Spike in global oil prices!

Spike in global oil prices!

Maha Media 17 September 2019

The consumers around the world could see costs rise for products ranging from petrol and diesel to home heating costs and air fares, after this weekend’s attacks caused a spike in global oil prices. As the cost of transportation rises, that could mean shipments of other goods, such as groceries, could also increase in the coming months. In India, there is indication that prices of petrol and diesel are likely to go up by up to Rs 5 a litre each over the course of the next few days as international prices shot up after the drone attack on Saudi Aramco’s facility at Abqaiq. Benchmark Brent crude prices were up by over $6 at $67 a barrel on Monday, which is a jump of over 10 %, could rise further.In the early hours of 14 September, ten unmanned drones from Yemen caused severe damage to Saudi Arabia’s oil facilities at Khurais in the Eastern Province north of Riyadh.  As result, markets opened on 16 September with oil prices went from $59 to $71 per barrel, though they eased later after the US announced it would release its reserves to stabilize prices.

These attacks mark a significant change in the conflict as the Saudis no longer have exclusive command of either the Yemeni or their own air space. The Houthis, a Shia grouping till now viewed as a ragtag militia, have shown themselves capable of launching drones across the Arabian Peninsula without being intercepted. It caused the world’s largest oil producer to curtail half its production for a few days.
US secretary of state Mike Pompeo has blamed Iran for the attack, though no convincing evidence has been proffered so far. US President Donald Trump has threatened military action, saying his forces are “locked and ready"; he is only awaiting the Saudi assessment of the attacks before initiating his response. Iran has firmly denied any role but says it is prepared for a “full-fledged" war.
After eight years of confrontations, West Asia has never needed a peace process so desperately. Saudi Arabia is the world’s biggest crude exporter and one of the top producers. The attack removed half of its output- 5.7 million barrels per day, or the equivalent to 5 percent of global supplies. The company has not given a specific timeline for the resumption of full output.
Saudi Arabia is also the holder of nearly all the world’s spare oil capacity - which means the ability to increase output quickly to compensate for any problems in supply worldwide.  So any further large supply disruption will impact oil supply and prices more than they would have done if Saudi Arabia still had spare capacity. Before the attack, Saudi Arabia was shipping 7 million barrels of oil around the world daily, much of it to Asian buyers.
India can play vital role in such situation because it makes sense for it to lead peace initiative.  India has the longest, uninterrupted and most substantial ties with all the Gulf countries. It has an established regional standing for its political, economic and technological achievements. India also has the highest stake in regional stability on account of its energy and economic interests.  Above all, it has an eight million-strong resident community whose welfare is of paramount importance to the Union government. The attack on Saudi facilities on Saturday caused the biggest oil supply disruption for more than 50 years.   

For Maha Media

Prabhakar Purandare