Oil Rises After Halt of Key Pipeline Bypassing Hormuz

Oil prices rose sharply after Saudi Arabia halted the East-West pipeline, which in recent months became one of the main routes for crude exports bypassing the partially blocked Strait of Hormuz. Brent rose 3.7% on Monday, above $108 per barrel, while U.S. WTI traded near $103.

Saudi Arabia stopped East-West late last week after attacks on pipeline facilities. Riyadh called the decision precautionary, but has not said when oil transportation will resume.

For the global market, the impact of the halt was particularly acute due to the U.S.-Iran war. East-West transports oil from eastern Saudi Arabia to the Red Sea port of Yanbu and avoids the Strait of Hormuz, through which about a fifth of the world's oil and gas flows passed before the current crisis.

According to data cited by Al Jazeera, about 4-5 million barrels of oil per day were recently pumped through East-West — roughly 4-5% of global supply. Saudi Arabia increased the use of the pipeline precisely after a sharp reduction in shipping through Hormuz.

Therefore, a prolonged halt of the route may force the kingdom to cut output if storage fills faster than oil can be exported by alternative routes. Sparta Commodities analyst Jun Go told Bloomberg that the risk of such cuts will rise if the pipeline is not restarted soon.

The situation was further aggravated by the postponement of Iran's talks with Persian Gulf countries on a temporary mechanism for ships passing through the Strait of Hormuz. The meeting was scheduled for September 14 in Oman, but was moved due to lack of consensus among participants. According to the Financial Times, it would have been the first high-level talks between Iran and the Gulf Cooperation Council countries in nearly two years.

Against this backdrop, options to quickly compensate for the loss of East-West remain limited. Saudi Arabia can supply some oil from west coast inventories or via Egypt, but fully replacing the pipeline with such routes is difficult. Risks are also growing in the Red Sea area amid the Houthis' increased presence near the Bab el-Mandeb strait.

Before the current war, Brent cost about $72 per barrel. Since then, prices have spiked due to supply cuts from the Persian Gulf, strikes on energy infrastructure, and problems with key sea routes. In previous months, Brent already rose to $119 per barrel.

Sources: Bloomberg, Financial Times, Al Jazeera