Saudi Arabia is facing a critical situation regarding its oil exports after drone attacks forced the shutdown of a major East-West pipeline to the Red Sea. If the pipeline, which has a pumping capacity of about 7 million barrels per day, is not restarted within days, the kingdom could run out of oil stocks for export. This would result in a loss of up to 4% of global oil supply, exacerbating an already tight global market.
The pipeline’s closure is particularly problematic as it allows Saudi Arabia to bypass the Strait of Hormuz, where shipping has been severely disrupted. The lack of clarity on the extent of the damage or the duration of repairs has left Asian refiners, who typically pick up cargoes at the Red Sea port of Yanbu, in limbo. They have not received official communications despite inquiries about the operation's status.
The global oil market has reacted sharply to the news. On Monday, Brent crude, the international benchmark, surged by as much as 3.7%, settling around $107.95 per barrel, a level not seen since May. West Texas Intermediate also saw a significant jump, gaining 3.14% to $103.19. This price hike is further contributing to global inflation and higher bond yields, deepening the ongoing energy crisis. The International Energy Agency reported that global stored oil supplies had fallen by 507 million barrels since February, including 95 million barrels in August alone, highlighting the vulnerability of the market to such disruptions.
The attacks by Houthi forces, who also reportedly captured Perim island in the Bab al-Mandab strait, intensify fears of a prolonged supply crunch. Analysts suggest that if this important pipeline disruption persists, crude prices could be repriced much higher, requiring more than temporary measures to address the supply shortage. Saudi Arabia's Energy Ministry announced the suspension of operations as a precaution after multiple attacks in the Riyadh and Madinah regions.
