Fire to fuel: On attacks against Saudi oil facilities (The Hindu)

Mains Paper 2 : International Relations
Prelims level: Khurais oilfield
Mains level: Oil supply crisis and impact on India

Context

• The last week’s drone attacks on the Saudi Aramco-owned Khurais oilfield and Abqaiq oil processing facility has been the suspension of more than half of Saudi Arabia’s daily crude oil output, thereby affecting contribution to global supply.

Key impacts

• The Saudis have restored a portion of the supply that was hit, the sudden disruption resulted in the highest spike (nearly 20%) in Brent crude prices in more than a decade before the U.S. President’s statement that America would release some of its strategic reserves resulted in the price easing back to $66 per barrel (a 10% increase over the day).
• While the Houthi militia fighting Yemen’s Saudi Arabia-backed government in a four-year-long civil war claimed responsibility for the attacks, the U.S. has suggested that Iran was responsible for them.
• The sudden disruption of global crude oil supply is the unintended consequence of the unravelling of the painstakingly crafted P5+1+EU-Iran nuclear deal, the Saudis’ reckless adventure in Yemen and the Iranian empowerment of its proxies in West Asia as a response.
• This development is bound to affect several emerging economies, including India’s.
• The Union Petroleum Ministry has sought to allay fears of a supply cut by relaying messages of assurance from Aramco officials, but there is already an indication that crude prices would rise further due to an increase in the risk premium, leading to increased fuel pump costs.

Way ahead

• With India importing more than two-thirds of its oil from West Asia, a price surge is expected to impact the current account, and will result in further currency depreciation as was the case on Monday.
• Higher fuel costs and the imported inflation could also hurt the consumer at a time of a slowdown in the economy.
• The government should be prepared to handle the fallout with steps such as re-evaluating the excise duties on petroleum products.

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Prelims Questions:

Q.1) Pradhan Mantri Vaya Vandana Yojana (PMVVY) is related with-
a) is a flagship pension scheme for senior citizens
b) is a flagship scheme for financial inclusion
c) is a flagship scheme for women empowerment
d) None of the above

Answer: A
Mains Questions:
Q.1) Describe the highlights of the recent drone attacks in Saudi Arabia have felt impact of oil supply in India. Suggest the steps to be taken to bring India out of the vulnerability of fluctuations in global oil prices.