THE whole world is now closely following developments following the attack on Saudi Arabia’s oil industry that cut its production by half last Saturday – for two critical reasons.
The first is a danger that the attack may lead to a war in the Middle East between Saudi Arabia and its arch-rival Iran, with the United States on the side of Saudi Arabia. The Saudis have been leading a Sunni coalition in a war against Yemen, its small neighbor to the south, which is fully supported by Shiite Iran. Last Saturday, drone attacks on the heart of Saudi Arabia’s oil industry destroyed more than half of the country’s total oil production.
The Houthis of Yemen claimed responsibility for the attack but United States Secretary of State Mike Pompeo put the blame entirely on Iran. Iran Foreign Ministry spokesman Abbas Mousavi said the US allegations appeared meant to justify impending US action against Iran.
War nearly broke out last June when US President Trump ordered retaliatory strikes after Iran downed a US drone but cancelled his order at the last minute. “We have always prepared ourselves for a full-fledged war,” the commander of the Islamic Revolutionary Guard Corps’ aerospace arm said early this week. “Everyone should know that all American bases and their vessels in a 2,000-kilometer range can be targeted by our missiles.”
While the danger is there, however, the US and Iran are both keenly aware of the destruction a missile war would wreak on both of them. The more likely danger from the destruction in Saudi Arabia is the dire economic fallout that may befall the entire world because of the huge drop in Saudi Arabia’s oil exports.
Saudi Arabia today exports over a million barrels of oil to nations around the world, including the Philippines. US President Trump told Saudi ruler Crown Prince Mohammed bin Salman that the US is ready to release oil from its strategic petroleum reserve if necessary. But the big reduction in total oil export supply is bound to affect world prices in line with the law of supply and demand.
The Philippines imported 31.6 percent of its unprocessed petroleum needs from Saudi Arabia in 2018 at a cost of $1.6 billion. Our next biggest sources of oil were Kuwait, 26.6 percent; United Arab Republic, 23 percent; South Korea, 5.5 percent; and Malaysia, 5 percent. Much smaller amounts came from Qatar, Russia, Oman, China, and Nigeria.
Local market prices – inflation – zoomed in the Philippines last year because of the effect of high global oil prices, worsened by a new tax on diesel imports imposed by TRAIN 1. We should now be ready for the consequences of the destruction of half of Saudi Arabia’s oil production capacity on global supply and global prices – and, inevitably, on our own prices.
