Oil Security

Oil Security

In the early hours of September 14, thick black smoke was emerging from the world’s largest oil processing facility in Saudi Arabia at an alarming rate. The oilfields operated by Saudi Aramco, the state-owned company often referred to as the nation’s crown jewel, were said to have been attacked. The damage immediately halted the production of almost 5% of the world’s oil supply and had dramatic effect on the world markets, sending oil prices soaring. Brent Crude oil, the international benchmark, rose $12 per barrel to almost $72, which was the highest daily increase since 1988.

While attacks of this size are rare, attacks are not. In fact, Saudi Arabia regularly faces small attacks that can potentially cause big disruption. Saudi Aramco’s pipelines run for thousands of miles across the Arabian Peninsula, both above and below ground, and protecting all of them is not necessarily possible. As recently as May, several drone strikes temporarily halted the flow of a crucial pipeline in the west of the country. The fact that this occurred only a day after four of Saudi Arabia’s oil vessels were attacked at the mouth of the Persian Gulf gives some indication of the challenges oil exporting nations face.

Despite the seriousness of these attacks, other threats to oil companies can often be more severe. In 2012 for example, a virus was discovered within the oil and energy sectors of the Aramco computers, with a group called “Cutting Sword of Justice” claiming responsibility. Little is publicly known of the attack called Shamoon, other than it intended to wipe company files and make the system unusable. And for five long months, the company that supplies 10% of the world’s oil was reduced to paper-based working, as its representatives flew to every computer factory in Asia to jump to the front of the line for the required 50,000 hard drive replacements. If you had bought a hard drive in the final months of 2012, it’s likely you will have paid more for it as a result.

Attacks aren’t unique to Saudi Arabia of course; but they do showcase the type of threats faced by anyone storing the world’s most valuable commodity. It’s reported that America, for example, spends $81 billion a year to protect global oil supplies according to an estimate by Securing America’s Future Energy. Domestically, the US also stockpiles an enormous 700 million barrels underground along its gulf coast in a huge network of salt rock caverns called the “Strategic Petroleum Reserve.” A $43.5bn supply that can be used should any crisis emerge that threatens national security. These days, SPR’s are common around the world, with China, India and Japan storing energy for times of crisis for example. The UK itself requires the oil companies that trade on it shores to keep reserves above what they would normally store should the government ever need access to it.

These contingencies reveal a great deal about the energy industry and its importance to global stability. This is because the global oil economy is interconnected but volatile. It relies on a great deal of collaboration and trust. As long as oil and gas remain the world’s leading source of energy (still jointly accounting for 63% of primary energy consumption) it must remain insulated from political instability. In truth, this will always remain the greatest threat to its security.

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