Oil prices have seen a significant increase, with Brent crude futures rising by $1.24 (1.18%) to $106.93 a barrel and U.S. West Texas Intermediate futures up by $1.29 (1.24%) to $102.65 a barrel. This surge is primarily attributed to persistent concerns over supply disruptions after Saudi Arabia's East-West pipeline was taken offline due to attacks. These incidents have also cast doubt on efforts to mitigate shipping risks in the Gulf region.
The East-West crude pipeline, a crucial alternative to the Strait of Hormuz for Saudi oil exports, was shut down after multiple attacks last week. The pipeline, originally built during the Iran-Iraq War and reactivated in April, allows Saudi Arabia to transport oil across the Arabian peninsula to its Red Sea port of Yanbu, circumventing the Strait of Hormuz. It had been moving roughly 4 million barrels per day, equivalent to about 4% of global oil supply, before the recent attacks. The pipeline is expected to be out of service for several weeks, although U.S. Energy Secretary Chris Wright anticipates a quicker return.
The attacks on Saudi infrastructure, coupled with escalating tensions in the region, are severely impacting global fuel supplies. Direct clashes between the U.S. and Iran have already reduced shipping traffic through the Strait of Hormuz. Additionally, Houthi rebels in Yemen have declared a blockade of Saudi Arabia's Red Sea ports and are targeting tankers, further limiting Saudi Arabia's export options. Before the war, about 30% of global oil supplies typically passed through the Persian Gulf and Red Sea. Brent crude prices were trading at an average of $67 per barrel prior to the conflict.
Saudi Arabia is now attempting to increase oil shipments through the contested Strait of Hormuz to offset the pipeline's shutdown. The kingdom had already been raising its Hormuz exports in early September, aiming to increase total exports closer to 4 million barrels a day, with about 1 million going through Hormuz and the rest via Yanbu. This comes after total shipments dropped to approximately 3 million barrels a day in August, the lowest in at least nine years. The attacks on the East-West pipeline, for which no group has claimed responsibility, have been linked by Iraq's government to its territory, though Tehran denies involvement.
