Saudi Refinery Closed after Drone Attack

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

Large-scale military operations from the United States and Israel on Iran during the weekend are threatening the broader region. Much of the energy sector has avoided catastrophe, though reports of maritime attacks have pushed commodity prices higher.

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Ras Tanura Closed

A presumptive drone attack has forced Saudi Arabia's state-owned energy company Aramco to close its Ras Tanura refinery, Industrial Info reported Monday, as the Iran conflict threatens to engulf the broader region.

The refinery, with a processing capacity of 555,000 barrels per day (BBL/d), was shut down Monday. Several units, including a condensate splitter that can handle 225,000 BBL/d, were impacted.

Industrial Info continues monitoring the situation and will release updates for clients as more details become available. An initial alert was distributed before the start of trading on Wall Street on Monday.

Subscribers to Industrial Info's Global Market Intelligence (GMI) Petroleum Refining Plant Database can click here for the Ras Tanura profile.

The price for Brent crude oil, the global benchmark, was already supported by a risk premium as tensions mounted last week, closing Friday at around $72.48 per barrel. A few minutes before the opening bell on Monday, Brent had climbed to $79.20.

That's the highest since mid-June of last year, when U.S. and Israeli forces launched smaller-scale military operations against Iranian nuclear installations. On Saturday, joint military action left Iran's Supreme Leader Ali Khamenei and a handful of top military officials dead.

The move was certain to drive up crude oil prices given that Iran is one of the largest crude oil producers in the world. Should the conflict drag on and regular clients such as China look elsewhere for supplies, it would lead to a protracted period of higher crude oil prices, though there are signs the Organization of the Petroleum Exporting Countries (OPEC) may put more barrels on the water.

Industrial Info has seen few other direct impacts to the refining sector or production in the Middle East.

Threats to Shippers Mount

On Sunday, the U.K. Maritime Trade Operations (UKMTO) Center reported a handful of maritime incidents in the region. Several unnamed vessels were reportedly struck by projectiles in and around the Persian Gulf, which transits about 20% of the world's waterborne crude oil.

While it's unlikely that Iran would cut off its own trade arteries completely, mariners may be avoiding the region given the risks from Iran and its proxies, including the Houthi rebel group in Yemen.

According to estimates from investment bank ING, even a partial disruption would lead to a "supply shock of historic proportions" given the estimated 20 million barrels per day of petroleum products and 10 billion cubic feet per day of liquefied natural gas (LNG) moving through the Strait of Hormuz.

In a statement, QatarEnergy, the world's largest LNG producer, said it halted production of the super-cooled gas because of military attacks. QatarEnergy's LNG facilities in Ras Laffan Industrial City and Mesaieed Industrial City in the State of Qatar shut down. Wholesale natural gas prices in Europe were up nearly 40% early Monday in response to supply-side pressures.

Meanwhile, should shippers continue to avoid the area, Iraq may be limited in terms of what it can deliver from the Port of Basra, creating further supply-side challenges, even with more barrels from OPEC. Pipelines are an option, meanwhile, but those avoiding the Persian Gulf are few and far between.

Future Uncertain as Oil Marches Toward $100

ING sees $100 barrels well within reach.

"While Iran has not yet deployed any ships to try to close the S-curve of the Strait of Hormuz, selective drone and rocket attacks on ships have raised the risk profile in the waterway beyond acceptable levels for many shippers and insurers," added Helima Croft, the head of global commodity strategy and Middle East research at RBC Capital Markets.

Strikes last year on Iran were intended to wipe out its nuclear program, and it's unclear what justification the U.S. and Israel had for pre-emptive action. Addressing reporters on Monday, U.S. Secretary of Defense Pete Hegseth said it was past administrations that planned poorly in previous military efforts and found themselves bogged down by years of conflict.

"We have plans ... but we would never in front of a press pool lay out how long that may take," he was quoted by The Guardian newspaper as saying.

By the Numbers

• 555,000 BBL/d knocked out in Saudi refining capacity
• $100 oil a possibility
• 40% spike in European natural gas prices

Key Takeaways

• Energy, maritime shipments in the crosshairs.
• Commodity prices spike amid tensions.
• Persian Gulf traffic on the decline.

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).