Oil’s next test: Saudi Arabia races to restore a key safety valve for prices

Saudi Arabia has shut down a major oil pipeline following a recent attack by drones from Iranian-backed militias in Iraq. The East-West pipeline, which stretches 1,200 kilometers across the Middle East, is crucial for moving crude oil from the Persian Gulf to the Red Sea. This pipeline, built in the 1980s, has been vital during the ongoing war with Iran, allowing some oil to flow out of the region despite challenges in the Strait of Hormuz.

However, the pipeline's closure could exacerbate global energy market shortages, pushing fuel and other essential prices higher. Two regional officials told the Associated Press that repairs could take three to five weeks. The pipeline's closure is further complicated by the Houthis' control of key shipping routes in the Red Sea, causing additional threats to Saudi exports.

Brent crude, the international standard, has traded at over USD 105 a barrel, reflecting the market's response to the significant loss of supply. The pipeline's closure is estimated to represent about 4% of the global oil supply, with Rystad Energy reporting an average of 2.6 million to 4 million barrels of oil a day moving through it and out of the Red Sea port of Yanbu.