Saudi Arabia will run out of oil stocks for exports if it doesn’t restart its major pipeline to the Red Sea within days, leading to a loss of up to 4 per cent of global supply, Saudi oil buyers and traders have said.
A further decline in Saudi flows will worsen the global supply crunch, which has already pushed global fuel prices to record highs, spurred inflation around the world and sent U.S. bond yields to the highest levels since the 2008 financial crisis.
Since drone attacks forced Saudi Arabia to shut its huge east-west oil pipeline on Friday, Riyadh has not given full details about the extent of the damage or how long the route will stay off-line.
Sources that spoke to Reuters gave varying estimates, with one saying the damage could take as long as five to six weeks to repair, while another said it could be fixed sooner and could resume pumping partially while repairs are ongoing.
For the past six months, the pipeline running through the desert across the Arabian Peninsula has spared Saudi Arabia from the brunt of the impact of the wartime shutdown of the Strait of Hormuz that has crippled exports from its neighbours.
The world’s biggest exporter has used the pipeline to reroute around 4 million barrels per day, around 4 per cent of global supply to the port of Yanbu on the Red Sea. But with the pipeline out of service, Yanbu now has stocks to maintain exports for just five to seven days, according to three industry sources familiar with Saudi exports.
Saudi Arabia also has stocks to supply customers for several days from Egypt’s ports of Ain Sukhna on the Red Sea and Sidi Kerir on the Mediterranean, a fourth source said.
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Yanbu storage capacity stands at around 35 million barrels, according to industry estimates, with Ain Sukhna and Sidi Kerir able to store 18 million and 20 million barrels respectively. Stocks are not full and will ultimately run out without the east-west pipeline resuming operations, the four sources told Reuters .
Saudi oil supply has already fallen to a more than three-decade low in August on reduced flows via Hormuz and the Red Sea, the International Energy Agency (IEA) said on Friday. World oil supply will decline this year by 5.7 million bpd, or about 6 per cent, the IEA, which coordinates Western energy policies, said.
In addition to the attack on the pipeline, Houthi fighters in Yemen who have threatened Saudi oil shipments seized an island on Friday in the mouth of the Red Sea
The Middle East supplied around 22 million barrels per day of oil before the war. Flows through the Strait of Hormuz have slowed to just 6 million to 9 million bpd, industry sources say.
Meanwhile, anIranian cargo vessel was struck early Sunday off Qeshm Island in the Strait of Hormuz, Iranian state media said, a day before Tehran plans to brief countries in the region on its contested efforts to manage shipping traffic there.
The attack, which the reports said killed one and wounded four, drew attention back to the strait after threats to shipping in the region intensified last week when Iran-backed Houthi rebels captured an island on the Bab el-Mandeb Strait in the Red Sea.
Iran’s state-run IRNA news agency quoted the Qeshm governor as blaming a “terrorist enemy” for Sunday’s attack. There was no immediate comment by the U.S. military, which has struck Iranian-flagged vessels during its blockade of Iranian ports and faces a new threat from Iranian ballistic missiles launched at its warships.
Qeshm Island, about 14 miles (22 kilometers) from the port city of Bandar Abbas, is key to Iran asserting control over the Strait of Hormuz.
Hours before the attack, Iran’s government remained defiant. “Our people can’t be bullied into submission. Iran won’t surrender,” President Masoud Pezeshkian said in a social media post reported by AP.
President Donald Trump disagreed, saying on Sunday that Iran “wants to make a deal so bad” that “they’re calling constantly.” The U.S. will “ultimately get out, unless we decide to stay and keep the oil, like Venezuela.” Trump spoke at his golf course in Doonbeg, Ireland, where he was attending a tournament.
Iran has said foreign ministers from regional countries will meet Monday (today) in Oman to discuss efforts by Iran and Oman, located on the other side of the strait, to manage shipping on it.
The meeting returns regional focus to the Strait of Hormuz days after the Houthis swept down Yemen’s Red Sea coast to apply new pressure to a crucial alternative for global shipping. While the Houthis say they are targeting only neighboring Saudi Arabia, which backs Yemen’s internationally recognized government, markets are wary and oil prices have risen again.
Commercial ship traffic remains low in the Strait of Hormuz as attacks continue on what was seen as an international waterway before the U.S. and Israel launched the war on February 28.
Emmanuel Addeh
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