The Future of Oil

Written by Daniel Cho

On September 14th of this year, Saudi Arabia was stunned by massive strikes on Saudi Arabian Oil Co.’s Khurais oil field and Abqaiq, the largest oil-processing facility in the world. These strikes resulted in one of the largest oil outages the world has seen, eliminating almost 6 million barrels of oil, equitable to nearly 6% of the world’s daily oil production. Houthi rebels in Yemen have claimed responsibility for the attack, but the US and Saudi Arabia have since blamed Iran. If Tehran is indeed responsible, the nature of the attack and the resulting response set a worrying outlook on the future of Saudi Arabia’s oil industry.

A primary concern surrounding the attacks originates from the level of sophistication in which they were carried out. The Saudi Arabian facilities were hit with a combination of Iranian drones and cruise missiles so advanced that the projectiles were not detected by US or Saudi air defense systems. The bold nature of the attack suggests heightened conflicts in the future of the oil industry. Additionally, the failure of the defense systems to detect and deter the attack raises concerns of the security of the facilities so crucial to the world’s oil supply. 

Despite the US sending additional troops, F-15s, and Patriot missiles to the region, experts question the effectiveness of these measures to combat the growing competence of drones and missiles coming from Iran and Yemen. Houthi attacks have been on the rise, with increases in both the number of border clashes and the amount of rocket attacks. Analysts claim that the main issue is an overreliance on the Patriot air defense system and a need for better air defense and detection systems. Fixing this problem would be taxing because of costs and time — the region would require laser systems, ground-based radar, and possibly even Israel’s Iron Dome defense system. 

Despite a seemingly uneasy for Saudi Arabia’s oil industry, the shock on global oil prices has not been as severe or long-lasting as it could have been a few decades ago. The global oil industry has changed drastically in nature mainly due to one country: the United States. The US has seen its crude oil production surpass the levels of both Russia and Saudi Arabia in the past six years. In addition, Congress lifted an oil export ban in 2015 and the US cut its oil demand by more than 50% in the past decade. As a result of these developments, the world has gained a new major oil supplier, and the oil markets are much better supplied than they have been in the past. In short, the global oil market has become much more diversified and stable. However, this does not mean that the Saudi attacks should be taken lightly. The global oil markets are more resilient than in the past, but they still have their breaking points, especially if tensions in the Persian Gulf were to rise to the point of war.