Attacks on oil facilities: Iran rejects US accusation as global economy braces itself for oil price spike

Smoke billowing from an Aramco oil facility in Abqaiq, following a drone attack, on Sept 14, 2019. PHOTO: AFP

WASHINGTON - Iran has hit back at accusations from Washington that it had struck an oil refinery and oil field in Saudi Arabia, as worry mounts that a prolonged spike in oil prices could tip the global economy into recession.

Pre-dawn drone attacks on Saturday (Sept 14) on Saudi state oil company Aramco's refinery at Abqaiq, the world's biggest crude processing facility, and west of Abqaiq at Khurais, the kingdom's second-biggest oil field, have taken an estimated 5.7 million barrels of oil - 5 per cent of global oil supply - off the market.

The attacks were claimed by Iran-backed Houthi rebels fighting a Saudi-led, US-backed coalition in Yemen's civil war.

But on Saturday (Sept 14), US Secretary of State Mike Pompeo tweeted: "Amid all the calls for de-escalation, Iran has now launched an unprecedented attack on the world's energy supply. There is no evidence the attacks came from Yemen."

"The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression," he added.

Iran's Foreign Minister Javad Zarif responded, also via Twitter, to say the US and its clients are stuck in Yemen because of the "illusion that weapon superiority will lead to military victory", he said.

"Blaming Iran won't end disaster," he added.

Mr Amirali Hajizadeh, head of the Aerospace Force of Iran's Revolutionary Guard, was quoted by the semi-official Tasnim news agency in Iran as saying Iran was ready for "full-fledged" war and that US military assets were within range.

Though Iran has been arming and training the Houthi, there was some scepticism in Washington over Mr Pompeo's claim, especially because it came so soon after the attack.

"It takes time to piece these things together unless there is a smoking gun, which there rarely is," tweeted Mr Ilan Goldenberg, Middle East Security Director at the Centre for a New American Security. "So let's see some evidence," he added.

Democratic Party Senator from Connecticut Chris Murphy said Mr Pompeo's accusation was an "irresponsible simplification and it's how we get into dumb wars of choice".

"The Saudis and Houthis are at war," he tweeted. "The Saudis attack the Houthis and the Houthis attack back. Iran is backing the Houthis and has been a bad actor, but it's just not as simple as Houthis=Iran."

Oil prices are set to spike on Monday (Sept 16) when markets open in Asia.

"This is serious. It will - not could - affect us deeply; to put it bluntly, an oil shortage or steep rise in oil price will rock the Philippine boat & tip it over," Philippine Foreign Secretary Teddy Locsin tweeted.

Mr Gary Grappo, a former US ambassador to Oman who has also served in Saudi Arabia, told CNN: "The only question now is how long will these two facilities stay offline. The longer they are offline, the greater the pressure that the global economy will be facing."

Aramco, which is planning a massive initial public offering (IPO), has said it can release oil from storage facilities in Saudi Arabia, Japan, Egypt and the Netherlands while it works to restore production in the crippled facilities.

But some experts are sceptical. "There are places which do not have the logistics capability," Dr Paul Sullivan, a Middle East and energy expert who lectures at the National Defence University, told The Straits Times.

"Abqaiq has been called the Achilles heel of the world oil market and the world economy," he said. "It will be miraculous if the Saudis get this back on-line in a few days. There were multiple targets. It's anyone's guess what the price of oil is going to be when the market opens."

"But there's going to be a significant psychological premium on the price of oil, and massive volatility," he said.

The UN General Assembly in New York next week will be the first opportunity to address the crisis diplomatically.

Last week, Mr Pompeo said President Donald Trump was ready to meet Iranian President Hassan Rouhani in New York without pre-conditions.

Iran welcomed the sacking of Mr Trump's National Security Adviser John Bolton, who was notoriously hawkish on Iran.

But the strike on the oil facilities, and Mr Pompeo's accusation, may throw a spanner in the diplomatic works.

On Sunday (Sept 15), White House adviser Kellyanne Conway told Fox News the attacks did not help prospects but "I'll allow the President to announce a meeting or a non-meeting."

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