More attacks on Saudi oil infrastructure likely, analysts say

Saudi Arabia’s vulnerable oil infrastructure can be “attacked at will”, analysts say.

Smoke fills the sky at the Abqaiq oil processing facility in Saudi Arabia. Drones claimed by Yemen's Houthi rebels attacked the world's largest oil processing facility in Saudi Arabia and a major oilfield operated by Saudi Aramco early Saturday, sparking a huge fire at a processor crucial to global energy supplies Picture: AP

A drone attack on two major oil facilities in Saudi Arabia at the weekend is unlikely to be a one-off, putting the region more squarely on the path to military conflict, experts say.

The attack on the Saudi facilities was the largest ever disruption to global supplies, outstripping disruption caused by incidents including the invasion of Kuwait in 1990 and subsequent war with Iraq, and the Islamic Revolution in Iran in 1979.

While officials have indicated that exports would restart in the coming days, head of global commodity strategy at Royal Bank of Canada Helima Croft said there was nothing to suggest Iranian-backed Houthi rebels would forgo further strikes on Saudi sites.

“There is nothing to suggest that this is a one-off event,” she said.

The attack “was anything but surprising, as it merely marked the most dramatic in a series of recent attacks on Saudi energy infrastructure,” she said.

But global markets would no longer be able to ignore the threat, Ms Croft said.

“Since the attack on the tankers off the coast of Fujairah in May, the oil market has largely shrugged off the wave of worrying security incidents in the Gulf region,” Ms Croft said.

Map showing recent attacks on Saudi oil infrastructure. Graphic: RBC

“As long as no physical supplies were disrupted, market participants could focus their fears on the potential for an ongoing trade war between the US and China to destroy oil demand.”

The weekend’s incident saw the benchmark Brent crude oil price soar on Monday, prompting a spike in energy stocks locally. Brent leapt by 19.5 per cent - the most on record - before paring gains to trade 11 per cent higher at $US66.90 by midday Monday.

At 12.30pm (AEST) on Monday, Woodside Petroleum had lifted 5.2 per cent to $32.99 while Santos had jumped 4.3 per cent to $7.71.

Analysts at Sanford C. Bernstein also warned that Saudi oil infrastructure was vulnerable and “could be attacked at will” even if facilities could be repaired following the strike.

“These attacks could be repeated. We understand that there have been ongoing attacks since May 2019, but these have been the first to result in material damage,” Bernstein analyst Neil Beveridge said in a note to clients.

“Saudi oil infrastructure is vulnerable and could be attacked at will even if facilities can be repaired quickly.”