi refineries, and from where, may not yet be known. Still, these attacks similarly represent economic warfare aimed at damaging a government, but, in reality, always and only damaging innocent citizens’ livelihoods: those with no place, nor cause, to be harmed,” the President said.

“The attackers of Saudi Arabia will win no friends in the international community for their actions – whoever they may be, and however certain they be in their cause,” the Nigerian leader added.

World Oil Supplies Still ‘Fairly Substantial’ After Saudi Attacks – US Official

Indigenous Firms Plan To Increase Oil Output
File photo

 

World oil markets can still draw on sizeable reserves despite the weekend’s devastating attack on Saudi Arabian production facilities, US Energy Secretary Rick Perry said Monday.

The attack sent oil prices rocketing higher on Monday, stoking fears that costlier energy could dampen global economic growth and weigh down global equities markets.

“The market… has a fairly substantial amount of oil out there available,” Perry told CNBC.

READ ALSO: Oil Prices Shoot After Saudi Drone Attack

Perry also said it was “premature” to discuss drawing on US strategic reserves while damage to Saudi output was still being assessed.

US and Saudi officials have blamed Iran for the attacks but Tehran has dismissed the accusations, suggesting that Washington was seeking a pretext to attack the Islamic republic.

Meanwhile, Saudi authorities are considering whether to delay an IPO for oil giant Aramco after this weekend’s attack on its oil facilities shut down a major chunk of global production, people with knowledge of the matter said.

Huthi rebels backed by Iran, who have been locked in battle with a Saudi-backed coalition for years, claimed responsibility for the attacks on Aramco facilities.

The attack shut down about half of Saudi production, or some five percent of global production, according to Craig Erlam of foreign exchange company Oanda.

AFP

Oil Prices Shoot After Saudi Drone Attack

 

Crude prices shoot higher, Wall Street sank into the red on Monday, after weekend drone attacks knocked out much of Saudi Arabia’s oil production.

The lower open threatened to break an eight-day winning streak for the benchmark Dow Jones Industrial Average, with the major US stock indices just below fresh record highs.

Markets were also digesting a batch of poor economic data out of China and awaiting Wednesday’s Federal Reserve announcement on monetary policy.

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Ten minutes into the day’s trading, the Dow and broader S&P 500 were both down 0.4 percent at 27,112.32 and 2,996.52 respectively.

The tech-heavy Nasdaq was 0.5 percent lower at 8,139.64.

While the spike in oil prices — WTI benchmark crude was up a towering $5.32 at $60.17 per barrel — sent oil stocks higher, investors may fear more expensive oil could further slow an already waning global economy.

Oil supermajors Exxon Mobil and Chevron were up 2.6 percent and 2.7 percent respectively.

Fresh economic data on Monday showed activity in China slowed last month across the board, with the pace of industrial production, retail sales and investment in fixed assets all lower.

In the United States, automaker General Motors was down 2.9 percent after unionized autoworkers began a nationwide strike over disagreements on wages, health care benefits and job security.

The Federal Reserve is widely expected to announced an interest rate cut on Wednesday, the second of the year, as the American economy slows with the rest of the world and President Donald Trump’s trade conflicts drag on.

AFP

Saudi Arabia Battles Market Jitters After Oil Plant Attacks

 

Saudi energy giant Aramco is battling to reassure markets after devastating attacks on two oil plants, where a prolonged shutdown risks roiling investor confidence ahead of the state-owned giant’s mega stock listing, analysts say.

A wave of drones struck Abqaiq –- the world’s largest oil processing facility –- and the Khurais oil field in eastern Saudi Arabia, knocking out nearly half of the kingdom’s crude production and exposing the vulnerability of its energy infrastructure.

While Tehran-backed Yemeni rebels claimed responsibility for the pre-dawn strike on Saturday, Washington blamed Iran for what it called an “unprecedented attack on the world’s energy supply”.

It is a major test for the kingdom’s newly appointed energy minister Prince Abdulaziz bin Salman –- a half-brother to the crown prince –- as the attacks could dampen investor confidence in Aramco’s upcoming two-stage stock market debut.

The attacks have effectively turned off six percent of the global oil supply, raising the possibility of a spike in prices when markets re-open on Monday — even as Aramco said it will tap into its reserve stockpiles to offset the disruption.

“The worst-case scenario (for pushing oil prices higher) is an incident that takes a large amount of oil production offline in Saudi Arabia,” said energy expert Robert Rapier.

“If they can get production back online pretty quickly — or at least assure the markets they can — you might not see an enormous price spike,” Rapier wrote for Forbes online.

But the full extent of the damage at the plants and how long it will take to repair is unclear, with analysts warning that an absence of information could fuel trader speculation.

Saudi authorities, known for their penchant for secrecy, have not allowed reporters near the plants where security has been tightened since the attacks.

‘Exposed to Terrorism’

Seeking to soothe market jitters, Aramco CEO Amin Nasser has said “work is underway to regain the (lost) production quantities”.

Bloomberg News reported that Aramco expects to restart most of the operations “within days”.

“Saudi Arabia has plenty of oil stored to fulfill customer demands and don’t think Aramco will lose money over this,” said Ellen Wald, author of the book “Saudi Inc.”.

“This isn’t a company that has to pump and sell to make payroll like a tiny fracking outfit.”

Saudi Arabia is known to have vast underground storage facilities with a capacity of tens of millions of barrels of various refined petroleum products that can be tapped during times of crisis.

“All key facilities in the world are exposed to terrorism, so the point here for investors will be to judge Aramco on the speed of recovery from such attacks,” said Ali Shihabi, founder of the now-shuttered pro-Saudi think-tank Arabia Foundation.

“They have certainly been planning for such eventualities for decades.”

Impact on IPO?

The strikes are unlikely to derail the much-touted initial public offering (IPO), but it could undermine investor confidence in the mammoth listing that the government hopes will raise up to $100 billion.

It could also impact its valuation.

The IPO, earlier scheduled for 2018, has already been mired in delays as it reportedly struggled to reach a $2 trillion valuation desired by Saudi rulers.

“Crown Prince Mohammad bin Salman will push the company to demonstrate that it can effectively tackle terrorism or war challenges,” said Eurasia Group analyst Ayham Kamel.

“(But) the attacks could complicate Aramco’s IPO plans given rising security risks and potential impact on its valuation.”

For many traders, the temporary loss of production is secondary.

The use of seemingly low-grade drones to strike the world’s most profitable company highlights the easy vulnerability of oil infrastructure in the kingdom, which has splurged billions on sophisticated defence equipment.

Unlike other major suppliers like the US and Russia, which rely on numerous producers spread out over large geographical areas, Saudi Arabia’s production is reliant on a single entity — Aramco.

This leaves the world’s top oil exporter comparably more vulnerable to a crippling production shutdown in the event of an attack, experts say.

The Abqaiq plant –- seen as the crown jewel of the kingdom’s oil infrastructure with a capacity of more than seven million barrels per day — is the “most vulnerable” among Saudi sites, the Washington-based Center for Strategic and International Studies said in a report.

“Abqaiq is the heart of the system and they just had a heart attack,” said Roger Diwan, an energy expert at consultant IHS Markit was quoted as saying by Bloomberg News.

Saudi Races To Restore Oil Supply After Strike Blamed On Iran

Smoke billows from an Aramco oil facility in Abqaiq about 60km (37 miles) southwest of Dhahran in Saudi Arabia’s eastern province on September 14, 2019. /AFP

 

Saudi Arabia raced on Sunday to restart operations at oil plants hit by drone attacks which slashed its production by half, as Iran dismissed US claims it was behind the assault.

The Tehran-backed Huthi rebels in neighbouring Yemen, where a Saudi-led coalition is bogged down in a five-year war, have claimed Saturday’s strikes on two plants owned by state giant Aramco.

But United States Secretary of State Mike Pompeo pointed the finger squarely at Tehran, saying there was no evidence the “unprecedented attack on the world’s energy supply” was launched from Yemen.

“The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression,” the top US diplomat added.

That drew an angry response from Tehran, where foreign ministry spokesman Abbas Mousavi said: “Such fruitless and blind accusations and remarks are incomprehensible and meaningless.”

The remarks were designed to damage Iran’s reputation and provide a pretext for “future actions” against the Islamic republic, he said.

Saudi de facto ruler Crown Prince Mohammed bin Salman, whose nation is pitted against Iran in a decades-old struggle for regional dominance, has said the kingdom is “willing and able” to respond to this “terrorist aggression”.

But a tit-for-tat strike on Iranian oil fields is “highly unlikely”, Middle East expert James Dorsey told AFP.

“The Saudis do not want an open conflict with Iran. The Saudis would like others to fight that war, and the others are reluctant,” said Dorsey, from the S. Rajaratnam School of International Studies in Singapore.

Markets Nervous

Instead, the kingdom focused on restoring production at the plants, as the Saudi bourse slumped three percent as the week’s trading began on Sunday morning.

Saturday’s explosions set off fires that engulfed the Abqaiq plant, the world’s largest oil processing facility, and nearby Khurais, which hosts a massive oil field.

Saudi’s energy infrastructure has been hit by the Huthis many times before, but this strike is of a different order, abruptly halting 5.7 million barrels per day (bpd) or about six percent of the world’s oil supply.

The full extent of the damage was not clear, nor the type of weapons used, and reporters were kept away from the plants amid beefed-up security.

Saudi interior ministry spokesman Mansour al-Turki told AFP there were no casualties in the attacks.

Read Also: Yemeni Rebels Claim Drone Strikes On Saudi Oil Plants

Aramco has said it will dip into its stocks to offset the disruption, but the incident could batter investor confidence as its stock market debut looms.

The government hopes to raise up to $100 billion based on a $2 trillion valuation of the company in what would be the world’s largest IPO, but the listing has been repeatedly delayed due to low oil prices, among other factors.

As markets closely watch Saudi’s ability to get its industry back on track, Aramco CEO Amin Nasser said Saturday that “work is underway” to restore full production.

And newly appointed Energy Minister Prince Abdulaziz bin Salman said part of the drop would be offset by drawing on vast storage facilities designed to be tapped in times of crisis.

Riyadh, the world’s top crude exporter, has built five giant underground storage facilities across the country that can hold tens of millions of barrels of various refined petroleum products.

Loggerheads

Following a phone call between US President Donald Trump and Prince Mohammed, the White House condemned the attacks on “infrastructure vital to the global economy”.

Tehran and Washington have been at loggerheads since May last year, when Trump pulled the US out of a 2015 deal that promised Iran relief from sanctions in return for curbs on its nuclear programme.

Washington’s response throws into doubt reported efforts by Trump to arrange a meeting with Iranian President Hassan Rouhani at the upcoming United Nations assembly.

The UN’s Yemen envoy Martin Griffiths said he was “extremely concerned” over the latest attacks, which also drew swift condemnation from Riyadh’s Gulf allies, the United Arab Emirates, Bahrain and Kuwait.

Saudi Arabia has spent billions on military hardware but recent events have underscored its infrastructure’s vulnerability to attack.

While the kingdom’s oil wells, scattered over a vast area, may be tough to hit, its various oil processing facilities are much more exposed.

In recent months, the Huthis have staged repeated cross-border missile and drone attacks targeting Saudi air bases and other facilities in what they say is retaliation for the Riyadh-led bombing campaign on rebel-held areas in Yemen.