Saudi pipeline damage may send oil prices soaring, with global supply set to fall 4%
Global oil supplies are likely to decline with an expected 4 per cent fall in the coming days unless a major oil pipeline in Saudi Arabia, damaged in a drone attack reportedly carried out by Iran-backed Houthi militants in Yemen, is restored soon, and oil prices are expected to soar accordingly in the international market.
The 1,200-kilometre East-West pipeline, which runs across Saudi Arabia from its oil-producing regions to the Red Sea, was damaged in drone attacks on Friday, with satellite images released on Sunday appearing to show one of its key pumping stations charred and severely damaged, according to The Guardian.
Though no official response from Saudi Arabia has come out yet about the extent of the damage, industry players have suggested diverse opinions, as some say the restoration would take up to six weeks, while others have suggested an early resumption of the supply through the pipeline while repairs are ongoing.
The pipeline has assumed particular importance over the past six months, as it has allowed the world’s largest oil exporter to bypass the strategic Strait of Hormuz, whose wartime disruption has severely affected crude shipments from neighbouring producers. Saudi Arabia has been using the route to divert around 4 million barrels of oil a day, equivalent to roughly 4 per cent of global supply, towards the Red Sea port of Yanbu.
However, with the pipeline now shut, Saudi Arabia’s oil stocks at Yanbu are estimated to be sufficient to sustain exports for only five to seven days, according to industry sources familiar with the country’s shipments. Additional stocks held at Egypt’s Ain Sukhna and Sidi Kerir ports could provide some temporary relief, but these reserves, too, are not sufficient to sustain exports indefinitely.
The disruption has already reverberated through global markets, with Brent crude rising more than 3.4 per cent to $108 a barrel on Sunday, its highest level since May. Refined fuels have also become significantly more expensive, while US diesel prices crossed $6 a gallon on Friday, reaching a record average.
The crisis deepened as diplomatic efforts to ease tensions faltered, with Oman postponing a regional meeting intended to discuss shipping through the Strait of Hormuz. Meanwhile, Houthi forces have continued targeting Saudi oil infrastructure and shipping, while their reported capture of Perim island near the Bab al-Mandab Strait has strengthened their position along another crucial global trade route.
If the Saudi pipeline remains offline for weeks, the resulting loss of supplies could intensify inflationary pressures worldwide and add another dangerous dimension to the widening Middle Eastern conflict.