Oil set to rise as drones attack Saudi oil facility; US blames Iran

Friction between the US and Iran escalated to a dangerous level after Saturday's attack on a critical Saudi Arabian oil facility which knocked out half the country's crude production – around 5.7m barrels a day or 5% of global oil supply. US Secretary of State Mike Pompeo blamed Iran for the apparently co-ordinated strikes. He dismissed claims from Iran-allied Houthi rebels in Yemen who claimed responsibility, saying they had sent 10 drones to strike at critical Saudi facilities. Pompeo didn't explain how the US believes Iran was to blame or where the strikes originated. According to the official Saudi news agency, US president Donald Trump called the Saudi crown prince Mohammed bin Salman after the strikes, offering to co-operate with the kingdom in supporting its security and stability. On Sunday Iran rebuffed any suggestion that it was involved. Its foreign minister Javad Zarif said after the US had failed at its "max pressure" campaign it is now focusing on "max deceit". The Saudi stock market dropped 3% on Sunday, and analysts expect that when markets re-open the oil price will trade at least 20% higher as a result of the disruption to oil supply. – Alec Hogg.Saudi oil attack is the big one.By Spencer Jakab.(The Wall Street Journal) – Saturday's attack on a critical Saudi oil facility will almost certainly rock the world energy market in the short term, but it also carries disturbing long-term implications..___STEADY_PAYWALL___.Ever since the dual 1970s oil crises, energy security officials have fretted about a deliberate strike on one of the critical choke points of energy production and transport. Sea lanes such as the Strait of Hormuz usually feature in such speculation. The facility in question at Abqaiq is perhaps more critical and vulnerable. The Wall Street Journal reported that 5.7 million barrels a day of output, or some 5% of world supply, had been taken offline as a result.To illustrate the importance of Abqaiq in the oil market's consciousness, an unsuccessful terrorist attack in 2006 using explosive-laden vehicles sent oil prices more than $2 a barrel higher. Saudi Arabia is known to spend billions of dollars annually protecting ports, pipelines and processing facilities, and it is the only major oil producer to maintain some spare output. Yet the nature of the attack, which Iranian-supported Houthi fighters from Yemen claimed was the result of an attack by their forces, shows that protecting such facilities may be far more difficult today. US officials blamed Iran and US and Saudi officials were investigating the possibility that another Iranian-backed group carried out all or part of the attack using cruise missiles launched from Iraq. Iranian officials on Sunday denied responsibility for the attacks.There are countries that even today see their output ebb and flow as a result of militant activity, most notably Nigeria and Libya. Others, such as Venezuela, are in chronic decline due to political turmoil. Such news affects the oil price at the margin but is hardly shocking.Deliberate attacks by actual military forces have been far rarer, with the exception of the 1980s "Tanker War" involving Iraq, Iran and the vessels of other regional producers such as Kuwait. When Saddam Hussein's Iraqi forces invaded Kuwait in 1990, removing its production from the market and putting Saudi Arabia's massive crude output under threat, prices more than doubled over two months.Yet Saturday's attack could be more significant than that. Technology from drones to cyberattacks are available to groups like the Houthis, possibly with support from Saudi Arabia's regional rival Iran. That major energy producer, facing sanctions but still shipping some oil, has both a political and financial incentive to weaken Saudi Arabia. The fact that the actions ostensibly were taken by a non-state actor, though, limits the response that the US or Saudi Arabia can take. Attempting to further punish Iran is a double-edged sword, given that pinching its main source of revenue, also oil, would further inflame prices.While the redundancies in Saudi oil infrastructure mean that output may be restored as soon as Monday, the attack could build in a premium to oil prices that has long been absent due to complacency. Indeed, traders may now need to factor in new risks that threaten to take not hundreds of thousands but millions of barrels off the market at a time. US shale production may have upended the world energy market with nimble output, but the market's reaction time is several months, not days or weeks, and nowhere near enough to replace several million barrels.After the smoke clears and markets calm down, the technological sophistication and audacity of Saturday's attack will linger over the energy market.Write to Spencer Jakab at spencer.jakab@wsj.com.US blames Iran for attack on Saudi oil facilities.By Summer Said, Jared Malsin and Jessica Donati.(The Wall Street Journal) – Secretary of State Mike Pompeo blamed Iran for coordinated strikes on the heart of Saudi Arabia's oil industry, saying they marked an unprecedented attack on the world's energy supply..The strikes shut down half of the kingdom's crude production on Saturday, potentially roiling petroleum prices and demonstrating the power of Iran's proxies.Iran-allied Houthi rebels in neighbouring Yemen claimed credit for the attack, saying they sent 10 drones to strike at important facilities in Saudi Arabia's oil-rich Eastern Province. But Mr. Pompeo said there was no evidence the strikes had come from Yemen.In a tweet, he said the US will work with allies "to ensure that energy markets remain well supplied and Iran is held accountable for its aggression." He added that the strikes showed Iran wasn't serious about diplomacy.Mr. Pompeo didn't explain how the US believes Iran was to blame or where the strikes originated, but Iran-backed militias in Iraq have previously been responsible for targeting Saudi Arabia's oil industry. Meanwhile, Saudi and American officials are investigating the possibility that attacks on Saudi oil facilities Saturday involved cruise missiles launched from Iraq or Iran.The production shutdown amounts to a loss of about 5.7 million barrels a day, the kingdom's national oil company said, roughly 5% of the world's daily production of crude oil.Officials said they hoped to restore production to its regular level of 9.8 million barrels a day by Monday. Energy Minister Prince Abdulaziz bin Salman said lost production would be offset through supplies of oil already on hand.The strikes mark the latest in a series of attacks on the country's petroleum assets in recent months, as tensions rise among Iran and its proxies like the Houthis, and the US and partners like Saudi Arabia. The attacks could drive up oil prices if the Saudis can't turn production back on quickly and potentially rattle investor confidence in an initial public offering of Saudi Aramco, the national oil company.President Trump called Saudi Arabia's day-to-day ruler, Crown Prince Mohammed bin Salman, on Saturday and said the US was ready to "cooperate with the kingdom in supporting its security and stability," according to the Saudi Press Agency, the official news service.The White House confirmed that Mr. Trump spoke with the crown prince, saying in a statement that the president offered "his support for Saudi Arabia's self-defense."The attacks happened a few days before world leaders are set to gather in New York for the United Nations General Assembly, where Mr. Trump has said he is interested in meeting with Iranian President Hassan Rouhani to defuse tensions. Iran didn't react to the attacks on Saturday, and officials have said Mr. Rouhani won't meet with Mr. Trump until the US lifts sanctions imposed after the president pulled out of the 2015 international nuclear deal.Mr. Trump has supported Saudi Arabia's leaders in their war in Yemen at a time when many US lawmakers have soured on the conflict and grown impatient with the kingdom's crown prince. At the same time, Mr. Trump has pursued what he calls his "maximum pressure" campaign of sanctions and military threats against Iran.Saturday's attack was the largest yet claimed by the Houthis in terms of its overall impact on the Saudi economy. The attack hit hundreds of miles away from their Yemen stronghold."The attack has been quite surprising" for the amount of damage it caused, said Fabian Hinz, an arms researcher at the Middlebury Institute of International Studies in Monterey, Calif."We have seen quite a few drone and missile attacks against Saudi infrastructure, but in most cases the actual damage caused has been quite minimal," said Mr. Hinz.Even before Mr. Pompeo tweeted, analysts cautioned against accepting the Houthi claim of responsibility at face value. An attack in May on a Saudi oil-pumping station, which Saudi officials initially blamed on the Houthis and Iran, later turned out to have been launched by an Iranian-backed militia in Iraq, according to US officials.Saudi officials aren't sure the attack emanated from Yemen and were discussing on Saturday the possibility that the attack came from the north, according to people familiar with the matter.Saudi oil officials rushed to contain the damage as fires raged in two major oil facilities. Aramco held an emergency board meeting on Saturday to manage the unfolding crisis, the people familiar with the matter said.The attacks hit Hijra Khurais, one of Saudi Arabia's largest oil fields, which produces about 1.5 million barrels a day. They also hit Abqaiq, the world's biggest crude stabilisation facility, which processes seven million barrels of Saudi oil a day, about 8% of the world's total. There were no injuries reported.The Abqaiq facility has come under attack before. In 2006, suicide bombers sent by terrorist group al Qaeda blew themselves up at the gate of the facility."If you really want to stab the Saudi regime in the heart and send oil prices up, this is your target," said Bob McNally, an energy expert and former member of the National Security Council under President George W Bush who was involved in efforts to secure the facility between 2001 and 2003.The Houthis took control of Yemen's capital, San'a, in 2014 during a civil war. Since then, a Saudi-led coalition has fought to unseat the Houthis and reinstate a government supported by Saudi Arabia, the United Arab Emirates and other regional powers.In recent months the Houthis, along with Iranian-backed armed groups in Iraq, have intensified a campaign of missile and drone attacks on Saudi Arabia, launching more than a dozen attacks at Saudi airports, a desalination plant and oil infrastructure. Suspected Houthi ordnance originating from the Yemeni border is launched at Saudi Arabia several times a week, a US official said.The increasing sophistication of the attacks has shown deepening cooperation between the Houthis and Iran as Tehran has sought ways to apply pressure on their Saudi and American adversaries, according to U.S. officials and analysts. The Iranian government denies controlling the Houthi movement.A UN panel last year said there were strong indications Iran was the source of Houthi missile and drone technology but didn't directly accuse the Tehran government of providing the weaponry. It said Iran has failed to take the necessary measures to prevent such transfers."We promise the Saudi regime that our future operations will expand and be more painful as long as its aggression and siege continue," a Houthi spokesman said Saturday.The strikes complicate UN and US efforts to negotiate an end to the conflict, which has killed more than 10,000 people over the last four years. US officials had quietly attempted to launch a back channel to the Houthis.The Yemen war is a central front in a new and more aggressive foreign policy overseen by Prince Mohammed, who launched the intervention with a coalition of allied states in 2015. Under the prince's watch, the kingdom also applied a blockade on neighbouring Qatar, detained Lebanon's prime minister, and sent a team of men to kill exiled journalist Jamal Khashoggi in Istanbul in 2018.A conservative kingdom with a Sunni Muslim majority, Saudi Arabia has been an opponent of Iran in a struggle for power across the broader Middle East since the 1979 revolution that toppled Iran's monarchy.The attacks on Aramco's facilities are poorly timed for Aramco's coming IPO and pose a challenge to oil officials after a changing of the guard in their leadership. Aramco last week picked seven international banks to help it list on Saudi Arabia's domestic exchange, an IPO that could value the company at about $2trn and come before the end of the year.– Rory Jones, Warren Strobel and Nancy A. Youssef contributed to this article.Write to Summer Said at summer.said@wsj.com, Jared Malsin at jared.malsin@wsj.com and Jessica Donati at jessica.donati@wsj.com

Oil set to rise as drones attack Saudi oil facility; US blames Iran

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