Saudi Oil Prices Surge Over Pipeline Bomb Threat

Oil prices jumped sharply this week as fears grew that Saudi Arabia might exhaust its export stocks within days unless it fixes a bombed pipeline immediately. Satellite imagery shows the damage clearly to the 745-mile east-west line after drones from Iraq struck on Thursday. One pumping station looks badly charred in the photos. Prices rose more than 3 per cent on Monday following what ING commodity strategists called a step-up in attacks on Saudi energy infrastructure.

The pipeline allows Saudi Arabia, the world's largest crude oil exporter, to bypass the Strait of Hormuz entirely. It routes around 4 million barrels a day directly to the port of Yanbu on the Red Sea. Riyadh shut the line after the attack, threatening the loss of 4 per cent of global supplies and pushing crude prices higher. Industry sources told Reuters that existing stocks at Yanbu could only support exports for five to seven days if repairs do not happen soon.

Global energy markets are already under severe strain because the Iran war triggered the closure of the Strait of Hormuz. That strait normally carries a fifth of the world's oil and gas. Fresh chaos fears emerged when Donald Trump told Ukrainian President Volodymyr Zelensky he has to stop knocking out diesel fuel in Russia. Speaking at his Doonbeg golf club on the banks of the Atlantic Ocean, Trump added that Ukraine should hit targets but not diesel because it causes a shortage.

Ukraine's long-range strikes have targeted Russia's oil and gas industry for months. Kyiv says these attacks fund and directly fuel Moscow's more than four-year-old invasion of its neighbor. The drone campaign has caused fuel rationing across Russia even though the country is a key exporter. Meanwhile, Yemen's Iran-aligned Houthi rebels launched attacks on Saudi targets and captured the strategic island of Perim in the Bab al-Mandab strait. They expanded their control over this narrow waterway.

Iraq admitted that its province bordering Iran fired the drones on the vital pipeline. It said it fired a military commander and launched an investigation into the attack. A further drop in Saudi flows will worsen the global supply crunch. This situation has already pushed fuel prices to record highs, spurred inflation worldwide, and sent US bond yields to their highest levels since 2008. Sources gave varying estimates on repair times. One said it could take five to six weeks while another claimed partial pumping might resume sooner.

Yanbu storage capacity stands at around 35 million barrels according to industry estimates. The Ain Sukhna and Sidi Kerir sites can store 18 million and 20 million barrels respectively. Stocks are not full and will run out without the east-west pipeline resuming operations, four sources said. Saudi oil supply fell to a more than three-decade low in August on reduced flows via Hormuz and the Red Sea. The International Energy Agency reported this drop on Friday.

World oil supply will decline by 5.7 million barrels per day this year or about 6 per cent according to the IEA. That agency coordinates Western energy policies. The Middle East supplied around 22 million barrels per day before the war started. Flows through the Strait of Hormuz have slowed to just six to nine million barrels per day now. Saudi Arabia told OPEC that production dropped to 6.2 million barrels per day in August from 10.9 million in February before the war began.

Saudi state media released video footage on Sunday showing damage to homes and a mosque from what it called a Houthi attack in southern Jazan province. The Houthis said they also struck a Saudi military base in a neighboring province. A vessel in the Strait of Hormuz was hit by a projectile causing fire and forcing crew evacuation. Iran said one person died and four crew members were wounded on an Iranian commercial ship struck off its coast.

The Houthis reached Perim on Friday moving to tighten control over the Bab al-Mandeb strait. That lane has carried 4 to 5 per cent of global supply in recent months. Oil surged 8 per cent higher last week due to these disruptions rising above $100 for the first time since July. Omani Foreign Minister Badr Albusaidi said on X that a scheduled Monday meeting between Gulf countries and Iran had been postponed. No peace talks have been held on the war launched six months ago by the United States and Israel since an interim agreement in June collapsed.