Alarming geopolitical implications . . .
Last weekend the global economy was shocked when half of the output of the world’s largest oil producer, Saudi Arabia, was ruined as a result of a drone attack claimed by Yemen’s Houthi rebels. Since the group is aligned with Iran, the U.S. did not hesitate to blame Iran for the attack, suggesting it was in retaliation for sanctions imposed by the U.S. on Iran's oil exports. The U.S. and Saudi Arabia’s responses will have major implications for the global oil market and the situation in the Middle East. Fortunately, the key actors here have high incentives to avoid any military action, which could have catastrophic global repercussions.
Fragility of Asian energy supply exposed . . .
The attack affected as much as five per cent of the global oil supply. As a result, oil prices soared dramatically and markets in Asia were considerably impacted. Many Asian countries rely heavily on oil imports from Saudi Arabia, making them particularly vulnerable to disruptions in supply. While major Asian economies such as Japan, Australia, and China hold over a month of emergency oil reserves, many ASEAN countries do not, heightening their vulnerability.
Wake-up call for Asia . . .
While Saudi Arabia says its output will return to normal in the coming weeks, this is a wake-up call for Asia to diversify its energy sources and increase its oil reserves. The crisis also reminds the world that relying on oil implies geopolitical risks. In the long-term, as technological barriers fall and drive down the price of renewables, economies will turn toward greener energy alternatives. Recent events, including a spike in the price of oil, can only accelerate that transition.
- The Guardian: Saudi oil attacks push prices up by highest amount since 1988
- The Wall Street Journal: Oil-Thirsty Asia Feels the Strain after Saudi Attack
- CNN Business: China depends on foreign oil. The Saudi attack is a wake-up call