What are the Lingering Threats to Oil Production?

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Paul Sullivan, writing in Al Arabiya, writes a very interesting article about the numerous threats that the “Oilconomy” currently faces. While the disruption of oil production from the Middle East is unlikely, there are many factors that could drastically alter oil production and change the world’s energy landscape forever, Sullivan writes.

While the social unrest that is gripping the region looks increasingly unlikely to spread to Saudi Arabia, the world’s largest oil producer, Sullivan makes the interesting point that other regional instability may affect shipping routes for oil.

“Some of the most vulnerable transport choke points for oil are found in the region, such as the Straits of Hormuz between Iran and Oman, the Bab Al Mandab off failing Yemen, the Suez Canal, and Sumed pipeline in Egypt, and many pipeline systems across the region.”

Sullivan notes that some oil facilities might also be in danger from terrorist attack. However likely this may be in other nations, it is quite unlikely to happen in Saudi Arabia. Al Qaeda tried and failed to take out the Ab Qaiq facility in Saudi Arabia, which undoubtedly caused a renewed effort and focus by the Saudi government to ensure that the Ab Qaiq facility and others were well protected.

Sullivan’s overall points are salient, though. The world’s economy is delicate, and the global economy relies on energy. As Sullivan concludes:

“A huge proportion of the world economy is based on oil. It is truly a “Global Oilconomy,” and the next few months or couple of years could see its biggest tests so far.”

While we believe Sullivan is correct in writing that there are many threats to the “oilconomy,” we also agree with Nawaf Obaid, who wrote in CNN that the threats to Saudi Arabia’s energy infrastructure in particular are overblown.

As SUSRIS wrote, when sharing the article:

“The Kingdom of Saudi Arabia has been in the gunsights of terrorists for many years, especially since Al Qaeda launched a major campaign of bombings and armed strikes against the government in 2003 to attack officials and targets in the public sector, military facilities, residential areas including Westerners, oil installations, Hajj pilgrims and others. The security forces in Saudi Arabia have produced remarkable results in countering this threat through direct policing action and by undermining the ideological basis for attracting recruits to the effort.”

One of the greatest points made by Obaid is that the most vulnerable aspects of oil production are also the easiest to repair:

“It is worth pointing out that the elements most difficult to protect, such as the thousands of miles of pipeline, are also the easiest to repair and quickly get back online. Saudi authorities have estimated that in a worst case scenario — where an entire section of pipeline is destroyed — repair teams could bring the pipeline back to normal operation within days. The key processing points and bottlenecks in the system are, by their centralized nature, much easier to defend.”

So, what can be concluded given this somewhat contradictory information on the security of oil production? This is an industry that can be fairly characterized as uncertain, from prices to security. And the world’s economy, already in a delicate multinational balance, relies on a somewhat uncertain industry to power its growth. But leaders in that industry, including Saudi Arabia, realize the threats as diverse and certainly have a vested interest in seeing production levels changed only by responses to market dynamics.

Sullivan’s article is worth reading and thinking about, as is Obaid’s.