Saudi Arabia is a country in the Middle East. It is home to Islam’s holiest cities, Mecca and Medina. It also has some of the world’s largest oil reserves. The country has developed a vast network of pumping stations, storage tanks, big refineries, and long pipelines to tap and process the oil for exports. It ships more oil to the rest of the world than any other country.
The news: On Saturday a rebel group attacked two major oil assets in Saudi Arabia using ten unmanned drones. They hit the world’s biggest oil processing facility and an oil field which produces around one million barrels of crude oil a day.
What is crude oil: it is a naturally occurring resource. This fossil fuel is in great demand. It can be refined to produce usable products such as petrol, diesel and various forms of petrochemicals that are necessary for day to day life.
To put the news in context: The Saudi Arabian energy minister has stated that this attack has disrupted 50 percent of the country’s oil output. Aramco, the kingdom’s state-owned oil company, produces 9.8 million barrels of oil per day. The attack has suspended the production of 5.7 million barrels of oil. Though Aramco said it will dip into its reserves to offset this disruption, it will take a few weeks to get back to full capacity!
The Significance: Saudi Arabia contributes to 10% of the global oil supply. The majority of its oil exports in 2018 went to countries in Asia, USA, and Canada.
This well-planned attack has cut 5% of global supply. Fear of a limited supply of oil has caused crude oil prices to surge and oil company shares to rise. The price of one barrel of oil jumped from $60 to about $69.2 within one day!
What does it mean for consumers like us and for businesses? Higher oil prices hurt consumers and businesses. Consumers around the world could see costs rise for products ranging from petrol and diesel to air tickets, tires, and paint.
Businesses that rely on energy to make their products will face higher costs. As the cost of diesel and transportation rises, that could mean shipments of goods will also increase.
Who are the culprits? A group of rebels from Yemen known as the Houthis has claimed responsibility. This group has been locked in a war with a Saudi-UAE-led coalition since 2015.
But Saudi Arabia and the United States believe there is more to this. They have accused Iran of providing the Houthis with military equipment and training to pull such a sophisticated attack, a charge Iran has dismissed.
Stay tuned for more news update on this story.
To read more about Yemen’s Forgotten War and the Houthi rebels click here.