How Does Saudi Pipeline Shutdown Threaten Oil Exports To Europe And Asia?

The Gulf nation is depending on stored oil to maintain its oil exports after drone attacks shut its East pipeline that has threatened deliveries to buyers in Europe and Asia. According to Saudi Arabia’s energy ministry, the shutdown is a precaution after the pipeline was attacked in Riyadh and Medina last Thursday. It said emergency and technical teams were securing the pipeline and examining the Safety. Saudi and Iraqi authorities stated that the drone attack originated in Iraq. Moreover, the Ministry’s announcement did not reveal when the pumping would resume or give a full account of the damage. Saudi oil buyers and traders estimated that a prolonged shutdown could put at risk nearly 4 million barrels a day, or about 4% of global oil supply. The effect on deliveries will rely on how quickly pumping resumes and how much stored oil is available.

Oil Exports Face Risk as Pipeline Shuts

Notably, the roughly 1,200km pipeline carries oil from eastern Saudi Arabia to Yanbu on the west coast. It enables exports to leave through the Red Sea without tankers passing through the Strait of Hormuz. In May, Aramco stated that it had increased pumping through the pipeline to its maximum capacity of 7 million barrels a day during the first quarter, which helped maintain oil exports while shipping through the Strait of Hormuz was disrupted. The pipeline supplies refineries on Saudi Arabia’s west coast, so its capacity is not the same as the amount exported. Moreover, the shutdown does not mean global oil supplies immediately fall by 7 million barrels a day. Tankers can still load oil stored near export terminals, but those supplies will run down unless more oil arrives.

Bab el-Mandeb faces threat from Houthis

The direct sea route to Asia runs south through Bab el-Mandeb, the narrow passage between the Red Sea and the Gulf of Aden, and then towards the Indian Ocean. Surprisingly, the route faces a separate threat from Yemen’s Houthis, who have seized Perim Island in the passage and the country’s Red Sea coast, effectively taking control of the strait. Tankers heading to Asia could instead sail north through Suez and then around Africa, but the journey would be much longer. The International Energy Agency stated in its September oil market report that stored oil supplies worldwide had dropped by 507 million barrels since February, including 95 million barrels in August alone. The agency estimated Gulf oil exports at around 13 million barrels a day in August, nearly half their pre-war level. Also, it reported sharply higher diesel prices in Europe and Asia as disruptions reduced fuel supplies.