When more than twenty drones and cruise missiles attacked Saudi Arabia’s energy infrastructure recently, they took down approximately half of the kingdom’s oil production.
The fires were quickly extinguished, but the impact will have long lasting energy security and geopolitical implications for Saudi Arabia and the rest of the world.
The surgical strike on Abqaiq and Khurais, allegedly conducted by Iran, but claimed by the Yemeni Houthis, took offline more than 5.7 million barrels of oil capacity—about 5 percent of the world’s global oil supply. In the ensuing ten days, Aramco, the country’s national oil company, rushed to assure customers that it will be able to restore operations and honor all its contractual obligations. However, experts claim that it is highly unlikely that Aramco can restore full production capacity in under eight months.
These events highlight the stark vulnerability of Saudi Arabia’s energy infrastructure, and the serious geopolitical risks inherent in President Donald Trump’s decision to walk away from the Iran nuclear deal. The administration’s rationale was that tougher sanctions would economically starve Iran and force it to sign a much less favorable agreement. Trump’s plan succeeded in hurting Iran’s economy, but Iran—in order to maximize its negotiating strength—has scaled up its attempts to disrupt energy markets.
For most of the last four decades, Saudi Arabia has been the largest oil producer and exporter in the world. Therefore, it made economic sense to leverage economies of scale by building very large centralized facilities, but, as the attacks have shown, this created a critical systemic risk. To be repaired, these highly-sophisticated plants require costly made-to-measure parts and equipment that will take contractors months to manufacture, deliver, and install.
During this time, Saudi Arabia could lose upwards of $300 million per day or slightly less than $75 billion dollars over an eight-month period in lost production alone. This will put a serious dent in the Saudi treasury and make it extremely difficult for the kingdom to meet its commitments to domestic social programs—commitments that are critical to the internal stability of the country.