How Did the US Allow a Drone Attack?
‘The tanks were empty, or mostly empty when they were struck,’ notes your guest editor today.
In the aftermath of the drone attacks in Saudi Arabia, I knew there was one person I had to speak to.
Someone who can make sense of what the air strike in Saudi Arabia really means for investors.
For that reason, I reached out to Byron King. He’s a US-based geologist, and has been kicking around in the industry for over four decades. An ex-Navy man, Harvard-trained geologist who turned his hand to investment writing over a decade ago.
I know him well. We first met Byron at an Agora conference a few years back. And we recently caught up when we were both in Vancouver together in July. So far this year we’ve completed two interviews that I will be able to share with you in just a few weeks.
The point is, understanding the impact of the drone attacks isn’t something we can analyse in just a few days.
As Byron points out today, it will take time to put all the pieces together.
The immediate for you and me will be higher fuel prices.
So while the bigger picture of the drone strike reveals itself, I thought I’d give you a head start by sharing Byron’s analysis with you.
Read on for more.
Until next time,
Hot Takes on the Saudi Oil Attack
Byron King, Contributor
I never thought I’d quote US politician Ilhan Omar (D-MN) about anything.
But over the past weekend in Saudi Arabia, ‘Some people did something.’
‘Some people’ attacked and blew up a major piece of Saudi oil infrastructure.
Houthi representatives in Yemen claimed credit. The US government quickly implicated Iran. Iran denies.
News accounts report that about half of Saudi’s oil export capacity is offline; perhaps for several weeks, or maybe longer.
It’s bad, but it could be much worse. Then again, it may get worse.
Or it may rectify faster than we anticipate, because the Saudis have entire warehouses full of spare parts.
For now, oil prices have stabilised.
Indeed, no less than Platts Oil Services — the sober, go-to site for oil price information — predicts oil at $80 per barrel.
I’ve been following oil, oil prices, geology, the oil industry and much more for 46 years; since I was a freshman in college during the first big oil spike in the fall of 1973.
I’m a geologist, and I spent many years in the US Navy, active duty and reserve. I know a few things…
So, here are some hot takes, based on what’s currently out there.
Don’t believe everything you read
First…initial accounts from the front lines are nearly always unreliable.
Beware believing ‘too much’ of what you hear or see in mainstream media.
Figuring out what happened takes time.
Yes, something happened. ‘Some people did something.’
There was video of burning oil, and lots of smoke, per NASA satellite shots.
Saudi sites that were attacked
Source: Washington Post
The US government quickly blamed Iran, but offered nothing immediate in the way of supporting evidence.
There are rumours that Iran launched drones and cruise missiles. But rumours are not ‘evidence’.
Evidence, such as…where are the radar tracks? Electronic intercepts? Forensic analysis of downed attack systems, or bits and pieces picked out from the rubble?
These things take time to assemble, and we are way too close to the actual event for any of this to be clear.
On Monday, the US showed satellite shots of damage to Saudi facilities, claiming at least 19 impact points. Like the picture below:
Impact on facilities
Source: AP News
Above we see damage to four storage tanks; precise holes in similar spots on each tank. Evidently the tanks were empty or mostly empty when they were struck.
That is, they are still intact, and barely even scorched by fire.
Still, the imagery shows precise targeting and impacts.
This attack is not the work of amateurs. It’s not a pick-up game here.
Clearly, there was planning, and very good targeting information along with sophisticated delivery systems.
According to the Associated Press:
‘US officials said additional devices, which apparently didn’t reach their targets, were recovered northwest of the facilities and are being jointly analysed by Saudi and American intelligence.’
Keep in mind, Saudi Arabia owns hundreds of billions of dollars’ worth of US, British, French and other defence systems.
These include high-end radars and electronic intercept systems, plus anti-air systems.
Yet a truly critical piece of energy infrastructure was hit by 19 or more weapon carriers; drones and/or cruise missiles.
Inflation set to creep up
Perhaps Saudi defences saw incoming weapons; or not.
Perhaps some attack systems were shot down, or just crashed.
We don’t know yet.
Still, this whole mess doesn’t say much for Saudi competence at defending critical energy infrastructure. The bombers got through.
More worrisome, Saudi is surrounded by US bases, ships, air-search systems and military people, plus contractors from defence firms; all beneath the watchful, constant stare of US satellites orbiting overhead.
Much of the US effort is geared towards keeping eyes on Iran.
Yet apparently, US forces in the region were caught by surprise as well. Draw your own conclusions.
Aside from the direct blow-by-blow of the recent attack, it’s well known that the Saudi government needs money.
Saudi is in the process of raising cash by selling part of its Aramco oil production company. Saudi has discussed offering for sale up to 5% of the firm, to raise in the range of US$40 billion.
This may be problematic now, considering the clear vulnerability of Aramco oil assets to attack. Who wants to buy a target?
On a broader scale, who benefits as oil prices rise? Let’s begin with a graph showing the world’s largest oil producers.
Saudi is (was) the world’s third largest oil producer last month. Not anymore. Looks like winners include the US, Russia, Canada, and Iraq.
World’s biggest producers of oil
Recently, the US became the world’s largest oil producer, in terms of barrels per day.
The US is NOT ‘energy independent’ though. Don’t be fooled by political rhetoric. The US imports large volumes of oil every day to keep the economy running.
The US exports light crude, from fracking wells, plus refined products. The US imports other forms of crude and refined products to keep the pipelines and tanks filled.
It’s a very complex system. Don’t believe ‘Rah! Rah!’ claims from politicians that the US is free of issues in the world of oil. The US is joined at the hip to global energy markets.
In one sense, higher oil prices benefit US oil producers.
Extra money from rising oil prices is especially important because pretty much all recent US oil production gains are due to high-cost fracking.
Overall though, the US fracking business has lost a lot of money. I’ve discussed the rash of oil company bankruptcies in the past.
So higher prices — even temporary — give the sector a shot in the arm.
Higher oil prices will definitely translate into higher fuel prices at the pump.
The Saudi attack, and oil knocked offline, will affect motorists; stand by for when you go to fill your tank.
Plus, higher oil prices — higher prices for refined fuel — will add costs to farming, trucking, railways, shipping and airlines.
Higher fuel costs will drive up costs for construction and mining industries as well. You’ll see higher oil prices translate into inflation for goods and services across the economy.
That’s all for now…
And on that note, I rest my case.