The pipeline from Saudi Arabia which transports crude between East and West is expected to be largely shut down for about three to five weeks due to an attack by a drone that caused damage to the facility, according to two regional officials who have knowledge about the development, as reported by The Associated Press. The shutdown of the pipeline occurs at a time when the US-Israel-Iran war has disrupted the flow of oil via the Strait of Hormuz. This particular shutdown of the pipeline is significant to the oil industry since the East-West Pipeline provides an alternate way for the transportation of Saudi Arabian oil from the producing regions to the Red Sea coast.
US Israel Iran War Latest News: What Happened To Saudi East-West Oil Pipeline?
The 1,200 km long Saudi Arabian East-West Pipeline has been hit by a drone strike and is now offline for maintenance. According to two regional sources cited by AP news agency, it will take around 3-5 weeks to fix the pipeline and pumping station.
One source noted that the pipeline might have some capacity for operation at a lower volume during the maintenance period, but it is uncertain how much oil would be able to pass through. Saudi Arabia blamed drones originating from Iraqi territory and related to Iran-aligned militia forces. The authorities of Iraq are conducting an investigation into the alleged launch of drones from Iraqi territory, while Iraqi militia factions deny any involvement. Thus, the real offenders must not be considered confirmed independently.
US Israel Iran War Latest News: Why Is The Saudi Oil Pipeline Important?
The East-West Pipeline links the oil-rich regions of Saudi Arabia in the east with Yanbu, an important oil export port in the Red Sea region. The pipeline’s significance has grown due to the fact that it enables Saudi Arabia to avoid shipping its oil through the vital route of the Strait of Hormuz, which connects the Persian Gulf and the Gulf of Oman.
Prior to the most recent disruption, the pipeline had been transporting a large amount of Saudi oil to the Red Sea. According to Reuters, about 4 million barrels per day, or 4% of world oil production, were being transported through the pipeline. Thus, any extended disruption of the pipeline would add further stress on the already disrupted international oil markets.
US Israel Iran War Latest News: How Much Oil Supply Is At Risk?
The possible reduction of pipeline capacity could be the greatest concern for the oil market and energy prices worldwide. As Rystad Energy calculated, the pipeline had carried roughly between 2.6 million to 4 million barrels of crude oil per day from late August. It would be hard to carry this volume along the normal route if the pipeline is not opened. According to Rystad, “the jump in Brent crude to just below $109 a barrel is a clear signal that the market is increasingly pricing in a substantial loss of supply.” The effect depends on the possibility of re-routes for Saudi Arabian crude through alternative ways.
US Israel Iran War Latest News: Oil Prices Rise As Supply Concerns Grow
The Saudi pipeline disruption will worsen existing oil supply concerns caused by the ongoing war. Brent crude prices stood at about $107-$108 a barrel on September 15, and US West Texas Intermediate crude prices were above $103 a barrel. Higher crude prices will lead to higher fuel prices and inflationary pressures in the economy. The markets will be focusing on the timeline of repairing the pipeline, Saudi crude production levels, and events involving the Strait of Hormuz and the Red Sea.
US Israel Iran War Latest News: How Are Houthi Advances Affecting Oil Supply?
The recent pipeline sabotage took place against the backdrop of new military achievements by the rebels of Yemen. The Houthi rebels, who receive support from the Iranian regime, have established their presence in certain sections of the Red Sea coast of Yemen and seized strategically important positions, including some islands located in the Bab el-Mandeb Strait.
The Bab el-Mandeb Strait is a crucial maritime channel, which connects the Red Sea and the Gulf of Aden. The further disruption of the situation can force the oil tankers to follow longer routes. The gains of the Houthi rebels are especially significant for Saudi Arabia because the kingdom has started using the routes of the Red Sea due to the difficulties in using the Strait of Hormuz.
US Israel Iran War Latest News: What Could A 3–5 Week Shutdown Mean?
A partial closure of the East-West Pipeline for several weeks can add more strain on the global crude oil market unless Saudi Arabia can make up for this shortfall via other pipelines. According to Rystad Energy, the closure of the pipeline for one month could be viewed as a “large disruption” that “the market could initially manage,” though an even longer closure could lead to “a major reallocation of global crude flows.” For oil traders, important aspects to monitor would include the speed of repair works, Saudi Arabia oil production, alternative ways to export oil, Strait of Hormuz traffic, Red Sea shipping, and Houthi attacks.
For consumers, rising crude oil prices could eventually impact petrol and diesel costs, along with the general problem of the central bank’s struggle to curb inflation due to high oil prices. Thus, Saudi Arabia pipeline failure adds yet another threat to the global oil supply outlook amid the US-Israel-Iran conflict and related risks for energy infrastructure and shipping in the region.
