Oil prices climbed to US$108 per barrel after Saudi Arabia shut down its East-West pipeline, a move that leaves the Strait of Hormuz as the kingdom’s sole remaining route for shipping large volumes of crude westward.
The closure strips Saudi Arabia of a critical alternative to the strait, a corridor that has grown increasingly contested as the broader Middle East conflict escalates.
According to Janiv Shah, Vice President of Commodity Markets for Oil at Rystad Energy, the price jump reflects growing anxiety among traders.
“The move to US$108 a barrel is a clear signal that the market is increasingly pricing in a significant loss of supply,” said Shah.
Rystad Energy analysis shows the immediate impact should be measured against actual flows and loadings at the port of Yanbu rather than the pipeline’s nameplate capacity of 7 million barrels per day.
Early September, loadings at Yanbu ranged between 2.6 million and 4 million barrels per day, before slipping over the past three days to average 2.6 million barrels per day over the last week.
Under a zero flow scenario, that is the volume at risk of vanishing from the market once crude already stored at the port has been loaded out.
Saudi officials have confirmed the pipeline was shut as a precaution but have not disclosed the scale of the damage, how many pumping stations were affected, or when service might resume.
Rystad noted that satellite imagery points to damage at multiple points along the 1,200 kilometre line, a more extensive pattern than an April incident that was resolved within seven days.
The entire system, including power supply, pumping stations, communications and leak detection, must be tested before flow can restart.
Rystad estimates Yanbu holds roughly three days of effective export cover, with a range of two to six days depending on inventory levels when the pipeline stopped.
Even a fully stocked tank system would provide only six to eight days of cushion.
The shutdown also reshapes flows through Bab el Mandeb, the Suez Canal and the Suez-Mediterranean pipeline, since Yanbu crude previously moved either south toward Asia or north toward Egypt and the Mediterranean.
With Saudi Arabia recently favouring the northern route amid Houthi threats in the Red Sea, about 70 per cent of Yanbu exports had been going through Suez and the SUMED pipeline.
Both corridors now lose their feedstock, though the larger effect is expected in northbound Mediterranean volumes rather than the southern route.
Asian refiners in China, Taiwan and India face the most direct exposure, since most had been instructed to lift September cargoes from Yanbu.
Japan and South Korea may see less immediate disruption thanks to existing inventories at Sidi Kerir, though their exposure grows as those stocks are drawn down.
Rystad’s scenarios show escalating consequences the longer the outage lasts.
A one-month closure would remove an estimated 78 to 120 million barrels from export markets, manageable through inventory draws and rerouted cargoes.
A two-month closure, removing up to 240 million barrels, would force refiners to rewrite crude buying programs and pull in costlier substitutes from the United States, Latin America and West Africa.
A three-month outage, cutting as much as 360 million barrels, would push less sophisticated refiners to cut runs entirely as strategic and commercial reserves take on a larger role.
Shah said the current calm may not last.
“Supply is becoming a prized commodity, and without greater clarity on where replacement barrels will come from, we wouldn’t be surprised to see prices push higher in the short term.”
Analysts say prices are unlikely to reverse until crude is again flowing west through the pipeline or Saudi barrels resume moving freely through the Strait of Hormuz.
