Oil prices surged following the closure of a major Saudi crude pipeline after multiple attacks, deepening a global energy crisis. Global benchmark Brent crude rose towards $108 a barrel, after a nearly 9% rally last week, while West Texas Intermediate (WTI) was nearing $103. European natural gas also saw a significant gain, surging as much as 3.8%. This pipeline, the East-West pipeline, is critical as it provides a route to bypass the Strait of Hormuz, especially important during the ongoing US-Iran conflict.
Saudi Arabia announced the precautionary halt of operations on the East-West pipeline late on Friday, following attacks on Thursday. The pipeline, capable of carrying 7 million barrels per day, connects oil-producing regions near the Persian Gulf to export terminals on the Red Sea coast, allowing Saudi Arabia to continue oil exports without relying on the Strait of Hormuz. The duration of the shutdown and the extent of the damage have not been disclosed, creating significant uncertainty in the market.
The closure of this pipeline is a major concern, as it threatens the loss of up to 4% of global oil supply. Analysts like Ahmad Assiri, research strategist at Pepperstone, noted that the East-West pipeline reportedly supplied 6 to 7 million barrels per day before the closure, representing 30% to 40% of crude supply from the Gulf. This disruption has already pushed oil prices above the $100 mark, with Brent touching $110 intraday. Should the disruption persist, markets anticipate a significant repricing of crude to even higher levels. The incident also led to the postponement of a planned meeting between Iran and several Gulf nations to discuss shipping in the Strait of Hormuz.
