Oil prices have already pulled back from their surge following last weekend’s drone attacks on Saudi Arabia’s oil infrastructure. This has led some to say “See, it’s a big nothing-burger.”
I believe they are seriously missing the point and underestimating the implications.
These attacks are unprecedented in the history of the global oil industry. These attacks against one of Saudi Arabia’s largest oilfields and the world’s biggest crude processing facility at Abqaiq sidelined a total of 5.7 million barrels per day (BPD) of oil production.
This is the largest oil disruption ever. It sidelined the equivalent of the entire shale oil boom; more than the equivalent of all the world’s spare oil production capacity.
But within 24 hours, this mother of all oil infrastructure attacks wasn’t even trending on Twitter.
To me this means most people do not appreciate the seriousness of this situation. In fact, I have had people tell me that we are no longer as dependent on Saudi’s oil, therefore this shouldn’t impact us much in the U.S.
Such sentiments are understandable, but they aren’t realistic. It is true that we import a lot less oil from Saudi Arabia. At the beginning of the shale oil boom, we imported about 1.5 million BPD from Saudi Arabia. In 2018, we imported 900,000 BPD from the Kingdom, which represented just under 10% of our crude oil imports.
But the oil markets are global, and Saudi is the world’s most important oil exporter. They have long been a stabilizing influence within OPEC, ensuring that the global oil markets are well-supplied. The Saudi oil industry has enjoyed an air of invulnerability with respect to its oil industry. This sort of attack wasn’t supposed to be possible.
That air of invulnerability was shattered as a result of these attacks. This isn’t a disruption of a few hundred thousand barrels a day in some war-torn country. This is millions of barrels per day from one of the most important and stable oil producers in the world.
