New attack on Strait of Hormuz raises risk of a prolonged Asian energy shock

Yesterday, a report surfaced of an attack on a vessel within the Strait of Hormuz, heightening apprehensions regarding potential interference in oil flows due to Iran-linked acts. The UKMTO disclosed a claim of a projectile impacting a ship traversing the Strait at the time, though the extent of the damage and the crew's condition remained unclear as of early Sunday.

This report surfaced a day following Saudi Arabia's temporary suspension of its East-West oil pipeline, following a drone assault both Baghdad and Riyadh accused of launching from Iraq, a territory known for hosting Iranian-backed factions.

The 1,200-kilometer East-West pipeline, stretching across the Arabian Peninsula, has been instrumental in transporting Middle East oil for the recent six months, constituting 4% to 5% of global oil supplies while the Strait of Hormuz largely remained closed due to conflict. The pipeline was conveying between 4 million to 5 million barrels daily, thereby mitigating the impact on Saudi Arabia from the disruptions that had crippled other Gulf oil and gas producers.

However, there was no immediate assertion of responsibility for the pipeline strikes, with satellite imagery indicating black smoke emanating from a segment of the pipeline situated south of Medina, causing some casualties and damage that the Saudi Foreign Ministry was still evaluating.

US President Donald Trump, currently in Ireland for a golf event, attributed the incident possibly to Iran. Earlier, the Saudi Civil Defence conveyed to media that a projectile launched by the Houthi rebels had injured two individuals in the Jazan region and inflicted damage on several structures, including a mosque. King Salman, Saudi Arabia's de facto ruler, had requested US military assistance to combat the Houthis on Thursday, although he was informed by Washington that a direct intervention was not imminent; however, they would provide intelligence support.

On Saturday, Trump confirmed a phone conversation with Crown Prince Mohammed bin Salman, affirming that the Houthis had likewise contacted his administration, expressing their disapproval of direct US involvement in the conflict.

Disputes over the conflict have persisted, with no discussions between the United States and Iran aimed at resolving the situation since a June accord that unravelled swiftly. Ebrahim Azizi, the head of Iran’s parliamentary national security committee, expressed via X on Saturday, "Unless the American side agrees to all of Iran’s demands, dialogue and negotiation hold no value."

Iran announced on Friday its attendance at a gathering with Gulf Arab states in Oman, set for Monday, where discussions would encompass the Strait of Hormuz's future. Despite this, a senior Iranian official, speaking anonymously to Reuters on Saturday, downplayed the prospects of reaching an accord, stating that the meeting, orchestrated by Oman, aimed to address various issues, including the strait, but would not result in a signed deal.

Iran sought its dominance over the Strait of Hormuz, proposing to levy charges on ships utilizing the route, a stance rejected by Washington. Oman, controlling the opposing shore of the strait, posited that negotiations were ongoing with the agreement of other regional entities.