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If Your Gas Prices Seem High This Week, This Is Why

An attack this weekend on a major Saudi oil production facility has people shook and watching gas prices. Here’s what you need to know.

Posted on September 16, 2019, at 2:43 p.m. ET

Fayez Nureldine / AFP / Getty Images

A strike on a major hub of Saudi Arabia’s oil production over the weekend has rattled a region that has more rattles than a baby’s playpen and left people in the US worried about war with Iran, higher gas prices — or, you know, both.

A lot is still unknown, which is usually the case in situations like this. But here’s a breakdown to help navigate what we know so far.

The attack managed to remove 5% of the world’s daily oil output from the market.

Early Saturday morning, two oil production facilities in northern Saudi Arabia were attacked, heavily damaging several structures and producing fires with smoke could be seen from space.

These weren’t random targets — they were both key pieces of infrastructure owned by Aramco to, the state-owned Saudi oil company. The Khurais oil field produces about 1.5 million barrels of oil a day when online, while the Abqaiq facility, the country’s largest, refines an estimated 7 million barrels per day for export.

That’s, uh, a lot. In total, Saudi Arabia alone produces about 10% of the world’s oil — that’s about 9 million barrels — daily.

And the attack reduced Saudi Arabia’s daily output by 5.7 million barrels so about 5% of the total oil produced around the world each day is no longer for sale while the damage is repaired.

The temporary shutdown of the Abqaiq facility for repairs — and investors’ worries about the future — led to a spike in oil prices on Monday when markets reopened. The prices jumped as high as 16% before settling down to be 10% higher than before the attack took place, so about $60 a barrel.

A rebel group known as the Houthis took credit for the attack, but the US was quick to blame Iran.

The Houthis are a group that has been attempting to seize the capital of Yemen, a country to Saudi Arabia’s south on the Arabian peninsula, since 2014. They said the attack had been carried out with a swarm of ten drones that it had equipped and launched from Yemen.

A coalition of Gulf countries led by Saudi Arabia has been trying to remove the Houthis from power for four years now. It’s been brutal, with the Saudi’s aerial bombings producing a humanitarian disaster that has left an estimated 70,000 people dead and 24 million Yemenis in need of foreign aid. A new report from UN experts earlier this month accused both sides of committing war crimes against civilians.

But the Houthis have been supported by Iran in their fight, which is why the Saudi campaign continues. In response to the attacks, and with Iranian money and training, Houthi fighters have launched numerous missile attacks over the border into Saudi Arabia with limited success.

Crucial for understanding the latest attack, a UN report in January noted that the Houthis “continue to deploy small- and medium-sized unmanned aerial vehicles in various roles, ranging from reconnaissance use to their use as loitering munitions, i.e. as so-called ‘suicide or kamikaze drones.'”

The New York Times also reported on Sunday that following failed missile attacks, “Iran moved to train Houthis in drone technology, taking groups to Iran to master assembling, managing and repairing drones.”

And the drones likely used are pretty cheap, costing only about $15,000 to make. Compare that to Saudi Arabia spending $56 billion on its military last year, a splurge that helped make them the largest arms purchaser in the world the last two years, and you’ve got a pretty big hole in their security policy if such a devastating attack could still take place.

John Bolton is out of the White House — but that doesn’t seem to be affecting the Trump administration’s response.

After the firing and/or resignation of Trump’s third National Security Adviser last week, many breathed a sigh of relief that one of the administration’s biggest hawks no longer had the president’s ear.

But Secretary of State Mike Pompeo — who’s been almost as vocal as Bolton on the need to confront Iran — took the lead on Saturday, becoming the first senior official to blame Iran directly for the attack.

We call on all nations to publicly and unequivocally condemn Iran’s attacks. The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression

Neither Pompeo nor the Saudis offered evidence for the attack coming from Iran rather than Yemen, like the Houthis claimed. But by Monday, the administration was “working under the assumption that the strikes did not emanate from Yemen and do not believe they were launched from Iraq,” the Washington Post reported.

US officials told reporters that satellite images released on Sunday showed damage to the north and northwest portions of the Saudi facilities, which would be inconsistent with an attack that launched from Yemen. One official also said that the attack might have also been a combination of cruise missiles and drones, which would make an attack from Iran more likely.

Not wanting to be left out, Secretary of Energy Rick Perry — who is a known friend of Saudi Arabia — condemned Iran for the attack when speaking before the International Atomic Energy Association on Monday.

Iran has pushed back, saying that they were in no way responsible for the attack.

Having failed at “max pressure”, @SecPompeo’s turning to “max deceit” US & its clients are stuck in Yemen because of illusion that weapon superiority will lead to military victory. Blaming Iran won’t end disaster. Accepting our April ’15 proposal to end war & begin talks may.

Trump warned of a response against Iran, but it’s not clear just what the US can do.

Nicholas Kamm / AFP / Getty Images

The president himself weighed in on Sunday, sounding more bellicose than he has in a minute and warning that the US is “locked and loaded” to take action against the perpetrators.

Saudi Arabia oil supply was attacked. There is reason to believe that we know the culprit, are locked and loaded depending on verification, but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, and under what terms we would proceed!

Though he didn’t name Iran like some in his Cabinet, his implication that the US would attack whomever Saudi Arabia wants the US to attack was a real question mark for some observers. (Unlike NATO members and several other countries, the US has no mutual defense treaty with Saudi Arabia that guarantees a military response in case the latter is attacked.)

In any case, it’s not clear just what sort of a response the US would launch against Iran if it is determined to be the culprit. A set of strikes in retaliation for downing a US drone were called off at the last second back in June and Trump doesn’t seem likely to revive that option.

And as the Wall Street Journal noted, “Mr. Trump is close to exhausting options for adding financial pressure on Iran” thanks to the run of sanctions he’s levied against Tehran since withdrawing from the Iran nuclear deal last year.

At the very least, it’s possible that rumored talks between Trump and Iran’s President Hassan Rouhani on the sidelines of the UN General Assembly this month are on ice — for now. It’s tough to tell when it comes to Trump and his need to make a deal.

The US’s relationship with Saudi Arabia has been pushed back into the limelight as a result of the attacks.

Trump’s willingness to offer immediate military aid to Saudi Arabia was eyebrow-raising for many observers as a seeming inversion of the relationship between the two countries.

It was also telling just how much Trump values his personal relationship with the Saudis since he took office — his first foreign trip as president was to Riyadh — given some of his previous statements about the kingdom needing to pay more to get that level of protection from the US.

Saudi Arabia should fight their own wars, which they won’t, or pay us an absolute fortune to protect them and their great wealth-$ trillion!

Trump’s tweets of support also came just a few days away from the anniversary of the murder of Jamal Khashoggi, a Washington Post columnist and US resident. CIA and United Nations assessments have both said that the killing, which took place in a Saudi consulate in Turkey, was orchestrated by Saudi Crown Prince Mohammed bin Salman.

That hasn’t hurt his standing with the Trump administration, however, with the two leaders meeting on the sidelines of the G20 in June.

In a weird twist of luck, any pain at the pump isn’t likely to be very long-lived.

There is some good news amid all of this chaos though: while oil prices rose on Monday, the New York Times says that thanks to a twist of fate, things may not be all that bad in the medium term:

The attack came as global oil stockpiles were higher than usual, several producing countries have ample spare capacity and American oil facilities have so far been spared from a damaging hurricane season. Meanwhile, a slowing global economy has moderated energy demand.

So the odds of a recession looming overhead might actually have a benefit after all?

But meanwhile, the US and Saudi Arabia are still working to put together a response, which in the worst case could further destabilize the region — and the potential for further drone attacks aren’t zero. Riyadh still hasn’t said just how long its facilities will be down yet either. And hurricane season isn’t quite over yet. That means it’s worth keeping a close eye on the pump.

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