Global oil prices surged on Monday after drone attacks on the world’s largest oil processing facility in Saudi Arabia and a major oilfield operated by Saudi Aramco over the weekend. The strikes have disrupted over half of the kingdom’s oil output, or 5% of global oil supply.
Oil prices soared over 10% on Monday, but Saudi Arabia, the world’s largest oil exporter, is racing to restore roughly one-third of the production by day’s end, officials told The Wall Street Journal. It will, however, take weeks to restore full production.
Here’s your five point guide to what happened over the weekend and how India may be impacted:
1. Yemen’s Iran-aligned Houthi rebels have taken responsibility for the attacks, but United States has directly blamed Iran, with President Donald Trump saying on Twitter that his country is “locked and loaded” for a potential response to the attack. Iran, on its part, has rejected all accusations as “pointless”. A senior Revolutionary Guards commander also warned that the Islamic Republic was ready for “full-fledged” war, according to Reuters.
2. Drone attacks on the two Saudi oil facilities affected 5.7 million barrels per day of crude oil and gas production, said Saudi Energy Minister Prince Abdulaziz bin Salman. He said that Saudi Aramco has stockpiles of oil which will be used to offset the loss of production, according to Al-Jazeera. US has also said it was also ready to tap into emergency oil reserves “if needed”.
3. Global oil prices, as Bloomberg points out, surged the most on record with Brent futures jumping almost $12 a barrel soon after trading began on Monday. Saudi Arabia is the world’s biggest oil exporter and its oil exports will continue as normal this week as it taps into stocks from its large storage facilities, a source told Reuters. But Enda Curran wrote for Bloombergthat the surge in prices couldn’t have come at a worse time, as it would further erode “business and consumer confidence”.
4. How will India be affected? Saudi Arabia is India’s top oil supplier after Iraq. Saudi Aramco, according to Reuters, has assured Indian refiners that there will be no shortage in supplies. The Economic Times quoted oil industry executives as saying that “producers, refiners and ships on the way to refineries usually have enough inventory to provide for the next few week’s requirements”. Indian refiners do not see an immediate disruption, but prices may witness a short-term hike. Union Minister Dharmendra Pradhan tweeted, “We have reviewed our overall crude oil supplies for the month of September with our OMCs. We are confident there would be no supply disruption to India. We are closely monitoring the evolving situation.”
5. The increase in global oil prices will also affect India’s oil import bill and its trade deficit, as Livemint points out. “Every dollar increase in the price of oil raises the import bill by Rs 10,700 crore on an annualised basis.”
(With Reuters and AP inputs)