Crude oil prices resumed their upward move in Tuesday’s session, with Brent crude futures surging $3.7 per barrel to $109.39 as traders assessed the potential impact on global crude supplies after Saudi Arabia closed a critical pipeline that bypasses the Strait of Hormuz last week.
Drones launched from Iraq damaged the East-West Pipeline on Thursday, forcing the Saudi government to shut the key crude oil artery. The pipeline is expected to remain largely out of service for weeks as repairs are carried out, The Associated Press reported, citing two regional officials.
The pipeline provides Saudi Arabia with an alternative route to transport oil exports to the Red Sea, allowing it to bypass the Persian Gulf and the Strait of Hormuz, where Iranian attacks have disrupted the movement of oil tankers.
Iran effectively closed the Strait of Hormuz — through which around a fifth of the world’s traded oil and gas transits in peacetime — in the opening days of the war.
Since then, Saudi Arabia has increasingly relied on the Bab el-Mandeb Strait, which connects the Red Sea to the Gulf of Aden, for crude oil exports.
After the war began, the East-West Pipeline carried a large majority of Saudi Arabia’s oil exports, AP reported, citing Rystad Energy, a Norway-based research firm. The disruption to the pipeline could therefore further complicate Saudi Arabia’s efforts to move crude to international markets.
When Houthi attacks in the Bab el-Mandeb Strait began in late July, most tankers from the port of Yanbu turned north in the Red Sea towards the Mediterranean, sending their cargo through the Suez Canal or an Egyptian pipeline.
The pipeline has been carrying an average of 2.6 million to 4 million barrels per day since late August — a volume that could be lost to the market if its flow stops completely, according to an analysis issued Monday by Rystad Energy.
Last week, Riyadh notified OPEC’s secretariat that its output tumbled by 1.9 million barrels a day to 6.238 million barrels a day, according to a monthly report from the organisation obtained by Bloomberg.
That is even lower than the previous wartime nadir reached in April and marks the lowest production figure reported by Saudi Arabia since the beginning of the Gulf War.
Regional tensions rise as attacks threaten key oil routes
The pipeline attack has also added to regional tensions. A diplomatic meeting between Iran and Gulf Arab states to discuss the situation in the Strait of Hormuz, originally scheduled for Monday in Oman, was abruptly postponed following the attack.
For more than a month, the Houthis have been striking Saudi oil infrastructure and shipping in the Red Sea, increasing pressure on global oil prices and strengthening Iran’s leverage in its war with the United States.
The Houthis have reportedly seized the strategic Perim Island in the Bab el-Mandeb Strait after taking the port city of Mokha on Yemen’s western coast, adding to concerns over the security of another key route for global oil shipments.
(With inputs from Bloomberg and AP)
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