Oil shock fears back on radar as pipeline attack chokes supply

Global supplies of Saudi Arabian oil could run out within days unless a vital pipeline is brought back into operation, experts have warned.

Riyadh’s decision to shut its 1200-kilometre East-West oil pipeline has threatened the loss of four per cent of global supplies, traders said, which risks driving the price of crude higher.

It comes after the pipeline was attacked by drones launched from Iraq on Friday, prompting Saudi Arabia to close it immediately.

The world’s largest oil exporter had been using the pipeline to bypass the Strait of Hormuz by re-routing about 4 million barrels a day to the port of Yanbu on the Red Sea.

Industry sources told Reuters that if the pipeline remained offline, existing stocks at Yanbu could only support exports for about five to seven days. The extent of the damage on the pipeline has not been disclosed. Analysts at shipping data company Marhelm have said the damages to the pipeline could take more than a month to repair owing to a “lack of spare parts”.

However, it comes with the global energy market already under severe strain after the Iran war triggered the closure of the Strait of Hormuz, through which a fifth of the world’s oil and gas typically passes.

Last week, Saudi Arabia reported to the OPEC oil cartel that its crude production had fallen to 6.2 million barrels per day, down from 10.9 million in February before the war began. The August figure marked Saudi Arabia’s lowest monthly output this year.

A prolonged outage could add more pressure to fuel prices after the cost of a barrel of Brent rose to $US109 last week. Fears of a new inflation crisis have already sent US government borrowing costs soaring to their highest levels since the global financial crisis.

The pipeline’s closure follows clashes between the Iran-allied Houthis and Yemeni government forces, which are backed by Riyadh. On Sunday, Houthi forces claimed to have attacked a military base in Saudi Arabia with drones and missiles.

The purported strike at the southern Sharurah base targeted “weapons depots and command and control centres that are managing the aggression against our nation and people”, Yahya Saree, a Houthi military spokesman, said.

The ongoing clashes follow a week-long Houthi offensive that culminated in the group capturing the remainder of Yemen’s Red Sea coast and several strategic islands, cementing their hold on the Bab al-Mandab Strait at the sea’s southern entrance.

Mohammed bin Salman, the crown prince of Saudi Arabia, twice called US President Donald Trump to request strikes on the Houthis last week to halt their advance, but the requests were rejected.

The waterway has become an important route for Saudi Arabian oil exports after Iran largely cut off shipments through the Gulf with its blockade of the Strait of Hormuz at the start of the Middle East war.

The Houthis also recently declared a maritime blockade of Riyadh’s Red Sea ports.