Drone strikes on Saudi facility lead to jump in crude prices

Supplies to India will not be affected, Saudi Aramco officials tell oil companies

India, which imports more than 80% of its crude oil requirement, is particularly vulnerable to geopolitical risks arising out of the oil producing countries. File

Drone attacks last week on Saudi Arabia’s crude processing facility, the largest in the world, have impacted half of the country’s crude oil production and about 5% of the world supply. Following the attacks, on Monday, Global Brent crude futures shot up more than 20% to $66.91 per barrel.

However, allaying Indian fears, Saudi Aramco officials have told oil companies that the attacks would not result in a shortage of supplies, the Ministry of Petroleum has said.

 

Ratings agencies, however, said India will see a rise in prices due to the increase in the risk premium.

“Yesterday [September 15], Saudi ARAMCO officials informed the Indian refiners that there would be no shortage of supplies to them,” the Ministry of Petroleum and Natural Gas (MoPNG) said in a statement. “MoPNG is closely monitoring the situation in consultation with Indian refiners and Saudi ARAMCO.”

MEA condemns attacks

Ministry of External Affairs spokesperson Raveesh Kumar, in a statement, condemned the drone attacks.“We reiterate our resolve to oppose terrorism in all its forms and manifestations,” the statement said.

Source: Bloomberg, AP

 

Saudi Arabia is a major source of oil imports for India, accounting for nearly 18% of the 226 million tonnes of crude the country imported during 2018-19, according to data with the Ministry of Commerce. India, which imports more than 80% of its crude oil requirement, is particularly vulnerable to geopolitical risks arising out of the oil producing countries.

“While the oil markets await further updates on the resumption of supplies from Saudi Arabia, the oil markets will nevertheless be nervous as any retaliatory measures by Saudi Arabia and its allies will keep the market on tenterhooks,” said K. Ravichandran, Senior Vice-President and Group Head, Corporate Ratings, ICRA.

Geopolitical risk

“As a result, oil prices should factor in sizeable geopolitical risk premium, which will be negative for Indian consumers,” he added. “Nevertheless, this impact is likely to be short-lived as the market will rebalance swiftly once the tensions abate.”

Published - September 17, 2019 12:01 am IST