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Last Updated: Monday, 31 May, 2004, 16:38 GMT 17:38 UK
What next for Saudi oil?
Analysis
By Lucy Jones

Blood stains inside a car at one of the sites of triple attacks targeting oil facilities by militants in the eastern oil city of al-Khobar
The price of working in Saudi Arabia could be high
Saudi Arabia has pledged to a world already sensitive to surging oil prices to keep crude flowing in the wake of Saturday's hostage-taking.

The state-run Saudi Aramco - responsible for 95% of Saudi oil production - has stated it is as committed as ever to "providing a reliable supply of oil to meet world energy demand".

"Not one single barrel of our oil has been disrupted since the incident on Saturday," said Saudi petroleum consultant Hassan Yassin after the two-day siege in which 22 people died.

That may be true, but fears are mounting that next time militants will strike Saudi oil infrastructure of refineries, pipelines and pumping stations.

Price worries

Analysts say even a limited reduction in output from the world's largest oil producer could have untold consequences.

Such anxieties are likely to push oil prices higher when the London and New York markets open on Tuesday after the holiday.

Saudi Arabia not only holds a quarter of the world's oil supplies, giving it clout in Opec. It also has the most headroom to pump more within Opec's production quota system and help curb rising prices.

An industrial plant strips natural gas from freshly pumped crude oil at Saudi Aramco's Shaybah oil field, Shaybah, in Saudi Arabia's Rub al-Khali desert
Saudi oil is hugely important for world supplies
"We are concerned because we hope that they are going to be leading in the increase of production," Opec president Purnomo Yusgiantoro said.

Opec is due to hold a ministerial-level meeting in Beirut on Thursday which is expected to negotiate a rise in output to try and quell soaring oil prices.

Even a deal in Beirut, however, will be overshadowed by the threat of future attacks.

Former CIA officer Robert Baer warned in his recent book, Sleeping with the Devil, that a co-ordinated assault on five or more key junctions in the system could put Saudis Arabia out of the oil business for two years.

The 1979 Iranian revolution which resulted in a loss of 7% of supplies pushed prices up to $80 (44) a barrel in today's prices, Neil McMahon of consultants Bernstein told the Financial Times.

Commuting from Bahrain

It also remains to be seen whether foreign oil workers in Saudi Arabia will stay on.

Saturday's siege is the latest in a series of attacks; in May last year suicide bombers attacked three Riyadh compounds housing foreigners, killing 35 people including the nine bombers themselves.

SAUDI ECONOMY
World's biggest oil exporter - contains 25% of world supplies
Oil counts for $63m exports (out of $67m)
5 giant oil fields
10,000-mile pipeline network
State-run Aramco produces 95% of oil
Population 24m
1% GDP growth 2001-2
The British Embassy in Riyadh has warned there could be more attacks.

Estate agents in Bahrain report a barrage of enquiries from expatriates thinking of commuting to Saudi Arabia from its safer neighbour.

The lack of security may also deter further foreign investment such as the $2bn project signed in November by Royal Dutch/Shell and Total with the Saudis to develop Saudi Arabia's huge gas reserves.

The two are the first western firms to win energy rights in Saudi Arabia since the industry was nationalised in 1975.

But many analysts say that although oil prices may rise as a result of the siege, its long-term economic impact will be small.

"A limited psychological reaction," might occur in oil markets but that would not affect supply, Michael Rothman, strategist at Merrill Lynch told the Wall Street Journal.

"The attack has some shock value for oil prices but things may calm down again," said Peter Gignoux, advisor at New York-based GDP Associates.

Increased security

The Saudi government insists oil structures are safe.

Saudi police check cars at a check point in a Khobar, Saudi Arabia
Saudi Arabia has pumped millions into security
Millions of dollars have pumped into upgrading the kingdom's security and dozens of militant suspects have been rounded up recently.

"We have been the victims of attacks from extremists, whether they are religious extremists or secular extremists... since the beginning of the state," Nail Jubeir told the CNN television network.

"So we have protected all these installations."

Critics wonder how thousands of miles of pipelines can be safe when compounds evidently are not.

Foreign oil companies are thought likely to adapt from within by employing fewer western expatriates, more of them single, and in some cases moving offices to Bahrain.

Economy woes

But in order for militant groups to be less attractive to young, disaffected Saudis, analysts say society has to shift.

Saudi Arabia is one of the world's richest countries but deep inequalities exist among its 24 million people.

I'm not worried about only unemployment because of terrorism. I'm talking about political unrest
Dr Al Zamil, Al Zamil Group
The population has burgeoned since 1980 without a commensurate growth in the country's wealth while the national average wage has plummeted from about $20,000 a year to half that amount over the same time period.

Concentrating on oil, the government has done relatively little to stimulate private enterprise.

The total value of Saudi exports is $67bn of which oil exports comprise $63bn, according to Opec.

A group of Saudi Arabians
There are still divisions between rich and poor in Saudi society
Crucially, some estimate 25% of Saudis of working age are jobless.

Leading Saudi businessman Dr Abdulrahman al Zamil, chairman of the Al Zamil Group, told ABC television network that unemployment could lead to militancy and equally destabilising opposition to the government.

"I'm not worried about only unemployment because of terrorism. I'm talking about political unrest... I don't want to see unemployed Saudis demonstrating in the streets."

Some analysts say an under-employed population which is getting younger - 70% of Saudis are under 30 - has already spurned militancy.

There is a widely-held view that only deep political and economic reforms - plus an easing of the political situation in the Middle East - will be able halt the rise the number of people prepared to die in order to carry out attacks such as Saturday's.




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