Energy Management’s Hannah Robinson takes a look at the latest geopolitical incident to cause oil prices to soar.
Background – what happened
On the 14th September 2019, Saudi Arabia was hit by missile attacks on two oil facilities. The attacks were carried out by 18 drones and seven cruise missiles travelling 500km undetected, which proceeded to hit the oil field and processing facility.
The attack caused large fires at the refineries, which according to the Saudi Arabian interior ministry were put out several hours later. The attacks wiped out 5 per cent of the world’s oil supply.
Billions of dollars had been spent on protecting Saudi Arabia against such attacks, including buying in defence systems from the United States, but to no avail on this occasion.
Boris Johnson’s opinion
Prime Minister Johnson agreed with Saudi Arabia in stating that he thought there was a ‘high degree of probability’ that Iran was behind the attacks on the two oil facilities. Johnson also refused to rule out military intervention and stated sanctions may also be a possibility.
“I can tell you that the UK is attributing responsibility with a very high degree of probability to Iran for the Aramco attacks,” he commented. Mr Johnson said he will work with the US and European countries to give a response in an attempt to minimise building tensions.
Mr Johnson is due to meet with presidents from France, Germany and the US to discuss the attacks as well as Brexit, with himself and Trump agreeing there is a need for a united, diplomatic response in regard to Saudi Arabia.
Effect on oil prices
Oil prices spiked initially to almost 20 per cent due to the 5.7 million barrels of oil being taken from the supply chain. This is the largest spike since 1988. The price is still below that of last October ($85 dollars a barrel), but by the end of the day of the attack, prices had increased by 14.7%.
Saudi Arabia believes they can get oil production up and running again in a matter of weeks, however, if this doesn’t happen, we could be looking prices hitting the levels of 12 months ago – or higher.
Oil market analysts claim prices could surge towards $100 a barrel in the next few weeks if tensions in the Middle East continue due to renewed disruption in the Strait of Hormuz, a key transit route for the world’s oil tankers.
Source: BBC News, 2019