Drone Attack in Saudi: How does it affect the fuel price

Will The Drone Attack in Saudi Arabia Impact the Petroleum Supply in India?

Dev Tyagi
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Will The Drone Attack in Saudi Arabia Impact the Petroleum Supply in India?

Dev Tyagi

Oil forms the heart of the Indo-Saudi Arabian ties. Perhaps it may not be entirely incorrect to suggest that the Indo- Saudi Arabian ties stand at a rather precarious situation at this point in time in terms of their bi-lateral relations. But first up, a fact.

Nearly 10 percent of the world actually depends on the renowned Arabian nation in order to meet its yearly oil demands. This basically means that any setback to or drawback in the oil production facilities of Saudi Arabia is a huge backward step for the remainder of the world.

In the early hours of September 14, Saudi Arabia suffered the deadliest attack on its oil facilities in recent times when a small army of drones attacked two major oil plants, destroying nearly 50 percent of the country’s global supply of crude. 

In the early hours of September 14, there appeared the largest ever disruption in the crude oil production in Saudi Arabia when a small army of drones attacked two major oil plants, destroying nearly 50 percent of the country’s global supply of crude.

Believed to have been a major attack executed by the Houthi-rebels based in Yemen, a terror-causing faction for the longest time in the crisis-plagued country, the Abqaiq plant as well as the Khurais oil field came under a vehement attack in Saudi Arabia.

The world’s largest crude oil exporter was clearly unaware of the immensity and the timing of the attack. But implicit in the attack forged on the Saudi Oil production facilities was the usage of drones. Who may have thought that a drone strike would be carried out in a hostile fashion on one of the most noted and eminent regions of the Middle East?

Nonetheless, the unforeseeable scenario has led Saudi Aramco, the state-owned oil company, to suspend the oil production of a tremendous capacity in the afflicted region. And this, it must be reminded, is a weighty production scale, nonetheless, of around 6 million barrels per day. A further blow was received in the form of the restriction toward the use of 2 mbd of spare capacity.

But in the immediate aftermath of the co-ordinated drone strikes on Saudi oil facilities, major think-tanks and economic bodies crucially submitted their assessments of a rather critical situation.

Important in this reaction was the finding of Kotak Institutional Equities Research, that maintains that the world, in its current capacity, has a large enough buffer to sail through the current crisis that may impact the bilateral Indo-Saudi Arabian ties.

As the chart below shows, even without the latest disruption, according to International Energy Agency (IEA) — an autonomous Paris-based organisation with 30 member-countries of the Organisation for Economic Co-operation and Development (OECD) as its members — the second half of the current calendar year would have seen a decline of 0.8 mbd because of already stagnating supplies. 

At this point in time, the OECD countries have around 1.55 billion barrels of strategic reserves, which are currently under their respective governments’ control.

But all that said, here’s how the Indo-Saudi Arabian ties are slated to change in the aftermath of the unmitigated disaster:

How does it affect India and Petroleum Prices in the Country?

India imports 80 percent of the oil it consumes, which means there are multiple ways in which the country will be impacted by this disruption. The critical factor that plays a great hand in this context is the supply.

Already, India is attempting to make up for the loss of supply from Iran after US-imposed sanctions. While India depends on Saudi Arabia dearly in order to meet its oil demand, it’s also equally, if not less, reliant on Iran, a country with whom it enjoys its oldest trading relations.

So that Saudi Arabia- which supplies 17 percent of India’s overall oil demands (crude) is under duress is definitely a step-back for the Indo-Saudi Arabian ties. Although Saudi Arabia has assured that there will be no loss of supply, if the process of restoration takes more time than anticipated, India would have to look for alternatives. As a result of the precarious situation down in the Middle East, the only realistic options for India happen to be regions such as Venezuela, Nigeria or even Libya.

But a thing that everyone would pay a close watch to would be the fact that the rising oil prices will actually negatively hamper the country’s fiscal balances. Therefore, the earlier India climbs out of the situation it finds itself in resulting from a sheer dropdown in oil supply, the better it is!