Saudi Arabia suspended operations on its East-West pipeline on September 13 after drone attacks by Yemen’s Houthi rebels, halting a key route for exporting crude oil and forcing the kingdom to reroute shipments. The pipeline, which carries up to 7 million barrels per day to the Red Sea port of Yanbu, has been shut as a precautionary measure, though officials have not provided a damage assessment or timeline for repairs.
Oil prices surged to multi-month highs on September 16, with Brent crude briefly exceeding $108 per barrel, as traders assessed the impact of the disruption. The closure has intensified concerns over global oil supply, particularly as Saudi Arabia halts loadings at Yanbu and cuts shipments to Europe. The U.S. Energy Secretary stated that oil flows through the pipeline should resume within days, but industry sources told Reuters that repairs could take five to six weeks, with partial pumping potentially resuming sooner.
-- Immediate Impact on Global Oil Markets --
Global oil benchmarks reacted sharply to the pipeline closure. Brent crude futures rose by over $3 per barrel on September 16, settling at $107.82, while West Texas Intermediate (WTI) climbed to $104.86. The disruption follows a 7.1 million-barrel increase in U.S. crude inventories, which tempered some price gains. Analysts noted that the underlying tightness in the global crude market remained despite the inventory build, as traders focused on physical supply disruptions in the Middle East.
Saudi Arabia has attempted to mitigate the impact by increasing loadings at its Ras Tanura and Juaymah terminals in the Persian Gulf, with satellite tracking showing four very large crude carriers (VLCCs) loading a combined 8 million barrels on September 16. Additionally, Saudi Aramco has offered Arab Light, Arab Medium, and Arab Heavy crude to Asian refiners via ship-to-ship transfers off Oman’s Sohar port, bypassing the Strait of Hormuz.
-- Saudi Arabia’s Export Strategy Under Pressure --
The East-West pipeline has served as Saudi Arabia’s primary insurance policy against disruptions in the Strait of Hormuz, allowing the kingdom to reroute 4 million barrels per day to the Red Sea. With the pipeline offline, Saudi Arabia’s options are limited. Experts from Rystad Energy and the National University of Singapore noted that the country has few true substitutes for the pipeline, with alternatives such as tapping overseas stockpiles or redirecting crude to domestic refining constrained by logistics and infrastructure.
Saudi Arabia has also explored increasing shipments through the Strait of Hormuz, including the use of “dark shipments”—vessels that switch off tracking systems to evade security risks. However, analysts warn that the volatile security situation in the strait makes this a challenging and risky strategy. The pipeline’s closure has forced Saudi Arabia to rely more heavily on the Strait of Hormuz, which has seen reduced traffic, with fewer than 10 transits per day over the weekend compared to a 10-day average of 14.
-- Regional Disruptions Compound Supply Concerns --
The pipeline closure is not the only disruption affecting global oil supply. In Libya, the National Oil Corporation reported that operations at three oil fields were suspended after protesting members of the Petroleum Facilities Guard shut a valve on the Hamada-Zawiya crude export pipeline. Meanwhile, Iran-backed Houthi militants continued attacks on Saudi Arabia, targeting cities including Khamis Mushait, Abha, and Taif with drones and ballistic missiles. The Houthis claimed to have struck a military air base in Khamis Mushait, hitting hangars, radar installations, and ammunition stores.
The financial cost of the Middle East conflict is also rising. According to a report by the U.S. Congressional Budget Office, the U.S. war with Iran has cost the Pentagon an estimated $38.1 billion through August 1, with an additional $2 billion to $3 billion projected for each additional month of fighting.
-- Market Reactions and Long-Term Implications --
Analysts remain divided on the duration of the pipeline outage and its long-term impact on oil markets. Haitong Futures noted that regional stock increases do not change the underlying tightness in the global crude market, while Phillip Nova emphasized that the bigger concern remains the disruption to Saudi Arabia’s export infrastructure. European diesel futures reached a record high on September 16, further highlighting tightness in fuel markets.
Looking ahead, crude prices are expected to remain closely tied to security conditions along Gulf export routes and the pace of repairs to Saudi infrastructure. Any further disruption to maritime flows or a prolonged pipeline outage could tighten the physical market and extend the recent price rally. As Saudi Arabia works to restore operations, the global oil market remains on edge, with traders closely monitoring developments in the region.