Saudi Arabia Oil Attack: After Effects on India and the World

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Recently, two oil processing facilities were attacked in Saudi by swarm drones. Yemen’s Houthi rebels have claimed the responsibility for both the attacks on the Oil processing facility of Abqaiq and Khurais, which together has a capacity of 5.7 billion bpd (barrels per day). Both the facilities together account for 6% of total oil production of the world.

Following this massive obliteration, crude prices are believed to go up to 70$ / barrel. However, Saudi Arabia maintains that they would utilize the buffer stocks available with them to control the price surge.

Saudi Arabia Oil Attack: The Background Story

The year was 2004 when Mr. Ali Abdullah Saleh, President of Yemen attempted to arrest Hussein Badreddin al-Houthi (Zaidi), a very influential Zaidi leader after the then Yemeni government accused him of setting himself as Imam and forming a military group termed Ansar Allah. This divided Yemen into two – The ruling Yemen government and the insurgences, Houthis.  Houthis are Zaidi, one of the closest sects of the Shia Islam.

Next, Arab spring that started in Tunisia to overthrow the monarchy and autocratic rule, spread in Yemen too. Mr.Abdrabbuh Mansur Hadi became the new President. However this had its own consequences as Mr.Saleh even after his Presidential exit had a certain faction of military on his side. This divided Yemeni military failed immensely from controlling the Houthi rebels.

In 2015 Mr. Hadi was overthrown by the Houthi rebels and Sana, the capital of Yemen was captured. Next, Saudi Arabia, a Sunni dominated country and also a major power in the Arabian Peninsula, created a coalition of 8 Sunni majority countries and started attacking Houthi rebels in support of Mr. Abdrabbuh Mansur Hadi government.

Iran, a Shia country and also another major power in the West Asia is thought of allegedly supporting Houthi rebels against Saudi. This is the reason why United states directly blamed Iran for the recent attacks on Saudi oil processing facilities even though Iran denied of any involvement.

After Effects of Saudi Arabia Oil Attack on India

India is a major oil importing country and imports in large amounts from Saudi Arabia. The current capacity of India is to meet 12 days’ crude oil requirement. Now that the oil production has been halted in Saudi, it is going to put a huge impact as far as the Indian economy is concerned. The oil prices along with the price of petrol, diesel and cooking gas are expected to rise, thereby affecting the pockets of each one of us.

Going by what the experts have to say, the drone attacks are expected to hit India’s oil bill as Saudi will be compelled to cap oil supplies which would then spike the global crude oil prices. Now that India imports more than 80% of it’s requirement from Saudi, a price surge during its economic slowdown is most likely to bring the rupee down.

Impact on the World:

As a leader of OPEC (Organisation of oil producing countries), Saudi has a buffer stock of around 2.27 million bpd of the total of 3.21 million bpd of all the OPEC countries combined, this buffer will absorb the shock for a short time. Now that Iranian oil cannot enter the market as US sanctions are forced on them, this will further deteriorate the global supply. Given the circumstances, Mr. Trump’s statement of releasing US strategic oil reserves as in to maintain the demand will be of little help.

It is unfortunate that the Houthis have said that Saudi’s oil installations in will remain in their hit list as any damage will only make the output delays lengthy, further, affecting the economy of India as well as the world.

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