A drone attack on the Saudi 'East-West' pipeline, allegedly launched from Iraq, threatens to remove between 230 and 360 million barrels from the global market, should it remain out of operation for three months. The 1,200-kilometre pipeline, with capacity to transport seven million barrels per day, will be closed for three to five weeks for repairs. This new attack front adds to Iran and Yemen's Houthis in the escalating tension against Saudi Arabia.
Energy consultancy Rystad warned that this volume cannot be replaced solely by reallocating oil from other sources. Oil reached nearly $109 during Monday trading, with Brent barrel rising more than 16% this month compared to August and above 56% compared to the previous year. If the shutdown lasts two months, between 156 to 240 million barrels exported through the port of Yanbu, on the Red Sea, will be removed from the market.
Asia would turn to more US, Canadian, Brazilian and West African oil, while European refineries would compete more aggressively for crude from the North Sea, Azerbaijan, Libya and other Mediterranean producers. Rystad's Janiv Shah stated that without greater clarity on the origin of replacement barrels, prices should rise in the short term. The consultancy also estimated that there are 24 million barrels in stock at the port of Yanbu, equivalent to one week of exports.
This oil price increase comes amid a context of growing inflationary pressure, interest rate hikes in the Eurozone and likely in the US, and sovereign bond yields at their highest level since the 2008 financial crisis. The European Central Bank raised its benchmark interest rate last week and analysts expect the US Federal Reserve to do the same this week.
