Political Risk Assessment: Saudi Pipeline Fire and the Arab Spring



March 7, 2012

WASHINGTON DC– Last Thursday’s small fire near the Abqaiq-Ras Tanura pipeline network in Qatif, Eastern Province of Saudi Arabia, showcases the vulnerabilities of the world oil system.  This incident is an eye-opener to how truly susceptible and fragile the global oil market is to any form of disturbance or attack on Saudi oil infrastructure.  While the incident itself is not of great concern, the impact that this small event had at the international level and in particular, the global market, should be of concern.  It signifies the lack of control and influence the West has not only Saudi’s oil sector but, the global oil market itself.

Within a matter of minutes of the fire/explosion being reported, light sweet crude oil rose to its highest prices since May 2010 to $110.55 a barrel.  International Brent crude oil also reached its highest levels topping at $128.40 a barrel, its highest level since 2008.  Last week’s incident exposes the true fragility of the global oil market.  The incident and the consequential reaction it caused to the global oil market illuminates how nervous speculators really are when it comes to trading oil.  How instantaneous the global oil market reacts to any reports impacting Saudi Arabia’s oil sector is also of great concern.  However, once Saudi officials denied that there was an attack on the Abqaiq-Ras Tanura pipeline light sweet crude oil did fallback down to $107.40 a barrel once markets opened on Friday.  Had the incident proven to be much more of a threat to Saudi Arabia’s oil infrastructure, though, it would not have been unexpected to witness oil prices rising much higher than they did.

The incident also indicates that Western governments need to better reassure wary speculators that they are well prepared to handle disturbances affecting the supply of oil.  Had government officials assured speculators that the incident did not affect the current supply of oil, prices would have been unlikely to rise as quickly as they did.  Last week’s incident also provides governments the opportunity to review their own plans, should a much more serious and threatening incident occur in the future.

The little amount of influence the West has and the inability to promptly confirm reports of Saudi Arabia’s oil infrastructure was highlighted by last week’s incident.  The lack transparency between Western and Saudi officials when it comes to Saudi Arabia’s oil infrastructure was evident with how slow Saudi officials were in responding to the report.  Further indications include how dependent the world is on Saudi Arabia ensuring the security of its oil sector and that even one tiny incident could influence the global oil market.
The fact that the event occurred in a region still feverish with the Arab Spring, boiling with anger, and has had ongoing protests since last year should be of concern especially considering how physically integrated the pipeline line network is in Qatif. Protesters could become enticed to attack the oil infrastructure within the Eastern Province in response to the killing and jailing of marchers, or as a method to further gain attention to their cause.
The world has little influence on controlling the security of oil from a country that is one of the world’s major producer and top oil exporter.
While attacks on Saudi Arabia’s oil are few and far between, the most recent being an attempt in 2006, each incident allows for the international community to prepare and better comprehends the implications that could occur and damage Saudi Arabia’s oil infrastructure.

Andrew Bond is a Political Risk Analyst at the Gulf institute

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