Drone attacks on the Saudi Arabia Oil Facility disrupts output and elevates prices

Crude oil prices are rocketing around the world after the drone attacks on the world’s largest oil processing facility in Saudi Arabia. The oil fields at the Buqyaq and the Khurais were attacked early in the morning of 14 September 2019. The drone attacks caused the biggest-ever disruption in global crude oil supplies and have further escalated tensions in the Persian Gulf.

Abqaiq oil processing facility in Buqyaq, operated by Saudi Aramco, is the largest crude oil stabilization plant in the world. The facility processes sour crude oil into sweet crude and further transports onto transshipment points on the Persian Gulf and the Red Sea. The estimates suggest that it can process up to 7 million barrels of crude oil per day. Buqyaq is located at 330 kilometers (205 miles) northeast of the Saudi capital, Riyadh.

Importance of Saudi Arabia Oil Fields:

Saudi Arabia accounts for the supply of 100 million barrels per day which is also 10% of the total global supply. But, the attacks of drones on the oilfields have caused distress in the world as the attacks have ceased the production of 5.7 million barrels of crude oil a day which is also half of Saudi Arabia’s global daily exports. The above amount is also 5% of the world’s daily crude oil production.

Impact of “Oil Field Attacks” on the world:

The geo-political event has not only caused the distress in the world but also causing a surge in prices of crude oil. After the attacks, the U.S. crude oil jumped $5.61 per barrel or 10.2%, to $60.46 per barrel in electronic trading on the New York Mercantile Exchange. While Brent crude, the international standard, pushed to $7.84 per barrel or 13%, to $68.06 per barrel.

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The above incident is also raising the fears of an increase in transportation fuel prices in India. India is also expected to suffer an increase in the current account deficit by 0.4-0.5 % of GDP if oil prices increase by 10%. As per the analysts, any unexpected increase in global prices will have a huge impact on India’s oil import bill and its trade deficit. Strengthening of a dollar will also lead to an increase in the price of oil in India and will raise the import bill by Rs 10,700 crore on an annualised basis, as the rupee weakens due to higher demand for the dollar. This will also affect the government’s ability to spend on social sector schemes.

Recent Developments:

Saudi Aramco President & CEO Amin Nasser recently announced that the Company’s production capacity which was suspended earlier due to terror attacks on its plants at Abqaiq and Khurais would be fully restored by the end of September.

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