Global oil supplies are under increasing strain as a drone attack on Saudi Arabia's vital east-west oil pipeline has forced the kingdom to halt exports, raising concerns that its remaining reserves could be depleted within days. The strike, which occurred on Thursday, has led to a significant surge in oil prices, with crude oil rising more than 3% on Monday.
Satellite images show extensive damage to the 745-mile pipeline, including a badly charred pumping station. The pipeline is crucial for Saudi Arabia, the world's largest crude oil exporter, as it allows for the re-routing of approximately 4 million barrels of oil per day to the Red Sea port of Yanbu, bypassing the Strait of Hormuz. Industry sources indicate that if the pipeline remains shut, existing stocks at Yanbu could sustain exports for only five to seven days.
Iraq has launched an investigation and fired a military commander after admitting the drone attack originated from one of its provinces bordering Iran. The attack compounds existing pressures on the global energy market, which has already been severely impacted by disruptions related to the ongoing conflict in the Middle East.
The International Energy Agency (IEA) reported that Saudi oil supply had already fallen to a more than three-decade low in August due to reduced flows through the Strait of Hormuz and the Bab al-Mandab strait. The agency forecasts a global oil supply decline of 5.7 million barrels per day, or about 6%, this year.
This latest disruption risks further exacerbating the global supply crunch, which has driven fuel prices to record highs, fueled inflation worldwide, and sent U.S. bond yields to their highest levels since 2008. Estimates on repair times vary, with some sources suggesting it could take five to six weeks, while others believe it could be fixed sooner and potentially allow for partial pumping during repairs.
Adding to regional instability, Yemen's Iran-aligned Houthi rebels have also targeted sites in Saudi Arabia and have expanded their control over the Bab al-Mandab strait, a critical oil transit route. In a separate incident, a vessel in the Strait of Hormuz was struck by a projectile, causing a fire and forcing the crew's evacuation, according to the UK Maritime Trade Operations agency. Iran reported casualties aboard an Iranian commercial vessel struck off its coast.
The Houthi seizure of the island of Perim on Friday has further tightened their grip on the Bab al-Mandab strait, through which an estimated 4% to 5% of global supply flows. Oil prices had already surged 8% last week prior to the pipeline attack, exceeding $100 per barrel for the first time since July.