Oil prices rallied sharply on reports that Saudi Arabia may need several weeks to restart a critical pipeline, a vital artery that has historically served as an alternative route for crude shipments bypassing the Strait of Hormuz. Brent crude briefly climbed approximately 5%, nearing $110 per barrel, before giving back some of those gains.
According to an Associated Press report citing two regional officials, the Saudi east-west pipeline was knocked out of service following an attack by armed militants, with operations expected to remain suspended for weeks. Officials from the Saudi Energy Ministry did not immediately respond to requests for comment, and Saudi Aramco has likewise not addressed inquiries regarding the expected duration of the disruption.
Meanwhile, U.S. Energy Secretary Chris Wright stated on Monday that he anticipates the pipeline will resume operations "very soon," noting that authorities have been "very carefully assessing the damage and what needs to be done, and I think we will have more clarity very quickly." Wright expressed confidence that shipping volumes through the Strait of Hormuz will increase in the coming weeks.
The pipeline, which is capable of transporting roughly 7 million barrels of oil per day to the Yanbu terminal on Saudi Arabia's Red Sea coast, has become the kingdom's most crucial alternative export route following disruptions to Persian Gulf oil shipments amid the ongoing conflict with Iran. The current outage now severs this critical backup channel as well.
The market impact will hinge on several factors: the volume of inventory available at Yanbu, the timeline for restoring crude flows, and how much oil can be rerouted through the Strait of Hormuz. "Ultimately, it comes down to how long the shutdown lasts," said June Goh, senior oil market analyst at Sparta Commodities SA. Should flows resume quickly, the effect should be limited, as stored supplies at the Yanbu port on the western end of the pipeline could be tapped. However, Goh cautioned that a prolonged closure could force production cuts.
Prices were already on an upward trajectory before the attack. Global benchmark Brent crude surpassed $100 per barrel last week for the first time since July, and has now gained more than 75% year-to-date. The crisis is delivering an inflationary shock to the global economy, with natural gas and fuel prices also spiking. Following U.S. data showing consumer prices accelerated further in August, markets widely expect the Federal Reserve to raise interest rates this week.
Tensions remain elevated around the strategically vital Strait of Hormuz, and diplomatic efforts appear far from reaching a resolution. A previously scheduled meeting between Iran and several Gulf Arab states to discuss establishing a temporary shipping lane through the strait has been postponed, highlighting the strained relations between these nations and Iran in the wake of the latest escalation in hostilities.
As of 9:04 a.m. in New York, Brent crude futures for November delivery were up 4.5% at $109.34 per barrel, while WTI crude futures for October delivery rose 4.4% to $104.49 per barrel.