Saudi Aramco has halted operations at its largest domestic refinery, the 550,000 barrel-per-day Ras Tanura facility, following a drone strike near the complex. The incident, which occurred on Monday, intensified concerns about energy supply disruptions across the Middle East, causing a sharp spike in oil prices. The refinery is part of a critical export hub on Saudi Arabia's Gulf coast, including storage tanks and loading points for crude shipments.
The shutdown was a precautionary measure while damage was assessed after two drones were intercepted near the complex. Debris from the interception caused a fire at the site, though Saudi officials confirmed there were no injuries and that domestic petroleum supply remained unaffected. This attack marks a significant escalation, with analysts noting that "Gulf energy infrastructure is now squarely in Iran's sights." The incident echoes the 2019 attacks on Saudi Arabia's Abqaiq and Khurais plants, which temporarily knocked out over half of the kingdom's crude output.
The refinery closure is part of a broader wave of regional disruptions. In Iraqi Kurdistan, oil production was suspended as companies including DNO, Gulf Keystone Petroleum, Dana Gas, and HKN Energy halted operations as a precaution, affecting roughly 200,000 barrels per day of exports. Offshore Israel, the Chevron-operated Leviathan gas field was shut down, and Energean halted production at smaller gas fields, reducing gas exports to Egypt. Furthermore, Qatar shut production at the world's largest LNG export facility after it was targeted in an Iranian attack.
The conflict stems from a joint US and Israeli military strike on Iran over the weekend, which killed Supreme Leader Ayatollah Ali Khamenei. Iran responded by threatening to close the Strait of Hormuz, a narrow waterway that carries roughly one-fifth of the world's seaborne oil. Tanker traffic through this critical chokepoint has largely stopped, with shipping slowing dramatically due to security and insurance concerns.
Markets reacted swiftly to the supply fears. Brent crude jumped roughly 8.4% to above $79 a barrel, later climbing above $80. ICE gasoil futures surged more than 20%, the largest intraday increase since March 2022. The cost of shipping crude from the Middle East to China hit a record high, with daily earnings on the benchmark route surging to $424,000.
Analysts warn of severe consequences if the disruption persists. JPMorgan analysts stated that Gulf producers could be forced to shut wells within about 25 days if local storage fills up due to the inactive Strait of Hormuz. OCBC Bank warned that Brent crude could top $100 per barrel in an extreme scenario, while ING analysts highlighted the bigger risk of Iran targeting more energy infrastructure, causing longer supply outages.
In response, US Secretary of State Marco Rubio said the military campaign would intensify, focusing on destroying Iran's navy, drone fleet, and ballistic missile program. He also stated Washington would announce plans to help reduce higher energy costs for consumers. The Trump administration indicated no immediate plan to tap the Strategic Petroleum Reserve, though any release would likely be coordinated with International Energy Agency members.
