Drone attacks on Saudi Arabia’s oil facilities are costing China another $97 million a day as the largest customer of Saudi Arabia, and the world’s biggest crude oil importer.
The Sept. 14 attack by ten armed drones on state-owned Aramco’s Khurais oilfield was launched from over 745 miles (1,200 kilometers) away by Houthi rebels in Yemen. Huge fires were quickly brought under control, but the attacks slashed world supplies by about 5.7 million barrels a day. The Khurais oilfield produces one percent of the world’s oil and Abqaiq is the company’s largest oil-processing facility, with the capacity to refine 7 percent of the global supply.
China became the world’s largest oil importer in 2017 and imports hit a record 9.85 million barrels per day (bpd) in August, up 9.6 percent from the prior year. According to TankerTrackers.com, which monitors shipments based on satellite images and radio transponders, China imports rose from 921,811 bpd in August of 2018 to 1,802,788 bpd in July 2019. That equaled 25 percent of Saudi Arabia’s exports of 7.3 million bpd.
The crude oil international standard price referred to as “Brent Crude” jumped by 14 percent on Sept. 16 from $60.22 per barrel to about $68.07 per barrel. The Shanghai Futures Exchange quoted price for Brent Crude is trading at a $2.20 premium price of $70.27 per barrel, due to China’s heavy reliance on Saudi Arabian imports.
The National Interest commented that it is unclear if the attackers used drones or possibly cruise missiles to penetrate “what should have been some of the most well-defended—or at least the most secure—airspace in the world.”
The U.S. Fifth Fleet is based about 62 miles from Abqaiq in Bahrain and patrols the Persian Gulf. America also operates airbases and military facilities equipped with fully-integrated air defense systems featuring 93-mile radar ranges along the western Gulf stretching from Kuwait to the UAE. Saudi airspace is rated as especially well-defended by U.S. air-defense systems like the Patriot surface-to-air missile system.
General David Perkins, the commander of the U.S. Army Training and Doctrine Command spoke at the Association of the U.S. Army’s Global Force Symposium in March and said that “a very close” U.S. ally used a $3.4 million Patriot missile to take down a $200 consumer drone. General Perkins called the move an uneconomic “overkill,” but that was before the latest attack.
Several Middle East nations were already upgrading their air defense systems in response to growing Houthi and Iranian offensive weapon capabilities, including Quds cruise missiles and the Samad-3 long-range drones. Saudi Arabia received additional Patriot batteries in July; Qatar is seeking more U.S. support to operate its Patriot missile systems; and Bahrain signed an agreement to purchase Patriot batteries in August.
China has refused to join the U.S.-led multinational naval escort coalition that protects about 14 tankers carrying about $1.3 billion in crude oil that transit through the narrow Strait of Hormuz each day. Despite international sanctions, China imported between 142,000 and 360,000 bpd from Iran in July, or about half of last year’s import level.
U.S. Secretary of State Mike Pompeo blamed Iran for the transfer of weapons technology to the Houthis for the attack. Secretary of Energy Rick Perry stated that the United States stands ready to “deploy resources from the Strategic Petroleum Oil Reserves if necessary to offset any disruptions to oil markets as a result of this act of aggression.”
The United States has most of the world’s excess crude oil capacity with domestic production rising from about 5 million bpd in 2008 to a record high of 12.4 million bpd last week. U.S. international crude oil exports offering about a $6 per barrel discount have risen from 500,000 bpd in 2017 to an average of about 3.5 million bpd in 2019. Given existing infrastructure, the United States has another 2 million bpd of export capacity.
The South China Morning Post reported that “Beijing is in a precarious position” due to its reliance on Saudi Arabia crude oil deliveries and needs to diversify suppliers. China began importing U.S. crude oil in early 2017 and deliveries hit a high of 520,000 bpd in June 2018. But the Sino–U.S. trade war caused Beijing to curtail imports, and China recently announced a 5 percent tariff on crude oil imports from the United States.
Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.