And the panic was not without any reason. The attacks immediately wiped out production of 5.7 million barrels of crude per day, bringing Aramco's output to half. This was largest squeeze larger than even the 1991 gulf war that wiped out just over 4 million barrels of oil (per day) from the market.
As was expected, on Monday, the first full working day after the September 14 attack, oil climbed 19 per cent to $72 a barrel from $60 level that it maintained for a long time in an over-supplied market with stagnant demand conditions.
The developments also rang alarm bells in India as the country imports nearly 83 per cent of its domestic oil needs with Saudi Arabia accounting for almost 20 per cent of this just after Iraq. Any long supply squeeze meant that India would have to invoke emergency measures to source oil from other markets at substantially high prices raising its oil import bill and impacting country's current account deficit (CAD).
"The situation is still not good for India but state-run oil marketing companies are more than prepared to handle the current situation. Oil inventories of companies are at high level while several consignment from Saudi Arabia are already Sea borne and reach the country over next few days. So, if oil squeeze is for couple of weeks or slightly more, there would be no disruptions," said an official of PSU oil company.
For India the good news is that Saudi Arabia has have indicated that oil disruption will be restored soon.
The Saudi Arabian Energy Minister and Aramco CEO in a press conference on Tuesday said that exports would be maintained at pre-attack levels this month by dipping into reserves, ramping up production from unaffected fields and cutting local refinery throughput by 1 million Barrels per day.
Moreover, 2.5m b/d (2m b/d from Abqaiq plant vs 4.9m b/d before attacks and 0.5m b/d from Khurais field) of the 5.7m b/d production capacity suspended on September 14 has been restored with production back to pre-attack levels by the month's end.
The news brought down oil prices by 6 per cent immediately.
"The biggest fear for India is high oil prices at this juncture when country's GDP growth has fallen off the cliff and settled around 5 per cent. Higher oil spending will mean less funds for propping up the economy. Also, high oil prices could mean higher retail prices of petrol diesel that has the potential to build public outrage just ahead to assembly elections in three states," said another oil sector expert.
A recent report by Kotak said that in light of the sharp rise in international crude oil prices, Indian oil marketing companies (OMCs) may increase the retail price of diesel and gasoline by Rs 5 to 6 per litre in the following fortnight.
But government sources said even if the disruption was long drawn, petrol and diesel retail prices may move up slowly minimizing the impact on consumers. OMCs moved similarly during the general elections in April-May this year when retail prices did not change on several days even though there was a need for an increase.
Meanwhile, India has also stepped up its efforts to ensure uninterrupted oil supplies by looking at producing markets like Russia and the US.
Russian Rosneft PJSC has agreed to assist India with its energy security efforts against the backdrop of the drone attacks on Saudi Arabian oil processing facilities, Igor Sechin, chairman of Rosneft, has conveyed during his meeting with India's Oil Minister Dharmendra Pradhan on Tuesday.
Moreover, the business delegation accompanying Prime Minister Narendra Modi to the US from Saturday could ink few oil supply deals there as well to insulate the country from any oil shock.
In an eventuality, India can also use its strategic oil reserve to calm domestic oil prices. About three strategic oil reserves have started functioning that could be used as a cushion. In addition, OMCs have been asked to ramp up production of petrol and diesel to keep possible price rise under check.
India imports just over 200 million tonnes of crude per year with Saudi Arabia supplying just about 40 million tonnes of of it. Supply shortages from the gulf would impact India as already crude supplies from two earlier prime markets Iran and Venezuela has almost stopped.
But rising counter balance to oil cartel OPEC from US shale oil and Russia has let the markets away from any boil. India hopes that this balance will be maintained in the days ahead.
( With inputs from IANS )