US warns of possible attacks near Saudi oil as Iraq votes to expel troops

Washington — The US State Department warned Sunday of heightened risks of attacks around oil facilities in Saudi Arabia's Eastern Province, and Iraq's parliament voted to expel US forces from OPEC's second-largest producer in an escalation of Middle East tensions.

State urged US citizens in Saudi Arabia to "immediately review precautions to take in the event of an attack."

Iran has promised to retaliate against the US, or its interests, after a US strike Thursday in Baghdad killed Iranian General Qassem Soleimani.

Oil prices spiked nearly 5% immediately after the US confirmed it had killed Soleimani. Brent settled $2.35/b higher at $68.60/b, and WTI rose $1.87 to $63.05/b on Friday.

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S&P Global Platts Analytics expects Brent to be capped at $70/b, unless a major source of supply is significantly damaged.

Meanwhile, the Iraqi Parliament voted Sunday to expel the US military from the country, which is not expected to have an immediate oil supply impact. Any law would not take effect until after ratification and one-year notice. Additionally, Iraq will aim to keep crude production flowing with or without a US military presence.

Iraq is OPEC's second-largest producer after Saudi Arabia.

"It won't affect oil supply from the region but the real impact will be psychological,” said Abdullah bin Hamad al-Attiyah, former OPEC president and previously Qatar's longest serving energy minister, in a phone interview from Doha on Friday before the US warning was issued.

"It will bring the speculators back to the oil market," added Al-Attiyah who attended his first OPEC meeting as a delegate in 1972.

ESCALATION

Late Saturday, US President Donald Trump threatened to target 52 Iranian sites if Tehran retaliates for the Soleimani strike.

"Let this serve as a WARNING that if Iran strikes any Americans, or American assets, we have targeted 52 Iranian sites (representing the 52 American hostages taken by Iran many years ago), some at a very high level & important to Iran & the Iranian culture, and those targets, and Iran itself, WILL BE HIT VERY FAST AND VERY HARD," Trump tweeted. "The USA wants no more threats!"

The threats between the US and Iran come after major attacks in September on Saudi oil infrastructure and a number of tanker-related incidents in the Strait of Hormuz chokepoint last year, which have raised geopolitical risks in the world's biggest oil-producing basin.

The UK has also stepped up its naval presence to protect shipping passing through Hormuz in the wake of Soleimani's death amid growing concerns of a regional escalation hitting oil.

"The risk of major escalation has moved into new territory, but we still put the odds of a broader U.S.-Iran conflict below 50/50,” said S&P Global Platts Analytics in a Spotlight note on the impact of Soleimani's death on Friday.

Platts Analytics estimates global spare capacity at 2.3 million b/d. "But with 1.5 million b/d in Saudi Arabia alone, the market is vulnerable to supply side risks," Paul Sheldon, chief geopolitical adviser, said Friday. "Spare capacity and Strategic Petroleum Reserve releases from the US and others could soften the blow of a large outage, but it could be difficult to offset a major, sustained disruption."

Saudi Arabia, which is currently producing at 9.75 million b/d, has 1.5 million b/d of spare capacity. However, history has yet to test whether Saudi output above 10.5 million b/d can be sustained for longer than a couple of months, according to Platts Analytics.