Saudi seeks to restore oil supply as Iran blamed for strike

Saudi Arabia raced on Sunday to restart operations at oil plants hit by drone attacks which slashed its production by half, as Iran dismissed US claims it was behind the assault.

The Tehran-backed Houthi rebels in neighbouring Yemen, where a Saudi-led coalition is bogged down in a five-year war, have claimed Saturday's strikes on two plants owned by state giant Aramco.

But United States Secretary of State Mike Pompeo pointed the finger squarely at Tehran, saying there was no evidence the "unprecedented attack on the world's energy supply" was launched from Yemen.

"The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression," the top US diplomat added.

That drew an angry response from Tehran, where a foreign ministry spokesman said: "Such fruitless and blind accusations and remarks are incomprehensible and meaningless."

The remarks were designed to damage Iran's reputation and provide a pretext for "future actions" against the Islamic republic, he added.

Baghdad, caught between its two main sponsors – Tehran and Washington – also denied any link to the attacks amid media speculation that the drones were launched from Iraq.

Saudi de facto ruler Crown Prince Mohammed bin Salman, whose nation is pitted against Iran in a decades-old struggle for regional dominance, has said the kingdom is "willing and able" to respond to this "terrorist aggression".

But a tit-for-tat strike on Iranian oil fields is "highly unlikely", Middle East expert James Dorsey told AFP.

"The Saudis do not want an open conflict with Iran. The Saudis would like others to fight that war, and the others are reluctant," said Dorsey, from the S. Rajaratnam School of International Studies in Singapore.

Markets nervous

Instead, the kingdom focused on restoring production at the plants, as the Saudi bourse slumped three percent as the week's trading began on Sunday morning.

Saturday's explosions set off fires that engulfed the Abqaiq plant, the world's largest oil processing facility, and nearby Khurais, which hosts a massive oil field.

Saudi's energy infrastructure has been hit by the Huthis many times before, but this strike was of a different order, abruptly halting 5.7 million barrels per day (bpd) or about six percent of the world's oil supply.

"The genie is out of the bottle," said Bill Farren-Price, director of the London-based RS Energy Group.

"It is now clear that Saudi and other Gulf oil facilities are vulnerable to this kind of attack, which means that the geopolitical risk premium for oil needs to rise."

Satellite photos examined by The Associated Press suggested damage at the heart of the kingdom's crucial oil processing facility. The images, which appear to show black char marks in the heart of Saudi Aramco's Abqaiq oil processing facility in Buqyaq, come from the European Commission's Sentinel-2 satellite. Those marks were not visible in a month's worth of earlier satellite images of the facility.

The full extent of the damage was not clear, nor the type of weapons used, and reporters were kept away from the plants amid beefed-up security.

Saudi interior ministry spokesman Mansour al Turki told AFP there were no casualties in the attacks.

The Wall Street Journal reported that the kingdom aims to restore a third of its lost oil output by Monday. "We are making sure that the market won't experience any shortages until we're fully back online," a Saudi official told the WSJ.

Aramco has said it will dip into its reserves to offset the disruption, but the incident could affect investor confidence as its stock market debut looms.

As markets closely watch Saudi's ability to get its industry back on track, Aramco CEO Amin Nasser said Saturday that "work is underway" to restore full production.

And newly appointed Energy Minister Prince Abdulaziz bin Salman said part of the drop would be offset by drawing on vast storage facilities designed to be tapped in times of crisis.

Riyadh, the world's top crude exporter, has built five giant underground storage facilities across the country that can hold tens of millions of barrels of various refined petroleum products.

Loggerheads

Following a phone call between US President Donald Trump and Prince Mohammed, the White House condemned the attacks on "infrastructure vital to the global economy".

Tehran and Washington have been at loggerheads since May last year, when Trump pulled the US out of a landmark 2015 deal that promised Iran relief from sanctions in return for curbs on its nuclear programme.

Washington's response throws into doubt reported efforts by Trump to arrange a meeting with Iranian President Hassan Rouhani at the upcoming United Nations assembly.

The UN's Yemen envoy Martin Griffiths said he was "extremely concerned" over the latest attacks, which also drew swift condemnation from Riyadh's Gulf allies, the United Arab Emirates, Bahrain and Kuwait.

Saudi Arabia has spent billions on military hardware but recent events have underscored its infrastructure's vulnerability to attack.

While the kingdom's oil wells, scattered over a vast area, may be tough to hit, its various oil processing facilities are much more exposed.

In recent months, the Houthis have staged repeated cross-border missile and drone attacks targeting Saudi air bases and other facilities in what they say is retaliation for the Riyadh-led bombing campaign on rebel-held areas in Yemen.