Two of the world’s largest oil facilities in Saudi Arabia, Abqaiq and Khurais, were targets of drone strikes, which has seen Saudi Arabia’s oil output fall by half sparking a spike in US-Iranian tensions.

The strikes forced Saudi officials to cut 50% of their daily production of crude oil supplies (5.7 million barrels), equalling 5% of global oil supply. 

Dammam, the nearest port to Saudi Arabia’s Abqaiq and Khurais oil facilities and boasts an annual trade throughput of mostly container/bulk goods of just under $12bn, according to ALPS Marine.

Currently, Saudi Arabia supplies more than 10% of global crude, making it the world’s largest exporter of oil.

Aramco, the world’s largest oil company was forced to suspend production of six million barrels per day. 

The price of Brent Crude, rose by 20% overnight on Sunday to $70 a barrel and was still trading at $65 on Monday morning.

Likewise, the price of gold rose $15 an ounce to $1,503.

Despite initial reports suggesting the origin of the attack came from Yemen, U.S. officials have accused Iran of being behind the attacks. 

Subsequently, this has sent tremors through financial markets, especially if the U.S. decides to impose sanctions or a blockade on Iran, as previously mooted in the Strait of Hormuz.

The price surge is more for Brent North Crude, which accounts for the bulk of imports into companies in India, unlike, for example a business like West Texas Instrument (WTI) in the U.S. market. There is some debate as to whether Saudi Arabia will be able to restore the supply to pre-attack level within 10-15 days.

India consumes 4.5 million barrels of oil a day - 250 million tonnes of crude oil a year. The country is heavily dependent on the imports. More than 80% of crude oil requirement is imported. And nearly 70% of the country’s crude oil imports come from the Middle East.

“India’s strategic oil reserves are enough for 12-15 days,” said Saurabh Chandra, former oil secretary.

The country has a total installed capacity to store more than 5 million tonnes of oil at three underground locations in Visakhapatnam in Andhra Pradesh and Mangalore and Padur (near Udupi) in Karnataka.

“In addition to these three underground caverns to store oil, refineries of the country also maintain a large stock of commercial storage that should be sufficient for 45-60 days,” Saurabh Chandra told Financial Express Online.

This latest incident follows two armed drones attacks on two of Saudi Aramco’s oil pumping stations in May 2019, which forced the state producer to briefly shut its East-West pipeline, known as Petroline. That attack came two days after the sabotage of four oil tankers – two of them owned by Saudi Arabia – near the United Arab Emirates. 

Following the attack in May, oil and shipping companies said they would have to alter their routes or take precautions near Fujairah.

“We had a ship which was refuelling at Fujairah when the incident occurred. Fortunately nothing happened,” said KY Lin, spokesman at Taiwan’s Formosa Petrochemical Corp, who was interviewed by Insurance Journal.

“There are no other (bunkering) choices nearby. We may choose to refuel at Singapore instead,” Lin said.

At the time there was no material increase in insurance premiums. Risk premium increases would be inevitable, however, if security in the region continued to deteriorate as appears to be the case following Monday’s news.