Attacks on Saudi Oil Facilities: Effects and Responses

INSIGHTi Attacks on Saudi Oil Facilities: Effects and Responses September 27, 2019 September 14, 2019, saw an attack on Saudi Aramco’s, 's, Saudi Arabia’'s national oil company, Abqaiq oil processing facility and Khurais oil field andand processing plant. The attack, which used both missiles and drones, temporarily disrupted 5.7 million barrels per day (mb/d) of oil production, over half of Saudi Arabia’ Arabia's oil production and about 5% of global supply. For context, U.S. crude oil production is approximately 12 mb/d. Abqaiq Facility Abqaiq

Abqaiq Facility

Abqaiq is a key processing facility for Saudi Arabia crude. Two important functions provided by Abqaiq include (1) crude oil stabilization, a process that removes hydrogen sulfide and reduces the volatility of crude oil to specifications required for shipping, and (2) gas oil separation, where oil is separated from other hydrocarbons such as methane, butane, and propane. The Abqaiq facility was reportedly operating at operating at about 4.9 mb/d prior to the attack and has a maximum capacity of 7 mb/d. . According to Bloomberg, , Abqaiq suffered five strikes on crude-stabilization towers and another 11 strikes on infrastructure that separates gaseous hydrocarbons from crude oil. Khurais Field and Facility The Khurais The Khurais field has a production capacity of 1.5 mb/d under normal circumstances. All oil from the Khurais field is processed on site. Khurais processing infrastructure suffered damage to four crudestabilizationcrude-stabilization towers, with differing degrees of damage. Restoration Efforts

Restoration Efforts

Saudi Aramco is working to replace the disrupted supply and restore production capacity. Reportedly, Reportedly, Aramco is utilizing oil from storage to meet current export commitments as well as spare capacity not Congressional Research Service https://crsreports.congress.gov IN11173 CRS INSIGHT Prepared for Members and Committees of Congress Congressional Research Service 2 affected by the attacks. Increased production from offshore fields with heavier and higher sulfur crude oil are also being used. Prince Abdulaziz bin Salman, the Saudi energy minister, announced the country would produce 11 mb/d by September 30 (an amount higher than the pre-attack level of 9.8 mb/d,) and then increase to 12 mb/d12 mb/d by November 30. SomeSome Saudi officials believe restoring production will take longer. ReportedlyReportedly, Khurais restored 30% of production within 24 hours of the attack. Typically, Saudi Arabia has been known to keep about 1.5 mb/d to 2.0 mb/d of spare capacity, traditionally the majority of OPEC spare capacity. Spare production capacity, as defined by the U.S. Energy Information Administration (EIA), is production that can be brought online within 30 days and sustained for 90 days. Since the September 2019 attacks, Iran may now be OPEC’'s majority holder of spare capacity, an unintended consequence of U.S. sanction on Iran. The International Energy Agency (IEA), founded to coordinate member responses to major oil disruptions, has not announced any plans to coordinate a release of oil strategic supplies (crude or petroleum products) from member countries (which includes the United States), but according to a press release from September 14, it is monitoring the situation closely. Prices

Prices

Crude oil markets responded to the September 2019 attacks with an initial price rise (see Figure 1). The price of the U.S. benchmark crude, West Texas Intermediate (WTI), on Friday before the attacks was $54.80 per barrel, while the international benchmark, known as Brent, was $60.22. At the market’'s close on September 16, WTI was priced at $62.67 and Brent was $69.02, a roughly 14% increase for both. EIA analysisEIA analysis indicates that this was the largest single-day price increase for both price benchmarks over the last decade. As of September 27, benchmark oil prices are still above pre-attack levels by $1.04 and $1.58, respectively.

Figure 1. Brent and WTI Prices Close of Day (US$ per Barrel) Source: Bloomberg L.P. Congressional Research Service 3 Implications for Saudi Arabia and Saudi-U.S. Relations Saudi and U.S. officials have downplayed claims by Yemen’'s Houthi rebels that they carried out the attacks attacks, instead attributingattributing responsibility to Iran. The strikes were the latest in a serieslatest in a series of cross-border attacks attacks on energy and transportation sites in the kingdom apparently linked to the ongoing war in Yemen and the Saudi-U.S. confrontation with Iran. The incidents have demonstrated the vulnerability of critical Saudi infrastructure to missile and drone attacks and raised complicated strategic questionsquestions for Saudi and U.S. policymakers concerning responsesresponses and future security needs. On September 20, U.S. officials announced announced plans to deploy additional U.S. military personnel to Saudi Arabia and speed military equipment deliveries to Gulf partners to bolster capabilities and deter further attacks. The U.S. government also announcedannounced additional sanctions against Iran’'s Central Bank and other entities. Iran’s government denies U.S. and Saudi charges's government denies U.S. and Saudi charges of responsibility and has pledged to retaliateretaliate for any future attacks on Iran. Saudi Arabia and Houthi officials have reached a partial cease-fire in the war in Yemen, after Houthi forces declared a unilateral cease-fire in the week after the September 14 attacks. Saudi Arabia’'s military operations in Yemen have created demands on security and defense capabilities and have contributed to fiscal pressures facing the kingdom. Trends in oil prices prior to the September 2019 attack saw prices remain belowbelow the kingdom’'s budget targets. Saudi leaders denydeny reports that they may substantially delay a planned initial public offering of shares in AramcoAramco, which is intended to raise funding for economic reform efforts. However, additional attacks, or delays in restoration efforts, could reduce investor confidence. Over time, oil export volumes, market prices, and security and reconstruction costs will determine the attacks’ fiscal effects on the kingdom. Author Information Heather L. Greenley Analyst in Energy Policy Christopher M. Blanchard Specialist in Middle Eastern Affairs Michael Ratner Specialist in Energy Policy Disclaimer This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material. IN11173 · VERSION 1 · NEW Congressional Research Service 4 IN11173 · VERSION 1 · NEW ' fiscal effects on the kingdom.