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Aramco’s Operation Disrupted Worse Than Initially Presented: Report

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Aramco's Operation Disrupted Worse Than Initially Presented: Report

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There may be a disruption in Saudi Arabian crude oil supply, a source in Japanese JXTG Nippon Oil & Energy told Nikkei.

Saudi Arabian Aramco, whose oil infrastructure was struck by an attack on September 14th allegedly told Japan’s top oil distributor that there may be a change in shipments.

Starting from October, Aramco would start delivering medium and heavy grade oil, rather than light, the JXTG source claimed. No reason was given for the change.

If true, the move is a potential indication that the attack had a more severe impact than it was initially presented. The company repeatedly said that oil supply would be complete restored by the end of September, but if the rumor is true that may have proven too complicated to handle.

Unnamed JXTG officials suspect that the reasoning behind the change in deliveries is because it is taking more than expected for Aramco to repair its damaged facilities. Thus, it’s incapable of delivering light crude oil, which is used in the production of gasoline and light gas oil.

In Fiscal Year 2018, Saudi Arabia was responsible for 40% of Japanese oil imports.

The issue with the change in delivery is that medium and heavy oil is not specifically of worse quality, and it is cheaper to buy, but processing it is more expensive. This will, in turn, result in an increase in prices of petroleum products in Japan, if true.

The JXTG refineries, though, require a specific amount of light-grade crude oil, as well as medium and heavy to operate efficiently, so it would be forced to procure it from other sources, possibly the United Arab Emirates, or maybe the United States.

Nikkei further reported that other Japanese distributors such as Idemitsu Kosan and Cosmo Energy Holdings haven’t been told by Aramco for a change in supply.

All three companies, Idemitsu Kosan, Cosmo Energy Holdings and JXTG have been told that there will be a few days of delay in the October shipments.

According to the outlet, “this suggests that Aramco is trying to test the waters first with its biggest customer in Japan.” Which is possible, but does it specifically make sense to “test the waters” with your most important client?

And Japanese distributors are attempting to find contingencies in case Aramco can’t recover, naturally from Russia or the US, or even the UAE. This is in case of the rumor being true and the Saudi company can’t recover quick enough.

“It is difficult to believe that Aramco’s production will be fully restored by the end of the month,” an unnamed JXTG executive said.

The September 14th attacks reduced Saudi Arabia’s production capacity by as much as 5.7 million barrels per day, or 5% of the global oil supply. Aramco pledged that production would return to 11 million bpd by the end of September.

The US and Saudi Arabia accused Iran for carrying out the attacks, Iran vehemently denies that it played any role in them. The Houthis in Yemen, against whom Saudi Arabia is leading an intervention against claimed responsibility, but have gone ignored.

Despite initially going on a warpath, the US and Saudi Arabia have done little in concrete actions.

The US sanctioned Iran’s central bank and National Development fund, for supporting the IRGC’s Quds Force, as well as Hezbollah and “terror proxies.”

“Iran’s brazen attack against Saudi Arabia is unacceptable.  Treasury’s action targets a crucial funding mechanism that the Iranian regime uses to support its terrorist network, including the Qods Force, Hizballah, and other militants that spread terror and destabilize the region.  The United States will continue its maximum pressure campaign against Iran’s repressive regime, which attempts to achieve its revolutionary agenda through regional aggression while squandering the country’s oil proceeds,” said Treasury Secretary Steven T. Mnuchin.  “Iran’s Central Bank and the National Development Fund were ostensibly intended to safeguard the welfare of the Iranian people, but have been used instead by this corrupt regime to move Iran’s foreign currency reserves for terrorist proxies.”

“We are putting governments on notice that they are risking the integrity of their financial systems by continuing to work with the Iranian regime’s arm of terror finance, its Central Bank,” said Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence. “We will vigorously enforce our sanctions to cut off the Iranian regime’s funding of global terrorism and its domestic oppression of the Iranian people, who are the regime’s longest suffering victims.”

Essentially, the US is running out of institutions and officials to sanction in Iran, and these actions are more or less of no impact or consequence. It is the least the US does when it wants to exert some presumed pressure on its “victim.”

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