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Page added on September 3, 2016
Saudi Arabia’s oil industry has an overlooked risk
Last week, a rocket originating from Yemen hit a power-relay facility in southern Saudi Arabia, the state-run Saudi Press Agency reported, as was cited by Bloomberg.
Yemeni rebels said they hit Saudi Aramco facilities, but the kingdom’s state-run oil company announced that “all of its oil, gas, and refining plants were operating as normal” in the aftermath, according to Bloomberg.
Still, some analysts argued that the episode shows that the Saudis’ campaign in Yemen could pose a risk to its oil sector.
“The recent cross-border rocket attacks originating from Yemen are an ominous reminder of the dangers posed by Saudi Arabia’s 18-month military intervention in Yemen,” argued Helima Croft, the head of commodity strategy at RBC Capital Markets, in a note to clients.
“Although no ARAMCO facility in the southern region has yet to be hit, the fact that a rocket did strike a power station in Najran last week demonstrates that critical local infrastructure indeed remains vulnerable.”
Notably, the RBC Capital Markets team also argued last year that the Saudi campaign in Yemen could also add additional pressures on its finances as it increases security spending.
RBC Capital Markets
“The military campaign in Yemen, more assertive efforts to roll back Iranian regional influence, and more muscular counter-terrorism efforts will put further pressure on Saudi government finances as they ratchet up security spending,” the team wrote back in June 2015.
Since then, the kingdom, the largest military spender in the Middle East, has increased defense spending to record levels.
Data from from the Stockholm International Peace Research Institute (SIPRI), which tracks global arms expenditures, reported that in 2015 Saudi Arabia registered its highest level of military expenditure as a share of GDP since 1990, at 13.7%.
Moreover, SIPRI noted that there were reports that 17% of total government overspending in 2015 was attributed to a $5.3 billion increase in military and security spending due to the campaign in Yemen.
And in her latest note, Croft argued that “continuing in Yemen will make it difficult for the Kingdom to achieve its belt tightening goals.”
Notably, the 2016 defense and security budget has been reduced amid the drop in oil prices, according to SIPRI — although, a provision for “substantial ‘budget support’ has been made to allow flexibility in the overall budget; some of this support may be used for military spending.”
But the bottom line is that Saudi Arabia’s campaign in Yemen comes with certain overlooked risks to its oil sector, including the vulnerability of its oil infrastructure and pressures on its finances.
7 Comments on "Saudi Arabia’s oil industry has an overlooked risk"
Cloggie on Sat, 3rd Sep 2016 5:50 pm
With all its military spending, KSA “can’t beat a dent in a pack of butter”, let alone defeat a bunch of tribal & faith motivated fourth generation warriors. Fourth generation warriors almost always beat government forces. Its a matter of motivation.
http://www.antiwar.com/lind/?articleid=1702
https://en.wikipedia.org/wiki/Fourth-generation_warfare
Truth Has A Liberal Bias on Sat, 3rd Sep 2016 7:56 pm
KSA couldn’t fight their way out of a wet paper bag. Yemenis won’t soon forget the atrocities visited upon them by cowardly Saudi pilots. It won’t be long until the VBIEDs start crashing into the refinery gates.
rockman on Sat, 3rd Sep 2016 8:54 pm
The KSA has the same problem many large military powers face: much of their defence spending has been focused on conventional warfare. You would think someone in the country would remember that the shah of Iran had by far the largest military force in the ME. How did that work for him? LOL. Even his death squads and complete disregard for human rights didn’t save him from asymmetric assault. I doubt rockets from Yemen represent the most serious potential threat to the KSA.
Bizarre thread any way: has anyone here ever overlooked the such risks for any country in the region?
Boat on Sat, 3rd Sep 2016 10:49 pm
Clog,
With all its military spending, KSA “can’t beat a dent in a pack of butter”
The KSA outspends Russia by 15 billion plus on their military. Yeman may have troubles for awhile.
Anonymous on Sat, 3rd Sep 2016 11:11 pm
Gotta love how our ‘free press’ keeps yammering on about some quasi-secret war Iran is supposedly waging via Yemen. Seems Iran has declared on the ‘sauds’ and everyone knows about it, well, everyone except Iran that is.
theedrich on Sun, 4th Sep 2016 4:02 am
How nice that the U.S. arms industry has made $billions selling all kinds of hyper-sophisticated weapons to KSA, but the Sauds do not seem how to use them effectively. Another case of the Council on Foreign Relations (part of the DeepState) and State Department showing their expertise in “changing the world,” as NewWorldOrderer George W. Bush once put it. As long as TPTB (and their main bribee, HRC) decide that the bottomlessly corrupt KSA is “our friend,” we are going to continue to experience more MENA chaos. And the blowback may not be what the DC megalomaniacs expect.
Kenz300 on Sun, 4th Sep 2016 9:43 am
NO MORE WARS FOR OIL……..
The sooner we get off of fossil fuels the better………
Wind and solar power for electricity production coupled with electric vehicles for consumption…….. this is a solution we can all live with……….